January 30, 2025
8 Energy Transition Trends to Watch in Asia for 2025
8 Energy Transition Trends to Watch in Asia for 2025
Lawrence Ang, Managing Partner
Farzana Hoque, Senior Advisor, Thought Leadership & Corporate Communications
Lawrence Ang, Managing Partner
Farzana Hoque, Senior Advisor, Thought Leadership & Corporate Communications
As 2025 unfolds, Asia’s energy demand shows no signs of slowing, driven by rapid industrialization, urbanization, population growth, and rising living standards. A confluence of forces is shifting the energy landscape, compelling policymakers, industry leaders, and innovators to navigate the complexities of energy expansion while balancing security, affordability, economic growth, and climate imperatives.
In this article, we spotlight eight key energy transition trends with the potential to shape Asia’s energy landscape in 2025:
- Artificial intelligence’s role in Asia’s data center and energy demand growth
- Impact of global dynamics: geopolitical tensions, trade policy, and Trump 2.0
- Unpacking transition options beyond just “coal plant retirement”
- Acceleration of energy storage projects
- Expansion of nuclear energy
- Revitalization of carbon markets through Article 6
- Emergence of innovative transition finance structures
- Increased expectations for “just transitions”
1. Artificial intelligence’s role in Asia’s data center and energy demand growth
Artificial intelligence (AI) holds immense potential to revolutionize the energy transition, particularly through advancements in predictive analytics and smart energy optimization solutions. Yet, the rapid proliferation of AI has fueled the demand for energy-intensive data centers, significantly increasing electricity consumption. According to the International Energy Agency (IEA), a single large data center can consume as much electricity as 100,000 households.[1]
Amid this backdrop, the emergence of Chinese AI startup DeepSeek has added a new dimension to both the AI and energy industries. The company has reportedly utilized a less energy-intensive approach with the capacity to disrupt both the AI and energy industries while potentially minimizing its climate impact.[2] On the other hand, a differing view is that “…while DeepSeek’s model might be more efficient, the breakthrough would speed the adoption of AI, creating more power demand overall.[3]
As the AI landscape evolves, Asia finds itself at the heart of this technological transformation. China and India both rank in the top 10 for hosting the largest number of data centers.[4] Southeast Asia is also growing in strategic importance in AI infrastructure growth, emerging as one of the fastest-growing markets.[5] Most of the data centers being built in the region are designed to support AI services.[6]
Several tech giants are already deploying significant investments in Southeast Asia. For instance, Google has revealed plans for a USD$2 billion data center investment in Malaysia and AWS plans to build a data center in Thailand.[7] These tech giants have a valuable role in taking steps to help their partners achieve energy efficiency and clean energy solutions.
Governments will have to play a crucial role in this process. As AI adoption accelerates, policymakers and industry leaders must collaborate to develop a sustainable approach to meeting the electricity needs of this technology. The emergence of DeepSeek has additionally highlighted the uncertainty surrounding AI’s power demands, with the IEA noting that both DeepSeek’s arrival and the market’s initial reaction highlight “…how little is understood about the power demands of AI.”[8] Chinese tech company Alibaba has since released a new version of its Qwen AI model that it has claimed surpasses DeepSeek. The AI industry is advancing at breakneck speed, and it remains a key area to monitor closely.
2. Impact of global dynamics: geopolitical tensions, trade policy, and Trump 2.0
Continued geopolitical tensions are compelling nations to prioritize energy security and affordability, diversify energy supplies, and establish alternative supply routes. The wars in Russia-Ukraine and the Middle East have underscored the vulnerability of relying on external energy supplies, motivating Asian countries to diversify their energy sources and invest in domestic renewable energy infrastructure. Simultaneously, global power competition is intensifying in markets for clean technologies and critical minerals, creating an additional strategic focus.[9]
The EU’s Carbon Border Price Adjustment Mechanism (CBAM), which requires Asian and other exporters to submit emissions reports to their EU importers, has also created an impetus for companies and suppliers to decarbonize and transition to renewables.
In the United States, President Donald Trump has reversed course on energy and environmental policies, signing executive orders to withdraw from the Paris Agreement and scale back previous climate initiatives.[10] His administration has revived trade confrontations, already increasing tariffs on China. This shift in global trade dynamics could lead to a reconfiguration of manufacturing supply chains away from China, further spurring the adoption of renewable energy across Asia.
3. Unpacking transition options beyond just “coal plant retirement”
In Asia’s efforts to reduce coal-fired power generation, the pursuit of perfection can hinder meaningful progress. Incremental steps toward phasing down coal-fired power plants (CFPPs) and integrating renewable energy are more effective than potential stagnation. The focus should shift from ambitious target-setting to identifying and implementing practical, actionable pathways for transition.
In many cases, the appropriate “transition option” may involve measures that manage costs, optimize operations, and signal intent for transformation. These steps can serve as part of a broader, phased approach—gradually ramping up ambition over time while accounting for market dynamics, energy security concerns, and other regional circumstances.
One option is “hybridization”—the incremental displacement of coal or other fossil fuels with onsite renewable energy sources like solar or wind.[11]
Another option currently being explored in a number of markets with dynamic supply and demand requirements is repurposing and phasing down CFPPs to operate flexibly at reduced capacity, such as 50% on average, as an ancillary service or to operate for energy security purposes. This strategy reduces operational emissions and delivers value-neutral outcomes compared to business-as-usual scenarios. This particularly works in markets where wholesale decommissioning of CFPPs is considered politically unacceptable.
A further emerging option is “repowering,” which is transforming a legacy thermal asset into another cleaner purpose, usually battery energy storage systems or synchronous condensers. This approach has the potential to fully leverage existing transmission and related infrastructure and extend the value of fully depreciated assets, while creating new value that can also support a just and managed transition.
4. Acceleration of energy storage projects
The global grid-scale energy storage market is set to experience significant growth, with a massive 80 gigawatts of new capacity forecast for 2025, an eight-fold increase since 2021.[12] The Economist has highlighted four factors driving this growth:
- Increasing deployment of solar and wind power worldwide, necessitating reliable storage to address the inherent intermittency of such energy resources
- Chinese overcapacity in battery manufacturing, significantly cutting down lithium-ion costs
- Growing power demand from data centers driven by the rising usage of artificial intelligence, prompting tech giants to turn to renewable energy with energy storage support
- Various innovations beyond lithium: sodium-ion batteries that are cheaper and less flammable, gravity-based storage including pumped-hydro storage, compressed gas storage, and more
Landmark projects exemplify this momentum. The UAE has launched the world’s first round-the-clock solar PV gigascale battery storage project, capable of delivering 1GW of baseload power daily. This facility features the world’s largest integrated solar and battery energy storage system, combining a 5.2GW solar PV plant with a 19GWh BESS.
In Europe, South Lanarkshire, Scotland, is transforming a former opencast coal mine in Coalburn into the region’s largest battery storage project. With two battery farms storing enough electricity to power three million homes, this project marks a critical step toward achieving net zero.
A bold prediction envisions 2025 welcoming the first batch of innovative attempts to repurpose coal mines to renewable energy and storage, including in Asia, further solidifying the role of energy storage as a cornerstone of the clean energy transition.
5. Expansion of nuclear energy
Director General Rafael Mariano Grossi of the International Atomic Energy Agency (IAEA) said recently at the World Economic Forum annual meeting in Davos, “A few years ago, discussions might have been about phasing out nuclear energy. Today, at the World Economic Forum, we’re on the road to tripling nuclear capacity. This shows a shift in how nuclear energy is increasingly seen as essential for net zero and energy transition.”[13]
Several countries in Asia are planning and building new nuclear power reactors to meet their increasing demand for cleaner electricity. About three-quarters of the reactors under construction worldwide are currently in Asia. According to the World Nuclear Association, there are about 145 operable nuclear power reactors in Asia, with around 45 under construction and plans to build an estimated 50 more.[14] A number of others have been proposed. China, India, South Korea, and Pakistan are among Asian countries with plans to expand nuclear energy.
Small modular reactors (SMRs) and potential breakthroughs in fusion, driven by investments in the tech industry in the past year, could lead to safer and more affordable nuclear power.[15] These have the potential to replace fossil fuel plants and contribute to clean energy goals. However, SMRs and fusion are longer-term solutions and other options are more promising in the near term, including solar and wind power, energy storage, and clean hydrogen.
6. Revitalization of carbon markets through Article 6
At COP29, global leaders approved rules for the Paris Agreement’s Article 6, marking a pivotal step forward for carbon markets:
- Article 6.2: Governs bilateral emissions trading between countries.
- Article 6.4: Establishes a centralized UN-administered international carbon market.
With these rules in place, countries will now focus on finalizing technical details, setting the stage for these markets to potentially launch in 2025. Article 6 creates powerful incentives for power companies and large industries to reduce emissions while fostering greater bilateral cooperation between countries.
In Asia, several countries are actively developing carbon markets, with significant progress expected in 2025.[16] Prior to COP29, Singapore and Japan both signed dozens of bilateral agreements with countries worldwide to source for Article 6.2 credits. India has released a list of technologies eligible under Article 6, but additional guidance on project implementation and government-to-government agreements is needed to stimulate investment in these initiatives. Indonesia, the Philippines, and others have also signed bilateral agreements on Article 6 cooperation.
The framework established by Article 6 holds considerable potential to accelerate progress in the region and set the stage for broader, more effective decarbonization globally.
7. Emergence of innovative transition finance structures
Transition finance remains in its early stages, including in Asia. Barriers to scaling transition finance have included unclear policy signals, inconsistent definitions and labeling, the stigma associated with high-financed emissions, insufficient transition-relevant data, and a scarcity of commercially viable projects.[17] However, recent progress has laid the groundwork for overcoming these challenges. New taxonomies and frameworks from ASEAN, the Monetary Authority of Singapore, the Glasgow Financial Alliance for Net Zero (GFANZ), and others have provided much-needed clarity and guidance.
While transition finance has to date had limited uptake through current financial instruments, the range of suitable instruments has recently expanded, as examined in Climate Smart Ventures’ recent report The Future of Transition Finance in Asia: Addressing the Risk-Return Dilemma & Unlocking Capital for the Coal to Clean Energy Transition.[18] For example, sustainability-linked bonds (SLBs) and transition bonds are gaining traction, and more innovative approaches, including Infrastructure Investment Trusts (InvITs) and transition credits, are also under exploration.
Notably, 2024 saw the launch of new initiatives aimed at mobilizing transition finance, particularly in Asia and other emerging markets. A few examples include the World Economic Forum’s Coal to Clean Initiative, GFANZ’s increased focus on transition finance mobilization, and Climate Smart Ventures’ Sandbox initiative, designed to support first movers and catalyze early-stage transactions. Together, these developments signal growing momentum in transition finance and its potential to unlock the capital needed for a sustainable future.
8. Increased expectations for “just transitions”
Although a formal work program on just transition was not agreed upon at COP29, the momentum behind this effort is growing. The incorporation of social dimensions into the energy transition is accelerating, with more entities and initiatives offering guidance on supporting affected workers and communities. Notable examples include the Asian Development Bank’s Just Transition Support Platform, Just Energy Transition Partnerships (JETPs), and the London School of Economics’ Just Transition Finance Lab.
Additionally, the Council for Inclusive Capital has released a Just Energy Transition (JET) Framework[19] and the Institute for Human Rights and Business (IHRB) has a new program on just transitions.[20] These serve as valuable resources for power companies and other organizations developing transition plans, helping to ensure that workers and communities share in the benefits of the transition.
Notes
[1] International Energy Agency (IEA), At major IEA conference, decision-makers from tech, energy and government underscore AI’s implications for energy security and transitions, December 5, 2024, https://www.iea.org/news/at-major-iea-conference-decision-makers-from-tech-energy-and-government-underscore-ais-implications-for-energy-security-and-transitions.
[2] AP, DeepSeek says it built its chatbot cheap. What does that mean for AI’s energy needs and the climate? January 29, 2025, https://apnews.com/article/deepseek-ai-china-climate-fossil-fuels-00c594310b22afbf150559d08b43d3a5.
[3] Financial Times, DeepSeek-driven sell-off puts power demands of AI in doubt, says IEA, January 29, 2025, https://www.ft.com/content/0cc897c2-e12d-4143-81ff-e56c5381a5a1.
[4] Data Center Map, https://www.datacentermap.com/datacenters/, accessed January 23, 2025.
[5] Hive Ventures, Southeast Asia Emerges as Global Data Center Hot Spot, November 12, 2024, https://hiveventures.medium.com/southeast-asia-emerges-as-global-data-center-hot-spot-d249b904924f.
[6] Ibid.
[7] Ibid.
[8] Financial Times, DeepSeek-driven sell-off puts power demands of AI in doubt, says IEA, January 29, 2025, https://www.ft.com/content/0cc897c2-e12d-4143-81ff-e56c5381a5a1.
[9] International Renewable Energy Agency (IRENA), Geopolitics of the Energy Transition: Energy Security (2024), https://www.irena.org/-/media/Files/IRENA/Agency/Publication/2024/Apr/IRENA_Geopolitics_transition_energy_security_2024.pdf, p19.
[10] NPR, Trump is withdrawing from the Paris Agreement (again), reversing U.S. climate policy, January 21, 2025, https://www.npr.org/2025/01/21/nx-s1-5266207/trump-paris-agreement-biden-climate-change.
[11] See for example Climate Smart Ventures, Enhancing the Resilience of Off-Grid Areas through Grid Modernization and Hybridization – From Proof of Concept to Pilot Program, July 22, 2024, https://climatesmartventures.com/enhancing-the-resilience-of-off-grid-areas-through-grid-modernization-and-hybridization-from-proof-of-concept-to-pilot-program/.
[12] The Economist, Grid-scale storage is the fastest-growing energy technology, November 20, 2024, https://www.economist.com/the-world-ahead/2024/11/20/grid-scale-storage-is-the-fastest-growing-energy-technology.
[13] International Atomic Energy Agency (IAEA), Nuclear Energy in the Clean Energy Transition, January 24, 2025, https://www.iaea.org/newscenter/news/nuclear-energy-in-the-clean-energy-transition.
[14] World Nuclear Association, Asia’s Nuclear Energy Growth, January 8, 2025, https://world-nuclear.org/information-library/country-profiles/others/asias-nuclear-energy-growth#:~:text=Asia%20is%20the%20main%20region,Many%20more%20are%20proposed.
[15] Forbes, The 8 Critical Energy Trends Defining 2025, January 7, 2025, https://www.forbes.com/sites/bernardmarr/2025/01/07/the-8-critical-energy-trends-defining-2025/.
[16] S&P Global, Asia’s emerging compliance carbon markets to gather pace, December 13, 2024, https://www.spglobal.com/commodity-insights/en/news-research/latest-news/energy-transition/121324-commodities-2025-asias-emerging-compliance-carbon-markets-to-gather-pace.
[17] RMI, Unpacking Five Key Barriers to Transition Finance, May 6, 2024, https://rmi.org/five-barriers-transition-finance/.
[18] Climate Smart Ventures, The Future of Transition Finance in Asia: Addressing the Risk-Return Dilemma and Unlocking Capital for the Coal to Clean Energy Transition (2024), https://climatesmartventures.com/wp-content/uploads/2024/09/The-Future-of-Transition-Finance-in-Asia-Report.pdf.
[19] Council for Inclusive Capitalism, Just Transition Framework for Company Action, https://inclusivecapitalism.com/wp-content/uploads/2023/05/JustTransitionFrameworkForCompanyAction_2May2023_v2.1.pdf.
[20] Institute for Human Rights and Business (IHRB), Just Transitions, https://www.ihrb.org/issues/just-transitions.