"What ASEAN Can Learn from Europe's Energy Grid Challenges: A Cautionary Tale for the APG?"

The ASEAN Power Grid (APG) is one of the most ambitious regional energy projects in the world. By connecting the electricity networks of Southeast Asian nations, the APG aims to enhance energy security, accessibility, and affordability, while supporting the transition to cleaner energy sources. However, as ASEAN accelerates its integration efforts, Europe’s energy grid challenges serve as a powerful reminder of the potential pitfalls of regional interconnectivity.

Recent tensions between Sweden and Germany (https://energynews.pro/en/sweden-criticizes-germany-on-energy-policy-as-electricity-prices-rise/) over energy policies reveal how unilateral decisions in one country can create ripple effects across interconnected grids, leading to conflicts and inefficiencies. Could the ASEAN Power Grid face similar challenges? By examining Europe’s experiences, ASEAN can better prepare for the future and ensure the APG’s success.

The Current State of the ASEAN Power Grid

The APG has made significant progress in fostering regional cooperation and cross-border electricity trade. A key milestone is the Lao PDR-Thailand-Malaysia-Singapore Power Integration Project (LTMS-PIP), which allows the transfer of up to 100 MW of renewable hydropower from Laos to Singapore. This project demonstrates the feasibility of multilateral electricity trading in ASEAN but has also exposed significant challenges.

As of October 2024, delays in finalizing terms for the LTMS-PIP have raised questions about the project’s sustainability. Thailand’s hesitation to approve an extension underscores the difficulties of coordinating national policies in a regional framework. (Source: Reuters)

At the 42nd ASEAN Ministers on Energy Meeting (AMEM) in September 2024, ASEAN leaders reaffirmed their commitment to the APG. They called for an updated Memorandum of Understanding (MoU) to guide the APG’s next phase and emphasized the need for a framework for subsea cable projects to enhance connectivity between archipelagic nations. (Source: REGLOBAL)

Lessons from Europe’s Energy Grid

Europe’s integrated electricity grid, while highly advanced, has faced significant challenges that ASEAN should heed:

1. Policy Misalignment and Cross-Border Impacts

Germany’s decision to phase out nuclear power increased its reliance on fossil fuels and electricity imports. This policy drove up electricity prices in neighboring countries, such as Sweden, causing frustration and highlighting the lack of coordination in Europe’s energy policies. (Source: Energy News)

APG Implications: Divergent energy policies across ASEAN member states could have similar consequences. For instance, if a major APG participant prioritizes domestic energy needs or imposes export restrictions, it could destabilize regional electricity trade and undermine the grid’s benefits.

2. Ownership and Market Complexity

Europe’s grid infrastructure is managed by multiple independent entities, leading to conflicts over market access and pricing. Wealthier nations often dominate the market, creating resentment among smaller participants.

APG Implications: In ASEAN, where 80% of grid infrastructure is state-owned, national interests could overshadow regional goals. Monopoly pricing by state utilities may discourage smaller countries from participating in the APG, slowing its progress.

3. Renewable Energy and Grid Stability

Europe’s rapid adoption of renewables has introduced grid stability challenges, as intermittent supply disrupts energy flows across interconnected systems.

APG Implications: ASEAN’s growing reliance on renewables, particularly Vietnam’s rapid expansion of solar and wind energy, could pose similar risks. Without robust regional standards and advanced grid management technologies, the APG could face instability.

4. Governance Gaps

Despite having the European Commission as a central authority, Europe struggles to resolve disputes and enforce regional energy policies effectively.

APG Implications: ASEAN’s consensus-driven approach, without a centralized governing body, may lead to delays in decision-making and inconsistent implementation of regional agreements.

How ASEAN Can Avoid Europe’s Mistakes

1. Harmonize Policies

Challenge: Diverse energy policies across ASEAN countries can lead to regulatory mismatches, market inefficiencies, and imbalanced benefits. A lack of harmonization may discourage investment and complicate cross-border electricity trade.

Solution: Develop a binding regional framework that aligns national energy policies and provides consistency across member states. This framework should include:

• Carbon Pricing: Establish a standardized approach to carbon pricing that ensures fair competition and encourages investments in cleaner energy.
• Renewable Energy Targets: Set regional renewable energy goals to drive consistent efforts across countries while recognizing individual capacities and resource availability.
• Cross-Border Tariffs: Create a transparent tariff mechanism that supports equitable cost-sharing and incentivizes cross-border electricity trade.

2. Encourage Private Investment

Challenge: The APG’s reliance on state-owned enterprises (SOEs) for grid infrastructure and operation creates bottlenecks, limits innovation, and reduces efficiency. Heavy public sector control may also deter foreign direct investment.

Solution: Promote public-private partnerships (PPPs) to diversify ownership and improve infrastructure development. Private sector participation can introduce technical expertise, efficiency, and additional financing.

3. Enhance Grid Stability

Challenge: Increased reliance on renewable energy introduces intermittency and variability, which can destabilize the grid. Cross-border grids amplify these risks, as disruptions in one country can cascade across the network.

Solution: Invest in advanced technologies and grid management systems to improve stability and resilience. These include:

• Energy Storage: Deploy battery storage systems to manage fluctuations in renewable energy supply and ensure reliability.
• Smart Grids: Use digital technologies to monitor, predict, and optimize electricity flows in real-time.
• Interconnection Standards: Establish regional technical standards to improve grid synchronization and reduce vulnerability to disruptions.

4. Establish Adaptive and Collaborative Governance

Challenge: Europe's centralized governance, while structured, has not fully resolved disputes or ensured policy alignment across member states. The key problem lies in enforcing policies that accommodate national priorities without creating regional disadvantages.

Solution: Instead of a rigid centralized system, ASEAN should adopt adaptive and collaborative governance, which combines regional oversight with the flexibility to respect national sovereignty. This approach would focus on coordination and facilitation rather than imposing uniform policies across all member states.

Why Adaptive Governance?

Europe's struggles reveal that even centralized systems can fail to address:

1. National Sovereignty Conflicts: Countries prioritize their own policies, such as Germany’s nuclear phase-out, even when it negatively affects neighbors like Sweden.
2. Asymmetric Impacts: Wealthier nations often dominate decision-making, while smaller states bear the brunt of adverse outcomes.

Adaptive governance offers a middle ground, enabling ASEAN to:

• Coordinate regional goals while allowing nations to retain control over domestic energy policies.
• Avoid top-down mandates that may be resisted by member states.

Key Features of Adaptive Governance for ASEAN

1. Decentralized Implementation with Regional Oversight: ASEAN can set broad objectives for the APG (e.g., renewable energy integration, carbon pricing mechanisms) but allow countries to implement them in ways that align with their unique contexts.
2. Flexible Agreements: Establish agreements that are not "one-size-fits-all." For example:
3. Collaborative Conflict Resolution: Create a robust mediation mechanism to resolve disputes between countries over energy policies or trade terms, ensuring that no single nation disproportionately influences outcomes.
4. Incentivized Compliance: Provide financial or technical incentives to encourage adherence to regional agreements. For instance, countries contributing more to cross-border electricity trade could receive support for grid modernization.
5. Dynamic Policy Adjustment: Regularly review and adjust policies to reflect changes in technology, market conditions, and national priorities. This prevents outdated regulations from stalling progress.

How ASEAN Can Improve on Europe’s Model

While Europe’s centralized governance provides structure, its failure to enforce coordinated policies or resolve national conflicts effectively limits its success. ASEAN can:

• Avoid Over-Centralization: Focus on collaboration rather than control, allowing flexibility for national adaptation.
• Balance Regional and National Interests: Ensure that no country feels its sovereignty is being compromised or its needs overlooked.
• Encourage Regional Solidarity: Foster a culture of mutual benefit, where countries recognize that their success is tied to the region's overall progress.

A Layered Market Approach for ASEAN

Rather than creating a fully unified market from the outset, ASEAN could implement a layered and phased market structure that evolves over time. This approach acknowledges the region’s diversity while fostering integration at a manageable pace.

To address the complexities of integrating the ASEAN electricity market, a layered market design offers a practical and adaptable approach. This concept envisions a market structure divided into interconnected levels, each tailored to specific regional needs while maintaining flexibility. At the national level, individual countries retain control over their domestic electricity generation, distribution, and pricing. This autonomy allows each nation to address its unique energy challenges and priorities without external interference.

Building on this foundation, bilateral and multilateral trade layers expand upon successful initiatives like the Lao PDR-Thailand-Malaysia-Singapore Power Integration Project (LTMS-PIP). These layers foster a network of regional trading corridors, enabling countries to engage in electricity trade under tailored rules that reflect their mutual agreements. Finally, a regional exchange layer could provide a transparent platform for trading surplus electricity, allowing countries to buy and sell power based on standardized market mechanisms. This layered approach ensures gradual progress, avoiding the risks of overwhelming less-prepared nations or creating imbalances in the market.

In terms of pricing, a one-size-fits-all model is unlikely to succeed given the diversity of ASEAN’s economies and energy systems. Instead, customized pricing mechanisms should be implemented to reflect the actual costs of electricity generation, cross-border transmission, and regional development goals. For instance, wealthier nations like Singapore could pay a premium for renewable energy imports from countries like Laos. A portion of these proceeds could then be reinvested into the energy infrastructure of less-developed member states, ensuring equitable benefits across the region.

Policy coordination and flexibility are crucial to mitigating mismatches that could destabilize regional trade. ASEAN should develop a comprehensive regional energy policy framework that outlines guiding principles for harmonization while allowing member states the flexibility to adapt policies to their domestic contexts. Additionally, a mechanism for policy impact assessments can evaluate the regional effects of national decisions, such as renewable energy targets or carbon pricing. This ensures that unilateral actions do not inadvertently disrupt regional stability.

To address disparities in infrastructure development, ASEAN could establish a Regional Energy Investment Fund. This fund would finance essential upgrades in less-developed countries, enabling them to actively participate in regional electricity trade. It could also support the deployment of renewable energy technologies and energy storage solutions, reducing inequities and preventing wealthier nations from dominating market benefits.

Rather than adopting a centralized governance model, ASEAN can focus on decentralized but coordinated market governance. A Regional Market Coordination Committee (RMCC) under the ASEAN Centre for Energy (ACE) could oversee regional trade, mediate disputes, and promote fair market practices. This model avoids the rigidity of centralized control while preserving the autonomy of member states, addressing one of the primary criticisms of Europe’s energy integration model.

To build momentum and trust, ASEAN should prioritize bilateral and multilateral projects as stepping stones toward broader integration. Expanding projects like LTMS-PIP to include corridors such as Indonesia-Malaysia-Brunei or Vietnam-Cambodia-Thailand could serve as valuable test cases. These initiatives would allow member states to refine trading mechanisms and build confidence in the broader regional integration process.

Fostering regional solidarity is essential for long-term success. ASEAN must promote a shared understanding of the benefits of market integration by highlighting success stories where cross-border trade has reduced costs or improved reliability. Engaging key stakeholders—including governments, utilities, and private investors—in active discussions will align priorities and strengthen public and political support for integration. This collaborative approach ensures that all member states feel included and see tangible benefits, addressing concerns about unequal advantages.

Through this multi-faceted strategy, ASEAN can create an energy market that is both inclusive and resilient, avoiding the pitfalls faced by Europe while paving the way for a sustainable and prosperous energy future.

Layered Market Design

Divide the ASEAN electricity market into distinct but interconnected layers:

• National Layer: Each country retains primary control over its domestic electricity generation, distribution, and pricing.
• Bilateral/Multilateral Trade Layer: Expand current models like the Lao PDR-Thailand-Malaysia-Singapore Power Integration Project (LTMS-PIP) into a series of regional trading corridors, where countries agree on tailored trade rules.
• Regional Exchange Layer: Establish a regional electricity trading platform for surplus energy, where countries can buy or sell power based on transparent market mechanisms.

Governance with a Regional Mindset

ASEAN does not need to adopt Europe's centralized model wholesale because the region's political, economic, and social landscapes are fundamentally different. ASEAN countries vary significantly in terms of energy infrastructure, policy priorities, and levels of development, making a one-size-fits-all governance approach impractical. Instead, ASEAN should design a governance framework that is specifically tailored to these unique dynamics, enabling each member state to contribute to regional integration without compromising its sovereignty or domestic priorities.

A governance model emphasizing collaboration would encourage ASEAN member states to work together to address shared challenges, such as energy security and the integration of renewables. This approach fosters trust and partnership, which are essential for effective regional cooperation. Flexibility in governance would allow individual countries to implement policies at their own pace and according to their national capacities, while still adhering to broader regional goals. This adaptability ensures that less-developed member states can participate meaningfully without feeling overwhelmed or left behind.

Mutual respect is the cornerstone of any successful regional initiative, and in ASEAN's case, it means recognizing and valuing the diverse needs and contributions of all member states. Smaller or less-resourced countries must feel that their voices are heard and their interests are protected within the APG governance structure. Such respect will strengthen regional solidarity and encourage active participation from all members.

By learning from Europe’s shortcomings—ASEAN has an opportunity to design a governance system that avoids these pitfalls. An APG governance framework rooted in collaboration, flexibility, and mutual respect can ensure that integration efforts are inclusive and effective, addressing the needs of both advanced economies and developing nations within the region.

This tailored approach will not only foster successful energy integration but also strengthen ASEAN’s position as a model of regional cooperation. By prioritizing its diversity and leveraging the unique strengths of its members, ASEAN can achieve a secure, sustainable, and equitable energy future that benefits all.

Nuki Agya Utama, PhD

Director Energy Policy | Head of Asia Zero Emission Centre

ERIA: Economic Research Institute for ASEAN and East Asia

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