Being heavily dependent on imported oil, it is not surprising that Thailand was one of the first countries in Asia to have a policy to encourage cogeneration, distributed generation and the generation of power from renewable energy. This policy was implemented under the Small Power Producer Programme (SPP), which was introduced in 1992 and became a very effective instrument in promoting investment in renewable energy and cogeneration.
However, the economic crisis in 1997 led to excess capacity in the power system and the purchase of power from new cogeneration facilities under long-term contracts was temporarily suspended. Unclear policy by the government led to a substantial slow down in the programme in subsequent years and it was not until 2006 (after the coup d’etat in September 2006) that the government of General Surayud Chulanond introduced a number of sweeping changes to the programme and allowed investment in cogeneration projects to resume for the first time since 1997.
Fuel choice is extremely diverse
The response by the business community and investors has been extremely positive, though partly helped by soaring oil prices. By the end of 2007 a large number of applications had been received from small cogeneration facilities and renewable energy projects, while a number of projects had been commissioned. Fuel choice is extremely diverse. Apart from the usual fuels of bagasse, paddy husk and wood chips, there have been proposals to use many other types of biomass, biogas, municipal wastes and solar energy.
A 9.8 MW paddy husk fired power plant in Buriram in the north-east of Thailand
The force of financial incentive is remarkable, particularly when combined with the provision of technical advice and other forms of assistance to lower the technological risk in the initial period. Policies adopted by Thailand allow a number of objectives to be achieved at the same time:
- strengthening the country’s energy security by reducing energy imports and promoting indigenous energy resources
- competitive energy price for sustained economic growth
- contributing to reducing global emissions of greenhouse gases.
Thailand’s energy scene
In 2007 Thailand’s total commercial primary energy consumption was 80,019 thousand tonnes of crude oil equivalence (ktoe kilotonnes of oil equivalent) while peak generation of the electric power system was recorded at 22,586 MW. During the 1970s, approximately 90% of Thailand’s commercial primary energy consumption (including non-energy use) was imported (mostly petroleum products).
A landfill at Kampaengsaen near Bangkok which is a VSPP selling about 1 MW to the grid. It is owned by Active Synergy Co
The discovery of natural gas in the Gulf of the Thailand and lignite in the northern part of the country reduced Thailand’s import dependence to about 60%. The country’s dependence on imported energy has remained at 55%62% since the mid 1980s, while about 70% of its electricity has been generated from natural gas since 2001. Although there has been continuous discovery of oil and gas in Thailand, the domestic demand for commercial primary energy increased at an annual compound growth rate of 7.6% between 1985 and 2007, resulting in import dependence remaining at 60%. This, together with a quadrupling of the world oil price during the past five years, pushed Thailand’s net energy imports to $20 billion in 2007 equivalent to 8.2% of gross domestic product (GDP).
Despite the rapidly growing energy demand, Thailand’s per capita commercial energy consumption is still very low compared with industrialized countries at 1.27 tonnes of oil equivalent (toe). As a result its current per capita emissions of greenhouse gases is estimated to be about 5.5 tonnes of CO2.
Cogeneration support programmes before 2007
The structure of the power system in Thailand is as follows. The Electricity Generating Authority of Thailand (EGAT) currently owns about half the power generation capacity and the transmission lines, and acts as a single buyer. EGAT sells bulk power to two distribution utilities:
- Metropolitan Electricity Authority (MEA) is responsible for the sale of electricity to consumers in Bangkok and surrounding areas
- Provincial Electricity Authority (PEA) is responsible for electricity sales in the remaining parts of the country.
Private power producers sell electricity to the electric utilities under power purchase agreements or users located nearby. There is no third party access yet.
Before 1991, no private power producer supplied electricity to the grid. The National Energy Policy Office (NEPO) had been trying since 1989 to introduce private sector investment in power generation through implementation of regulations to require the electric utilities to buy power generated by small private power producers, but the policy faced heavy resistance by the electric utilities and their labour unions. It was not until 1992, under the government of Anand Panyarachun, that regulations to purchase power from small power producers (the ‘SPP Regulations’) was finally approved and announced. A separate independent power producer (IPP) programme was announced in 1994 for larger power plants.
The SPP programme allowed private investment in the generation of electricity using cogeneration and renewable energy. Each facility was allowed to sell excess power to EGAT at a price determined from EGAT’s avoided costs. Qualification for the programme by SPPs included criteria on the use of steam and efficiency of the cogeneration system. The size of each facility was kept small by restricting sale to the grid from each facility at 60 MW. This was subsequently increased to 90 MW.
There were many similarities between the SPP Regulations and Public Utility Regulatory Policies Act (PURPA) implemented in the USA in 1978. The programme started slowly as certain parts of the regulations were unworkable and Thai investors were not familiar with the power business. Obtaining long-term funding for power business was also difficult under the structure of the financial system in Thailand at the time. However, after a series of amendments to the SPP Regulations and rapid development of the financial market, investment in SPP projects took off rapidly from 1994. Most of the projects were cogeneration projects using natural gas as fuel to produce electricity and steam to industrial users nearby (particularly in industrial estates), with excess power sold to the grid either under long-term firm contracts or short-term non-firm contracts with EGAT.
A large number of small renewable energy projects were implemented in many parts of Thailand mainly using agriculture wastes as fuels particularly bagasse from sugar mills, paddy husk from rice mills and woodchips from paper factories. The programme was so successful that sugar mills stopped disposing of unwanted bagasse by burning and the paddy husk price soared to about $30 per tonne from a negligible level.
The economic crisis in 1997 reduced the demand for power in Thailand in 1998 by 2.4% and substantially slowed down demand growth in subsequent years. This resulted in excess generation capacity in the power system, where the reserve margin rose from about 10% in 1997 to a peak of 35.1% in 2003. However, the temporary suspension of the purchase of power from new cogeneration facilities under long-term contracts in order to cope with the problem turned out to be much longer than earlier intended.
With the economic recovery in 2001 and the reserve margin declining to 26.8% in 2004, the government wavered about the resumption of power purchase from new cogeneration facilities under long-term contracts. Although the government allowed the renewable energy projects to continue, many projects faced a lack of co-operation from electric utilities in connecting to the grid despite the relatively clear interconnection requirements.
Moreover, apart from bagasse, rice husk and wood chips there was little use of other types of renewable energy mainly because of the unattractive purchase price, costly interconnection requirements and technological risk. To reduce some of these costs, the government introduced the Very Small Power Producer Programme (VSPP) in 2001 to allow SPPs with sales into the grid of <1 MW to come under a more lenient set of requirements and the less complicated power purchase arrangement of ‘net metering’. The purchase price was simply the bulk tariff excluding the cross subsidy element between the electric utilities. VSPPs could also sell to any one of the three electric utilities, depending on which transmission system was connected to the facility.
In addition, the government launched a programme to encourage the renewable energy SPPs by providing an additional tariff for a period of five years from the Energy Conservation Fund. This additional tariff, or ‘adder’, was determined through a competitive bidding system which resulted in approval of 14 projects with an average ‘adder’ of 0.18 baht/kWh (0.56 US cents/kWh), representing an approximately 5% increase from the normal tariff. Given the relatively low level of ‘adder’, it was not surprising that all 14 projects used bagasse, paddy husk or wood chips as fuels. There was no submission of the other types of projects which the government was hoping for.
The establishment of the Ministry of Energy (MoE) in 2002 put the SPP programme into total disarray. Despite the broad government policy to promote renewable energy, the new policy of introducing renewable portfolio standards (RPS) never got off the ground as the MoE spent the next four years drafting RPS guidelines which were never completed, while the SPP programme came to a near complete standstill.
By the end of 2006, there were about a hundred SPP and VSPP projects supplying 2344 MW of electricity to the grid. But since most of these facilities also sold electricity to users nearby, total generating capacity was around 4160 MW. Almost all these projects were those launched before 2002 as very few projects were initiated after the establishment of MoE.
2007 a new era for Thailand’s green energy
Thailand’s Ministry of Energy estimates that the potential of power generation in Thailand from biomass, municipal solid waste (MSW) and biogas is 3700 MW. Apart from bagasse, paddy husk and wood chips, other sources with good potential are municipal wastes, biogas from pig farms and other types of agro-industry, corn cob, wastes from palm oil factories and micro hydro. This means that there is a potential to generate another 1700 MW of power from renewable energy excluding wind and solar energy.
Aware of the renewable energy potential remaining to be tapped, rising oil prices and the problems of global warming, the government of Surayud Chulanond quickly issued a number of sweeping changes to the policy to promote energy efficiency and renewable energy.
- The SPP and VSPP Regulations were amended to be more investor friendly and practical. This included changes to the criteria for a facility to qualify, calculation of the avoided cost and interconnection requirements. The normal power purchase price is still based on EGAT’s avoided cost calculated from the cost of avoiding the need for a gas-fired combined cycle plant (70% of electricity is generated from natural gas and most of the new capacity will still be gas fired). However, as coal is expected to play a more significant role in the power system, non-gas fired SPPs can choose an alternative tariff based on avoided need to import coal for a coal-fired power plant. This reflects the cost structure of biomass power plants more closely than gas-fired power plants both in the capacity component and the energy component as, in recent years, the substitution between biomass and coal in many industries (especially cement) and power plants have caused the prices of various types of biomass to move in line with the price of imported coal.
- The VSPP programme was amended to include cogeneration facilities and sale from a facility of up to 10 MW, while sale of 1090 MW now came under the SPP programme.
- SPP cogeneration facilities were allowed to sell power to the grid under long-term contracts again. In the initial phase, EGAT established a target to buy another 1600 MW of power from new cogeneration facilities under long-term contracts.
- A higher tariff was granted to SPPs and VSPPs using renewable energy by providing an ‘adder’ on top of the normal tariff for 710 years from the commercial operation date (COD) for proposals submitted by the end of 2008. The ‘adder’ depends on the type of renewable energy being used (Table 1). The government also announced the initial target for renewable energy capacity it was seeking from different types of renewable energy (Table 2). In the case of biomass SPPs, the ‘adder’ was determined through a competitive bidding system where the government issued a solicitation for 300 MW on 1 May 2007. There is also a special ‘adder’ for SPPs/VSPPs in the three southern most provinces (Yala, Pattani and Narathivath) of 1.50 baht/kWh (4.7 US cents/kWh)for wind and solar energy, and 1.00 baht/kWh (3.1 US cents/kWh) for other types of renewable energy to compensate for the political risk from the unrest there.
- Financial incentives through soft loans and investment subsidies were expanded in terms of amount and coverage for selected types of renewable energy projects in particular biogas in pig farms and factories producing tapioca starch, palm oil, rubber sheet, ethanol and other types of agro-industry, municipal wastes and micro-hydro. Some of these are not SPPs or VSPPs, but simply produce energy for their own use or are off-grid village-based projects in remote areas
- The government budget was also expanded for government agencies to implement mini and micro hydro projects as, in most cases, obtaining various permits would be extremely difficult for the private sector. Total new generating capacity of 112 MW is targeted during the period 20082011.
- A larger budget has been made available for the provision of technical assistance to the private sector as well as funding for pilot projects for new or unfamiliar technology.
- Private investment is being encouraged through energy service companies (ESCOs) and the ESCO Venture Capital Fund is being established.
- Approval of policy allowing the trading of carbon credit through the Clean Development Mechanism (CDM) of the Kyoto Protocol was made in early 2007 after five years of indecision by the earlier government. This has given an enormous boost to a number of projects, particularly biogas and municipal waste projects.
Policy changes produce results
By the end of March 2008, there were 67 SPP projects supplying 2315 MW of electricity to the grid. As most of these facilities also sell electricity to users nearby, total generating capacity was around 3968 MW (Table 3). Almost all these projects were those launched before 2002, as very few projects were initiated after the establishment of MoE. Among these, 26 are cogeneration projects using fossil fuel mainly natural gas with total sale of 1670 MW. The remaining 645 MW are supplied from 41 renewable energy projects and projects using mixtures of fossil fuels and non-conventional energy mostly bagasse, paddy husks and wood chips.
There are also 82 VSPP projects supplying 174 MW of power to the system with a total installed capacity of 421 MW (Table 4). Again, most of these projects are bagasse, paddy husk and other biomass. There are also 33 solar energy projects mostly roof top solar cells under the solar home programme funded by the Energy Conservation Fund. Again most of these projects were implemented before the policy change in 2007. Among these SPPs and VSPPs, there are also some projects using other renewable energy, e.g. three municipal waste projects and 11 projects using biogas.
Most of the investors in the SPP or VSPP projects are small to medium size companies. However, there are a few companies that have built up their business from the SPP and the private power programme, namely Banpu plc and Glow plc, which are both listed on the Stock Exchange of Thailand. The company with the largest renewable energy portfolio is probably Advance Agro an agro-business and paper conglomerate.
The response to the policy changes was dramatic. As of 31 August 2007, 31 new cogeneration SPP projects under firm contracts had submitted applications for sale of electricity to EGAT, with a total proposed sale of 2416 MW. This far exceeded the targeted amount (1600 MW) and EGAT had to temporarily close the power purchase from cogeneration SPPs from 31 August 2007. Selections were made based on:
- capability and costs of the power system in purchasing power from the SPP
- fuel availability
- feasibility of finding electricity and steam users by each SPP.
At the end of 2007, 16 cogeneration facilities under the SPP programme was selected with a total generating capacity of 1663 MW and total sale of electricity to the grid of 1314 MW. The biggest impediment to new SPPs is probably availability of natural gas supply.
The Request for Proposals (RFP) from SPPs using renewable energy other than MSW, wind and solar energy to bid for the ‘adder’ was issued on 1 May 2007. Nine proposals were received on 1 August 2007, with a total proposed sale of 435 MW. On 12 October 2007, the proposal evaluation was finalized, with seven SPPs selected accounting for a total proposed sale of 335 MW and installed capacity of 458 MW. The selected SPPs are obliged to sell electricity to the grid by 2012 with an ‘adder’ of 0.295 baht/kWh (0.92 US cents/kWh). All the projects are based on bagasse, paddy husk and wood chips as other biomass projects are normally small and come under the VSPP programme.
A solar farm belonging to Bangkok Solar Power Co. Ltd. on the outskirts of Bangkok. It is a VSPP selling 1.3 MW to the grid
The most remarkable response has come from the VSPPs. By the end of March 2008, 325 VSPPs had submitted applications to sell 1152 MW of power to the grid. These include VSPPs already commissioned before the new regulations and projects reclassified from SPPs. However, there are over 200 new projects with total sale of about 900 MW (the original projects are fairly small with a total sale of only about 200 MW). Among these 325 projects, 319 are renewable energy projects with a total sale to the grid of 1128 MW; the other six projects are cogeneration projects using natural gas or coal as fuel, with one project being a district cooling facility rather than the usual cogeneration projects which sell electricity and steam.
The ‘adder’ has produced the intended result as fuel choice for the new VSPPs has been diverse. Seventeen MSW projects have been submitted with total sale of 91 MW while two MSW VSPPs are already in operation one landfill gas and one anaerobic digestion system. Unusual types of biomass are being used in VSPPs, e.g. wood chips from plantations, palm wastes from palm oil factories, corn cob, rice straw, biogas from wastewater and solar energy from ‘solar farms’. The sizes also vary with some very small VSPPs of less than 100 kW, e.g. micro-hydro projects or biogas from pig farms.
A 160 kW corn cob fired power plant belonging to Supreme Renewable Co. at Chiangrai in the north of Thailand
Although the renewable energy source being proposed in the new VSPPs is more diverse, potential for other types of biomass still exists for the future. These include corn cob, rice straw, sugarcane leaves, cassava rhizome and emptied palm bunches. A study has begun on the effective collection system and management of these types of biomass, which tended to be scattered.
In addition, biogas generation from industrial wastewater is becoming very popular as industrial operators have realized that it is better than the former wastewater treatment system both in terms of environmental impact and economic effectiveness as energy is obtained as a valuable by-product.
With the ‘adder’ of 8 baht/kWh (25.81 US cents/kWh) and the establishment of photovoltaic (PV) factories in Thailand in the past few years leading to the rapid decline in the local price of solar cells, solar farms are mushrooming as 59 projects have already been submitted to sell 264 MW to the grid (excluding roof top PV). One of these solar PV farms is already selling electricity to the grid and a few more will be commissioned in the next few months. Whether all these projects will materialize remains to be seen especially the solar farms use solar collectors and Stirling engines.
Meanwhile much work is continuing on the preparation of submissions of proposals for wind farms. Thailand’s wind potential is not great, but proposals for 34 wind farms are likely to be submitted by the end of 2008, each with a capacity of 2050 MW.
The policy changes have revived the hydroelectricity programme in Thailand, which has been dormant for a decade. Work has started on a number of both on-grid and off-grid mini and micro projects by government agencies (EGAT, MoE and PEA) on 15 mini-hydro projects and 65 micro hydro projects (including refurbishment and expansion). Total new capacity is expected to be about 112 MW.
Towards energy sustainability
The force of financial incentive is remarkable, particularly when combined with the provision of technical advice and other forms of assistance to lower the technological risk in the initial period. Given the progress of the SPP and VSPP programmes, the target to increase the use of renewable energy for power generation from 2061 MW at present to 3276 MW in 2011 (an increase of 1215 MW) is likely to be exceeded.
But in order to reduce Thailand’s dependence on imported oil and to reduce greenhouse gas emissions, other strategies must be pursued simultaneously particularly energy efficiency, power purchase from hydroelectric projects in neighbouring countries and the introduction of nuclear power in the long run. Management of the energy sector must also be further streamlined and improved. This should be accomplished by the new Power and Natural Gas Regulator recently established under the Energy Industry Act, which became law on 12 December 2007.
So far Thailand has been successful to a certain extent in reducing its dependence on imported oil as a result of various measures implemented in the past few years particularly abolishing the oil price subsidy and the promotion of renewable energy. The share of oil in total commercial energy consumption fell from 47.3% in 2004 to 41.5% in 2007, while net oil import fell by 14.6% in volume over the same period. The promotion of cogeneration, distributed generation and renewable energy together with other policies to diversify from fossil energy should allow Thailand’s share of oil in total primary energy consumption to fall further to 33.6% in 2011. The share of alternative energy in electricity generation is expected to rise from 6.5% in 2008 to 16.6% in 2015 and eventually 37.3% in 2021, thereby reducing greenhouse gas emissions from the Thai power sector from 2018 onwards.
The policies now adopted by Thailand allow a number of objectives to be achieved at the same time:
- strengthened energy security by reducing energy imports and promoting indigenous energy resources
- competitive energy price for sustained economic growth
- contributing to reducing the global emission of greenhouse gases.
Piyasvasti Amranand was Thailand’s Energy Minister from October 2006 to February 2008.