Introduction

Southeast Asia has seen dynamic economic growth and increasing energy demand, however this growth has traditionally been driven by fossil fuels, which has led to both significant environmental challenges and concerns about long-term energy security.  As governments within the region grapple with the impacts of climate change on the local economy and populace, energy efficiency solutions have emerged as a key way for corporations to maintain economic growth while lowering the negative impact on the planet.  Burgeoning advancements in the Internet of Things (IoT) and Artificial Intelligence (AI) have made it possible for building owners to leverage real-time data to optimize energy consumption across a wide spectrum of electrical systems.  This article explores the factors driving demand for energy efficiency in the region, the current investment landscape, and the key success factors for emerging contenders in the industry.

Why is Demand for Energy Efficiency Rising in Southeast Asia?

In Southeast Asia there are a number of factors driving the conversation surrounding energy efficiency solutions.  These factors include a growing absolute demand for energy to drive economic growth, higher temperatures and occurrence of extreme weather events due to GHG emissions, macroeconomic headwinds creating a renewed focus on optimization and cost reductions, and policy tailwinds from various governments within the region.

Energy demand in this region has tripled in the past 20 years, and is expected to continue to skyrocket.  Research from the International Energy Agency notes that Southeast Asia alone will account for 25% of the increase in global energy demand to 2035, and is expected to surpass the European Union in energy consumption by 2050.[i]  As much of Southeast Asia’s energy production is still driven by fossil fuels, the region’s rising energy consumption will also continue to drive increases in GHG emissions.  Governments may be increasingly concerned about rising energy demand as shocks in the global market drive up energy prices that local business and consumers can ill-afford, and which often require government subsidies to blunt the impact to the local population.

Figure 1: Fossil Fuel Subsidies and Prices in Southeast Asia

In addition to rising energy demand in general, Southeast Asia is also subject to extreme temperatures, and thus increased demand for cooling, as well as pollution problems in many major Southeast Asian cities which can put increased strain on HVAC systems.  To maintain comfortable temperatures and breathable air indoors, HVAC systems operate by circulating air both from outside the building and within the building itself over cooling coils.  As outdoor temperatures rise, HVAC systems must expend more energy to cool the fresh air circulated from outside the building.

The depressed macroeconomic environment in many countries, particularly Thailand with a 1.8% GDP growth forecast for 2025[ii], have led to corporations with renewed emphasis on finding opportunities to reduce costs.  Among other cost reduction possibilities, energy efficiency stands out as an area with low technological risk that can help businesses reduce a major operating expense without affecting output.

Further, there are multiple policy tailwinds driving the growth of energy efficiency solutions in Southeast Asia.  For example, Singapore’s Green Mark Certification Scheme was updated in 2021 to mandate sustainability improvements (including energy efficiency) in buildings over 5,000m².[iii]  Thailand is aiming to reduce its energy intensity by 36% by 2037, which includes mandatory sustainability considerations in certain buildings over 2,000m².[iv]

What Technologies Are Decarbonizing Buildings?

Thailand’s Building Energy Code (BEC) considers five areas for analyzing the sustainability of a building: Envelope System, Electric Lighting System, Air-Conditioning System (HVAC), Water Heating Appliances, and Renewable Energy System.  The first four of these areas are focused on building improvements which can reduce the energy requirements for operating a building, thereby contributing to decarbonization even if a building is still powered by the grid (which in Southeast Asia still relies heavily on fossil fuels), whereas Renewable Energy System refers to implementation of onsite clean energy production and storage.

• • Envelope System: all components related to the structure of the building, including walls, ceilings, and windows
  • Electric Lighting System: the lighting fixtures and control of lighting in the building
  • Air-Conditioning System: electrical systems used to control the climate inside the building, including ventilation systems and chiller plants. In cooler climates, this vertical maps to heating systems rather than air-conditioning
  • Water Heating Appliances: boilers used for heating water used throughout the building
  • Renewable Energy System: all components related to the production and storage of energy onsite, including solar panels and battery energy storage systems (BESS)

In the context of Southeast Asia, Air-Conditioning System stands out as a key vertical due to the region’s heat and humidity.  Innovations in Envelope System and Renewable Energy System could provide long-term cost savings, but are likely to see longer sales cycles and slower adoption due to the high implementation costs.  While there is a need to optimize Electric Lighting Systems and Water Heating Appliances, neither is a vertical where the particular characteristics of the Southeast Asian market creates a demand or level of importance significantly different from the rest of the world.

Within Electric Lighting System, Air-Conditioning System, and Water Heating Appliances, the major trend is the use of IoT sensors and building analytics to reduce unnecessary energy consumption.  Previous generations of building management systems leveraged timers to automate the on/off settings for various electrical systems within a building based on expected occupied times.  In today’s buildings, IoT sensors, meters, and other smart technology devices allow for the collection of massive amounts of data relevant to the operations of a building.  AI/ML algorithms can process data from a wide array of sources to identify and automatically adjust the building’s systems to match the optimal configuration.  For example, older building management systems may turn off the HVAC system during pre-programmed lunch hours, whereas new energy efficiency solutions can adjust the temperature and ventilation rate based on real-time occupancy rates and external weather conditions.  IoT and AI can also enable predictive maintenance of key electrical systems to avoid both waste and downtime, both of which can generate cost savings and increased productivity for building owners.

Where Are Investors Focusing Their Attention?

The investment landscape throughout 2024 and into 2025 has been down across the board in climate tech, however investors are still finding opportunities to deploy in energy management.  Industry research estimates that the global market for energy retrofits in commercial buildings should reach $191.3 billion by 2029.  Data from CB Insights indicated that in the past 5 years investors have poured over $1 billion into commercial energy management startups.[v]  While much of the funding has been concentrated in developed markets, Southeast Asia is starting to see an increase in startups looking to innovate in this space.

Figure 2: Market Map of Energy Efficiency in APAC Region

Startups and electronics conglomerates alike are investing in and developing new energy efficiency solutions.  From an investors’ perspective, data on strategic acquisitions by larger players of emerging startups within this space also indicates compelling exit opportunities for startup investments.

Figure 3: Recent Exits for Energy Efficiency Startups

What to Look for in Energy Efficiency Solutions?

Energy efficiency is not a new concept, but adoption has been slow.  Electricity prices in Southeast Asia have typically been lower than many parts of the world (often due to government subsidies); in economic booms this may have reduced the pressure to implement new efficiency solutions as corporations focused their investments on opportunities for growth, but in challenging macroeconomic environments priorities shift towards finding cost reductions.  Further, many of the solutions which have been on the market require lengthy implementation cycles and high upfront costs – with new technologies and sales models, this is no longer the case, which may help accelerate the rate of adoption.

With so many energy efficiency solutions in the market, what should investors be looking for?  First and foremost, startups must show that their solution offers high energy savings to their customers.  While there is much talk regarding sustainability standards and ESG considerations, the bottom line for most businesses remains financial, therefore adoption becomes smoother when startups are able to prove significant cost reductions resulting from the investment in a new energy efficiency solution.  The early adopters of course will be corporations where electricity accounts for a high percentage of their operating expenses, but as profit margins tighten in periods of low economic growth, finding low-cost opportunities to reduce any operating expenses becomes higher priority.  JLL estimates that energy retrofits could generate anywhere between 10% (for light retrofits focusing on optimization) to 40% (for deep retrofits on Mechanical, Electrical, and Plumbing) energy savings in office buildings.  Given the range in energy savings potential, startups should consider the return on investment and payback periods as key metrics that customers consider from a commercial and budgeting perspective.

Second, scalability has long been a concern for venture investors when evaluating this market.  Startups should consider their implementation timelines and complexity as hefty implementation requirements may be off-putting to both potential customers (looking to minimize disruptions to their business) and investors (looking for business models which can rapidly expand).  The ability to leverage strategic partnerships for implementation and market expansion can be a key factor in the startup’s success.

Lastly, startups which can find strategic partnerships with governments and financial institutions to connect potential customers with subsidies, incentives, or financing may have an advantage in driving faster adoption.  The exact same macroeconomic environment which is driving demand for energy optimization also means that corporations and building owners may have limited budget for the initial upfront cost.  Go-to-market models incorporating access to financing or that allow for use of subscription models to lower the initial capital expenditures can help with rapid customer acquisition.

Conclusion

The drive for energy efficiency in Southeast Asia is not only a result of increasingly pressing concerns surrounding the environmental impact of energy consumption, but also a key economic concern for governments and corporations alike as they seek for continued productivity improvements to drive regional growth.  The region’s booming energy demand necessitates a shift in traditional energy consumption patterns; leveraging new technology to minimize unnecessary and unproductive energy consumption can offer substantial potential for both cost savings and emissions reductions.

The advancements in IoT and AI stand to supercharge the transformation.  From predictive maintenance to real-time monitoring and optimization, these technologies offer unprecedented levels of data-driven insights and automation. Such information can translate to significant operational efficiencies and productivity booms for building owners.

The investment landscape for energy efficiency solutions is strong, as significant investment is required to complete the transition.  There has been continued growth in the funding for energy efficiency startups, as well as a vibrant acquisitions market offering compelling exit opportunities for venture investors.  Venture investors looking to make a move in the market should be on lookout for startups with a clear commercial cost savings proposition, scalable solutions which can be easily implemented, and teams who can provide low-cost adoption, whether through strategic partnerships with financing providers or through innovative business models.  These companies will be best positioned to capitalize on the growing demand in the region and offer a compelling “why now” proposition to corporate customers.  The journey towards a truly energy-efficient Southeast Asia is early but poised for a boom, driven by advancements in technology and rising investments.

Author: Krongkamol (Joy) deLeon

Editors: Wanwares (Pin) Boonkong, Woraphot (Ping) Kingkawkantong

References:

[i] IEA Southeast Asia Energy Outlook

[ii] https://www.imf.org/external/datamapper/NGDP_RPCH@WEO/AS5/SEQ/IDN/MYS/SGP/THA/

[iii] https://www1.bca.gov.sg/buildsg/sustainability/regulatory-requirements-for-new-buildings-existing-buildings-undergoing-major-aanda

[iv] https://www.apec.org/docs/default-source/Satellite/EGEEC/Files/60/Economy_Updates_-_Thailand.pdf

[v] Data from CB Insights, Commercial and Industrial Energy Management Market Report