The story of Thailand’s centralized power sector Palang Thai Chuenchom Sangarasri Greacen 5 October 2009 MeeNet, Thailand

1. The origin

Bangkok’s first paved road (New Road) Electricity was introduced by King Rama V. Electric tram in Bangkok (powered by a wood-fired steam engine) in 1884.

Late 1800s – early 1960s Initially electricity served mainly the elites With series of wars and coups, not much happened in terms of spreading electricity By early 1960s, only 2% of Thais had electricity No consensus on form of ownership: private or state or coop model Diverse forms of ownership: over 200 separate small cooperative, municipal or privately owned utilities

At a cross road: centralized or decentralized model? Like the US Bonneville Power Authority, Thai National Energy Authority (NEA) was created to regulate hundreds of small utilities and built early power plants. Also served as the MRC secretariat and pushed large dam projects on the Mekong. With WB advocating central planning, fragmented state-owned enterprises Metropolitan Electricity Authority, Yanhee Electricity Authority, Northeast Electricity Authority, and the Lignite Authority

Decentralized Micro-hydro technology Micro-hydropower harnesses energy from falling water. Typcially some water is diverted from a stream using a weir. Water is then transported by a channel or pipes to a powerhouse downstream where the pressurized water spins a turbine, generating electricity. Source: Inversin, A. R. (1986). Micro-Hydropower Sourcebook. 6

Centralized generation High voltage transmission Transformer Centralized generation Medium voltage distribution

Deciding factor: Cold War politics USAID poured in billions of dollars to Thailand, seen as a regional power to be courted in containing communism USAID advisors considered micro-hydroelectricity but dismissed the option for large central generation with transmission and distribution In contrast to China’s extensive adoption of community-owned village-scale micro-hydro The USAID pre-feasibility study adopted verbatim as Thailand’s rural electrification master plan Electricity used to win the hearts & minds in “red/pink areas”

The birth of centralized utilities Creation of Electricity Generating Authority of Thailand (EGAT) By merging 3 SOEs With Metropolitan Electricity Authority (MEA) & Provincial Electricity Authority (PEA) in charge of distribution

Moral of the story… Centralized grid: in many cases, makes economic and technical sense, however… Control of a central grid need not be monopolized by one group Structure of centralized control determined by Cold War politics, not technical superiority Electricity played a political role

2. The Evolution

1970s – 1980s Centralized structure and control facilitated rapid expansion of grid, rural electrification Monopoly status with state power to provide essential public service Generous support from WB in particular Cost-plus structure State-owned utilities also grew in size and political power

1990s – Neo-liberal agenda With rise in global private capital, WB & IMF pushed privatization agenda Sale of EGAT’s assets: EGCO, Ratchaburi Giving “concessions” to private power producers (IPPs, SPPs) to generate & sell power Plan to create “Power Pool” and privatize the 3 utilities

2000s – National champion EGAT resisted neoliberal reforms Power Pool plan aborted EGAT aspired to be partially privatized “National Champion” but effort thwarted by civil action Still an SOE, EGAT has monopoly and public rights but with profit-seeking aspirations Use of profit-seeking subsidiaries to expand and pursue commercial interests Large capital and captive consumer base allows EGAT/its subsidiaries to invest abroad in competition w/ other transnationals

Power Grid & Pipelines are analogous to a giant’s arms reaching to grab resources to feed its endless appetite.

Changing role of electricity Electricity changes from a public service to a profit-making commodity With cross-border grid extension or regional grid, “Energy commons” (e.g. rivers w/ hydroelectric potential, natural gas) in countries surrounding Thailand are become a transnational commodity

3. The Character

Unchecked centralized power “A minority must sacrifice for the greater good” “out of sight, out of mind” Results: Structural violence Inequality waste

Siam Paragon MBK Central World Pak Mun 65 Dams Malls Province 123 81 75 Siam Paragon Central World Electricity production and consumption (GWh) Impacts of Pak Mun Dam alone 1700 families relocated Loss of livelihood for >6200 families Loss of 116 fish species (44%) Fishery yield down 80% Source: MEA, EGAT, Searin, Graphic: Green World Foundation Pak Mun 65 Mae Hong Song Dams Malls Province 23

Unlimited living? http://www.soho-properties.com/condobangkok-leraffine31/

The Champagne Glass Human Development Report 1992 UNDP, Human Development Report, 1998

Nam Theun 2 1000 MW Mainly to serve Thailand 6,200 people in Laos resettled Dam will dry Nam Theun River and swell Xe Bung Fai River Endangered species, elephant habitat to be flooded 26

4. The driver

Cycle of (over-)expansion under the centralized monopoly system Deterministic planning based on demand forecast leads to over-investment in capital-intensive power projects Power demand (over-)projections 1 2 Utilities’ Profits 3 Tariff structure that allows pass-through of unnecessary investments

Incentive structure for utilities: the more expansion, the more profits 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 ROIC = Net profit after tax Invested capital EGAT 8.4% MEA PEA 4.8% Result : Demand forecast have systemic bias toward over-projections Too many expensive power projects get built

Power demand projection Sep 2007 (PDP 2007 revision 1) MW Economic Development Plan (years) Average GDP growth rate/year Average demand growth rate/year 10th plan (2550-2554) 5.0 5.86 11th plan (2555-2559) 5.6 5.95 12th plan (2560-2564) 5.54 48,958 MW 2,477 2,399 2,287 37,382 MW 2,235 2,178 2,131 2,035 27,996 MW 1,832 Demand increase per year 1,759 1,629 1,361 1,410 1,268 1,444 1,449 2550 – 2554 average increase 1,386 MW 2555 – 2559 average increase 1,877 MW 2560 – 2564 average increase 2,315 MW แผนพัฒนาฯ ฉบับที่ 10 แผนพัฒนาฯ ฉบับที่ 11 แผนพัฒนาฯ ฉบับที่ 12 ที่มา กฟผ.

Power Demand: Projections vs Power Demand: Projections vs. Actual 1992 – 2008 If no systemic bias, the chance of over-projecting demand 12 times in a row should be 1/4096!! MW

Why assume exponential growth? Linear vs. exponential extrapolation 31 power plants

Planning of capacity additions (Total capacity requirement = peak demand + 15% reserve margin)

Many questions for PDP 2007 Why only 1700 MW of distributed generation allowed? Why 4000 MW of nuclear in all options? Why DSM/energy efficiency not considered as an option? New capacity added to the PDP 2007 L = low case B = base case H = high case 1=“lowest cost” 2=“as much coal as acceptable” 3=“LNG + imports”

Cost estimate (Baht/kWh) Supply options Cost estimate (Baht/kWh) Generation Transmission1 Distribution2 CO2 3 Other envi impacts 4 Social impacts Total DSM 0.50 – 1.505 - 0.50 -1.50 SPP cogeneration (PES > 10%) 2.60 6 0.44 0.08 0.71 3.83 VSPP (Renewable) Bulk supply tariff (~ 3) + Adder (0.3 – 8) 0 – 0.63 0 – low 3.3 – 11.0 gas CC 2.25 7 0.37 0.09 0.79 low – medium 3.93 Coal 2.11 7 0.15 2.76 High 5.82 Nuclear 2.08 7 0.15 + 1.008 High – very high 4.04 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 5. การศึกษาของ World Bank 2005 6. ตามระเบียบ SPP 7. ที่มา : กฟผ. 8. Cost of liability protection, Journal “Regulation” 2002 – 2003

Lack of accountability in demand over-projection and over-investment made of possible by guaranteed rate of return for utilities ROIC = Net profit after tax Invested capital EGAT 8.4% MEA PEA ROIC (Return on Invested Capital means: the more you invest, the more profits 4.8% Guaranteed rate of return means central planners are rewarded, not held accountable, for their repeated errors in demand forecast

Cycle of over-expansion under the centralized system with return-based regulation Deterministic planning based on demand forecast leads to over-investment in capital-intensive power projects Power demand (over-)projections 1 2 Utilities’ Profits 3 Tariff structure that allows pass-through of unnecessary investments

5. The alternatives

Centralized generation High voltage transmission Transformer Centralized generation Medium voltage distribution

Centralized & decentralized generation High voltage transmission Transformer Centralized generation Cogeneration Medium voltage distribution Gasifier

Thai civil society created an alternative PDP that meets govt’ objectives, is more economic and cleaner. But it was not considered by the government ที่มา มูลนิธินโยบายสุขภาวะ 2552

Supply curve of Pacific NW Resource potential for generic coal, gas & wind resources shown for typical unit size. Additional potential is available at comparable costs. Source: Northwest Power and Conservation Council 42

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