*4.3. Managing Energy, Environmental and Financial Risks*

Green projects are associated with risks pertaining to being new technologies and their relatively lower rate of return. The rapid rise of energy demand in Southeast Asia is poised to bring several risks to the region from an energy financing perspective. The region is forecasted by IEA to register a net deficit in energy trade of \$300 billion per year due to increasing imports of oil by 2040 [3]. The government budget will likely remain tightened as the increase in subsidies for renewable energy continues while also distorting the market-based energy prices. Setting energy prices based on market signals by reducing fossil fuel consumption subsidies will attract more sustainable energy consumption and investments in the ASEAN. While the progress is notable in eliminating fossil-fuel subsidies; the process still remains incomplete. The current dependence on the import of oil is 65% and is expected to rise to 80% in 2040, and it therefore remains a serious energy security concern for the region [18]. The high-carbon-intensive power sector in Southeast Asia, especially due to the rise in coal demand, is expected to amplify environmental risks through increased CO2 emissions to almost 2.4 gigatons by 2040 [18]. This will negatively impact the environmental quality, adding to already existing poor urban air quality and congested transportation infrastructure.

The governments of ASEAN need to address the energy security risks by taking into account the financial, environmental and social viability of the projects. To achieve this, various frameworks could be developed in the process of procurement and contracting mechanisms in the renewable sector. The support to the financial system and enhancement of sustainability utilities could also strengthen the market. The challenge of limited infrastructure particularly in the Philippines and Indonesia, which are archipelagic in nature, has obstructed effective renewable energy deployment as they have fragmented electricity transmission grids. Similarly, the lack of regulatory frameworks on green technology development and deployment brings major challenges too. Countries like Brunei do not have a specific policy framework in place to regulate the development of renewable energy, although it has been reported to be in progress [54]. There was major infrastructure devastation in Laos PDR due to a lack of coordination, creating human risk as the failure of an auxiliary dam washed out 13 villages, affecting around 11,000 people [55]. The high-risk

nature of hydropower dam construction should not be underestimated despite the huge potentials for hydropower with an unrealized power potential of 22.3 GW in the region.

Vietnam is another major player in the hydropower sector and has an estimated 16.68GW capacity, but the lessons from Laos have allowed the country to focus on less intrusive sources of renewable energy. The revised master plan of Vietnam has not focused on the development of large-scale hydropower as a renewable source of energy but promotes increasing the capacity to 21.6 GW in 2020, which is approximately 27.8 GW by 2030 with small and multipurpose projects [56]. Vietnam has a heavy reliance on coal-fired power, as in 2020 alone, the country's capacity stood at 49.3%. The coal's share in Vietnam is expected to reach 53.2% by 2030 as the development project is demanding more energy despite the efforts by the government's revised master plan to reduce reliance on coal. Given the cheaper cost associated with renewables and wind and solar, sources from coal could be shifted and reduce the current import of coal, which is around 30 million tones in Vietnam [57].

The proper coordination among the government agencies and the private sector is crucial towards prioritizing renewable energy policies into implementation. Awareness among the public about the benefits of using green technologies can boost energy efficiency as well environmental conservation initiatives. Multilateral power trading agreements will be crucial along with the expansion of cross-border transmission, which can lower the building and operating costs of ASEAN region's power systems. Countries such as Lao PDR export 67% of electricity generated from hydropower, which is almost 30% of all its total exports, with main buyers being in ASEAN countries itself such as Thailand, Vietnam and Cambodia [53]. The regional integration could facilitate the growing demand for energy by deploying green technologies such as wind and solar PV and most importantly the application of hydrogen carbon-based instruments.
