Q&A: A new energy policy to accelerate Asia’s energy transition

Article | 2 May 2021

ADB’s Energy Sector Group Chief Yongping Zhai outlines the rationale behind updating the energy policy to help the bank’s members develop clean, green, and resilient energy systems that foster economic growth.

The Asian Development Bank (ADB) aims to help its developing member countries (DMCs) provide clean, green, reliable, adequate, and affordable energy for inclusive growth through a comprehensive energy policy that ensures environmental, social, and economic and sustainability.

Yongping Zhai
Yongping Zhai, Chief of the Energy Sector Group, ADB

The current energy policy, which was approved in June 2009, rests on three pillars:

  • promoting energy efficiency and renewable energy;
  • maximizing access to energy for all; and
  • promoting energy sector reform, capacity building, and governance.

The policy has been instrumental in guiding $42.5 billion in energy sector support across all DMCs from 2009 to 2019. This has enabled them to build much-needed basic energy infrastructure helping to achieve universal access to affordable energy, improving energy security, and supply reliability. The 2009 policy has also guided investments in renewable energy and energy efficiency projects, facilitating the transition to a clean and green low-carbon economy.

But given the fundamental changes in the energy sector, the ongoing global energy transformation, and rising concerns over climate change, ADB is now updating its energy policy with a new version expected to be considered by the Board of Directors in the fourth quarter of 2021. ADB’s Energy Sector Group Chief Yongping Zhai explains the rationale and process of updating the policy.

1. Why is ADB updating its energy policy?

There have been many fundamental changes since ADB approved its existing policy more than a decade ago. Most significantly, the Paris Agreement was adopted at COP 21 in 2015, bringing together all nations to combat climate change with enhanced support for developing countries.

The central goal of the Paris Agreement is to strengthen the global response to climate change by keeping a global temperature rise this century well below 2 degrees Celsius above pre-industrial levels, and to pursue efforts to limit the increase to 1.5 degrees. The Paris Agreement requires all countries to put forward and continually strengthen their best efforts through nationally determined contributions (NDCs).

ADB’s Independent Evaluation Department conducted a comprehensive evaluation of the current energy policy and its implementation during 2009–2019. The evaluation concluded, and ADB Management agreed, that although the 2009 energy policy was relevant during the period, it no longer adequately aligns with the global consensus on climate change, the ongoing global transformation of the energy sector, recent changes in DMC energy strategies, or ADB’s institutional priorities under Strategy 2030.

There has also been significant progress in technology development in the past decade, during which the levelized cost of electricity of renewable energy declined dramatically. Between 2010 and 2019, the cost of photovoltaics declined by 82%, onshore wind by 40%, and offshore wind by 29%, according to the International Renewable Energy Agency. Photovoltaics and wind are becoming more competitive while it is more expensive to build new coal-fired power plants in many countries.

In addition, emerging technologies such as energy storage, smart grids, hydrogen, carbon capture and storage, and the internet of things are maturing to support renewable energy integration into the grid and distributed energy systems. There have also been remarkable improvements on the demand-side in end-use equipment energy efficiency.

All of this means we must assess the current energy policy through the prism of these developments and prepare new strategic directions to meet the needs of developing countries in Asia and the Pacific.

2. How will the new energy policy fit into ADB’s long term strategy?

In July 2018, ADB adopted a new long-term strategy to respond effectively to the region’s changing needs. Strategy 2030 focuses on achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific while continuing to focus on eradicating extreme poverty.

The strategy identified seven priorities: addressing remaining poverty and reducing inequalities; accelerating progress in gender equality; tackling climate change, building climate and disaster resilience, and enhancing environmental sustainability; making cities more livable; promoting rural development and food security; strengthening governance and institutional capacity; and fostering regional cooperation and integration.

The new energy policy will guide ADB’s energy sector operations, aiming to help members develop clean, green, and resilient energy systems which foster economic growth and provide secure and affordable modern energy services. ADB energy sector operations will support the seven operational priorities through innovative, green, and cross-sectoral approaches, including solar pumps for irrigation, green jobs for women, renewable energy for clinics and schools, electric vehicles for transport, energy efficient water supply systems, and smart buildings in cities, among others.

Regional integration in the energy sector will be further enhanced through ongoing subregional platforms and initiatives such as the Greater Mekong Subregion Economic Cooperation Program, the Central Asia Regional Economic Cooperation Program, and the South Asia Subregional Economic Cooperation. ADB will also support deployment of advanced technologies to help the region “build back better” and foster a green recovery from COVID-19.

3. What will be the new policy’s stance on fossil fuels and coal in particular?

The low-carbon energy transition will be a big challenge in Asia because most countries have depended on fossil fuels for a long time—and coal in particular.

Coal has historically played an important role for many Asian countries, providing affordable energy to develop their economies and enable universal energy access. In 2018, coal generated almost 60% of electricity in Asia and it plays an outsized role in larger countries. For example coal generated around 73.5% of all energy produced in India, 66.5% in the People’s Republic of China, 56.4% in Indonesia, 52.1% in the Philippines, and 44.6% in Malaysia. Coal-fired power stations often have a lifespan of more than 30 years while the average age of Asia’s coal plants is about 12 years. This means that phasing out coal will be a complex and enduring process.

On the other hand, it is impossible for any country to rely on a single source for affordable, reliable, sustainable, and modern energy in the near-term. Therefore, a well-balanced energy mix with an increasing share of renewable energy will be necessary for the foreseeable future in most Asian countries.

ADB will support its DMCs to reduce their dependence on coal and eventually phase out coal power generation. This will be done by setting standards and requirements such as emission intensities and minimum efficiency levels, while introducing low-carbon and climate-resilient technologies including carbon capture and storage.

The updated policy will provide guidance and screening criteria on the use of fossil fuels to ensure no conflict with the broader international goals to which ADB and its DMCs subscribe.

4. What is ADB’s position on gas?

The GHG emissions of natural gas are much lower than those of coal. Gas can play a balancing role to support intermittent renewable energy and increase access to clean cooking and heating.

ADB has supported natural gas projects that are aimed at providing energy access to clean cooking and heating, and replacing coal power with more efficient and low emission combined-cycle gas-fired power.

We have to ensure that gas projects avoid long-term lock-in effects, and the risk of creating stranded assets. For that purpose, ADB will make sure that gas projects are consistent with the country’s NDCs and long-term energy transition plan.

The projects also need to demonstrate alignment with targets to achieve net-carbon neutrality by mid-century. Carbon capture, utilization, and storage (CCUS) technology can also be used to reduce the emissions of gas power projects.

5. How has ADB supported climate finance?

Tackling climate change, building climate and disaster resilience, and enhancing environmental sustainability is a priority under ADB's Strategy 2030. ADB has committed to deliver $80 billion in cumulative climate finance between 2019 and 2030 and will ensure that at least 75% of its projects by number will address climate change mitigation and adaptation by 2030.

Despite the challenges posed by COVID-19, ADB recorded $5.3 billion in climate finance in 2020, of which $4.5 billion (86%) is expected to contribute to mitigation and $751 million (14%) to adaptation. ADB provided $4.5 billion from its own resources and mobilized $758 million from external resources such as ADB-administered donor trust funds, financing from multilateral climate funds including the Global Environment Facility, and bilateral financing, among others. In the energy sector, ADB’s contribution to climate mitigation was $1.9 billion, and climate adaptation was $80 million in 2020.

In 2015, ADB made its initial climate finance commitment to double climate financing from its own resources to $6 billion annually by 2020, which it went on to achieve a year ahead of schedule in 2019. For more information on ADB’s climate financing, please visit ADB’s Climate Change Financing Data Library.

6. What are ADB’s guiding principles as it updates the policy?

The new policy will be based on five guiding principles: securing energy for a prosperous and inclusive Asia and the Pacific; building a sustainable and resilient energy future; engaging with institutions and framing policy reforms; promoting regional cooperation to enhance energy security; and providing integrated solutions and cross-sectoral operations to maximize development impact.

To secure energy for the region, ADB will promote the provision of last-mile access for power, light, clean cooking and heating to encourage DMCs to provide modern energy to all. This also enables use of energy in productive activities which leads to job-creation and business opportunities for people living in rural areas.

To build a sustainable and resilient energy future, ADB will assist DMCs with tackling climate change, enhancing environmental sustainability, and building climate and disaster resilience through the increased use of renewable and low-carbon energy. ADB will support its DMCs to achieve a planned and rapid phase-out of coal in the Asia and the Pacific region, while considering the impact on people and communities to ensure a just transition with no-one left behind.

ADB will support energy sector reforms, including strengthened regulatory frameworks and the introduction of competitive markets. Strengthening DMCs’ institutions will allow them to efficiently manage the sector and introduce progressive and enabling energy policies, attract private sector investment, and ensure the long-term financial viability of energy entities.

ADB will promote regional cooperation through policy dialogue, knowledge sharing, and investments in cross-border energy infrastructure, including building of regional energy markets. The benefits of subregional and bilateral energy cooperation include cost savings, reduced GHG emissions, and increased energy security by enabling more diverse energy mixes.

Finally, to maximize development impact, ADB will integrate its energy expertise across sectors and themes to address more complex development challenges. ADB will continue to combine finance, knowledge, partnerships in its energy operations. ADB’s country-focused approach will deliver integrated energy and cross-sector solutions that provide comprehensive and magnified development impacts.

7. What is the status of the ongoing consultation process?

A series of stakeholder consultations is being held as part of the process. As of the end of April 2021, ADB had held 19 consultations with various stakeholder groups. These include with ADB members, development partners, international organizations, energy policy and technology experts, civil society organizations, and the public.

The objective is to understand the energy needs of our DMCs and assess policy options to meet the Paris Agreement and the SDG 2030 Agenda, among others. Stakeholder engagement is also key to reflecting the ongoing transformation of global energy systems with innovative technologies for enhanced environmental sustainability, social inclusion, and business models.

Engaging stakeholders is essential to reflecting the operational priorities of Strategy 2030, and the policies of other multilateral development banks.

We continue to seek views, advice, and inputs on the following questions, among others:

  1. What emerging new technologies and innovations in the next 5-10 years may be game-changers for meeting energy access and climate goals?
  2. What cross sectoral issues (for example, the energy-water-transport nexus) should be considered in the new policy directions?
  3. Which needs and priorities of developing countries in Asia and the Pacific require more support and assistance from ADB?
  4. What is the long-term impact of COVID-19 on the energy sector and what should our response be?

Everyone is welcome to provide inputs and suggestions here.