Thailand: Setting Up Solar Business In Thailand

Thailand: Setting Up Solar Business In Thailand

Private investment in the business of electricity generation in Thailand can
be classified into three types based on the total electricity production
capacity: (i) IPP (Independent Power Producer), (ii) SPP (Small Power
Producer) and (iii) VSPP (Very Small Power Producer) which refer to a
private power project generating and selling electricity with the total
production capacity exceeding 90 MW, between 10 to 90 MW and less than 10
MW, respectively. What is of particular note in the Thai system is that Thai
electricity supply industry is based on a state-owned scheme. Thus, a single
buyer of power generated from the IPP and the SPP is the Electricity
Generating Authority of Thailand ("EGAT") whereas a single buyer of power
generated from VSPP is the Provincial Electricity Authority ("PEA").

Provided the bidding system utilized for selecting the project operator of
the IPP, the bidders are typically driven to enter a low bid to be selected.
Thereby, investment in the IPP is generally not as commercially profitable
and hence not as prevalent among the investors as compared to the investment
in the SPP. Similarly, the VSPP scheme is basically devised to accommodate
the very small-scale private energy business, especially the operation of
rooftop solar project; hence, overall, it is not as commercially profitable
as the investment in the SPP. Therefore, most investment in the solar
business in Thailand is made in the form of the SPP and this article hence
mainly focuses on the SPP under the perspective of Thai laws and
regulations.

1. Establishment of the SPP

The SPP is defined in the Regulation on Power Purchase from the SPP for the
Electricity Generated from Renewable Energy A.D. 2007 (as amended) and the
Regulation on Power Purchase from the SPP for the Electricity Generated
under the Cogeneration System A.D. 2007 (as amended) as a project operated
by a private or a state entity that generates electricity either from (a)
non-conventional sources such as wind, solar and mini-hydro energy or fuels
such as waste, residues or biomass, or (b) conventional sources such as
natural gas, coal or oil by using cogeneration system.

To apply for the license to operate the SPP for the electricity generated
from renewable energy, including solar project, the applicant would be
required to submit documents and relevant certificates such as company
affidavit, piping and instrument diagram and requisite guarantee, together
with a request and an offer to sell power to EGAT. Within 90 days from the
date of document submission, EGAT would send a notification to inform the
applicant whether or not the license is granted (i.e. whether EGAT would
purchase power to be generated by the applicant). If the license to operate
the SPP is granted, the Power Purchase Agreement (PPA) shall be concluded
within two years therefrom; otherwise, the request and offer to sell power
initiated by such applicant shall be deemed cancelled.

After obtaining the license to operate the SPP from EGAT, the SPP operator
shall fulfill the additional conditions as stipulated in the Regulation on
Power Purchase from the SPP for the Electricity Generated from Renewable
Energy before commencing the electricity transmission, which includes (i)
submitting the Environment Impact Assessment Report at least 15 days before
the conclusion of the PPA (if applicable), (ii) submitting the requisite
licenses for the operation of the energy project, the examples of which are
provided in the table below, at least ten days before the Commercial
Operation Date (COD) set by EGAT and (iii) concluding the Sale Contract on
Secondary Electricity, the Agreement on Electricity Security Service and the
Agreement on Electricity Grid Connection along with other agreements
required to be concluded with EGAT.

The operation of the SPP can be categorized into two types; the so-called
"non-firm and firm agreements". Firm agreement refers to a long-term PPA
with a term designated between 20 to 25 years, in which the project operator
is required to provide electricity during the peak months to serve the high
demand of electricity. On the other hand, the non-firm agreement refers to a
short-term PPA with a term of not exceeding five years in which the project
operator would not be required to provide electricity during the peak
months, but may receive payment for the electricity sold to EGAT in a lower
rate than that paid to the project operator of the firm agreement.

The standard form of the PPA set by EGAT will be used for both firm and
non-firm agreements entered into between EGAT and the project operator. For
the firm agreement, EGAT would be entitled to curtail the power generated by
the SPP in the case of force majeure with compensation for the project
operator. On the other hand, the standard form of the non-firm agreement has
no such provision that will enable the project operator to be compensated
for the curtailment in the event of force majeure.

2. Energy Payment

Since 2007, the adder rate structure was employed by EGAT to calculate the
electricity price paid to the project operator. Under such adder rate
structure, the adder rate would be included in the energy payment on top of
the prevailing wholesale price of electricity, which could be as high as 8
Baht per kW in the case of electricity generated from solar energy. Provided
that the adder rate would be in fact fall on the consumers in the form of Ft
rate included in the electricity price which varies according to the costs
incurred to EGAT, it could put too much burden on the consumers. As a
result, recently in 2015, the Energy Regulatory Commission has implemented
the Feed-in-Tariff (FiT) policy to replace the adder rate structure for the
purchase of electricity generated from renewable energy, which would be
applicable particularly to the applicants whose applications for the license
to operate the SPP have not yet been accepted under the adder rate scheme.

3. Promotion for Solar Business in Thailand

In December 2014, Thailand Board of Investment (BOI) has announced new
incentives to promote the investment in renewable energy projects. Under the
BOI's investment promotion scheme, solar business would be granted
incentives of an eight-year corporate income tax exemption, accounting for
100% of the investment (excluding cost of land and working capital);
exemption of import duty on machinery; exemption of import duty on raw or
essential materials used in manufacturing export products for one year,
which can be extended as deemed appropriate by the BOI; and other non-tax
incentives.

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Link to Original Article:
http://www.mondaq.com/article.asp?article_id=555554&signup=true

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John Diecker
APT Consulting Group Co., Ltd.

www.aptthailand.com