The Price of Conflict and Energy Price Inflation
CHAPTER 1
Prolonged Conflict and Ambitious Intentions
Asia Pacific has placed the renewable energy transition close to its heart and many corporations plan to put renewables at the forefront of their businesses. However, the road ahead continues to be riddled with challenges, especially as the gap between ambitions and reality persists.
The prolonged war between Russia and Ukraine has brought macroeconomic volatility and energy uncertainty – factors that have been impeding renewable energy uptake. Regions further up the adoption curve are being nudged to increase renewables adoption, while the lagging countries are reverting to brown energy.
Barriers to adoption
Guided by the conviction that renewables will help with their business objectives, many companies in APAC have prioritised sustainable forms of energy.
agreed that they gained a business advantage from sourcing renewables
agreed that renewable energy gives corporations a better public image
agreed that renewable energy created an advantage in recruiting talent
Top 3 concerns due to inflation with regards to energy:
Cost of energy
Renewable energy goals
Energy suppliers
Given the awareness of the potential benefits of the adoption of green energy, what is stopping corporations from further propelling this process forward? What are the barriers companies in this region are facing? And how can these barriers be overcome?
Geopolitical conflicts and inflation have left corporations with growing concerns about energy prices, as rising costs translate into a more expensive renewable energy adoption. 32% of respondents surveyed agreed that with inflation, the cost of energy tops their list of concerns. But, just one in five respondents (21%) is concerned about how it will affect their renewable energy goals.
Looking further into the region, more than half (52%) of the respondents from the Philippines have similar sentiments, with the cost of energy being their top concern due to inflation. This is also the market with the greatest number of respondents indicating this concern.
Singapore and Australia follow closely behind, with close to 40% of respective respondents indicating their concern on the increased cost of energy.
The challenges of fragmented markets
This region presents a unique set of challenges for corporations operating in various markets. Complex regulations and fragmented energy markets, coupled with the lack of infrastructure, have made rising costs a major deciding factor.
On top of inflation-induced increases, investment costs went up as a result of various regulations, posing additional barriers for corporations with limited budgets. Interestingly for countries that are more mature in renewable energy, such as Vietnam (52%), Japan (50%) and Australia (39%), high investment costs are recognised as less of a problem compared to the long payback time.
Slow government implementations of renewable energy policies and unpredictable policy environments in local markets have also contributed to existing hurdles when it comes to navigating the region’s renewable energy landscape.
“We operate 11 tyres and tyre-related in 6 countries (in APAC). Unfortunately, each country has completely different renewable energy policies. In some markets, the policy is not fully developed, and options are not available. Some markets are more expensive, and some are more restrictive. We can’t have a one-solution-fits-all approach, and it must be a highly flexible strategy, which is challenging.”
- Sreepadaraj Karanam, VP, Sustainability & CSR, Bridgestone Asia Pacific
Top 5 barriers to renewables
Investment costs too high/limited budget:
Lack of government implementation for renewable energy policies:
Unpredictable policy environment:
Payback time too long:
Lack of service providers that can deliver global standards
Weighing the Cost of Renewables
49% of respondents agreed they were looking for low-cost gas/fossil fuel suppliers as a result of the Russia-Ukraine war. More respondents (55%) in Southeast Asia (SEA) concurred, implying that the region has seen some movement away from renewables and is instead looking for alternative sources of fossil fuels. Nearly two in three (59%) respondents in SEA expect to see more subsidies for coal and fossil fuels in the next two to three years.
In balancing renewable energy goals with increased costs, the majority of corporations (54%) have decided to reduce energy consumption, while more respondents in SEA (59%) are exploring alternative avenues to lesser energy usage in the hope of easing costs.
Top 3 outcomes from the Russian-Ukraine Crisis
Look for avenues to reduce energy usage within organisation
Look for low cost gas/fossil fuel suppliers
Increased worry over organisational energy security
The Reality of the Renewable Transition
Navigating the renewable transition is new territory for many corporations. For this reason, only about a third of respondents (36%) feel sufficiently informed about the renewable energy options that are available. Close to a third (29%) noted that their corporation’s technology is not up to the standard to support the transition or that they lack the expertise to evaluate renewable options (28%).
Feel informed about the renewable energy options that are available
Internal Barriers to Renewable Energy
Technology not up to standard
Lack of expertise to evaluate offers/confusing offers
Location unsuitable
Lack of internal management capacity
Lack of time
Key Takeaways
Despite a lower direct impact on APAC, the Russia-Ukraine war has highlighted that the region can’t completely isolate itself, and it substantiated the need for corporations to diversify their energy sources. Overall, market regulators and policymakers have started making a positive contribution in terms of setting climate goals, but a greater push for greener objectives is necessary.
With stronger support and increased initiatives for renewable energy, more cross-border opportunities can be created between APAC markets, which will aid corporations operating across the region. At the same time, support to ease associated costs caused by geopolitics and economic developments will be necessary to onboard more corporations onto the energy transition bandwagon.
Multiple barriers to success lay ahead, but there is no better time for APAC corporations to make significant progress in their renewable transition. Sufficient and appropriate corporate policies and governmental regulations must be put in place to address external concerns and internal factors, to prevent reversion to traditional energy sources and reduce any delays as much as possible. With the current challenges laid out, corporations can turn them into opportunities for greater renewable energy growth.