Enhancing institutional capacities for the market development of …wadethai.org/docs/Roadmap_Thailand_Final_Draft.pdf · 2011-06-05 · regulations. For documents available from

EC Grant Contract No. 168-692 Master Plan & Roadmap Page 1

ECCT, WADE, FA “Enhancing the Decentralised Energy Systems in Thailand” November 2009

EuropeAid/126031/L/ACT/TH Thailand-EC Cooperation Facility

GRANT CONTRACT - EXTERNAL ACTIONS OF THE EUROPEAN COMMUNITY -

DCI-ASIE/2008/168692

Enhancing institutional capacities for the market development of decentralised energy systems

in Thailand

FINAL DRAFT OF MASTER PLAN & ROADMAP

(November 2009)

Beneficiary/Applicant: The Energy Conservation Center of Thailand (ECCT)

Partner : World Alliance for Decentralised Energy (WADE), UK

Associate: Full Advantage Co., Ltd (FA), Thailand



Acknowledgements The Draft Master Plan & Roadmap is made possible by the generous support of the European Commission through the Enhancing institutional capacities for the market development of decentralised energy systems in Thailand grant to ECCT. The contents are the responsibility of the author and do not necessarily reflect the views of the European Commission or any other organisation. The author wishes to thank the peer reviewers for their thorough review and constructive recommendations. While these experts provided valuable guidance and information, this does not constitute endorsement by their organisations of this Roadmap. The following professionals reviewed this document:

1. Alan Dale Gonzales, Full Advantage 2. Ludovic Lacrosse, Full Advantage 3. Supasit Amaralikit, Full Advantage 4. Vazzan Tirangkura, Full Advantage 5. David Sweet, WADE 6. Phongjaroon Srisovanna, ECCT

Disclaimer: The information provided in this Roadmap is intended only to be general summary information. It is not intended to take the place of either the written law or regulations. For documents available from this Roadmap, the author does not warrant or assume any legal liability or responsibility for the accuracy, completeness, or usefulness of any information, apparatus, product, or process disclosed. Some content in this Roadmap may be subject to copyright by journals and publishers. The journal or publisher subject to the terms and conditions of use establishes use of the copyrighted material. By using links provided on this site that lead to sites other than the WADE site, the user agrees to hold the author harmless from any liability resulting from your use of those sites.



Table of Contents

Title Page List of Acronyms ..................................................................................................................... 4 Executive Summary ................................................................................................................ 5 1. Background and Description ........................................................................................... 7 1.1. Current Status of DE in the Thailand ........................................................................... 7 1.1.1. Renewable/Alternative Energy Tariffs ...................................................................... 7 1.1.2. Renewable Portfolio Standard (RPS) ..................................................................... 10 1.2. Feed-In Tariff .............................................................................................................. 15 1.2.1. International/Thailand - Feed-in Tariff Levels ......................................................... 15 1.2.2. Factors to consider in determining appropriate feed-in tariffs ................................ 18 1.2.3. What is already in place to implement feed-in tariffs in Thailand?.......................... 22 1.2.4. What is required to implement feed-in tariffs in Thailand? ..................................... 23 1.2.5. A review of studies in Thailand ............................................................................... 25 1.2.6. Recommendations & Suggestions for an approach to implementing feed-in tariffs in Thailand. ............................................................................................................................... 27 2. Barriers and Opportunities ............................................................................................ 27 2.1. Barriers to DE in Thailand .......................................................................................... 27 2.2. Opportunities for DE in Thailand ................................................................................ 37 2.3. Assessment and Needs ............................................................................................. 37 2.4. Stakeholders in Thailand ............................................................................................ 38 3. The Need for a DE Road Map ....................................................................................... 39 3.1. Technical and Policy Issues ....................................................................................... 39 3.1.1. Standardization of DE (Electrical Interconnection Standardization) ....................... 39 3.1.2. DE system certification and permitting ................................................................... 41 3.1.3. Impact of DE on existing network performance ...................................................... 42 3.1.4. Valuation of DE services ........................................................................................ 42 3.1.5. Net metering and Connection charges ................................................................... 44 3.1.6. Legislation .............................................................................................................. 44 3.1.7. Incentives and financing ......................................................................................... 45 3.1.8. Co-ordination of DE activities in Thailand ............................................................... 46 3.2. Road Map ................................................................................................................... 47 3.2.1. Road Map Policy Issues ......................................................................................... 47 3.2.2. Recommendations implementation timeline ........................................................... 47 3.3. Vision and Road Map for DE in Thailand ................................................................... 48 4. WADE Thailand – Thai-based Organisation ................................................................. 51 4.1. Mission and Objectives .............................................................................................. 51 4.2. Stakeholders – Membership ...................................................................................... 52 4.3. Management Team and Structure ............................................................................. 52 4.4. Main Activities ............................................................................................................ 53 4.5. Long terms viability and sustainability issues ............................................................. 54 4.5.1. Financing and Sustainability ................................................................................... 54 4.5.2. Staff ........................................................................................................................ 54 4.5.3. Operational Budget ................................................................................................. 55 4.6. Benefits of Members .................................................................................................. 56 5. Conclusion and Recommendations .............................................................................. 68 References ............................................................................................................................ 70



List of Acronyms

BOI Board of Investment CCHP Combine Cooling Heating and Power CG Central Generation DE Decentralised Energy DEDE Department of Alternative Energy and Energy Efficiency E for E Energy for Environment EC European Commission ECCT The Energy Conservation Center of Thailand EGAT Electricity Generation Authority of Thailand EPPO Energy Planning and Policy Office EU European Union FA Full Advantage Co., Ltd Ft Fuel adjustment FTI Federation of Thai Industries IPP Independent Power Producer IRP Integrated Resource Planning JGSEE Joint Graduate School on Energy and Environment LOLP Loss Of Load Probability MEA Metropolitan Electricity Authority NEPC National Energy Policy Council NESDB National Economic and Social Development Board NPO Non Profit Organisation PDP Power Development Plan PEA Provincial Electricity Authority PM Particulate matter PPAs Power Purchase Agreements PRET Promotion of Renewable Energy Technologies REC Renewable Energy Certificates RPS Renewable Portfolio Standards SO2 Sulfur dioxide SPP Small Power Producer TDRI Thailand Development and Research Institute TECF Thailand-EC Cooperation Facility TLFS Thai Load Forecast Subcommittee VSPP Very Small Power Producer WADE World Alliance for Decentralised Energy



Executive Summary Asia and the world are at a crossroads concerning the future of energy with climate change, increasing dependence on oil and other fossil fuels, growing imports, and rising energy costs are making societies and economies vulnerable. With the rising costs of energy and economic uncertainties, countries must review and enhance their energy sustainability. These challenges call for a comprehensive and ambitious response in the complex picture of energy policy. The energy sector plays a vital role in economic development and stands out in terms of ability to reduce greenhouse gas emissions, pollution, and exploit local & decentralised energy sources. The purpose of this document is to address this through the development of a roadmap for the introduction of increasing levels of Decentralised Energy (DE) into Thailand energy market and enable the many benefits of DE. This document will outline and provide the following: 1) basic overview of DE and the fundamental steps required to promote and accelerate DE in Thailand while identifying conditions conducive for mobilising the key stakeholders to implement feasible sustainable energy environmentally friendly business partnerships and 2) setting up of a Thai based organisation for promoting DE with the key stakeholders. The roadmap will be useful in the formulation of policies and structure of the Thai-based organisation with the mission of promoting trade partnerships related to sustainable energy and environment. The roadmap and Thai based organisation (WADE Thailand) may enhance mechanisms in developing Decentralised Energy (DE) into the Thailand energy market. These promotions may enable the market participants realize the many benefits of DE. It

• Considers the current status of DE market penetration, • Provides an analysis of the current technical and policy issues that are affecting the

uptake of DE within the EU & Thailand and • Develops a series of practical recommendations for consideration by legislative and

technical policy makers that, if implemented, may facilitate the increased penetration of DE in Thailand and ASEAN Countries.

The vision for DE may provide a mechanism for Thailand to develop a practical roadmap based on the implementation of these recommendations, which reviews the European terms of DE development and implementation. DE is a mechanism which provides highly efficient energy solutions, and in some locations such as the United States, has already seen market growth in CHP where the capture of heat enables overall efficiencies above 75%. With policy and developmental support, the DE market in the EU and USA has significantly increased and is providing flexible solutions to the energy needs in the ever fluctuating economical and energy market1. The EU has multiple organisation (but not limited to) which encourage DE such as: 1) World Alliance for Decentralised Energy (WADE), International Renewable Energy Agency (IRENA), Global Energy Network Institute (GENI), European Renewable Energy Council (EREC) and Cogen Europe. These organisations provide a platform for the private sector companies, legislative organisations, policy makers, and NGO to review mechanisms that promote DE. These international organisations are member-based from the private sector, federal and local governments, educational universities and individuals. They rely on funding from member fees, grants and contracts for services provided on DE. These

1 IEA World Energy Outlook 2002 "reference scenario" for the European Union



organisations have made it clear that DE and renewable energies constitute a key element of a sustainable future. They have provided the business community with the long-term vision and the confidence required to make rational investment decisions in the DE and renewable energy sector to provide the European Union with a cleaner, more secure and environmentally sound supply of energy. In 2007, the Heads of States and Governments of the 27 EU Member States adopted a binding target of 20% renewable energy from final energy consumption by 2020. Combined with the commitment to increase energy efficiency by 20% until 2020, Europe’s political leaders paved the way for a more sustainable energy future for the European Union and for future generations. In January 2008, the European Commission presented a draft Directive on the promotion of the use of energy from DE and Renewable Energy Sources (RES) which contains a series of elements to create the necessary legislative framework for making 20% renewable energy become a reality. The Directive sets the legislative framework that should ensure the increase of the 8.5% renewable energy share of final energy consumption in 2005 to 20% in 2020. In order to reach the binding overall 20% target outlined in the RES Directive, the development of all existing renewable energy sources and a balanced mix of the deployment in the sectors of heating and cooling, electricity and biofuels are required2. This Road Map was an integral part of the European Energy Review and gave a long-term vision for DE and renewable energy sources for the EU. It proposes to establish a mandatory (legally binding) target of 20% for DE and renewable energy by 2020, provides recommendations for mainstreaming DE and renewables into EU’s energy policies and markets and proposes new legislative framework for the promotion and the use of DE and renewable energy. The objectives of integrating DE and renewables into the energy sector can only be achieved by significantly increasing the energy contribution from DE sources in electricity, transport and heating and cooling sector (CHP). The proposed target of 20% by 2020 will be achieved with sustained efforts at the government, private sector, educational institutes and NGO working together to provide energy in an environmentally sustainable manner. This Roadmap was developed to guide and serve as a reference for those interested in Distributed Energy and may assist in locating valuable information on these topics. The consulting team hopes that the Roadmap will assist those in Thailand to find solutions to an environmentally sound solution thru the use of DE. Questions regarding this Roadmap can be addressed to the author Sridhar Samudrala at [email protected].

2 Renewable Energy Technology Roadmap 20% by 2020, European Renewable Energy Council, 2008



1. Background and Description

1.1. Current Status of DE in the Thailand Thailand’s electricity production is based predominantly on thermal and combined cycle generation, with natural gas accounting for 72% of generation capacity, and lignite/coal for about 15%. The remainder of the capacity breaks down as follows: 6% fuel oil, 4% large-scale domestic hydropower, 3% imports and others (mostly hydropower from Lao PDR). Renewable energy accounts for less than 1% and the government puts it in the “others” category, and industrial co-generation (combined heat and power) accounts for about 10% of total electricity supplied to the grid (Greacen and Greacen 2004; Jirapraditkul 2006).

1.1.1. Renewable/Alternative Energy Tariffs The Thai government has set a target that 8% of all commercial energy in Thailand will come from renewable energy sources by the year 2011. The Thai Ministry of Energy presentation expresses the renewable electricity target as an installed generating capacity of 2,200 MW3, of which the Ministry estimates that 860 MW are already installed leaving an additional 1,340 MW remaining to be installed by 2011. To meet the year 2011 installed capacity target of 1,340 MW the Thai Ministry of Energy has proposed several different mechanisms. An obligatory quota system (often referred to as the Renewable Portfolio Standard (RPS)) is expected to procure 140 MW. The remaining 1,200 MW (90% of the total renewable electricity target) is left to a feed-in tariff. Additional policies under consideration include: income tax privileges, low interest loans, and a carbon credit (Thai Ministry of Energy 2005b). Renewable energy projects currently enjoy the following Thai Board of Investment (BOI) privileges: corporate income tax exemption from 3-5 years; accelerated depreciation of the cost of installing or constructing facilities; double treatment of costs for the purpose of calculating income; approval for remittance of money in foreign currency; authority to lease or exclusively occupy and use land; authority to bring foreign experts, technicians and staff; exemption from or reduction of import duties on equipment and machinery used in the construction and operation of the project (Pacudan 2003). A study, entitled “Economic and Financial Analysis of Renewable Energy Development in Thailand” by the Promotion of Renewable Energy Technologies (PRET) group at Thai Department of Alternative Energy and Energy Efficiency (DEDE) is the most recent effort towards determining appropriate feed-in tariffs. The study examines the economic and financial viability of a number of renewable energy technologies, and estimates the economically optimal quantity of renewable electricity for Thailand. Furthermore, it develops several scenarios based on different financial incentives schemes. The PRET study has developed two spreadsheet models that make explicit key assumptions and allow users to change variables and observe outcomes.4 The PRET study first investigates the economic cost of renewable energy (Table 1). Based on these costs and on estimates of resource availability, the study determines a cost supply-curve for renewable energy in Thailand (Figure 1). 3 It is also noteworthy that the 2,200 MW installed renewable energy “target” may or may not provide sufficient renewable energy to meet the 11,600 GWh per year renewable electricity objective. The Ministry of Energy’s 2,200 MW figure implies a capacity factor of over 60% for renewable energy. Different renewable energy sources have different capacity factors. 4 RETEAS: Renewable Energy Technology Economic Assessment Spreadsheet; RED Model: Renewable Energy Development Model



Table 1: Economic cost of power production (Thai Ministry of Energy 2005a)

Figure 1: Cost supply curve for Thailand renewable energy. Source: (Thai Ministry of

Energy 2005a). The dotted lines refer to externality cost estimates in Thailand (REF-ex) and in Denmark (DK ext).

On the basis of this supply curve and the financial costs of renewable energy generation, the report models the impact of varying levels of feed-in tariff adder on renewable energy production (Figure 2).

Figure 2: Effect of feed-in tariff on renewable energy production. Source: (Thai

Ministry of Energy 2005a)



The study finds that to reach a target of 5,989 GWh/year by 2011, a feed-in adder of at least 1.8 baht/kWh (above avoided cost levels) is needed. Such an “across-the-board” subsidy would result in nearly all new renewable energy being biomass-based, with a small portion comprising mini-hydropower.5 In 2005, the DEDE Deputy Director General (Amnuay Thongsathitya) suggested the following tariffs for Thailand:

Energy source (baht/kWh) Solar 15 Wind 5 Micro-hydro 3 Biomass 3.2 - 3.8 Municipal waste 5-6

Table 2: Feed-in tariffs proposed by DEDE in 2005. Tariffs are based on calculations that aim for an IRR on equity of 11%. Source: (Thongsathitya 2005)

As compared to the above, the Federation of Thai Industries (FTI)’s Renewable Energy Club was quoted as suggesting the following feed-in tariff values and contract durations:

Type FTI proposed price (baht/kWh) Contract period (yrs) Solar cell 16 25 Wind Energy 6 15 Biomass 2.63 – 2.80 20 Biogas 3.40 – 3.50 n/a Municipal waste 3.90 20

Table 3: FTI proposed prices and contract duration for renewable energy. (Source: (Jaiimsin 2005))

FTI’s research and development committee, indicated that the FTI proposed prices are lower than costs estimated by EGAT in a 2003 internal study (Table 4), but are high enough to attract private investment (Jaiimsin 2005).

Type EGAT 2003 internal study cost estimate (baht/kWh) Solar cell 21.36 Wind Energy 7.32 Biomass 2.63 Municipal waste 5.12

Table 4: Cost estimates of renewable energy from reported EGAT internal study. Source: (Jaiimsin 2005)

Renewable/Alternative Energy Costs Wind In 2004 the Energy for Environment (E for E) Foundation published an EPPO-commissioned study to investigate potential support mechanisms for wind, solar and micro-hydropower.

5 It is not clear how to reconcile the stated 5,989 GWh/yr target with the 1000 kTOE per year (11,600 GWh/yr) renewable electricity target.



The study concluded that the commercial cost of production from various sources was as follows: E for E calculates wind power unit costs to be 5.2 baht/kWh, based on Thailand’s wind regime powering a 1000 kW turbine installed at 80 meters costing EURO1000 per kW with a lifetime of 20 years, O&M expenses equal to 2% of capital cost, financing through a 70:30 debt to equity ratio with debt serviced at 10% over 7 years, a financial internal rate of return (FIRR) of 10%, a discount rate of 6.5%, income tax of 30% after an 8 year tax holiday, and an exchange rate of 40 baht to $US (Energy for Environment 2004). Solar Grid-connected solar electricity commercial costs are calculated by E for E to be 10.1 baht/kWh, based on Thailand’s solar insolation and on a solar module cost of US$2.381 per peak watt producing 3.45 kWh/kWp/day, with a lifetime of 25 years, O&M expenses equal to 0.1% of capital cost, an IRR of 10%, a discount rate of 5.75%, and an exchange rate of 40 baht to $US (Energy for Environment 2004). Small/Micro-Hydro The E for E study investigated commercial costs for micro-hydro to vary from 4.95 baht/kWh to 2.1 baht/kWh depending on plant size (varying from 20 kW to 100 kW with the higher tariff corresponding to lower plant sizes) and on plant factor (50% to 70%). Other assumptions included IRR of 10%, O&M expenses equal to 1.5% of capital cost, financing through a 70:30 debt to equity ratio with debt serviced at 5.75% over 7 years, and a FIRR of 10% (Energy for Environment 2004).

1.1.2. Renewable Portfolio Standard (RPS) In Thailand, an RPS has been proposed to meet 140 MW of Thailand’s renewable energy target. This appendix describes how RPS policies work in other countries, outcomes of RPS policies vs. feed-in tariff policies in other countries. It also discusses concerns that have been raised about the proposed Thai RPS, in particular concerns regarding the practicality of implementing an RPS in a non-competitive market environment, and a lack of convincing mechanisms to ensure that the proposed Thai RPS would deliver cost-effective renewable energy. We suggest that Thailand may be better off using its limited policy-making resources to focus on implementing an effective feed-in tariff policy. How the RPS works As implemented in other countries, a Quota System, or Renewable Portfolio Standard (RPS) obligates each retail seller of electricity to include in its resource portfolio a certain amount of electricity from renewable energy resources. The retailer can satisfy this obligation by either (a) owning a renewable energy facility and producing its own power, or (b) purchasing power from someone else's facility. RPS statutes or rules can allow retailers to "trade" their obligation. Under this trading approach, the retailer, rather than maintaining renewable energy in its own energy portfolio, instead purchases tradable Renewable Energy Certificates (RECerts or RECs) that demonstrate that someone else has generated the required amount of renewable energy (Rader and Hempling 2001). In other countries, an RPS requires a market (usually a computerized trading system with regulator oversight) for RECs. So far, all countries with an RPS also have a liberalized energy market with a regulator. International experience with the RPS Over twenty two US states, Australia, Austria, Belgium, Italy, Japan, Sweden and the UK have implemented RPS-type policies (EWEA 2005; Haynes 2005; Schafer 2005). Due to the new nature of these policies, experience has been has been somewhat limited. While there



are examples of RPS failures in several US states, there is also evidence that, together with other incentives, a properly designed RPS (e.g. Texas) together with other incentives (such as the USA federal production tax credit) can be effective in encouraging substantial renewable energy investments. RPS failure mechanisms in US states In the USA, several states have successfully applied an RPS policy. A number of other states have implemented RPS mechanisms that have failed. Some of the reasons for failure are discussed below: “• Selective application of the purchase requirement. Several U.S. states only apply the RPS to a small segment of the state’s market, muting the potential impacts of the policy. (This is somewhat similar to the Thai situation – the RPS only applies to new fossil fuel plants (no big hydro) starting after 2008). For example, in Connecticut the utilities that deliver energy to customers that do not switch to a new electricity supplier are exempt from the purchase requirement. Not only does this approach violate the principle of a level playing field for competitors, but it also ensures that the RPS will have only a marginal impact, as the vast majority of customers have shown no interest in switching suppliers. • Uncertain purchase obligation or end-date. Another common concern is the uncertainty in the size of the purchase standard and its end-date in some U.S. states. In Maine, for example, the RPS is to be reviewed every five years. In Connecticut, when and how the RPS will end is simply unclear. Such uncertainty limits the ability of renewable generators to obtain reasonably priced long-term financing. • Insufficient enforcement of the purchase requirement. Without adequate enforcement, retail electricity suppliers will surely fail to comply with the RPS. In this environment, renewable energy developers will have little incentive to build renewable energy plants. At best, the enforcement rules of a number of U.S. RPS policies are vague in their application: these include those policies in Connecticut, Maine, and Massachusetts.” China is similar to Thailand in the sense that it is a growing developing country economy with a low percentage of installed renewable energy capacity, with dominant formerly state-owned monopoly generators, and with a weak regulatory structure. While China initially pursued establishing an RPS, after considering the advantages and disadvantages the country chose a feed-in tariff mechanism instead. International experience shows that a successful RPS requires an effective and empowered electricity regulatory body able to ensure that market transactions are fair, able to monitor compliance and levy fines against non-compliant utilities and generators (Rader and Hempling 2001). In practice, feed-in tariffs have been much more successful than RPS mechanisms in leading to substantial installations of renewable energy (Figure 3).



Figure 3: Newly installed wind power capacity and market share in EU-15 of selected

countries with minimum-price and quota (RPS) systems in 2003. Source: (Fouquet, Grotz et al. 2005)

In theory the main advantage of RPS legislation, compared with feed-in tariffs, is that in the short term the market for RECs can encourage competition among producers and therefore lower the price for renewable energy. In general, so far, this has not turned out to be the case. In the wind industry in Europe, for example, experience up until now indicates that investors are reluctant to invest in wind energy projects under quota systems because they produce more uncertainty regarding future prices. Under quota systems, medium- and long-term certificate and electricity prices are unstable, varying with the weather and changes in the market. As a result, financers charge higher risk surcharges, which, in turn, results in higher prices than under feed-in tariffs even in the short term (Fouquet, Grotz et al. 2005). In the long run, analysts argue that feed-in tariffs are more effective in leading to lower renewable energy costs because the stability they provide leads to larger installed capacity of renewable energy which drives down cost through greater manufacturing experience (Mitchell, Bauknecht et al. 2003)

Figure 4: Comparison of prices per kWh for wind energy in countries with feed-in vs.

countries with quota systems. Feed-in tariffs, so far, have proven to provide lower prices even though countries with quota systems have better wind resources. Source: (Fouquet, Grotz et al. 2005)



RPS Status in Thailand The DEDE has written a draft set of “RPS” regulations dated May 2005, and the RPS mechanism is highlighted in many government presentations. The regulations require that all new fossil fuel power plants procure renewable energy equal to 3% to 5% of their installed capacity (with the exact percentage to be specified by the recently selected “interim regulatory body”). Fossil fuel generators can build renewable energy on their own, or can purchase electricity directly from renewable energy generators, or can purchase renewable energy certificates (REC). The renewable energy generators can register their facility (what type of fuel, how many MW) and their annual production of kWh at the RE Generator Info Center which is to be set up in the office of the Interim Regulator. According to the draft regulations, this process is a separate, parallel process with the process of applying to be an SPP. Existing SPPs are not qualified to participate in the RPS. The RPS obligation only applies to new fossil-fuel capacity coming on line after year 2008. The main challenge -- RPS is a policy designed for a competitive “power pool” type electricity market. It has never been tried in a semi-regulated monopoly environment such as Thailand. In addition, there are important differences between the Thai RPS and international RPS mechanisms which may make the Thai RPS less effective than its international counterparts in pushing down renewable energy costs. The proposed Thai RPS has no mechanisms to control the cost of generation. EGAT the largest generator of Thailand has recently been promised the right to develop 50% of new generating capacity for Thailand. EGAT has an RPS obligation that accompanies the new fossil generation. To meet the RPS obligation it has the right to make its own renewable energy investments. This would not be a problem except that there is very little to constrain the costs of these investments, as EGAT is able to pass all of its costs on to consumers through its “cost-plus” structure (in which tariffs are set at a level that provides sufficient revenues to meet EGAT’s debt-service requirements). The RPS may allow EGAT to avoid any competition in procuring renewable energy, with ratepayers forced to pick up the cost even if costs are unreasonably high. This policy may be reviewed by the regulatory commission to provide a fair price. EGAT’s largest renewable energy project to date is the 504 kWp solar PV plant in Mae Hong Song, may be seen as quite expensive by Thai and international standards. The plant cost 195.26 million baht (Mogg 2003). This means that the cost per installed peak watt was 387 baht. By comparison, the privately-financed 450 kWp Tesco Lotus solar PV installation cost only 75 million baht for essentially the same grid-connected PV technology (Tesco Lotus 2004). Cost per peak watt of the TESCO project was 163.4 baht – less than half as expensive as the EGAT project. Even Japan’s residential grid-interconnected rooftop systems (which do not benefit from economies of scale) cost less than US$7 (280 baht) per peak watt by year 2001 (Maycock 2002), and US$5.50 (220 baht) per peak watt (not including subsidy) by 2003 (Johnson 2004). The RPS may be best served by providing for competition for the VSPP’s and EGAT who has entered the renewable market. The competitive market may send consumers a positive note of fair prices and provide for new investment by international organisations. It is less risky to subsidize RE in a more open, transparent mechanism like feed-in tariffs. Renewable energy added to the system under the Thai RPS plan would be tied to the construction of new fossil fuel plants coming online after year 2551 (2008). If the fossil fuel plant does not go forward as planned, then neither does the renewable energy project. This ties the development of clean energy to the development of dirty energy, unnecessarily



adding risk to renewable energy projects and raising financing costs. In addition, large hydro plants would be exempted from procuring renewable energy under the RPS program. EGAT is considering including 5,400 MW of hydro from the Salween project as well as 4,000 MW of hydropower imports from Laos. In comparison, international RPS mechanisms apply to all conventional energy (new and old, fossil, large hydro, nuclear, etc.). By 2554 (2011), the total RE contribution from RPS (assuming everything goes smoothly as planned) will be less than 12% of the total RE electricity target (See Figure 5 below). The Thai RPS at best will procure only 0.7% of the total installed capacity. In comparison, California set the RPS target at 20% of total electricity kWh sales by years 2017. New Yorks’ RPS target is 25% of total electricity kWh sales by year 2013.6

New fossil-fuel plants subject to RPS

Other conventional

plants not subject to RPS

Other RE support mechanisms?

RPS 5%RE 6%

Figure 5: The Government target is that 6% of electricity come from renewable energy.

However, an RPS of 5% of new capacity (excluding new hydro imports) will lead to renewable electricity equal to 0.7% of total installed capacity. This is small compared to the government’s 6% target for electricity.

The Thai RPS defines the percentage of renewables in terms of capacity (MW), not energy output (MWh). International experiences subsidizing capacity (MW) instead of energy output (MWh) have led to distorted incentives to inflate nameplate capacities – absorbing subsidies without actually producing promised electricity. The use of capacity rather than energy output in the Thai RPS also makes it difficult to compare across technologies, forcing the designers to come up with an arbitrary set of predefined “capacity factors” for each technology which will not necessarily reflect actual capacity factors. Furthermore, because capacity factors for renewable energy are low (10% to 60% depending on technology and fuel supply availability) compared with conventional generation (typically 60% to 85%), counting capacity rather than energy produced dilutes the impact of the RPS – by a factor of 2 to 3 times. There are some challenges to overcome and considering the small role of the RPS (only 10% of the electricity component of Thailand’s renewable energy targets), it may be appropriate to consider a well thought out feed-in tariffs program. 6 http://www.dps.state.ny.us/03e0188.htm



1.2. Feed-In Tariff

1.2.1. International/Thailand - Feed-in Tariff Levels As compared with proposed Thai levels Feed-in tariffs in the countries are compared with levels proposed by Thai groups in the tables below. The figures are only estimates of cost.

Biogas

3.4

5.4

4.74.2 3.9

3.15 3.42

5.0

0

1

2

3

4

5

6

FTI Germany(<150kW)

Germany(150 -

500 kW)

Germany(500kW -

5MW)

Germany(5MW -20MW)

Spain Sri Lanka Czechrepublic

Thai

bah

t per

kW

h

Figure 6: Comparison of international and (proposed) Thai feed-in tariffs for biogas. In

Germany, biogas is a sub-category of biomass (Bundestag 2001). Spain from (Ragwitz and Huber 2005). Czech Republic from (UNEP 2005).



Municipal waste

Municipal waste

3.9

5.12 5

3.63.1 3.15

3.42

2.34

3.7

0

1

2

3

4

5

6

FTI

EGAT

DED

E

Ger

man

yla

ndfill

gas<

500

kW

Ger

man

yla

ndfill

gas

500

kW -

5 M

W

Spai

n

Sri L

anka

Braz

il (la

ndfill

gas)

Cze

ch re

publ

ic

Thai

bah

t per

kW

h

Figure 7: Comparison of international and (proposed) Thai feed-in tariffs for municipal

waste. The DEDE proposed figures are based on incineration, gasification, or anaerobic digestion technologies. German tariffs shown are based on anaerobic digestion (landfill gas). Brazil price from (GTZ 2002). Czech Republic from (UNEP 2005)



Micro- and small-hydropower

Micro-hydro

4.95

4.14

2.732.3 2.43

2.1

3

4.7

3.2 3.15

2.21

3.53.9

0

1

2

3

4

5

6

E for E

(20 kW

, 50% pl

ant fa

ctor)

E for E

(20 kW

,60% pl

ant fa

ctor)

E for E

(40 kW

, 50% pl

ant fa

ctor)

E for E

(40 kW

, 60% pl

ant fa

ctor)

E for E

(50 kW

, 50% pl

ant fa

ctor)

E for E

(50 kW

, 60% pl

ant fa

ctor)

DEDE

German

y (<50

0 kW)

German

y (50

00 kW to

5 MW)

Spain

Sri Lan

ka

Czech

repu

blic (

low)

Czech

repu

blic (

low)

Thai

bah

t per

kW

h

Figure 8: Comparison of international and (proposed) Thai feed-in tariffs for micro-

hydro. E for E estimates of the price of electricity from micro-hydro are differentiated according to size, and refer to small capacity plants. The Spanish tariff holds for all projects up to 25 MW. Tariff in Sri Lanka is unsubsidized. Czech Republic from (UNEP 2005).

Wind

Wind

6

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Figure 9: Comparison of international and (proposed) Thai feed-in tariffs for wind.



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Figure 10: Comparison of international and (proposed) Thai feed-in tariffs for solar.

The first three German levels are for rooftop systems. The “Germany (other)” category is for non-rooftop systems. Spain data from (Ragwitz and Huber 2005). New Mexico data from: http://www.pnm.com/news/2005/0901_pv.htm. The PNM utility provides 11 cents/kwh, in addition to offsetting existing residential rates of 8.03 cents/kWh. The California government calculated that a California a rebate of US$4.5 per watt is equivalent to a subsidy of UScents 12.5 /kwh (source: http://www.documents.dgs.ca.gov/CPA/SolRFP/COGeditorial_061804_final.pdf). The current (2005) rebate is $2.8/watt (source: http://www.californiasolarcenter.org/incentives.html), implying a subsidy of UScents 7.78/kWh. The current PG&E residential rate, baseline, is 11.4 cents/kWh, for a total equivalent “feed-in” tariff of UScents 19.2/kWh. (source: http://www.pge.com/rates/tariffs/pdf/E-1.pdf).

1.2.2. Factors to consider in determining appropriate feed-in tariffs At this time, it is beyond the scope of this roadmap to determine appropriate feed-in tariffs for each renewable energy technology. Thailand’s feed-in tariff program has to set a number of explicit rules. The following principle may be appropriate for Thailand: Feed-in tariffs should be sufficiently high that a well-run renewable energy installation can earn a reasonable return on investment; subject to the constraint that total costs (economic, social, and environmental) for each technology do not exceed total benefits. In practice it is difficult to calculate externality benefits but by looking at Europe and US, we can be fairly certain that they are not likely to exceed five or six baht/kWh. Suggestion: review and re-adjust tariffs every two years based on studies that monitor how well the feed-in tariff program is advancing towards meeting national



goals for renewable energy generation. The tariffs should apply only to new projects (not retroactive). Projects commissioned before the tariff adjustment receive the prior tariffs for the duration of the contract. Such periodic re-adjustment is practiced in Europe and allows the feed-in tariff program to adjust to changing market conditions. Suggestion: consider differentiated tariffs (to be initiated after the first review/ adjustment period two years from when feed-in tariffs officially begin). In Germany, differentiation helps foster a diverse market for small as well as large generators and leads to greater overall deployment of renewable energy. Such an approach may benefit smaller businesses, and may also have benefits in reducing electrical distribution losses and upgrade costs, reduce community opposition to larger renewable energy power plants. Suggestion: design feed-in tariffs to capture the value of on-peak generation. Currently the bulk supply tariff (transmission + generation) for on-peak (weekdays 9 am to 10 pm) generation is 2.9889 baht/kWh, whereas the off-peak bulk supply rate (weekends, holidays and night time) is 1.1765 baht/kWh, representing a difference of about 1.81 baht/kWh. In order to encourage on-peak generation by renewable energy generators (and maximize benefits to utilities), one may suggest setting feed-in tariffs in ways that provide appropriately higher tariffs for on-peak generation and penalties for off peak. As a simple starting point, consider the following example: suppose that the average feed-in tariff for wind power was determined to be 5 baht/kWh. Set the on-peak wind tariff to: 5 + (1.81/2) = 5.905 baht/kWh. Set the off-peak rate to 5 - (1.81/2) = 4.095 baht/kWh. Each renewable energy technology (biomass, biogas, municipal waste, wind, micro-hydropower and solar), and the contemporary world market context for each technology, has specific characteristics that should be taken into consideration in determining appropriate feed-in tariffs in Thailand. Solid Biomass Suggested tariff rates in Thailand of 2.63 to 3.8 baht/kWh seem reasonable. DEDE’s 3.8 baht/kWh would encourage considerable investment at low cost to consumers. Considering the relative success of biomass so far in Thailand (about 800 MW installed as of 2005) with tariffs generally less than 2.5 baht/kWh, the 2.63 to 3.8 baht/kWh tariffs proposed by different actors in Thailand should attract considerable investment and play a strong role in helping meet Thailand’s targets, especially if access to the grid is guaranteed and streamlined. Even the highest figure, 3.8 baht, reflects a relatively low subsidy premium above long-range marginal costs of electricity production & transmission, so the net impact to consumers may be smaller. Differentiated rates: Following Germany’s example, it may be preferable for Thailand to establish differentiated rates – especially for biomass -- based on generator size and whether or not it employs CHP. This would allow smaller biomass generators to be cost effective, while not over-compensating large units that benefit from economies of scale. It should also be determined which biomass fuels and generation technologies including environmental standards will be accepted. Biogas Proposed tariff rate (3.4 baht/kWh from FTI) for biogas seems reasonable – at least in comparison to international numbers (Figure 6). However, some large biogas facilities are already very cost-effective at existing VSPP tariffs (see, for example, (Plevin and Donnelley 2004)). This is especially true in cases in which biogas facilities can also capture significant carbon emission reductions credits due to the substantial methane emissions that they avoid. Thus, biogas is a technology in which there are considerable economies of scale, and differentiated rates – with lower rates for large projects and higher rates for small projects – would make sense for Thailand. As is the case with solid biomass, even the suggested 3.4



baht/kWh rate is fairly low compared with avoided generation costs, and the impact to electricity consumers from this feed-in tariff would not be very high. Municipal Waste Municipal waste can be turned to electricity through capturing the methane gas from landfills or through incineration. In other countries landfill gas appears to receive feed-in tariffs equal to or less than biogas tariffs. Municipal waste incineration is sometimes excluded from feed-in tariffs all together. When it is not excluded it gets feed-in tariffs equal to or less than biomass tariffs. We are surprised, then, that DEDE’s suggested tariffs (5 baht/kWh) for municipal waste are considerably higher than either biomass or biogas tariffs, and higher than landfill gas tariffs in other countries. Existing biogas experience in Thailand suggests that landfill gas in Thailand should be considerably cheaper than in Germany – in part because of Thailand’s warm ambient temperatures, and in part because of lower labor costs in Thailand. But DEDE proposed levels are considerably higher than either European landfill gas feed-in tariff levels or suggested feed-in tariffs for biomass in Thailand. As compared to Europe, in Germany landfill gas is considered along with sewage and mining gas (e.g. Germany) and gets a lower feed-in rate than biogas, which is compensated at biomass rates. In the Netherlands (IEA 2005) and Spain (Ragwitz and Huber 2005) landfill gas has the same feed-in tariff as biogas. In the Czech republic landfill gas feed-in is 77 Euro/MWh, while the feed-in tariff for biogas is 103 Euro/MWh (UNEP 2005). These international experiences suggest that in Thailand landfill biogas should receive feed-in tariffs that are not higher than feed-in tariffs for other biogas. Incineration of municipal waste is more contentious: in general, it is excluded from subsidies or it is remunerated at the “biomass” rate. The European Union Directive on Renewable Energy points out that only the biodegradable proportion of any waste stream can be considered renewable, but some countries (Spain, Italy) do allow non-renewable waste to be accounted for in accounting for renewable energy electricity production (WWF International 2004). When incineration of municipal waste is allowed (Spain, the Netherlands) it is remunerated at the biomass level (e.g. 3.15 baht/kWh in Spain)(IEA 2005; Ragwitz and Huber 2005). This, too, is less than DEDE’s proposed 5 baht/kWh tariff. Overall, economics for municipal waste may improve when one considers the benefit of off-set garbage tipping fees (waste that is burned does not need to take up space in a landfill). Finally, policy makers should be vigilant to ensure that municipal waste incineration does not lead to high emissions of toxic air pollutants (dioxin, etc.). Municipal waste should only be eligible for subsidy if it complies with environmental standards. Micro- and small-hydropower E for E’s numbers provide a nice starting point for differentiated tariffs based on project size, with a focus on small projects (20 kW, 40 kW, 50 kW, etc.). The Thai DEDE proposes feed-in tariff value of 3 baht, based on an expected project life of 40 years and based on cost figures developed by DEDE’s micro hydro division. The 3-baht/kWh tariffs seem reasonable for larger projects (100 kW and above) but difficult for smaller projects. In general, one recommends that micro-hydropower feed-in tariffs should reflect a contract life that is the same for other renewable energy sources (e.g. 15 years) since it is very unlikely that a micro-hydropower generator would be able to secure a 40-year contract. Germany and Spain’s rates for hydropower are higher than DEDE’s proposed tariffs, probably reflecting the high environmental standards that projects in these countries must



meet. But Sri Lanka’s are lower. Sri Lanka has developed considerable hydropower resources under these policies, but these projects have been fairly large in scale (multi-MW) and Thailand has very few undeveloped MW-scale sites. Wind Proposed Thai feed-in tariffs for wind are higher than any country studied, reflecting the general perception that the quality of the wind resource in Thailand is poor. However, Thailand’s best wind sites are as likely as good as or better than Germany’s worst sites currently being developed at 4.08 baht/kWh. Eventually Thailand may be able to develop wind power sites at the European cost, but additional incentives may be necessary to help prime the market. DEDE’s suggested level of 5 baht/kWh appears broadly reasonable. Solar Thailand’s proposed tariffs for solar may be considered high, considering the context. At the same time, one should review the proposal to cap the total installed MW eligible for subsidies. Feed-in tariffs that earn stock-market level returns are not justified by the externality benefits provided by PV. The solar feed-in tariffs levels of 10-20 baht/kWh proposed by Thai actors are far from justified by the socio-economic externality benefits of PV. On the basis of externality benefits and energy value it would be difficult to justify tariffs above 5 or 6 baht/kWh. No developing country has adopted high feed-in tariffs for solar electricity. If Thailand does so, it would be the first. This suggests that other developing countries find it more worthwhile to subsidize more cost-effective renewable energy sources, or to use limited funds for other purposes. Proposed levels for solar in Thailand are very high compared with levels for other renewable energy sources. At proposed level of 15 baht/kWh, PV is 3 times as costly as wind power (proposed 5 baht/kWh), and 5 times as costly as micro-hydropower (proposed 3 baht/kWh). This suggests that subsidizing other technologies (which require less subsidy to become commercially viable) may be a better use of public or ratepayer funds. International and Thai experience suggests many people will invest in solar even if IRR is not set at stock-market levels. For rooftop solar electricity, it is useful to consider the experience of solar programs in the USA that have been successful in achieving large amounts of installed MW even if they do not provide a high IRR for the customer-generator. Examples include the original Sacramento Municipal Utilities District (SMUD) Solar pioneers program7 (which charged customers several dollars per month to have a solar PV system installed on their rooftops), and the California Energy Commission (CEC) solar PV rebate (US$2.80 per installed watt -- equivalent to a feed-in tariff of 7.67 baht/kWh assuming baseline residential tariffs in Pacific Gas and Electric PG&E territory)8. Even at the start of the CEC program in 2002, the CEC was offering $4.50 per watt, it still amounted to an equivalent feed-in tariff of $0.125/kWh or about 5.1 baht/kWh9. Together with a baseline residential tariff of about 11.4 cents/kWh, this amounts to $0.24 per kWh, or about 9.8 baht/kWh. California now has nearly 19,000 installed or waiting-to-be-installed PV systems in California, totaling 254 MW. 7 http://www.smud.org/green/solar/ 8 http://www.californiasolarcenter.org/incentives.html 9 Assuming an average 1800-solar hour/year site (common for California) and a 20-year equipment life. http://www.documents.dgs.ca.gov/CPA/SolRFP/COGeditorial_061804_final.pdf.



Experience with customer-generators in Thailand (e.g. Tesco Lotus 460 kW system installed even though it is offsetting rates of only 3 baht/kWh) indicates that significant interest exists even when the commercial value of solar electricity is much lower than 15 baht/kWh. High feed-in tariffs for solar offer no guarantees, that there will be price decreases in solar panels. The current world market price for solar panels have been blamed on high demand for subsidized grid-connected solar electricity programs and on competition for crystalline silicon from the semiconductor industry (Hande 2006). Caps on installed MW impose unnecessary investor uncertainty. The DEDE suggests 15 baht/kWh, but also suggests limiting total fiscal impact by capping subsidized solar at 60 MW (or perhaps 33 MW or 250 MW). A cap creates investor uncertainty, it may be better to leave the program MW uncapped, but to decrease the tariff to a lower level. In general, these observations point to the need for substantially lower subsidies for solar than the 10-20 baht/kWh feed-in tariff suggested by various actors in Thailand. It is recommended (Greacen) that for the sake of consistency, solar PV should receive a feed-in tariff, but it should not be higher than 5 or 6 baht/kWh. This level is consistent with the highest likely justifiable (externality + energy) benefits for solar. Five or six baht/kWh is also similar to wind power or micro-hydropower. One may also consider no feed-in tariffs for solar, and introduce a number of incentives: true net-metering, reduced import and VAT taxes for solar electricity, low-interest loans, and income tax deduction. These are mechanisms to bring solar closer to competition with conventional electricity.

1.2.3. What is already in place to implement feed-in tariffs in Thailand? Much of the basis for feed-in tariffs is already in place in Thailand - gaps exist. The existing Small Power Producer (SPP) and Very Small Power Producer (VSPP) regulations already require Thai distribution utilities to accept renewable energy power, and specify the technical arrangements under which renewable energy generators can interconnect to the Thai grid. Small Power Producer (SPP) The Small Power Producer (SPP) program applies to renewable energy and to cogeneration. SPP generators connect to PEA or MEA lines and sell electricity under Power Purchase Agreements (PPAs) to EGAT. Generators in the SPP program are limited to 90 MW maximum export, and are typically 5 MW or larger. SPP generators above 8 MW must connect to high voltage (69 kV or 115 kV) lines (EGAT, MEA et al. 1998). As of July 2004, 41 renewable energy generators totaling 860 MW in generation capacity were in operation under the SPP program, selling 344 MW to the grid with the remainder (860 MW minus 344 MW) used as self-consumption within factories that host the SPP generators.10 Very Small Power Producer Program (VSPP) The Very Small Power Producer Program (VSPP) provides reduced and streamlined interconnection requirements for generators with net export11 under 1 MW. The Ministry of Energy is likely to raise this limit to 6 MW (and subsequently to 8 MW to 10 MW) in a set of upgraded VSPP regulations currently under consideration. Generators with capacity above 66 kVA (PEA) or 300 kVA (MEA) must connect at medium voltage levels (24 kV or 33 kV). Generators lower than these capacities can connect at low voltage (230 / 380 volt). As of September 2005, 94 generators totaling 26.8 MW have applied for interconnection. Of these, 10 For list of plants, generation capacities, and contracted sales to EGAT see http://www.eppo.go.th/power/pw-spp-name-status.xls 11 Generators in the VSPP program can be larger than 1 MW, but the maximum amount of power they can export to the grid is 1 MW.



EPPO data12 indicates that as of September 2005 only 16 generators totaling about 16 MW are actually in operation. The SPP and VSPP laws do provide an important policy platform and a set of utility experiences upon which feed-in tariff arrangements can be built.

1.2.4. What is required to implement feed-in tariffs in Thailand? Comparing international experience with feed-in tariffs, it is clear that to establish an effective feed-in tariff program in Thailand, the following are needed:

• A legal basis for the program (and for funding the program) that provides sufficient assurances to investors that feed-in tariff levels will be sufficiently high for a sufficiently long time to justify investment

• Generators to have guaranteed access to the grid (already partially in place, but improvements in implementation would help)

• Establishment of an independent regulatory authority with analytical capacity and the authority to levy fines

Legal basis for Feed-in tariffs Investors need confidence that higher feed-in tariffs will be in place long enough to recoup costs. If a Thai feed-in tariffs policy is not on a firm legal foundation, investors have may legitimate concerns that the program might disappear under a new government. Specifically, a legal basis is needed for appropriating taxpayer or ratepayer funds to pay for feed-in tariffs. Cabinet resolution option There appear to be several options for establishing a feed-in tariffs program. The most immediate (though not very secure) option is to use a cabinet resolution. Officials at EPPO and the DEDE said that funds for the feed-in tariff program may come from a new component in the Ft (fuel adjustment) per-kWh charge currently levied by utilities on rate payers. The Ft charge was originally developed as a way for utilities to pass fuel price volatility on to consumers, but grew in scope to include costs of new capacity, take-or-pay gas contracts, revenue shortfalls due to inaccurate demand forecasts, and foreign exchange risks (Greacen and Greacen 2004). The benefit of a cabinet resolution is that it can be fairly quickly accomplished – within months. The benefit of using the Ft mechanism to collect funds is that it is convenient and expedient. The danger of relying on a cabinet resolution is that it can also be fairly quickly overturned. Instead of extracting funds from consumers through an Ft charge, it would be possible in the short term to use funds in the already existing ENCON fund. As of June 2005, the ENCON Fund had a balance of more than THB 14 billion (US$350 million) (Danish Management Group Thailand 2005). However, much of this fund may already be allocated for other purposes. Even if the total amount (US$350 million) were available, the fund could only pay for a year or less13 of feed-in tariffs at the government target level of 11630 GWh/yr. Parliamentary Law

12 http://www.eppo.go.th/power/data/data-website.xls 13 $350 million would cover about 7 months of a two baht/kWh feed-in tariff premium at renewable energy production of 11600 GWh/yr.



A longer term approach is to develop a specific renewable energy law, passed by Parliament, which provides for feed-in tariffs. This is the approach used by Germany, China, and Spain. Such a law might establish a new “renewable energy surcharge” component in the tariffs charged by MEA and PEA to pay for the program. Access to the grid Thailand’s utilities are to be commended for being leaders in grid-connection of renewable energy in the region, however, not everyone (private power producers) are satisfied with interconnection arrangements (Janchitfah 2005). Some generators have issues relating to interconnection charges and back-up power charges that they believe are either discriminatory or are not reflective of actual costs. Other generators feel that it is unfair to have to connect at 69kV or 115 kV, which requires very expensive interconnection equipment. These generators cite engineering analyses that determine that in many cases there are no engineering reasons why it is not possible for smaller SPPs to interconnect at 24 kV or 33 kV. Generators have complained that utilities force them to pay for unnecessarily expensive upgrades to the utility distribution network in order to interconnect when less expensive upgrades would suffice from a technical perspective. At the same time some SPP generators we have spoken to be concerned that if they complain they may face reprisals from the Thai utilities that are their sole market for power export. Solar electric installations, for example, have not been awarded permission to sell electricity to MEA as VSPP generators because of disagreements over certification of inverters used and the requirement that generators have two separate meters (a requirement that appears unique to Thailand – no other utilities in the world require two meters for a net-metered interconnection). A number of VSPP generators have complained that the paperwork, permits and delays required for the VSPP program remain excessive. It may be suggested to standardize connections. Fuel price volatility, national security, and development benefits Fossil fuels (natural gas and oil) have considerable fuel price variations and are passed directly to consumers through a tariff mechanism known as the "Ft". This volatility comes at a high economic cost since electricity users have to bear the risk that future high prices might substantially affect the profitability of their firms. Studies have shown that economic growth slows during periods of high fossil fuel prices (Awerbuch 2003). Renewable energy, on the other hand, has either free fuel (wind, solar, micro-hydro) or fuel whose costs are not correlated with the rises and falls of fossil-fuel prices (e.g. rice husk, palm bunches). In many cases, fuel is agricultural residue from the same factory that generates electricity, further reducing volatility. If power plant developers were forced to internalize fossil fuel price risks, they would use futures contracts (or similar financial instruments) to hedge against future fossil fuel price rises. National security benefit: Reduction of reliance on imported energy reduces vulnerability of the Thailand and increases national security costs. Thailand's government has argued that higher prices paid for gas from Burma and for electricity imported from Laos hydropower projects are justified because they increase national security by reducing imports. But at the same time, these foreign sources carry their own considerable national security risks: it would be easy for the Burmese or Lao governments to turn off supply at a moment's notice as a bargaining strategy in the event of a conflict (one may review the European link to Russian gas). Supporting renewable energy technologies may provide valuable stimulus for developing domestic industry and technological capacity, increasing Thailand's competitiveness. Local employment benefits: Renewable energy may provide local employment opportunities



(especially in rural areas where renewable energy resources are concentrated) increasing flow of money within communities, within rural regions, and within the country as a whole.

1.2.5. A review of studies in Thailand There have been relatively few studies in Thailand that has addressed issues of power sector externalities, and subsequently there is little information on the value of these externalities. The Thai studies to date attempt to quantify a portion of the social and externality costs from conventional (especially coal) electricity generation. Energy for Environment (2004). Study to determine methods to support electricity generation from wind and solar energy (in Thai), also commissioned by EPPO, includes a section on externalities. The study suggests adopting ExternE values (as these studies appear to be most thoroughly performed), adjusted using the following formula: Externality cost (Thai) = Average Externality cost (Thai) x Per capita GDP (Thai) / Per capita GDP (Thai) Pollution in Thailand produces lower (economic) impact than in Europe because Thailand is less economically productive than Europe. While the bottom-up damage cost methodology of the External is among the most highly respected in the field of externality studies, the results of the European studies are not readily transferable to Thailand because assumptions including those about atmospheric pollution transport, dose-response relationships, and pollution impacts on material, crops, forest and fisheries are not necessarily valid for Thailand. The EC studies assume power plants are built to European environmental standards, which are higher than those in Thailand. The relation also assumes that elasticity of willingness to pay (WTP) with respect to real income is equal to one. From an environmental justice perspective, the entire WTP approach raises uncomfortable ethical issues as it is equivalent to arguing that pollution causes less externality cost damages in poorer countries because it affects poorer people, and they do not count as much as wealthier people. Poor people are entitled to clean air and water just as much as rich people, and similarly people in Thailand deserve to breathe clean air just as much as Europeans do.



Figure 11: Estimate of externality costs from the power sector in Thailand based on

average European externality values adjusted using per capita GDP ratios. Source: (Energy for Environment 2004)

In Figure 11 above, the “fuel mix” category represents the externality of Thailand’s current fuel mix (predominantly natural gas, with coal and large hydropower making up most of the remainder) based on GDP-adjusted, weighted averages of European values. By subtracting the renewable energy externalities from the “fuel mix” externality, the E for E study proposes rough estimates of appropriate externality-based renewable energy subsidies. 14 These values are considerable lower than typical international feed-in tariffs or feed-in tariffs proposed for Thailand.

Fuel E for E estimate of externality-based subsidy (baht/kWh) Biomass 0.57

Hydro 0.81 Solar 1.06 Wind 1.16

Table 5: Renewable energy subsidy suggested by E for E (2004) based on per-capita-adjusted European average externality values for renewable energy fuels and Thailand’s fuel mix. Source: (Energy for Environment 2004)

A few other studies address externality cost of power production in Thailand, but focus only on heath impacts from particulate matter (PM10) and sulfur dioxide (SO2) emission from Thai lignite-fired power plants (Shrestha and Lefevre 2000; Thanh 2000; Thanh and Lefevre 2001). The studies use several different methodologies, including the impact pathway approach and a simplified International Atomic Energy Agency methodology to estimate the level of health effects caused by air pollution from specific coal plants. The studies are useful in that they identify dispersion models adapted to the Thai context and use dose-response

14 This step makes the assumption that new (marginal) power plants will tend to reproduce the fuel mix, i.e. that new plants will mostly be gas, with some coal and hydro.

Externality Cost

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Adjusted EU 2.7563 2.6685 0.7884 0.6320 0.3926 0.1420 0.0479 1.2048

Avg EU 7.2534 7.0224 2.0748 1.6632 1.0332 0.3738 0.1260 3.1704

Coal Oil NG Biomass Hydro Solar Wind Fuel Mix



relationships specific for (urban) Thai people. Like the E for E study, in monetizing externality impacts the studies use European values using a per-capital GDP adjustment factor.

1.2.6. Recommendations & Suggestions for an approach to implementing feed-in tariffs in Thailand.

We recommend to establish feed-in tariffs in Thailand so that the benefits have time to accumulate. It is also necessary to put in place mechanisms to strengthen the program in the long term through review/adjustment of tariff levels every two years, and putting in place a stable legal basis on parliamentary law. Several steps need to happen:

1. Arrive at mutually agreed-up principles for determining feed-in tariff levels. 2. Arrive at mutually agreeable initial feed-in tariff levels for different technologies. We

think that the levels proposed by various Thai actors for biomass, biogas, wind power, and micro-hydropower are all broadly reasonable. The levels for MSW and solar electricity should probably be trimmed.

3. Establish a legal basis for feed-in tariffs, as described in the section 8. In the short term, this could take the form of a Cabinet Resolution. However, work should also be initiated to develop a full renewable energy law to be passed by Parliament in order to provide sufficient long-term assurances to investors that the feed-in program will be in existence long enough to justify investment.

4. Generators to have guaranteed access to the grid (already partially in place, but improvements in implementation would help)

Also important in the long run, though not essential before starting the feed-in tariff program:

5. Establishment of an independent regulatory authority with analytical capacity and the authority to levy fines

6. Conduct an externality study (likely with Extern-E) assistance.

2. Barriers and Opportunities

2.1. Barriers to DE in Thailand In every country there are opportunities and barriers to decentralised energy. In Thailand Some of these barriers include (but not limited to):

• Regulatory regime encourages capacity expansion and an over-reliance on price-volatile fossil fuels at the expense of rewarding energy efficient performance;

• Difficulties in getting public acceptance • A competition-stifling Cabinet Resolution that allocates construction of 50% of all new

generating capacity in years 2011 to 2015 to EGAT, the state monopoly generator; • EGAT’s decision in 1998 to stop accepting applications for new decentralised fossil

fuel-fired CHP plants; • A conflict of interest arising of the transmission grid; • A historical and persistent tendency by the Thai Load Forecast Subcommittee to

overestimate future demand for electricity. This ultimately leads to over-investment in (conventional) power plants;

• An opaque power development planning process that neglects to consider a full range of economic least-cost alternatives, without opportunity for challenge from external stakeholders. This report makes the following broad recommendations for



Thailand’s future energy policy: • Reform the power planning process so that it becomes an integrated resource

planning (IRP) process, overseen by the energy regulator, in which all alternatives are considered (including energy conservation and renewables) and through which utilities are required to choose the option with the lowest overall economic cost to society, as opposed to the lowest commercial cost to the state generator EGAT. Integral to the achievement of this recommendation is the completion of comprehensive assessment of the externality costs of different fuels and generating technologies in the Thailand context;

• Increase the renewable energy target from 8% by 2011 to 10% by 2020 and introduce feed-in tariffs for specific renewable technologies to encourage accelerated deployment. Furthermore, introduce a collection of policy changes that put energy saving at the forefront of the energy agenda and remove the barriers that currently prevent new legitimate CHP from developing.

• Establish a competent, fair, independent, regulatory authority whose core mandate is to ensure that decisions made in the energy sector are in the public interest, and that has sufficient legal authority to enforce compliance.

• Regulatory restrictions in the implementation of energy plants in commercial complexes and buildings based on zoning;

• Tariff setting does not reflect the cost of fuel • Lack of centralised organisation providing information, training or services • Difficulties in funding (investors and lenders) the projects • Lack of awareness and knowledge on climate change issues

Thailand has a choice between a “business as usual” approach which commits to conventional fossil fuel and large hydropower or a move towards a clean, secure, sustainable decentralised energy system. This study presents an economic and environmental case for making the transition towards a sustainable decentralised energy system. There are a number of items that deter Thailand’s DE:

• A distorted regulatory regime that encourages capacity expansion and an over-reliance on price-volatile fossil fuels at the expense of rewarding energy efficient performance

• A competition-stifling Cabinet Resolution that allocates construction of 50% of all new generating capacity to a single state generator

• The central generator’s decision in 1998 to stop accepting applications for new decentralised fossil fuel-fired CHP plants

• A conflict of interest arising from some of Thailand’s major generators -- (The central generator’s control of the transmission grid)

• A historical and persistent tendency to overestimate future demand resulting from the distorted regulatory regime that encourages capacity expansion over and above efficient performance

• An opaque power development planning process that neglects to consider a full range of economic least-cost alternatives.

Each of these is discussed below. Regulatory Structure: The current tariff structures rely on fossil fuels, passing on the costs to consumers. This is common with regulated monopoly utilities worldwide, the Thai electricity utilities profits are set according to a “cost plus” structure with a fixed rate of return. In other words, profits are set by the government to be equal to a certain percentage of expenditures. This means that



the more utilities spend, the more profits they are allowed to accrue. These arrangements provide a mechanism to pass costs of investments (and even excessive investments) on to consumers. As such, the cost plus system provides strong incentives for rapid expansion of the electricity system, but at the expense of the consumer. Thailand has more generation than needed and the costs of this excess capacity are ultimately reflected in tariffs that are higher. In 2003, Prime Minister Thaksin Shinawatra estimated that accumulated unnecessary investment in the power sector totaled 400 billion baht (US$10 billion) (The Nation 2003). Thailand’s electricity tariffs also pass fuel price volatility, as well as variations in costs related to take-or-pay provisions in Power Purchase Agreements (PPAs), directly to consumers. This means that while electricity generation from fossil fuels such as natural gas and fuel oil are risky from an economic perspective, these risks are not borne by the generators themselves. As a result, businesses that build generation are effectively shielded from the economic impacts of overinvesting in projects that rely heavily on fossil fuels. The cost of these risks are passed directly to captive rate payers — who have virtually no voice in deciding what types of power plants are built. Renewable energy uses fuels (such as falling water, wind, or sunlight) that are free, or fuels (such as bagasse, wood waste) whose cost fluctuations are not directly correlated with fossil fuel prices. Adding renewable energy to Thailand’s electricity mix lowers the price volatility risk of the overall generation portfolio. But renewable energy generators are not compensated for this benefit that they provide. Indeed, the tariffs currently paid to renewable energy are also based on fossil fuel costs, imposing unnecessary fluctuations in payments for renewable energy (that do not necessarily rise and fall with renewable energy prices) and depriving the overall Thai economy of benefiting from more stable renewable energy prices. Instead of passing all risks to ratepayers, generators should be required to accept a substantial portion of fuel price risk. The risk premium that they would then have to pay (for example through long-term hedging contracts for fossil fuels) would reflect some of the real cost that is now passed in its entirety to consumers. In 2005, the central generator was granted a controversial National Energy Policy Council (NEPC) ruling that prevents competition from private power producers. The Cabinet ruled that the right to build 50% of all new power plant capacity from years 2011 to 2015 would go to one generator without competition. The decision was part of a package to ensure that a privatized EGAT Plc would “reach its revenue projections” {Bangkok Post, 2005}. EGAT The current generator already controls 47% of the electricity generation market share (EPPO 2006b). Leading up to 2010, Thailand is already committed to four new centralised fossil-fuelled power plants, each totaling 700MW. Liberalization, if done correctly, could provide a framework for true competition in the electricity generation sector. Any real reform must structure the market in ways that players are competing to provide efficient, clean electricity services that truly provide the most benefit to society at the least societal cost. The major problem is that “the state generator gets to build 50%” policy decision is that single generator is given essentially a “blank check” to make new fossil-fueled power plants, passing costs automatically on to consumers and society. Clean, decentralised energy cannot gain any foothold in an environment in which one generator is exempted from both market competition and regulatory oversight that forces equal consideration of all options based on their true costs. Stopped accepting applications for non renewable (SPP)s In the past (1992 to 1998), Thailand’s Small Power Producer (SPP) program was accepting applications for CHP and renewable energy installations up to 90MW per facility. Recently, citing the power generation capacity glut that followed the Asian Financial crisis, in 1998



EGAT stopped new fossil-fuelled CHP by announcing that it would no longer accept SPP applications from non-renewable generators and has subsequently started building new centralised power plants (indicating that the capacity glut argument no longer holds) and has even started building its own joint-venture CHP facilities. With this approach, the private sector cannot compete. It may be difficult for new cleaner fossil-fuelled CHP to compete against fossil fueled conventional generation if they are not allowed to sell power at market prices. In addition to opening the door to fossil-fuel fired CHP, it is important to build on the success of the SPP renewable energy program (and VSPP program) by providing long-term, guaranteed feed-in tariffs to specific renewable energy technologies that reflect the environmental and social benefits of these fuels compared to fossil fuels. Conflict of Interest The state generator, is in the generation business and controls the transmission network. This is a monopoly controlling another monopoly. This may not be beneficial to the new generators who may want to come into the market. There is an economic incentive by the singly generator to restrict access to the transmission network for other independent power producers. The new generators can only create revenues from access to the transmission and distribution system. This is the only way that electricity generators can get their product to consumers. If this system is owned and operated by an entity that also owns and controls generation assets, there is potential for substantial conflict of interest: the transmission operator may make decisions that favour construction or dispatch of its own generation assets. This has been changes in both the U.S. and Europe and many countries in Asia. In international experience, it is generally viewed as necessary to split apart (“unbundle”) power utilities that generate and transmit power as one single company into separate generation and transmission companies that are independent of each other in order to encourage competition and to achieve significant efficiency gains. Often transmission is operated by a separate entity (non-profit or for-profit) that is rewarded for efficiency in providing transmission services and serving all customers and generators. Unbundling of generation and transmission has been adopted by the Asian Pacific Economic Cooperation (APEC) as power sector “Best Practice Principle” agreed by member country Energy Ministers – including Thailand — in August 1997 (APEC 1997) and reaffirmed in 2004 (Peter Smiles & Associtates 2003). Unbundling of transmission and generation is a widely accepted as a precondition to electricity market reform, and has been a central theme in reforms adopted in the United States (FERC 2006), Australia (IEA 2001, p. 41), New Zealand (IEA 2001, p. 74), England & Wales (IEA 2001, p.88), much of Europe (European Commission 1999, p. 11), and elsewhere in the world. A historical and persistent tendency to overestimate future demand The load forecast is determined periodically by the Thai Load Forecast Subcommittee (TLFS). Though a variety of different methods are used to assemble different components of the forecast, the demand forecast is fundamentally driven by economic growth projections (Vernstrom 2004). In the short term (less than five years) these economic growth forecasts are issued by the Government of Thailand’s National Economic and Social Development Board (NESDB). Because of the uncertainty of predicting technical, political and social determinants of economic growth in the long-term (more than five years), these forecasts can only be regarded as speculative. There is no representation by small consumers, despite the fact that residential and small general service (small businesses) consumers comprise over 98% of all electricity customers. Thai utilities play a lead role in the TLFS by providing most of the key data used in the forecasts. They are clearly not neutral actors: they exist in an industry structure that,



perversely, actually rewards overestimates. As discussed above, Thai electricity tariffs are set according to a “cost plus” structure with a guarantee of sufficient utility revenues to expand. The more utilities spend to expand the system, the more profits they are allowed to keep. At the same time, utilities are heavily penalized when the power goes out. These arrangements provide unbalanced incentives that may lead to a proclivity to overstate demand. If demand for electricity is less than expected, Thai utilities are protected by mechanisms that allow most of the cost burden of overinvestment to be passed through to consumers in the form of higher tariffs. In Europe and North America, forecasts are contested in public rate cases or in market price referent proceedings. There are lots of interveners that have their own points of view, and the final result is determined through an open, transparent and participatory process. In Thailand, the forecast is mostly done behind closed doors with no opportunity for input from external stakeholders. It may be beneficial to have the proceedings open to the public to provide sufficient checks and balances. Power Development Plan (PDP) EGAT’s Power Development Plan (PDP) is a 15-year investment plan that specifies which power plants and transmission lines are to be added at what time. A new official PDP is issued about once every two years by EGAT. EGAT’s PDP is reviewed by the Ministry of Energy and approved by the National Energy Policy Council, then by the Cabinet. In practice, the Ministry of Energy seldom questions the fundamental underpinnings of the PDP. After the approval of its PDP, EGAT then undertakes to develop and expand the power system according to the plan. The PDP methodology is as follows: in a computer modeling program called Strategist, power plants are added to the system in a way that seeks to optimize lowest overall costs according to two criteria — the planned reserve margin is at least 15%, and the loss of load probability (LOLP) is less than one hour per year. The reserve margin indicates the amount of generating capacity available in excess of the annual peak demand. When EGAT defines its reserve margin, it counts only plants that it considers “dependable”. The amount considered “non-dependable” includes a certain percentage of hydroelectric projects since the availability of hydropower during the dry season differs from year to year. Grid-connected biomass-fired generation that uses fuels with seasonal variations in availability is also not included in the “dependable” reserve. The LOLP addresses the fact that there are regional differences in the availability of transmission and generation, and aims to ensure that everywhere in the country should have sufficient generation and transmission to have power 99.99% of the time. EGAT programs the inputs of its computer model in such a way that demand side management, renewable energy, and cogeneration are not considered as options that the model can pick, even if they are less expensive than conventional options. This is not to say that DSM and renewables do not appear in the PDP. They do appear, but only in fairly small, predetermined amounts (e.g. 620MW of renewable energy from 20011-2016 in the 2004 PDP) (EGAT 2006b). Energy efficiency provides another example of the structural problems in the incentives that compensate EGAT. Though energy conservation costs a fraction of the cost of new power plants, EGAT has little incentive to invest in demand side management because its revenues are based on the amount of electricity sold, and energy efficiency leads to lower electricity sales. Taken together, the load forecast, the PDP, and the cost-plus structure form a dangerous high priced circle: demand forecasting tends to overestimate actual demand; power



development planning favours expensive centralised options with dangerous reliance on imported fossil fuels or imported hydropower; and tariffs pass costs on to consumers while environmental costs are absorbed by the public as a whole. In Europe, US and many other countries, regulatory authorities play a much broader role in scrutinizing the power development planning process to ensure that forecasts are reasonable and investments are prudent and timely. True least-cost planning means a public planning process and a framework within which all costs and benefits of all options are considered. An often-used framework for true least-cost planning is Integrated Resource Planning (IRP). In an IRP planning process, demand side management and cogeneration or renewable energy are considered on a level playing field with conventional supply-side resources, and the options selected are those with the lowest overall cost to society. US Energy Policy Act of 1992 required that all electric utilities carry out IRP and submit plans before their Public Utility Commissions for approval, and in 1992, the USA had 32 states with IRP regulatory frameworks (D’Sa 2005). IRP is now practiced by a number of utilities in the USA including PacifiCorp (which serves 1.6 million customers in six Western states)(PacifiCorp 2006), the Northwest Power Planning Council (Washington, Oregon, Montana, Idaho) (NWPCC 2005), and Hawaiian Electricity Company (HECO 2006), among others. Outside the USA, IRP has been adopted in South Africa (Deputy Minister of Minerals and Energy 2005), Denmark (D’ Sa 2005), and Hanover, Germany (D’Sa 2005). An important element of the IRP process requires the calculation of “externality costs” of each fuel - costs such as crop damages, increased morbidity and mortality, global climate change - that accrue to society even if they are not internalized by power plant owners. Because externality costs are not included in conventional prices, to level the playing field an “externality benefit” equal to the excess externality cost of conventional generation can, in theory, be assigned to clean energy technologies Only one study has presented an estimated monetized value for externalities associated with the power sector in Thailand. The “Study to determine appropriate solar, wind and micro hydro tariffs”, commissioned by the Thai Ministry of Energy’s Energy Planning and Policy Office and conducted by the Energy for Environment Foundation (Energy for Environment 2004) reports the following values of externality costs for electricity production in Thailand: if these figures are accurate, they would suggest that - relative to Thailand’s fuel mix - the economically optimal subsidy for biomass, solar power, and wind power should be 0.5728 baht/ kWh, 1.0628 baht/kWh, and 1.1569 baht/kWh respectively throughout the life of the project. Energy efficiency measures, which are expected to have negligible externality costs, should be economically subsidized to a level of 1.2048 baht/kWh. It should be noted that the existing subsidy for renewable SPP is much lower, averaging 0.17 baht per kWh over a period of just five years, after which time there is no subsidy. If the externality figures are accurate, it would appear that financial aid for energy efficiency and renewable energy in Thailand is inadequate, bearing in the mind the additional benefits to the economy that they could provide. The E for E externality values should be taken under advisement, though, as they were derived from “ExternE” externality studies of the European power sector conducted by the European Commission, and adjusted to the Thai context using the simple formula: Externality cost (Thai) = Average EC Externality cost x [Per capita GDP (Thai) / Per capita GDP (EC)] The studies attempt to monetize a number of impacts including those on public health, occupational health, materials, agriculture, forestry, amenity (noise), and aquatic resources. The studies do not monetize ecosystem damages, or damages from global warming, and are therefore likely to be downward biased (Sundqvist 2000). While the bottom-up damage cost methodology of the ExternE is among the most highly respected in



the field of externality studies, the results are not readily transferable to Thailand because assumptions — including those about atmospheric pollution transport, dose response relationships, and pollution impacts on material, crops, forest and fisheries — are not necessarily valid for Thailand. The EC studies assume power plants are built to European environmental standards, which are higher than those in Thailand. On the other hand, noise and visual impacts in Thailand may have different monetary value than they do in Europe. Adjusting the monetized value of European externalities using the ratio of Thai to EC GDPs, while simple, may not be appropriate since some impacts are regional or global. More importantly, the relation assumes that the environment is worth more in wealthy economies than it is in poorer ones (in economist-speak: “elasticity of willingness to pay (WTP) with respect to real income is equal to one.”) This assumption is insulting. Clearly, poorer people (or countries) are entitled to clean air and water just as much as rich ones, and similarly, people in Thailand deserve to breathe clean air just as much as Europeans or Americans do. Only a few other studies address externality cost of power production in Thailand: Thanh & Lefevre (Thanh and Lefevre 2001) and Shrestha & T. Lefevre (Shrestha and Lefevre 2000). These studies use similar simplified GDP adjusted methodology based on ExternE studies, but focus primarily on health and mortality impacts from SO2 and particulates from coal-fired power plants. A comprehensive assessment of the external costs of each fuel source that is specific to Thailand has yet to be conducted. A key recommendation of this report is that such a recommendation is carried out as part of Integrated Resource Planning policy for Thailand. The preliminary version of the 2006 PDP indicates that the PDP Strategist modeling considers only the following types of candidate plants: natural gas, coal, diesel and nuclear (EGAT 2006b). The plan reflects the government policy that 50% of all new capacity 2011-2016 will come from EGAT generators. In addition the 2006 plan envisions that an additional 20% of all new capacity will come from hydropower imports. It envisions two fuel scenarios: one with a “gas 50%: coal 50%” mix for new additions, and one with a “gas 70%: coal 30%”. The 70% gas scenario requires the use of liquefied natural gas (LNG) imports because of constraints imposed by limited domestic and neighboring country supplies. Compared to other developing countries, Thailand has a relatively good record in clean, decentralised power. There is scope of growth as the Govt. has established several mechanisms to promote DE. The Thai Ministry of Energy is moving towards establishing feed-in tariff mechanisms that provide a guaranteed price per kilowatt-hour of electricity generated from renewable energy sources. Regulations like these have played a lead role in developing the robust renewable energy markets in Germany, Denmark, Spain, and China and have been adopted by 41 countries worldwide. As of March 2006, Thailand’s Small Power Producer (SPP) laws have led to nearly 1 gigawatt (GW) of installed renewable energy capacity. This is significant, considering that Thailand’s total peak load in 2006 was just over 21GW. If decentralised fossil fuel CHP projects are included, the SPP program has over 4GW of generation capacity installed. Thai utilities have begun taking advantage of opportunities for clean decentralised power, such as the Combined Cooling, Heating and Power (CCHP) plant at the new Suvarnaphumi Airport in Bangkok. In May 2002, Thailand was the first developing country to adopt net metering regulations (known in Thailand as the Very Small Power Producer (VSPP) program that facilitate interconnection of renewable energy generators under 1MW in size. Under these regulations, as of April 2006, 94 generators are online providing 13MW to the grid (EPPO 2006d). VSPP regulations are expected to be further expanded to provide similar terms for



projects up to 10MW per installation. By 2007, nearly 200,000 solar home systems had been installed in rural villages in Thailand, providing electricity to homes beyond the reach of the electricity grid (Lynch, Greacen et al. 2006). Thailand has also achieved a rural electrification rate of 99.7% of villages (Laksanakoses 2006), electricity tariffs that are low by regional standards and provide especially affordable electricity to the smallest users. In addition, the Government has recently established an interim regulatory authority to help ensure fairness and protect the interests of consumers. This step reflects an acknowledgement on the part of the Government that an independent regulator is necessary to protect the interests of consumers, but the body currently lacks the power to enforce regulations in place and it remains unclear when a permanent electricity regulator (established by a legislative act) will be formed. Renewable energy potential The influential “Energy Strategy for Competitiveness” workshop, chaired by Prime Minister Thaksin in 2003, released a Thai Ministry of Energy estimate that Thailand’s potential renewable energy resources exceed 14,000MW (Thai Ministry of Energy 2003). To put this in perspective, Thailand’s total installed electrical capacity in 2006 is 26,457MW. Although installed capacity does not describe the capacity for actual electrical output from each technology, it is interesting to note that the identified renewable energy potential to date constitutes over half of existing total installed capacity. In 2006 preliminary results from a comprehensive study on renewable energy potential were released. The study was commissioned by the Thai Ministry of Energy’s Energy Planning and Policy office (EPPO), and carried out by researchers at the Joint Graduate School on Energy and Environment (JGSEE). Energy efficiency potential EGAT has a demand side management (DSM) program launched in the mid-1990s under a program supported by the Global Environmental Fund that provided over 735MW of demand reduction by year 2001 at a cost of 0.5 baht (US $0.0125) per kWh (Phumaraphand 2001). This is about one third the cost of electricity generation from natural gas combined cycle gas turbines. As of March 2006, the EGAT program has saved 1,305MW (EGAT 2006a). CHP potential Combine Heat and Power (CHP) provides radical improvements in overall energy efficiency by making effective use of waste heat from combustion processes used to generate electricity. In addition to the current 4,071MW of CHP installed in Thailand (EPPO 2006a) there remains considerable potential for more. Since many of these projects were submitted prior to the economic crisis, it is likely that there is significant additional cogeneration potential for on-site generation as well as sale to the grid. The number of submitted projects but unaccepted possibly represents a large, as yet untapped, resource. Somewhat more modest conclusions are reached in a study commissioned by the Thai Ministry of Energy’s Energy Planning and Policy Office (EPPO) and carried out by the Joint Graduate School on Energy and Environment (JGSEE). The study estimated the quantity of commercially viable new CHP in 817 existing factories and 966 existing commercial buildings located in areas that will be served by planned Thai natural gas pipeline expansion (Menke, Gvozdenac et al. 2006). The study is thorough, but is likely to underestimate potential by year 2015 because (a) it overlooks opportunities for CHP in large government buildings, residences, etc; (b) because the study disregards hundreds of potential industrial and commercial sites for which data was incomplete; and (c) and because the study considers only existing buildings and not new facilities that will be built between now and 2015.



In factories the study considered natural gas combustion engines and gas turbines with waste steam used to offset natural gas, heavy fuel oil, or coal in steam boilers. Combine Heat and Power While most of the Thailand’s power plants are large centralised power plants, about 9% of bulk electricity supply in 2004 was provided by smaller distributed combine heat and power (CHP) plants — also referred to as “cogeneration” (Lucarelli 2006). The most efficient conventional power fossil fuel plants in Thailand are combined cycle gas turbines which, on average, are only 41% efficient at converting fuel into electricity. The remainder of the energy input is released as waste heat to the environment through flue gases or cooling towers. Coal-fired steam turbines and gas turbines in Thailand are even worse, with efficiencies averaging 30.4% and 25.4% respectively (Menke, Gvozdenac et al. 2006). In CHP plants, on the other hand, “waste heat” is captured and put to use, raising overall efficiencies to 70 to 90%. Decentralised power plants are generally located in places where the waste heat can be put to good use. One common arrangement is to locate CHP plants near or inside factories where steam is necessary for a variety of industrial processes. Or waste heat can be used to power district cooling systems, displacing the need for electric powered air conditioning. These are sometimes called “Combine Cooling, Heating and Power” plants (CCHP) or “Trigeneration” plants. Combine Cooling Heating and Power (CCHP) plants are particularly appropriate for Thailand because the steam is used to offset some of Thailand’s massive air conditioning load. Instead of drawing from the grid during the peak load time, CCHP plants put the most energy into the grid during peak load times. In addition, they provide electricity near load centers, reducing the burden on the transmission network. The vast majority of CHP is privately operated under Thailand’s Small Power Producer (SPP) program The “clean, profitable PDP” is based on several key assumptions:

1. Thailand’s peak demand develops according to the “corrected 2006 load forecast”, as discussed earlier in this study, which corrects errors in baseline year 2006 peak load and overoptimistic economic growth;

2. Thailand’s “achievable” demand side management potential is realized (World Bank figures). Following the World Bank report’s results,“ “achievable” potential is a small fraction of “commercially viable” potential;

3. Thailand’s “achievable” renewable energy potential is realized (Thai government-commissioned study figures);

4. Commercially viable combined heat and power investments are realized (Thai government-commissioned study figures);

5. Thailand is able to capture demand reductions through demand response programs on par with international utility experience.

The implications of these economically rational assumptions challenge conventional thinking about Thailand’s electricity system:

• By year 2016, none of the centralised fossil fuel power plants or hydropower imports featured in the Draft PDP 2006 for years 2011-2016 may be necessary. Indeed, of the “committed” plants (years 2006 - 2010) on which construction has already begun, only about three quarters (5300 MW of 7200 MW) are required. The Clean, Profitable PDP accounts for all the rest through clean, decentralised sources, and through more realistic assessment of demand.

• The “Draft PDP” results in a 39.4% reserve margin by 2016 - a massive over-investment in centralised generation supply if peak demand follows the corrected 2006 load forecast.



There are challenges that must be met in overcoming vested interests that benefit from the status quo here in Thailand, there are examples internationally of major utilities opting for a clean energy approach to meeting load growth based on a profitable business case. Seattle City Light for example, made a commitment in 2000 that 100% of load growth will be met by either energy efficiency measures or by renewable energy, and a further commitment that by 2005 the utility would meet all of Seattle’s electricity needs with zero net release of greenhouse gas emissions (City of Seattle 2002). As of November 2005, Seattle City Light has even met the zero net release goal (Nickels 2006). British Columbia Hydro similarly has a successful “50 percent BC Clean Electricity” commitment that 50% of all new load growth comes from energy savings and (non-large hydro) renewables. Equally, it is important to reiterate that the conclusions arrived at above derive from assessments of potential commissioned by the Thai Government and World Bank only, and are often predicated on relatively conservative assumptions. For example, the assessment of renewable energy potential that we have inputted is based on existing or expected policy frameworks in the short term, rather than long term interventions that might transform the economics of certain technologies, such as sharp increases in wholesale fossil fuel prices, or unit cost reductions through mass manufacture of solar PV cells. It is also likely that considerably more potential for CHP is available than envisaged in our alternative PDP, but exploitation of this is determined by the price that it can charge for its output. For energy efficiency, the assumed ‘achievable’ potential is 20% (or less) of the commercially viable potential identified by the World Bank study. It is not unreasonable to imagine that more of this commercially viable potential might be exploited if the government and utilities really prioritized energy savings. Thailand boasts a remarkable amount of potential for cost and energy savings from DSM and has significant potential for renewable energy. It has also recognized the value of CHP in maximizing the efficient use of Thailand’s indigenous fossil fuels through the introduction of the SPP and VSPP programs. The regulatory may encourage the development of DE in the global battle against climate change and the drive to secure long term energy supplies. The load forecast, PDP, and the cost-plus structure described above form a vicious circle: demand forecasting tends to overestimate actual demand; power development planning favors expensive centralised options with dangerous reliance on imported fossil fuels or imported hydropower; and tariffs pass costs on to consumers while environmental costs are absorbed by the public as a whole. There is still a process through which decisions affecting the whole of Thailand are made by a chosen few behind closed doors which should be changed for the benefit of global climate change.

• Lack of a powerful energy regulatory authority with sufficient mandate and legal authority to regulate access to the grid.

• Citing capacity glut in 1998, EGAT declined to accept new fossil-fuel fired SPP applications. Since then, EGAT has built conventional fossil fuel plants without accepting new any fossil fuel-fired CHP applications Consistent overestimation of demand encourages capacity surplus. Limited opportunities for public involvement.

• Power development planning model is programmed to consider only conventional (fossil, large hydro) with token amounts of CHP, DSM and renewables as exogenous inputs. Limited opportunities for public involvement.

• Cost plus structure that bases tariff rates on expenditure and encourages capacity surplus.

• Fuel price volatility passed directly to consumers (FT charge, etc).



• NEPC decision that 50% of all new capacity from years 2011 to 2015 will be supplied by EGAT without bidding.

• Considerable increases in biomass residue prices. Rice husk, for example, has increased six fold in 5 years to around US$30 per tonne in 2006.

2.2. Opportunities for DE in Thailand Demand response: In addition to discussing DSM and energy savings, the author of the du Pont report explained that another large chunk of peak load savings is possible through demand response techniques that are common in utilities world-wide but are not yet practiced by Thai utilities and were not considered in the World Bank-commissioned report. Demand response shaves peak load through: 1. Special “interruptible tariffs” for customers willing to be asked to shed load several times a year in return for discounts on power. Customers participate in the program voluntarily, and specify the amount of power (kW) they are willing to turn off when requested. 2. In addition to incentives, technologies which detect the need for load shedding, communicate the demand to participating users, automate load shedding, and verify compliance with demand-response programs. In the USA, demand response programs now provide over 15,000 MW of peak load reduction (Comverge Inc. 2006). Some examples of demand response include (quoted directly from NWPPC 2006): Georgia Power (USA) Georgia Power has 1,700 customers on real-time prices. These customers, who make up about 80 percent of Georgia Power’s commercial and industrial load (ordinarily, about 5,000 megawatts), have reduced their load by more than 750 megawatts in some instances. The program uses a two-part tariff, which applies real-time prices to increases or decreases from the customer’s base level of use, but applies a much lower regulated rate to the base level of use itself. Gulf Power (USA) Gulf Power offers a voluntary program for residential customers that include prices that vary by time of day along with a programmable control for major electricity uses (space heating and cooling, water heating and pool pump, if present). Customers in the program reduced their load 44 percent during critical periods, compared to a control group of nonparticipants. Puget Sound Energy (USA) Puget Sound Energy offered a time-of-use pricing option for residential and commercial customers. There are about 300,000 participants in the program. PSE’s analysis indicates that this program reduced customers’ loads during high costs periods by 5-6 percent.

2.3. Assessment and Needs The benefits of this transition include:

• Saving valuable financial resources: inefficiencies inherent in fossil fuel centralised generation mean that more than half of the energy goes “up the chimney” as waste heat in fossil fuel-fired power plants. Using Combine Heat and Power technologies enables waste to be captured and put to good use, thereby saving fuel, reducing emissions of greenhouse gases that cause climate change, and saving money before any energy even reaches our homes. Once the electricity has reached our homes, energy efficient appliances that provide the same services for less electricity can save even more.

• Reducing the risk of fuel price variations: most of Thailand’s electricity comes from fossil fuels with prices that rapidly fall and rise (lately more of the latter). Current



arrangements pass this risk directly to consumers, with strong negative consequences for the Thai economy during periods of high fuel prices.

• Improving national energy security: Since Thailand’s domestic supplies of fossil fuels

are limited, new electricity plants will increase Thailand’s reliance on imported fossil fuels, at risk of supply disruption by events beyond Thailand’s control.

Improving efficiency of fossil fuel use, coupled with efficient use of domestic renewable energy resources, reduces Thailand’s exposure to these risks. In addition, a decentralised system of many dispersed generating units becomes more resilient, able to recover more readily from equipment failures or natural disasters than a centralised system with a single point of failure.

• Reducing greenhouse gas emissions: Making cost-effective investments in clean energy now is imperative if we are to stand a chance of reducing global CO2 emissions to levels that avoid the worst effects of dangerous climate change.

• Avoiding impacts to local communities and avoiding project cancellation due to community opposition: large power plants are increasingly difficult to construct in Thailand due to community opposition to their environmental impacts. Energy efficiency, renewable energy and CHP are, in general, much more acceptable to local communities.

2.4. Stakeholders in Thailand Thailand’s electricity transmission system and most of the country’s generation are under the control of the state-owned Electricity Generating Authority of Thailand (EGAT). Rural electrification is the responsibility of the Provincial Electricity Authority (PEA). The Metropolitan Electricity Authority (MEA) distributes electric power to the Bangkok Metropolitan area and two adjoining provinces. According to PEA, 99.7% of Thai villages are now electrified (Laksanakoses 2006), but demand continues to grow in step with Thailand’s residential, commercial and industrial growth. Since they were formed in the late 1950s and 1960s, the crucial role of electricity in powering Thailand’s industrialization made the three power utilities (EGAT, MEA and PEA) very strong politically. By the 1970s, the three utilities were effectively self-regulating, with the exception of basic financial requirements set by the Ministry of Finance (World Bank 1995). EGAT was the first state-owned enterprise established by its own legislative act (EGAT Act) which provided it with a monopoly on electricity generation and established the organisation to operate under the powerful Office of the Prime Minister. Independent Power Producers (IPP) Additionally, private power plants, private power producers generate electricity under long-term Power Purchase Agreements (PPAs). The IPP’s have PPAs “take or-pay” contracts so that in the event of low demand for electricity, EGAT and Thai electricity consumers remained obliged to pay (Greacen and Greacen 2004). Of the total electricity generation capacity, about 39% is currently owned and operated by IPPs (WADE 2006). Small Power Producers (SPP): CHP and Renewable Energy In 1992, the same year as the IPP program, Thailand also began the Small Power Producer (SPP) Program - probably the most important Thai program for clean, decentralised energy.



The Small Power Producer (SPP) program applies to renewable energy and to fossil -fuel-fired Combined Heat and Power (CHP). SPP generators connect to PEA or MEA lines and sell electricity under power purchase agreements (PPAs) to EGAT. Of all SPP generators, 1,107MW (including self-consumption) or 535MW (excluding self-consumption) were renewable energy15. While prices paid for electricity vary somewhat from contract to contract, generators whether coal, gas or renewable receive the same levelled tariff. SPP generators are broken into two categories: firm and non-firm, depending on their ability to guarantee availability. Firm fossil fuel-fired SPPs must generate for at least 7,008 hours per year and must generate during the months March, April, May, June, September and October. Following the Asian Financial crisis in 1998, EGAT stopped accepting applications for power purchase from new CHP (renewables are still eligible). The “boom and bust” cycle that this created is evident in the flood of SPP contracts signed in 1998 and the relative dearth thereafter. EGAT has subsequently started building new centralised power plants (indicating that the capacity glut argument no longer holds) but has not re-opened the program for fossil-fuelled CHP (biomass CHP remains eligible). Since then, a few CHP projects implemented by utility joint ventures are planned or have come on line (such as the MEA/PTT/EGAT Suvarnabhumi International Airport project - but the private sector has been unable to compete. Very Small Power Producer (VSPP) program The Very Small Power Producer Program (VSPP) reduces the cost and administrative burden for small scale renewable energy generators to connect to the grid and export up to 1MW electricity to either the MEA or the PEA at 80% of the retail cost of electricity. As of April 2006, 94 generators are supplying 13.4MW to the grid under the program. By the end of 2006 the Ministry of Energy is expected to approve an upgrade to the regulations further streamlining interconnection requirements and raising the export limit to 10MW per site. The new VSPP regulations will also allow fossil fuel CHP as VSPP generators

3. The Need for a DE Road Map

3.1. Technical and Policy Issues

3.1.1. Standardization of DE (Electrical Interconnection Standardization)

The method for generation in Thailand is based on the centralised approach and is at present time generally unfavorable for smaller players. This is mainly based on the fact that planning was developed on the centralised generation model, with large-scale power stations feeding into large high-voltage power grid systems. Few interconnections are available and each DE scheme is typically considered on an individual basis as there seems to be no standard interconnection policy. The following rationale and justifications are there: First – the DE supplier is uncertain of the interconnections and costs. If interconnections are based on the connecting central plants, it may be too costly for DE. Second, it also provides the incumbent utilities that view DE as a threat to their traditional business with the

15 RENEWABLEé sheet in http://www.eppo.go.th/power/data/data-website.xls



opportunity to restrict the deployment of DE through the imposition of unreasonable authorization requirements. There has already been a significant amount of work performed on interconnection standardization for DE systems in the United States and Europe. This has occurred both at the State level 16 and more generally through the IEEE. The IEEE P1547 Standard for Interconnecting Distributed Resources with Electric Power Systems is a major document covering a range of technical issues relating to DE interconnection within the context of the US energy market, including DE system testing. It proposes and specifies the requirements for a series of technical requirements relating to DE interconnection. The primary motivation for the development of this standard was the desire of many market participants to rationalize and simplify the process for interconnecting a DE device with the electric power system. IEEE P1547 is considered to be a good model that could be developed with a focus to fulfill similar technical and policy requirements to that already achieved by the EU and DOE in the United States. This process may be reviewed and utilized accordingly in Thailand.

IEEE P1547 Technical Issues Coverage for DE Schemes Voltage regulation Synchronization Monitoring and Metering Isolation Response to voltage disturbances Response to frequency disturbances Disconnection for faults Loss of synchronization Generator out of synchronism operation Feeder re-closing co-ordination DC injection Voltage flicker Harmonics Immunity protection Surge capability Islanding In view of this, there is a clear role for Standardization to define the minimum technical performance requirements applicable to new DE systems in terms of their interaction with the host electrical grid network. This will enable much of the technical uncertainty associated with utility authorization to be removed, thus enabling DE developers to perform accurate business cases prior to embarking on lengthy (and otherwise costly) development programmers. Such a Standard must fulfill three general high-level objectives:

• The clear definition of the electrical network performance envelope within which the DE system is required to operate both under steady state and dynamic conditions. This would typically include system technical parameter variations such as frequency, voltage, pre-existing harmonic voltages, etc.

• The clear specification of the required performance characteristics of the DE scheme once it is connected to the host electrical network. This would typically include voltage regulation requirements, response to network faults and voltage fluctuations, EMC immunity requirements, protection and control requirements, etc.

• The clear specification of the performance type testing that will be required prior to operational acceptance of the DE system by the host network.

Successful implementation of this requirement is the need for current utility generator interconnection practices to be fundamentally review and ensure that the performance requirements for DE schemes are appropriate given their low likely impact on the main

16 http://www.eppo.go.th/encon/renew/pr06-E.html



interconnected electricity grid (For example, it is likely that many of the technical performance requirements associated with 1000 MW coal-fired power stations will be inapplicable or inappropriate for a 100 kW micro-turbine installation).

RECOMMENDATIONS • A Standards group should be convened for developing a Standard for the electrical

interconnection of distributed generation plant. • For the interim period until a Thailand Standard is prepared, the Regulatory

Commission or Government, in conjunction with the utility generators should review utility generator interconnection practices.

3.1.2. DE system certification and permitting This topic is closely related to the interconnection issue and relates to the various performance verification processes before it can be declared acceptable for operational and commercial use. Certification and permitting processes for electrical equipment connected to an electrical transmission or distribution network take a number of forms. Tests are required for performance and compatibility to grid. These tests are extensive and are performed in order to confirm that the design of the equipment is sound and that the plant would be expected to perform adequately over its service lifetime within the bounds of the specified operational regime. A much-reduced series of tests would then be performed on all production units of the same design (so-called “routine” testing) in order to confirm that the manufacturing quality of these units is sufficient. For more complex systems (large centralised power generators) the certification and permitting process is very different, with each plant being subjected to a series of system performance tests as defined by the host electrical network utility. These tests are extensive, and can take significant amounts of time and financial resource. Prior to this, it is usual for detailed electrical system modeling to be performed to determine the expected impact of the new generator on the host grid network and vice versa. This modeling exercise can also be very time consuming and expensive, but is normally a requirement of the host utility, as well as being an opportunity for the generator to mitigate some of the financial risks associated with the potential technical non-compliance of their equipment when connected into an electrical grid network. The processes associated with DE certification are very inconsistent and are generally agreed bilaterally between the host utility and the connecting DE system owner. Other certification requirements, such as those relating to emissions performance are also important to adhere to. A key issue affecting the viability of many DE systems is the cost associated with completing and administering the certification and permitting process, especially as these generally apply each time a new installation is built even if identical systems are being installed. Also, these costs do not generally vary proportionally with power plant size and they therefore tend to have a much greater impact on DE schemes. In order to promote and enhance the DE schemes, there is a strong case for standardized certification and permitting rules for new DE schemes. Pre-defined technical and other requirements (such as emissions performance, health and safety, etc), and that the certification process is administered fairly by approved agencies. Alternatively, compliance



with some of the technical performance requirements of the DE system specification could be verified through manufacturer “self-certification”, reducing the financial burden associated with employing a third party assessor. The legal boundaries between self-certification and the need for certification by third parties, as would probably be required for the health and safety aspects of the installation, would have to be determined generically. The certification process should also be made legally binding as it would also enable DE developers to assess future schemes on the basis of known and defined technical and certification requirements, thus removing some of the uncertainty that currently restricts investment in DE applications. Ideally, with suitable electrical interconnection standardization, the certification of a new design of DE system, either through self-certification or by an independent third party, would validate this design for application at a wide range of host sites without the need for further extensive type and site testing.

RECOMMENDATIONS • Standardized DE system certification and authorization protocols should be

developed and implemented. This would include emissions performance certification. • The certification process for new DE schemes, should be administered by an

independent, approved agency. DE system manufacturers should also be permitted to “self-certify” certain aspects of the performance of their systems in order to minimize the financial burden associated with the certification process.

3.1.3. Impact of DE on existing network performance A significant barrier to DE at the present is the uncertainty relating to the impact of large penetrations of DE on the controllability and performance of the host electrical grid networks. This can partly be mitigated through interconnection standardization. This situation is more complex if there are multiple small DE schemes connected within a distribution network. This may create problems in scheduling and wheeling, and if there are multiple DE schemes interconnected to micro-grid systems. Who will be responsible for this management?

In order to gain a clearer understanding of the potential impacts of large penetrations of DE on the main interconnected grid systems, it is important that detailed, scenario-based analysis covering all regions of Thailand be performed. This analysis requires a long-term study for the future.

RECOMMENDATIONS • In order to gain a clearer understanding of the potential impacts of large penetrations

of DE on interconnected grid systems, a scenario-based analyses covering all regions of the Thailand should be done. These studies may determine DE penetration breakpoints at which operational difficulties may and also provide solutions to mitigate these impacts.

3.1.4. Valuation of DE services The fact that DE is generally located at, or close to, the point of electricity consumption enables it to provide a number of operational and commercial benefits over and above pure power generation. Additionally, a number of DE technologies currently available or in the advanced stages of commercialization (co/tri generation) offer very favorable emissions performance. In the current climate of emissions reductions, this ought to provide DE with a degree of commercial advantage. However, with the current market structures and pricing mechanisms, few of the benefits of DE are capitalized to their true commercial value, if at all. To ensure a “level playing field” for DE, any benefits that DE provides to the electrical grid system or to the commercial operations of third parties should be fully and fairly reflected in



system pricing and other payments to DE systems. The benefits that DE can provide can be summarized as follows: System Benefits: These relate to the positive contribution that DE can make to the operation of the electrical grid network to which it is connected. Examples of this include voltage support, frequency support (for smaller networks), system reliability and availability enhancements, energy transportation loss reduction, and system response services (eg spinning reserve). Commercial Benefits: These are the financial benefits that DE can provide to the different stakeholder groups impacted by the interconnection of a DE scheme. Examples include energy transportation loss reductions which can benefit the host utility if they receive efficiency-related payments through the regulatory regime, emissions savings and resultant tax/levy mitigation, ancillary service provision which can save ancillary service payments for utilities if these services are provided free by the DE scheme, cost-of-downtime savings for customers using DE to mitigate service outages.

The potential technical and commercial contribution of DE, whilst recognized by most stakeholders, has not yet been fully appraised or quantified. It is imperative that this is done to ensure a truly liberalized market environment that reflects the real value of all of the power generation resources within the energy supply system. To make progress towards achieving this, there are a number of significant issues that must be addressed:

• The determination of a true market value for the services provided by DE. Whilst the exact value of these services will be case-specific, the general rules and approaches taken in determining the market value for DE should be agreed and implemented.

• To complement the establishment of a market value for DE services, contractual arrangements that reflect this value must be developed and implemented. These must be applied fairly and consistently to reduce the financial uncertainty that is often associated with new power generation schemes.

• Network planning approaches must fully consider the benefits of DE when assessing new infrastructure or power generation options, as in some cases the deployment of DE will provide a more commercially attractive solution than network reinforcement. Indeed, DE has already been shown to provide potential advantages in network security applications 17 , but utility practices have shown little sign so far of encompassing DE as an alternative to conventional reinforcement approaches.

RECOMMENDATIONS • Utility network planning procedures should be reviewed to ensure that DE is actively

considered within the planning process as an alternative solution to conventional infrastructure reinforcement. This may be achieved through the development and implementation of a set of standardized planning rules and approaches that define the mechanisms by which DE performance should be analyzed.

• An assessment of the system operation, commercial and environmental benefits of DE should be conducted. This study should focus on the development of mechanisms for the capitalization of the benefits of DE to enable true through-life economic performance analysis of DE schemes.

• New contractual arrangements that reflect the true commercial value of DE should be developed and implemented. These arrangements should be applied consistently to reduce the current financial uncertainties associated with new DE investment.18

17 http://www.seattle.gov/light/conserve/globalwarming/ 18 Roadmapping of the paths for the Introduction of Distributed Generation in Europe



3.1.5. Net metering and Connection charges The concept of net metering is to enable the electricity meters of customers with their own generation facilities to turn backwards when their generators are producing more energy than their own demand. Net metering allows customers to offset their electricity consumption over a long period of time and is of particular interest to the renewable energy community as it effectively increases the economic value of the energy produced. This is because allowing the meter to counter-rotate means that the generating facility in effect receives the full retail price for the electricity that they generate. This is different from common utility practice where a second meter is installed which measures energy flow back to the grid, and the facility is paid for this export energy at a rate much lower than retail prices. The widespread introduction of net metering for DE schemes could provide a significant economic incentive that could contribute to the increased deployment of these technologies without the need for a significant financial investment burden in technology development. As the exported energy from on-site generation is considered to have the same value as the retail energy price, it can lower the economic threshold for project implementation. In view of this, some parties are of the view that net metering provides a reasonable replacement for those benefits of DE that can be difficult to capitalize accurately (eg environmental benefits). However, the net metering approach described does not necessarily reflect the true market value of energy sales on a time-varying basis as it simply measures net energy transfer without taking account of dynamic price fluctuations. A market-reflective approach is to allow the implementation of “time-varying” net metering, which effectively measures the net financial flow between the DE scheme and the market. There is significant activity in the United States looking at net metering, with all States involved in implementation in some way. Debate in the United States is currently focused on how far eligibility size limits should be extended and how emerging technologies (such as fuel cells) could be included within the current regulations. Similar activities need to be considered and introduced within Thailand and Asia. Net metering could be applied to stimulate DE. It would create an environment where DE-generated power is given a fair market value, especially if time-varying net metering is implemented and if consideration is given to those benefits of DE that currently receive no financial credit. RECOMMENDATIONS

• Policy should be reviewed such that the option to adopt simple or time-varying net metering should be considered for all new DE schemes. The size (power rating) of DE schemes to which this policy applies should be made as high as possible to enable a broad range of DE technologies to take advantage of the policy.

• Time-varying net metering should be developed and made available for DE schemes (i.e. based on net financial flow between the generator and the market and therefore taking account of the time-varying value of electricity).

3.1.6. Legislation Currently there is little or no legislation to promote DE in Thailand. The policies for SPP and VSPP are limited and there are a number of policy and legislative initiatives that cover a number of aspects related to DE (eg renewable energy, combined heat and power, etc). The Security of Supply Green paper of November 2000 alluded to the need to carefully consider future technology choices in energy policy and to evaluate the deployment of DE in that context. A number of recent legislative measures, such as the Directives on electricity from



renewable energy sources, the internal electricity market and on CHP, can generally be expected to increase the levels of DE within the European Union although it is unlikely that this was the original intention of the Directives. In some cases, the positive effect on DE is likely to arise from provisions that are specifically designed to promote DE, for instance in the new Electricity Directive or in the Directive on the Energy Performance of Buildings. Other Directives that penalize the inefficiencies of thermal centralised power production or that pose other additional burdens on centralised generation can be expected to have an indirect positive effect on DE through increasing its relative competitiveness. The Directives on Large Combustion Plants and Emissions Trading, and the proposed Directive on the Taxation of Energy products are examples of these. In view of the fragmented DE technology approach that is currently being implemented, there is a significant risk of incompatible and conflicting development scenarios emerging. Hence, a more coherent view of the features, benefits, problem areas and development paths for DE in the context of the key energy policy goals is required. Such an undertaking must start with very fundamental questions relating the future delivery of electricity within Thailand. RECOMMENDATIONS (check the numbering on this)

• It should be recognized by policy makers that at the present time there is no coherent approach towards the implementation of DE. Such an approach is urgently needed.

• Thailand, with the assistance of stakeholders in the DE industry, may want to consider taking steps to develop an action plan and associated policy recommendations for the introduction of DE (generically). This will enable the significant benefits of DE to be evaluated and fully realized for the benefit of Thailand as a whole. It will also help to stimulate the DE industry.

• As an interim measure, current policies and Directives that impact on DE should be reviewed and rationalized to ensure that incompatible and conflicting DE development scenarios are eliminated. This will enable a consistent and rational approach to DE barrier removal.

3.1.7. Incentives and financing In order to level the playing field for DE, it is important to generate initial interest in order to stimulate DE technology and system development. The provision of incentives and financing through policy mechanisms is a traditional way of creating such an environment, and this approach has been deployed very successfully in the past, for example as a means of stimulating renewable energy developments. However, it is important that once the initial market has been stimulated through these mechanisms that technology is commercialized to a degree that it ultimately becomes self-sustainable, i.e. it does not rely on incentives in the long term. This has to be the clear goal for DE.

The installed costs of newer DE technologies (eg fuel cells, micro turbines, etc) are currently too high. The higher cost factor is disabling them to achieve a significant market penetration breakthrough without some degree of cost reduction. Thailand may offer sufficient incentives to enable developments to take place, whilst ensuring that DE manufacturers are encouraged to develop genuinely “commercial” systems. Typical incentive mechanisms that could be applied to DE are:

• Grants to offset installation costs • Tax incentives and rebates • Priority grid access to DE



• Compensation payments for avoided network infrastructure costs • Guaranteed prices or “top-up” payments for exported energy • Net metering with guaranteed revenue • Appropriate interconnection requirements and standardization • Payments to account for system efficiency improvements • Carbon Credits for system performance/environmental performance benefits

Each of these mechanisms has its merits and potential drawbacks. Furthermore, the use of incentive mechanisms within the energy sector is a complex issue that is impacted by many variables, many of which are very hard to predict and control.

To enable DE incentive scenarios to be reviewed continuously, it is recommended that a detailed (and freely-available) financial model of the Thailand energy market is developed. This will enable the impacts of different incentive schemes on the likely penetration of different DE technologies to be analyzed, and will enable a pro-active response to changes in market structure and technology developments by policy makers through changes in incentives and other mechanisms.

RECOMMENDATIONS • A full assessment should be performed to determine appropriate, fair and consistent

incentive regimes for DE. These incentives must both encourage the uptake of DE and lead to the commercial development of DE technologies while enabling them to compete and maintain market share in the long term.

• Thailand should develop a detailed financial model of the Asian energy market, with the purpose of enabling the impacts of different incentive schemes on the penetration of different DE technologies. Such a model will also enable a pro-active response to changes in market structure and technology developments by policy makers through changes in incentives and other mechanisms.

3.1.8. Co-ordination of DE activities in Thailand There are two key benefits of DE:

• The technical and market-based benefits arising from DE deployment • The social and wealth-creation benefits of having a thriving DE industry

At the current time there are limited activities, both at the long-term fundamental research stage and at the nearer-term commercialization stage. There is a general lack of cohesion and strategic focus pulling all the research and development activities in DE together in the same direction for the good of Thailand as a whole. Such a focus is being implemented in the United States through the DOE with US manufacturers and utility groups. Without a coordinated approach, it is unlikely that DE will find the widespread market application. Thailand may consider mechanisms by which DE is given a strong central steer and co-ordination across all EU States, probably with European Commission leadership.

In order for this to occur, it is important that a database is kept that monitors the dynamics of the power generation industry. Such a database should be freely available to interested parties via the Internet, and should include (amongst other things) up-to-date and continuously maintained information on power ratings, fuel types, connection voltages, and ownership data for power plant. A key requirement will be to include accurate statistics on the penetration of DE that can be used as the basis for future policy initiatives and research and development funding decisions.



RECOMMENDATIONS • Thailand should give consideration to the increase of research and development

support for DE technology developments, and the increased focus of funding for DE barrier removal.

• Given the high strategic importance of developing a successful DE, an industry research and development co-ordinating group should be convened to promote the benefits of DE. It is considered that the best way to achieve this is by setting up such a group in a dedicated “DE office” funded by, and located in Bangkok (WADE Thailand could perform this function).

• This group will: Be a centre of competence and information on DE issues for stakeholders; providing a focal point for DE technology and institutional barrier removal; providing guidance for the co-ordinated and directed support of DE technology development support; and continuously maintained database of power generation and DE statistics which should be developed and made freely available to interested parties through the internet.

3.2. Road Map

DE can have a great impact on the country and it is necessary to map out a proper vision with timelines for implementation. The following is an outline of the roadmap for Thailand with milestones and a timeline for each of the recommendations. The recommendations are based on several from the EU and may be used in Thailand.

3.2.1. Road Map Policy Issues Scientists, engineers, and policy makers working on energy, together with industry, are in a position to develop a more viable energy future for Thailand. They can adopt and utilize existing resources for the greater demand that is anticipated with growth. This effort will result in creation of decentralised/distributed energy infrastructure, industrial base, specialized research centres, institutional set up, trained and qualified manpower, codes, standards, specifications, regulations, legislations and policy measures, which would facilitate acceptance of DE by consumers. This would require an integrated energy system to be developed and put in place and in turn, require continuous development, demonstration and validation of various technologies related policy issues and other measures. Strong Public-Private Partnership Projects would also need to be implemented to achieve this. In addition to the technical issues discussed, there are a number of policy issues that have been identified during which at the present time are limiting the uptake of DE within Thailand. These policy issues must be addressed in conjunction with the technical issues in order to create a fair market place for DE to compete within. Valuation of DE services Treatment of stranded costs Generator ownership issues Net metering Legislation Incentives and financing Building code requirements DE industry development Co-ordination of DE activities Connection charging

3.2.2. Recommendations implementation timeline For DE to generate maximum benefit, it is necessary to map out a vision for the timescales within which the implementation of the recommendations in this document could occur in practice. The timescales are considered by the authors to be challenging,



but achievable, and necessary for DE implementation to occur to a sufficient degree to enable maximum benefit to be produced. Each of the recommendation categories are considered in turn in order to determine a co-ordinated approach to addressing each of the major issues that are currently restricting DE application. In each of the following graphs, the following key is used to provide a relative prioritization of the recommendations. (Include with Scheduling and milestones)

As compared to EU standards Thailand may want to consider these steps

Number Description Milestone Date

1 Develop a electrical interconnection Standard for DE 2012 2 Review utility practices associated with the interconnection of DE to

ensure fair treatment of DE 2012

3 Standardize DE system certification and authorisation protocols 2012 4 Develop funding support for new DE projects 2010 5 Co-ordinate DE demonstration and validation through the setting up of a

DE test and demonstration facility. This facility could also perform the independent DE certification and standardization role

2010

6 Support R&D for efficiency improvements and cost reductions for “more-established” DE technologies as well as new-generation technologies.

2011

7 Develop analyses of the potential impacts of high levels of DE penetration on interconnected grid systems.

2011

8 Review utility network planning procedures and require DE to be actively considered in the planning process. This may be achieved through the development and implementation of a set of standardised planning procedures.

2010

9 Develop a detailed assessment of the electrical system operation, commercial and environmental benefits of DE.

2011

10 The development and implement new contractual arrangements for the true commercial value of DE.

2010

11 DE schemes and projects to be exempted from stranded cost charges. 2010 12 Market rules ensuring that DE ownership by grid system

owners/operators should not be used to adversely affect the market place.

2010

13 Feed-in Tariff – Review the option to adopt simple or time-varying net metering for all DE schemes. The kW rating threshold for DE to qualify for net metering terms should be made as high as possible.

2010

14 A mechanism for time-varying net metering (feed-in tariff) to be developed for DE based on net financial flow between the DE scheme and the market.

2010

15 An assessment of the mechanisms by which net metering could be introduced for DE schemes for Thailand and then for ASEAN countries

2010

17 Develop transparent incentives for new DE schemes. 2010

3.3. Vision and Road Map for DE in Thailand Currently, DE levels are relatively low and targeted at a number of niche applications.



Market conditions, policies, rules and utility practices are weighted against DE. The aim is to have a thriving DE manufacturing base, coupled with a genuinely competitive energy market enabling DE to compete on a level playing field with more conventional energy delivery approaches. The target is important both in terms of the future wealth and prosperity of Thailand, and in terms of diversity and security of energy supply that is currently receiving significant attention at the global level. Appropriate action should be taken, it would be expected that by the end of 2011, an Action Plan for DE Implementation, ratified and supported by the Thailand Government, would be in place. Coupled with this, it is envisaged that a “WADE Thailand Office” could be started up during 2010, enabling full operation towards the middle/end of 2010. Its role would be to provide a centre of competence and information on DE issues for DE stakeholders within Thailand and later Asia, along with providing guidance in issues such as DE technology development requirements and institutional barrier removal. Additionally by the end of 2010/11 steps should be taken to address at least some of the Policy issues currently restricting the access of DE to energy markets. It is envisaged that mechanisms could be agreed and implemented by this time for an appropriate capitalisation method for the full range of benefits of DE. Additionally, it is anticipated by 2010/11 that the issues associated net metering with compensation payments for DE operators will be implemented. A key constituent of the DE Road Map is the development of Standards for the interconnection of DE systems with electricity grid networks. It is also expected that standardised network utility planning procedures, requiring consideration of DE options as alternatives to traditional network reinforcement, would also most likely be completed by 2010. Another key issue to enable increased DE penetration relates to the need for common DE certification protocols enabling increased “type” certification of DE systems by independent third parties. This will reduce the testing demands for DE schemes on individual contracts, and hence will reduce the cost of DE system installation. At this stage, there are many variables remaining to create a level playing field. Moving on to 2010 and beyond, it would be expected that increasing (and unprecedented) levels of DE installation will occur and realistic market conditions applied. This will provide the energy market with increased flexibility and diversity, and importantly will have lead to the creation of a thriving and successful DE industry within Thailand. WADE Thailand – Organisation. Listed below is the timeline for implementation of some of the major items.



ROADMAP TIMELINE

DESCRIPTION YEAR 2010 2011 2012 2013 2014General Policy Timeline Develop Initial Roadmap for introduction of DE in Thailand Increase focus within Thai Government for the introduction of DE into the grid -- assess current PDP and modify for DE Make DE and system availability issues integral parts of the building codes and planning process Start a Thailand funded “DE Office” -- for assisting the Thailand Government, generators, manufacturers, and consumers while providing a platform to distribute information on DE Develop a database of power generation and DE statistics to be compiled and made available for all interested participants in DE Develop funding support for new DE projects

Develop transparent incentives for new DE schemes. Develop analyses of the potential impacts of high levels of DE penetration on interconnected grid systems. Develop a detailed assessment of the electrical system operation, commercial and environmental benefits of DE. Review utility procedures associated with interconnection of DE into the grid and develop grid interconnection standard Implement DE system interconnection certification and protocols DE demonstration and validation - Set up a DE demonstration facility. Facility could perform the DE certification and standardization role Develop a system where DE schemes and projects are exempted from stranded cost charges.

Develop market rules ensuring that DE ownership by grid system owners/operators should not be used to adversely affect the market place. Feed-in Tariff – Formulate and adopt simple or time-varying net metering for all DE schemes. The kW rating threshold for DE to qualify for net metering terms should be made as high as possible. A mechanism for installing net metering (feed-in tariff) for sale of excess power into the grid.



4. WADE Thailand – Thai-based Organisation

4.1. Mission and Objectives Mission WADE Thailand a registered NGO will work to accelerate the development of high efficiency cogeneration, onsite power and decentralised renewable energy systems that deliver substantial economic and environmental benefits. The wider use of DE is a key solution to bringing about the cost-effective modernisation and development of the world’s electricity systems. Existing DE technologies can reduce delivered energy costs and decrease emissions of CO2 as well as other harmful pollutants. Central power systems currently represent the majority of Thailand existing installed electricity capacity and generation but there is growing evidence that the DE's market share is growing rapidly. WADE’s three key missions are;

1. To promote the development, implementation and dissemination of DE in Thailand; 2. To bring about effective power sector reform which eliminates barriers to DE and

creates real market opportunity for DE; 3. To provide its Members and supporters with value added market intelligence,

information and business opportunities Objectives WADE-Thailand objectives are to undertake a growing range of research and programs on behalf of its supporters and members:

1. To form an Alliance among existing global and local associations/organisations to address shared concerns and enhance networking opportunities

2. To conduct advocacy activities for the enhancement of policies and programs that level the playing field for DE

3. To organise events and activities designed to promote and advance the market for DE technology and showcase member product offerings

4. To conduct cutting-edge research and analysis on energy and the environment and disseminate market intelligence and relevant news to keep members informed of the latest developments in the global DE marketplace

5. To formulate projects and activities that will generate business opportunities for members



WADE Thailand Concept

4.2. Stakeholders – Membership EGAT, MEA, PEA, SPP, VSPP and others as identified thru the use of workshops and seminars. The major players will be international and domestic producers and users of power.

4.3. Management Team and Structure WADE Thailand will be a NPO based in the Capital area of Thailand. The staff will consist based on the funding availability. The initial team will be comprised of the following:



The Advisory Board will be comprised of stakeholders and initial members with a rotating chairmanship. The board will have a Chairman, Vice Chairman, and Secretary. The board positions will be for a tenure of 2 years and shall be an elected positions with the Vice Chairman replacing the Chairman. The board will be selected by the WADE Committee. The Executive Director (ED) will be a part time position with the salary funded by the membership fees and other funds generated by WADE Thailand. The Executive Director shall report directly to the Advisory Board. The ED will be responsible for the day-to-day The Coordinator shall also be a full time position based on the requirements of the Executive Director. The Coordinator will be a full time position and shall report directly to the Executive Director. He/she will be responsible for the daily maintenance of the database, office and other activities as assigned by the ED.

4.4. Main Activities Five main strategic objectives are proposed that match with the foreseen mission. For each of these objectives, key actions and activities are outlined for driving the WADE Thailand organisation. Objective 1: To form an Alliance among existing global and local associations/organisations

to address shared concerns and enhance networking opportunities. Main activities falling under this objective include:

• Favour networking opportunities, including facilitate the relations between associations sharing similar concerns from the EU.

• Inform on helpful experiences from the EU, best practices from different sources and nations might be made available to the Thailand counterparts through a permanent link expected to be established with relevant existing organisations.

Objective 2: To conduct advocacy activities for the enhancement of policies and programs

that level the playing field for DE. • Provide advocacy materials describing the requirements from the DE

players in terms of policies, market conditions. These positions will result from the members/working groups.

• Advocate policy decision makers at regional and national level. Objective 3: To organise events and activities designed to promote and advance the market

for DE technology and showcase member product offerings. • Development of a training programme to be organised by the WADE

Thailand whenever a need is identified and in which the WADE Thailand staff is not involved as trainer but as a facilitator. EU associations could be tapped for providing training.

• Organisation of events (seminars, workshops, conferences, business to business links)

Objective 4: To conduct cutting-edge research and analysis on energy and the environment

and disseminate market intelligence and relevant news to keep members informed of the latest developments in the global DE marketplace.



• Provision of Policy and Regulatory updates • Provide material on decentralised energy education for its members

and non-members. • Host a range of information databases of the region – resource

assessments, business directories etc. • Free access to all WADE policy and market reports. • Direct access to WADE's network of national DE / CHP organisations

and other members, all located in key national markets. Objective 5: To formulate projects and activities that will generate business opportunities for

members. • Web-based matching between projects and funders • Preparation of proposals that will generate business opportunities for,

among and in collaboration with members

4.5. Long terms viability and sustainability issues

This section intends to foresee an ideal financial balance for the WADE Thailand organisation when it will have reached an equilibrium between its operations and functioning. However, it is anticipated that WADE Thailand initially will be supported by WADE UK and the EC based on international experience.

4.5.1. Financing and Sustainability WADE Thailand should be financially independent and for this, in order to pursue its aims, WADE Thailand will rely on its assets, independent from those of its members, originating from the following sources to be a self-sustaining organisation:

- Annual fees as well as the voluntary donations of its members, to cover in priority the core operating costs and secure the independence of the organization. The level of the fees will depend on criteria as proposed here after. The amounts indicated in the following are indicative and to a certain extent derive from what is applied in the European Union with a slight undervaluing reflecting the difference of wealth. The Advisory Board of Directors will have to approve these amounts.

Founding Members Free (By invitation)

(i.e. Professional associations) Commercial Organisations 15,000 Baht per year Educational Organisations / Non-profit 10,000 Baht per year Individuals 5,000 Baht per year

- Funding from public or private institutions, cooperation programmes, international

aid agencies and donors of their cooperation programmes i.e. EC, ADB, USAID and other funding for the promotion of DE.

- Revenues likely to be obtained from the execution of activities, organisation of events, provisions of services and studies or other projects on behalf of third parties, related to the objectives of the WADE Thailand.

- Any other income arising from contributions of any kind, donations, credits and collaborations.

4.5.2. Staff During the first operation period, the staff requirements are estimated to be as follows;



- 1 Executive Director, - 1 Assistant – Office Admin

The staffing needs and corresponding work load and work programme will be assessed depending on the number of members who have decided to join the WADE Thailand organisation.

4.5.3. Operational Budget Income The incomes resulting from the member subscriptions are presented in the following table together with the assumptions on the number of members per category registered during the first year of operation. WADE Thailand aims to recruit approximately 30-50 members at minimal fees and limited operational budget in the first year so that its independence and sustainability are properly secured. It is highly expected that personal relations between WADE global and large companies, public and private, will help ensuring the participation of key members. This should allow for WADE Thailand to operate on a self-sustaining manner.

Revenue from Membership

Membership Category Fees (Baht/year)

Number Total (Baht/year)

Founding Members (By invitation) Free 5 - Commercial Organisations 15,000 15 225,000 Educational Organisations / Non-profit 10,000 15 150,000 Individuals 5,000 5 25,000 TOTAL 40 400,000

In addition to member subscriptions, incomes are expected to be obtained from other activities. The combination of incomes is as follows:

Member subscriptions 400,000 Baht per year Revenues from activities 75,000 Baht per year Grants from donors 75,000 Baht per year Total: 550,000 Baht per year

Expenditure It is anticipated that the WADE Thailand office will have the following requirements:



DETAILED BUDGET BUILD-UP FOR WADE THAILAND OFFICE

(JAN. 1, 2010 – DEC. 30, 2010) DESCRIPTION: OFFICE FOR 2 EXECS

Cost Category Cost per Month in

Baht

Number of Units

Total Cost per year in Baht

TOTAL THB 548,500Labor Sub-Total THB 354,000Executive Director (Part time) THB 35,000 6 THB 210,000Coordinator - Office Admin (Full time) THB 12,000 12 THB 144,000Office Expenses Sub-Total THB 194,500Office Rent THB 10,000 12 THB 120,000Communications – Phone THB 500 12 THB 6,000Office Supplies THB 1,000 12 THB 12,000Photocopying THB 500 12 THB 6,000Publications / Subscriptions THB 500 1 THB 500Office Furniture THB 20,000 1 THB 20,000Computer and Software for office admin THB 10,000 1 THB 10,000Printer and Fax Machine THB 8,000 1 THB 8,000Utilities THB 500 12 THB 6,000Miscellaneous Supplies THB 500 12 THB 6,000Assume: Staff salaries to increase at 5% per year

The estimated operational budget for the WADE Thailand office is THB 548,500. This is equivalent to 11,066.28 EUR (1 EUR = 49.5650 THB). Obviously, all these data are only indicative and are proposed to estimate the amount of money at stake in the building up of the WADE Thailand. It is expected that the staff will increase in the future as the growing of number of members. It is also important to analyse the possibility to secure financing from international agencies during the first years since the budget balance might be difficult to be obtained with only the subscriptions fee.

4.6. Benefits of Members WADE Thailand will provide some benefits to the members such as:

• Reports, studies, seminars • Enhancement of market intelligence and business opportunities • Leveraging of existing set ups to address shared concerns and cross-cutting issues • Platform for expansion to other ASEAN countries • Greater access to sources of financing • Access to centralised support for information, services and training on DE and

Climate Change aspects • Global network, members’ experiences

Research



WADE has established a tradition of thorough and comprehensive research on the DE industry and a wide range of energy and environmental issues. In addition to WADE’s publications, reports and market studies, WADE has participated in successful projects around the world, working with a range of governments, national and international organisations. WADE’s contribution to these projects includes:

• Macro economic and environmental modeling of the power sector: employing the WADE Economic Model to explore economic and environmental impacts of DE in a specified area

• Market Intelligence: • Assessment and analysis of DE development potential in a specified area • DE Technology Status Review – overview of the performance and market readiness

of DE technologies • DE Policy Best Practice Review: international overview of policy mechanisms for DE • DE Project Best Practice Case Studies: global overview of successful DE case

studies Previous WADE Reports and Studies A number of WADE reports are published every year, including the annual WADE DE World Survey. Other reports focus on certain technologies or industry sectors, discuss specific barriers or opportunities for DE, or provide a comprehensive analysis of specific markets. WADE Economic Model Applications The unique and powerful excel-based computer model enables users to directly compare, in economic and environmental terms, central and decentralised power as options for meeting future electricity capacity requirements. Based on an extensive variety of input data and user defined assumptions the model builds generation, transmission and distribution capacity and compares the results. WADE Market Intelligence and Information Products WADE works to keep its members up to date on current events affecting their business and the scope for the DE sector in general. A number of communication tools are employed for this purpose:

• Weekly intelligence reports to WADE members • Monthly newsletter • Regular research reports featuring pioneering research in the DE field • Contributions to editorial content of Cogeneration and Onsite Power Production

magazine (published in association with Pennwell). • Website

WADE Communication and Outreach WADE has a proven track record in capacity building, education and training of stakeholders so that they are better equipped to take the DE agenda forward and implement DE projects in their region. WADE works to educate stakeholders about the many benefits of decentralised energy using a wide range of communication media:

• Articles in trade publications and journals • Speeches and presentations at conferences, workshops and events around the world • Op-ed pieces and letters to the editor • Press releases • Formal submissions to public consultations regarding energy and the environment

Other Benefits in Macro Level Economic Benefits



The wider application of Decentralised Energy (DE) can dramatically cut the cost of energy. Reduced cost is arguably the most important benefit that DE offers. There are two levels on which this cost saving can be assessed – the individual consumer level and on the level of national/international economies as a whole. The former can be analyzed on a case-by-case basis and will depend to a great degree on local market and regulatory conditions. Cost Reduction through DE – Project Level Examples of DE projects that save their owners money are too numerous to list here. Part of the reason is because there are few applications where DE cannot somehow be incorporated. Possibilities range from large scale CHP plants at major oil refineries to small wind turbines in remote villages or homes. A prime example for DE solutions at consumer level is the Shanghai Pudong International Airport, which installed CCHP technology to power the area (a gas fired engine with a capacity of 4MW and the heat boiler producing 11 t/h of steam). Becoming operational in 2000, payback of installation costs was achieved in 2001. Another replicable industry application can be found in the case of Tetra Pak which was looking for an environmentally friendly combined cooling and power solution. A 2.6 MWe generator was installed at Tetra Pak India Private Limited, Takwe, Pune. The solution utilises waste heat more effectively to improve power reliability and reduce operating costs. By investing into a CHP installation, Tetra Pak could double its energy efficiency levels at this particular plant. Cost Reduction through DE – National Level WADE has conducted a number of surveys and economic model applications to estimate possible savings from DE investment at a regional or national level. The results have so far demonstrated fairly consistently that often-substantial gains are possible for those regions that invest in DE. The results suggest that DE reduces capital investment costs for electricity, and lowers retail costs for consumers. For example WADE analysis based on the WADE economic model concluded that the UK could save 15% of its delivered electricity costs relative to Central Generation (CG). Capital costs could be reduced by even more- 27% relative to CG. This assessment is based largely on an analysis of gas turbine based cogeneration in comparison to central plants using a variety of fuels. It also takes into account reduced fuel costs, transmission and distribution savings – as well as other cost items (operation & maintenance, installation costs) for which DE may be less competitive than central power. The main cost savings result from reduced T&D requirements as well as reduced need for central capacity in order to meet peak load. The analysis did not consider the hidden environmental and public health costs that can be reduced by using DE as opposed to many forms of CG. Other countries can even achieve higher savings than the UK as WADE research has illustrated (see graph below).



In this analysis, DE is cheaper than CG in most countries while differences in savings across countries mainly depend on the local circumstances. DE technologies are highly flexible and adaptable to local circumstances, allowing for more efficient local electricity generation. The below table summarizes the results of previous studies modelling retail and capital cost effects resulting from increased investment in DE. Efficiency Benefits Efficiency gains can be obtained in two ways by a shift towards increased DE investment:

• Thermal efficiency gains • Reduced line losses

Losses through DE - Efficiency Gains The advantages of generating energy at the point of use are fundamentally thermodynamic. In fuel combustion processes most of the energy is released as heat, while only about 30 to 40% can be transformed into electricity. Electricity generation is therefore necessarily inefficient; unless the heat output is put to use as well. Efficiency of the US electricity system, for example, is even lower today than in the early 20th century, and far below its potential. Only when electricity generation takes place at the place of demand, in decentralised applications, can the heat output be used and efficiencies of over 80% achieved. The below diagram illustrates the scale of waste in the global power sector. The green arrows on the left represent the total primary energy input from all sources to generate power. The large red arrow represents energy from all fuels wasted in the form of waste heat. Capturing waste heat then clearly represents the largest source of potential for efficiency improvement. High efficiency cogeneration is the DE technology best suited for tackling this potential.



The smaller red arrows represent power consumed by the power plants themselves and the power lost during transmission and distribution respectively. The yellow arrows represent the actual useful energy derived from the original fuel inputs - about a third of the actual energy society should be aiming to use. Lower T&D Losses through DE – Reduced Network Losses In addition to the increased efficiency from using the heat output, DE also reduces the distances over which electricity is transmitted to reach consumers, so that network losses are smaller in a decentralised system compared to centralised generation. This further increases the efficiency of a decentralised electricity system. Losses from transmission and distribution (T&D) lines – the arterial system of central power generation – equaled 9.5% of the total global supply of electricity in 1999 according to the international energy agency. This is equivalent to the total electricity demand of Germany, the UK and France combined and is a colossal waste of energy. Greater use of DE worldwide can avoid most of these losses while also limiting the visual disruption which T&D causes and reducing the growing congestion of the power grid being experienced by most countries. Climate Benefits According to the IEA World Energy Outlook 2006 electricity generation is responsible for around 40% of global carbon dioxide emissions and the power sector is also the sector where emissions are expected to grow the fastest. The heating sector is another significant source of climate pollution. DE is a very strong position to cost-effectively reduce these emissions. Emission reductions via DE can be analyzed by looking from either a geographic or sectoral angle. Any industry or economic sector that uses large amounts of energy can potentially benefit from DE. For every sector WADE has so far looked at research has shown significant scope for economic savings and reduced emissions as a result of increased DE investment. Sectoral Benefits CO2 Emission Reduction through DE – Buildings About one third of global carbon emissions (1.8 billion tons) resulted from heating, cooling and powering commercial and residential buildings in 2005. Integrating DE in buildings has a huge potential to significantly reduce emissions in the building sector. According to a WADE study DE applications in buildings could cut CO2 emissions in the US by over 200 Mt per year by 2020, displacing 20% of the country's total emissions growth. The same study found



that potential for DE in buildings in China could reduce projected emissions from all sectors from between 1.3% and 11% depending on rate of uptake. This study did not look at the potential efficiency gains of using DE in applications where buildings are grouped together in district energy systems. District energy has the potential to reduce emissions even further. CO2 Emission Reduction through DE – Cement About 5% of total global primary energy goes into the manufacture of cement and the sector is responsible for between 3 and 5% of total global CO2 emissions. In a recent WADE report it has been estimated that, based on 2005 clinker production statistics, over 68.9TWh of electricity could be generated annually if the potential for DE in the cement was realized. The study looked at bottom cycle cogeneration, top cycle cogeneration and power only applications although the 68.9TWh considers only bottom cycle. This translates into about 68.9Mt CO2 annual emissions reductions or about 0.23% of total annual emissions. CO2 Emission Reduction through DE - Sugar WADE has issued a study highlighting that massive unrealized potential exists worldwide for generating useful heat and power from sugar cane waste known as bagasse. The technology offers particular promise in developing countries where most of the sugar cane is grown. If sugar processing facilities around the world were to install combined heat and power (CHP) capability based on state of the art technology the sector represents a power generating potential equivalent to about 10% of the EU’s annual electricity consumption. Displacing this amount of grid power would result in considerable carbon emission reductions. WADE has estimated that 3.7GW of bagasse CHP capacity is already installed worldwide, and more is being commissioned every day. CO2 Emissions Reductions through DE – National Level Considered on a broader scale, CO2 emissions reductions can be even more significant. The reduced pollution benefits from increased DE are largely due to reduced fossil fuel use and higher efficiency rates in the use of fossil fuels. WADE’s global survey for 2006 and a UK economic model application both found that the projected CO2 emissions reductions for the UK could be reduced by 2.83 Mt in 2023 when generating energy from DE. This would be a saving of 8% relative to centralised generation. The figure below demonstrates the CO2 savings found in previous applications of the WADE economic model.

CO2 Emissions Reduction through DE – The Clean Development Mechanism



DE’s ability to reduce CO2 emissions cost-effectively makes DE projects attractive for climate change mitigation, particularly in developing countries. Combined Heat and Power (CHP) projects play therefore an important role in the Clean Development Mechanism (CDM) of the Kyoto Protocol. A WADE study found that in September 2006 CHP projects represented 20% of all registered projects, with reductions totaling over 3.5 Mt/yr. The CDM creates therefore a perfect incentive for governments and project developers to increase the deployment of DE technologies. Land Use Benefits The centralised electricity system uses vast amounts of resources including land. Large amounts of land are required for mining the fuels used in both centralised and decentralised energy systems. For example large tracts of land are used for strip mining coal, and total deforestation from seismic lines used for locating oil and gas reserves underground is comparable to that of the forestry sector in some areas. Because DE uses less fuel to provide the same energy services DE is one way of slowing or postponing resource extraction and can thereby relieve land use pressure. Another way DE can reduce land use pressure is by reducing the amount of land required for electricity generating facilities and rights-of-way for transmission and distribution infrastructure. In many cases DE capacity, unlike central generation, can be sited without incremental land use which can reduce the not-in-my-back-yard phenomenon which often plagues the development of larger central generation projects. Solar panels are added to rooftops that already exist. Fossil fueled CHP units replace existing boilers or are installed as the heart of community energy systems or on the premises of existing factories. Because DE is used at the end user site no extra land is required to house the capacity. The table below presents the results of a study which compared typical land use required for centralised and decentralised plant. As you can see it is estimated that land-use savings resultant from using DE rather than central generation to meet the same demand range between 66 to 400 acres. Of course this reduced land requirement would also translate into savings for the developer.

Estimated land use requirements for decentralised and centralised generating capacity

Technology land required (ft2/kW capacity)

capacity (MW)

total land use (acres)

DE building integrated PV 0 12 0

DE residential CHP 0.14 50 0.16 DE industrial CHP 0.61 98 1.37 DE commercial CHP 0.38 100 0.86 DE subtotal 250 2.39 CG Coal 69 250 396 CG natural gas 11 250 66 CG Nuclear 42 250 243 Source: Spitzley and Keolian

Increased DE use can also reduce or eliminate the need for expensive and unsightly high voltage transmission expansions. When fossil fuels are the primary fuel it is much more efficient (and less land intensive) to transport the fuel itself and then burn it in DE applications than to transport electrical energy. The below images illustrate two different



energy transportation technologies which cost approximately the same to build and operate. For the same price much more energy can be moved through a pipeline than electrical wires.

25,000MW capacity gas pipeline 500MW capacity transmission line Source: Klimstra 2006 If new electricity is generated where it is required there is no need to transport it over large distances. If the DE can be sited in areas with existing transmission bottlenecks the need for new transmission capacity could be avoided all together. Security Benefits Energy Dependence Global consumption of natural gas is increasing sharply as the electricity sector looks more and more to this fuel to feed new power plants. Gas now dominates the fuel range for new plant in most countries. With this ascendancy comes increasing concern about its security of supply. Most countries must import gas which raises the issue for most governments about limited resources and scarce supply. With energy demand growing globally, dependency on resource-rich countries and regions is likely to increase even further. As most oil and gas supplies are imported via politically unstable areas, supply can increasingly become affected by political disputes. Security of supply is therefore of increasing political and economic importance for most countries. The European Union is a good example of an area heavily dependent on fuel imports. In recent decades Europe has witnessed an increased importance of gas in its energy mix yet it is highly import dependent. Cogeneration and DE are major tools to increase fuel independence on external suppliers. If Europe can achieve its target of doubling DE-based cogeneration capacity by 2010 from 1997 levels, it can reduce the volume of imported gas by almost 25%. The UK could reduce its fossil fuel use by 140PJ in 2023, a saving of 6.1% relative to central generation. This will not only enhance the European Union's immunity to import disruption – it will also save Europe a considerable amount of money. With continuing economic growth, energy consumption will inevitably increase. Despite efforts in some areas of the world to decouple economic growth and energy intensity, fuel consumption has been on the rise in most countries. An increase in fuel efficiency and lowering system losses could be achieved by a higher share of DE generation as a recently commissioned WADE study called 'Decentralising UK Energy' has demonstrated. Examples of Conflicts



Russia-Ukraine In early 2006 a major dispute emerged between Russia and Ukraine over the price of natural gas. Russian state-owned Gazprom wanted to increase the price of natural gas it was supplying to the Ukraine to better reflect market prices. The Ukraine, like much of Europe, is highly dependent on Russia for its gas supply. When Ukraine refused to pay an increased price Russia cut off exports. The resulting decrease in gas pressure across Europe caused immediate concern to the EU and price effects were felt around the world. Although the dispute was subsequently resolved the disagreement highlighted the reliance of the EU to foreign gas supplies and the event continues to haunt many top policy makers and industrialists. The energy efficiency offered by DE is one key tool which is a strategic option for mitigating against dependency on foreign fuel supplies and is likely to continue to rise on the policy agenda of European nations as similar disputes arise in the future. Argentina-Chile Chile is dependent on Argentinean natural gas for almost all its natural gas. In 2004 Argentina began to reduce its natural gas exports to Chile in response to tighter supply-demand balances domestically. If imports from Argentina continue to dwindle Chile may be forced to choose between supplying gas to domestic users for heating and cooking or to the industries which drive much of the country's economic prosperity. Increased investment in DE in Chile could help reduce the dependence on Argentina. Reliability Benefits The reliability benefits that can arise from increased investment in DE are various:

• Increased power quality • Reduced vulnerability • Self sufficiency and backup power

Increased Power Quality

As the complexity of today’s technology increases, so does its sensitivity to voltage fluctuations. These fluctuations can cause costly shutdowns. A study by the Electric Power Research Institute concluded that poor power quality cost the USA alone some $119 billion in 2000.

Reduced Vulnerability A central power system based on extensive T&D is vulnerable to human and natural threats. Two specific threats to electricity networks are extreme weather and terrorism. Wider DE implementation reduces this vulnerability to damage or destruction and it is now commonly recognized that a more dispersed generation system creates diversity, resulting in a more



robust and reliable electricity system. In 1998, an ice storm hit Canada and the USA. The 100 millimeters of freezing rain destroyed 1000 high voltage transmission towers and some 30,000 distribution poles leaving 1.63 million people without power. One month after the storm, electricity was still not restored for 700,000 people and costs for Montreal and Ottawa alone were around $500 million. In 2003 a blackout caused by a falling branch plunged more than 50 million people into darkness (1in 3 Canadians and 1 in 7 Americans). Total financial losses arising from the disaster have been estimated in the order of $6 billion USD. A similar episode in Italy the following month cut off power to the entire country of Italy (some 56 million people). There is considerable evidence that increased DE distributed throughout a grid can go a long way to reducing an areas vulnerability to power outages. Similarly, a 2001 study following the 11 September attacks suggested that a system based more on gas-fired distributed generation plants may be five times less sensitive to systematic attack than a central power system. As societies become more and more dependent on electricity for the economy to run individuals and industries alike are becoming increasingly wary of the dangers of blackouts. Many are losing confidence in the ability of traditional power supply to provide sufficient quality and are turning to DE, which can provide relief for congested high peak demand T&D lines and so reduce the risk of rolling brown-outs or voltage fluctuations. Increased Self-sufficiency Closely related to reduce vulnerability, the increased self-sufficiency that DE provides is still a distinct benefit. Generating power onsite can reduce the dependence of homes and businesses on imported energy. Especially for larger installations DE can increase the bargaining power of factories or communities with energy providers such as utilities and fuel suppliers. On a larger scale communities or regions that use a large proportion of DE will be less reliant on energy imports to drive the economy. The positive results arise both from the increased efficiency that DE offers and the increased proportion of renewables which are a natural fit with DE. The city of Malmö, the commercial centre of southern Sweden, has achieved a high level of self-sufficiency through a diverse approach to energy generation in the city. Energy technologies applied include solar/PV, wind, geothermal, biomass CHP etc. The energy sources are largely connected and integrated in the buildings, which are in turn connected to the district heating network and therefore benefit the surrounding community ensuring constant supply of heat and electricity. As a result of the focus on DE investment the community is largely energy self sufficient requiring few imports. Ancillary Services Ancillary services are those necessary to support the transmission of power and include such categories as:

• voltage support/reactive power • regulation of load imbalances • operating reserves (spinning and non spinning) • backup supply • blackstart capability

The ancillary benefits offered by DE are well documented in a February 2007 US Department of Energy document on the potential benefits of DE. Voltage support DE can provide voltage support to existing grid infrastructure thereby reducing losses, saving money and eliminating unnecessary pollution. Sending reactive power over



transmission lines from central generators creates additional congestion on the system. If the same reactive power is supplied locally it frees up useful grid capacity for real power transfer from generator to load. The dynamic nature of DE as a supplier of reactive power also makes DE more valuable compared to other static sources often relied upon by utilities to supply reactive power such as synchronous condensers, static VAR systems etc. Operating Reserves Because many DE technologies can be kept in idle mode and brought up to full capacity in a short period of time they are ideal candidates for providing spinning reserve, non spinning reserve and blackstart capability. DE resources aggregated together could effectively play the same role as even very large plants sometimes used to provide the necessary redundancy in the system in times of emergency or unplanned maintenance. Access Benefits Energy Access in Developing Countries Approximately one-third of the world’s population does not have access to electricity (see figure). Most of these people live in developing and underdeveloped areas or live in areas where population density is too low to justify grid access or connection. Because of the close relationship between energy and economic production the lack of electrical power is arguably the main obstacle to further economic development and diversification in many of the world's underdeveloped regions.

Presently there are 460 million people in China and India alone without access to modern energy systems. This lack of energy access contributes to shortened life expectancy, reduced health, lower educational levels, and degradation of the environment. In India only about one-third of rural households are electrified, and in Kenya access to electricity stands at 15%. Governments of these countries have set targets to increase access to electricity and implement measures to achieve these, for instance, through rural electrification programmers.



The most successful rural electrification program was implemented in Thailand where the scheme increased rural energy access in the country from 20% in 1974 to 98% today. Energy Access through DE – Rural Electrification Projects The potential for DE in realizing electrification objectives is great. DE is a far cheaper method of supplying power to areas than grid extension and can also be much cleaner. A recent WADE study concluded that multilateral development agencies and financing institutions have not given DE the attention it deserves. Nevertheless the World Bank and similar institutions have a growing number of programmers in this area. The focus has so far been mainly photovoltaic projects, with some biomass, small-scale wind and hydro. Technologically, finding a suitable system for a certain area can be challenging, and the appropriate technology depends heavily on local circumstances. However, there is a wide range of DE technologies available, and many of these are flexible in their application, providing appropriate and most effective solutions. CHP in industry, especially agricultural processing industries, for electrification of rural and peri-urban areas has significant potential that has been underestimated. Energy Access through DE – Local Participation Socially, both a centralised energy supply and DE generation can have a fundamental impact on a community. The availability of electricity and electrical appliances are likely to change production and living patterns, as well as power relationships. DE has the advantage, though, that it ensures participation of local people, allowing them to be actively involved, rather than passive consumers. Programmers to widen electricity access through DE create perfect opportunities for capacity building and education to ensure that the potential that DE offers is fully exploited. Health Conventional energy production accounts for a majority of the world's polluting emissions. The wider use of DE can create positive impacts in terms of health on at least two levels. Power generation accounted in 2004 for 41% of total man-made CO2 emissions. The power sector also accounts for large proportions of heavy metals, NOx, SOx, and dust. WADE research has demonstrated that DE results in much lower emissions of these pollutants in most cases. Studies have shown that pollution has quantifiable effects on people's health in both industrialized countries and emerging economies. Examples of studies exploring the health costs of centralised electricity generation include one in Canada by the Ontario Government and one in the United States by the Harvard School of Public Health. Because DE results in the same energy services with less fuel use and less pollution DE is one approach for effectively reducing the negative health impacts of energy provision. In developing areas of the world a supply of clean DE can have significant positive health impacts by displacing traditional fuels or improving the means by which energy is derived from them. Providing biogas to residences in developing regions to replace direct burning of fuels such as dung and or wood can drastically increase indoor air quality because it is cleaner burning and allows for more complete combustion. Supplying DE for electricity can also result in improved hygiene by allowing refrigeration or improved water supply with the introduction of pumps. The effectiveness of remote clinics and hospitals can also be increased by introducing electric light and the ability to refrigerate vaccines and medicines. WADE Economic Model



This powerful and unique Model enables users to directly compare, in economic and environmental terms, central and decentralised power as options for meeting future electric capacity requirements. Based on an extensive variety of input data and user defined assumptions the model builds generation, transmission and distribution capacity and compares the results. Required input fields include:

1. existing generating capacity and power output by technology, 2. pollutant emissions by technology type, 3. heat production, fuel consumption and load factor by technology type, 4. capital and investment costs of generating capacity and T&D, 5. operation and maintenance (O&M) and fuel costs by technology type, 6. estimates of overall and peak demand growth for the system, 7. estimates of future capacity retirement by technology type in five-year steps, 8. estimates of future proportion of capacity installed by technology type in five-year

steps. Outputs that are calculated include:

1. relative retail costs; 2. relative capital costs; 3. relative emissions of CO2 and other pollutants; 4. relative consumption of fossil fuels.

The Model provides a powerful and flexible tool to enable policymakers and DE industry groups to understand the economic and environmental benefits of DE. Uniquely, the Model quantifies the T&D costs, a major component of overall capital and retail costs, but usually ignored in comparisons of generation options.

5. Conclusion and Recommendations In order to enable Thailand to efficiently meet the challenge of ensuring a low carbon, sustainable, secure energy future, the following recommendations are proposed:

1. Conduct a full Thailand-specific power sector externality cost study to determine the true costs to society and the environment from different electricity-generating technologies.

2. Separate the transmission and generation interests of EGAT in order to remove the conflict of interests that currently encourages EGAT to restrict access for independent power producers to its transmission network

3. Establish a competent, fair, independent, regulatory authority whose core mandate is to ensure that decisions made in the power sector are in the public interest. Include in the definition of the remit of the regulator a responsibility to ensure best value for consumers, rather than confine its remit to ensuring competition and lowest cost to consumers. Provide the regulator with the necessary capacity to police existing regulations adequately, and with the necessary powers to enforce them.

4. Reform the power planning process towards an integrated resource planning (IRP) process, overseen by the energy regulator, from which utilities are required to choose the option with the lowest overall economic and environmental cost to society;



5. Transfer responsibility for formulating the PDP for Thailand from the EGAT to the

independent regulator, with input from Thai utilities, IPPs electricity consumers, and other stakeholders.

6. Remove the barriers that currently prevent new legitimate CHP from developing and introduce policy changes that put energy saving and renewable energy generation at the forefront of the energy agenda.

7. For renewables: Revise the RPS program so that renewable energy development is not contingent on construction of new fossil fuel power plants. Focus on feed-in tariffs as a mechanism to promote electric renewables. Increase the renewable energy target to 10% for the near future (2015 and beyond).

8. Implement a Renewable Energy Law passed by legislature (not just a cabinet resolution), that will enable the introduction of feed-in tariffs29 for renewable energy sources. This is particularly urgent in the case of biomass that is not only carbon neutral, but also capable of efficiently generating heat and electricity. A feed-in tariff for biomass must be introduced in conjunction with the recommendation above to include fossil fuel-fired CHP as part of the SPP program. This will ensure that while CHP from any fuel is rewarded for its radically improved efficiency, biomass will also be rewarded for its positive role in reducing CO2 emissions that cause climate change.

9. Identify and reduce bureaucratic barriers to permitting and interconnection for electrical renewable energy generation.

10. Support biogas for heating at municipality and household scale (inexpensive, environmentally beneficial substitute for LPG). For Demand Side Management:

11. Expand energy efficiency labeling and standards for appliances. 12. Provide low-cost (or free) energy audits to businesses and homes to help end-users

identify how to save energy. For CHP:

13. Restart the Small Power Producer (SPP) program to allow new combine heat and power generators to sell electricity on the Thai national grid.

14. Rationalize and enforce environmental regulations relating to the electricity generation (for example, current air emissions regulations are more lenient for coal plants than biomass plants for the same pollutants)

Unless positive policy signals are provided clearly and immediately, there is a possibility of Thailand being DE market will not increase at the desired levels. Future energy will be procured from fossil plant and contribute to climate change. The Thai governments Power Development Plan provides an opportunity for clear policy signals to be made, indicating the Government’s intent towards efficient decentralised energy to assist in powering the heart of Thailand’s energy future.



References S. W. (2001). Power Politics Trump Reform.é Far Eastern Economic Review: September 27. D’Sa, A. (2005). Integrated resource planning (IRP) and power sector reform in developing countries.é Energy Policy 33(10): 1271-1285. http://www.iei-asia.org/IEIBLRIRP- EnergyPolicy.pdf Deputy Minister of Minerals and Energy (2005). Second National Integrated Resource Plan Of South Africa. http://www.ner.org.za/documents/ NIRP2%20DM%20Speech%2022%20Apr%2005%20.pdf#search=%22IRP%22 du Pont, P. (2005). çNam Theun 2 Hydropower Project (NT2) Impact of Energy Conservation, DSM, and Renewable Energy Generation on EGATûs Power Development Plan.é World Bank. 24 March. http://siteresources.worldbank.org/INTLAOPRD/Resources/DSMmarch2005.pdf EGAT (2001). Power Purchase Agreement for SPPs.é EGAT (2006a). DSM in Thailand: The EGAT experiences. Electricity du Vietnam. EGAT (2006b). Preliminary Plan: Power Development Plan PDP 2006 (in Thai).é Electricity Generating Authority of Thailand. 30 May. Energy for Environment (2004). çStudy to determine methods to support electricity generation from wind and solar energy.é E for E, commissioned by EPPO. January. EPPO (2006a). çClassified Generated Electricity of SPP by Type of Fuel (As of May 2006).é http://www.eppo.go.th/power/data/data-website-eng.xls. Accessed on 16 Aug 2006 EPPO (2006b). Electric energy imports from neighboring countries. Electric energy imports from neighboring countries and energy security, Pathumwan Princess Hotel. EPPO (2006c). Thailand Energy Outlook. EPPO (2006d). çVSPP (As of May 2006).é http://www.eppo.go.th/power/data/data-website-eng.xls. Accessed on 16 Aug 2006 European Commission (1999?). çOpening Up to Choice: The Single Electricity Market.é http://ec.europa.eu/energy/electricity/publications/doc/electricity_brochure_en.pdf FERC (2006). çRegional Transmission Organisation Activities.é http://www.ferc.gov/industries/electric/indus-act/rto.asp. Accessed on Sept 1 FT subcommittee (2003). çReport on calculations of automatic adjustment tariff (FT) for the month of September, 2002.é Greacen, C. and C. Greacen (2004). çThailandûs electricity reforms: privatization of benefits and socialization of costs and risks.é Pacific Affairs 77(4). http://www.palangthai.org/docs/PA77.3Thailand.pdf HECO (2006). çIntegrated Resource Planning.é http://www.heco.com/CDA/default/0%2C1999%2CTCID%3D1&LCID%3D5632&CCID%3D0&CTYP%3DARTC%2C00.html. IEA (2001). çRegulatory Institutions in Liberalized Electricity Markets.é www.iea.org/textbase/nppdf/free/2000/reguinstit2001.pdf Janchitfah, S. (2005). çEnergy Policy Opening to the Public.é Bangkok Post: 6 March. Jirapraditkul, V. (2006). National Fuel Supply Issues - Trends in Fuel Use, Pricing & Availability. Thai Power 2006, Sukhothai Hotel, Bangkok. Laksanakoses, M. (2006). Update on Thialandûs Electricity Transmission and distribution management. Thai Power 2006, Sukhothai Hotel, Bangkok. Lucarelli, B. (2006). Thailandûs Power Sector Outlook, Challenges and Prospects - Private Investorûs Perspective. Thai Power 2006, Sukhothai Hotel, Bangkok. Lynch, A., C. Greacen, et al. (2006). çThreatened Sustainability: the Uncertain Future of Thailandûs Solar Home Systems.é European Union. June. http://www.bget.org/ index.php?option=com_docman&task=doc_download&gid=24 Marbek Resource Consultants Ltd. and G. C. S. International (2005). çPost-Implementation Impact Assessment:



Thailand Promotion of Electrical Energy Efficiency Project (TPEEE). Draft Report.é Prepared for: World Bank - GEF Coordination Team. April 8. Menke, C., D. Gvozdenac, et al. (2006). çPotentials of Natural Gas Based Cogeneration in Thailand.é JGSEE. August. 35. Nickels, G. J. (2006). çCity Light First in Nation to Reach Zero Net Emissions Goal.é http://www.seattle.gov/news/detail.asp?id=5656&dept=40. Accessed on 31 August NWPCC (2005). çThe Fifth Northwest Electric Power and Conservation Plan.é http://www.nwcouncil.org/energy/powerplan/plan/Default.htm. Accessed on 5 September NWPPC (2006). Demand Response Assessment. The Fifth Northwest Electric Power and Conservation Plan. http://www.nwcouncil.org/energy/powerplan/plan/ Default.htm PacifiCorp (2006). çIntegrated Resource Planning.é Accessed on 5 September Permpongsacharoen, W. (2005). çLao power may not be the best buy.é Bangkok Post: 15 March. http://www.bangkokpost.com/News/15Mar2005_opin42.php Peter Smiles & Associtates (2003). Electricity Reformin APECEconomies - TheWay Ahead. http://www.worldenergy.org/wec-geis/wec_info/work_programme2004/studies/ emr/resources/apec.pdf Phumaraphand, N. (2001). Evaluation Methods and Results of EGATûs Labeling Programs. Lessons Learned in Asia: Regional Conference on Energy Efficiency Standards and Labeling. Organized by Collaborative Labeling and Appliance Standards Program (CLASP) and the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP). Bangkok, Thailand. http://www.un.org/esa/sustdev/sdissues/energy/op/clasp_egatppt.pdf Ryder, G. (1999). Thailandûs Flawed Electricity Privatization: The Case for Citizen-Oriented Reform. Power Sector Reform. Toronto, Probe International. Shrestha, S. and T. Lefevre (2000). Estimation of external cost associated with electricity generating options in Thailand using simplified methodologies. Eighth APEC Clean Fossil Energy Technical Seminar, Bangkok. http://www.apec-egcfe.org/ThaiSeminar_2000/3-2%20S_Shrestha.pdf Sundqvist, T. (2000). çElectricity Externality Studies: Do the Numbers Make Sense?é Instituitionen for Industriell ekonomi och samhallsvetenskap Avdelningen for Nationalekonomi. TDRI (2005). çMacroeconomic Policy Program (MEP).é http://www.nectec.or.th/bureaux/tdri/mep.htm. Accessed on August 5 Thai Load Forecast Subcommittee (2004). January. Thai Ministry of Energy (2003). çEnergy Strategy for Competitiveness.é Ministry of Energy. August 23. http://www.eppo.go.th/admin/moe-workshop1/index.html Thanh, B. and T. Lefevre (2001). çAssessing health benefits of controlling air pollution from power generation: the case of a lignite-fired power plant in Thailand.é Environ Manage 2: 303-17. The Nation (2003). çPM Pressing for Egat IPO this year.é The Nation: March 14. TLFS (2006). çLoad Forecast April 2006.é Thai Load Forecast Subcommittee. Vernstrom, R. (2004). çNam Theun 2 Hydro Power Project Regional Economic Least-Cost Analysis Draft Final Report.é World Bank. June. http://siteresources.worldbank.org/ INTLAOPRD/491761-1094074854903/20251513/Economic.pdf Vernstrom, R. (2005). çNam Theun 2 Hydro Power Project Regional Economic Least Cost Analysis: Final Report.é World Bank. March. WADE (2006). çWorld Survey of Decentralised Energy.é World Alliance for Decentralised Energy. www.localpower.org World Bank (1995). çThailand: Lam Takhong pump storage project.é World Bank. April 5. See ùEGATûs Power Development Plan, page 34 See Annex 2 for an explanation of EGATûs roles and responsibilities See Annex 1 for an explanation of decentralised energy Of which 447MW was sold to the grid, with the remainder providing electricity directly to factories. An explanation of the Small Power Producer program can



found in Annex 2 An explanation of the Very Small Power Producer program can be found in Annex 2 Currently, the pricing principle states that tariffs should be sufficiently high that the return on invested capital (ROIC) should be 8.39%. Before 2005, the pricing principle stated that the net income after expense of EGAT should not be less than 25% of the investment budget (self-financing ratio not less than 25%). Either way, the more the system is tipped to expand, the higher the allowed tariffs. See Annex 2 for an explanation of Thai utilities’ roles and responsibilities http://www.eppo.go.th/encon/renew/pr06-E.html http://www.eppo.go.th/encon/renew/pr06-E.html http://externe.jrc.es/ http://externe.jrc.es/ Resource Consultants Ltd. and G. C. S. International (2005) çPost-Implementation Impact Assessment: Thailand Promotion of Electrical Energy Efficiency Project (TPEEE) Draft Report.é Prepared for: World Bank - GEF Coordination Team April 8 A 2005 GEF/World-Bank commissioned report provides updated figures for demand reductions. Demand reduction from lights, refrigerators and air conditioning alone currently exceeds 1000MW. Marbek Resource Consultants Ltd. and G. C. S. International (2005). çPost-Implementation Impact Assessment: Thailand Promotion of Electrical Energy Efficiency Project (TPEEE). Draft Report.é Prepared for: World Bank - GEF Coordination Team. April 8. The authors observe that in many cases companies do not invest in CHP even if it is profitable to do so. In their experience, çachievableé capacity is thus estimated at 40% of commercial potential for industrial facilities and 30% for commercial buildings. Similarly, çachievableé MW peak load reduction through CHP is estimated 1,303 MW by year 2015. We note that çachievabilityé depends on the policy environment, and on tariffs paid for the power - which are currently fairly unfavorable (see section 4 above). http://www.seattle.gov/light/conserve/globalwarming/ http://www.em.gov.bc.ca/AlternativeEnergy/bc_clean_electricity_guidelines.htm http://www.seattle.gov/light/conserve/globalwarming/ http://www.em.gov.bc.ca/AlternativeEnergy/bc_clean_electricity_guidelines.htm Feed in tariffs provide long-term guaranteed prices for renewable energy sold to the grid, that provide the assurance needed by the investment community to properly commit to renewables in Thailand Value Engineering describes a set of techniques used primarily in the industrial sector to assess the most efficient and therefore profitable way in which a specific industrial process can be performed. Changing the way the world makes electricity, brochure, WADE Electric Power in Asia and the Pacific 2001 - 2002, United Nations 2005 Fact sheet 4: Energy and water, Taking Stock Series, South East of England Development Agency, updated. Accessed National Statistics Online, Water and Industry (www.statistics.gov.uk) World Energy Investment Outlook 2003, International Energy Agency 2003 Modeling carbon emission reductions in China, World Alliance of Decentralised Energy, December 2004.‚ http://www.localpower.org/documents_pub/ w_model_chinashort.pdf çRENEWABLEé sheet in http://www.eppo.go.th/power/data/data-website.xls http://www.eppo.go.th/power/data/data-website.xls A number of different terms are sometimes used to describe decentralised energy systems, including ùembedded generationû and ùdistributed generationû. Embedded generation and distributed generation refer to systems where generators are connected to the local distribution grid. While such generators would also be part of a decentralised energy system, other parts of a DE system - such as stand-alone generators or those distributing power within a private electricity network - might not



be connected to the national distribution grid. Changing the way the world makes electricity, brochure, WADE Electric Power in Asia and the Pacific 2001 - 2002, United Nations 2005 Fact sheet 4: Energy and water, Taking Stock Series, South East of England Development Agency, updated. Accessed National Statistics Online, Water and Industry (www.statistics.gov.uk) World Energy Investment Outlook 2003, International Energy Agency 2003 Modelling carbon emission reductions in China, World Alliance of Decentralised Energy, December 2004. See: http://www.localpower.org/documents_pub/w_model_chinashort.pdf Self-consumption refers to electricity consumed at the facility that hosts the SPP generator. Most SPP generators are located at agro-industrial factories (rice mills, sugar mills, etc.) and the electricity produced is used to power the electrical loads inside the factory. RENEWABLEé sheet in http://www.eppo.go.th/power/data/data-website.xls Thai Energy Planning and Policy Office. http://www.eppo.go.th/power/data/datawebsite- eng.xls Generators in the VSPP program can be larger than 1MW, but the maximum amount of power they can export to the grid is 1MW. http://www.eppo.go.th/power/data/data-website.xls

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