Findings and recommendations

Highlights

•With increasing shares of variable renewable energy in ASEAN, multilateral power trade can benefit the ASEAN Member States in terms of both increased system security and economic efficiency due to resource sharing.

•Multilateral power trade can be categorised across multiple dimensions, including from limited to complete, and from long-term to short-term trading. More complete and short-term models require more regional co-ordination.

•International experiences show that it is possible to develop multilateral power trading while respecting national autonomy. Establishing multilateral trading in an ASEAN context, however, requires an understanding of the region’s unique circumstances and country-specific priorities.

•A number of political, technical and institutional minimum requirements must be met in order to establish multilateral trading in ASEAN. There are, however, no fundamental obstacles to meeting these requirements.

•A number of existing efforts in ASEAN – in particular the Lao PDR–Thailand–Malaysia– Singapore Power Integration Project and the Greater Mekong Subregion – can serve as starting points for work in ASEAN.

•Three trade models are proposed for ASEAN. First, a harmonised bilateral model should be established to improve the efficiency of bilateral trading in the region and to lay the groundwork for multilateral trading. Next, a secondary trading model should be introduced, creating a regional market for countries to use in addition to existing domestic markets or operations. Finally, for countries that wish to do so, a primary trading model could be introduced which would replace domestic markets with a unified regional market.

Overview of study

The Association of Southeast Asian Nations (ASEAN) member states (AMS) have a longstanding goal of integrating their power systems via the ASEAN Power Grid (APG). Development of the APG has, to date, been limited primarily to the development of crossborder transmission lines on a bilateral basis. Power trade has similarly been organised bilaterally, including through cross-border power purchase agreements (PPAs) and bilateral trading without financial compensation. The bilateral power trades that are currently organised are a great first start, but in the future with more variable renewable energy in the ASEAN region, more structured market set-ups with shorter time frames may be needed.

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To realise the full potential of the APG, though, the AMS will need to establish multilateral power trading. Doing so would allow the AMS to tap into the potential benefits of an integrated ASEAN power system, including reduced costs and an increased ability to integrate variable renewable energy (VRE) resources.

Multilateral power trade will allow the AMS to take advantage of the resource diversity of the region, as well as create an additional source of flexibility, which will allow them to integrate higher shares of renewables. Multilateral power trade is therefore a framework to increase system security and increase economic efficiency, and an enabler of meeting renewable goals in line with the decarbonisation agenda.

At the same time, any multilateral power trading arrangement established in ASEAN will need to be compatible with certain core principles, including voluntary participation, stepwise development and respect for national autonomy.

Categories of multilateral power trade

Cross-border power trade exists across a spectrum of integration, ranging from limited efforts such as bilateral, unidirectional trades, to multilateral trading models that allow for trading among various jurisdictions, to fully unified models that include market participants from multiple states or countries. Nearly all trading in ASEAN can be described as bilateral between neighbouring countries. For example, Thailand currently imports electricity from the Lao People’s Democratic Republic (Lao PDR) under various long-term PPAs.

The only example of multilateral power trading in the region is among Lao PDR, Thailand and Malaysia. Here, Malaysia purchases power from Lao PDR under a predefined set of terms regarding price and quantity, and Thailand acts as the transit, or wheeling, country. This example, however, is multilateral only in the sense that it involves an agreement among more than two countries. The trade and associated power flow is unidirectional, and there is no generalised framework for allowing trades between any combination of the participating countries – something that would be necessary for it to be considered a true multilateral, multidirectional trading environment.

Cross-border trading also has temporal attributes. As noted above, most cross-border trading in ASEAN is done under long-term contracts. Trading can also be done closer to the time of delivery, for example in the day-ahead time frame. It is even possible to have real-time trading, such as balancing services. In the context of this study, multilateral trading primarily refers to day-ahead trading, though other types of trading may also be referred to if and when relevant.

Finally, there is a third way to group multilateral trading efforts: by the level of development and the relative role of regional trading as compared with local (i.e. within jurisdiction) alternatives. Multilateral trading arrangements fall into three categories: nascent, secondary and primary (Figure 1).

Nascent arrangements are ones where existing modes of trade are bilateral, but there is a clear desire among the respective jurisdictions to move to multilateral trading. Secondary arrangements are ones where regional multilateral trading exists alongside, and therefore in addition to, other trading arrangements. Jurisdictions are therefore able to choose if and when to participate in regional multilateral trading. Finally, in primary arrangements, the default mode of trade is multilateral in nature. Other options of trade (in particular, bilateral) can and usually do still exist, but typically they are utilised on a secondary basis compared with multilateral trading.

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