Thailand situation analysis and initial idea for case study Chris Greacen Sopitsuda Tongsopit Chuenchom Greacen Palang Thai

Outline Drivers Status Constraints Case study ideas

Drivers

5 AEDP : 25% of final energy consumption by 2021

$ Small Power Producer (SPP) and Very Small Power Producer (VSPP) regulations

7 Thailand’s ADDER (FiT) Rates (in USD/kWh)

Thai Government loans funds at 0% interest to commercial banks for investment in: Energy efficiency improvement projects Renewable energy development and utilization projects January 2003 – present 7000 M Baht 11 local financial institutions have participated. Max loan amount: 50 MB Max. interest rate: 4% Max. loan period: 7 years Revolving Fund Low cost financing

9 A source of venture capital for ESCOs to jointly invest with private operators in energy efficiency & renewable energy projects. The program targets SMEs & small projects. Investor Technical Assistance ESCO Venture CapitalEquipment Leasing Carbon Market Equity Investment Credit Guarantee Facility Fund Manager Investor ESCO Fund Investment Committee Energy Conservation Promotion Fund ESCO Fund Low cost financing

10 Thailand’s Board of Investment (BOI)’s tax incentives for renewable energy projects: Corporate income tax holidays up to 8 yrs. Additional 50% reductions of corporate income tax for 5 yrs Import duty reductions or exemptions on equipment and raw materials Tax Incentives Tax incentives

Status

Biogas from Pig Farms Reduces air and water pollution Produces fertilizer Produces electricity 8 x 70 kW generator

Biogas from Pig Farms

Uses waste water from cassava to make methane Produces gas for all factory heat (30 MW thermal) + 3 MW of electricity 3 x 1 MW gas generators Korat Waste to Energy Cassava biogas

40 kW Mae Kam Pong, Chiang Mai, Thailand Micro hydropower

Rice husk-fired power plant 9.8 MW Roi Et, Thailand

Lopburi solar PV – 73 MW (over 1,000 rai = 160 hectares) Signed PPAs for 767 MW of PV (SPP + VSPP)

Construction underway for 207 MW wind farm

Feb 2007 Thailand VSPP Status 18 MW online

Mar 2012 Thailand VSPP Status 1222 MW online (68-fold increase since 2007) PPAs signed for additional 3820 MW

VSPP results in Thailand

Comparison between the current on-grid RE status or pipeline status vs. target.

Thailand’s Solar Goldrush: Systems by Stage of Applications

Constraints

Management Committee (June 2010) New committee set up after PV ‘gold rush’ Role: to decide which projects proceed – Lack of clear criteria – Political connections and intervention Composition: utilities, government Results: all types of RE projects that are under different stages of development are experiencing bottlenecks in the permitting processes. Allegations of corruption

Department of Factories New! all types of power projects (though mostly renewable energy) are experiencing severe bottlenecks in the permitting processes.

Trend of MW in the Pipeline (All Renewables) “Healthy Pipeline?” 28 Formation of Managing Committee June 2010 bid bond introduced

Micro-hydropower Constrained by water rights Grid-connection of DEDE village micro- hydropower projects constrained by anti- corruption rule that prohibits a group of individuals from receiving revenues from government assets.

Biomass Constrained by high biomass fuel prices – Business plan: biomass = 800 baht/tonne – Actual: biomass = 1000 baht/tonne Low CO2 price

Solar No new solar applications accepted since June No price differentiation for smaller projects (solar farms account for 99% of installed grid- connected capacity).

PDP 2010 New generation includes: 11,669 MW of imports 8,400 MW of coal plants 16,670 MW of gas plants 5,000 MW of nuclear

PDP 2010 (revision 3)

Choice of supply options considered in the PDP by EGAT 700 MW Coal-fired power plant 700 MW gas-fired combined cycle plant 230 MW gas-fired open cycle plant 1,000 MW nuclear plant Hydro imports are politically negotiated outside of PDP process DSM/EE, RE, Distributed generation not considered as supply options

EGAT’s cost assumption for planning Source: EGAT, PDP 2007 Presentation at Public Hearing, 2 April Nuclear Coal Gas CCGT Oil (Thermal) Gas turbine RE Solar Wind Waste Biomass Cost (Baht/kWh)

Supply options Cost estimate (Baht/kWh) Generation Trans missio n 1 Distrib ution 2 CO 2 3 Other envi impacts 4 Social impacts Total DSM0.50 – SPP cogeneration (PES > 10%) VSPP (Renewable) Bulk supply tariff (~ 2.62) + Adder (0.3 – 8) – – low 2.92 – gas CC low – medium 3.93 Coal High5.82 Nuclear – High – very high หมายเหตุ 1. ใช้สมมติฐานว่าต้นทุนร้อยละ 12.4 ของค่าไฟฟ้ามาจากธุรกิจสายส่ง 2. ใช้สมมติฐานว่าต้นทุนร้อยละ 14.5 ของค่าไฟฟ้ามาจากธุรกิจจำหน่าย 3. ค่า CO2 ที่ 10 ยูโร/ตัน 4. ค่า Externality ตามการศึกษา Extern E ของสหภาพยุโรป และนำมาปรับลดตามค่า GDP ต่อหัวของไทย The World Bank, Impact of Energy Conservation, DSM and Renewable Energy Generation on EGAT’s PDP, ตามระเบียบ SPP 7. ที่มา : กฟผ. 8. California Public Utilities Commission (CPUC), 2050 Multi-Sector CO2 Emissions Abatement Analysis Calculator, Cost of liability protection, Journal “Regulation” 2002 – 2003.

Financial criteria for utilities link profits to investments –Thailand uses outdated return- based regulation –WB’s promoted financial criteria such as self financing ratio (SFR) also have similar effects ROIC (Return on Invested Capital means: the more you invest, the more profits Incentive structure for utilities: the high their investment budget, the more profits 5.8% Result : EGAT favors capital-intensive investments (centralized plants) by its organization or subsidiary companies. Allowing more EE or RE generation hurts EGAT’s bottom line ROIC = Net profit after tax Invested capital EGAT 6.4% MEA PEA

Summary of structural issues Utilities are incentivized to prioritize capital- intensive, centralized generation Lack of integration of EE/RE in planning process – Arbitrary quota system Costs – Exclusion of T&D costs (not to mention externality costs) makes cost comparison between RE and other generation unfair

Other RE issues Creation of “Management Committee” to screen VSPP applications creates governance problems – Lack of clear criteria – Political connections and intervention Lack of enforceable environmental safegard framework for <10MW generation Lack of policy certainties Lack of predictability and periodic updates of purchase prices to reflect changes in costs Lack of price differentiation for smaller-scale RE Lack of financial support for community/small-scale RE

Ideas for research

Research question What regulatory changes will be necessary to rapidly scale up renewable energy investment by the year 2021? Framework: – Pricing structure – Permitting process – VSPP + SPP regulations and tariffs: fair, streamlined, transparent, accountable – Monitoring and evaluation

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