Policy Brief - Towards a Green and Inclusive Power Sector in the Greater Mekong Subregion by WWF-Myanmar

POLICY BRIEF

TOWARDS A GREEN AND INCLUSIVE POWER SECTOR IN THE GREATER MEKONG SUBREGION February 2024

1. Introduction Energy demand in the GMS 1,645 THw

Although hydropower is a renewable energy source, the dams can impact nature and people negatively. Current plans to expand hydropower in the GMS threaten the Mekong River—the world’s most productive freshwater ﬁshery—and its delta, both of which are vital for food security in the GMS. The Thanlwin and Ayeyarwady Rivers in Myanmar are also at risk from planned hydropower expansion. Millions of people depend on these river systems for their livelihoods.

486 THw

2021

Driven by fast-growing economies, energy demand in the Greater Mekong Subregion (GMS) is expected to rise more than threefold over less than thirty years—from 486 TWh in 2021 to 1,645 TWh by 2050. The way in which the energy sector develops in the GMS will signiﬁcantly affect energy security and sectoral decarbonization, and determine its impact on nature and people. While many regions are taking advantage of the decreasing costs of variable renewable energy sources, particularly solar and wind power, countries in the GMS continue to rely on conventional sources of electricity such as hydropower and fossil fuel power plants.

2050

Results from the study Towards a Green and Inclusive Power Sector in the Greater Mekong Subregion, funded by the United States Agency for International Development (USAID) and conducted by WWF, show that promoting a smartly-designed regional power grid and increasing cross-border power trade in the GMS will support a transition to 100 percent renewable energy without sacriﬁcing energy services, nature, people, or rivers.

What happens when there is a regional grid?

Regional grid interconnection means establishing interconnected power transmission networks that link neighboring regions or countries. This collaborative approach to electricity distribution offers numerous beneﬁts:

Clean energy boost: A regional grid unlocks renewable energy potential, reducing emissions and combating climate change.

Economic catalyst: Cross-border energy trade fuels growth, attracting investments and creating jobs.

Diplomatic ties: Grid cooperation strengthens regional bonds and fosters trust.

Eco-friendly: Reduced use of fossil fuels means cleaner air and thriving ecosystems.

Energy security: Stable, diverse sources of energy ensure a reliable power supply for all.

2. The Scenarios

To model the impacts of regional grid interconnections in the GMS, four scenarios are designed to reﬂect a range of development trajectories as described below.

Baseline scenario (BASE) reﬂects the current power development planning outlooks for each GMS country, considering both existing and planned grid Baseline scenario (BASE) reﬂects the current power development planning outlooks for each GMS country, considering both existing and planned grid interconnections, and follows the trajectory to 2050.

Grid Interconnection Expansion scenario (IEXP) considers advanced development of new cross-border transfer expansions between GMS countries on a least-cost basis while maintaining the same baseline levels of renewable energy deployment.

Renewable Energy scenario (RE) implements a 100 percent renewable energy target, but maintains the baseline constraint for no new development of cross-border interconnection expansions.

Renewable Energy with Grid Interconnection Expansion scenario (REIEXP) combines both advanced development of cross-border interconnection expansions and advanced deployment of renewable energy generators. This scenario provides an understanding of the impacts of supporting regional grid interconnections in the GMS against the backdrop of a targeted 100 percent renewable energy by 2050.

Rivers, electricity, and the environment The Mekong, the Thanlwin (Salween), and the Ayeyarwady (Irrawaddy) Rivers are the lifeline of Southeast Asia, supporting the largest wild freshwater fishery in the world and the highly productive agriculture in their deltas. Their critical resources sustain millions of livelihoods and contribute significantly to regional economies. The rivers' biodiversity, including hundreds of fish species, plays a crucial role in food production and diversity. However, the construction of dams in the region poses a threat to their flow, sediment transport, and ecosystem health. Dams trap large amounts of sediments and act as barriers to fish movement, causing major losses to biodiversity and fish harvests. These dams, driven by hydropower expansion, raise concerns about the future of the rivers' diversity and productivity. Construction of dams can also spark conflicts related to environmental impacts such as habitat disruption and displacement, social concerns over resettlement, disputes about water allocation among various users and downstream impacts on ecosystems and communities, and disagreements between countries sharing the rivers. Cultural heritage preservation, economic benefit distribution, climate change uncertainties, and regulatory challenges also contribute to these tensions. Preserving these rivers and their ecosystems requires careful management and conservation efforts to ensure the sustainable use of these invaluable resources.

The study used the World Bank’s Electricity Planning Model (EPM), a long-term, multiyear, multizone capacity expansion model with economic dispatch.1 The tool does not consider externalities such as social, environmental, and climate costs. In the RE and REIEXP scenarios, a scaling energy efﬁciency target is applied over 2021-2050 to reach a 30 percent reduction in energy demand by 2050. To minimize the conﬂicts related to the hydropower development, it is limited to 30% of the current plans in the modelling of the scenarios.

1. World Bank. 2021. The Value of Trade and Regional Investments in The Pan-Arab Electricity Market: Integrating Power Systems and Building Economies. World Bank, Washington, DC. © World Bank. https://openknowledge.worldbank.org/handle/10986/36614 License: CC BY 3.0 IGO

3. Key Findings and Analysis Modeling scenarios yielded the following key ﬁndings for the 2021-2050 period:

49%

In the BASE scenario, thermal generators continued to dominate the energy mix. Renewables, mainly hydropower were limited to a 49 percent share of the mix by 2050. No beneﬁt is seen from cross-border interconnections because none were permitted to develop aside from those already existing or committed.

The IEXP scenario allowed for the development of up to 37 GW of cross-border transfer capacity and resulted in a 37 GW increase in deployment of renewable energy and battery storage by 2050, while displacing 20 GW of thermal combined cycle gas turbine (CCGT) capacity. Annual system emissions were lowered by 16.2 MT.

4. 100%

100%

In the RE scenario, upfront investments needed for solar photovoltaic and wind installations and for battery storage increased overall system investments by $212 billion; however, annual system costs decreased by $16.1 billion from the BASE scenario due to reduced fuel costs and energy efﬁciency.

$6.9B

By optimizing the use of system resources, the REIEXP scenario fully achieves the 100 percent target of renewable energy with less generation required and lower rates of curtailment, yielding a substantial $6.9 billion reduction in annual power system costs by 2050. These savings are attributed to the deployment of an additional 58 GW of new cross-border transfer capacity, which results in 356 TWh of regional energy trade by 2050, mainly from variable renewable energy sources that can be optimally harnessed with the construction of a new dedicated grid infrastructure. This in turn reduces the share of hydropower generation.

Electricity market GMS countries are striving to increase cross-border electricity trade and integrate renewable energy sources to meet energy and climate targets. Challenges include defining responsibilities, sharing benefit, and developing infrastructure. Lao PDR, positioning itself as the battery of Asia, may benefit from trading solar and wind energy to countries in the ASEAN, as well as leveraging its existing hydropower during the transition. Unlike the European Union, the GMS lacks a common constitution, complicating the process of harmonizing rules for energy trade and implementing the draft regional grid code. Development partners, including the ADB, stress the need to enhance energy security, optimize resource use, improve energy access, promote renewables, and engage the private sector for sustainable energy development.

Regional Grid Interconnection Expansion can make best use of the non-hydro RE sources in the GMS and provide low cost, low carbon, low conﬂict electricity compared to current plans. Figure 1 describes the energy generation by scenario across 10-year snapshots (2021, 2030, 2040, and 2050). The regional trade in VREs will reduce the share of fossil fuel to zero in 2050 and hydropower, from 258 GWh in BASE to 182 GWh in REIEXP. Figure 22: Energy generation by scenario in the GMS (2021, 2030, 2040, 2050)

Figure 1: Energy generation by scenario in the GMS (2021, 2030, 2040, 2050)

167

SCEN1

BASE

IEXP

2021

REIEXP

BASE

IEXP

2030

REIEXP

BASE

2040

IEXP

143

REIEXP

2050

Figure 2 charts the total volume of annual cross-border power traded in the GMS by scenario. The REIEXP scenario achieves the greatest total volume of cross-border energy traded, reaching up to 356 TWh by 2050. Figure 2: Total volume of annual cross-border power traded in the GMS by scenario

13 7

SCEN1 2021

BASE

IEXP

RE 2030

REIEXP

BASE

IEXP

RE 2040

REIEXP

BASE

IEXP

RE 2050

REIEXP

Figure 3 charts annual system costs of generation by scenario across 10-year snapshots (2021, 2030, 2040, and 2050). By 2050, the REIEXP scenario reduces annual power system costs by $6.9 billion, relative to the RE scenario. The investment costs for new cross-border transmission transfer capacity (+$0.52 billion) are offset by reductions in annualized CAPEX (-$4 billion), ﬁxed and variable operations and maintenance (-$1.52 billion), fuel costs (-$0.17 billion), and the cost of variable renewable energy curtailment (-$1.45 billion). Figure 3: Annual generation costs by scenario in the GMS2 (2021, 2030, 2040, 2050)

4.1 2.5 2.7 2.3

SCEN1

BASE

IEXP

REIEXP

BASE

IEXP

2030

RE 2040

REIEXP

BASE

IEXP

REIEXP

2050

Modeling for the REIXP scenario showed that expanding cross-border interconnector transfer capacity, against the backdrop of a 100 percent renewable energy target in the GMS electricity mix, yielded signiﬁcant savings in annual power system costs and investment requirements. This was achieved by optimizing assets such as existing hydropower, developing properly sited pumped storage hydro, exploiting the potential of variable renewable energy resources, and establishing substantial volumes of regional energy trading by 2050. 2. VRE(Variable Renewable Energy), VOM(Variable Operation and Maintenance Cost), FOM (Fixed Operation and Maintenance Cost), CAPEX (Capital expenditures)

4. Policy Recommendations Transitioning to a low-cost, low-carbon, low-conﬂict, 100 percent renewable power system in the GMS, as outlined in the REIEXP scenario, requires harmonization of regional and national power sector policies, structures, technical standards, commercial arrangements, and planning. The following are recommendations that support the development of the electricity market while expanding regional grid interconnections and deploying non-hydro renewable energy, thus moving the subregion with the greatest efﬁciency and least cost towards a 100 percent share of renewable energy in the generation mix with less dependence on hydro power and more on VRE.

4.1

Develop a complementary regional day-ahead power market by building on existing connections through a stepwise approach The Regional Power Trade Coordinating Committee (RPTCC) was established in 2002 and played a critical role in leading the development of a regional transmission masterplan and in facilitating annual discussions among policymakers. In 2022, the RPTCC transitioned to the GMS Energy Transition Task Force (ETTF) to reflect a shift in approach that recognizes the benefits of cross-border power trade and renewable energy, and prioritizes a just and equitable energy transition. Because of the rapid growth of renewable energy sources and their inherent volatility and variability, a short-term, flexible regional market platform presents significant benefits for the GMS regional power market. To date, benefits are limited to bilateral exchanges through cross-border power procurement agreements (PPAs). Recent PPAs give renewable energy options a greater role in the supply mix and support cross-border infrastructure development in the region. However, a day-ahead market is crucial to optimize power purchases for short-term needs, enabling power utilities to complement their long-term bilateral agreements with more adaptable transactions. Successful international markets adopted a stepwise approach, beginning with a small group of countries such as the LTMS (Lao PDR, Thai, Malaysia and Singapore) and gradually including additional nations over time. This incremental process enables stakeholders to learn and adapt as the market evolves, fostering a collective understanding and adjustment to market dynamics. Under a similar approach, a regional power market in the GMS would extend national markets rather than replace them., allowing regional trade benefits to be balanced with national security. Each country would maintain authority over its power system, targets, and market participants but also benefit from an efficient regional power trade. In cooperation with civil society stakeholders, power utilities, international finance institutions and regional organizations, national governments can promote and implement a stepwise approach, starting from existing connections, to achieve a low-cost, low-carbon, and low-conflict power sector. Policy recommendation: SDevelop a complementary regional day-ahead power market by building on existing connections, such as the LTMS, then incrementally expanding to new countries and connections.

$2,229m

$3,276m

2,229 million USD saving per year in EXP in 2050

4.2

3,276 million USD/year in REIEXP in 2050

Ratify and enhance the GMS grid code The RPTCC published a draft regional grid code in 2018, with documents in process for formal approval. The draft GMS grid code closely followed the approach taken by the European Network of Transmission System Operators (ENTSO), as it provided a model of how a range of power systems with various sizes and characteristics can beneﬁt from integration under a common regional grid code.3 While each GMS country continues to independently develop its national grid code, some consideration must be made to ensure compatibility with an overarching GMS regional grid code. Policy recommendation: Prioritize the ratiﬁcation of the GMS regional grid code within the legally binding regulatory framework of respective national grid codes for each GMS member-state.

4.3

Standardize commercial arrangements for cross-border power trade in the GMS The RPTCC created a roadmap that requires standardized commercial arrangements for cross-border and multilateral trade, and, with the support from the Asian Development Bank, identiﬁed four priorities: (1) open-access arrangements; (2) a wheeling charge methodology; (3) short-term bilateral trading measures; and (4) a balancing mechanism.4 Policy recommendation: Encourage the development of a set of standardized commercial arrangements through the GMS ETTF to support multilateral trade through third-party wheeling, open access arrangements, short-term bilateral trading measures, and a balancing mechanism.

Energy efficiency: A cornerstone for affordable,100% renewable energy Energy efficiency is the linchpin in achieving a cost-effective transition to a 100 percent renewable energy electricity market. By systematically reducing energy waste in generation, transmission, and consumption, it not only diminishes the overall cost of renewable energy but also enhance its viability. Efficient energy management fosters grid performance, reducing infrastructure expenses and enabling seamless integration of renewables. At the consumer level, energy-efficient practices lead to lower electricity bills, making clean energy more economically appealing. For industries, efficiency translates into cost savings and a competitive edge. Supportive policies and incentives from governments further bolster energy efficiency, driving affordability in the renewable energy landscape. In sum, energy efficiency is the cornerstone for realizing an affordable and sustainable 100% renewable energy future, simultaneously benefitting the environment and the economy.

3. ADB 2022, ‘Proposed Programmatic Approach and Policy-Based Loans for Subprogram 1, Technical Assistance Grant, and Administration of Loans Grant, and Technical Assistance Grant Kingdom of Cambodia: Energy Transition Sector Development Program’. 4. ADB/GMS 2020, Harmonizing Power Systems in the Greater Mekong Subregion

4.4

Support planning for regional transmission development in the GMS Regional transmission planning efforts have demonstrated the importance of the planning led by the RPTCC—now ETTF—and representative member countries, as well as the importance of region-wide studies that are complemented by conceptual roadmaps and grid synchronization strategies. Policy recommendation: Support the ETTF in leading the next ofﬁcial GMS update of the regional transmission masterplan, which considers a grid synchronization strategy and a conceptual roadmap for market and network integration.

4.5

Prioritize low-cost, low-carbon, and low-conflict energy in the GMS The GMS 2030 energy strategy highlights regional support for developing low-cost, low-carbon, and low-conflict energy. The modeling component of this study demonstrated pathways to achieving 100 percent renewable energy in the region that is reflective of these three key principles. The following policy measures would support these principles: Policy recommendation: Establish a GMS-wide framework for designing and implementing renewable energy auctions to support low-cost development of renewable energy in the GMS.

Policy recommendation: Set GMS-wide targets for energy efﬁciency to support the low-cost development of a 100 percent renewable energy electricity market.

Policy recommendation: As part of the ETTF platform, encourage all GMS nations to commit to cease building hydropower dams on the mainstem of the Mekong River as well as committing to refrain from developing high-impact hydropower resources on ecologically-sensitive rivers such as the Thanlwin and Ayeyarwady Rivers.

4.6

Change the role of hydropower in the GMS Hydropower has long been central to the region’s power supply as the lowest-cost way to expand capacity and achieve energy security. Although this study discourages developing new hydropower plants, changing the role of existing plants and developing properly sited pumped storage hydropower plants supports the region in moving toward a targeted 100 percent share of renewable energy. Policy recommendation: Explore changing the role of existing hydropower to allow for greater ﬂexibility in the integration of a higher share of variable renewable energy in the GMS. This can be done through modeling and planning exercises.

Policy recommendation: Carry out an analysis of pumped storage hydropower resources that prioritizes high-potential sites with the least environmental and social impacts.

4.7

Support policy levers in the GMS Policy levers are tools that governments can use to direct, manage, and shape changes in public services. Renewable energy targets, roadmaps, and renewable energy zoning for commercial developments are effective tools to increase the use and availability of renewable energy resources. Policy recommendation: Support the development of a renewable energy targets (RETs) for the GMS that consists of a non-hydro, variable renewable energy-speciﬁc target share of the regional electricity generation mix, coupled with a GMS renewable energy roadmap.

Policy recommendation: Develop a series of renewable energy zones (REZ) for the GMS to co-optimize the development of regional transmission infrastructure to support greater power trade of variable renewables in the region.

Powering the future: Innovations in energy In the dynamic landscape of energy generation and storage, three ground breaking technologies are revolutionizing the way we harness power. 1. Pumped storage hydro: The energy reservoir Harnessing gravity: Pumped storage hydro stores energy by pumping water uphill when power is abundant and cheap, then releasing it down penstocks to generate electricity when demand peaks. Efficiency pioneer: With rapid response times and high efficiency, pumped storage hydro acts as a grid stabilizer, ensuring reliable electricity delivery. 2. Floating solar: The sun on water Double power play: Floating solar panels not only generate electricity but also reduce water evaporation in reservoirs, making it an eco-friendly choice. Cooling effect: The water beneath cools the panels, enhancing their efficiency and prolonging their lifespan. 3. Battery energy storage systems (BESS): Energy on demand Grid backup: A BESS stores excess electricity for later use, providing grid stability and supporting renewable energy integration. Flexibility: BESS can respond rapidly to fluctuations in demand, ensuring a smooth and uninterrupted power supply.

The way forward: the ASEAN Power Grid

Myanmar Laos

Thailand

Cambodia

Viet Nam The Philippines

Malaysia

Brunei

Singapore Indonesia

The ASEAN power grid (APG) is an initiative that aims to connect the electricity grids of ASEAN member states. Its goals include reinforcing energy security through grid interconnection, fostering economic growth by efficient resource sharing, promoting renewable energy integration, ensuring grid reliability, enabling cross-border energy trade, and optimizing resource use. The APG embodies the ASEAN member states' shared commitment to navigate toward a resilient, prosperous, and environmentally responsible energy future that transcends national boundaries and fosters regional prosperity and sustainability The GMS power grid except the linkage with the PRC, is a subset of the APG. It represents a regional initiative within the ASEAN framework, with a specific focus on the countries in the GMS. Both initiatives aim to enhance regional energy security, promote economic development, and increase access to clean and reliable energy sources. The GMS power grid contributes to the broader goals of the APG by facilitating energy trade and connectivity among GMS countries, which are also ASEAN member states. Both initiatives benefit from cross-border electricity transmission infrastructure, regulatory harmonization, and collaboration among member countries, showcasing the interconnected nature of regional energy cooperation in Southeast Asia.