Thailand's energy mix evolves with uptake of advanced technologies

With roughly 7.1trn cu feet of natural gas at the end of 2017, down from 10.6trn cu feet in 2007, according to the 2018 “BP Statistical Review of World Energy”, Thailand’s reserves of this critical resource are depleting. Thus, the country is working to diversify its power mix with both conventional and alternative sources.

The transition is going smoothly, and new technologies are being brought on-line far faster than expected. Scientific advances, supportive and flexible policies, overcapacity in solar manufacturing and gains in efficiency have made the environment for energy diversification and investment exceedingly attractive. The shift to alternative energy sources is happening so quickly that Thailand is becoming a recognised leader in the region, if not globally.

The pivot is nonetheless challenging: the depletion of traditional energy sources is slightly outpacing the generation from alternative sources. Two significant coal projects being pushed back is especially problematic. As such, coal-fired power that would help carry the country through the transition to more renewable generation is not becoming available as expected.

OVER THE YEARS

The development of commercial energy in Thailand began in the late 19th century, and reform of the sector since then has been consistent. Just four years after the first practical demonstration of the incandescent light bulb in Menlo Park, New Jersey, the Chakri Maha Prasat Hall in Bangkok was electrified by two generators purchased from the UK.

In 1897 the Bangkok Electric Light Syndicate was established and became Siam Electricity in 1898. King Rama VI created the Sam Sen Waterworks Authority and Sam Sen Power Plant in 1912, which both served northern Bangkok. A power plant was established in Ratchaburi Province in 1927 and another in Nakhon Pathom Province in 1930. Following the end of the absolute monarchy in 1932, electricity access in rural areas expanded quickly, to Prachin Buri, Phuket, Nakhon Nayok, Chonburi, Ban Phong, Chanthaburi and Chiang Mai. In 1939 Siam Electricity became the Thai Electric Corporation when the country changed its name.

Bangkok Electric Works was founded in 1950 and Lignite Electrical Power in 1954, the latter serving the southern provinces. The Provincial Electricity Organisation was also established in 1954 and was responsible for distribution outside Bangkok. In 1958 the Metropolitan Electricity Authority (MEA) was created from a merger of the Bangkok Electricity Authority and the Samsen Royal Electricity Authority. The Yanhee Electricity Authority was also formed in 1958 for the purpose of generating hydropower, and it was merged with the MEA in 1961. The first oil-powered plant, North Bangkok Power Station, was commissioned in 1961. To help the country meet its growing energy needs, Yanhee’s assets were combined with two other regional entities, the Lignite Authority and the Northeastern Electricity Authority, in 1969. The resulting entity was the Electricity Generating Authority of Thailand (EGAT).

Sector Composition

By the 1980s oversight of the energy sector was shared among three organisations: MEA, EGAT and the Provincial Electricity Authority. The structure in place was highly effective: output increased rapidly enough to keep pace with modernisation and industrialisation, the entire country was connected to the grid and tariffs were kept low. However, the framework also left Thailand in financial difficulty, as debt grew to install the necessary capacity.

Liberalisation followed in the 1990s, with independent power producers allowed access to the market, ending EGAT’s monopoly. The Electricity Generating Company was separated from EGAT in 1992 and Ratchaburi Electricity Generating Holding was formed in 2000. A revised tariff structure was also brought into force to improve transparency, enable capacity expansion and ensure the stability of the system.

Overall, the power sector is widely regarded as a successful model for many other developing economies. The entire population has access to electricity, according to the World Bank, and prices are kept low by regional and international standards with the help of generous government subsidies.

Thailand’s current energy mix is both relatively clean and efficient, combining old and new technologies. According to the Energy Policy and Planning Office (EPPO) of the Ministry of Energy (MoEn), in 2016 natural gas was used to generate 63% of electricity, and coal and lignite supported 19%. Renewables – excluding imported hydropower – produced 8%, while imports, largely from Laos, comprised 10% of the mix.

Thailand’s primary energy consumption is forecast to rise by 2.1% in 2018, according to the EPPO. Electricity use is expected to grow by 4.1% to 193bn units, with peak demand increasing by 0.3% to 34.2 GW. Electricity prices are to remain at 2017 levels. Oil consumption, meanwhile, is forecast to grow by 2.2%, diesel demand by 2.7% and petrol use by 3.6%. Diesel prices are expected to rise, but not significantly. Estimates for 2018 are based on assumptions of Dubai crude oil priced at $50-60 per barrel and economic expansion of between 3.6% and 4.6%.

Long-term Hurdles

Despite a steady transition to renewables and the current stability of the market, concerns remain over power security. The country experienced a brownout in 2013 and the power supply in the south is insufficient. Major reforms, such as the full privatisation of EGAT, have not yet been completed due to political resistance and objections from labour unions. Still, the largest problem faced by the sector is its dependence on natural gas. The fuel is fast depleting in Thai-controlled fields, and the country is now in a race to restructure its energy mix to ensure continuous, cost-effective generation. “Thailand needs to diversify because we are extremely dependent on gas. In the future we will push for more renewable or hydro-based supply from neighbouring countries,” Twarath Sutabutr, director-general of the EPPO, told OBG.

Dependence on gas has been driven by decades of growing utilisation, with the source’s contribution to the energy mix peaking at 70% in 2010. By 2000 the country was already a net importer of natural gas, according to the US Energy Information Administration (EIA). Gas production hit an annual high of 1.54trn cu feet in 2014, and reserves in the Gulf of Thailand are set to run out in five to six years if production keeps its current pace – which was 1.37trn cu feet in 2017, according to BP. As reserves dry up, demand is rapidly increasing. According to S&P Global Platts, natural gas demand will rise from 4.71bn cu feet per day in 2016 to 5.06bn cu feet per day by 2036, with imports expected to climb seven-fold in that period.

Gas Focus

To counter the decline of domestic reserves, the authorities are working to create an environment for competitive and efficient imports. PTT, the state-owned energy company, opened its first liquefied natural gas (LNG) terminal in 2011 at Ma Tha Phut in Rayong Province. At a cost of $880m, the facility originally had a production capacity of 5m tonnes, which was upgraded to 10m tonnes in 2017. Expanding offshore, in 2015 PTT signed a contract with Ratchaburi Electricity to build a $400m, 3m-tonne floating storage and regasification unit in Myanmar.

PTT has imported LNG from Qatargas, BP, Shell and Malaysia’s Petroliam Nasional (Petronas), and supply brought in from overseas is rising rapidly. In 2016 imports rose by 50% to 3m tonnes and in 2017 that figure reached 3.9m tonnes, with imports in September 2017 up 74% year-on-year (y-o-y). Tevin Vongvanich, the former CEO of PTT, told regional media in February 2017 that the company plans to have the capacity to bring in 19m tonnes of LNG per year by 2030.

In August 2017 the liberalisation of natural gas trade was approved by the National Energy Policy Committee. EGAT was permitted to begin supplying gas to the market in 2018, breaking PTT’s monopoly; however, the company is limited to importing 1.5m tonnes per year. EGAT has been in active negotiations with LNG suppliers, according to S&P Global Platts. In early 2018 the company signed a memorandum of understanding with Qatargas for deliveries beginning in 2023. EGAT is also planning to build its own floating terminal with a capacity of 5m tonnes per year, but in the meantime, it will use PTT’s Ma Ta Phut terminal, which regulators decreed must be made available to competitors.

The liberalisation is part of efforts to end monopolies in the sector. PTT and EGAT will be exposed to private competition as the government works to change its focus from energy security to energy efficiency. This significant shift is more than a defensive move: Thailand aims to build capacity not only to meet its own needs, but also to help meet those of its regional neighbours. Its goal is to become the LNG hub for ASEAN. Thailand is already a net exporter of petroleum products, with eight refineries in operation, according to the EIA.

Diversifying the Mix

Although natural gas consumption has been high in recent decades, Thailand has invested in renewable generation and already hosts a significant installed base. Investment in alternative energy has been incentivised through favourable policies, which have been adjusted as the cost of the relevant equipment and infrastructure falls. For solar, a feed-in premium was initially offered in 2007 at BT8 ($0.23) per KWh for 10 years. It was dropped to BT6.5 ($0.19) per KWh for 10 years in 2010 due to a large amount of applications. In 2011 the structure was changed from a feed-in premium to a feed-in tariff.

As a result of high interest in solar power, incremental goals are being reached far faster than expected. Thailand had 3 GW of installed solar capacity in 2017 – already half way to its goal of 6 GW by 2036 – which amounts to 60% of all solar capacity in ASEAN. Therefore, the report “Renewable Energy Outlook Thailand”, issued by the International Renewable Energy Agency (IRENA) and the MoEn in November 2017, suggests increasing the solar capacity goal for 2036 to 17 GW.

The potential for savings are dramatic. If Thailand can generate 37% of its electricity from renewables by 2036, the country could reduce its spending on energy by an estimated $8bn annually when considering the environmental and health-related costs of fossil fuels. The report recommends increasing the percentage of solar and wind power in the energy mix, expanding the use of solar thermal technologies, developing more biomass capabilities – with an eye to supporting the income of farmers – and promoting electric vehicles.

Evolving Environment

While the outlook for renewables is positive, the authorities are now less inclined to offer support to investors because of the decreasing costs of generation. As such, regulators are demanding more efficiency from power producers and trimming back subsidies, and Thailand’s renewable energy segment has become more efficient and cost-effective as a result. Previously, the government had subsidised the market, but in more recent times renewable sources have become increasingly competitive compared with conventional methods.

In April 2018 Siri Jirapongphan, the minister of energy, said that going forward the country would only accept renewable power generated at the same cost as non-renewable sources, known as grid parity. Investors and developers, while generally optimistic about the segment, are concerned about this point. Indeed, technologies are becoming cheaper, but some argue that it is not yet time to expose renewable energy suppliers to the wider market. The Federation of Thai Industries, for example, is calling for feed-in tariffs to stay above BT3 ($0.09) per KWh for solar, rather than the strict grid-parity rate of BT2.44 ($0.07). One fear is that grid parity, if introduced now, will deter investors and slow solar energy development. Other regulations are also being implemented as renewables projects go mainstream: the MoEn is now requiring producers to commit to a certain minimum output, for example.

Despite advancements in renewable energy technology, conventional sources are still very much needed to compensate for variations in renewable production. As solar output can fluctuate and wind is inconsistent, a guaranteed base amount of generation must be available. Some producers may resist the demand for higher headline targets for solar and wind output, understanding that traditional sources still have a major role to play in the energy mix. “The cost of solar power should be benchmarked against the cost of a coal-fired or gas-fired power plant,” Varut Tummavanakub, CEO of Sermsang Power, told OBG. “However, our grid cannot depend too much on renewables. Thailand is still a developing market, so we cannot be compared to developed markets in this area.”

Rooftop Solar

Debates surrounding cost and output generally concern large-scale producers, which supply an estimated 95% of Thailand’s solar power through solar farms. However, residential rooftop solar has been prioritised for further development, and the government is considering a net metering plan to encourage their use. As households typically need power at night, they can sell their excess to the grid during the day to justify the cost of investing in panels.

However, rooftop solar power generation remains problematic as the grid will likely require a certain amount of restructuring in order to accommodate many residential connections. “In moving forward with solar power trading, we need to split our current grid into smaller micro-grids that enable off-grid connections. This will allow us to ensure power security in the capital,” Chaiyong Puapongsakorn, governor of MEA, told OBG. “We need to have an open discussion with all stakeholders, and MEA is more than willing to bear some of the costs linked to this shift.”

One early example of such a partnership is BCPG working with property developer Sansiri to install rooftop solar with a 30-MW generation capacity at one of its projects. Still, regulations for this type of energy exchange continue to be debated, and they are not expected to be included in a robust manner in the 2018 version of the Power Development Plan (see analysis).

Changing Winds

Another renewable energy source that is gaining momentum is wind. This comes with its own set of unique challenges, including the fact that wind speed in the region tends to peak at night. Wind Energy Holdings (WEH), the country’s largest generator of wind power, is therefore planning to invest in additional technologies, including solar and hydropower. The company plans to ensure a more stable energy supply by balancing wind with a different source that can generate larger quantities of power in the daytime. Another challenge facing WEH and other producers is the use of agricultural land for generation facilities. A 2017 court ruling that halted energy projects on such parcels impacted some of the firm’s plans.

The wind power capacity of WEH was 720 MW in 2018 and it is aiming for 3 GW by 2025. The company is looking to develop 1 GW of capacity in Australia and plans to conduct an initial public offering to raise funds for its sizeable capital investments. WEH also received BT37bn ($1.1bn) in financing from Siam Commercial Bank in late 2017 for wind farm expansion.

Meanwhile, Energy Absolute, a Thai firm that got its start in biodiesel, is planning to invest BT24.7bn ($715m) in 2018 and 2019 to build a 260-MW wind energy and biodiesel battery plant, as well as 1 GW of electricity charging stations across the country.

Innovative Projects

Alongside maturing wind and solar technology, other innovations are being developed to further add to renewable energy capacity. For example, a waste-to-energy plant is being built at the Hemaraj Chonburi Industrial Estate by Chonburi Clean Energy – a joint venture company established by SUEZ of France, WHA Utilities and Power, and Glow Energy. The facility, with an expected generation capacity of 8.63 MW, is designed to process around 100,000 tonnes of material per year. It is scheduled to come on-line by the end of 2019 at a price of $59m.

At the same time, the world’s first solar-hydrogen micro-grid residential project is being developed in Chiang Mai. Solar energy will be used to split water into its components of hydrogen and oxygen, and the former will be used as power by feeding it into a micro-grid or using it directly for heating and cooking.

Private Sector Plans

Thailand’s corporate sector is very active in the alternative energy space, as evidenced by the numerous examples of solar, wind and waste projects being pursued. BCPG is planning a series of mergers to further increase its presence in the renewable energy segment, while also expanding overseas, with investments not only in ASEAN, but in Australia and Japan as well. BCPG is expected to see the operation of several projects in 2018: a 12-MW solar farm in Thailand, two 24-MW solar farms in Japan, a 14-MW wind farm in the Philippines and a 158-MW geothermal plant in Indonesia.

Another private player, Banpu Power, is extending its business beyond conventional generation. The company, which is the generating arm of Banpu Coal, aims to have 20% of its portfolio comprised of renewable energy by 2025. It currently has 14 power plants in operation, including 168 MW of solar power capacity in China and Japan, and three co-generation plants in China. Banpu Power is developing 10 more solar projects in Japan and eyeing works in Indonesia and Vietnam. In 2017 the firm formed a new solar unit, Banpu Infinergy, which is positioning itself as a “one-stop provider of total solar energy solutions”. Its first task will be the installation of rooftop solar panels and solar-powered streetlights. While diversifying, Banpu Power intends to remain largely focused on coal.

Meanwhile, in early 2018 the Asian Development Bank provided a loan of $235m to B.Grimm Power – one of the country’s largest power producers – for the development of renewable energy in the region. This funding will support the ASEAN Distributed Power Project, which intends to bring distributed and renewable power to Cambodia, Indonesia, Laos, Myanmar, the Philippines and Vietnam. The development project involves generating energy through solar, wind, biomass, waste-to-energy and gas means, as well as establishing storage solutions.

Role for Coal

Despite successful efforts to scale up renewable energy production, coal – the use of which is often controversial – remains a considerable part of the energy mix. The fuel plays an important role in powering the country, and its share could even increase in the medium term, particularly as coal-fired generation has been highlighted as having the potential to support Thailand through its transition to renewables and may also be needed to keep energy costs down.

Just under 20% of the country’s energy is generated by coal, the MoEn’s Siri told press in April 2018. While the global trend has been to reduce dependence on this resource and move to cleaner options, coal has clear benefits for Thailand in terms of cost and efficiency. The country’s coal and lignite consumption for the whole of 2017 was 39m tonnes, 0.9% higher than in 2016, with imports up 2.5% to 22.2m tonnes and domestic production down 4.2% to 16.3m tonnes, according to S&P Global Platts. The trend continued in the first three months of 2018, with imports up 4.2% y-o-y and production down 10.5%. Indonesia and Australia are Thailand’s primary suppliers of coal.

Banpu Coal, in particular, has plans to increase its annual coal production from the 2017 level of 40m tonnes to 60m tonnes by 2020 through additional mining of its assets in Indonesia, China and Australia.

Coal Concerns

Not all stakeholders are supportive of greater coal use, however. Two major coal-fired power plants for Krabi and Thepa, expected to generate 870 MW and 2.2 GW of energy, respectively, have been delayed since 2014 due to environmental concerns. In early 2018 the government signed a document detailing its intention to disregard previous contended environmental and health impact assessments on the plants and commission new studies. All lawsuits filed by EGAT against the developers will be withdrawn as well, bringing the projects back to the initial review phase.

By May 2018 a group had been assembled to conduct strategic environmental assessment reports for the plants. If the studies conclude that coal is not appropriate for the areas, other solutions will be examined. The team is composed of individuals with expertise ranging energy, transport, tourism, the environment, fisheries, marine science, hydrography, public health, city planning, engineering and law. It is still unclear whether the projects will ultimately be completed, but the plants could be established if specifics are adjusted to address environmental and other concerns.

Following the postponement of the projects, the government told EGAT to propose other sites for coal-fired plants. Importantly, Siri announced that such facilities do not necessarily have to be located in the south, as the region will have sufficient generation capacity despite the suspension of the two planned plants. The south produces about 2 GW of power regionally but needs 2.6 GW. In order to meet demand over the coming years, transmission lines from the north will be upgraded and new biomass plants will be constructed.

Regional Hub

Looking beyond domestic needs, Thailand is well positioned to be the energy hub of ASEAN: it is at the crossroads of the region and able to link countries with a power surplus to those in deficit.

As of July 2018 the total interconnection capacity in the region was 3.9 GW, with this mainly coming from Laos and Malaysia. According to EGAT, Thailand has purchased power with a total capacity of approximately 3878 MW from seven different projects. Over the 2018-20 period EGAT estimates that it will purchase a further 1843 MW of power, primarily from three hydroelectric power plants located in Laos: Xe-Pian Xe-Namnoy’s 354-MW plant, Nam Ngiep 1’s 269-MW facility and the 1220-MW Xayaburi project.

The ASEAN Power Grid was first proposed in 1997 at the Second ASEAN Informal Summit held in Kuala Lumpur, and in time, all countries in the region are seeking to have formally connected systems. The regional grid will not only help to balance supply and demand and alleviate shortfalls, but it will also assist efforts to extend power to some border areas that are not plugged into their home countries’ national grids, such as places in Indonesia and Myanmar.

Work is under way and the first connections are being established, with a deal inked in 2017 to pursue the Laos-Thailand-Malaysia-Singapore Power Integration Project. Phase one was launched in January 2018 and will allow Malaysia to source 100 MW of power from Laos via Thailand. Though the amount is small, the agreement is significant, as it is the first multilateral power pact in the region. Broadening the agreement could allow for energy trade throughout ASEAN.

Outlook

Thailand has excelled at financing and adding generation capacity when needed, being a model for the developing world in this regard. The challenge now is to make the process more sustainable and efficient, integrating new technologies to counter shrinking domestic natural gas reserves. “As technological breakthroughs occur at a faster pace, the world will continue to adopt new innovations. Conventional energy will still play an important role in the global economy, but renewable energy is steadily becoming a force to be reckoned with,” Varut of Sermsang Power told OBG. “To continue adapting and thriving in the energy business, we must anticipate the trends and forces that will shape business over future decades.”

Thailand is expected to continue its leading role in renewable energy projects and driving regional power integration. The future will see the energy mix shift its components, but ample supply is forecast to remain.