Asian Energy Transition Gaining Momentum
Ties to coal are loosening, but the industry needs to demonstrate increased ambition in its shift to renewables, an investor group says.
While Asia’s energy companies are responding positively to climate-related engagements from investors as they demonstrate progress on net zero, decommissioning their most polluting plants remains a steep challenge.
A new report from the Asia Investor Group on Climate Change (AIGCC) presents the outcomes of engagements between 20 member institutions – with a collective US$11 trillion in assets – and the region’s largest power providers. These include Japan’s J-POWER and Chubu Electric Power, Malaysia’s Tenaga, Hong Kong’s CLP, and Indonesia’s PLN.
The latest update to the AIGCC’s Asian Utilities Engagement Programme (AUEP) found that companies overall are increasingly disclosing more detailed short- to medium-term transition plans and setting more granular, asset-level 2030 decarbonisation targets.
For example, state-owned Tenaga has published a decarbonisation plan spanning its entire value chain, with a focus on decarbonising energy sources – in a bid to support Malaysia’s 70% renewable energy mix by 2050 commitment.
“To continue to drive energy transition in Asia, we believe there is room for engagement with wider stakeholders and to further strive for commitments that are aligned with the Paris Agreement,” Yi-Chen Chiang, Director of Sustainable Investment, Asia, at Manulife Investment Management, told ESG Investor.
Jane Ho, Head of Stewardship, APAC, at BNP Paribas Asset Management, said it was hard to draw general conclusions about the energy transition progress across Asia, due to varying energy mixes and structures.
“But I believe this programme has put this sector into focus for all stakeholders,” she said.
Positive progress
The AUEP group has identified demonstrable progress by Asian power utilities across climate-related themes.
Some firms – including Chubu and Tenaga – have begun linking company directors’ compensation to climate performance. In addition, all AUEP focus companies except China’s Huaneng this year published disclosures aligned with the Taskforce on Climate-related Financial Disclosures framework.
CLP recently published an updated energy transition plan which committed it to decarbonising at a much faster pace, and reducing its implied temperature rise from 1.81°C to 1.73°C. To achieve this, CLP will progressively phase out its coal-fired power generation assets – it plans to close its Yallourn power station in Australia by mid-2028 – and direct increased investment towards renewable energy.
Meanwhile, Indonesia-based PLN aims to increase its renewable capacity by 20.9 gigawatts (GW) by 2030 and has announced the cancellation of 13.3GW of planned coal-fired power plants.
“With the Just Energy Transition Partnership (JETP) for Indonesia having launched in 2022, PLN will be able to leverage the programme to build up their renewable portfolio,” said Manulife’s Chiang, also Chair of the AIGCC’s Energy Transition Working Group.
Less established technologies like carbon capture, utilisation and storage (CCUS), ammonia co-firing and hydrogen were all flagged in the J-POWER, Chubu, and Tenaga decarbonisation strategies. Investors need more clarity on the emissions reductions these technologies are expected to achieve, said Christina Ng, Managing Director of the Energy Shift Institute, an Asia-focused energy finance think tank.
“While Japanese utilities may have the capacity to explore these technologies, firms in emerging markets face different affordability challenges – both in terms of tech costs and the impact on electricity prices,” she noted.
The AUEP – which launched in 2021 – expanded to seven new investor members this year, including abrdn and Legal and General Investment Management.
Power utilities represent more than US$200 billion of overall market capitalisation on Asia’s stock markets.
Dirty habit
Although assessed companies have made transition progress, investors remain concerned about their ties to coal.
“The biggest challenge remains early coal phase out according to a 1.5°C timeline, with key barriers being the structure of existing power markets as well as long-term power purchase agreements,” said Ho. “All stakeholders need to stay open-minded and collaborate.”
The Asian utilities sector has a young asset age profile, compared with other regions, with some markets boasting coal plants that are less than 15 years old on average. The technical lifetime of a plant can reach 50 years. It also represents more than US$200 billion of market capitalisation in Asian stock markets, the report noted.
J-POWER has committed to shut down some of its low-efficiency coal-fired power plants early – including its 500MW Matsushima plant by the end of March 2025.
Ng from the Energy Shift Institute said this is a “step in the right direction” but isn’t enough in the broader context of energy transition.
“Low-efficiency plants are already some of the most polluting and least economical to operate, so their early closure is often more of a necessity than a bold move,” she said.
More ambitious action would include the phasing-out higher efficiency coal plants, investing heavily in renewable energy, and upgrading the grid to support these changes, Ng said.
“Utility companies should set shorter-term targets – whether for adding a specific amount of megawatts (MW) of renewable capacity by 2025 or retiring X MW of coal by 2026,” she added. “Without near-term goals, 2050 ambitions lack substance.”
Regarding coal phase-out, the AUEP position has evolved from wanting firms to commit to building no new or extra coal-fired power plants, on the one hand, to implementing the phase-out plan of existing coal-fired power plants within a specific timeframe.
“Utility companies have raised the issue that financing has been a major barrier,” the report said.
To support investee companies, AUEP investors have explored potential financing mechanisms for early coal phase-out in league with organisations including the Glasgow Financial Alliance for Net Zero (GFANZ), Gold Standard, and MSCI Sustainability Institute.
2025 and beyond
Over the next 12 months, AUEP investor members intend to continue pushing for more ambitious climate commitments from focus companies.
“The group will also focus on implementing company strategies to meet net zero goals, with short-, medium-, and long-term emissions reduction aligned with the Paris Agreement,” an AIGCC spokesperson told ESG Investor. “[In addition,] investors will focus on climate governance, transparency and disclosure, physical resilience, and public policy in engagements next year.”
The group will also call for clear government policies and corporate strategies to minimise reliance on so-called transition fuels like gas, as well as facilitate connections between investors, corporate executives and policymakers.
“To avoid climate damage, all companies and countries’ progress needs to accelerate,” said the spokesperson. “As companies implement their transition plans under existing policy frameworks, they also need to be articulating to policymakers what settings will help them decarbonise.”
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