Asia Pacific’s energy transition: How fast—and how far—can it go?

The energy sector is a major driver of global warming, contributing three-quarters of total greenhouse gas (GHG) emissions globally.¹ As such, efforts to decarbonize the sector have naturally risen to the top of the agenda for almost all governments and corporates as they strive to meet their climate goals.

The environmental impacts of the energy sector may worsen further, given the accelerated adoption of energy-intensive technologies like artificial intelligence (AI), data centers and block chain technologies, all of which are contributing to increased demand for electricity. The International Energy Agency (IEA) estimates that these technologies could double their electricity consumption by 2026, roughly equivalent to Japan’s annual energy usage.²

Such outsized demand could lead to increased dependence on fossil fuels-based power production as clean energy sources lack the scale needed to match the pace of increases in energy requirements. As per the Energy Institute’s Statistical Review of World Energy 2024—written with the support of KPMG—the growth of renewable energy consumption and electricity demand are outpacing total primary energy production.³ And despite renewables claiming ever larger portions of total energy consumption, the world’s energy-related emissions exceeded 40 GtCO2 for the very first time in 2023.⁴

Decarbonizing the energy sector is crucial to meeting Asia Pacific’s net-zero targets, and there has been encouraging progress on this front.  

Across ASEAN, governments are setting ambitious decarbonization goals aimed at expanding renewables’ share in their energy mix. These national net-zero commitments could address as much as 61 percent of the region’s GHG emissions.⁵

Mounting regulatory and consumer pressures are also fueling an acceleration in the energy transition. KPMG data reveals that 75 percent of consumers in Asia Pacific see climate change as a serious threat and want more access to renewable energy, underscoring the imperatives for power companies to initiate more investment and action.⁶

For businesses, embarking on the energy transition isn’t just about meeting new requirements from regulators and consumers—it’s also an opportunity to leverage new avenues for growth. An effective energy transition requires firms to take stock of their operations and identify areas for improvement. That could catalyze a total reimagination of their business potential and result in improved efficiencies, lower costs, enhance competitive advantage and develop new business models.

Asia Pacific’s energy transition is underway, with renewable energy investment growing at an annual rate of 34 percent since 2004. In 2022, Asia Pacific’s economies invested much as US$345 billion into renewable energy production—much of it in China and India.⁷ That means that the region now accounts for nearly half of the world’s total renewables production capacity, producing 4,141.7 terra-watt hours in 2023.⁸

Driving the region’s renewables momentum is a combination of technological improvement, cost reduction and government support. Just as solar PV cell prices have plummeted by almost 95 percent per unit over the last decade, similar technological innovation and economies of scale are expected to play across other clean energy technologies like wind power generation and batteries for energy storage. Transport sector decarbonization is being led by increased EV penetration across markets led by China. The cost of EVs is heading towards parity with internal combustion engine vehicles —or becoming even lower—as battery technology improves and lowers production costs.^9,10

Green data centers are increasingly becoming the norm, reflecting strong environmental commitments by technology companies as well as proactive consumer demand for sustainable services. RE100 commitments by corporations are creating demand for commercial and industrial (C&I) solar providers. C&I solar platforms directly supply renewable energy to customers who are unable to source green energy from the grid. Solar C&I is expected to be key driver of energy decarbonization in the short-to-medium term in countries like Singapore and Indonesia.¹¹

Despite these undeniable successes, the energy transition is “off-track” to meet the goals set out in the 2015 Paris Agreement.¹²

In the wake of COP28, two key recommendations were identified to reduce the transition gap within the next five to 10 years: tripling renewable energy generation and doubling energy efficiency.¹³

Asia Pacific’s installed renewables capacity is expected to almost double by 2028 compared to 2022 levels.¹⁴ But at the same time, power players face challenges in building up infrastructure to manage the intermittent nature of renewables. For example, the solar capacity of today's grids maxes out at 20-25 percent—going beyond that would require significant investment in transmission, distribution and grid strengthening, as well as new forms of storage, such as batteries or green hydrogen.

Perhaps the most underappreciated part of the energy transition is the need to green power demand through improvements in energy efficiency, the “first fuel” that is one of the fastest and most cost-effective emissions mitigation tools.¹⁵ Improving energy efficiency will be key in energy-intensive sectors like petrochemicals, process industries and pharmaceuticals, helping avoid the impact of rising energy demand while lowering energy bills.

To drive the momentum for a phase-down of fossil fuels, the world will need to make progress on both the demand (energy efficiency improvement) and supply (renewable energy production) sides.

Coal remains Asia’s predominant source of energy because it’s easily accessible and cheap. As such, large-scale retirement of fossil-fuel plants can happen only if continuous access to green energy can be ensured by mainstreaming storage technologies and lowering their costs significantly.

Overcoming these limitations may be complicated by today’s challenging economic realities, but the success of the energy transition ultimately depends on whether companies understand how they can drive a calibrated approach towards green energy adoption, and that the technologies and funding they need are readily available.

To realize this, organizations and governments have three main levers at their disposal.

First, government policy, which plays an important role in motivating those in energy-intensive businesses, with sticks—like Singapore’s new carbon tax regime—or carrots in the form of incentives and grants that help cut the costs for companies to adopt green fuels and energy-optimized service delivery. 

Second, there is a need to address companies’ knowledge and skills gaps, especially in terms of their understanding of technologies that can support their transition. This requires the participation of organizations like industry associations or government agencies to provide training, share used cases and sector-specific information that companies can use to craft their energy transition roadmaps.  

And third, given the high costs associated with the energy transition, access to funding is non-negotiable to stabilize crucial technologies. The IEA estimates that emerging more than US$1 trillion of investment will be needed in emerging and developing economies by the end of the 2020s to meet net-zero goals.¹⁶

Luckily, the pot of funding available for sustainable green projects is large and diverse, fueled by commercial banks, financial institutions, multilateral organizations and philanthropic foundations. Between 2020-2023, governments have allocated US$1.34 trillion towards the green transition, while appetite among private investors for clean energy projects remains strong.¹⁷ In 2023, US$1.7 trillion of funding was available for energy transition projects—a 17% increase from the previous year—with investors primarily focused on EVs and renewable energy production.¹⁸ Capital is also flowing in from multilateral and development organizations, such as the Asian Development Bank, which has earmarked US$50 million towards accelerating the region’s energy transition.¹⁹

Ultimately, making full energy transition a reality depends on collaboration across all sectors. Collaborative projects shall be needed to support certain segments such as small-and-medium-sized businesses (SMEs) for whom the transition may be especially difficult. In partnership with the Monetary Authority of Singapore and several local banks, KPMG in Singapore developed Project Greenprint, an initiative aimed at onboarding SMEs’ sustainability data into a blockchain-powered database to support their decarbonization road mapping and access to green financing.²⁰

There is also potential for initiatives to matchmake sustainability projects with available funding or technology providers to make an impact. The KPMG ASEAN Decarbonization Hub, for example, is designed to act as a platform to bring different energy transition stakeholders to connect with one another and innovate solutions.²¹

The years leading up to 2030 are likely to be the most important to the success of the energy transition. The technologies and solutions that sit at the heart of the movement should already have been identified and mainstreamed within the next two to three years so the transition can begin to take hold.

Today, the energy transition agenda has entered the mainstream; people understand it, appreciate it, and are working towards it. The big question now is how fast—and how far—can it go?