Powering Growth: Energizing the Economy

Thank you, Nicholas. Good afternoon, everybody. Southeast Asia's next growth cycle will depend on access to secure affordable and reliable energy with regional electricity demand projected to grow around 5.4 percent annually between 2026 and 2030 driven by industrial expansion and data center demand. ASEAN's industrial and digital ambitions rely on power not being a binding constraint. The challenge is to add supply quickly while keeping it affordable in line with decarbonization targets and resilient as well to global energy shocks. So in this session we're going to tackle where investment will come from and what must change to build the energy systems required to sustain the region's long-term growth. Guillaume Pang and Kim, thank you so much for joining me today. Kim, I'd like to start with you. The Hormuz crisis has exposed this region to fresh energy security concerns. What do you see happening in response and what still needs to happen? So I think the Hormuz crisis has really laid bare how volatile commodity prices can be and how vulnerable this is. In this region, there are two sources of energy, the LNG prices are still double of where it used to be before the Middle East issue and oil prices are close to double as well. Most of the countries in this region rely on energy imports for its energy consumption. And the impact of the higher oil prices and higher energy prices on our economies is not small. So I think, if any, what has brought up the priority list is energy security plus energy resilience. And by energy resilience, that means how can the regional economies How can we partner, connect, collaborate through interconnected energy systems such as the ASEAN power grid or some of the bilateral energy projects that we have seen like Monsoon, which is an example of a bilateral deal between Laos and Vietnam? How can we leverage more of these templates and examples to create... Yeah. Better energy security for the region and most of all, optionality through energy resilience by having interconnected grids. Because when you have an interconnector, you have options to purchase and to sell your energy when the time comes. So to answer your question, Lee, I think it's more building the trust and the partnership and taking comfort in strength through regional partnerships and regional blocks. Talking further about that resilience, Guillaume, you've talked to Fortune a few weeks ago about the need for energy abundance. The Philippines has been hit particularly hard this year by the energy crisis. How is Prime Infra approaching the energy trilemma and this need to keep power secure, stable and affordable while working towards Thank you, Lee. So I don't have the benefit of my colleagues here who are very brand-name companies. the country's decarbonization targets? So Prime Infra is a developer, investor, and operator of large infrastructure in the Philippines and in Latin America. So to answer your question, Lee, I think we need to frame the problem, and touching a little bit on the previous comment, we need to frame the problem in its entirety. We're trying to urbanize, electrify, decarbonize. So, how do we approach this? I think there are a couple of key issues that we see in the Philippines and are also common to a number of our peers in the region. I would say the very first thing we need to do is certainly strengthen the grid. I think whether it is a regional grid or otherwise, we have fairly poor grids. Certainly not grids that are capable of receiving an abundance of variable energy. Step number one, it takes time to do so, and part of doing so means, for example, building long-term storage like we are. We're building 2,000 megawatts of pump hydro right now that will help stabilize the grid in the Philippines. I would say the second thing that is often probably passed over too quickly is to maximize the existing infrastructure we have. I find that we have in a number of countries in the region, for example, LNG import facilities that are only utilized 30%, 40%. The way to maximize output and reducing the average cost per unit is actually to make sure that these facilities are fully utilized. I will say whatever infrastructure is in place, by default, we should utilize the facilities as much as possible. And third, I will say ensuring that we focus on exploiting as much as possible indigenous resources, and that is not only renewable energy, whether wind or solar, but I will I will say, in this region, if we want to achieve our... Energy security and resilience objectives, we should accelerate upstream production of gas, oil, coal to support energy abundance. And we will eventually get to a point where some of those will probably not be as critical as others, but very important we do so. We produce a lot of upstream gas in the Philippines and just finished three wells recently that are in production. Two of the three are in production already. And it's a big part of generating an important sense of energy security and protecting the core of our energy matrix, for example, in the Philippines. Tang, a core driver of increased energy demand, of course, is the AI build-out and data centres. Schneider Electric, you have a foot in both camps, in the energy management side and data centres as well. First off, where are you seeing growth in demand for data centre construction in the region? And secondly, with data centres arriving faster than some grids can be expanded, what should governments require of new facilities in relation to cooling technology, energy efficiencies? Clean Power Procurement and so on. Yeah, so definitely data center becomes a very important about the energy demand. But never forget about actually for Southeast Asian countries, there's for many years of the urbanization and also industry manufacturing reshoring happening in these regions. If we talk about data center for the energy demand side, So up 2030, I think, in the world, we totally... around the 200 teg of watts of the energy demand which is still if we don't overestimate about the percentage of the total energy consumption is about 3 to 5% of energy demand side. Nevertheless, you are right that for many of the regions in this, many of the countries in the region that we see a lot of the Newly built data centers concentrate some places which cause a big challenge about the utility grid and also with, you know, even with the water. So, which, of course, need a lot of energy power to be built, you know, to help, like, the concept of the... Bring your own energy, yeah, like a gen site, like also, you know, from grid and also with the gas turbine, with the ESS. So this combining of this technology, of course, we need also government. Strong endorsement from a regulator point of view that how to make the compatible from the utility grid and also with other energy supplies resources to be combined to help the demand of the data centers. Because many of the data centers used to be like 20 or less than 100 megawatts, and now it becomes a few hundred megawatts or even to be... A few gigawatts in data centers to be planted in many of the places. Of course, Vietnam is still in the next stage, you know, to build more data centers. I'm talking about since many years from Singapore to Johor, to Batam of Indonesia, and then to Thailand, to Johor of Indonesia. Now many of the data centers have to move far from the community. to the energy part because there could be the protest in many, many countries about the electricity taken from the community and also water usage and also even the noise coming from the genset, for example. So this all brings a lot of challenges for government. How to make the grid, how to make the energy part in order to really get this usage of the data center? Yeah. Yeah. Kim, I want to ask you a little bit about the potential investment gap. There seems to be substantial global capital seeking infrastructure exposure, yet Southeast Asia still faces a large energy investment gap. Is the central problem a shortage of capital or is it a shortage of bankable projects with predictable returns? So, clearly, capital is not lacking. What's lacking really is the confidence, right? That's bankable projects, as you alluded to, because the commercial investing community still expects a certain minimum return or risk-reward equation for emerging markets. The perceived risk in emerging markets is still too high, so that's one sort of constraint. The other is when you look at the projects that are being presented. So, the Renewable Energy Association has an energy accelerator program which looks at early-stage projects. More than half of those got rejected because they're simply not ready. They're not well-prepared. A few years ago, Lashin Menan looked at the study as well. Just in Asia, 45% to 65% of projects still require some sort of MDB or government subsidy for it to get to commercial stage. These are all things that are slowing down the projects that are needed to close the infrastructure gaps. So I guess your next question is, what can we do about this, and how can we accelerate the infrastructure investment in this region? I think it's several things. It starts with planning projects based on the host government's Long-term strategic plans. If it fits within the plan, there's a high chance it will get approved. If it's presented in a bankable way. So looking at how does this fit with the country's energy transition or NDCs. The second is to look at how is the project presented. Does it have a credible off-taker who can pay? It's due when the obligations come due so that the lenders will be confident they get repaid. The equity investors will be confident they can get the returns they're projecting to get. Is the market analysis robust, meaning is there a market for whatever this project is targeting to solve? I think if these projects are well prepared, that's what I mean by well prepared, there's a higher chance the financing will flow. How can we get these projects prepared and how can we line up all of these financing packages and solutions I think is quite simple. I think about it as the three Ps. The first one is prepare the project. The second one is look for your partners. And the partners will include the government, obviously, making sure that the policy frameworks are in place to support that project. Look for the MDBs to help you with the project preparation. The MDBs can bring in patient capital to stretch out the tenors and provide more confidence. And the MDBs can catalyze blended financing. which is concessional capital that can be matched with the commercial tranche in order to bring pricing down to adjust that risk-reward. And finally, the third P, which is to package it, because investors look for scale. They're not coming to a country to do a one-off, so look for investment themes that investors can invest. So that's renewable energy, it's EVs, batteries, and so on, as opposed to one-offs. Guillaume, the private sector plays a big role in developing energy infrastructure in the Philippines. What could stronger private-public partnerships look like across ASEAN, where private capital can meet with multilateral development banks, for example? How could a better partnership in relationships like that work to build the energy that the region needs? Sure. So first and foremost, I agree. There's certainly no shortage of capital. Okay, so, um... But I do think we sometimes tend to... Over-simplify the complexities that a project involves. And I've noticed a trend in the past 10, 15 years, 20 years, and largely driven by the renewable boom. Thank The issue with the renewable projects is that the barriers to entry are very small And so you had an abundance of developers that came into this sector and tried to play essentially a carry trade or simply a spread between a fairly low return and very low cost of debt. And now suddenly debt goes up and returns are still low, you. and that spread doesn't warrant the risk, right? Or a few risks came to surface and essentially wipes out the profit, and thus these projects become non-financeable. That said, I do think there's numerous projects taking place in the region, and often if you look at the successful ones, and we are a developer, that's what we do, is When the risk is managed by the most appropriate party to manage that risk. The idea to de-risk a project is wrong to start with. It's not about de-risking it. It's about ensuring that the risks are understood and managed by the best party to manage those risks. So government has a key role to play. I will say one of the key elements of success of projects is when these projects are looked at as a system. And when a project is looked at as a system and how it fits within that system, executing it becomes a lot easier and the government becomes a really willing party and supportive party. And I will say the second is make sure that developers understand the risk and price, the risks accordingly, and are capable of executing. If those ingredients are in place, typically we have successful projects. Hang, there is a paradox at play here, right? Because AI needs energy, which is what we've been talking about, but energy needs AI to unlock new efficiencies. And as an energy technology company with significant business in data centers, Schneider sits right between the two. So how much can AI-powered efficiency gain from automation and digital energy management offset the need for more power generation? Just how much are we going to be able to get from efficiency? So if you talk about energy efficiency, actually we have two factors on both sides of the equation. So we just mentioned about energy supply side, there are a lot of renewable energy to be developed, you know, to offset about carbon emissions. Actually on another side, on energy demand side, there are a lot of things to do for off-site about the energy demand, you know, From all the industrialization, urbanization, or AI driven energy consumptions. So AI become more and more helpful to really identify where to save the energy by using more connectivity, by more data generated, by more systems for this AI utilization. So through all those simulations, through all those, you know, from the creation of the energy supply and demand side, the technology for energy efficiency becomes energy productivity. So it becomes how to really use the technologies for all different industries, segments, including buildings, including industries, infrastructures, how we can really utilize the AI technologies to really get some more savings. So, for example, as some of our factories in the world, when we increase 30% of the production quantities, Actually, by using a lot of technologies from the energy demand side, we can even save between 20 or 30% of the energy. Of course, this is more on the discrete manufacturing. When we talk about heavy industries, when we talk about process industries, we cannot expect the same level of the energy efficiency. But as a high-intensity industry segment, even to save... One point 1% or 2% of the energy, it means a big money, a lot of savings. So we should also drive a lot of energy efficiency by using the digital systems, by using AI to make the energy efficiency. 1% to 2% would take a lot of investment to make it happen, but also when we're looking at huge grids, there's also a lot of savings there and a lot of power as well. So, Guillaume and Kim, my question to both of you is, Is this an area that private and public capital is increasingly interested in, is using AI for efficiencies and looking at that side of the coin as well as the need for increased generation, Kim? Yes, absolutely. I think AI has huge potential, both on energy efficiency as well as industrial efficiency. And the contributions to the economy afterwards can be significant. So there's a huge amount of interest in scaling up AI. Right. And And from us on the AIB side, I think we're very interested. . . . . Digital infrastructure is a big part of our strategy . and we'll be looking to support. What about the markets that you look at? From my perspective, I think energy efficiency is an everyday battle. In this day and age, we cannot afford not to be energy efficient. Is it the solution? No. We're growing at 5 plus percent. It's just a small part of what we need to achieve. We do need to add capacity. That's just inevitable. I actually want to come back to you. Europe is increasingly tying its data center power supply to nuclear energy to meet the soaring demand while trying to cut carbon emissions. Could nuclear and small modular reactors, or SMRs, play a heightened role in Southeast Asia as more SMRs come online? Very interesting question. So certainly the answer, from my perspective, is yes, at the right time. I think today we do need to recognize that in the region, our last line of defense is gas-fired power. When all... When we have an El Nino cycle and our dams and impounding hydros are empty, what we have left to react is gas, so that's just a reality. Where we will be in 10, 15 years with nuclear, it's a very interesting question. Certainly nuclear is the long-term solution, maybe even the medium-term solution. As we were discussing earlier, one of the real challenges of nuclear, that is often I'm Not spelled out as well as it should, is not building the plant. starting There is tremendous history and capacity around the world in building nuclear power plants. Many, many countries have nuclear power plants. Thank you very much. What is very difficult is to build the ecosystem around to a nuclear power plant to maintain it. speak To operate it, to deal with safety standards, and so on and so forth. It demands a tremendous amount of high-skilled technicians and workers. now. And that ecosystem is not something that comes overnight. It demands regulatory frameworks, demands trainings, and often decades of development. So, will we be ready in the region? Yes. Are we supporting it? Absolutely. Is it a long-term solution? Absolutely. We're running short on time, but I want to ask kind of the big question, the elephant in the room, as it were, whether it is through energy gains or renewables, excuse me, efficiency gains or renewables. And Pang, I'll come to you first. Can this region, can Southeast Asia add the manufacturing and digital capacity it needs while honoring decarbonization targets? Can the region keep 1.5 alive while powering growth? Definitely, we don't need to sacrifice our sustainability targets by all the Southeast Asian countries, by all the companies with the sustainability targets about this energy consumption demand coming from industrialization or AI. The reason that you know many new technologies still help you know to save the energy efficiency, to enhance the energy productivities, that you still reach the sustainability target. So when we mention about all the you know renewable energy to be used, when we talk about direct power procurement agreement, that there's a lot of ways to help the companies to reach this This is a sustainability target. Meanwhile, let's still back to this. Energy productivity is a topic that, so with digital team. With also about all the software and the data, AI technologies, we have large possibilities to drive the energy productivities and energy efficiency still with sustainability target to be achievable. So as of the enterprise and the country level that, of course, this is a long journey to go next decade, But we need to also secure the climate change. You know, for save the planet, to save our community, really to get this, you know, balance between the economic growth and also our sustainability target. Kim, Pang is an optimist. Where do you stand? I'm an optimist as well. I think when you look at what this region has going for it, It's been the fastest growing region in the last two decades, projected to continue on that trajectory, has a very young population that is very tech-savvy, is well-located, has good manufacturing bases, and will need to transition because climate change and the effect of climate change is felt quite severely, especially in this country and the rest of the world. The capital is there, as we all agree, so what needs to happen is clearly all the partners moving together as a system to make sure that things are planned properly. Most of the countries in this region have very clear transition plans. So I think the roadmap is also there. We just need the private sector and the other partners to come in to prepare the projects and really tee it up for execution. GM, we have two optimists on the panel. Can we count you among them? No, I think I'm a bit of a pessimist from that perspective, just to, I guess, throw a different opinion. Thank you very much for your time and your opinion. I don't think it's unfeasible. I do think it's feasible. Amen. But I think it will require a sacrificing cost to achieve the objective. So I think one goes hand in hand. And that would be a very difficult decision for a lot of the governments in our region to decide if we drive costs up and decarbonize or maybe not so and rethink some of these targets. I sure hope that I'm wrong because the world is in the best interest of the region and the planet. But there, that's where I sit on that particular point. We all hope you're wrong, but we also all appreciate your candor and the candor and insights that all three of you have shared with us today. Thank you so much. Ladies and gentlemen, please join me in thanking our panelists.