From Pledges to Obligations
- Across ASEAN, energy demand is rising faster than the money and grids needed to supply it cleanly.
- Singapore is moving from encouraging clean energy to enforcing it. A new law makes data centres’ green energy pledges binding. Companies that treat their energy commitments as obligations will be better placed.
Every economy runs on energy, and every economy now wants more of it. Digitalisation, industry and growing populations are pulling demand up, while the land, money and grids needed to supply that energy cleanly are limited. The challenge is toughest as domestic energy needs grow in land-scarce Singapore and where alternative energy sources are limited, with no easy answer to trade-offs. In the build-up, the government has increased pressure on companies to fulfil their energy commitments.
Across the region, the ASEAN Centre for Energy projects that energy demand could reach 2.6 times its 2022 level by 2050 and that, on current trajectories, about 82 per cent of it would still be met by fossil fuels. Meeting the 2030 milestones of reducing energy intensity, by 40 per cent and making renewables nearly half of installed power capacity would require financing. ACE’s Asean Energy Investment 2026 report estimates the region needs US$14.2 trillion through 2060 under a coordinated transition, yet ASEAN draws only about 3 to 4 per cent of global energy investment, even though it has roughly 5 per cent of global energy demand and 9 per cent of the world’s population. In other words, it attracts less than its share. Clean energy projects in ASEAN also cost at least twice as much to finance as those in advanced economies, because lenders see more political, regulatory and offtaker risks.
Fig.1: Data Centre
Back at home, demand is already rising. Data centres used about 6.5 TWh of electricity in 2024, slightly over a tenth of Singapore’s total, up from about 7 per cent in 2020, and EMA projects peak demand of 9.6 GW to 11.4 GW in 2031. The Digital Infrastructure Bill passed by the Parliament on 7 October addresses this. Every data centre with a critical IT load of at least 3 MW must be licensed and meet efficiency standards that the regulator can raise over time. Efficiency is measured by power usage effectiveness (PUE), the ratio of a facility’s total energy use to the energy used by its IT equipment, so a lower number is better. Clean energy pledges that operators made in their tender bids become enforceable, with penalties of up to S$1 million or 10 per cent of annual Singapore turnover, whichever is higher.
On the supply side, Singapore is keeping its options open. Recently, it was announced that a study would be done on Pulau Tekong to test whether the site can host about 6 GW of generation and 2 GW of imports, with options including gas, hydrogen or ammonia-fuelled plants, geothermal power and an LNG terminal. At the 2026 National Day Rally, Prime Minister Lawrence Wong proposed merssging Pulau Semakau, Pulau Bukom and Pulau Sudong into one larger western island over the coming decades, with Pulau Hantu, Pulau Jong and Pulau Sebarok possibly absorbed as well.
Modelled on Jurong Island, it could host new power generation, advanced manufacturing and defence space. No timeline or cost has been given, and the Ministry of National Development says it will study the effects on biodiversity and water flow before proceeding. The trade-off is nature. The intertidal habitat in the potential footprint covers about 593 hectares, according to the National Parks Board’s Southern Islands Biodiversity Survey, which is larger than Sentosa and more than half of the Southern Islands’ total. Reefs around Pulau Hantu and Pulau Semakau are roughly 8,000 years old and have survived four bleaching events since 1998. Marine scientists warn that burying them has no viable mitigation, because transplanted corals cannot replicate reefs built over millennia.
Every policy and plan carries some form of opportunity cost, whether to nature or not. Every megawatt that a data centre uses, and every hectare set aside to generate it, is no longer available for something else. On the supply side, reclaiming reef-fringed islands buys land for power at the price of habitats that cannot be. These costs are paid by our marine ecosystems and future generations, which economists call negative externalities. On the demand side, the new efficiency rules work the other way: a facility that needs less power for the same computing work reduces the capacity, land and fuel that must be found. The two sides should therefore be planned together. The more efficient demand becomes, the smaller the opportunity cost on the supply side.
As for companies, they are already on the front line. Digital Realty, Equinix, Keppel Data Centres and ST Telemedia Global Data Centres were each awarded 50 MW on Jurong Island in August, on condition of a PUE of 1.25 or better and at least 50 per cent green energy, and those pledges are now enforceable. Much of that green energy will come from imported fuel or electricity, so the operators’ ability to deliver depends on projects that have yet to be built.
As investors, we look at energy through a double materiality lens. The first question is how energy affects the company: whether its supply is secure, whether price swings could squeeze margins, and whether assets built for today’s fuel could lose value as rules and technology change. The second is how the company affects others: the emissions, water use, heat and habitat loss its operations cause. This applies to every company, from heavy users of power to the firms that supply them. As pledges become enforceable, we value companies that treat their energy commitments as obligations. It is becoming increasingly important for companies to disclose where their energy comes from and report progress against their targets to secure the contracts and capital to deliver. We reward them because a commitment that is funded and tracked is more likely to protect long-term value than one that is only announced.
The Blueprint
With the ever-changing landscape around us, it can get overwhelming to stay up-to-date. The Blueprint highlights pertinent global Environmental, Social, and Governance (ESG) issues and their importance to investors and the wider community. We look forward to engaging in discussions about the interconnections between climate, nature, and social outcomes that impact our investments and our futures.
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