Perceptions of climate-related risk in Southeast Asia’s power sector

Given the growing international pressure to mitigate climate change and increasing fears around climate impacts, current expectations of continued investment in fossil fuels in Southeast Asia’s power sector appear puzzling. This paper explores how power sector investors perceive climate-related risks and how they factor these risks into investment decision-making. In doing so, we seek to explain why countries in Southeast Asia are making plans for – and investors are continuing to invest in – predominantly fossil fuel-based power generation at the expense of renewable or clean generation options, and what it would take to substantially shift investment from fossil fuel-based generation into renewable options in the region. Analysis of 17 interviews with industry experts suggests that there is a significant gap between the need to integrate climate-related risks within investor decision-making, and the way these risks are currently being integrated and addressed in the Southeast Asia power sector. Climate-related risk appears to be either not a significant factor, ignored in light of other concerns, or only superficially integrated into decision-making. The results of this research point to an urgent need for action targeted at energy-sector investors in the region in order to shed light on climate-related risks, share information on the likelihood and magnitude of risks, lay out clearly the potential for stranded assets in a 10–15-year time frame, and encourage transparent, open and respectful dialogue and discussion on these critical issues.Key policy insights Power sector investors in Southeast Asia generally do not consider climate-related risks as a significant factor when making investment decisions.Dominance of established routines and mindsets lead to omission of in-depth analysis of climate-related risks and skewed perceptions of risk in renewable energy investments.Pressure to commit large sums through recognized investment channels creates path dependency towards continued financing of large-scale fossil fuel projects.Financial governance mechanisms generally have very low compliance requirements regarding reporting on and mitigating climate-related risks.Policy and regulatory action is needed to raise awareness of climate-related risks, lay out potential for stranded assets and create opportunities for investing in renewable energy.