Asia’s energy transition: a tough balancing act

• Continued economic growth means that Asia will be the fastest-growing region for electricity consumption over EIU’s ten-year forecast period.

• Asia is also the region that relies most heavily on coal for its power generation, and its reliance is increasing as a result of high global energy prices. Decarbonisation will be a major challenge.

• Asia is and will continue to be the world’s biggest market for renewable energy investment, with the lion’s share going to China, India, Japan and South Korea. 

• We expect renewables to increase their share in power generation in the region over the next ten years. Wind energy will receive the most investment, but solar energy will get more capacity additions until 2031, when wind power capacity will accelerate.

• Many governments in the region are now looking at nuclear energy as a way to become less reliant on imported energy, but it will not help with the short-term energy crunch.

Asia’s energy transition and decarbonisation strategies are determined by two factors: Asia is forecast to be the region with the fastest growth in electricity consumption over our ten-year forecast period (2022-31); and it is the most reliant region on coal for its power generation. The combination of these two factors makes it challenging for governments to decarbonise their power sector while satisfying increasing demand for electricity, and without compromising energy security. 

This dilemma explains why, despite being the world’s biggest market for renewable energy investment, Asia’s dependency on coal is far from waning. China, India and Indonesia, among other countries in the region, are still approving and building new coal-fired power plants. Furthermore, governments’ bets on coal have only increased since Russia invaded Ukraine earlier this year, intensifying an already acute global crunch in gas supplies.

Still, we expect renewables to increase their share in power generation over the next ten years. In China, the share of energy from non-hydro renewables in total generated electricity will rise from 15% currently to about 26% in 2031, while in India this share will grow from 11% to 21%. In Japan and South Korea, renewables will also grow strongly, from 15% to 23% and from 7.5% to 19.5% respectively.

We expect that these four countries will receive the bulk of investment into renewable energy in the region over the next ten years. The main destination by far will be China, where we forecast that almost 700 GW of non-hydro renewable capacity will be installed between 2022 and 2031. Installed capacity of non-hydro renewables in India will surge by about 200 GW, Japan by 54 GW and South Korea by 36 GW.

Even though most of the investment (in US$ terms) will be channelled into wind energy projects, solar will have more MW of installed capacity, as it is cheaper per MW. In China, India, Japan and South Korea combined, we expect 577 GW of new solar installed capacity and 408 GW of wind. However, beyond 2031, wind energy will probably account for most of the MWs of installed capacity, as the technology will become more cost competitive. Offshore wind in particular is well suited for many of the densely populated countries in the region, especially Japan, South Korea and some parts of China.

Yet given the rapid growth in demand for power, this will not imply a retreat from fossil fuels. Over the same ten-year period, we forecast that installed capacity of fossil fuel-fired power generation will grow by 120 GW in China, 26.5 GW in India and about 3 GW in South Korea. Only in Japan will net growth be almost zero, owing to that country’s slow economic growth forecast, its continued reliance on nuclear power and the expansion in renewables.

Will Asia lead nuclear energy’s revival?

The role of nuclear energy as a cheap, reliable and safe source of power has been dwindling over the past few years. The Fukushima Daiichi nuclear power plant disaster in 2011 raised alarms over nuclear safety. A series of over-budgeted and delayed projects, especially in Western countries, have eroded the image of nuclear power as a cheap source of energy. Finally, ongoing problems with the French nuclear fleet–where corrosion and other issues have shut or compromised many reactors, pushing electricity prices to record highs–cast doubt on the reliability of nuclear energy. 

Despite these drawbacks, many governments in Asia are now looking at nuclear energy as a way to bolster energy security and become less reliant on imported energy as the war in Ukraine causes turmoil in global energy markets. 

In Japan, where only ten of the 50 domestic nuclear reactors that were shut down after the Fukushima Daiichi disaster have restarted, there has recently been a marked shift in sentiment towards nuclear power. Japan’s prime minister, Fumio Kishida, has voiced strong support for increased use of nuclear power, while a recent opinion poll showed that–for the first time since 2011–a majority of Japan’s public was in favour of nuclear reactor restarts. Japan currently has 23 commercially operable but offline nuclear reactors, which have a combined installed power-generation capacity of 21.7 GW.

In South Korea, the new conservative government led by Yoon Suk-yeol seeks to reverse its predecessor’s nuclear phase-out plan and increase the share of nuclear power in the country’s electricity mix to 30% or more by 2030, from 27% in 2021.

At the same time China and India, which have never had nuclear phase-out plans, are looking to build more reactors. China plans to expand its nuclear capacity from 50 GW in 2021 to 70 GW in 2025, while we forecast that it will reach about 104 GW by 2031, generating about 7.1% of China’s total electricity by 2031, up from 4.8% today. This expansion will make China the global powerhouse of nuclear energy.

In India, ten reactors are currently at various stages of construction and will increase local installed capacity by nearly 8 GW, from 6.9 GW currently. In addition, the government has sanctioned the construction of ten 700‑MW indigenously designed reactors by 2031. It has also approved in principle plans to build 28 reactors, potentially boosting India’s installed nuclear capacity by up to 31.9 GW. We do not expect that all these projects will be delivered on time, and forecast that India’s nuclear energy capacity will reach 14.3 GW by 2031.

With many countries in the region having net-zero targets for 2050-70, it is evident that governments are eyeing nuclear energy as a way to phase out coal consumption without compromising their energy security. However, nuclear energy is unlikely to be helpful in pulling down energy prices in the short term given the time needed to develop nuclear projects. Governments will therefore continue relying on fossil fuels in the short term, while raising capacity for renewables and nuclear.

The analysis and forecasts featured in this piece can be found in EIU Viewpoint, our new country analysis solution. EIU Viewpoint provides unmatched global insights covering the political and economic outlook for nearly 200 countries, helping organisations identify prospective opportunities and potential risks.