Opportunities And Barriers In Cambodia's Solar Market

Opportunities And Barriers In Cambodia's Solar Market

A recent study by the Mekong Strategic Partners found that Cambodia could
rapidly achieve energy independence through solar power.
"If countries here adopt clean energy, and they do it the right way, there's
hope for the world," says Ken Bradley, a US national who spent decades
promoting green energy technologies in his home country through advocacy
work and business counseling, before leaving for Cambodia last year.

Asia is "ground zero for climate change", according to Bradley, with the
Kingdom affording an opportunity too good to ignore. "Cambodia has 5.8 peak
sunlight hours a day, one of the best solar resources in the entire region,
probably one of the best in the entire world. You mix that with high
electricity rates, and this is a very good market," he says.

Bradley now works with Kamworks, a pioneering company in Cambodia's nascent
solar energy sector. As the director of business development, he hopes to
change the way everyday Cambodians and the government are looking at energy.

"My job here is to make products that will make that happen, products that
work for people. My job is to make the technology attractive."

Vast, unmet potential

Bradley's professional ambition – to make solar generated electricity
attractive in the Kingdom – may seem to some like an awful lot of work. To
gauge just how hard it would be to achieve, we need to leave all other
considerations aside, and focus solely on the money. After all, as Bradley
so bluntly puts it: "People are going to adopt solar if it makes economic
sense. Period."

According to a recent report by the Mekong Strategic Partners (MSP) titled
Switching On: Cambodia's Path to Sustainable Energy Security, the costs
associated with solar power are falling rapidly, so much so that Cambodia
can now, according to the study, cost-effectively strengthen its energy
security by accelerating investment in solar and biomass technologies.

Large hydropower dams and coal-fired plants – currently Cambodia's main
energy sources – provide power for between eight and 11 cents per
kilowatt-hour (kWh). According to the MSP report, solar installations above
one megawatt can now provide electricity profitably for as low as 12
cents/kWh, which makes it "the most competitively priced alternative
renewable energy technology".

And it is only going to get better. Worldwide, costs are expected to
continue falling in coming years. Increasing economies of scale, more
efficient designs, and constant advances in materials and manufacturing
guarantee that the price of solar generated electricity continues on a
downward trend.

A country with one of the best solar resources in the region – and possibly
the world – and a technology that is quickly becoming more affordable: put
two and two together, and it doesn't take a genius to realise that solar's
potential in Cambodia is vast.

Arguably, it is not being met. To date, the bulk of solar panels installed
in the Kingdom belong to small solar home systems (SHS) built on households
in the countryside. Only a handful of larger solar energy ventures have been
undertaken or are planned, all of them having been announced within the last
two years.

The new Coca-Cola plant in the Phnom Penh Special Economic Zone, for
example, boasts a photovoltaic (PV) system in the rooftop that will
eventually supply a third of the factory's electrical energy needs.

Last month, Kamworks announced it will install 10,000 solar panels in Khmer
Beverages' beer factory, an ambitious project that will feed the plant with
approximately four megawatts of power. The same company recently concluded a
PV power system on the rooftop of BKK1's Silvertown Metropolitan which has
been hailed as the first commercial solar power system on a high-end
residential tower in Cambodia.

With a handful of notable solar power installations in the last two years,
the sector seems to be picking up speed quickly. However, the number of
large solar energy projects in Phnom Penh and the rest of the country is
still surprisingly small. Which begs the question: what's keeping investors
away from cashing in on what seems like a very profitable market?

Barriers to a fledgling market

Bradley says one of the main hurdles keeping investors away is the lack of
clarity in the regulatory environment.

"As with every sector, the government has its role in establishing the
ground rules and how it works, and I don't think those ground rules have
been established," he says. "If the government created more ground rules it
will make it easier for private investment to come in."

Cyril Monteiller, general secretary of Solar Energy Association of Cambodia
(SEAC) and co-founder of energy consultancy Sevea, notes that, officially,
if you have a solar installation, you cannot be connected to the grid.
"Electricité Du Cambodge (EdC) thinks that having too many small solar power
systems connected to the grid could be troublesome for the stability of the
grid. Therefore they believe they should really regulate the synchronising
of those systems with the grid," he says. EdC is state-run, and the sole
electric utility in Cambodia.

Selling excess energy to the national grid

An important step in clarifying the muddled legal framework would be
establishing a feed-in tariff or net metering system, which credits those
who add electricity to the grid from their solar panels. Save for a few
individual net metering agreements – like the Don Bosco solar-equipped
school in Sihanoukville – the EdC has failed to recognise the value of
distributed electricity provided to the grid, a big deterrent for potential
investors.

Monteiller believes we won't be seeing such a system in Cambodia anytime
soon, however. In particular, he thinks the possibility of the EdC taking a
serious look at a feed-in tariff is so remote, it is barely worth discussing
at the moment. A net metering system, on the other hand, is not such a
distant possibility.

"We can think about a net metering regulation, but it will take time. That's
why the first step is to focus on actually being able to officially have
both a grid connection and solar installations simultaneously. When we do
that, we can start lobbying and talking about net metering," the energy
consultant says.

The Don Bosco School in Sihanoukville is one of the few institutions in the
country that enjoys a net metering agreement with EdC.
Limited access to financing

A shift of global proportions is underway. The MPR report states that
utilities, consumers and investors in developed and developing countries are
switching to renewable energy to constrain environmental impacts but also
because it is increasingly economic in its own right. "Hydro and coal are
last century technologies," says Bradley, "Developed economies are moving
towards more sustainable alternatives because they are more cost-effective."

Factor in the energy goals of the Cambodian government – which include
achieving electricity self-sufficiency by the year 2024 – and the falling
costs of installing solar energy systems, and it becomes clear the KIngdom's
business model for solar at the multi-megawatt scale is now particularly
strong.

However, banks have so far failed to seize opportunities in the sector.
"Banks right now don't know about solar and are not interested in providing
loans," says Monteiller.

Although there is considerable interest within international finance circles
in "bankable" renewable energy projects in Cambodia, the lack of a clear
policy and regulatory framework is inhibiting players like the United
Nation's Green Climate Fund and the Asian Infrastructure Investment Bank
from taking chances in the Kingdom's solar market, according to the MPR
report.

Bradley is more positive about the financing options available and says that
banks are now beginning to warm up to the idea of investing in the sector,
noting that ANZ Bank actually has a very large regional fund dedicated to
solar electricity projects.

Unfair taxation?

Inadequate taxation may also be a part of the equation. Solar panels and
other components of PV power systems are still subject to VAT. Given that
some sustainable biomass energy products – such as sustainable charcoal
briquettes – have recently been exempted from paying VAT, many consider this
tax shouldn't be levied on solar energy products. Moreover, since
electricity purchases from the EdC are VAT-exempt, solar energy companies
cannot pass VAT costs to the end-consumer.

"VAT has a big impact on project prices. Eliminating the tax will provide
significant room to make projects more profitable," says Bradley. According
to him, equipment for certain projects can currently qualify for VAT
exemption, but the process is very bureaucratic and slow.

Sustainable energy equipment generally does not attract import duties,
however, a seven percent duty still applies for solar energy equipment. To
make matters worse, certain components needed to build the systems, such as
batteries, are subject to a 35 percent import duty. For SEAC's Monteiller,
the first step will be to lower import duties to seven percent for all
components needed to build PV systems.

The PV panels on the rooftop of Silvertown Metropolitan will provide
approximately 12 percent of the building's energy needs.
Fighting low quality

Acquiring your very own solar panel in Cambodia isn't hard. Go to any of the
many local markets around the country and you'll have plenty of opportunity
to purchase a PV panel, some retailing for as low as $5. However, if you
expect your system to function beyond the initial month, you might want to
look elsewhere.

"We are constantly fighting against bad quality products that people buy at
their local market," says Monteiller. "These products break easily. They
rarely last longer than a month and are giving a bad name to solar energy
among locals. It is important to raise awareness about these lower quality
products."

A new program run by French development agency AFD and funded by the
European Union, with Dutch not-for-profit organization SNV as project
coordinators, aims to tackle just that.

Among the program's different awareness-raising activities, Monteiller has
great faith in a new off-grid solar product certification standard called
the "Good Solar Label". Only panel providers that meet a certain standard of
quality and offer after sales service – including at least two years of
warranty – are able to display the label on their products. Six companies
have been certified so far: Kamworks, Lighting Engineering & Solutions, BNP
Power Green, CamSolar, NRG Solutions and Pteah Baitong.

"Having a quality certification like this helps Cambodians discriminate
between high and low quality products, and will help solidify the reputation
of solar as a durable and reliable energy source," Monteiller says.

The case for solar

With a confusing legal and regulatory framework, lack of access to finance,
a less-than-ideal taxation environment and an overabundance of bad quality
products that give a bad rep to solar power, the hurdles are manifold.
Fortunately, so are the opportunities and the arguments for the uptake of
solar.

The MPR report found that Cambodia could add 1,000 GWh (gigawatt-hour) to
its generating output by constructing 700 megawatts of utility-scale solar
on 1,400 hectares of land. With this additional power, Cambodia would
achieve electricity self-sufficiency as early as 2017. "Cambodia could
rapidly achieve energy independence through solar, requiring very little
land space with negligible environmental impact," the report reads.

The benefits of creating a solar economy in the Kingdom, however, go beyond
simple energy security. Bradley believes solar adoption will bolster
employment. He explains that although setting up a PV system requires
professionals with a very specific skills set, most of the workforce needed
to actually install and maintain the systems can come in the form of
unskilled labour. "Transitioning into a solar economy makes perfect sense
for a jobs-economics standpoint," he says.

The role of the private sector

The government has indicated that investing in sustainable energy is a
priority but, for the most part, this has only materialised in large scale
hydropower plants, whose construction are always shrouded in controversy due
to their impact on the environment and surrounding communities.

Solar power could help the country achieve its electricity goals with
minimal environmental consequences. However, it still plays a negligible
role in the country's energy strategy – it doesn't even feature in the
government's forecast for electricity supply (which covers up to the year
2030).

Chhe Lidin, the spokesperson for the Ministry of Mines and Energy, told B2B
Cambodia that a 10 megawatt solar power plant in Bavet, Svay Rieng province,
will come online in the second quarter of this year. This is the only
government-led solar venture that has come to our attention.

With the government failing to take the lead in the uptake of renewable
energies, it's up to the private sector to take initiative, or so Bradley
thinks. "We can't wait for the government," he says. "Business can step up
right now and be leaders. Their leadership is critical."

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Link to Original Article:
https://www.b2b-cambodia.com/articles/opportunities-and-barriers-in-cambodia
s-solar-market/

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John Diecker
APT Consulting Group Co., Ltd.

www.aptthailand.com