I’ll soon be joining a team working on a clean energy project in the Lower Mekong region. So, I decided to do some preliminary research into the current investment climate and government policy towards clean energy in Thailand, where I am now based.
The current structure of the Thai power sector is a highly centralized system with the government maintaining its monopoly over transmission and distribution, while there is partial private participation in generation. The three state-owned utilities comprising the power sector are the Electricity Generating Authority of Thailand (EGAT), the Metropolitan Electricity Authority (MEA), and the Provincial Electricity Authority (PEA). MEA and PEA are responsible for distribution, while EGAT—by far the largest and most influential of the three—manages generation and distribution.
In the 1990s, under Prime Minister Anand Panyarachun, Independent power producers (IPPs) were allowed to enter the market. These IPPs competed with EGAT in the generation market, while the latter remained the sole buyer for transmission, resulting in a bizarre setup where EGAT acts as both buyer and seller of electricity. Furthermore, with increased competition in generation, EGAT responded by creating a full subsidiary, the Electricity Generating Company (EGCO), to compete as another IPP.
*SPPs: Small Independent Power Producers; VSPPs: Very Small Independent Power Producers. SPPs and VSPPs comprise much of the country’s renewable energy supply.
EGCO shares were divested and traded on the stock market in 1995, with EGAT retaining the largest stake. Needless to say, the conflict of interest arising from EGAT’s roles as both buyer and seller poses a potential threat to the competitiveness of IPPs.
Nevertheless, a bigger problem facing the Thai energy sector—although somewhat related to competitiveness of IPPs—is the issue of energy security. Thailand is heavily dependent on natural gas, accounting for 76% of the country’s generating capacity. The natural gas supply in the gulf of Thailand is being rapidly depleted and could run out within the next decade or so (Thai PBS, PDP2015: The Return to Coal, aired September 7, 2015).
The Thai energy sector is guided by 20-year power development plans (PDP), revised every five years or so, which forecast electricity and energy demand and map out generation needs for the medium to long term. Yet the PDPs have proven to be less than binding, with some projects being pushed for consideration even before they are included in the PDP. Examples include the 1,260MW Xayaburi dam in Laos and the 4,000MW coal-fired power plants in Dawei, Myanmar. Further, some project proposals lack transparency, with a tendency to overestimate projected demand for electricity. The need for electricity generation is measured by the reserve margin, or the capacity in excess of peak demand, which must be at least 15%. The current reserve margin of 25% is well above the minimum (International Energy Agency 2016).
Prior to 2015, the government had seemed supportive of the renewable sector. Since 2007, power purchase agreements (PPAs) were offered to mostly small (SPPs) and very small (VSPPs) independent producers who generated energy from renewable sources. The price of renewable units sold through these contracts was the wholesale price of electricity plus a premium which varied depending on the type of renewable source—known as the “adder” pricing system.
The Power Development Plan 2015–2036 (PDP2015), however, signaled a shift towards coal rather than renewables to counter the projected exhaustion of natural gas reserves. Included in the plan for construction are three coal-fired power plants at Krabi and Thepa in the south, which continue to face fierce opposition from NGOs, local activists, and communities directly affected. Meanwhile, the adder pricing system for renewable power producers, which allowed prices to fluctuate with the wholesale price of electricity, has been abandoned in favor of a fixed price, known as the “feed-in tariff” system (FiT).
The move was a policy earthquake for the renewables sector. SPPs and VSPPs awarded contracts under the adder system were given the option to switch to a FiT contract, while for submitted applicants awaiting contract approval the switch was mandatory. This presented a potential problem since investment decisions made by those producers were no doubt done under the assumption of adder pricing.
Another major issue is that of transmission grid overload in certain areas, causing the utilities to halt purchasing of renewable energy. To operate as an IPP, different licenses need to be obtained from different ministries; for instance, a license to construct a power facility must be obtained from the Ministry of Interior, while the license to sell electricity must be obtained from the Ministry of Energy. The two ministries do not coordinate in awarding licenses, resulting in scenarios where IPPs are granted licenses, only to be refused sales of electricity.
One example is a palm oil company in Krabi that has a 4MW biogas facility. Due to halted electricity purchases, the plant has resorted to burning off its biogas to avoid excess pressure and risk of explosion, costing the company roughly 100,000 baht per day since last September (Thai PBS, aired February 16, 2017). Krabi is also the province in which the new coal-fired plants are to be located. This raises a lot of questions about the necessity of such plants when renewable resource facilities exist, ready to meet demand. Furthermore, the plans seem at odds with the aforementioned reserve margin of 25%, which far exceeds the minimum of 15%. EGAT’s investment in an Indonesian coal mine was another source of controversy regarding potential conflict of interest.
Clear Signals Needed
Up until now, Thailand had been a leader for renewable energy in the region. However, if it is to continue in this role, the government needs to send out clear signals that it intends to continue supporting the sector and maintaining its commitment to reducing emissions, as per the country’s Alternative Energy Development Plan (AEDP2015). This includes increasing transparency and civil society engagement in the PDP process to ensure that renewables are properly considered. For the PDP2015, which proposed the three coal-fired power plants, town hall-style meetings were held only in Bangkok (even though some of the major plans for plant construction were in the South) and after the PDP draft had already been finalized.
To conclude, until the government offers clearer policy directions, the future of the Thai renewable energy sector remains uncertain and investment in the industry will remain low.