IEEFA: Renewables are now the clear solution to Asia’s energy trilemma

Key Findings

• The energy shock following the recent Middle East conflict underscores the need to accelerate the deployment of renewable energy in Asia. Countries with substantial renewables investment have experienced less severe economic impacts from geopolitical instability. Clean energy is proving crucial to energy security and economic resilience.

• Sufficient solar, wind, and battery storage manufacturing capacity is available to meet increased demand in Asia. China’s continued leadership in solar and wind manufacturing has driven sustained overcapacity, supported deflationary price trends, and created a favorable long-term outlook for the deployment of renewable technologies.

• Abundant manufacturing capacity, falling technology costs, and heightened energy security concerns in Asia have created a conducive environment for renewable energy investment. Such investment builds long-term domestic energy assets while reducing exposure to fossil fuel imports and associated costs.

• Trade barriers on renewable technologies may redirect low-cost solar and wind capacity to Asia, where reducing fossil fuel dependence offers the greatest economic and energy security gains. As renewable costs continue to decline, Asia’s energy trilemma of affordability, security, and climate sustainability is increasingly converging rather than competing.

• Asia has experienced its second major energy shock in four years. The first followed Russia's invasion of Ukraine in 2022, while the second has resulted from the recent United States (US)-Iran conflict.

(July 09, 2026)--Immediate macroeconomic consequences have been felt across the region. Emerging market currencies have fallen to their lowest levels since 2020, inflation expectations have risen, and governments have scrambled to release strategic reserves, subsidize fuel costs, and secure imported fossil fuels at elevated prices.

Renewable energy bests liquefied natural gas (LNG) in economics and energy security

The energy shock following the recent Middle East conflict is likely to strengthen the long-term case for renewable energy. Clean energy is increasingly regarded as a strategic requirement for energy security and economic resilience, extending beyond decarbonization. Countries that had already made substantial investments in renewables, such as China, India, and Pakistan, experienced less severe economic impact from the recent geopolitical instability.

Over the past five years, more than 50 gigawatts (GW) of solar panels were imported into Pakistan, reducing the country’s exposure to unaffordable LNG prices in global spot markets. As a result, the country avoided approximately USD6.3 billion in fossil fuel import expenditure in 2026 compared with 2022. Conversely, Bangladesh’s reliance on long-term LNG supply agreements left it exposed when blockades related to the Middle East conflict disrupted deliveries. The country was forced to purchase 11 emergency spot cargoes at prices nearly three times higher than the typical level, incurring around USD880 million in costs. The contrasting experiences of Pakistan and Bangladesh are likely to serve as prominent policy references throughout Asia.

Continued dependence on expensive and volatile LNG supply is likely to significantly increase projected regional power costs. For instance, the Association of Southeast Asian Nations (ASEAN) energy transition scenario sees gas-based power capacity doubling by 2030. Replacing these planned capacity additions with solar generation could reduce regional power expenditure by up to USD67 billion annually. The increasing cost competitiveness of integrated solar-and-battery solutions could further strengthen the economic case for this shift.

The shift towards renewables is underpinned by a steep and sustained decline in the cost of renewable power generation. According to Bloomberg New Energy Finance (BNEF), the capital cost of solar photovoltaic (PV) modules has decreased by 65% over the past six years, reducing solar power expenses by approximately 90% since 2010. The capital costs of lithium-ion battery storage and wind turbines have similarly fallen by 44% and 42% over the same period. Consequently, solar generation paired with battery energy storage is now able to match or undercut the cost of gas-fired electricity in nearly every Asian power market.

Rapidly improving renewable energy economics are prompting investors and financiers to reassess energy investment opportunities and shift capital toward technologies that reduce exposure to fossil fuel supply and price volatility.

Renewable capacity availability across different technologies

The Middle East conflict has underscored the economic and energy security benefits of renewables, prompting Asian policymakers to consider expanding their role in future energy plans. This is evident in South Korea’s shift toward renewables, Indonesia’s 100GW solar power plan, and broader momentum across emerging economies driving wind and solar growth.

A key constraint is whether sufficient solar, wind, and battery storage capacity will be available at low cost to meet these ambitions. Adequate supply would help ensure both availability and low procurement prices, thereby lowering the cost of renewable electricity. Findings from the Institute for Energy Economics and Financial Analysis (IEEFA) suggest that supply is likely to be sufficient and should help contain renewable energy costs.

Solar

China dominates global solar manufacturing, accounting for over 80% of production capacity across polysilicon, wafers, cells, and module segments. As of early 2026, its solar manufacturing capacity was estimated to meet nearly twice global demand, even after accounting for additional demand driven by the Middle East conflict. While overcapacity in the country led to a 5% decline in solar PV module manufacturing in 2025, upstream capacity continued to expand, with polysilicon, wafer, and cell capacities increasing by 9%, 11%, and 7%, respectively. Currently, manufacturing capacity remains more than double global demand across each stage of the solar supply chain.

Abundant capacity has significantly increased Chinese solar exports, with year-on-year (YOY) growth of over 70% in March 2026 and 37% the following month. This surge was driven primarily by demand resulting from energy security concerns and higher strategic exports ahead of China's removal of solar export tax rebates in April 2026.

By March 2026, 50 countries had reached record-high imports of Chinese solar products. Export momentum continued into April, with shipments rising 37% YOY to 45GW. Africa emerged as a major high-growth market, accounting for about a quarter of China’s cell exports.

Solar module prices remain on a strong downward trajectory. Chinese module prices have fallen from more than RMB1.68 per watt (W) (USD0.25/W) in 2022 to approximately RMB0.72/W (USD0.10/W). Persistent excess manufacturing capacity is likely to keep prices low. China’s solar sector is operating at only 30–40% capacity utilization, and although many manufacturers have consequently incurred losses since 2024, its long-term outlook remains favorable due to the strong competitiveness of its products.

Beyond lowering prices for buyers, this overcapacity is also fostering innovation and efficiency as manufacturers compete on quality and performance. China has already introduced enhanced minimum efficiency standards, including a minimum module conversion efficiency of 23.4%, which would enhance the productivity of solar PV modules.

Wind

Wind turbine manufacturers are also grappling with overcapacity. BNEF’s nacelle manufacturing capacity report predicts global capacity of 325GW in 2026, more than double the estimated global demand. The offshore wind sector shows significant excess capacity, with supply potential exceeding projected demand by five times.

While China accounts for 75% of global wind turbine manufacturing capacity, supply and demand are more balanced in other regions. Onshore wind capacity outside China is projected to reach 70GW in 2026, a 34% increase from 2020, with demand rising to absorb a substantial part of the increase. Meanwhile, offshore wind capacity outside China (11GW) is projected to face a 0.6GW shortfall as early as 2027, with the gap expected to widen without additional factory investments. Chinese turbine manufacturers have substantial spare capacity, estimated at 98GW for onshore turbines and 52GW for offshore turbines in 2026.

Battery storage

Battery energy storage system (BESS) prices have fallen to historic lows in recent years. Global consultancy McKinsey & Company estimates approximately 900 gigawatt-hours (GWh) of excess battery manufacturing capacity in 2025, contributing to prices dipping to USD108 per kilowatt-hour (kWh). McKinsey projects global lithium-ion battery capacity — which accounts for around 85% of all batteries — to reach 6.7 terawatt-hours (TWh) by 2030, a 67% increase from current estimated capacity. Although manufacturing remains concentrated in China, other countries are expanding capacity. Declining battery costs make solar-plus-storage increasingly competitive and reduce perceived concerns about the reliability of renewable energy.

Significant oversupply in solar, wind, and battery storage manufacturing, declining prices, and energy security challenges linked to the Middle East conflict are creating a uniquely conducive environment for renewable energy investment. The International Energy Agency’s (IEA) Southeast Asia Energy Outlook 2026 projects that the region's net oil import bill will reach USD245 billion by 2035 under business-as-usual conditions, unlike the one-time, asset-building nature of renewable energy capital investment.

Geopolitics and tariff barriers

Despite the economic and energy security benefits of renewable energy, geopolitical tensions — particularly concerns over China’s dominance of renewable supply chains — have prompted some countries, especially in advanced economies, to adopt protectionist measures.

The US has imposed and raised tariffs on solar imports from China and Southeast Asia. The European Union (EU) avoided implementing similar tariffs and but opted instead for non-tariff measures that could restrict certain imports. Japan has adopted similar regulations, while wind turbines have also faced national security concerns.

In Germany, wind project developer Luxcara canceled a contract with Ming Yang, a Chinese wind turbine manufacturer, to supply turbines for the 300-megawatt (MW) Kant offshore wind farm. The order was redirected to Siemens Gamesa after Germany’s Ministry of Defence raised concerns. In the United Kingdom (UK), Ming Yang's products were similarly excluded from offshore wind projects.

Unexpected gains for Asia and developing economies

A slowdown in renewable energy deployment in Western markets — which accounted for a sixth of global solar installations in 2025 — would increase the availability of cost-competitive renewable capacity for Asia and other developing economies. The affordability of Chinese solar panels is particularly transformative in markets with limited access to financing.

In Asia, in addition to Pakistan, the Philippines more than doubled its Chinese solar panel imports in early 2026, driven by energy security concerns. Solar power also constitutes a third of China’s overseas power projects under the country’s Belt and Road Initiative. Meanwhile, Africa imported 48% more Chinese solar panels in 2025 than in 2024, with Algeria, Egypt, Nigeria, South Africa, and the Democratic Republic of the Congo each importing more than 1GW of capacity.

Trade barriers on renewable energy equipment, particularly products manufactured in China, may reflect concerns about supply chain concentration and national security. However, these measures are likely to redirect low-cost solar and wind capacity to Asia and other developing economies, where dependence on imported fossil fuels is most pronounced, and lower-cost renewables could deliver significant economic, energy security, and climate benefits.

Asia’s energy trilemma has long been viewed as a balancing act between affordability, security, and climate sustainability. However, geopolitical crises and declining costs of renewable technologies suggest that these objectives are increasingly aligning. Policymakers should leverage this opportunity to accelerate the energy transition and reduce exposure to future energy shocks. (ends)