Southeast Asia's power sector: what the IEA's 2026 Outlook changed, and why it matters

The International Energy Agency has just published its Southeast Asia Energy Outlook 2026, the latest in a series that has become the reference point for anyone tracking how one of the world's most dynamic energy regions is evolving. Credit where it is due: the IEA's modelling, country-level detail, and willingness to flag its own revisions make this an unusually honest document. Below I focus on the power sector and on what has actually changed since the 2024 edition, because the deltas tell a more interesting story than the headline numbers.

The short version: the framing has shifted from energy transition to energy security, demand has become the dominant variable, coal has been revised up rather than down, gas has gone from bridge to liability, and the renewables ambition is real but increasingly gated by capital and grids. Each of these has direct implications for how investors, developers, and policymakers should be thinking about the region.

The frame moved from transition to security

The 2024 Outlook was written in the shadow of the Russia-Ukraine war and treated energy security mainly as a backdrop to the transition narrative. The 2026 edition is built around an acute crisis: the loss of supplies from key Middle Eastern exporters, tighter global LNG markets, and the resulting cost pressure on gas-fired generation. The IEA's language is notably sharper, with diversification now described as "a central priority" rather than an aspiration.

This is not just tone. The IEA estimates that investment in renewables, electrification, and efficiency since 2015 already saved the region around USD 30 billion in import costs in 2025. The implication for decision makers is that the business case for clean energy in Southeast Asia is increasingly being argued on resilience and balance-of-payments grounds, not climate. That reframing tends to unlock different pools of capital and different political coalitions, and it is worth meeting buyers and governments where they now are.

Demand is the story, and the drivers have changed

In 2024 the IEA had electricity demand rising about 4% a year to 2035, from over 1,300 TWh to above 2,000 TWh, with cooling as the standout driver. The 2026 edition keeps the trajectory broadly intact (generation rises from roughly 1,460 TWh in 2024 to about 2,330 TWh by 2035 under today's policy settings), but the composition of growth has shifted in a way that matters.

Cooling is still the largest established driver, with the residential air conditioner stock set to triple by 2035. What is genuinely new is the prominence of data centres. In 2024 they earned barely a passing mention; in 2026 they get dedicated treatment. The region already consumes more than 10 TWh in data centres, close to 3% of global demand, with Malaysia and Singapore leading and Johor, Jakarta, and Bangkok emerging fast. Add electric vehicles, where sales more than doubled in 2025 to roughly half a million units (nearly 20% of the market), and the picture is one of demand arriving faster and in more concentrated, location-specific lumps than the 2024 edition implied.

The implication is concrete. Demand growth that clusters around data centre hubs and urban cooling peaks puts a premium on siting, interconnection, and firm capacity in specific nodes, not just on aggregate megawatts. Developers who can solve for power availability in the right location will command a premium, and grid planning becomes the binding constraint sooner than headline capacity numbers suggest.

Coal was revised up, not down

This is the delta most likely to surprise readers who assume the direction of travel is uniformly downward. The IEA explicitly revised its coal generation outlook upward by around 10% versus the 2024 edition, citing higher than expected growth in captive coal in Indonesia and a more persistent project pipeline. Coal still accounts for around half of the region's electricity and remains the single largest source of generation through 2050 under today's policies.

There is even a hedge that the renewed focus on energy security could give coal "some upside," and the crisis has already prompted some fuel switching back to coal as gas became expensive. Against this sits the human cost the IEA does not soften: an estimated 330,000 premature deaths from air pollution in 2024, up from the 300,000 outdoor-pollution figure cited for 2023 in the prior edition.

For anyone modelling stranded-asset risk or transition timelines, the message is that the region's young coal fleet is proving stickier than the 2024 narrative suggested. The realistic near-term path is coal operating at lower utilisation as a flexibility and adequacy resource rather than being retired, which changes both the emissions math and the commercial case for firm clean alternatives.

Gas flipped from bridge to liability

In 2024 the IEA saw incoming LNG supplies supporting a "slight uptick" in gas-fired power, peaking at around 28% of the mix in the late 2020s, broadly the comfortable bridge-fuel story. The 2026 edition is more wary. Gas use in the power sector is now projected to rise by over 60% to 2050 under today's policies even as domestic supply declines by roughly a third, which sharpens the region's exposure to volatile global LNG prices.

In other words, gas is no longer framed as a low-risk transition fuel but as a growing import dependency that the crisis has exposed. The implication for producing countries such as Indonesia, Malaysia, and Thailand is a renewed push to shore up domestic supply, and for everyone else, a reason to treat new gas commitments with more caution on price-risk grounds than the 2024 edition would have warranted.

The renewables ambition is real but gated by capital and grids

Here the 2026 edition is more bullish on the upside and more candid about the constraints. Renewable capacity stood at 120 GW in 2024 and is projected to nearly triple by 2035 under today's policies, or grow five-fold if announced targets are met. If those pledges are achieved, low-emissions sources reach around 50% of generation in 2035 and 90% by 2050. There are real-world signals behind the optimism: almost 19 GW of renewable capacity were awarded through auctions in 2025, and the Philippines became the second-largest destination for Chinese solar exports in early 2026.

The candour is on what it takes to deliver. The IEA is blunt that transmission and distribution networks must more than double in length by 2050, and that grid and storage investment needs to climb from about USD 13 billion today to USD 50 billion by 2050 under announced pledges, including roughly USD 27 billion to 2040 for the cross-border interconnections of the ASEAN Power Grid. Battery storage alone scales from just over 1 GW in 2024 to more than 60 GW by 2035 in the pledges scenario.

Two structural barriers carry over essentially unchanged from 2024 and deserve emphasis precisely because they did not improve. The cost of capital in much of Southeast Asia remains around twice that in advanced economies and China, which directly weakens the economics of capital-intensive renewables and grids. And total energy investment, while up 60% since 2015 and now above USD 100 billion a year, sits at only about 3% of the global total against a region that holds 9% of global population. The ambition has risen; the financing architecture to deliver it has not kept pace.

What to watch

If I were prioritising, I would watch three things. First, whether the ASEAN Power Grid and initiatives like POWERR Asia move from costed plans to financed projects, because regional interconnection is the cheapest way to manage both variability and security. Second, how data centre demand is allocated and priced, since Singapore's controlled re-entry and Malaysia's incentives are early templates for the rest of the region. Third, whether cost-of-capital reforms and blended finance actually narrow the gap, because that single variable does more to determine the renewables-versus-coal outcome than any target on paper.

The IEA's core message across both editions is consistent: Southeast Asia's choices over this decade will shape global energy and emissions trends well beyond its borders. What the 2026 edition adds is urgency, a sharper read on demand, and an honest acknowledgement that some of the harder problems, coal persistence and the cost of capital among them, have not yet been solved.

Analysis based on the IEA's Southeast Asia Energy Outlook 2026 and Southeast Asia Energy Outlook 2024*. All figures are the IEA's; the interpretation is my own. Both reports are available from the IEA (CC BY 4.0).