Participation by multilateral and regional lenders will be key to building stronger investment frameworks, ensuring that sustainable energy is both readily available and affordable

Asia-Pacific has many of the advantages investors look for when they consider where to allocate capital – and this is particularly true in the case of energy and renewables. Outside of north-east Asia, for example, the region’s population growth is strong, and the rate of urbanisation is increasing. Across south-east Asia, or ASEAN, where the IMF projects that economic growth will continue to be among the highest in the world, electricity demand is surging.

Yet there is a persistent and significant finance gap – the difference between estimates and the actual investment needed – in APAC’s sustainable energy. Recent estimates from the UN Economic and Social Commission for Asia and the Pacific (ESCAP) put the gap at $500bn annually. The Asian Development Bank (ADB), working with a broader definition of “climate mitigation and adaptation”, claims a shortfall of almost $800bn. The success of energy projects depends on narrowing the gap.

 

“To expand investment in both natural gas and renewable energy, governments must provide a consistent energy mix outlook and clear policy direction”

 

But, says Hayashi Nobumitsu, Governor of the Japan Bank for International Cooperation (JBIC), investment in the energy sector is only feasible with a long-term outlook for supply and demand. “To expand investment in both natural gas and renewable energy, governments must provide a consistent energy mix outlook and clear policy direction,” he says.

 

 

A key solution, proposed by both public and private sector organisations at the Energy Asia conference in June 2025, is to increase collaboration among nations. “There have been great strides made [in regional coordination],” says Cathy Shepherd, Global Head of Corporate Banking for Clean Energy Transition at Citi. She cites the ASEAN Power Grid – an initiative to connect the electricity grids of the 10 ASEAN member states – as “a huge step in the right direction”. More region-wide efforts such as this, she argues, will help to attract funding from banks, multilateral and regional lenders such as the ADB and export credit agencies, among other institutions.

 

 

Policy and regulatory harmonisation are also instrumental because, as Bob Maguire, Managing Director at private equity firm the Carlyle Group, says, there needs to be certainty in order to attract the kind of long-term capital required. Among the challenges are the varying levels of economic development in the region, which is home to some of the world’s wealthiest nations, but also some of its least developed. Policies that are appropriate for Malaysia or Thailand are unlikely to work for Cambodia or Myanmar.

Multilateral and regional lenders can lead the way in this regard, particularly by establishing stronger investment frameworks to accommodate different levels of development and by promoting more blended finance, a type of funding that combines public, private and philanthropic capital. Globally, renewable energy accounted for 47 per cent of blended finance deals in 2024, making it the largest target sector for this kind of investment, according to research by the non-profit organisation Convergence. APAC is somewhat behind other regions in the total value of blended finance transactions, but has had the largest median deal size, suggesting room for increases in the years ahead.

 

 

Another approach, which would follow on from stronger investment frameworks, is better matching of risks to suitable investor pools. “With a PE [private equity firm] expecting a six to seven-year investment horizon and looking for high returns, it’s not going to match,” says Tengku Muhammad Taufik, President and Group CEO of PETRONAS, the Malaysian global oil and gas company. Tengku Taufik argues that matching investors at the right time and at the right phase of renewable energy projects, and providing them with the necessary protections and policy clearance, will attract more private sector funding to the region.

Shepherd concludes: “It’s about ticking all the right policy boxes [for more capital to flow to APAC].” That cannot happen without deeper regional collaboration. ASEAN has demonstrated that this is possible in other areas, such as trade, where, in addition to intra-ASEAN trade agreement itself, there is the Regional Comprehensive Economic Partnership, an agreement between 15 Asia-Pacific countries, including Japan, China and South Korea.

Those agreements on trade took time; so, too, will any additional agreements or initiatives aimed at energy cooperation. The right steps are being taken, but they may need to be longer and come closer together to achieve success.

 

Source from Financial Times