The region’s energy transition is dangerously underfunded

Donors are falling particularly short when it comes to supporting Southeast Asia’s clean energy transition, with ODF for clean energy in decline over recent years. This is of global significance. Energy production in Southeast Asia is heavily dependent on coal, and its fleet of coal-fired power plants is relatively young. The International Energy Agency (IEA) projects the region will account for about 25% of future global energy demand growth to 2035.¹

Without faster decarbonisation, this will be associated with a similarly large increase in carbon emissions and see Southeast Asia’s emissions become more than 60% higher than those projected for the European Union, and three-quarters as high as those for the United States. To avert this trajectory, annual clean energy investment in Southeast Asia needs to quadruple from current levels to $130 billion by 2030.²

However, ODF support for clean energy has declined markedly since 2018 largely due to a slowdown in Chinese lending to debt-distressed Laos for large hydropower dam projects. Although two plants remain under construction and continue to receive disbursements, overall funding is tapering off. The efficacy of much of this investment is also dubious, with Chinese financing having created billions of dollars in overcapacity in Laos’ domestic energy market — as detailed in the Lowy Institute’s 2025 report, Trapped in Debt: China’s Role in Laos’ Economic Crisis.³

Meanwhile, traditional development partners have made big promises for additional clean energy financing. Most notable are the Just Energy Transition Partnerships deals signed in 2022 between Indonesia and Vietnam with G7 countries and other partners, worth $20 billion and $15 billion respectively. Yet 2023 saw the lowest level yet of clean energy ODF in Southeast Asia at less than $710 million — down from $1.7 billion in 2018, and equivalent to just 6% of the $12 billion the IEA thinks is needed annually from development partners by the early 2030s.⁴ Worse, the IEA figure is for concessional finance, and on that measure, the international community provided just 2% of what is required, with the rest being provided as non-concessional loans.

Traditional partners — led primarily by the MDBs and Japan — account for 42% of total clean energy ODF since 2015, averaging $550 million per year. In 2023, there was a modest uptick due to increased World Bank support for clean energy projects in the Philippines and Vietnam. Annual commitments from traditional donors have remained relatively stable, averaging around $740 million, potentially indicating a turning point or mild recovery in the years ahead.

In contrast, commitments from non-traditional donors have been mostly uneven. Driven largely by Chinese hydro projects in Laos, they have dropped sharply since the last major commitment in 2018, averaging just $100 million per year since then.

Overall development financing for clean energy has been declining since 2018 with little sign of a new pipeline of projects being built up. Instead, recent Western aid cuts could worsen the trend given Team Europe and the United States currently account for about 20% of ODF for clean energy.

Lacklustre support for the region’s clean energy transition has been punctuated by record high assistance for extreme weather events. In 2023, the number of people affected by extreme weather events and natural hazards was more than double the 2015–22 average, driven by Typhoon Doksuri/Egay in the Philippines, Cyclone Mocha in Myanmar, and severe droughts in Indonesia. Development partners, especially the World Bank, the United States, and the UN’s Central Emergency Response Fund, reacted with a surge in emergency relief.