Power without borders: Southeast Asia’s connectivity challenge

Turning the decades-old vision of an ASEAN Power Grid into reality will take a major infrastructure spend. Improving cross-border grid connectivity is a pre-requisite for the transition toward cleaner, more abundant and affordable energy needed to fuel the region’s future growth. This should translate into a compelling investment story for Australian capital.

But compelling is not the same as investable. Between the opportunity and the reality are three stubborn barriers. Australian leadership to overcome them would strengthen its bona fides as a regional partner aligned with the Government’s push for stronger investment ties with the region.

The acceleration in progress towards realising the vision of the ASEAN Power Grid observed over the past 18 months also reveals something important about the region and how it might navigate the global moment of ‘rupture’.

The idea of an ASEAN Power Grid is almost as old as the forum itself. Lao PDR first exported hydropower to Thailand in the 1970s, and an ASEAN-wide grid was formally included in the ASEAN Vision 2020 adopted by leaders in 1997. A Memorandum of Understanding followed in 2007, and successive masterplan studies have identified priority interconnections. Despite the grid becoming a program area under the ASEAN Plan of Action for Energy Cooperation (APAEC), progress remained elusive for decades.

The core vision hasn’t changed, but the conditions around it have. In 2025, member states signed an enhanced Memorandum of Understanding, and a new APAEC covering 2026–2030 came into force. A financing architecture is also now forming, led by the Asian Development Bank and the World Bank. The ADB has committed an initial $US 10 billion over ten years and the World Bank $US 2.5 billion under the ASEAN Power Grid Financing Initiative.

The third iteration of the ASEAN Interconnector Masterplan Study sets a demanding trajectory for progress: full regional interconnection is targeted for around 2045, with the interconnector pipeline to 2040 requiring roughly USD 27 billion of investment, close to twenty times the pace of the past five years.

This ramp up is being driven by three forces arriving at once.

First, ASEAN members have built sufficient trust in one another to be able to move from bilateral arrangements to genuine multiparty coordination. The Lao PDR–Thailand–Malaysia–Singapore Power Integration Project, which since 2022 has demonstrated that multilateral cross-border electricity trade can work commercially, has proved the concept.

Second, the economics have become harder to argue with. The region’s electricity demand will roughly triple by 2050 as economies expand and electrify, meaning more than $US 300 billion of grid investment is required between now and 2040. Meeting that demand through fragmented, under-connected national grids would be vastly more expensive than through integration. A hard ask for increasingly cash-strapped governments. Inside that broader requirement sits a distinct opportunity: cross-border interconnectors themselves, requiring annual investment surpassing $US 1 billion before 2030 and averaging more than $US 2 billion thereafter — a major lift from historical levels. But a strong economic case is essential, not sufficient. Domestic political friction and vested interests still need careful management. Neglecting domestic stakeholder management can derail even commercially viable projects.

Third, the geopolitics of the region is motivating investments in resilience. In a world of heightened US–China competition, ASEAN members recognise that a regionally integrated energy system reduces dependence on any single external power for critical infrastructure and strengthening their capacity to absorb external shocks. Energy security and strategic autonomy are now intrinsically linked.

While the investment required is significant, the biggest roadblocks to achieving the vision of an ASEAN Power Grid are not a lack of capital or lack of strategic intent. The main sticking points are regulatory mismatch, holes in the financing architecture, and supply-chain bottlenecks. Unless all three are resolved, the ASEAN Power Grid will remain investable in theory but not in practice.

Australian institutional investors are built to buy de-risked assets operating under mature regulatory frameworks. Super funds and infrastructure managers invest as minority stakes in projects already running, paying predictable dividends with inflation protection and a clear exit — which is why around 60 percent of Australian offshore investment sits in the US and UK, where rules are established, regulators are clear, and counterparty risk is legible.

We have seen a positive signal in the governance environment. Indonesia, for example, is the first Southeast Asian country to open OECD accession talks in February 2024 (now joined by Thailand). The country is now in the process of aligning its legislation and practice with OECD standards on public governance, anti-corruption and investment. If that happens, and over time, spreads to other ASEAN members, it would steadily improve the governance and compliance standards that prevent Australian investors from investing in the region.

Cross-border ASEAN transmission calls for a different kind of comfort. Investors need to assess wheeling methodologies, manage currency mismatches, secure third-country transit rights, and form judgements as to whether bilateral agreements survive electoral cycles. The Lao PDR–Thailand–Malaysia–Singapore project illustrates the problem: despite commercial success, it sparked tension over wheeling charges. ASEAN still lacks a shared institutional set-up that would routinely and authoritatively resolve such disputes.

The default financing model for transmission projects is state-owned enterprise balance-sheets combined with concessional multilateral capital. But this model has three binding constraints. One is tenor mismatch: transmission projects are 30–40-year assets, yet commercial lenders in the region are comfortable at 5–10 years. Another is single-borrower constraints: SOE exposure limits are already binding at the region’s largest utilities. The third is the absence of clear and credible exit mechanisms: early investors have no standardised way to recycle capital out of 30–40-year assets into the next project. Financing solutions do exist through blended debt structures, minority equity stakes, regional aggregation platforms, availability-payment frameworks but they are not yet stitched together in the kind of architecture that Australian investors recognise as familiar and bankable.

And that’s all before contending with supply chain bottlenecks. It remains a serious constraint, as shown by a doubling of lead times for large power transformers from 2021 to 2024. Subsea cable manufacturers are booked into the early 2030s; only around 60 specialised installation vessels exist globally. HVDC converters face a multi-year backlog of orders. Supply is concentrated: a handful of firms in a few countries control the critical path. For investors, this creates a basic planning problem: timelines and project economics depend on securing capacity years ahead of final investment decision, in a market already at capacity. Without long-term offtake guarantees and framework agreements that lock in supply slots, investors cannot model returns with sufficient confidence.

Australia is uniquely positioned to help unlock the opportunity that the ASEAN Power Grid presents — not by competing with the region’s own financing vehicles, but by integrating with them and bringing experience few other partners can match.

First, Australian financing vehicles could integrate with the ADB/World Bank platform rather than duplicate it, layering Australian capital beneath multilateral instruments to improve returns and help close the financing-architecture gaps that constrain the entire pipeline.

Second, Australia’s experience in market design — the successes and the cautionary tales — speaks directly to the multi-party coordination and long-term offtake structuring the grid still lacks. The National Electricity Market was not built overnight and has had its fair share of challenges. But the experience of knitting together a geographically dispersed set of grids across jurisdictions within a common regulatory framework is maybe the closest analog anyone can offer to the task ASEAN faces.  

Third, Australian institutions could strengthen their standing as preferred partners in Southeast Asia by investing in their own capacity to operate in the region.

The ASEAN Power Grid will be built; the question is when and who sets the terms. If Australia moves decisively now — integrating capital, experience and commitment — it can help shape the infrastructure that will determine Southeast Asia’s energy landscape for the next three decades and unlock significant investment opportunities in green businesses for Australian investors (estimated to be around AUD 15 trillion by 2050). If it does not, it will watch from the sidelines as others do.

Rachel Thompson is the CEO of Asialink.

Fachry Frisandi is a management consultant focused on energy transition and sustainability in Southeast Asia. He is an Australia Awards Scholar currently studying for a Master of Public Policy and Management at the University of Melbourne.