KUALA LUMPUR (Sept 29): Southeast Asia could reduce recurring fossil fuel imports with one-off investments in renewable energy as a bulwark against macroeconomic and energy security risks, a US think tank said.

A 450GW buildout of solar and wind by 2035 in Malaysia, Indonesia, Vietnam, the Philippines and Thailand could displace 17% of power generated from fossil fuels each year, according to estimates by the Institute for Energy Economics and Financial Analysis (IEEFA).

“The economic case for replacing recurring fuel imports with one-time capital investments is compelling,” IEEFA said.

Malaysia is dependent on coal and natural gas, which together account for more than 90% of the country’s energy mix. However, prices of both inputs have soared as the Middle East conflict cuts off gas supply from the region while countries ramp up coal-fired power generation.

In Southeast Asia, fossil fuels remain the dominant energy source, meeting more than 70% of the region’s additional energy demand for more than a decade now.

Renewable energy projects across Southeast Asia would require capital expenditure of US$288 billion (RM1.17 trillion) combined, IEEFA noted. However, the projects could generate savings of US$8.2 billion in incremental foreign exchange annually.

The net outflow will shrink to just US$0.6 billion in the third year before turning into a US$7.6 billion saving in year four. Cumulative forex savings would exceed the equipment import costs by the end of year five and imported fuels for electricity would be fully displaced in about six years.

“This transition would also reduce the region’s exposure to balance-of-payments, currency and fiscal risks,” IEEFA said.

Higher commodity prices and depreciating local currencies can reinforce each other, driving imported inflation and widening current-account deficits, as fossil fuel trade is mostly priced in US dollars, the think tank flagged.