Economics of coal versus renewables in Southeast Asia’s energy crisis

Key points:

• Since the war in Iran began in February 2026, a surge in oil and gas prices has triggered gas-to-coal switching in Southeast Asia, pushing Asia’s coal benchmark nearly 20% above the pre-war price levels and highlighting the links between the coal, gas and oil markets.
• Gas-to-coal switching also pushed coal prices up after the 2022 gas crisis, when Asia’s coal benchmark surged to a record USD 443 per tonne in September 2023. 
• Renewables sit apart from the price volatility of coal, oil and gas, as they do not require ongoing fuel inputs. In 2024, solar was already cheaper than coal in 7 of the 10 member countries of the Association of Southeast Asian Nations (ASEAN), according to LCOE data. 
• The current gas crisis is already causing a decline in LNG demand across ASEAN countries. New ZCA analysis shows that were ASEAN to replace its planned 45 GW gas expansion with coal, costs would rise; in contrast, we found the Association could save USD 4 billion if gas expansion plans were instead replaced with solar and storage solutions by 2030. 
• Even in countries with large coal reserves and coal subsidies, including China, renewables are already meeting a significant share of new electricity demand. 

Southeast Asia turns to coal and curtailment as the Middle East crisis persists

Since the US-Israel attack on Iran on 28/2/2026, the Middle East crisis has caused oil and gas prices to spike, with the Asia gas benchmark (Japan-Korea Liquified Natural Gas (LNG) marker) rising nearly 70% to reach over USD 25 per mmBtu in early March, the highest level in three years. 

The Strait of Hormuz, a key shipping route through which around 20% of the world’s oil and LNG flows, is effectively blocked by the conflict, with the impact felt most severely in Asia (84% of oil and 83% of LNG shipped through the Strait of Hormuz in 2024 went to Asian markets).

Since the 2022 gas crisis, triggered by Russia’s invasion of Ukraine, Southeast Asia has doubled down on LNG for future electricity generation, believing that it will prove a more reliable and cleaner source than coal.

Now, amid the second gas crisis in just five years, this regional strategy seems to have failed to contribute to either ASEAN’s energy security or its climate goals. As more research emerges, one study has shown that LNG is not cleaner than coal when methane and short-term global warming potential are taken into account.

Coal is an expensive and unsustainable response to energy crises

For energy-importing countries in Southeast Asia, the current oil and gas crisis has led to consumer curtailment and a scramble for affordable resources. 

Many Southeast Asian countries are also taking demand-side measures to ease the burden of the oil and gas crisis. For instance, the Philippines has announced a four-day work week and declared a national energy emergency, Laos has shortened the school week from five to three days and Myanmar introduced alternate driving days for fuel rationing.

Countries that have suspended operations or underutilised coal generation capacity now see it as a way to replace the LNG used for electricity generation. Countries that have increased electricity generation via coal so far include the Philippines and Thailand. Most gas power plants, however, cannot easily switch to burning coal, so the scale and savings of the LNG-to-coal switch may be limited. 

This fuel-switching from gas to coal has pushed up coal prices. Since 27/2/2026 (the Friday before the start of the war), Asia’s oil and gas benchmarks (Dubai crude and JKM LNG) peaked on the 19th of March, reaching 101% and 108% above the pre-war levels, respectively. Asia’s coal benchmark (Newcastle coal) peaked earlier, on the 9th of March, at 19% above Friday’s close (see Figure 1).¹The key Asia benchmark is the Newcastle FOB price (Port of Newcastle, Australia), which is the primary reference for the entire Asia-Pacific thermal coal market.

An increase in coal prices after gas-to-coal switching was also observed after the gas crisis of 2022. Newcastle coal surpassed the USD 400/tonne mark several times, reaching an all-time high of USD 443/tonne in September 2023.

This demonstrates that coal is not insulated from geopolitical shocks: short-term switching pushes up demand, which in turn pushes up prices. Only renewables are immune to such immediate crises, as once installed, they do not require a constant supply of fuel to generate electricity.

Figure 1

Solar can be a cheaper, more secure option than coal for most ASEAN countries

In 2024, the levelised cost of electricity (LCOE)²The LCOE is a standardised cost metric for power generation over a project’s lifetime – the long term offtake price that a developer needs to recoup all project costs (capex, opex, tax financing etc) and hit the investment target (cost of equity). of solar was already cheaper than coal in seven of the ten ASEAN countries,³The 2024 LCOE data was calculated before Timor-Leste became the eleventh member of ASEAN. including Singapore, the Philippines, Thailand, Cambodia, Vietnam and Myanmar, all of which are net coal importers (see Figure 2).⁴These ASEAN countries have lower solar LCOE than coal (Figure 2) and are net coal importers.

In Indonesia, Brunei and Malaysia – the few ASEAN countries where the LCOE of coal is currently lower than that of solar – the economic case for solar is strengthened significantly if it considers coal’s subsidies and negative externalities, such as air pollution, health impacts and the social cost of carbon, which are not factored into LCOE (see Box 1). 

More broadly, the cost-competitiveness of solar versus coal is set to further improve globally as technologies develop, with the LCOE of renewables already rapidly declining.

Figure 2

Energy policy and infrastructure are playing catch-up with the realities of renewables

While Ember’s LCOE data shows that the region’s economic case for solar is ready, ASEAN remains one of the few exceptions to the global plateau in coal demand forecast by the IEA. Members’ demand is expected to rise by 25% from 2025 levels, to reach 644 million tonnes in 2030.⁵ASEAN coal consumption in 2025 was 512Mt.

While this is broadly indicative of a region where energy policies and infrastructure, originally designed for centralised fossil fuel generation, are struggling to keep pace with the technological and economic realities of renewables, not all ASEAN countries have been slow to act on the potential for more secure and cleaner energy. Indeed, the growth in coal demand is expected to be largely driven by two countries with significantly different approaches to energy policy: Vietnam and Indonesia (see Box 2).

Analysis suggests solar capacity will undercut coal as a replacement for new gas generation

According to Ember, gas generation will reach nearly 200 GW in 2030, under ASEAN’s energy transition scenario, up from 106 GW today. This outstrips ASEAN’s own projections for demand: its current policy scenario expects gas demand to increase to 135.3GW by 2030, up 45GW from 2022 levels.⁶According to the ASEAN Member State Targets Scenario (ATS scenario) in 2030, gas capacity reaches 135.3 GW, up from 89.9 GW in 2022. The ATS scenario explores the impact of official national energy policies and targets set by individual ASEAN Member States.

ZCA estimates that, given a gas capacity factor of 60% and using IEA’s Value Adjusted LCOE figures (which include system costs), an additional 45GW of gas generation would cost around USD 16 billion in 2030. 

By comparison, if solar paired with energy storage had replaced the same generation capacity, ZCA estimates this would cost around USD 12 billion, USD 4 billion less than gas. Replacing the same capacity with coal would be more expensive, at approximately USD 19 billion, or USD 3 billion more than gas.⁷The gas baseline cost is derived by applying the mid-value of the IEA Stated Policies Scenario Value-Adjusted LCOE (VALCOE) for the US in 2030 of USD67.5/MWh, which includes capital, operating and system value components operating at a 60% capacity factor. For the replacement technologies, solar plus storage and coal, 2030 costs are also derived from the mid-value IEA’s VALCOE estimate for China in 2030. Solar plus storage VALCOE is taken at the mid-value at USD 50/MWh, while coal VALCOE is estimated at the mid-value of USD 80/MWh. All figures are expressed in 2022 market exchange rates. Solar PV plus storage calculation use an ASEAN average capacity factor of 17.9% with a 54.7% capacity factor for coal.

Together, these estimates highlight that solar plus storage is not only the cleaner option, but also the most cost-competitive pathway to meeting ASEAN’s future energy needs. 

Switching from new gas plants to new coal plants may not be an economic choice, given that coal is a depleting resource, so the long-run cost of supplying an additional unit of coal tends to rise, or at best remain flat over time, as extraction moves to more difficult deposits. 

In contrast, renewables have demonstrated that they are still benefiting from learning-by-doing as supply chains mature. For this reason, new coal tends to resemble structurally higher long-run marginal production costs than renewables, even before accounting for carbon pricing, health impacts and fuel price volatility.

The current crisis highlights Southeast Asia’s need for a structural shift towards renewables

Southeast Asia’s second energy price shock in five years should reiterate a lesson for countries relying on fossil fuels: doubling down on domestic coal or LNG will not provide an effective shield to global price swings. Rather, the evidence suggests that scaling up renewables and regional power trading should be considered as the more secure long-term choice for achieving energy security.

Utility-scale solar is a one-time investment that results in 25+ years of output, unlike gas or coal plants, which demand fuel costs throughout their operational lifetime. In terms of LCOE, solar is already cheaper than coal across many Southeast Asian countries, including Singapore, the Philippines, Thailand, Cambodia, Vietnam, Myanmar, and Laos (which is not a net importer of coal).

With ample manufacturing capacity beyond China, the ASEAN Power Grid (APG) offers the potential to transmit electricity throughout the region. By sharing energy through the APG, Southeast Asian countries can reduce their reliance on importing volatile LNG and remain competitive by maximising their respective renewable energy capacities.

Even countries known for coal are scaling up renewables

Even countries with large coal reserves are scaling up renewable energy capacity, including China, India and Indonesia. In China, the surge in new coal-fired capacity remains underutilised.

In fact, China’s coal output fell around 1.9% in 2025 as renewables met most of the 5% increase in electricity demand. Coal plant utilisation rates have hovered around 50% in the past decade and are expected to decline. 

For energy-importing ASEAN countries, shifting dependence from one import to another is unlikely to enhance long-term energy security. However, most countries have sufficient wind and solar resources to support secure, domestic, renewable-based energy systems. To date, less than 1% of wind and solar potential in the region has been tapped, offering huge room to grow as Southeast Asia urgently assesses the future of its energy systems.  

• 1
  The key Asia benchmark is the Newcastle FOB price (Port of Newcastle, Australia), which is the primary reference for the entire Asia-Pacific thermal coal market.
• 2
  The LCOE is a standardised cost metric for power generation over a project’s lifetime – the long term offtake price that a developer needs to recoup all project costs (capex, opex, tax financing etc) and hit the investment target (cost of equity).
• 3
  The 2024 LCOE data was calculated before Timor-Leste became the eleventh member of ASEAN.
• 4
  These ASEAN countries have lower solar LCOE than coal (Figure 2) and are net coal importers.
• 5
  ASEAN coal consumption in 2025 was 512Mt.
• 6
  According to the ASEAN Member State Targets Scenario (ATS scenario) in 2030, gas capacity reaches 135.3 GW, up from 89.9 GW in 2022. The ATS scenario explores the impact of official national energy policies and targets set by individual ASEAN Member States.
• 7
  The gas baseline cost is derived by applying the mid-value of the IEA Stated Policies Scenario Value-Adjusted LCOE (VALCOE) for the US in 2030 of USD67.5/MWh, which includes capital, operating and system value components operating at a 60% capacity factor. For the replacement technologies, solar plus storage and coal, 2030 costs are also derived from the mid-value IEA’s VALCOE estimate for China in 2030. Solar plus storage VALCOE is taken at the mid-value at USD 50/MWh, while coal VALCOE is estimated at the mid-value of USD 80/MWh. All figures are expressed in 2022 market exchange rates. Solar PV plus storage calculation use an ASEAN average capacity factor of 17.9% with a 54.7% capacity factor for coal.