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[SINGAPORE] As if South-east Asia’s energy transition is not challenging enough, the region’s clean energy sector might be potentially dealt another blow by the recent imposition of tariffs from the United States.

The about-turn one week after US President Donald Trump’s “Liberation Day” tariffs – in which most tariffs to Asean markets were cut to a blanket rate of 10 per cent – brought little relief, as observers told The Business Times that these duties could still impede decarbonisation in the region.

It is not just clean energy exporters that are hit. The uncertain outlook is likely to affect investor appetite and confidence, thereby impacting the flow of private finance into renewable energy projects in the region, said Fang Eu-Lin, leader for the sustainability and climate change practice at PwC Singapore.  

However, observers also said that this could spur Asean companies to diversify their customer base to within the region, which may help develop its clean energy sector and accelerate energy transition.

This all depends on whether the three-month moratorium on reciprocal tariffs – with the exception of China – will be extended. Otherwise, tariffs for Asean markets will go back to between 10 and 49 per cent.

Impact on Asean’s clean energy sector

Within the sustainability sector, solar cells and panels probably make up one of the biggest Asean exports to the US, with manufacturers and exporters of such products likely to bear the brunt.

Analysts estimated that solar products from Cambodia, Malaysia, Thailand and Vietnam account for between 75 and 80 per cent of US imports.

This latest round of tariffs will further raise the pricing of solar modules imported from Asean, widening the gap with US-made equivalents, said Joseph Poh, head of energy and chemicals for UOB’s sector solutions division.

The “Liberation Day” tariffs were just the latest being slapped on the exports from these four markets. Last November before Trump’s inauguration, the industry was already hit with an earlier round of tariffs following complaints from US manufacturers that Asean solar exporters were flooding the market with cheap products.

Parts of the electric vehicle (EV) supply chain, such as batteries, are also major clean energy exports from Thailand and Malaysia to the US.

Even though these exports have lower duties than solar products, Professor Johan Sulaeman, who teaches finance at the National University of Singapore’s Business School, said that the tariffs will affect the two markets’ ability to remain an important part of the EV supply chain.

However, Prof Sulaeman noted that EV-related exports from Malaysia and Thailand are still at a competitive advantage in the US than those imported from China.

While China is the largest EV exporter in the world, its exports make up only a small fraction in the US.

The most immediate response by Asean clean energy manufacturers would be to diversify their customer base outside the US.

Solar and EV-related manufacturers in Asean would have to scale back operations in anticipation of reduced demand and even relocate their production facilities to the US. This would be disruptive to the operations of these solar and power equipment manufacturers, said Poh.

Given that the US is a significant buyer of these exports, it may also take some time for Asean markets to effectively shield themselves from the short-term impact of the tariffs, said Fang.

Manufacturers might also have to contend with tighter profit margins even if they are able to deploy existing supplies to other markets, she added.

South-east Asian solar companies are also not as cost-effective as those in China, with whom they have to compete now for the rest of the global market outside the US, noted Prof Sulaeman.

Pace of Asean’s decarbonisation

Observers noted many moving parts at play that could affect the pace of Asean’s decarbonisation.

Companies looking to offload their excess supply within South-east Asia – which would be cheaper to do, given the shorter distance – might actually accelerate the region’s energy transition.

However, this is provided that each Asean market does not put in place domestic content requirements – which mandates a certain percentage of renewable energy components to be produced locally – to protect their own solar panel manufacturing capacity, said Prof Sulaeman.

“I think we need some coordination in South-east Asia to make sure that whatever excess capacity that’s already there can benefit the rest of the region… I don’t think we have a lot of time. I think the Asean community will have to talk to each other and develop a consensus quickly,” he said.

One important step in greater Asean integration is the development of the Asean power grid, which has been in talks over the last two decades, said Sanjeev Gupta, oil and gas leader for EY-Parthenon, the strategic consulting arm of professional services firm EY.

“Currently, progress is slow and largely limited to corporate-led or bilateral initiatives. Yet, this grid could be the most transformative move for the region, delivering greater energy stability, security and cost efficiency to support its energy transition at scale,” he added.

The region’s future ties with China could also have an effect on its energy transition.

Trade restrictions on Chinese solar panels and EV batteries could lead to a pivot in exports to high-growth markets for renewable energy components such as Malaysia and Thailand, which can help China retain its growing solar module export trajectory, said Ong Shu Yi, environmental, social and governance research analyst at OCBC.

“This shift can strengthen (ties between China and South-east Asia) in clean energy partnerships, potentially increasing emerging markets’ access to more affordable clean energy technologies that can support the region’s low-carbon transition,” she added.

As many manufacturers in the region are owned by companies headquartered in China, they will continue to rely on the world’s leading supplier of solar panels for raw materials, said Poh.

This would strengthen Asean’s supply chain and allow manufacturers to benefit from the geographical proximity and price-competitiveness of raw materials from China, he added.