Thailand’s electricity challenges and the potential of renewable energy
Thailand’s support policies for renewable energy (RE) in the power sector have allowed individual small projects to add up to something substantial, attracting more investment and leading to faster growth in the sector than in most other Asian nations. Thai energy policy is complex, and the development of RE has not been without controversy. While this brief provides some elements of the context necessary to understand renewable electricity promotion policies, it cannot cover all aspects of Thai energy policy. Instead it focuses on identifying factors that can explain the relative success of Thai policies and highlights some lessons for future development.
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Key messages
- Thailand was among the first countries in Asia to introduce incentive policies for the generation of electricity from renewable energy (RE) sources, leading to rapid growth, particularly in solar power.
- Programmes for small and very small power producers created predictable conditions for RE investors to sell electricity to the grid. The ‘Adder’, a feed-in-premium, guarantees higher rates for RE, making the investments profitable. Thailand also regularly updates technical regulations, provides preferential financing, and invests in research and training.
- Civil society involvement strengthened and improved RE policies. In Thailand, outside expertise and links to international networks brought by civil society experts were crucial for the design and approval of the incentive measures.
- The Thai government is now adapting its policies to take account of recent technological progress and market growth. It is considering a sophisticated feed-in tariff to better control costs, while continuing to offer an enabling environment for RE investments.
Thailand has a large-scale centralised power system with a high electrification rate and high per capita energy demand compared with neighbouring countries in South-East Asia (Table 1).
Table 1: Key energy statistics for Thailand and its neighbours, 2010 (2009 for electricity access)
| Population | GDP (current US$) | Energy use (kg of oil equivalent per capita) | Electric power consumption(kWh per capita) | Access to electricity (% of population) | |
| Thailand | 69 million | $318.9 billion | 1698.9 | 2243.4 | 99.3% |
| Cambodia | 14 million | $12.8 billion | 355.4 | 146.1 | 24% |
| Lao PDR | 62 million | $7.1 billion | – | – | 55% |
| Malaysia | 28 million | $246.8 billion | 2557.8 | 4117.4 | 99.4% |
| Myanmar | 48 million | – | 291.8 | 131.1 | 13.1% |
| Viet Nam | 87 million | $106.4 billion | 681.4 | 1034.7 | 97.6% |
The Thai power sector faces several challenges:
1) Thailand is dependent on energy imports. The Thai electricity mix is dominated by natural gas, providing around 70% of electricity (see Figure 1). Even though Thailand exploits its domestic fossil fuel reserves, it is still highly import-dependent, importing almost 25 percent of its natural gas supply and over 50 percent of its primary energy supply (measured in tons of oil equivalent) in 2011. The dependence on controversial electricity imports from Laos, natural gas imports from Myanmar, and volatile global fossil fuel markets risks undermining energy security of supply. Energy imports also represent an economic burden for the country, consuming almost 12% of GDP.
3) Thailand recognises the need to reduce pollution and greenhouse gas emissions. The 11th National Economic and Social Development Plan, a 5-year framework guiding government policy, includes the objective to move “toward a low-carbon society”. The power sector was responsible for 42% of greenhouse gas emissions in 2011 and will have to make a significant contribution to achieve this objective.Renewable energy sources can be an important part of the answer to these challenges. Resource assessments show a large potential for a number of RE technologies (see Table 2). This is why the Thai government passed the 15-year Renewable Energy Development Plan (2008–2022), setting a target of achieving 20% of RE in final energy consumption. At the end of 2011, the 10-year Alternative Energy Development Plan (2012–2021) increased these targets to 25% in total energy consumption and 10% in electricity consumption (see Table 2).
The Thai government estimates that achieving these targets would:
- avoid over US$19 billion in energy imports annually
- encourage around US$15 billion in private investment
- avoid 76 million tons of greenhouse gas emissions per year
- create at least 40,000 new jobs
- generate extra income and employment in rural areas.
The structure of the Thai electricity sector
Since the 1990s, successive governments have taken steps to open the Thai electricity market to private investors. Attempts to privatise the state-owned Electricity Generation Authority of Thailand (EGAT) met with resistance and were eventually abandoned. As a consequence, Thailand’s electricity market is now characterised by both a contribution from private power generators and a strong role for the state-owned utilities. EGAT owns around 50% of electric generation capacity, purchases electricity from Independent Power Producers (IPPs) and Small Power Producers (SPPs) and operates the country’s entire transmission infrastructure. Electricity is distributed to the consumers by two public distribution companies: Metropolitan Electricity Authority (MEA), serving the Bangkok area, and Provincial Electricity Authority (PEA), serving the rest of the country.
In 1992, Thailand introduced the Small Power Producer (SPP) programme. It obliged EGAT to purchase power from power plants that combined heat and power generation or ran on renewable sources, under transparent and predictable power purchase agreements (PPAs). Power plants with a capacity to export up to 60 MW to the grid – later increased to 90 MW – were eligible. For power plants the government classified as ‘firm’, mostly based on fossil fuels as well as biomass, 20–25 year PPAs were signed. ‘Non-firm’ plants, including most RE projects received 1–5 year contracts. The power was purchased at a rate that reflected the avoided cost, i.e. the cost EGAT would have had to incur to generate the same amount of power. The programme mainly benefitted cogeneration plants using fossil fuels. The SPP program also allowed the development of some plants using waste biomass, such as bagasse, paddy husks or woodchips, to compete. Other RE sources were not competitive at the offered rates.
In 2001, a Very Small Power Producer (VSPP) programme was introduced for RE plants with an export capacity of up to 1 MW (later increased to 10 MW). VSPPs benefited from simplified regulations and were able to sell power directly to the distribution companies MEA and PEA. The rate they received also reflected avoided costs: the distribution companies paid the same wholesale rate to VSPPs as they would have paid to purchase electricity from EGAT’s transmission network.
The VSPP programme started slowly, with a few projects with a total capacity of 16 MW being connected to the grid in the first 5 years. This allowed the utilities to get familiar with the programme and showed that RE could work. In 2006, the government further streamlined the procedures and introduced the ‘Adder’.
The Adder is a feed-in premium paid to SPPs and VSPPs using RE on top of the avoided cost rate. It ranges from around 8 to 21 US cents per kilowatt hour (kWh) and is paid for 7–10 years, depending on the technology. It is funded through a small surcharge per kWh paid by all electricity consumers. The Adder is technology specific, reflecting differences in generation cost. For example, the Adder for solar energy is higher than for biomass. An additional premium is paid to projects that replace diesel generators in remote areas or are located in three southern provinces.
The SPP and VSPP programmes provided power producers with certainty that they would be able to sell their power to the grid. The process was simple, using standardised PPAs and interconnection procedures. Utilities were the single point of contact, responsible for processing and approving applications, based solely on the availability of the grid. The Adder provides additional certainty by providing a fixed additional payment. The attractive rates, coupled with a simple rate structure, make it easy for investors to develop viable business plans.
Other government measures complement these programmes. Regulations dealing with the technical challenges of RE sources are being updated periodically. Public universities and research institutes are exploring improvements in RE technology. Through incentives administered by the Board of Investments, eligible RE projects can get a corporate income tax break for up to 8 years and are exempt from import duties on equipment. A revolving fund, funded through a tax on all petroleum products sold in Thailand, provides financing to local banks so that they can pass on low-interest loans with a maximum interest rate of 4% to RE projects. Another government fund provides equity investment or venture capital of up to 50 million Baht (US$1.7 million) for smaller RE projects, as well as technical assistance and support for developing and selling carbon credits. International financial institutions, such as the World Bank or the Asian Development Bank also finance RE projects in Thailand.
Why did it happen in Thailand?
Thailand is a pioneer of ambitious RE policies in the region. Introducing these policies was not easy in a country heavily reliant on fossil fuels, with growing demand for electricity and very powerful utilities. A few elements that help explain what made it possible include the following:
- Renewable energy policies were aligned with broader political priorities, beyond environmental considerations. Energy security was an important driver for the introduction of the SPP and VSPP programmes. In the context of the struggle over electricity sector deregulation between the government owned utilities and private companies, the programmes also seemed acceptable to both sides: they encouraged some private participation in the sector, yet were small enough not to seem threatening to the utilities.
- Civil society groups played a crucial role in the design of the VSPP and the Adder. There was limited expertise on RE within the Thai electricity sector. Civil society input brought in expertise on RE and on regulations that had worked in other countries. For instance Palang Thai, an NGO working on rural electrification, convened roundtables of regulators, utilities and RE experts and organised study tours in Thailand and abroad to showcase successful RE projects. They also prepared studies showing that RE can make a much larger contribution to meeting Thailand’s electricity demands than was projected in the official plans. Civil society groups identified the RE champions in government agencies and used meetings and study tours to help break down the silos between different agencies and utilities. Members of this informal coalition of RE proponents were at the table when regulations were drafted and approved.
- The Thai programmes started small and grew over time. When the VSPP programme was introduced, proponents could point to the existing SPP programme as a precedent. Because of their limited size and costs, the first few VSPP projects were seen as easy to manage and integrate into the grid, making utility engineers more willing to accept them. When the extension of the VSPP programme and the Adder were proposed, proponents could point to these existing projects, which were working well. Starting small also allowed constituencies to form, who benefited from the programme and subsequently pushed for its extension.
Thailand’s RE promotion policies supported the emergence of a new type of electricity projects: decentralised RE projects that are not owned and operated by large utilities, but by rice mill owners using the energy contained in rice husks, factory managers turning waste streams into a new source of revenue and domestic and international investors developing solar farms. By the end of 2011, over 260 RE plants were operational under the SPP and VSPP schemes, with a generating capacity of roughly 1 GW. Another 8 GW are at various stages of the project pipeline, though it is not clear that all of them will be built. Taking other sources – such as plants operated by the utilities themselves and off-grid installations – into account, Thailand had managed to develop a total RE capacity of almost 2.2 GW within a few years.
The policy support for RE has encouraged significant investments: US$1.5 billion were invested in the Thai RE sector in 2011. There is also a domestic RE equipment manufacturing industry emerging. For instance, Thailand now has three companies manufacturing solar cells and modules using imported wafers, and another three assembling imported cells into modules. In addition, there are a number of components and services that can be supplied by Thai firms. On average, 70–80% of the equipment used in solar projects (by value) is still being imported and additional steps and policy stability will still be necessary to build a stronger domestic industry.
Current challenges and the way forward for Thailand’s renewable energy policy
By 2010, attractive Adder rates and falling global prices for solar power equipment led to applications for more than 2,000 MW of solar projects, exceeding the official target (500 MW at the time) by a factor of four. There were concerns that some applications were speculative and that the impact on consumer bills would be too high if most of these projects were built, because the cost of the Adder are passed through to all electricity customers. In 2010, the government therefore reduced the Adder for solar projects that had already submitted applications but not signed a PPA, and put a hold on accepting new applications. Final project approval was moved from the utilities to a new committee, composed of government and utility representatives. The committee introduced additional approval criteria, including access to land, financing and necessary permits. For applicants, this change has meant less certainty and the number of applications has essentially stalled.
Thailand remains committed to scaling up RE, as reflected in the increased targets approved in 2011. According to the government, the hold on solar applications is a temporary measure, while a new support policy is being developed. The policy will need to address three issues to ensure long-term success:
1) Integrating RE in overall energy planning: The Power Development Plan (PDP 2010–2030) forecasts future demand and the need for additional generation capacity, with a focus on large hydro, fossil fuel and nuclear plants. The PDP projects relatively low levels of RE that seem inconsistent with the rapid growth of the sector. Since the early 2000s, civil society groups have been calling for a more transparent and participatory planning process and challenging the PDP’s assumptions on demand growth and the potential contribution of RE. The government has agreed to transparently monitor the actual generation of existing RE plants and the plan might be adjusted as a result.
2) Adapting to falling costs: Thailand needs to find a way to manage the cost of its incentive programmes without making a formerly simple support scheme unpredictable. That would stall growth, as has happened since 2010. The government has decided to move from a feed-in premium to a feed-in tariff (FIT). This would be different from the current Adder in that it would not just guarantee the premium paid on top of the avoided cost, but guarantee a total rate paid to VSPPs and SPPs, independent of volatile conventional power price. Thailand is also considering adopting features of successful FITs in other countries. For example, the new scheme could provide a pre-determined schedule for reductions in the FIT rate. Regular reviews, using clearly defined methodologies, could provide a transparent framework for revisions.
3) Ensuring a balanced RE portfolio: Table 4 compares the 2011 targets from the REDP to actual installations – it shows that while solar power and biogas were well ahead, all other sources were lagging behind. The explosive growth in solar PV may overshadow the fact that the development of other RE sources has been slower than planned, which will also make it difficult to achieve the positive development impacts in terms of avoided exports or job creation. The incentives for technologies other than solar might have to be increased. Likewise, additional incentives might be needed to encourage projects that benefit smaller projects or rural communities. So far, financing, even from public sources, has focused on existing companies with a strong balance sheet; securing project financing has remained difficult for communities or for new companies focused on RE. The existing policy mix has helped stimulate capital-intensive, private sector-oriented investments. Specific incentives for rooftop solar or rural communities could encourage a more balanced portfolio.
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