Solar flare: Government efforts have helped boost solar generating capacity

As Thailand's natural gas runs low and as oil imports increase, the country is aggressively promoting new sources of energy and encouraging the increased use of alternative fuels. Furthermore, over time, Thailand’s alternative energy goals have become more ambitious. The Renewable Energy Development Plan (REDP), released in 2009, called for 20% of final energy consumption from renewables by 2020. Two years later, the Alternative Energy Development Plan was announced, upping the target to 25% by 2021. Given Thailand’s tropical climate, solar has received particular focus. The latest goal is to have 3000 MW of solar power generation capacity in place by the 2021 deadline (up from 500 MW under the REDP).

Incentives

To promote renewables development, a number of incentives were introduced in 2006. The main support has been in the form of “adder” tariffs, which provided suppliers with per-KWh compensation above what is paid to standard wholesale power producers. For solar, the adder rate was the highest, starting at BT8 ($0.262) per KWh. This is compared to BT0.50 (0.016) per KWh for biomass less than 1 MW; BT3.5 ($0.114) per KWh for wind above 50KW; and BT1.50 ($0.049) for hydro below 50KW.

These premium prices were available to very small power producers (VSPPs) and small power producers (SPPs), with the former selling directly to the Metropolitan Electricity Authority and the Provincial Electricity Authority (PEA), while the latter was required to sell directly to the Electric Generating Authority of Thailand. The maximum size for projects receiving the solar adder tariff was 90 MW, and the support period was 7-10 years.

A Little Too Effective

The programme was highly attractive to developers and a model of efficiency. Some of the rates, especially those for solar, were very high, and the application process was simple and straightforward. Because of its appeal, the programme resulted in a rush that left the utilities with an excess of obligations to buy costly renewable electricity. By the end of 2008, applications had been received for over 5 GW of alternative power purchase agreements (PPAs). Indeed, the programme was successful in that it allowed Thailand to significantly boost its renewables output; however, it also left the country with a potentially heavy burden of buying too much expensive electricity.

The possibility that some agreements were signed by speculators was also a concern for regulators. Rather than actually building a plant, these investors would subcontract the construction and then collect the adder tariff. A total of 471 applications were received for solar PPAs; however, many of these were from companies that lacked the experience or resources to carry out their proposed projects. On one hand, the country could have been left with too much expensive solar, while on the other hand there was the risk that not enough facilities would be built.

Faced with the prospect of an expensive and unstable solar market, the Ministry of Energy significantly altered the terms of the programme. In 2010, the solar adder rate was reduced to BTB6.5 ($0.213). In addition, a number of other steps were introduced to weed out the speculators and to make sure that end producers were the ones seeking PPAs. A bid bond was required after June 2009 for projects above 100KW: the developers had to put up a security deposit of BT200 ($6.54) per KW with their applications. This helped reduce the number of speculative applications. In 2010, a Managing Committee on Power Generation from Renewable Energy Promotion was established that began to scrutinise applications and make decisions on their worthiness based on a number of criteria. The financial status of the bidder was examined, and the soundness and sensibility of the proposed project was carefully evaluated, including the availability of land and appropriate fuel (in the case of biomass, for example). Previously, the main qualifying criteria had simply been whether a grid connection was feasible.

Changing Rules

While many of the new approval criteria were regarded as reasonable, critics argue that the new committee made the process less transparent and potentially less fair. The decision to approve a project became far more subjective and could potentially become susceptible to outside economic or political interference. What went from an application with simple, objective parameters became one of greater uncertainty.

The period from 2010 to 2012 is seen as one of relative ambiguity. Regulations were not as clear as they had been, and there was some debate about who would actually qualify for the original high tariff. Though it was generally agreed that anyone with a signed PPA would get the high adder rate, some agreements were cancelled or allowed to lapse, and, by 2013, the total megawattage to be developed was not entirely clear. Many projects have failed to meet their deadlines for selling to the grid, and the utilities have threatened to declare the contracts void. By October 2013, only 592 MW of contracted power out of a signed 1444 with PEA has come on line, according to pv magazine.Despite all the complications, a good deal of solar has been successfully initiated. According to the World Bank, as of 2012, 142 MW of solar power had been financed and 186 MW was in the pipeline. In addition to these projects, in June 2013, five new solar plants received approval.

Chance Of Sun

Besides the developments currently under way, the government's promotional efforts appear to have caught a second wind in 2013 when a new adder programme was introduced that could result in new capacity in short order. Numchai Lowattanatakul, governor of PEA, told OBG, “The roll out of rooftop solar technology is having a profound impact on Thailand’s energy architecture. Long term interest from private residences is expected to grow.” For rooftop solar, the government issued a request for 200 MW of power at terms rarely seen outside the developed world. The length of the contract is 25 years and the adder ranges from BT6.2 ($0.203) to BT7 ($0.229) depending on the rated output.

For village-based solar projects, the terms are not as good, but are still quite generous. Each location is allowed to install 1 MW of output and receives an adder of between BT4.5 ($0.147) and BT9.75 ($0.319), depending on the length of the contract (the shorter the term, the higher the adder). Under the programme, rooftop solar systems had to be installed by the end of 2013, while for village-based solar the deadline is the end of 2014.

However, in early 2014 the programme ran into some trouble. According to The Nation newspaper, political unrest in the country prevented the passing of enabling legislation that would allow for the rooftop panels to be linked to the grid. Despite this delay, however, the programme shows the priority being placed on solar by the government and should be back on track when the parliament and the administration are fully operational again.

In addition to the adder rate, the country offers other incentives to encourage increased solar usage. The solar water heater subsidy programme runs through 2021 and provides a 25% subsidy of investment costs through 2017 and 15% thereafter. It is open to commercial systems of at least 40 sq metres. Other incentives include the Energy Conservation Promotion Fund, which provides grants for efficiency and renewable energy projects, and support from the Board of Investment of Thailand.

Biggest Market

Despite the hiccups, Thailand is seen still as one of the better solar markets in the world. Given the need for renewables, the availability of sun and the incentives, a significant amount of capacity should be put in place. Gary Zieff, senior vice-president of business development at Annex Power, told OBG, “The Thai authorities’ target to have 20% of their energy mix from renewables is certainly ambitious but, given the price volatility of fuels, this is definitely required as a future hedge. Thailand is a pioneer in the region when it comes to putting the mechanisms in place to attract investment into renewables and should be applauded for its efforts.” Indeed, market research firm IHS estimates that Thailand will install 2.9 GW of solar between 2013 and 2017, more than any other emerging solar market.

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The Report: Thailand 2014

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