Added incentives: Renewable power supplies are being expanded to reduce dependency on foreign imports

As energy imports surge and power bills mount, Thailand is embracing a new strategy of decreasing its dependence on foreign energy sources through the expansion of alternative domestic power supplies. Possessing an extensive river network, strong solar radiation, particularly in the rural north-eastern areas, and an abundance of natural biomass, the country’s vast renewable energy potential is ripe for exploitation. “Thailand has huge potential to further develop its alternative energy strategies. It is important to secure the nation’s power supply and reduce the current dependency on gas as the major source of power,” Khun Suvit Limvattanakul, the general manager of Bangkok Cogeneration and the chairman of the Association of Private Power Producers, told OBG.

ROADMAP: To capitalise on these strengths, the government formulated a roadmap through its inaugural Renewable Energy Development Plan 2008-22, which calls for renewable energy sources to contribute a minimum of 20.3% of final energy consumption by 2022. Reaching these goals would entail boosting existing renewable energy capacity up to target levels of 800 MW in wind power, 500 MW in solar power, 324 MW in hydropower, 3700 MW from biomass, 120 MW from biogas and 160 MW from waste-to-energy (landfill). Other non-electricity renewable contributions would come from growth of fossil fuel replacement products, such as biofuels. This would require substantial expansion across the sector, as current renewable energy capacity is extremely limited and is generated almost exclusively by small and very small power producers (SPPs and VSPPs). As of June 2011 total installed capacity in these categories was led by biomass, with 716.08 MW, followed by biogas, with 80.53 MW, solar (44.13 MW), waste-to-energy (32.63 MW) and wind (0.38 MW).

INCENTIVES: To encourage the substantial investments necessary to achieve these targets, the government has put in place a series of financial incentives for renewable energy power producers. Foremost among these incentives is an additional payment allocated to renewable energy producers that comes in the form of a supplemental payment, called an adder, to the standard tariff rates. These rates are issued in a predetermined amount of additional baht per KWh of electricity produced, and differ on the size and technology employed in production. The adder tariffs are paid to the power generator in addition to the normal tariff rates applied to all power producers in the country, which averaged around BT3 ($0.1) KWh in 2011.

Biomass and biogas producers are eligible for a BT0.5 ($0.02) adder rate on power plants with an installed capacity of less than 1 MW and BT0.3 ($0.01) for those greater than 1 MW, while waste-to-energy producers qualify for a BT2.5 ($0.08) adder for landfill and digester-fuelled plants and BT3.5 ($0.11) for thermal process plants. Wind producers adder rates are BT4.5 ($0.14) and BT3.5 ($0.11), respectively, for installed capacities of less than or equal to 50 KW and greater than 50 KW, while small hydropower plants of less than 50 KW have a BT1.5 ($0.05) adder, which falls to BT0.8 ($0.03) for installations with capacities of between 50 KW and 200 KW. The adder rate for solar power projects, meanwhile, was initially set at BT8 ($0.26) per KWh, but has since been lowered. All rates are valid for seven years, except for wind and solar, which are binding for 10 years.

INTEREST: Investor reactions to the scheme have been positive on the whole so far, although enthusiasm has varied depending on the type of renewable energy generation. For example, there have been many applications for solar power projects, with more than 3000 MW of installed capacity petitioned – six times what the renewable energy plan calls for.

While the new scheme has spurred unprecedented interest in the solar photovoltaic (PV) sector, other areas, such as wind, have experienced more difficulty generating interest. Because Thailand only averages a wind speed of around 4.5 metres per second, investors have so far been hesitant about large-scale wind projects. This has hampered the development of larger wind farms as investors are still primarily interested in the low hanging fruit found elsewhere in the renewable energy sector. Although future development of wind power is not out of the question, it is simply not as profitable to set up projects in Thailand as it is in other, more windy locations in the region.

Hydropower will also likely be limited in scale to smaller river power plants rather than larger reservoir-based power complexes that can range into hundreds and even thousands of MW of installed capacity. Much of this is due to vociferous opposition to these high-impact projects by locals, environmental groups and other nongovernmental organisations. While many companies have been quite active in the hydropower sector over the past decade, participating in a number of large-scale hydropower projects to provide renewable power for Thai consumers, none of them are actually constructed within Thailand’s territory. Instead, thousands of MW of new installed capacity are being built in neighbouring Myanmar and Laos, with power purchase agreements (PPAs) being signed to import the power back into Thailand. A prime example of this is the massive 7110-MW Tar-hsan hydropower project in Myanmar, which is being implemented by Myanmar’s Ministry of Electric Power and the MDX Group of Thailand.

BIOMASS GENERATION: Interest in biomass thermal power plants is also widespread, as the practice is already established by SPP and VSPP operators across the country, utilising agricultural waste and generating power for small-scale industrial operations. As of June 2011 SPPs operated a 375.2 MW installed biomass generation capacity and VSPPs operated a further 340.88 MW capacity, fuelled by molasses, husks, wood chip and other agricultural materials, according to data from the Renewable Energy Industry Club (REIC). This figure is set to increase dramatically in the coming years, as interest in the sector trails only that of the solar power segment, with a total 2221.74 MW of new VSPP capacity proposed to the MEA and PEA. Of these, PPAs have been signed for 1538.5 MW. Sample projects produced internal rates of a return of between 8.93% and 12.8%, according to a UN case study on Thailand’s biomass sector published in March 2012.

SOLAR FLARE: Throughout June 2011, applications were submitted for developing 2991.05 MW of installed thermal and PV projects in the VSPP category alone. Given the overwhelming response to the incentives scheme, the government has taken a time out to review the initiative. In late 2011 the Ministry of Energy issued a moratorium on new permits for solar projects until approved projects run their course. The state lowered the solar adder tariff rate from BT8 ($0.26) to BT6.5 ($0.21) in 2010, and proposed a feed-in tariff of BT5.94 ($0.19), though this is not yet confirmed.

Regarding the existing proposals, many in the industry are sceptical that all of these projects will come to fruition, believing many are primarily speculative in nature or that applicants lack either the will or resources to develop them. “Some of these projects will fail and others will not be profitable, but they may still be carried out as corporate-social responsibility projects,” Phichai Pinsuntisook, the chairman of REIC told OBG.

While this may hold true for some of the small projects, the larger projects run by more organised international outfits are a different story. Thai developer Solar Power Company, is expecting to have 34 solar plants totalling 204 MW up and running by the end of 2012, along with a 73-MW project, which would the largest in the country, developed by Natural Energy Development in 2013 and another 120 MW by Bangchak Petroleum to be developed over a period of five years.

NEW TARGETS: While the government has set its renewable energy targets at 5600 MW installed capacity by 2022, the private sector has more ambitious goals as reflected in the interest shown thus far in developing the industry. Under an initiative headed by REIC the sector is striving for an installed capacity of 9200 MW by 2022. This includes quadrupling solar PV generation targets from 500 MW to 2000 MW, increasing wind capacity from 800 MW to 1200 MW, biomass to 3630 MW, hydro to 1608 MW and biogas to 600 MW, while waste-to-energy remains at 160 MW.

Although these revised targets seem to reflect investor confidence in the current feeder system, there is concern about the ability of the current infrastructure to both absorb and balance these new and often variable power sources. The effect of the incentive programme on end-user prices is also a concern. To address these issues, the Energy Policy and Planning Office commissioned a feasibility study in April 2010 to determine the viability of introducing a different feed-in tariff style incentive scheme similar to those employed in Europe, the results of which are expected by July 2012. According to Phichai, the current adder incentive support programme is preferred by the vast majority of private developers and bank lenders that provide debt financing for related projects. He said that this is due to the fact that recovery of initial investments under the current scheme takes about four to five years while a switch to a true feed-in system could stretch out the recovery period to as much as 10 years, which would dramatically reduce the attractiveness of the scheme.