For decades, the ASEAN power grid has remained one of the largest and most ambitious integration projects in Southeast Asia. But as energy demand increases, pressures for decarbonization intensify, and governments seek greater energy security, cross-border electricity trade is moving from a long-term aspiration to an urgent regional necessity.
Recent analysis from the ASEAN Energy Centre, supported by consultations undertaken by the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) and partners under the ASEAN Power Grid Development Program, suggests that smaller sub-regional trade agreements could be the most practical path to wider ASEAN electricity integration in the near term.
Building on the successes of the Laos-Thailand-Malaysia-Singapore Energy Integration Project (LTMS-PIP), which was officially launched in 2022, there are now compelling reasons to start developing new sub-regional multilateral trade agreements on electricity trade.
There are myriad potential combinations of ASEAN member states that could come together to develop new and beneficial sub-regional multilateral arrangements in electricity trade. In identifying a potential lead group, ESCAP and its partners considered factors such as existing and planned interconnections, regulatory readiness, experience with cross-border electricity trade, and countries’ broader relevance to ASEAN-wide integration efforts. Based on these criteria, it is particularly promising to pursue multilateral electricity trade between Vietnam, Thailand, Malaysia and Singapore, or VTMS for short.
In December, at a consultation meeting on the ASEAN Power Grid, the ASEAN Energy Center and VTMS countries agreed to move forward with a pilot electricity trading proposal, with support from ESCAP and other development partners.
The pilot project will serve as a practical test of how to translate the recommendations of the recently completed ASEAN Interconnection Master Plan Study III and the ASEAN Multilateral Electricity Trade Roadmap Study into concrete solutions for sub-regional integration. The VTMS concept has already been recognized in recent ASEAN Ministerial Statements on the energy sector, suggesting that there is growing regional momentum behind the creation of multilateral electricity trade.
Why Vietnam, Thailand, Malaysia and Singapore?
The case for VTMS is compelling because it aligns commercial, technical and energy transition interests in all four countries.
In October 2023, the Singapore Energy Market Authority announced that it would grant conditional approval for the import of 1.2 GW of clean electricity into Singapore directly from Vietnam via an approximately 1,000 kilometer-long undersea interconnection.
However, last month, officials from Malaysia, Singapore and Vietnam signed a joint development agreement to assess the feasibility of a multilateral trade deal under which electricity would be transported by undersea cable from Vietnam to the Malaysian peninsula and then transported using existing grid infrastructure to Singapore.
Compared to a direct connection between Vietnam and Singapore, the advantages of such an arrangement are numerous.
First and most importantly, the required underwater infrastructure would be approximately 40% of the length required for a direct Vietnam-Singapore connection. This would significantly reduce costs, technical complexity and supply chain issues, while remaining well within the range of subsea interconnection distances already built in Europe.
Second, the jurisdictions involved would amount to negotiating complex maritime and territorial issues that would inevitably arise, making agreement on these points more likely. Third, given Vietnam’s abundance of wind energy potential, such an arrangement would allow Malaysia to benefit from some consumption of clean electricity generated, while still sending the required allocation to Singapore.
Finally, the participation of other parties benefiting from trade can lead to mutually beneficial cost-sharing arrangements for a capital-intensive project, potentially as part of a project of common interest.
Adding Thailand to this trading bloc would bring a series of additional benefits.
Thailand, Malaysia and Singapore are already interconnected through the LTMS-PIP backbone network, and there are significant opportunities to strengthen multilateral and multi-directional trade between these countries, especially given plans to upgrade and expand the interconnection between Thailand and Malaysia. This arrangement would also allow Thailand to benefit from imports of clean energy produced in Vietnam, while adding an additional market for this energy which would serve to underpin the business case for a Vietnam-Malaysia interconnection.
The outlines of a VTMS Power Trade pilot project
Beginning later this year, the pilot aims to establish the technical elements of a multilateral VTMS electricity trade, while providing a space for partner countries to discuss key policy, regulatory and infrastructural challenges.
Through technical assistance and capacity building activities, the initiative can help drive nationwide consensus on market development, network code harmonization, transportation costs, common-use financing options, and considerations for subsea infrastructure development.
To demonstrate the benefits and potential of multilateral VTMS electricity trade, the pilot project will begin with cost-benefit analyzes that will define the value of such an agreement for the countries involved.
The pilot project will also lead to activities at the regional and national levels. At the regional level, the pilot project will seek to contribute to the implementation of the Enhanced ASEAN Power Grid Memorandum of Understanding, while activities related to the development of the national electricity market will be defined with countries to strengthen their capacity to engage in deep multilateral electricity trade.
Finally, the VTMS pilot project is expected to generate practical lessons for future sub-regional initiatives, thereby accelerating progress towards the implementation of the broader ASEAN Power Grid vision.