For many years Thailand has focused on increasing energy generation so that it could power its industrial growth and meet the energy needs of an increasingly prosperous society. Achieving this objective was a requirement in terms of sustaining economic growth and, so far, the country’s energy production has succeeded at keeping pace. Thailand has not only managed to power its fast-growing industrial base and meet the demands of its evolving consumer society, but the country has also been able to attain its power from a wide range of sources, including renewables.
While more power is still very much needed, and energy production must be increased, the nature of the economy is changing. The middle class is growing and making more demands, mass production is quickly moving to cheaper countries, and the environmental movement is better supported. While the government and utilities will be under less pressure from industry, they will still have to generate more power, and do it in a way that satisfies the higher demands of the population: that power generation be clean, sustainable and diverse. This will not be easy. The country will need to significantly increase the use of renewables, while also trying to find ways of boosting production from conventional sources in a way that does not conflict with the values of the growing middle class.
Electricity was first generated and distributed in Thailand in 1884, when two Britishsourced generators were used to light the Grand Palace for King Rama V’s birthday celebrations. In 1898, the Siam Electric Company was established to provide electricity for the capital’s new tramway system, with the first power plant using rice husks, logs, coal and oil as fuel. The company faced difficulties at first and was repeatedly sold, finally becoming the Thai Electric Corporation in 1939. After the Second World War, the country quickly began to consolidate, promote and coordinate its energy related efforts. The Thai Electric Corporation's concession ended in 1950, and the government took over and formed the Bangkok Electric Works. In 1951, the precursor to the Energy Policy and Planning Office (EPPO) was established. In 1954, the organisation that would become the Provincial Electricity Authority (PEA) was created, and in 1958, the Metropolitan Electricity Authority (MEA) was formed from a merger of the Bangkok Electric Works and the electrical division of the Public Works Department. Starting from about 1960, the country began building large power plants in earnest, although, at the time, Thailand had a number of small power plants.
Despite all the activity, the country faced power shortages as a result of industrial growth and rising prosperity. To unify its efforts in energy and to combine a number of state-owned power plants, the Electricity Generating Authority of Thailand (EGAT) was formed in 1969 following the 1961-67 National Social and Economic Development Plan's call for more large-scale state power plants. As a result, the country had a power system that was dominated by three state-owned enterprises: PEA, MEA and EGAT.
This arrangement was effective at increasing Thailand's electricity production, but left the country with considerable international debt. Indeed, Thailand's three electric utilities accounted for half the country's borrowing in the four years to 1971, according to the paper “Risk, Regulation & Governance: Institutional Processes and Political Risk in the Thai Energy Sector”.
Thailand's power generating capacity was particularly stressed because it had to supply reliable power to industrial users in what was then the fastest growing economy in the world, while at the same time keeping rates low for the poor.
By the late 1980s, a plan was developed to privatise EGAT, although efforts to make the company more market oriented failed as consumer groups, unions and nationalists resisted reform. Meanwhile, the company’s debt continued to mount. However, some liberalisations began to take hold in the early 1990s under the guidance of pro-market politicians and with the assistance of the World Bank. In 1992 the law that formed EGAT was revised to allow the state company to cooperate with independent power producers (IPP) and small power producers (SPP). The Electricity Generating Public Company (now EGCO Group) was spun off from EGAT in 1992, as was Ratchaburi Electricity Generating Holding in 2000.
The independent power programmes worked well. SPPs could sell up to 60 MW (later 90 MW) to EGAT at rates equal to the avoided cost. For non-renewables, or any plant that could provide steady power, 20- to 25-year agreements were signed. The power purchase agreements (PPAs) were straightforward, transparent and standardised. A very small power producer (VSPP) programme followed in 2001. This was designed for renewable energy projects that could produce up to 1 MW (later 10 MW). By December 2013, SPPs accounted for 10% of the country's installed capacity.
Following the Asian financial crisis of 1997-98, further reforms were initiated that would see the dismantling of EGAT, the creation of a power pool and the establishment of a new regulator. However, in the early 2000s, the government of Thaksin Shinawatra quickly abandoned these liberalisations and proposed an alternative solution, which was only partially implemented due to resistance to the privatisation of EGAT and ultimately a court decision against the reform. In the end, while a number of reforms did take place, EGAT remained in the dominant position, with a high market share in electricity generation, a significant stake in the main IPPs and the designation as the sole purchaser of electric power in the country.
One element of the reforms that did survive was the tariff structure. Devised in 2001 by PwC and Merz & McLellan, it is designed to ensure the financial soundness of utilities provision while passing on increased fuel costs to customers in a transparent manner. Questions have been raised whether the formula being used is ideal. It tends to favour the building of capacity, as this is how companies can increase profits, and can therefore potentially lead to higher costs for consumers while also transferring the risk of commodity price increases to the buyers. While the structure has eliminated some of the earlier problems and helped improve the sector’s financial stability, it may have led to some undesirable outcomes, especially in terms of reduced incentives for supply-side efficiency.
Overall, the utilities have made exceptional progress in terms of generating and delivering power to the country. Thailand has one of the highest rates of electrification in South-east Asia, with more than 99% of the population having access to power. While concern has been expressed regarding the lessthan-perfect pricing structure, prices have thus far been kept under control. As of early 2014, consumers in Thailand were paying about $0.11 per KWh, about the same price as in Malaysia, and less than consumers pay in Singapore and the US. The country also ranks highly on other components of power delivery. In the Getting Electricity category of the World Bank’s “Doing Business 2013” report, Thailand scored well: it was ranked 10th globally, ahead of all South-east Asia countries except Singapore and ahead of many developed economies, including Japan, the US and the UK.
Concerns exist, however, and the country is set to face challenges in sustaining steady supply, ensuring energy security and maintaining low prices. While capacity is well above estimated demand – with the Ministry of Energy (MoE) reporting a modest 2.3% increase in electricity usage over 2013 – a number of problems have cropped up in the course of the year that suggest that the overall system may have some serious gaps. In May 2013, the southern part of the country was hit by the biggest blackout in Thai history. The cause was a faulty power cable, but the fact that this situation occurred highlights failings in the country's power grid and in the distribution of generating capacity. The south can only produce 2000 MW of electricity and must import 500 MW from the rest of the country to make up for the shortfall. Around six months prior, the tourism resort islands of Koh Samui and Koh Phangan lost power when an undersea cable was damaged.
However, it was an earlier event that rattled the country's planners most. In April 2013, the capital faced the threat of power shortages when maintenance on gas fields in Myanmar and unusually high temperatures brought production capacity worryingly close to actual production. Rolling blackouts were a possibility but were avoided as a result of concerted conservation efforts and the shut down of some factory production.
While these crises were the result of oneoff events, concerns persist that the margin between what Thailand can produce and what it uses is too small. According to the MoE, the country was under production capacity throughout 2013, with a gross peak load of 26,598 MW compared to a total installed capacity of 33,681 MW. However, Anchalee Chavanich, chairperson at EGAT, told OBG, “EGAT is investing heavily to ensure that power generation and transmission capacity is secure for Thailand’s regional provinces.” Although it is clear that more capacity will be required going forward, some non-governmental organisations (NGOs) have argued that EGAT's push to build more power plants, with capacity set to grow from 32,395 MW to 70,686 MW, will lead to increased inequality, not only in terms of investment costs passed on to the consumer but also the environmental burden that disproportionately impacts the lives of the rural inhabitants.
According to the EPPO, no new large-scale hydropower projects are currently planned for the country. Hydro has, in terms of domestic production, been more or less stable for almost three decades, according to EPPO data. In 2013 Thailand’s hydro facilities produced 5412 GWh, compared to an average of 5998 GWh over the preceding 25 years. As a percentage of the total, the segment has been of diminishing importance over time, falling from 21.8% in 1986 to 3.1% in 2013. Only small-scale hydro is being considered. EGAT has been developing eight mini hydro projects with a total capacity of 86.7 MW. They use water from reservoirs under the Royal Irrigation Department and are expected to be completed by 2015.
Existing hydro facilities are facing considerable opposition. The Pak Mun dam, a 136-MW project located in Ubon Ratchathani province, and built with World Bank support in 1994, has been the subject of controversy for some time. It required the relocation of 912 families, according to Japanese NGO Mekong Watch, and affected local fishing as the structure destroyed the rapids where fish lay their eggs. Despite efforts to mitigate the damage done – with fish ladders, for example – local residents continued to fight against the dam. In late 2013, the government finally relented, and EGAT was ordered to keep the gates open permanently. In light of the recent protests, analysts believe that this was done in part by the government to maintain the support of the rural population.
Thailand has maintained a longterm trend of supporting capacity development in other countries and then importing power, as this allows Thailand to avoid the potential problems of building new facilities at home. In 2013, Thailand imported 7.1% of its electricity, up from 3% in 1986. Despite the growing importance of electricity imports, links with other countries are limited. Thailand only has direct connections to Malaysia and Laos. With the former, it has an 85-MW HVAC link between Sadao and Chuping and a 300-MW HVDC line between Klong Ngae and Garun.
The vast majority of imported energy comes from Laos, from which Thailand has been purchasing hydroelectricity since 1998 and currently has 2105 MW of PPAs. An additional 2693 MW of power in Laos designated for Thailand is under construction and another 659 MW is in the planning stages. A number of future connections with other countries are also being planned. The greatest potential is seen in Myanmar, where over 16,000 MW of power projects for development and export to Thailand have been identified (all but 2200 MW from hydro). Chavanich told OBG, “Rapidly increasing demand for power is placing excessive pressure on the country’s established power infrastructure. As such, we must consider cooperation with our partners in the ASEAN region, to secure additional power sources and reduce the cost of electricity in the kingdom.”
However, critics argue that the need for power has been overstated and that much of the planned construction, and even the additional imports, are unnecessary. "We would love to diversify some of the supply, but public perception will limit it," Pinyo Meechumna, associate professor and department head of the faculty of engineering at Chulalongkorn University, told OBG.
Most of Thailand's current energy challenges can be traced back to its overdependence on natural gas. In 2013 gas was used to generate 67.3% of the country's electricity, up significantly from 40.3% in 1986, but down from a peak of 72.4% in 2010. While natural gas is a clean and cheap source of energy, the country is slowly running out of fuel and this is increasing pressure to find new sources of energy. Thailand's proven reserves of natural gas have been declining for five years, according to the US Energy Information Administration (EIA), down from 14.75trn cu feet in 2007 to 10.06trn cu feet in 2013. In 1998, the country produced sufficient natural gas to cover its needs. However, for 2012, the most recent year for which data is available, imports totalled more than 338bn cu feet. These are primarily from Myanmar, but Thailand also receives gas from the Malaysia-Thailand Joint Development Area and is discussing possible imports or joint developments with Cambodia.
Demand for gas is sufficiently high that the country is forced to import liquefied natural gas (LNG), which it began doing in 2011. Thailand has one regasification facility, at Map Ta Phut, which can handle 5m tonnes per year. In light of expected future growth, the terminal is in the process of being expanded to 10m tonnes a year. The key issue with LNG is that it is much more expensive than dry natural gas, and increased use of it will cause electricity prices to rise. Sutat Patmasiriwat, governor of EGAT, told local media that electricity from natural gas costs about $0.10 per KWh; however, if it is produced from LNG, it costs about $0.18 per KWh.
Thailand imported an estimated 1.5m tonnes of LNG in 2013, up 50% from 2012. Thai energy company PTT expects to import 3m tonnes through the regasification facility in 2014. While transactions have been on the spot market, PTT has reached a long-term purchase contract with Qatargas to buy 2m tonnes a year beginning in 2015. In order to get the best possible prices for LNG, the Thai government has discussed liberalising supply, allowing foreign and domestic companies to compete on a level playing field. International firms offer a myriad of opportunities for growth. For example, Gunnar Thoresen, the managing director of Jotun, told OBG, “Thailand’s position as a manufacturing hub for the oil and gas industry offers massive opportunities for the paint industry.”
Thailand has somewhat limited options to help reduce its dependence on natural gas. The country does have an estimated 453m barrels of oil reserves; however, this is insufficient to meet demand, with Thailand importing 60% of its petroleum and 85% of its crude oil, according to the EIA. Nuclear has long been considered an option but, following the Fukushima incident and given the opposition to power plants in general, the prospects for nuclear are now dim.
The government is enthusiastic about renewable energies, however, and has set high targets for alternative energy sources. Indeed, in 2013 it increased its goal by more than 50%, from 9201 MW by 2021 to 13,927 MW by 2021, and to 25% of total energy usage. According to a report by Bloomberg, the breakdown would be as follows: 4800 MW from biomass; 3600 MW from biogas; 3000 MW from solar; and 1800 MW from wind. This would represent a huge jump from today.
According to the EPPO, the country produced about 5% of its energy from renewables in 2013, 3.1% from hydro and 1.9% from other renewables. Of the nonhydro-sourced power, 75% was from biomass, 16% from solar, 7% from biogas, 2% from waste and 0% from wind, according to figures published in mid-2013. However, since this data was released, the country’s first major wind projects have come on-line, boosting the segment’s total capacity. Numchai Lowattanatakul, governor of the Provincial Electricity Authority, told OBG, “To meet Thailand’s developing energy challenge, there must be a coordinated effort to reduce demand and diversify sources of energy supply.”
Like the electricity sector, responsiWATER WORKS: Like the electricity sector, responsibility for water provision is shared among government organisations and private companies. The Royal Irrigation Department is given authority over “collecting, storing, controlling, distributing, draining or allocating water for agricultural, energy, household consumption or industrial purposes”. However, private companies may be involved in the distribution, treatment or endsale of water. Wanchai Lawattanatrakul, CEO of East Water Group, told OBG, “When discussing water security, people tend to focus on the raw water supply. However, they should equally consider pipeline infrastructure, as having the water but not being able to transport it to where it is needed also leads to supply concerns.”
The utilities sector in Thailand is set to continue expanding. This will likely require more complex solutions such as diversification and improving efficiency. Capacity will grow, but renewables, LNG, imports and conservation will play a greater role in helping the country meet its energy needs. Likewise, the water distribution network will need to adapt to planned antiflooding measures. Overall, the sector may become more interesting, as new solutions will be required.
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