Meeting the global climate commitment to limit temperature rises to no more than 2 degrees (and preferably less) will be costly. McKinsey estimates that achieving net-zero emissions by 2050 will cost about $275 trillion globally, equating to over $9.2 trillion a year—$3.5 trillion more than current spending. Southeast Asia alone will require an additional $15 trillion by 2050.
Climate-related technologies that reduce emissions also need to scale up significantly. This means that the cost of these technologies needs to reduce substantially to be on par with incumbents. For instance, the cost of solar energy decreased by a massive approximately 90 percent between 2010 and 2020, making it more comparable to that of energy from coal- and gas-fired plants. Achieving this parity was made possible through technological advancements and economies of scale and has positioned solar as a viable alternative to conventional fuels. This took decades to arrive at though , a luxury of time the current climate goals do not afford.
Given the nascency of climate-related technologies in Southeast Asia, initiatives to improve project delivery efficiency are not yet widely employed, and there lies the opportunity. Consider the prospects for renewable energy in Southeast Asia. McKinsey and Singapore’s Economic Development Board estimate that to achieve net-zero by 2050, the region must increase renewable capacity by seven to twelve times the levels seen during 2018‒21. Currently, only 3 percent of this is under construction, which is far behind the necessary pace. While there are some other climate-related projects under way in areas such as clean hydrogen and carbon capture and storage (CCS), their progress and expansion depend on significantly reducing costs as their capital expenditure requirements are substantial.
Cost reduction for climate-related technologies must happen at a much faster pace. This is where the "Plant-as-a-Product" (PaaP) approach can make a difference. PaaP is an ambitious cost reduction strategy that not only enables scaling at lower cost but also provides companies with a competitive edge in terms of both efficiency and cost. It transcends conventional improvement approaches, which typically focus on incremental gains.
Companies can adopt PaaP through a two-step approach. First, they should set a bold cost reduction target and conduct comprehensive analysis to identify improvement levers across the value chain, from design and procurement to construction and operations. These cost reduction targets can be based on theoretical, rather than practical, limits which serve to stretch targets ambitiously, a gap that companies then seek to close over time. Second, with clear targets and identified improvement levers, companies can implement these strategies in a phased manner to make them happen. This disciplined approach ensures that cost reduction goals are achieved systematically, fostering continuous improvement and sustainable growth. The result is that projects are completed in less time, at a lower cost, and with a smaller physical footprint.
We know that PaaP can work, because it has worked. Tesla, for example, applied this approach and reduced capital expenditure in its fifth gigafactory plant, in Texas, by 60 percent compared to its first in Nevada, while cutting its time to market by more than half. Tesla’s strategic moves include setting up in-house engineering, procurement and construction contracts to reduce costs and accelerate build times, and collaborating across disciplines and teams amongst senior management. Additionally, Tesla vertically integrated its supply chain by establishing its own lithium refinery plants, thereby securing access to cost-competitive raw materials, which is vital during shortages. Telsa also cultivates a "challenge everything" culture that enables agile practices, supported by a capable SWAT team and engaged management. This strategy helped Tesla become an efficient and flexible large-scale manufacturer.
Companies wanting to transform using PaaP can use these three perspectives:
Adopt a fast-paced, highly ambitious operating model. Six key elements can be considered: having bold targets from the outset; making sure that problem solving is fast and focused and that management are fully engaged; having the right team structure and staffing when moving from one project to another; adopting digital technologies and agile ways of working to execute projects innovatively; having a SWAT team to enable improvement across projects; and finally fostering a culture that gives rise to continuous learning and a can-do mindset.
Identify a project’s baseline needs and look to increase its value. This follows a methodology that involves establishing ideal cost benchmarks, identifying cost optimization levers, such as design or material changes, and having access to alternative suppliers. Standardizing and modularizing plant components have also proven to be cost-effective, as is investing in advanced digital twin technologies —which can simulate a physical plant from planning through its lifetime. This can significantly improve workflow by optimizing plant design and illustrating trade-offs between design options, while providing transparency on investment risk and return.
Improve efficiency through lean construction, supply chain intelligence and efficient plant operations. Construction delays are common across sectors, often resulting in projects overrunning by six to twelve months. “Lean” construction involves using advanced analytics to produce generative scheduling, which optimizes plans and can save up to 30–50 percent in cost and time. To build an intelligent supply chain, companies could aim to own critical points in the value chain, as Tesla did with its lithium plants. Other companies have chosen to collaborate with their suppliers by entering into equity partnerships and capacity reserve agreements. To improve their operations, companies could use technologies like sensors and advanced analytics. These technologies have shown to improve output and profits by predicting prices better and reducing downtime.
The large-scale deployment of climate-related technologies is essential to meet both regional and global climate goals. Southeast Asia has clear advantages, such as an abundance of natural resources and a productive population, that give it the potential to become a climate tech powerhouse. Embracing the PaaP approach could be a pivotal strategy that enables climate tech businesses in the region to deliver rapidly, cost-effectively and at scale, to help the region meet its climate transition goals.