Energy transition picks up speed

Thomas Hundt

Energy in Thailand should be cheap, safe and sustainable. The government and industry want to achieve these goals with energy transition, and foreign energy technology is benefitting.

CLIMATE POLICY REQUIRES MORE RENEWABLE ENERGIES

Thailand announced at the 2022 World Climate Conference that the country aims to be net carbon-neutral by 2050. This means that, including emission reduction credits, the carbon footprint should then be balanced. In a second step, the emerging country wants to achieve the net-zero target for all greenhouse gases by 2065.

The government is therefore having a new National Energy Plan (NEP) written, which is due to be presented in autumn 2024, after many delays. It brings together the individual plans for the electricity sector, alternative energies, energy efficiency, oil and gas. These still refer to an old planning horizon from 2018.

EMISSIONS MUST COME DOWN

The National Climate Strategy Office has already submitted the steps to reduce greenhouse gas emissions to the United Nations. The energy plan will formulate precise and ambitious sector targets that will contribute to a climate-neutral future.

Electricity production is responsible for around a quarter of greenhouse gas emissions, so a massive reorganisation of electricity generation will be necessary. According to the climate strategy, renewable energies should make up around 68 per cent of the electricity mix by 2040 and as much as 74 per cent by 2050. In 2023, renewables accounted for 11 per cent of the electricity generated and more than 20 per cent of installed capacity.

The conversion of the power plant sector will therefore be extensive and expensive. Gas and coal are the most important energy sources for power generation and, according to calculations by the state-owned Electricity Generating Authority of Thailand, coal and gas-fired power is also the cheapest.

ENERGY IMPORTS AND THE QUESTION OF PRICE

Gas from domestic deposits still supplies around half of the national gas demand. But production volumes in the fields in the Gulf of Thailand are declining, so domestic natural gas is increasingly having to be replaced by expensive liquefied natural gas imports.

As the cost of imported gas and oil rises, the government protects citizens and businesses from rising energy prices and sets low prices for diesel, electricity and cooking gas. Favourable energy prices are one of the most important political election promises.

Subsidies then prevent rising procurement costs from being passed on in full to consumers. The money for this comes from the state budget and from an oil fund.

This ‘Oil Fuel Fund’ compensates for fluctuations in fuel prices. It also subsidises the blending of biofuels with petrol and diesel. The oil fund is supposed to be financed by levies on fuel sales, but these are not sufficient. It has been running high deficits for years. This is another reason why energy policy needs to rethink, reorganise the market, and focus on new energy sources.

NUCLEAR ENERGY AND HYDROGEN IN THE FUTURE

Nuclear power, which is not yet in use in Thailand, may play a role. According to initial announcements, the future Power Development Plan will include the construction of two 700-megawatt nuclear power plant units.

Government agencies are also considering testing a nuclear small modular reactor. A pilot project is planned by Global Power Synergy from Thailand and Seaborg Technologies from Denmark. In April 2024, they announced their intention to investigate the use of the Compact Molten Salt Reactor (CMSR) Power Barge in Thailand.

According to press reports, the NEP will also provide for the use of hydrogen in the power plant sector in an initial phase. In the first stage, power plants would still use blue hydrogen. This means that natural gas is converted into hydrogen and the CO2 released is stored or processed industrially.

According to the initial drafts, green hydrogen will be produced and used at a later stage. So far, green hydrogen has only been tested in pilot plants.

The H2Uppp programme of the Federal Ministry of Economic Affairs and Climate Protection has been supporting Thailand in the development of a hydrogen sector since 2022. The programme identifies opportunities for the production and use of green hydrogen. H2Uppp is also investigating processes that generate chemical energy carriers from green electricity for electricity storage or convert green electricity into fuels or raw materials for the chemical industry (so-called Power-to-X applications).

ECONOMY WANTS TO REDUCE EMISSIONS AND URGENTLY NEEDS GREEN ELECTRICITY

In Thailand, the expansion of grid-connected renewable energies has been in the doldrums since 2018. Well-funded programmes had expired. Investors in solar, wind and bio plants were able to earn good money. The Ministry of Energy changed tack and hardly ever put larger projects out to tender.

As a result, electricity generation capacities from renewable energies only grew by 1.4 gigawatts to 12.6 gigawatts between 2018 and 2023. This is set to change.

Thailand invited tenders for renewable energy projects with a total capacity of 5.2 gigawatts in 2022. Only companies registered in Thailand were allowed to apply and foreigners were not allowed to own more than 49 per cent of the company. Interest from local investors was very high. The predetermined tariffs and conditions attracted many applicants.

The responsible authority, the Energy Regulatory Commission (ERC), finally selected 175 companies based on qualification criteria, which will construct projects with a total capacity of 4.8 gigawatts, including mainly solar power plants. The winners will then conclude power purchase agreements with the state grid operators.

Their systems will be installed and put into operation between 2024 and 2030. As demand for green electricity is increasing, the ERC is set to invite tenders for a further 3.7 gigawatts of renewable energy projects in the second half of 2024. The majority of these are again expected to be solar systems, some with battery storage. Solar modules usually come from China.

INDUSTRY WANTS TO REDUCE EMISSIONS AND URGENTLY NEEDS GREEN ELECTRICITY

Factories in industrial areas alone will need 10 gigawatts of green electricity in future, according to the state-run Industrial Estate Authority of Thailand (IEAT). The European Carbon Border Adjustment Mechanism (CBAM) is already having an impact. Exports to the EU potentially affected by the CBAM amounted to around US$ 480 million in 2022. These are mainly exports of iron, steel and aluminium.

The Thai steel industry is therefore looking for solutions to produce green steel. For example, Singapore-based manufacturer Meranti Green Steel announced in early 2024 that it would be building a green steel plant in the IRPC industrial park in Rayong with Italian plant manufacturer Danieli. The electric steel plant is to use only green electricity. Other steel manufacturers such as Sahaviriya Steel Industries and Millcon Steel have also announced that they want to produce without emissions.

The cement industry has also been switching from coal to renewable energies for some time now. Industry leader Siam Cement Group alone plans to invest around US$ 2.9 billion in its green transformation between 2022 and 2027.

Other industries also want to operate in a climate-neutral way and only use green electricity. Over 100 companies have joined forces in the ‘RE100 Club’ association and want to use only green electricity.

UTILISING WASTE FOR ENERGY

Waste from industry, commerce and households is also an often-unutilised source of energy. Most waste ends up in landfill sites. Municipalities and operators of industrial parks such as IEAT and WHA want to utilise the waste materials for energy. They have waste incineration plants built, which are also operated in co-operation or as joint ventures with international companies such as Suez from France.

The largest operator of waste-to-energy (WTE) plants, TPI Polene Power, which belongs to the building materials manufacturer TPI Polene, is also building new plants and has received orders from local authorities for further WTE projects. The Thai company Earth Tech Environment also won a tender for 10 WTE plants with a total capacity of 80 megawatts at the beginning of 2024.

There are also opportunities in the utilisation of biomass. Rice straw or residues from sugar cane, oil palm and maize harvests, as well as waste from the meat industry, are used to generate energy in biomass or biogas plants. However, the bio plants are usually equipped with simple local technology or from Asian suppliers.

ENERGY AS A GROWTH INDUSTRY

Energy suppliers in Thailand achieved a gross value added (production value less intermediate consumption) of US$ 16.2 billion in 2023. Adjusted for price, this figure was 3 per cent higher than the previous year, meaning that the energy sector grew faster than the economy as a whole, which only grew by 1.9 per cent in 2023.

The oil, gas, energy and chemicals group PTT is Thailand's largest company. It is 51 per cent owned by the Thai Ministry of Finance, which stipulates in its specifications that PTT should guarantee energy security at fair prices. In return, the state grants PTT access to its oil and gas reserves and gas trading.

However, the owners of PTT also expect adequate returns. The companies in the PTT Group are therefore managed in a profitorientated manner and also invest heavily abroad.

DOMINANT FORCES IN THE ELECTRICITY MARKET

The state-owned Electricity Generating Authority of Thailand (EGAT) is the dominant force in the electricity market. EGAT owns the entire transmission grid and operates power plants with a capacity of 16.2 gigawatts.

The company now buys most of its electricity (27.1 gigawatts) from private electricity producers in Thailand. EGAT has also concluded purchase agreements for 6.2 gigawatts with producers in Malaysia and Laos. Thai energy companies operate eight hydropower plants and one coal-fired power plant in Laos, which supply electricity to Thailand.

The government did not allow private companies to participate in power generation until the early 1990s and introduced an Independent Power Producer (IPP) programme with open tenders. The programme was intended to reduce the investment burden of the loss-making EGAT, and private investors were able to quickly meet the growing demand for electricity.

Further tenders for power plants with a capacity of at least 90 megawatts, for which IPPs applied, took place in 2007 and 2010. EGAT has concluded contracts with 12 IPPs. These have grown into groups that are also active in the infrastructure and mobility sectors.

Another category is small power producers (SPPs), which operate plants with a capacity of between 10 and 90 megawatts. They only have to sell part of their output to EGAT and can use the other part internally or sell it to industrial customers. At the end of June 2024, EGAT had signed power purchase agreements with 165 SPP projects with an installed capacity of 14.3 gigawatts.

A scheme for even smaller private investors was introduced in 2002. The Very Small Power Producers (VSPP) do not conclude purchase agreements with EGAT but with the distribution grid operators. Their plants with a of 5.2 output of 10 megawatts may only use biomass, biogas and waste. In June 2024, 990 VSPP projects with an were awarded contract.

“According to the climate strategy, renewable energies should make up around 68 per cent of the electricity mix by 2040 and as much as 74 per cent by 2050.”

ROOFTOP SYSTEMS ARE WORTHWHILE

End consumers can also cover their own electricity requirements and set up and operate power generation systems. They require several building permits and licences to operate a photovoltaic system on their roofs. The investment is particularly worthwhile for medium-sized and large commercial enterprises as well as for larger residential complexes.

You can sell surplus electricity to the distribution grid operators MEA or PEA. However, the net metering price and conditions are not considered very attractive, which is why the rooftop systems are only optimised and dimensioned for own consumption.

LOTS OF COMPETITION AMONG SUPPLIERS

The operators of electricity and heat generation plants choose their suppliers carefully. They pay attention to quality, price and references. Long-standing business relationships are also cultivated.

Mitsubishi Power from Japan said it was able to install around half of the power plant turbines in Thailand. Connections to Japan helped with this. Mitsubishi Power installed several combined-cycle gas and steam power plants in the provinces of Rayong and Chonburi with a total capacity of 5,300 megawatts in 2024 on behalf of Mitsui (Japan) and Gulf Energy Development (Thailand).

Other suppliers of power plant technology include the US company GE Power, which installed gas turbines for the state-owned EGAT. Siemens Energy also supplied gas turbines to EGAT and the energy supplier B.Grimm.

Solar panels, on the other hand, come from China, but also from Thai production. In addition to Canadian Solar and Ocean Energy from Singapore, Chinese companies such as Trina Solar and Talesun manufacture solar cells and modules in Thailand. There are said to be 41 plants in total. Most of their production is exported.

DOMESTIC PLANT MANUFACTURIES

Construction services and planning are mostly provided by local companies. The construction industry has a broad base and expertise from abroad is only required for difficult tasks. It is advantageous for foreign consulting and engineering service companies to operate a local office that can obtain information about projects at an early stage and implement plans with its own local staff.

International engineering companies have therefore established branches in Thailand. The Scandinavian company AFRY has over 200 employees in Bangkok who plan and advise Southeast Asian customers in the energy and industrial sectors.

The German engineering firm Dorsch, with 35 employees in Bangkok and Southeast Asia, benefits from its proximity to the market when realising infrastructure projects in Thailand.

ILF Consulting Engineers, headquartered in Austria, has also founded a subsidiary in Bangkok.

GreenYellow, the French specialist in photovoltaics (PV) and energy efficiency, founded a subsidiary in Thailand in 2015. It builds turnkey PV systems and has projects with a total output of 190 megawatts in its portfolio.

DEMAND MONOPOLY PARALYSES THE MARKET

Private companies that generate electricity with large power plants with a capacity of more than 90 megawatts are only allowed to sell their electricity to EGAT and only in certain cases to other large customers. This is stipulated by the so-called ‘Enhanced Single Buyer Model’. As the monopolist, EGAT also owns the entire transmission grid.

EGAT passes the electricity on to two distribution grid operators. The Metropolitan Electricity Authority (MEA) holds the sales monopoly in the Bangkok metropolitan area and the Provincial Electricity Authority (PEA) serves end customers in the rest of the country.

Operators of small power plants with an output of up to 10 megawatts that utilise renewable energies conclude purchase agreements with the MEA or PEA. Numerous authorisations and lengthy negotiations also make it difficult for foreign investors to enter this market.

REFORMS IN PROGRESS

Electricity from renewable energies is usually sold on a non-firm basis, i.e. without a contractually agreed capacity that must be supplied. EGAT, PEA or MEA, on the other hand, do not commit to purchasing a minimum quantity.

However, ERC would like to stabilise the supply of green electricity and agrees on fixed electricity supply volumes for projects with battery storage systems. The ERC is also currently working on a Utility Green Tariff (UGT), with the aim is enable commercial and industrial customers to buy electricity from renewable energy sources from grid operators in future.

Experts and business representatives have criticised EGAT's monopoly, and have long been calling for the electricity market to be opened up so that new business models can be established and investments can be amortised more quickly. To date, the ERC has only enabled direct electricity trading between producers and consumers in exceptional cases, such as in industrial parks.

Peer-to-peer (P2P) trading of renewable electricity is also only possible in pilot projects. Trading between operators of rooftop solar installations is therefore only being tested as part of sandbox projects. Prosumers who produce photovoltaic electricity and consume it themselves at the same time can then exchange and offset surplus electricity among themselves. Smart grids are required for these sandbox projects and the integration of green electricity.

A COUNCIL SETS THE ENERGY PRICES

A committee, the National Energy Policy Council, to which 13 ministers belong, formulates the conditions that the Energy Regulatory Commission (ERC) must fulfil when calculating energy prices. The ERC calculates a fuel surcharge (fuel tariff) in accordance with political guidelines. It determines the share of fuel costs - mainly gas - in the electricity price. If the calculated fuel surcharge is too high, it is reduced by means of subsidies. The new fuel tariff then applies for four months at a time.

End consumers pay unit prices per kilowatt hour to the MEA and PEA. The electricity prices depend on the type of consumer (private household, commercial or industrial) and the total consumption. This means that the higher the consumption, the higher the price. From January to August 2024, households and businesses with a consumption of 400 kilowatt hours or more pay the equivalent of around US$ 0.12 per kilowatt hour plus VAT.

FINANCING POSSIBLE FOR LARGE PROJECTS

Financing energy projects poses few problems if the project is technically feasible and economically viable. Many companies have specialised in the construction and operation of rooftop systems and conclude multi-year operator and power purchase agreements with customers.

Banks have their own departments and credit programmes that deal with larger investments in the energy industry. In March 2024, the Thai operator of renewable energy projects Sermsang Palang Ngan even received pre-financing totalling US$ 64 million from the International Finance Corporation, which is part of the World Bank. The money will be used to develop new renewable energy projects in Thailand, Indonesia and Vietnam. Smaller companies, on the other hand, find it difficult to submit the necessary business plans and collateral for external financing, and have to finance their projects with their own money.

MARKET REQUIRES GOOD CONTACTS AND INFORMATION

To enter the market, foreign suppliers should establish good contacts, possibly join a consortium and obtain experience from established suppliers. This is particularly important if they want to acquire public sector companies as customers.

The websites of energy companies provide an initial overview. EGAT advertises procurements and international tenders on its procurement website. And the private stock corporations report on their current projects in their quarterly reports.

The private electricity producers (Independent Power Producers, IPPs) also have professional purchasing departments. Suppliers are selected according to quality, price, supply capability and other criteria. Among other things, they must fulfil a code of conduct for sustainability.

Contact details:

Thomas Hundt

Director Thailand, Cambodia, Myanmar, Laos GERMANY TRADE & INVEST www.gtai.com