Slow-starting Renewables Tariff Delivers a Boom
Thailand has connected over 850 MW of very small renewable energy power plants (less than 10 MW capacity) to the grid in less than five years. There was just 16 MW in late 2005. Developers have signed further power purchase agreements with Thai electricity utilities for another 4 GW of very small power production.This highly successful scheme did not come out of a big vision. The regulations enabling very small power producers to connect to the national grid were drawn up in 2002 by members of Thailand's Energy Policy and Planning Office (EPPO) to assist some village microhydro schemes, originally developed off-grid, to connect. Some small biomass schemes also took advantage of the opportunity.
"There was just a trickle of projects connecting at first, which was fine because it enabled the utilities to learn by doing without being overwhelmed by a deluge of applications," according to Chris Greacen, an American who had been involved with the microhydro projects and worked with EPPO on the regulations.
Low profile beginnings
One of the reasons for the success of the regulations was that it did not require any permissions from Thailand’s state-owned electricity generator, EGAT, says Greacen. EGAT sells 95% of its power to two distribution companies, the Metropolitan Electricity Authority that serves the Bangkok region, and the Provincial Electricity Authority that serves the rest of the country. The very small producers sell their power to the distributors.
“Because the distribution utilities aren’t really in the generation business, they did not perceive the very small producers as competition to anything they own,” says Greacen. “They were happy to purchase electricity from them. From the distribution utilities’ perspective it was revenue-neutral. They were purchasing electricity at the same price as they were purchasing it from EGAT. That helped to get the utilities on board.”
There was also political openness and gradual movement towards greater privatisation, including the very small producers. EGAT had been a state monopoly energy generator in the 1980s controlling all distribution. In the early 1990s, the state had enabled largescale and smaller scale power plants (below 90 MW) to be built, selling their power to the newly established distribution utilities. In 2002, Thailand had ratified its signature on the Kyoto Protocol and set itself the goal of providing over 20% of its energy needs from renewable resources.
Thailand has developed sufficient natural gas resources to meet around ten years demand at present consumption rates. But it also has significant undeveloped reserves offshore in the the Gulf of Thailand. There are limited oil reserves and a large reserve of brown coal. In recent years international companies have made major investments in the development of Thailand’s gas and oil potential. Demand for electricity grew at more than 10% a year up to the Asian crisis of 1997. Since then, it has grown at around 4% to 5% a year. The government plans to bring capacity up to 65.5 GW by 2030 – taking account of older plant going offline. That will require the addition of over 50 GW of electricity capacity.
2006 Gear Change
It was the addition, in 2006, of a premium feed-in tariff to very small producers, on top of the payments they received from the power distribution companies, that created the boom in small-scale renewable energy power plants. The additional premium was funded from a small levy on oil products (a tax originally set up in the early 1990s to fund energy efficiency projects). The definition of ‘very small power production’ was also extended to include plants up to 10 MW and co-generation was included.
The Thai government also provided banks with zero interest loans to be on-lent to renewable energy developers at 4% interest up to Baht 50 million (US $1.6 million). That did not supply sufficient capital for the entire construction process, but it went a long way towards it.
“The utilities by that stage were comfortable with these smaller projects coming online and they agreed to expand up to 10 MW,” says Greacen. A simple, clear and standardised power purchase agreement greatly eased the sign-up process for VSPPs. The PPA was more the work of engineers than lawyers, says Greacen. It kept the ‘legaleze’ to a minimum.
A flood of applications were received from companies in agro-industry companies who saw the opportunity to generate power from their rice husk, sugar cane and tapioca flour processing wastes.
“One feature of the regulations that was ‘genius’ was that the distribution utilities only paid 98% of the cost of the electricity they bought from VSPP projects over 1 MW capacity,” says Greacen. “Essentially they are getting 2% of the electricity for free. This incentivises the distribution utilities to process applications and to get them up.
“In my experience, you can either use sticks or carrots. If you can build in little incentives and get everybody’s incentives in line to move things forward, that can be a whole lot more effective than trying to use sticks to say ‘you will do this’. Utilities in developing countries are very strong. If they don’t want to do something they won’t.” By 2011 there were over 800 MW of agro-industry biomass projects online.
Biomass Boom Over
The distribution utilities have signed power purchase agreements for a further 1,900 MW of biomass generation capacity. But Chris Greacen doubts that much of this will be built.
“We are running into a situation in biomass where the fuel supply is now becoming an issue. Five years ago, rice husks had very little commercial value. Now it is costly enough that more rice husk power plants just are not going to happen. That is probably true for sugar cane as well. There was a bonanza in cassava biogas, but there are a limited amount of tapioca flour factories in the country.”
There is less than 1 MW of wind power online in Thailand and limited suitable locations with good wind resource means there is limited room for onshore wind growth.
The biomass and biogas boom may be replaced by a boom in solar farms. Solar developers had signed more than 1800 MW of PPAs in June 2011, though only about 45 MW were online. Chris Greacen is also unsure about the prospects for solar.
The 630 MW of photovoltaic solar farms will go ahead, he believes. There has been little development of residential rooftop PV, mainly because the application process and feed-in tariff is the same whatever the size of project. Only larger developers are prepared to go through the hassle.
While PPAs have been signed for 1,200 MW of concentrated solar thermal, no concentrated solar power plant has been built in Thailand and the performance of CSP in Thai conditions is not yet clear. With so many PPAs floating about, to prevent a speculative market developing the government has decided that it will not pay feed-in tariff to plants that open more than a year after their scheduled operational start date.
Solar growth may also put the kind of strain on the feed-in tariff system that has already been experienced in Germany, Spain and other countries. The premium feed-in tariff (on top of the price paid by the distribution utility) for electricity generation from biomass was 0.3 baht per kW/h. The premium feed-in tariff for solar projects is either 6.5 baht per kW/h or 8 baht per kW/h (1 baht – 2,4 c€) . The Thai public may react negatively to that kind of impact on their pockets if PV grows rapidly.
Perhaps the boom days for renewable energy growth in Thailand are coming to an end.