ASEAN’S energy transition could deliver significant economic benefits, potentially adding US$3 trillion to US$5.3 trillion to regional gross domestic product by 2050, attracting US$3.7 trillion to US$6.7 trillion in green investments, and creating 49 million to 66 million new jobs.
Realising these benefits requires not only sufficient finance, but also the effective channelling of funds into sustainable projects.
To this end, Asean has also developed the Asean Taxonomy for Sustainable Finance, the Asean Green Bond Standards, and the Asean Catalytic Green Finance Facility.
However, these frameworks have not automatically translated into rapid project implementation, highlighting the importance of investment readiness.
Asean aims for renewable energy to account for 30% of its total primary energy supply (TPES) and 45% of its installed power capacity by 2030, as outlined in the Asean Plan of Action for Energy Cooperation 2026-2030.
However, because renewable energy accounted for about 14% of TPES in 2024, significant progress is needed to meet this goal.
This suggests the issue extends beyond the availability of sustainable finance to Asean’s capacity to prepare investment-ready, financially viable energy projects.
According to the Asean Energy Investment 2025 report, the main obstacles to energy investment – as viewed by policymakers – are legal and regulatory risks, access to finance, project cash flows, technology risks and uncertainty in interest rates and currency.
From the private investors’ perspective, these include revenue uncertainty, high equity costs, a lack of bankable projects, high debt costs, and construction or operational uncertainty.
This indicates that policymakers should focus on regulation, while investors are more concerned with bankability and returns.
To bridge it, governments, project developers, financial institutions and development partners need to enhance project preparation, lower risks and make projects more attractive to investors.
Globally, the World Bank reports that developing countries receive only 20% of global energy investment, even though they account for two-thirds of the world’s population.
Moreover, only two-thirds of Asean green bonds support renewable energy and energy efficiency.
Policies to increase issuance do not always lead to more domestic renewable energy or energy efficiency projects.
These underlying factors indicate that Asean energy investment has not yet reached its full potential.
Sustainable-finance instruments may be available, but their availability does not automatically translate into new energy- transition projects.
If the financial structure and instruments are mostly available, why is Asean still facing a significant energy investment gap and missing its energy transition target?
The issue is not on the supply side (not so much the availability of funds), but on the demand side or the ability to mobilise the available funds into bankable energy projects that meet the expectations of private investors (called “investment readiness”).
The key bottleneck is limited capacity to prepare bankable technical and financial aspects of energy transition projects that meet the main requirements of financial institutions and investors.
In addition, technical capacity and investment readiness are fragmented among Asean member states.
For example, renewable energy progress in Indonesia is slower than in Vietnam because Vietnam has clearer national policies and strategies, reflecting better investment readiness.
Moreover, around 78% of total energy investment in Asean in 2024 was financed through loans rather than project finance and equity, indicating the financial institutions and private investors’ preference due to the high risk they perceive.
Among key elements of energy investment readiness, the preparation stage is the most crucial.
Investing in scaling Asean capacity at the project preparation stage increases the number of bankable projects for the remaining stages.
At the project preparation stage, multilateral development banks (MDBs) and development partners can provide assistance in reviewing and designing the required aspects to meet the project’s bankability requirements.
This includes enabling environments (legal and regulatory aspects), project scoping and design (technical aspects) and financing.
However, this is not enough to strengthen Asean’s demand-side capacity for energy investment.
This capacity building requires understanding private investors’ perceptions such as business models and operations, market size and the amount of capital needed.
Therefore, robust preparation at this stage will also require close coordination among the stakeholders involved in the project.
These stakeholders include MDBs and potential investors, as well as existing project preparation facilities such as the Asean Power Grid Financial Facility, Asean Infrastructure Fund, Indonesia Project Development Facility.
Asean does not need to build project preparation facilities from the first step.
Instead, it should coordinate with the existing ones to reduce fragmentation, for example, through a knowledge-sharing platform dedicated to Asean and broader initiatives such as the Green Climate Fund’s Project Preparation Facility and others.
Selection of de-risking mechanisms and business models is the next step that needs to be designed to enhance energy investment readiness in Asean.
Business models should match project features to ensure a certain revenue and proper risk sharing. De-risking mechanisms should address specific risks that might discourage private investment.
Asean can consider using the De-risking Renewable Energy Investment (DREI) framework, starting with renewable energy projects.
Additionally, leveraging existing collaboration with MDBs and private investors can support the application of the DREI framework by identifying project-specific risks and using the right combination of tools (such as guarantees, blended finance, or public-private partnerships) to attract private capital. — The Jakarta Post/ANN
Ambiyah Abdullah is a senior economist and a senior researcher, and Siti NurJihan Rahmat is an analyst, both at the Asean Centre for Energy. The views expressed here are their own.
