ASEAN Power Grid Faces Financing Test as Energy Costs Rise and AI Demand Surges

Six Indonesian projects expose the gap between approval and delivery

Singapore has conditionally licensed six projects to import clean electricity from Indonesia, yet a basic financing problem stands between those approvals and operating power links: Indonesian exporters must renew their permits every five years. Banks financing expensive generation plants and transmission cables need confidence that projects can keep selling electricity long enough to repay their loans.

That gap between political ambition and dependable commercial rules now defines the ASEAN Power Grid (APG). More than 70% of 514 regional business decision makers surveyed in July 2026 said meaningful progress would increase their willingness to invest and expand in Southeast Asia. Meanwhile, energy think tank Ember estimates that each year of delay beyond 2035 would cost the region US$2.6 billion.

The International Energy Agency (IEA) put financing at the centre of the challenge in its APG financing report, published on March 10, 2026. It calls for a substantial increase in investment over the following 15 years and says financing approaches and business models have failed to keep pace with increasingly ambitious and complex interconnection projects.

Rising energy bills, disruption associated with the US-Iran war and expanding artificial intelligence infrastructure have sharpened the pressure to deliver. Governments are being asked to make electricity cleaner, more affordable and more secure at the same time. For households, factories and data centres, the practical test is whether regional agreements produce reliable power rather than another round of conditional approvals.

A regional network is taking shape, one connection at a time

ASEAN conceived the grid in 1997 under its ASEAN Vision 2020 blueprint. The ASEAN Centre for Energy describes the initiative on its power grid overview as an effort that has evolved from connections between two countries into arrangements involving smaller groups of countries. Its purpose is to strengthen regional energy security, resilience and connectivity.

The centre's 2025 grid update, published on November 27, 2025, covers interconnection capacity, impacts and progress in electricity trading. By 2025, nine of 18 priority interconnection projects were operational, providing about 10 gigawatts (GW) of capacity. Another 13.7 GW is planned by 2040.

An interconnector is a transmission link that lets electricity move between separate power systems. A gigawatt equals 1,000 megawatts (MW). Connecting systems allows a country with surplus generation to sell to a neighbour that needs more electricity, rather than requiring every country to build enough plants to meet every possible shortage alone.

ASEAN's renewable resources make that exchange attractive. Laos and Vietnam have hydropower resources, Indonesia and the Philippines have geothermal energy, and Malaysia and Thailand have solar potential. Sharing those resources could help balance changes in wind and sunlight, provided transmission networks and operating rules can handle the flows.

Business interest is strong, but confidence varies

Kantar conducted the July survey across Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam. The findings, released on October 12, covered 514 businesses, with about 60% representing large enterprises and 40% small and medium enterprises. Respondents included owners, senior executives and decision makers responsible for energy or sustainability strategy.

Indonesian respondents were the most positive about the investment benefits: 84% said meaningful APG progress would increase their willingness to invest and expand. The equivalent figure was 70% in both the Philippines and Malaysia.

Expectations about delivery were less uniform. In Vietnam, 80% expected meaningful progress within three to five years, compared with 54% in the Philippines and Malaysia, a difference of 26 percentage points. Businesses can see a strong commercial reason for the grid while remaining cautious about how quickly governments will resolve its practical problems.

Energy costs help explain the attention. The survey found that 79% had experienced higher energy costs since the start of 2026, most commonly increases of 10% to 29%. Some 53% had delayed or reduced the priority of decarbonisation plans, while 26% had accelerated them. Across the survey, 87% were monitoring APG developments, including 49% following them very closely.

Why lenders need more than an electricity licence

Indonesia's five year permit renewal requirement illustrates what investors mean when they call for projects to be bankable. A bankable project has sufficiently dependable permissions, customers and revenues to attract financing. A power plant or submarine cable may operate for decades, so uncertainty about repeated permit renewals affects the willingness to lend at the start.

Singapore's Indonesian import projects also face gaps involving enforceable electricity trade agreements between governments and recognition of renewable energy certificates across borders. Those certificates record the renewable attributes of electricity generation, helping companies account for the clean energy they purchase.

Governments must also agree on access to transmission networks, charges for carrying electricity, pricing and responsibility when supplies are interrupted. Carrying another country's electricity through a domestic network is often called wheeling. Exporters, transit utilities and buyers all need to know who pays for that service and what happens during a shortage.

The IEA's March report approaches these problems through the investor's perspective: how interconnectors are financed in practice and what must change to attract a wider range of investors. At the 44th ASEAN Ministers on Energy Meeting in Manila, ministers called for faster project preparation and clearer regulations to bring projects to financial close, the point when financing agreements are completed and funds can become available.

The Laos route shows why transit countries matter

The Laos-Thailand-Malaysia-Singapore Power Integration Project demonstrates both the possibility of electricity trade across several countries and the difficulty of keeping it running. Hydropower generated in Laos reaches Singapore through the networks of Thailand and Malaysia, giving both transit countries an essential role.

The project began as a pilot initiative in 2014 and became operational in 2022. Its renewal in 2024 became caught in disagreements over transmission arrangements through Thailand and Malaysia, which were resolved in January 2026.

The main milestones show how long even an established corridor can take to develop:

• 1997: ASEAN conceived the regional grid under ASEAN Vision 2020.
• 2014: The Laos-Thailand-Malaysia-Singapore pilot initiative began.
• 2022: Electricity trading through the four countries became operational.
• 2024: Renewal encountered disagreements over transit arrangements.
• 2025: Transfer capacity increased from 100 MW to 200 MW.
• January 2026: The transmission disagreements were resolved.

Earlier planning envisaged increasing the original 100 MW trade to 300 MW; the later capacity figure is 200 MW. The corridor's experience puts a concrete task before future projects: agreements must cover every network electricity crosses, including the terms for renewal.

Singapore is the immediate delivery test

Singapore aims to import about 6 GW of electricity produced with low carbon emissions by 2035, up from the earlier target of 4 GW. Its limited land and renewable resources make imports central to reducing dependence on natural gas, which supplies about 95% of its electricity generation.

The project pipeline has expanded across several countries. Conditional agreements announced in 2023 included up to 2,000 MW of Indonesian solar power, 1,200 MW of Vietnamese offshore wind and 1,000 MW of Cambodian electricity from solar, wind and pumped storage hydropower. Pumped storage uses electricity to move water uphill, then releases it through turbines when power is needed.

Wood Mackenzie forecasts that Singapore will fall short of the 6 GW target despite its conditional approvals and licences. The remaining work includes financing, generation construction, transmission infrastructure and the commercial rules governing delivery.

Ember estimates that completing planned interconnectors could allow renewables to meet nearly half of Singapore's electricity demand by 2035. Without the APG, its modelling indicates that Singapore would need an additional 300 MW of generation powered by gas by that date.

Nevi Cahya Winofa, a renewables and power research analyst at Rystad Energy, sees Singapore's import projects as a practical opportunity to demonstrate delivery and support other corridors, including the Brunei-Indonesia-Malaysia-Philippines Power Integration Project.

"Successful delivery could build investor confidence and provide a model for further cross-border projects," she said.

Malaysia's data centres turn forecasts into a grid challenge

Malaysia shows how quickly new demand can change electricity planning. By September 2025, 49 data centres had signed electricity supply agreements with Tenaga Nasional, representing potential maximum demand of about 7.1 GW. Actual consumption had reached about 710 MW, compared with 405 MW at the end of 2024, an increase of roughly 75%.

The Malaysian government estimates that data centre demand could reach 12.9 GW by 2030 and 20.9 GW by 2040. The 710 MW actually being used in September 2025 was about one tenth of the 7.1 GW covered by supply agreements, leaving utilities to plan for a potentially large increase as facilities develop.

Malaysia also occupies a useful position in regional trade. Peninsular Malaysia connects to Thailand and Singapore, while Sarawak connects to West Kalimantan in Indonesia. It is the only ASEAN economy spanning two of the APG's three main subsystems. Energy Exchange Malaysia provides a starting point for renewable electricity sales to Singapore.

The IEA projects that data centre electricity demand across Southeast Asia will more than double between 2024 and 2030. Large customers can help finance new generation by committing to buy electricity over many years. In Malaysia, a solar project with maximum output of 29.99 MW to the grid began commercial operations in July 2026, backed by a virtual power purchase agreement between data centre operator AirTrunk and developer ib vogt. Such an agreement provides financial support for generation without requiring a dedicated physical power line to the buyer.

Ann Margret Francisco, Asia Pacific director at the Global Wind Energy Council, said new industrial demand must be matched by policies, infrastructure and workable electricity prices.

"AI, new industries mean additional demand which should be supplied from renewable energy. But demand alone cannot build projects," Francisco said.

Exports must work for local consumers too

Laos faces a difficult balance between hydropower exports and frequent blackouts affecting its own population. Indonesia said in September that it would hold off on an APG deal until the terms benefited both sides. Governments need arrangements that make exports commercially attractive while maintaining reliable and affordable domestic supply.

Environmental standards are another part of that bargain. Hydropower can disrupt rivers, and large solar developments can create competition for land. Courtney Weatherby, deputy director and fellow at the Stimson Center, has argued for shared renewable certification and environmental standards so electricity purchases take account of those effects.

DNV estimates that multilateral electricity trade could save ASEAN US$800 billion through 2050 and reduce the land footprint of power projects by 13%, partly by avoiding unnecessary domestic generation and storage construction. Those estimated savings depend on coordinated development across countries.

Shell president of trading and supply Andrew Smith said on October 9 that grid expansion was necessary as electrification increased, while stressing reliability and government cooperation. Shell also expects global demand for liquefied natural gas to rise about 65% by 2050. Governments are therefore weighing clean electricity investment alongside continuing demand for fuel imports and backup supply.

Manila agreements now need financing and deadlines

ASEAN energy ministers in Manila advanced an enhanced APG planning framework, reported substantial completion of task force work plans and backed measures to operationalise grid financing arrangements. The Asian Development Bank and World Bank announced a dedicated funding initiative in 2025. Discussions on a submarine power cable development framework are due to accelerate in 2027.

The scale of the investment task extends well beyond international cables. The IEA estimates that cross border interconnections require US$27 billion by 2040. The ninth ASEAN Energy Outlook puts investment needs for a coordinated regional energy transition at about US$400 billion annually, covering a much broader range of energy infrastructure and technologies.

ASEAN also has measurable targets approaching in 2030. Renewables supplied 14.1% of total primary energy in 2024, against a 30% target, and represented 33.7% of installed electricity capacity, against a 45% target. Installed capacity measures the maximum output equipment can provide; primary energy covers energy before conversion into electricity or other usable forms.

Officials are working with several horizons. Ember's annual delay estimate uses 2035 as its benchmark, while broader grid planning has looked towards 2045. Ministers have discussed faster delivery, but no single accelerated completion date has been announced. The Philippines is scheduled to host the 49th ASEAN Summit on November 16 to 18, 2026, providing the next opportunity for leaders to advance commitments.

India is exploring a further connection: a proposed 3,000 kilometre corridor carrying 2,000 MW from Imphal to Singapore through Myanmar, Thailand and Malaysia. Discussions also cover a potential Philippines-Indonesia interconnection. Each proposed route expands the possible market while adding governments and networks that must agree on delivery terms.

Smaller deals can build a larger market

OCBC group chief sustainability officer Mike Ng sees agreements between two countries as steps towards a regional system, rather than waiting for every member to move together.

"As we repeat this process, project by project, corridor by corridor, I personally believe that the APG will just emerge organically," Ng said.

That approach puts early projects under pressure to establish reusable rules for permits, transit charges, certificates and supply interruptions. Better information is also needed. Former Philippine energy regulator Monalisa Dimalanta has called for national data portals to complement the ASEAN Energy Database System, helping investors and the public understand demand, supply and project development.

Dimalanta, a former chair of the Philippines' Energy Regulatory Commission and National Renewable Energy Board, described the immediate task in practical terms.

"The ASEAN Power Grid must move from lines on a map to projects that can be financed and built," she said.

The region already has operating links, interested buyers and substantial renewable resources. Its next gains depend on turning those pieces into durable contracts and completed infrastructure, while giving domestic consumers dependable access to the electricity their countries produce.

Key Points

• More than 70% of 514 surveyed businesses said APG progress would increase their willingness to invest and expand.
• Indonesia's five year export permit renewals are a financing concern for Singapore's clean electricity imports.
• Nine of 18 priority interconnection projects were operational by 2025, representing about 10 GW.
• Singapore targets 6 GW of electricity imports with low carbon emissions by 2035, but Wood Mackenzie forecasts a shortfall.
• Ember estimates US$2.6 billion in annual regional losses for each year of delay beyond 2035.
• The next milestones include the November 2026 ASEAN Summit and further submarine cable framework discussions in 2027.