Roadblocks to Renewables

Published on 17/11/2014

Roadblocks to renewables

Southeast Asia is undoubtedly a market with growth potential for renewable energy given the region's vast solar and wind resources, but industry executives say stable and clear policies are vital to secure financing and ensure smooth development.

With the current military regime ruling out the possibility of nuclear energy in Thailand, solar power development has been revived with more ambitious targets. In mid-August, the approved several initiatives with an aim to double the country's installed solar capacity to 3,000 megawatts by the end of next year, well ahead of the 2021 deadline set in the Alternative Energy Development Plan.

Current installed capacity, including 400 MW of photovoltaic (PV) systems under construction and 130 MW of solar rooftop units, is roughly 1.5 gigawatts.

This figure is expected to double by the end of 2015.

Prepared by the state-owned Electricity Generating Authority of Thailand (Egat), the existing Power Development Plan (PDP) is about to be revised and will cover the years 2015 to 2036. The draft is scheduled to be ready for approval by the end of November.

Prime Minister Prayut Chan-o-cha, who is also the chief of the National Council for Peace and Order (NCPO), said recently that nuclear energy would not play a role in Thailand in the future.

The EADP sets targets for renewables while the Energy Efficiency Development Plan (EEDP) has efficiency goals, but both are largely independent from the PDP. As one of the first Asian countries to offer an "adder tariff" which ensures guaranteed purchases and attractive tariff rates for solar power projects, Thailand as of 2010 had approved 2,537 MW of capacity at solar farms (ground-mounted solar installations), out of total applications of 3,600 MW. However, only 1,083 MW met the anticipated commercial operation date (COD) with another 400 MW still under the construction.

In 2013, the previous government inaugurated the solar rooftop programme with a target to achieve 200 MW of commercial and residential rooftop systems.

While the quota of 100 MW of commercial projects was realised quickly, the quota for residential solar was not.

The NEPC has thus announced that around 70 MW of residential rooftop capacity will be opened up for applications soon and the Energy Regulatory Commission (ERC) will supervise the programme.

A solar community programme was also announced last year but was never implemented. It was supposed to be the responsibility of the Village Fund office in cooperation with the Provincial Electricity Authority, but questions about project financing and transparency have stalled the programme.

In order to move ahead and still realise the aims of the scheme in terms of generating additional income opportunities for local communities, the programme has been transformed. Now it aims to create solar farms of up to 5 MW in size through public-private partnerships with government agencies or agricultural cooperatives.

Solar has also been a popular renewable category for Malaysia but limits on the size of solar installations and rationing of applications have kept a lid on capacity growth.

The Small and Renewable Energy Programme (SREP), established to monitor the renewable energy industry, allows output of no more than 10 MW per solar project to be sold to the grid through the state power company Tenaga Nasional Berhad (TNB). Many developers are calling on the government to lift the cap, review the generous feed-in tariff and introduce a scaled tariff.

Renewable energy accounts for only 1% of total output in Malaysia excluding hydropower, although the government has set a target of at least 5.5% by 2015.

According to the Malaysian Photovoltaic Association (MPiA), installed solar PV capacity is forecast at 150 MW next year, with an ambitious target of 6,634 MW by 2025.

The association's president, Ahmad Shadzli Abdul Wahab, said factors that could drive continuous growth of solar PV in Malaysia include carbon dioxide (CO2) emission mitigation, energy security, more advanced technologies, and high costs faced by industries and small and medium enterprises.

Solar PV could play a future role in the "democratisation" of electricity supply, he said, while also improving energy supply security, hedging against future fuel price volatility, and leveraging financial risks associated with centralised conventional power plants.

However, future challenges are that more conventional coal-fired power plants will be installed with capacity of 10,000 MW in the coming years, while nuclear and hydropower are also in the picture, he said.

Audray Souche, a partner and deputy managing director of the law firm DFDL Thailand, said the major challenge of renewable energy projects was securing financing, so such projects normally have limited transaction size.

Smaller projects normally face challenges achieving economies of scale and their business profiles are risky. Lack of infrastructure and regulatory support, such as guaranteed prices, also deter financiers.

Potential fund providers for renewable projects are multilateral financial institutions and development banks, international private commercial banks, investment funds, local banks and national development banks.

To get project financing done, Ms Souche said, the government should formulate clear and transparent policies intended to promote renewable energies. Also, specific targets should be set with tools and measures to promote renewable policies.

In Asean, some countries have introduced specific tools to address the financial challenges of renewable energy projects. For example, Indonesia and Malaysia have renewable portfolio standards while Singapore has traceable renewable energy certificates.

The launch of the Asean Economic Community (AEC) next year could give rise to a fresh perspective on forming a regional framework for renewable energy and encourage the development of higher-return projects, noted Ms Souche.