How Southeast Asia’s solar industry can shine in face of US tariff threat – South China Morning Post

As Southeast Asia strives to become an “epicentrum of growth”, the green technology manufacturing sector – particularly solar photovoltaics (PVs), lithium batteries and electric vehicles (EVs) – will be key components in this endeavour.

The progress so far is impressive. Southeast Asia has emerged as the world’s second-largest solar module producer, trailing only China. By the end of 2022, the region boasted a total module production capacity of 70 gigawatts, a significant leap from an almost negligible level just a few years ago. This capacity represents roughly 6.4 per cent of the world total of about 1,100GW expected by the end of this year.

Moreover, Southeast Asia has shown remarkable progress in increasing its share in supply chains, particularly in solar cell manufacturing, led by Malaysia, Thailand and Vietnam. Malaysia has also made significant strides in polysilicon production, reaching a capacity of 32 gigatonnes in 2022.

The main driving force behind this progress has been the export market. Southeast Asia has surpassed China as the preferred destination for manufacturing investment from Organisation for Economic Cooperation and Development countries seeking supply chain diversification. It has also seen substantial inflows of Chinese investment in the solar PV and battery sectors, leveraging its wealth of natural resources.

Between 2017 and 2021, Southeast Asia supplied one-third of the world’s solar PV modules, with a large portion destined for the United States and Europe. Four Southeast Asian countries – Cambodia, Malaysia, Thailand and Vietnam – supplied more than 75 per cent of the solar modules imported by the US in 2022.

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However, Southeast Asia now faces shifting winds. Geopolitical challenges, growing protectionism and trade tensions are casting shadows over the future of globalisation, introducing significant uncertainties for trade-dependent economies.

The US is considering raising import tariffs on solar panels from Cambodia, Malaysia, Thailand and Vietnam, as well as against Chinese EV manufacturing in Mexico. In Europe, warnings of potential production closures have prompted discussion regarding the implementation of trade defence measures to safeguard local green tech industries that could affect solar imports from Southeast Asia.

Amid these uncertainties, the domestic market presents a potential opportunity for Southeast Asian countries to bolster their resilience. As a collective economic entity, Southeast Asia boasted a GDP of about US$3.8 trillion in 2023, making it the world’s fifth-largest economy behind the US, China, Germany and Japan.

With post-pandemic economic recovery starting to take hold, the region’s GDP is expected to grow by 4.6 per cent in 2024. In tandem with its strong sustained economic growth, the region is expected to experience the world’s second-fastest energy demand growth until 2050, behind only India.

An aerial view of a small solar farm in Selangor, Malaysia. The country aims to produce 70 per cent of its energy through renewable sources by 2050. Photo: Shutterstock

Almost all countries in Southeast Asia have pledged to achieve carbon neutrality, with many aiming to achieve this goal by mid-century. To meet this ambitious target, there must be a significant ramp-up of renewable energy capacity to satisfy the region’s rising appetite for energy.

Solar PV installed in the region needs to surpass 240GW by 2030 and further increase to more than 2,100GW by 2050, up from 26GW in 2023. This implies an average annual capacity addition of more than 30GW in the years to 2030, with almost 100GW added annually thereafter until 2050.

To fully harness its large domestic potential, countries in the region need to expedite their transition towards a clean energy future. This is especially so when considering that about 80 per cent of the region’s energy demand is still being met by fossil fuels – despite recent improvements in the availability of renewable energy. A signficant amount of those fossil fuels are imported, as well, undermining national energy security.

Utility-scale solar witnessed a 17 per cent year-on-year growth in 2023, but only 3GW of new capacity was added to power grids. This pales in comparison with the current solar module production capacity of 70GW.

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There is no time for Southeast Asian countries to lose. Recent reports suggest Chinese solar giant Longi Green Energy Technology is considering suspending some of its production lines in Malaysia and Vietnam. Other industry players could follow suit given the imminent expiration of the tariff exemption granted by the US to Southeast Asian countries.

By expediting their domestic transition to clean energy, Southeast Asian countries can unlock significant growth opportunities for the zero-emission industries of the future. This can inspire confidence among investors and businesses while fostering further green industrialisation.

Ultimately, this move could pave the way for a more sustainable mode of economic development that promises long-term prosperity for the people of the region.

Muyi Yang is a senior electricity policy analyst – China – at Ember

Xuyang Dong is an energy policy analyst – China – at Climate Energy Finance

This post was originally published on 3rd party site mentioned in the title of this site

How Southeast Asia’s solar industry can shine in face of US tariff threat – South China Morning Post

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