As the renewable energy market shifts and evolves each year, industry experts need to know where the next hot region will be in order to keep up with the changing tides.
Luckily, global consultancy Ernst & Young has released its Country Attractiveness Indices each year since 2003, which gives a numerical ranking to 30 global renewable energy markets by scoring renewable energy investment strategies and resource availability. The indices are updated on a quarterly basis and the most recent report can be found here.
Here is the firm’s assessment of Thailand:
Making its debut. For years, the fast-growing markets of China and India have dominated the Asia renewables landscape, but other markets are now competing for attention. Thailand made its debut in the RECAI in May thanks to growing energy demand, a strong pipeline of solar projects and a well-established incentive regime. But what really makes this market tick?
Energy options dwindling. This year has seen energy jump back up the political agenda in Thailand after the Government was forced to prepare the public for potential power cuts when scheduled maintenance halted gas imports from the Yadana pipeline in Myanmar. While Bangkok has not experienced power shortages for decades, the stark reality of the country’s energy vulnerability has unsettled both the politicians and the public. Thailand relies heavily on imports of natural gas, which currently generates about 70 percent of electricity, while many hydropower and coal projects are proving very difficult to implement due to fierce public opposition.
Big numbers. Diversification of the energy mix and increased domestic production have therefore become critical political drivers, with 2013 seeing a number of encouraging announcements that put the spotlight firmly on renewables. in July, the government confirmed a 51 percent increase in its 2021 renewable capacity target, jumping from 9,201 MW to 13,927 MW. This is equivalent to 25 percent of total electricity generation from renewable sources, compared with around 8 percent now.
According to Energy Minister Pongsak Raktapongpaisal, around THB400 billion (US$13 billion) of investment by state and private entities will be needed to reach this target. The Government has also broken down this capacity target by technology to indicate the opportunities available. Expected contributions are 3 GW from solar power, 1.8 GW from wind, 4.8 GW from biomass, 3.6 GW from biogas, and 0.7 GW from hydropower and waste.
Fundamental barriers. However, the Government still has a lot to do if it is to come close to meeting these targets. Investors have been somewhat deterred by a relatively unstable regulatory environment resulting from an incoherent energy agenda, while the domination of state-owned Electricity Generating Authority of Thailand has also slowed the rate of deregulation and restricted competition across the energy market. A lack of transparent policy-making have raised concerns over corruption.
Recognition. Notwithstanding the long road ahead, the Government does seem aware of the need to improve its investment climate and deal with bureaucratic obstacles to better incentivize foreign participation. In a speech earlier this year, Energy Minister Pongsak vowed to eliminate regulations that hinder the growth of renewables and to introduce more incentives, soft loans, subsidies and project finance.
New FIT boost for solar. Indeed, the solar sector is already benefitinf from expedited growth initiatives following the introduction in July of a new FIT for rooftop and village-based solar energy projects. Subsidies will be used to top up the difference between the wholesale power price and the guaranteed tariffs. The scheme will support up to 1 GW of solar projects under 25-year PPAs, allocating 200 MW to rooftop installations that must be built by the end of this year and 800 MW to community-owned PV plants to come online by the end of 2014.
FITs for every occasion. This new solar support mechanism complements the country’s existing FIT, which was introduced in 2006 and differentiates between technology, type and capacity size. FITs are awarded for up to 10 years with additional payments allocated to projects in the three southernmost provinces and based on diesel replacement. Thailand was one of the first Asian countries with a comprehensive FIT program, and evidence suggests that the rates have been sufficiently attractive to generate private investment. The project pipeline totaled around 8 GW at the end of 2011, with total installed capacity of 2,700 MW at the end of last year.
The government wil work with the Village Fund, a state-run microcredit provider, to award the community-based subsidies, with fixed tariff of THB9,750-THB4,500 per MWh (US$332–US$153) over the course of the agreement. Rooftop installations, meanwhile, could receive as much as THB6,960/MWh (US$236) for the smallest projects, around 57 percent above the global average of crystalline PV projects, according to BNEF. At least half of these rooftop projects must be less than 10-kW capacity, with the remaining installations between 10 kW and 1 MW.
Doing more. However, the country’s FIT program could still benefit from a stronger regulatory framework. The creation of a new committee to oversee the scheme in 2010 introduced more stringent regulations, which have created a bottleneck for applications and introduced greater subjectivity into the process, making processing times harder to estimate.
The lack of integration of the country’s renewable energy program with other energy planning processes has also been an impediment. The country has six separate long-term national energy plans, overseen by different government departments, which has led to an ill-defined energy strategy and resulted in discontinuous support for the FIT program. A lack of public consultation on an acceptable level of pass-through costs to ratepayers has also been a fundamental problem.
Attracting attention. But there is still overwhelming evidence that foreign developers, investors and manufacturers are keen to secure a piece of Thailand’s renewables sector. Germany’s Juwi Group has started construction at five solar sites with total capacity of 48 MW in two northern provinces, and in May this year, Japanese PV panel maker Sharp Corp. completed the final stage of an 84-MW solar station. Thailand’s renewed solar ambitions could be particularly good news for Chinese panel manufacturers facing new import tariffs in the U.S. and Europe. LDK, one of China’s leading solar module manufacturers, started doing business in the country earlier in the year.
Thailand’s own companies also have ambitious plans. Wind Energy Holding commenced operations at its West Huay Bong 2 and 3 wind farms earlier this year, adding 207 MW of installed capacity as part of its plans to generate 1 GW of wind power in the country by 2020.
Infrastructure boost. The anticipated growth in the demand for power will continue to put strain on Thailand’s grid infrastructure, but the Government has already committed to introduce smart-grid technology to help integrate renewable energy into the electricity mix. In 2011, the Government pledged to invest THB400 billion (US$13 billion) in the initiative over the next 15 years. Further, a grid connection rate of around 82 percent based on a population of over 68 million people and low transmission losses relative to most of Asia indicate that infrastructure barriers are lower than elsewhere in the region.