Jay Vontobel, who is responsible for Business Development at Vietnam Holding, an asset manager in Việt Nam, shares his opinions about the launch of the Asia Infrastructure Investment Bank’s (AIIB) energy strategy this week.

The launch of the Asia Infrastructure Investment Bank’s (AIIB) energy strategy this week in South Korea could not come at a more crucial time.

Southeast Asia’s expanding economies are hungry for power. Indonesia alone is looking to build 35GW of new power plants by 2020 and Việt Nam’s electricity demand is projected to grow more than threefold between now and 2030.

Getting this right is critical for the region’s development potential: growing its economies while not sacrificing its future to pollution and climate change.

There has never been any doubt that renewable energy is healthier. Pollution continues to choke cities such as Jakarta and Hanoi, and most recently, the new president of South Korea closed coal plants to improve air quality. China’s challenges in this respect are well known.

But clean air need no longer come at a high price, because in the right conditions, renewable energy is beating fossil fuels like coal on cost and efficiency.

Just take the example of India, where the government has pledged to end expensive coal imports. India is on track to construct a remarkable 275GW of renewable energy by 2027. Last month, costs for solar hit another record low, dropping 45% since January 2016 when India’s last record low was set.

Coal plants are being shelved for the simple reason they can no longer compete on price.

This new reality was encapsulated by Jim Barry, the global head of BlackRock’s infrastructure investment group, when he bluntly stated last month that “coal is dead. That’s not to say all the coal plants are going to shut tomorrow, but anyone who’s looking to take beyond a 10-year view on coal is gambling very significantly."

However, the reality is that there exists a tried and tested blueprint for investing in coal-fired power stations in the region. Governments know how to set up the requisite regulatory and investment framework, utilities know how to operate the plants, and investors are experienced in packaging the deals.

Renewable energy is often smaller scale and more diversified. That’s a positive for a variety of factors, such as the ability to come online more rapidly, but it does require new ways of thinking for utilities and investors alike.

This is highly relevant when it comes to emerging economies such as Việt Nam, where renewables such as distributed and integrated solar power represent extraordinary potential – particular if seen in connection with the country’s existing hydropower assets.

On the global level, that potential is already being realised.

In 2016, for the fifth consecutive year, investment in new renewable power capacity was roughly double that in fossil fuel generating capacity.

But this is only the tip of the iceberg because according to the International Energy Agency, Southeast Asia alone will need a cumulative US$2.4 trillion in investment in energy supply.

This presents a major opportunity for private capital investors, but support is needed from governments and international financial institutions to surmount the challenge of change itself.

That’s why potential leadership by AIIB would be so important. By leaving behind the fuels of the past and focusing on renewable energy, the AIIB can turbo-charge the economies of Southeast Asia and unleash billions in new investment.

The AIIB recognises this, but unfortunately still leaves the door open for fossil fuels, a mistake in our view.

In the light of the Paris Agreement on climate change as well as cost competitiveness, we believe that the days of fossil fuels are behind us.

For scarce public finance, we need investment in the generation assets of the future, not relics of the past at risk of being stranded. And international financial institutions have a major role to play in addressing long-term lending in order to reduce the costs of borrowing. The investment community requires their guidance.

AIIB President Jin Liqun has promised a ‘lean, clean and green’ institution with a ‘pioneering spirit’. At the World Economic Forum in Davos this January, AIIB’s vice-president for strategy and policy, Joachim von Amsberg, also suggested that the bank would abide by this pioneering spirit. “There’s a strong consensus that AIIB has to be a green bank and the portfolio has to show that it’s a green bank and if the portfolio is full of coal projects you won’t look like a green bank,” he said.

Indeed, AIIB has about $100 billion of capital at its disposal. None of it should be invested in coal-fired power generation in our view.

By living up to this promise and deploying its considerable capacity to catalyse the transition to renewable energy, AIIB can play a vital role in leading the region towards a truly sustainable future. Smart investors are ready to follow.