EXECUTIVE SUMMARY

As one of the fastest growing regions in the world in terms of gross domestic product (GDP), population, and demand for both food and energy, Southeast Asia has a strong need to decarbonise its economies and modernise its energy systems. In 2018, around 75% of primary energy demand in the region was met by fossil fuels such as oil, coal and gas. Many key economic activities depend on fossil fuels for heat, which makes substitution with established forms of renewable energy such as hydro, solar or wind challenging. Bioenergy is the most versatile form of renewable energy derived from forestry and agricultural products including residues and wastes. IRENA’s Global Renewables Outlook: Energy Transformation 2050 (IRENA, 2020a) reported that bioenergy could become the largest energy source in the total energy mix in Southeast Asia, accounting for over 40% of total primary energy supply (TPES) in 2050 under its Transforming Energy Scenario (TES), which is consistent with the Paris Agreement’s goal of restricting global temperature rises to well below 2°C. In this scenario, the majority of the biomass would be used in the industry (40% of total bioenergy supply) and transport sectors (37% of total bioenergy supply).

The economic costs and benefits of an energy market transition to sustainable biomass have been appraised for the 13 potential pathways, revealing potential benefits of USD 144 billion of net present value of socio-economic benefits in 2050, creating over 452 000 new resilient jobs and saving around 442 million COe tonnes of greenhouse gases (GHG) emission per year.

INTRODUCTION

Southeast Asia is one of the fastest growing regions in the world in terms of gross domestic product (GDP), population, and demand for both food and energy. There is, therefore, an urgent need to decarbonise the economies of the region, whilst also modernising their energy systems. While the region’s rising fossil fuel demand – especially for oil – has outpaced its production (IEA, 2019) there are some encouraging signs for the development of renewable sources. With economic growth exceeding 4% annually, Southeast Asia’s energy consumption has doubled since 1995 and the energy demand is expected to continue growing at 4% per year through 2040 (ACE, 2015b). By 2040, it is estimated that Southeast Asia’s oil demand will surpass nine million barrels per day (mbpd), up from just above 6.5 mbpd today (IEA, 2019). In 2018, some 75% of primary energy demand came from fossil fuel such as oil, coal and gas, and a further 10% from traditional uses of solid biomass (IEA, 2019). Around 250 million people in the ASEAN (Association of Southeast Asian Nations) region still
rely on traditional biomass for cooking, particularly in Myanmar, Indonesia and Vietnam (IRENA, 2018).

Bioenergy is currently one of the most common renewable energy applications in the region, serving as fuel for industry, buildings, transport and power supply.

Bioenergy should be expanded in industry and transport while traditional uses of biomass for building that are associated with forest degradation and indoor air pollution should be phased out. Bioenergy and electrification should play a major role in the future energy mix in Southeast Asia while gradually reducing fossil fuel consumption. Biomass could also play an expanded role in electricity generation, with its installed capacity expected to grow from 7 GW in 2017 to 176 GW in 2050 under the TES.
As shown in the existing literature, huge potential for further deployment of bioenergy exists in Southeast Asia (IEA, 2019; IRENA, 2017a; Junginger, Koppejan and Goh, 2020). This study seeks to examine selected biomass feedstocks in Indonesia, Thailand, Vietnam, Malaysia and Myanmar, and presents the potential socio-economic benefits that could be unlocked through their conversion into bioenergy. Potential key barriers to these bioenergy pathways, and the key interventions required to further deploy bioenergy, are identified through a PESTEL&F (political, economic, social, technical, environmental, legal and financing) analysis.

METHODOLOGY

This study maps out and analyses the entire biomass value chain through a three-step process, as set out below. A market economics-based approach is utilised to logically develop the bioenergy pathways.

Step 1: Mapping bioenergy
pathways
In step 1, bioenergy pathways were designed around four key market “push and pull”
factors to facilitate demand-driven market transformations:
• Factor 1: availability;
• Factor 2: sustainability;
• Factor 3: accessibility; and
• Factor 4: substitutable market.
This step provides respective governments with an outline of: the conversion routes from identified biomass feedstocks to bioenergy; the potential bioenergy available for end-use applications for the short- (2025), medium- (2030) and long-term (2050) horizons; and the appropriate market where bioenergy could be utilised as an alternative renewable energy source. Both supply (push) and demand (pull) constraints were taken into consideration. Emphasis was placed on identifying appropriate supply and demand constraints to provide a holistic understanding of the factors. Lastly, conversion efficiency adjustments were made to the applicable supply to make it comparable to fossil fuel demand. The
applicable potential market that is the minimum of the two represents a realistic market for each pathway identified. This approach is illustrated below:

Step 2: Quantifying bioenergy economics

Bioenergy economics is used to appraise the demand for bioenergy versus the potential available supply, using economic value. Associated economic costs are estimated and compared with estimated socio-economic benefits through a high-level socio-economic cost–benefit analysis based on the following two key economic parameters:

ECONOMIC NET PRESENT VALUE (ENPV) Evaluates the difference between the present value of socio-economic benefits and present value of economic costs over a period, discounting future amounts to current values at a specified social discount rate. ENPVs for different proposed bioenergy pathways provide the rationale for accelerating fuel switching from fossil fuels to bioenergy that can bring positive socio-economic benefits.
BENEFIT–COST RATIO (BCR)
Compares the relative economic costs and socioeconomic benefits of a proposed bioenergy pathway. If the proposed bioenergy pathway has
a BCR greater than 1.0, it is expected to deliver
a positive net present value to the country.
Comparing BCR ratios for different proposed
bioenergy pathways provides a basis for prioritising
those bioenergy pathways that can most quickly
achieve economic efficiencies.
The bioenergy economics analysis considers the economic costs and benefits as outlined in the table below.

Step 3: Identifying key barriers and interventions
7 Benefits are calculated as net job benefits, meaning the figure accounts for lost jobs in identified markets where bioenergy can act as a substitute energy source. Contribution to the economy is estimated by multiplying net jobs with average wages in applicable sectors. Each target country’s current bioenergy climate is analysed using political, economic, social, technical, environmental, legal and financing (PESTEL&F) dimensions to identify key barriers limiting bioenergy potential. Specific interventions for each barrier identified are then presented to help target countries to mitigate existing barriers and unlock the socio-economic benefits identified in Step 2.
The elements considered for each PESTEL&F dimension are further described below.

COUNTRY-SPECIFIC FINDINGS

Indonesia, Thailand, Vietnam, Myanmar and Malaysia were identified as the five target ASEAN countries for this study. Indonesia, Thailand, Vietnam and Malaysia were selected based on IRENA’s Southeast Asia Renewable Market Analysis (IRENA, 2018), whilst Myanmar was selected due to its current high rate of deforestation (Myanmar Times, 2015), which poses challenges for the transition from traditional to modern bioenergy. In all cases, target countries were chosen based on the extent to which the findings of this study could provide valuable information to aid them in their transition to biomass as their energy source.

(IRENA, 2017b), which is a major driving force for forest degradation leading to substantial GHG emissions.8 The supply of bioenergy has decreased since its peak of 2 140 PJ in 2008, as access to electricity has improved in rural areas.

While its demand for energy continues to grow, Indonesia risks relying more on fossil fuels such as coal, natural gas and oil in its energy mix. To set a course for climate compatible pathways, it is of critical importance to reverse this trend and embark on an energy transition in which bioenergy plays an essential role.

AGRICULTURAL RESIDUE, ACACIA AND RUBBER
Indonesia has a thriving agricultural sector that contributed approximately 13% of its total GDP (OECD, 2020b) from 26.3 million ha of arable land in 2018 (FAOSTAT, 2021). The country is a major global producer of palm oil and coconut, mangoes, natural rubber, rice, bananas, coffee, pepper, maize, cassava, pineapple, sweet potatoes, oranges and sugarcane (FAOSTAT, 2021). Among these, the three agricultural crops with the greatest potential for scaling residue-derived bioenergy are oil palm, rice and sugarcane. These include palm kernel shells, empty fruit bunch, old trunks, rick husks, rice straw, sugarcane bagasse, sugarcane tops and sugarcane leaves.

Indonesia’s energy mix
As the final step in mapping bioenergy pathways, the most substitutable end-use markets for bioenergy penetration in Indonesia are analysed. The industry and transport sectors consume approximately 67% of Indonesia’s energy (see Figure 7) and provide concentrated nodes of energy demand where fuel substitutions should be facilitated in a move toward a low carbon economy.

Under current energy policies, coal consumption is projected to rise in order to meet growing demand for industry in Indonesia. Although many technical and economic challenges remain in substituting biomass for metallurgical coal, coal used in the cement making process is considered a substitutable demand due to its close heating value to biomass. Figure 8 presents Indonesia’s energy mix targets for 2025 and 2050.

Consumption of coal and natural gas has considerably increased in the last decade and is expected to grow further under current energy policies in Southeast Asia (IEA, 2019). While solar and wind are expected to play expanded roles in the power mix of the country, bioenergy can also be explored as a realistic option to aid a structural shift to clean energy by providing heat and baseload electricity supply without disrupting grid stability. The economic rationale for positioning biomass-based power generation as a substitute for coal and natural gas options while solar and wind power generation costs are rapidly declining is the fact that moderate modifications to existing facilities are required for
switching fuels to biomass. Furthermore, there is the possibility that phased replacement of coal can be planned by adopting co-firing without risking existing facilities becoming stranded assets (Gent et al., 2017). The Government of Indonesia has initiated co-firing as part of an effort to achieve a mix of renewable energy and emissions reduction whilst keeping investment relatively low, as co-firing can be implemented in existing coal power plants. Currently, co-firing is only intended for the coal-fired power plants (114 plants at 52 locations) owned and operated by the state-owned entity Perusahaan Listrik Negara (PLN). Future expansion of the scheme is expected to include coal-fired power plants owned and operated by independent power producers (IPPs).

Thailand Significant socio-economic benefits can be unlocked in Thailand by utilising the biomass feedstock produced from its large agricultural industry.

Thailand, located at the centre of the Indochinese Peninsula, is one of Asia’s most populous countries and has a land area of 51 million ha, comprising 22 million ha of arable land and 20 million ha of forest (FAO, 2020b). Thailand has a thriving agricultural sector and is a major exporter of rice. As presented in Figure 19, below, bioenergy is the largest energy source among renewables in Thailand, with a primary supply amounting to 1 074 PJ in 2018. Bioenergy is the third major energy source in Thailand, and is used for cooking and process heating in the residential and manufacturing sectors (Papong, et al., 2004). The supply of bioenergy has been increasing since 2000, although consumption of fossil fuels has also seen growth or remained consistent, as Thailand has constructed new power plants to meet rising electricity demands in rural areas.

While its demand for energy continues to grow, Thailand risks relying more on fossil fuels such as coal, natural gas and oil in its energy mix. To set a course for climate compatible pathways, it is of critical importance to reverse this trend and embark on an energy transition in which bioenergy plays an essential role.

Thailand’s energy mix

As the final step in mapping bioenergy pathways, the most substitutable end-use markets for bioenergy penetration in Thailand are analysed. The most probable application for bioenergy in Thailand is within the industry and transport sectors as substitutes for conventional fossil fuels. These sectors consume approximately 58% of Thailand’s energy (see Figure 20) and provide concentrated nodes of energy demand where fuel substitutions should be facilitated in a move toward a low carbon economy. Under current energy policies, total consumption of fossil fuels is expected to rise in order to meet growing demand from the industry and transport sectors in Thailand, although total consumption of biofuels is also expected to increase as part of Thailand’s energy mix (IEA, 2020).

Vietnam
Vietnam can unlock significant socio-economic benefit potential by utilising the biomass feedstock it produces from its large agricultural industry.

As presented in Figure 33, bioenergy is the largest energy source among renewables in Vietnam, with a primary supply amounting to 342 PJ in 2018. Currently, biomass is generally treated as a non-commercial energy source and used locally (Zafar, 2019), whilst the latest energy data note that the majority of bioenergy consumption in Vietnam occurs in the industry sector (IEA, 2019). To improve access to electricity, a Dutch-funded biogas program oversaw the installation of biogas digesters in rural and semi-urban settings to provide these communities with power, which could lead to steady demand for biomass feedstock in the future. The supply of bioenergy has been consistent for the past few decades, barring a notable decrease in supply in 2018.

The most probable applications for bioenergy in Vietnam are within the industry and transport sectors as substitutes for conventional fossil fuels. These sectors consume approximately 74% of Vietnam’s energy (see Figure 34) and provide concentrated nodes of energy demand where fuel substitutions should be facilitated in a move toward a low carbon economy.

Malaysia
Malaysia can unlock significant socio-economic benefit potential by utilising biomass feedstock produced from its large agricultural and forestry industries.

Malaysia has a land area of 33 million ha, comprising 9 million ha of arable land and 19 million ha of forest (FAO, 2020d). The agricultural sector is identified by the Malaysian Investment Development Authority (MIDA) as a key sector, contributing 7.3% (DSM, 2020) of the country’s GDP. However, Malaysia does not have any major agricultural crops that rank within the top 10 globally in terms of production quantity except for palm oil. As presented in Figure 49 below, bioenergy is not the largest energy source among renewables in Malaysia, with a primary supply of 37 PJ in 2018. Hydro is the largest renewable energy source in Malaysia, with a primary supply of 95 PJ. Ultimately, renewable energy sources represent a negligible percentage of total energy supply in Malaysia (approximately 1%). Natural gas, oil and coal contribute the largest supplies to Malaysia’s energy mix at 1 624 PJ, 1 213 PJ and 947 PJ, respectively.

Bioenergy pathways and substitutable markets identified in Malaysia The consideration of both supply and demand in Malaysia’s energy mix results in the identification of acacia and rubberwood for direct combustion for combined heat and power generation as the most probable bioenergy applications. Substitutable markets for biomass have been estimated for three different horizons, namely 2025, 2030 and 2050.

Myanmar
Half of Myanmar’s energy needs are met by bioenergy – particularly woody biomass – but the use of biomass feedstock comes at the expense of deforestation and forest degradation.

Myanmar is the 10th largest country in Asia by area and is bordered by emerging economies such as India and China. It is a biodiverse country and is home to some of the largest intact natural ecosystems in the region, but the remaining ecosystems are under threat from land use intensification and over-exploitation.

Since only woody biomass was discussed for Myanmar, the main target of end-use applications is the industry sector, which consumes approximately 28% of Myanmar’s energy (see Figure 57) and provides concentrated nodes of energy demand where fuel substitutions should be facilitated in a move toward low carbon economy. The residential sector currently consumes the largest amount of energy, with wood fuel being combusted in residential rural areas.

CONCLUSIONS

To achieve sustainable development and climate management commitments, bioenergy must become a mainstream primary energy source for countries in Southeast Asia. Fossil fuel consumption in Southeast Asia must be scaled down to the absolute minimum, whilst alternative sources of renewable energy such as bioenergy need to be thoroughly explored and implemented if ASEAN member countries are to reach their climate objectives. Utilisation of biomass feedstock as a primary energy source has significant potential for growth in the countries of Southeast Asia, thanks to their abundant natural resources and large agricultural sectors; however, deploying biomass feedstock requires changes to bioenergy policies. The key challenges for the countries of the region include: developing a clear understanding of biomass potentials; setting ambitious yet viable targets for bioenergy; integrating bioenergy in national energy policies; and fostering robust biomass industries with clear, time-bound roadmaps.

Source:IRENA