Thailand: Renewable players decry rates

Thailand: Renewable players decry rates

Major players in Thailand's renewable energy business are asking for a
higher power purchasing rate, saying that the current one is too low and
deters investors from launching new projects, and may even be encouraging
them to invest abroad.

The power purchasing rate, the price at which state utilities buy from solar
farm developers, is currently set at 4.12 baht per kilowatt hour, well below
the rates of 5.66 in 2013 and 8.5 in 2006.

Strong government support for the sector since 2000 has attracted several
companies to join the renewable energy business.

According to Thailand's power development plan for 2015-36, energy
policymakers have set the proportion of renewable power to be 20% of the
total power-generating system, or 19,634 megawatts, by 2036. The figure is
relatively high compared with the current 7,490MW.

An attractive power purchasing rate like the previous and relatively high
level of 8.5 baht -- in line with higher production costs -- had lured many
companies to jump into the sector.

Some even diversified from other businesses into renewable energy and listed
on the Stock Exchange of Thailand to raise more funds to expand their new
businesses. Some players had acquired licences from previous licence holders
who failed to get loans to start their projects.

This year, energy policymakers plan to provided licences to renewable energy
developers for a combined power-generating capacity of almost 820MW, which
is expected to help attract investment of up to 70 billion baht in the
sector.

In this round of licence-granting, policymakers will allow two types of
renewable resources for small power producers and very small power
producers: 519MW from solar and 300MW from hybrid resources.

Hybrid resources entail other renewable resources such as agricultural waste
that can be used to produce biomass or biogas, which solar farm developers
can then employ to provide power to the grid consistently. This could help
facilitate the new power purchasing agreement, which will switch to a
firm-contract from a non-firm contract.

A firm contract requires solar farm developers to sell power at a consistent
level regardless of time of day, unlike under the previous non-firm
contract, during which they could only sell solar power during the daytime.

The auction for licences of hybrid solar farms will be opened mid-year,
while the operational and commercial dates for the projects are due by the
last quarter of this year.

Unfortunately, increasing investment in the solar farm business has created
economies of scale, which means lower power-generating costs. This has
prompted energy policymakers to revise down the power purchasing rate, also
known as feed-in tariff rate (Fit), paid to solar farm developers from time
to time.

The latest Fit rate was set at 4.12 baht per unit last November, down almost
30% from the previous 5.66 per unit.

Some solar farm developers have complained that the latest Fit rate is too
low and has started affecting their businesses.

Energy Absolute Plc (EA), a SET-listed renewable power developer and
operator, said the current rate will result in developers needing several
years longer to break even on their investments.

EA vice-president Omsin Siri said with the Fit rate of 5.66 baht per unit,
the company needed 6-7 years to break even. But a Fit rate of 4.12 baht
means the company will need more than 10 years to do so.

She said that although EA is listed on the SET, it is still a newcomer whose
financial status makes it difficult to compete in the market, particularly
at the cheaper rate, which entails smaller margins. Because of this the
government should provide them some partial subsidy.

EA for its parts experienced some degree of hardship last year, when its
licence for a 260MW wind farm in Chaiyaphum was suspended as the project is
located on Sor Por Kor land, which had been designated for farming purposes
only.

The Agricultural Land Reform Office finally settled the conflict, allowing
all developers to continue their projects on such land.

Mrs Omsin said EA would also continue with its project, which has a total
investment cost of 20 billion baht.

Another SET-listed renewable power operator, Thai Solar Energy Plc (TSE),
said that its wind farm on Sor Por Kor land was an equitable venture, as the
developer would share some of the profits from selling power with the
farmers who own and rent the land to them.

TSE's chief operating officer Somphop Prompanapitak said he agreed with the
flexible regulations on the Sor Por Kor land, which allow developers to
carry on with their plans.

But he disagreed with the idea of using hybrid renewable power resources,
saying that wind farm developers in certain areas could be limited in their
ability to acquire other alternative power resources such as biogas or
biomass.

As a result, Mr Somphop said the idea would not be practical.

With unattractive regulations and some limitations, TSE has started
developing renewable energy projects to boost its power-generating capacity
in Japan, where the state utility pays a higher rate. It has also started
investing in some Asean member countries where local governments still
provide partial subsidies to foreign investors.

SET-listed Gunkul Engineering Plc, a provider of engineering services and
renewable power, was another company that began expanding to Asean and East
Asia in 2014.

Chief executive Sopacha Dhumrongpiyawut said there are too many players in
Thailand's renewable energy market, while the return on investment continues
to shrink as state utilities are paying less for renewable power.

Ms Sopacha said the company has moved to developing greenfield projects and
acquiring stakes and assets in renewable energy companies in other Asian
countries.

Gunkul plans to double its revenue generated from renewable power to 4
billion baht by 2019 by developing more projects abroad.

Twarath Sutabutr, director-general of the Energy Policy and Planning Office,
said the Fit rate was calculated on the same investment return level offered
to leading renewable companies in other countries, making it fair for
everyone.

But he agreed that the domestic renewable energy business could be saturated
since many investors have jumped in.

Mr Twarath said Thailand has lent its full support to the renewable energy
sector for about a decade and it is time to free up the market to greater
competition.

"We have seen investment costs [in renewable power business] decline
gradually. That implies that the market is almost saturated and ready for
free-market conditions," he said.

Veeraphol Jirapraditkul, commissioner for the Energy Regulatory Commission,
said the ERC will conduct public hearings on business models and investment
conditions to help arrive at an appropriate model for investment in
renewable energy by the second quarter.

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Link to Original Article:
http://www.bangkokpost.com/business/news/1241766/renewable-players-decry-rat
es

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John Diecker
APT Consulting Group Co., Ltd.

www.aptthailand.com