Thailand 4.0: Powered by Renewable Energy?

Thailand 4.0: Powered by Renewable Energy?

Under Thailand 4.0, renewable energy is a key priority for innovation.
Cognizant that dependence on imported fossil fuels is not only economically
and ecologically unsustainable, but also exposes the country to the
unpredictability of global commodity markets, the Thai government embarked
on a power development plan in May 2015 (PDP 2015).

The PDP 2015 is based on ecology, economy, and security of the national
power system. Within this framework, the Alternative Energy Development Plan
2015 (AEDP) was developed to reduce dependency on imported energy and
increase alternative energy capacity from 7,279 MW in 2014 to 19,635 MW in
2036.

To meet this target, the AEDP has adopted the following principles:

Prioritize power generation from waste, biomass, and biogas.
Allocate renewable energy generation capacity according to demand and
potential in regions/provinces.
Promote current low-priority solar and wind power projects at a later stage
once cost becomes competitive compared with power generation from liquefied
natural gas.
Change the selection process for feed-in tariff grants from first-come,
first-served to competitive bidding.
Promote community energy production to reduce fossil fuel usage.
Increase the share of renewable energy consumption from the current 12% to
30% in 2036.

Feed-in Tariffs

To support power generation from renewable energy, the Thai government
adopted in October 2014 a new feed-in tariff (FiT), or pricing mechanism to
pay renewable energy producers for each unit of energy they contribute to
the electricity grid. This replaced the former adder program that had been
in place for several years before expiring on December 31, 2015. The adder
program offered renewables developers an additional premium to the wholesale
electricity price.

The new FiT will be granted for 20 years, except for power systems fueled by
landfill gas, which will receive support for only 10 years. The FiT is
comprised of three components:

FiT(F) is the fixed remuneration for the whole period
FiT(V) varies according to inflation rate
FiT Premium

FiT rates vary depending on the technology, power plant size, and fuel type.
FiT rates in 2017 range from THB 3.76/kWh to THB 6.34/kWh. A FiT Premium of
THB 0.30-0.70 is added for bioenergy projects for a period of eight years.
Another FiT Premium is added for projects located in southern Thailand
throughout the project lifetime. The FiT rates favor small-sized systems
(i.e., less that 1 MW), as well as biomass and biogas. This aligns with the
government's policy to promote renewable energy uptake in communities, and
the AEDP's focus on waste-to-energy, biomass, and biogas.

The high FiT rate of THB 5.66/kWh enjoyed by solar farms is expected to drop
to THB 4.12/kWh as costs of solar modules and systems have dropped
substantially over the past two years. The FiT rate for biomass power will
remain in the range of THB 4.2-5.3/kWh, while that of waste-to-energy will
stay at THB 5.0-6.3/kWh, based on current projections.

Because projects are selected according to a competitive bidding system, it
is important to understand that the FiT rates serve only as a ceiling for
proposals. Power producers are expected to make a competitive offer not
exceeding this ceiling.

Recent Track Record

In August 2014, the Energy Regulatory Commission (ERC) launched the
Ground-Mounted Solar Energy Project for the Government Sector and
Agricultural Cooperatives Program, which aims to meet AEDP targets for solar
power generation. The program has an overall capacity of 800 megawatt peak
(MWp) and a maximum capacity of 5 MWp per solar farm project. A FiT of THB
5.66/kWh is granted for a 25-year power purchase agreement (PPA), commencing
from the commercial operation date, or the actual operation date, whichever
comes first. The program is under a public-private partnership (PPP)
framework, whereby the government or an agriculture cooperative is the
public partner/owner and the private sector is the project supporter,
providing know-how and technology. There were problems during the selection
process, principally concerning zoning restrictions and the criteria for
selecting eligible projects as the selection process was carried out by
lucky draw, as opposed to competitive bidding. Projects were finally awarded
to agricultural cooperatives on April 26, 2016, with commercial operation
dates scheduled before December 30, 2016.

Several bidding programmes for renewable energy projects followed under the
support and direction of the policy of the National Energy Policy Committee,
with the ERC announcing winning bids for biogas on April 21, 2016; biomass
on August 25, 2016; and industrial waste-to-energy projects on October 28,
2016. The PPP agreements for these projects are scheduled to be signed by
February 25, 2017.

In the Pipeline

A second round of licensing for ground-mounted solar farm projects for
government agencies and agricultural cooperatives with a total quota of
approximately 118.68 MW (with a maximum of 5 MW per project) is expected
within this year, pending regulatory review. The ERC has yet to clarify
whether licenses will be granted to joint solar farm development between
private investors and state agencies, as some regulations prohibit state
agencies from investing in such joint ventures.

The Energy Policy and Planning Office has also proposed a change of method
in awarding contracts from drawing lots to competitive bidding. This change
has been met with strong opposition from agricultural cooperatives who fear
that they could be excluded from the bid, as bidders must be owners and
investors of solar farm projects.

Other renewable energy projects in development include a community
waste-to-energy programme with a total capacity of approximately 77.9 MW,
scheduled for bidding in the beginning of March 2017 and commercial
operation before December 31, 2019. The ERC is also expected to launch
biogas projects of 8 MW located in certain southern provinces and a biomass
programme with a total capacity of 400 MW.

Challenges

While developers still enjoy government support and subsidies, issues
concerning permitting and project ownership structure are particularly
problematic in Thailand.

The legal framework for permitting-especially with respect to the use of
land-is not coordinated. Different authorities sometimes do not follow the
same standards or set of rules in issuing permits and licenses. A recent
case involving a wind energy project in Chaiyaphum province demonstrated
these conflicting permitting rules, when a resolution by the Land Reform
Committee of Chaiyaphum province to lease Sor Por Kor land, normally
reserved for distribution to local farmers, to Thep Sathit Wind Farm Co.,
Ltd. was ruled unlawful and ordered to be revoked by the Nakhon Ratchasima
Administrative Court, following a lawsuit from local farmers. The ruling was
also later upheld by the Supreme Administrative Court.

In addition, construction of power plants is governed by various regulations
that contradict each other and require comprehensive review. A case in point
is the National Council for Peace and Order's Order 4/2016, issued by Prime
Minister Prayut Chan-o-cha, on January 20, 2016, using his authority under
Section 44 of the Interim Constitution, which gives him and security
agencies absolute power to maintain national security. The order exempts all
kinds of power plants, water treatment plants, garbage disposal and
collection plants, recycling plants, and gas processing plants from
regulations under the Town and City Planning Act. Building a power plant
based on this order could result in legal challenges from environmentalists
and affected communities.

The experience of the first round of licensing for the ground-mounted solar
farm projects in 2016 also demonstrated deficiencies in regulations with
respect to the PPP process and restrictions on project ownership structures.
The relevant regulation has a three-year shareholding lock-up period, and
assignment of rights under the PPA is restricted.

Moving Forward

Despite challenges in implementing a viable and affordable renewable energy
program, Thailand appears committed to meeting its AEDP targets. The
advantages simply outweigh the challenges as domestically-produced
renewables would reduce the country's dependence on imported fossil fuels,
and reduce impacts from the unpredictable behavior of commodity markets.
Renewables also help reduce emissions, demonstrating Thailand's commitment,
as a responsible global citizen, to environmental conservation.

Nonetheless, Thailand needs to improve the overall structure of its
renewable program from the legal/regulatory, ecological, and economic
angles. Comprehensive review and updates to the legal and regulatory
framework for renewables will help to avoid conflicts among state agencies.
In order to attract private investors, the regulations should allow for more
flexibility in divesting or restructuring investment portfolios. And the
licensing process should be reviewed for more transparency and streamlining,
especially for smaller projects.

Policymakers should be mindful of the proper balance between aggressive
renewable energy development and the welfare of people and communities. As
Thai citizens seek increased participation in decisions about urban and
community development, renewable projects should endeavour to actively
involve them, as studies show that projects that have broad public support
and local community consent are more likely to succeed. Perhaps for this
reason, many renewable projects in Germany and Denmark are owned by
communities through cooperative structures.

Finally, remunerations, such as the FiT rates, ought to be constantly
reviewed to ensure that they are economically sustainable. A high FiT rate
may be attractive to private investors, but may be economically
unsustainable for the country. The remuneration structure should consider
the continuing drop in the cost of renewable infrastructures and systems due
to improvements in technology and economies of scale. At the same time, the
current lure of cheap oil should not deter Thailand from investing in
renewables and meeting its AEDP targets for future sustainability, for while
oil prices may fluctuate up or down, the cost of renewables, only has one
direction to go: down.

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Link to Original Article:
http://www.tilleke.com/resources/thailand-40-powered-renewable-energy

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John Diecker
APT Consulting Group Co., Ltd.

www.aptthailand.com