Thailand offers long-term PV promise, but uncertainty over short term

Thailand offers long-term PV promise, but uncertainty over short term

2,623 MW of free-field installations (solar farms), while solar rooftops
account for 130 MW
Rooftop FITs range from 6.85 baht/kWh for residential arrays to 6.01
baht/kWh for large commercial projects, over periods of 25 years

Thailand is Southeast Asia's leading solar market, with 2.75GW of
installations by the third quarter of 2016, according to the Energy
Regulatory Commission (ERC).

However, while the country is an attractive opportunity - the government is
targeting 6 GW of cumulative PV installations by 2036 - muddled policies
have complicated the short-term investment outlook.

"There's opportunity in Thailand. It's simmering at the moment, but
ultimately there will be another rush," says James Munro, Bangkok-based
project manager for Modern Energy Management, noting that the government is
still figuring out how to support development. "There's going to be another
wave in the foreseeable future."

That said, annual PV installations have risen steadily over the past five
years, with capacity additions spiking to a record 722 MW in 2015, up 252 MW
from a year earlier. Thailand also boasts a formidable solar resource,
ranging from an annual average of 1200-1400 kWh/sqm, at level with Southern
Spain and Italy.

Stable Regime
And the political instability that has long plagued Thailand - most recently
culminating in a 2014 military coup - does not present a threat to foreign
investment.

Christopher Osborne, partner at international law firm Watson Farley &
Williams (Thailand), agrees that the current military junta should not scare
off foreign investors.

"It is a non-issue. Thai politics has been in a state of turmoil for decades
and this has not led to business instability in the energy sector," he
explains. "We have seen greater political risk in Spain, where the
government retrospectively cancelled renewable energy incentives."

And Thailand offers a mature, transparent and competitive project finance
market. It is arguably the most advanced in Southeast Asia for solar at this
point, in terms of lender experience and risk comfort, with non-recourse
financing available from numerous institutions, including Kasikornbank.

Utility-Scale Uncertainty

Ground-mount projects account for 95.3% of the capacity that has been
installed thus far. Such arrays were initially built under a generous
"adder" scheme, introduced in 2011. However, Bangkok decided to scrap the
program at the end of 2015, in response to declining PV system costs.

The only way for developers to build utility-scale projects now is in
collaboration with government entities and agricultural cooperatives, under
a program launched in 2014 with an initial target of 800 MW, for projects up
to 5 MW in size. However, the introduction of the scheme was repeatedly
delayed, resulting in the allocation of just 281.32 MW of capacity earlier
this year. And as much as half of that capacity may not be built, due to a
lack of clarity over the structure of the private-public partnerships.

Since its introduction, Bangkok has divided the program into two phases,
with the second tranche to support the development of 519 MW at a feed-in
tariff rate of 5.66 baht/kWh over 25 years, to make up for the shortfall of
the initial roll-out. Applications for the second phase will be launched by
early 2017, with projects to be completed by June 2018. Despite the
program's shortcomings, investor interest remains high. "There is strong
demand among both Thai and international developers," says Osborne.

It is likely that utility-scale PV will contribute towards the government's
long-term renewables targets, given Thailand's proven PV resources.
He advises investors to focus on the scheme for the next two years, by which
time power-purchase agreements (PPAs) for ground-mount arrays may open up
again, beyond the scope of the government's current program.

Yet the scheme remains fraught with uncertainty, with industry observers
complaining that it has encouraged a "race to the bottom," as developers
succumb to the concessions demanded by the cooperatives, much like reverse
auctions can lead to margins so thin that projects become unviable.

"The framework also doesn't come with details on how communities can get
involved or benefit," laments Dr. Sopitsuda Tongsopit, a researcher at
Chulalongkorn University's Energy Research Institute.

Bangkok says it may eventually introduce an auction process for
utility-scale PV, but Tongsopit believes this probably won't happen until
the full 800 MW from the current scheme has been built. She says developers
should consider the program for now, but warns that more subsidies will be
unlikely in the future.

Recent developments do not suggest rolling out utility-scale solar is an
immediate policy priority, which may be linked to recent lower global gas
prices.
Phil Napier-Moore, lead energy advisor at Mott MacDonald, partly attributes
the currently sluggish development of the utility-scale market to the
government's use of renewables as a hedge against future import prices for
liquid natural gas, rather than for environmental motivations.

Rooftop Focus

Another more immediate investment opportunity is the rooftop segment. The
government has already subsidized two rounds of development, but interest in
commercial projects - driven in part by recent legal changes that allow
developers to sell electricity to consumers - has far exceeded bids for
residential arrays.

Under a new pilot scheme, the government is now trying to encourage the
installation of rooftop PV for self-consumption purposes, rather than
feeding electricity to the grid, with the aim of eventually introducing
net-metering.

Thomas Chrometzka, director of renewable energy at GIZ Thailand, argues that
incentives are probably not needed for commercial rooftop, as developers are
already negotiating private PPAs for such installations.

However, the outlook for residential rooftop remains uncertain under the
government's pilot scheme.

"We have our doubts," Chrometzka says, noting that excess electricity fed
back into the grid is not compensated under the program. "We were a bit
disappointed as we recommended the government to go for a net-metering
system and to not focus on this small-scale stuff."

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Ref:
http://www.solarplaza.com/channels/markets/11624/thailand-offers-long-term-p
v-promise-uncertainty-over-short-term/

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John Diecker
APT Consulting Group Co., Ltd.

www.aptthailand.com