Renewable Energy In Thailand.

Legal News & Analysis - Asia Pacific - Thailand - Energy & Project Finance

18 December, 2018

 

The Thai government has placed an emphasis on renewable energy power sources in the country.

 

The Ministery of Energy issued a revised Power Development Plan (“PDP”), focusing on a goal that the generating capacity of renewable projects will represent 15-20% of the total power consumption in the country by 2036. 

 

The plan will also embrace recent innovation and technology in the energy sector.

 

Key developments in renewable energy in Thailand*

 

Which sectors are active?

 


As of the end of 2017, Thailand’s existing generation capacity was 49,047.54MW, with a total generating capacity of renewable projects of 10,237.93MW. The country’s renewable power generation capacity composition, as of the end of 2017, was as follows:

 
Indonesia

 

Switching to renewable energy
 

Indonesia

In June 2015, the Ministry of Energy issued a revised Power Development Plan (“PDP”) which covers the period from 2015 to 2036 (“PDP 2015”). According to the PDP 2015, the total generating capacity of renewable projects will represent 15- 20% of the total power consumption in the country by 2036 – an increase from 8% under the PDP 2010: 3rd Revision. According to the PDP 2015, the total power generating capacity of the country at the end of 2036 will be 70,335MW. The amount of generating capacity to be added to achieve this target as at the end of 2036 is 57,459MW (taking into account the existing generating capacity as at December 2016 of 37,612MW less the expected retiring generators as at 2036 of 24,736MW).

 

The development of new renewable energy projects is also contemplated in the Alternative Energy Development Plan 2015-2036 (“AEDP 2015”), which was integrated as part of the PDP 2015. The amount of generating capacity of renewables as at 2036 under the AEDP 2015 accounted for 20% of the net energy demand in the country (in accordance with the PDP 2015 target for the total generating capacity of renewable projects of 15-20% by 2036), as seen above.

 

How does the system work?

 

Power Offtakers

 

The power generated from projects in Thailand will be sold under power purchase agreements (“PPAs”) between project companies to one of the following offtakers (with a few exceptions whereby some of the power can be sold directly to industrial users):

 

Electricity Generating Authority of Thailand (“EGAT”) – a state enterprise responsible for the generation, procurement and transmission of electricity to other electricity authorities for further distribution to end users.
Provincial Electricity Authority (“PEA”) – a state enterprise responsible for the distribution and sale of electricity to end users in provincial and suburban areas; most of the electricity that PEA distributes to end users is purchased from EGAT and the rest is purchased directly from the power producers under the Very Small Power Producer Program.

 

Metropolitan Electricity Authority (“MEA”) – a state enterprise responsible for the distribution and sale of electricity to end users in Bangkok and its surrounding areas; as with PEA, they obtain most of the power by purchasing it from EGAT and the rest is obtained through direct purchase under the PPA under the Very Small Power Producer Program.

 

Private Power Producers

 

Apart from EGAT, there are three types of private power producers in the Thai power market:

 

Independent Power Producer (“IPP”) – a large scale power producer with a generating capacity of more than 90MW; IPPs will sell all electricity to EGAT under a long-term PPA, and in order to participate as an IPP, EGAT will – from time to time (to date there have been three rounds of IPP bidding in the country, in 1994, 2007 and 2012) – invite the private sector to submit a bid to sell electricity to EGAT in accordance with the needs set out in the PDP (as defined below) approved by the NEPC and the Cabinet. 

 

Small Power Producer (“SPP”) – a small scale power producer with a maximum capacity not exceeding 90MW which sells electricity to EGAT under a long-term PPA, i.e. 20-25 years (other than an "SPP" generating power from a renewable energy source where the "PPA" will be for a period of five years and renewal can be made upon request by one party).

 

Very Small Power Producer (“VSPP”) – a very small scale producer with a maximum generating capacity not exceeding 10MW, which sells electricity to either PEA or MEA, depending on the location of the project.

 

Regulatory bodies

 

The National Energy Policy Council (“NEPC”) has:

 

  • authority to set a policy and a strategy for energy management and development, including an energy price;
  • authority to assign other relevant authorities/entities to put such policy into practice and to follow up on the progress made by such authorities/entities;
  • the leader of the National Council for Peace and Order (the Prime Minister) as its chairman; and
  • the Office of Energy Policy and Plan which acts as the NEPC’s secretary office.

 

The Ministry of Energy (“MOE”)

 

  • has authority over the procurement, development and management of energy;
  • has state sectors, such as Office of the Minister, Office of the Permanent Secretary, Department of Mineral Fuels, Department of Energy Business, Department of Alternative Energy Development and Efficiency, Energy
  • Policy and Planning Office; and
  • supervises certain state enterprises, such as EGAT and PTT Public Company Limited.

 

The Energy Regulatory Commission (“ERC”)

 

  • was established by the Energy Industry Act B.E. 2550 (2007) as an independent regulatory agency;
  • has authority to regulate the energy industry in accordance with government policy (e.g. policy from the "NEPC");
  • has authority to prescribe the size/type of energy business in which an energy business licence is required or exempted;
  • has authority to prescribe steps and procedures for the purchase from/selection of the seller (e.g. the bidding process); and
  • has authority to issue permits/licences required for energy business, including those pursuant to regulations under the responsibility of other governmental agencies (with such governmental agencies’ recommendation) such as factory licences and building construction permits.


Government incentives

 

Tariffs – Adder/FiT

 

The Adder scheme was first introduced in 2007 and was subsequently revised in 2009 and 2010 to encourage the development of renewable energy projects, whether SPP or VSPP projects. Both were entitled to receive an Adder, which was an additional amount paid on top of the price of electricity over a specified period.

 

Despite its popularity, the Adder scheme has been cancelled and has now been replaced by a Feed-in-Tariff or FiT scheme. Adder is still applicable to those operators who signed PPAs prior to the announcement of the discontinuance of the Adder programme, but new applicants cannot further apply for the Adder as EGAT/ MEA/PEA have already issued announcements to discontinue the purchase of electricity under the Adder system.

 

 
 Energy Adder (THB/kW-hour) Special Adder for 4 districts in Songkra Province (THB/kW-hour) Total Adder for 4 districts in Songkra Province (THB/kW-hour) Supporting Period After COD (years)
1.Biomass 
(a) ≤ 1MW  0.50  1.00  1.50  7
(b) >1MW  0.30  1.00  1.50  7
 2.Biogas
(a) ≤ 1MW  0.50  1.00  1.50  7
(b) >1MW  0.30  1.00  1.50  7
 3.Waste
 (a) Preservation or covering in a hole  2.50  1.00  3.50  7
 (b) Thermal process  3.50  1.00  4.50  7
 4.Wind
 (a)  50kW  4.50  1.50  6.00  10
 (b) > 50kW  3.50  1.50  5.00  10
 5.Water
 (a) between 50kW and 200kW  0.80  1.00  1.80  7
 (b) < 50kW  1.50  1.00  2.50  7
 6.Solar  6.50  1.50  8.00  10
 

FiT rates for each type of renewable energy are set out in the table below:

 

 
 Capacity (MW)  FiT (THB/unit)  Supporting Period (years)
 
 FiT Premium (THB/unit)
 FiT (fix) FiT (floating as per core inflation) FiT   Biomass (first 8 years) Projects in 4 southern provinces of Thailand*
1. Waste (mix system)            
(a) ≤ 1MW  3.13  3.21  6.34  20  0.70  0.50
(b) between 1 and 3 MW  2.61  3.21  5.82  20  0.70  0.50
(c) > 3MW  2.39  2.69  5.08  20  0.70  0.50
 2. Waste (preservation or covering in a hole)  5.60  -  5.60  -    0.50
 3. Biomass            
 (a) ≤ 1MW  3.13  2.21  5.34  20  0.50  0.50
 (b) between 1 and 3 MW  2.61  2.21  4.82  20  0.40  0.50
 (c) > 3 MW  2.39  1.85  4.24  20  0.30  0.50
 4. Biogas (wasted water)  3.76  -  3.76  20  0.50  0.50
 5. Biogas (energy plant)  2.79  2.55  5.34  20  0.50  0.50
 6. Water ≤ 200 kW  4.90  -  4.90  20  -  0.50
 7. Wind  6.06  -  6.06  20  -  0.50
 8.Solar  -  -  -  -  - -
 (a) household rooftop ≤ 10kW  6.85  25  -  -
 (b) solar farm on land  4.12**  25  -  0.50
*Yala province, Pattanee province, Narativas province and certain districts in Songkla province 
**Changed by the resolution of the National Energy Policy Council on 26 September 2016 (from THB 5.66 as approved by the National Energy Policy Council on 15 August 2014)
Topical issues

Solar Farms

 

In accordance with a declaration issued on 6 March 2015 (as amended on 14 September 2015 and 21 June 2016) and a notification issued on 17 September 2015 (as amended on 18 September 2015), together with the relevant notification and guidelines prescribed by the ERC, the government introduced a scheme for electricity generation from solar cells with a ground installation prototype for government agency and agricultural cooperatives. The maximum electricity capacity to be purchased from each project is 5MW.

 

The government has split the bidding process into two phases with the overall target to purchase a total of 800MW of electricity, allocated equally between projects by (i) government agencies and (ii) agricultural cooperatives (i.e. 400MW each). The electricity will be purchased by MEA, PEA or the Electricity Welfare of the Royal Thai Navy. The government agencies and the agricultural cooperatives will be the project owner and the private entity will be the project sponsor for the development of the solar power project. Each project sponsor is entitled to support more than one project but must not exceed 50MW or 10 projects in total.

 

The first phase of the programme was completed in April 2016 with a list of the 67 winning bidders with total electricity capacity of 281.32MW. The selected bidders were with the agricultural cooperatives projects due to the lack of qualifications of the government agencies to, for example, take necessary steps and obtain relevant approvals required under the Private Investments in State Undertakings Act B.E. 2556 (2013) (“PISUA”).

 

On 28 April 2017, the ERC issued a notification regarding the second phase of the government agencies and cooperatives solar farm projects, with the total electricity to be purchased being 219MW (with the government agencies’ quota being 100MW and the agricultural cooperatives’ quota being 119MW) with only certain government agencies (e.g. the War Veterans Organisation and universities under government control, the objectives of which include operating commercial businesses) being eligible. The outstanding 300MW will be allocated for other types of renewables. The application of 3,510.46MW in total was submitted between 29 May and 2 June 2017 and the list of qualified applicants was announced on 14 June 2017 and eligible for the draw to be held on 26 June 2017. The list of 38 winning bidders was announced on 28 June 2017 with total electricity capacity of 171.52MW. The Commercial Operation Date (“COD”) is scheduled to be 30 December 2018. In general, the relevant requirements, eligibilities, qualifications, terms and conditions and restrictions in respect of the bidding of and the participants to (in particular, the project owner and the project sponsor) the project remain the same as those applicable to phase 1, with the exception of a few changes, as the feed in tariff will be THB 4.12 for a supporting period of 25 years according to the NEPC’s resolution of 26 September 2016 (as opposed to the THB 5.66 rate applicable to phase 1).

 

Solar Rooftops

 

The ERC issued a notification on the purchase of solar rooftop generated electricity with effect from 2013. The notification prescribed the criteria and qualification of VSPP applicants for the sale of electricity to the MEA, with a total of 200MW (100MW each for houses and commercial buildings/factories) and 25 years for the supporting period. However, the targeted purchase of household solar rooftop generated electricity was not achieved due to the incentives not being attractive enough, given the cost of investment. The ERC therefore issued another notification on the purchase of solar rooftop generated electricity for houses in 2015 for further electricity purchases to achieve the 100MW target. Pursuant to the NEPC’s resolution of 11 March 2016, the COD was extended to 30 April 2016 and 30 June 2016 for solar rooftops of commercial buildings/factories and houses, respectively. As of 30 June 2016, the COD was achieved, with a total of 6,166 projects and a total generating capacity of 130MW (being 164 projects with 82MW for commercial buildings/ factories and 6,002 projects with 48MW for houses).

 

Furthermore, there is a pilot project for the regulation-free installation of solar rooftops on houses and buildings with a total of 100MW pursuant to the ERC notification of 11 August 2016, which opened for applications from 22 August 2016 to 7 October 2016 for electricity generated for use in such houses and buildings as a main purpose. The Ministry of Energy is currently in the process of preparing terms and conditions of following solar

 

rooftop projects:

 

  • public solar rooftops, the remaining generated capacity of which may be sold into the electricity system;
  • regulation-free solar rooftops, the remaining generated capacity of which are not to be sold into the electricity system; and
  • the sale and purchase of electricity in the form of blockchain.

 

EGAT 2000MW

 

Recently, the Ministry of Energy approved renewable energy projects in a total capacity of approximately 2,000MW for a period of 20 years (2017 to 2036) in accordance with the AEDP 2015. This will be led by EGAT, unlike other renewable energy projects whereby the bidding processes were led by the ERC. The total investment is expected to be approximately THB 200 billion (THB 100 million/1MW) and EGAT is planning to invite private entities to participate in these projects.

 

The initial conditions, as stated by EGAT, are that:

 

  • The partnership between EGAT and private entities is subject to the PISUA, which requires 8-12 months to go through the relevant procedures and processes. However, EGAT is now in discussions with the State Enterprise Policy Office (“SEPO”) to fast-track the process and shorten it to 6 months.
  • the electricity cost will not be higher than that announced and purchased by ERC;
  • the internal rate of return or IRR of the private entity should not be too high compared to projects normally invested in by the private entity (i.e. 7-8%); and
  • the materials to be supplied to the power plant will be in an area as specified by EGAT.

 


Indonesia

 

 

SPP Hybrid Firm

 

The project was approved in principle by the NEPC on 17 February 2017 and has been led by the ERC in a form of competitive bidding process. The total target of electricity capacity to be purchased is 300MW and the applicant is categorised as a renewable SPP (i.e. a power producer with a capacity of more than 10MW but not exceeding 50MW). The capacity has been allocated to different geographical areas in Thailand e.g. Bangkok, central, west, east, south (excluding Phuket and Samui Island), northeastern, Phuket and Samui Island. The source of energy can be one type of renewables or more (proportion is not restricted) but fossil fuel must not be used. The project will be under the “firm” PPA (i.e. generating capacity at 100% during peak period and not more than 65% during the off-peak period) with the feed in tariff rate at THB 3.66 for the supporting period of 20 years. The scheduled COD will be within 31 December 2021. The application period was between 16-20 October 2017 and the list of awarded bidders was announced on 14 December 2017.

 

VSPP Semi-firm

 

The project was approved in principle by the NEPC on 17 February 2017 and will be led by the ERC in a competitive bidding process. The total target of electricity capacity to be purchased is 269MW and the applicant is categorised as a VSPP. The source of energy can be biomass or biogas but fossil fuel must not be used. The project will be under the “6-month firm”.

PPA (i.e. generating capacity at 100% during the peak period and not more than 65% during the off-peak period), which must cover from March to June. The feed in tariff will be at the rate applied to biomass and biogas with the feed in tariff premium (for the 6-month firm period) for a supporting period of 20 years. This project will follow SPP Hybrid Firm 300MW, therefore, the ERC expects to commence it in 2018.

 

SPP Non-firm waste to energy

 

This project was approved in principle by the NEPC on 15 May 2017 and will be led by the ERC without a competitive bidding process. The project, however, must be approved by the Cabinet or under the roadmap of the Ministry of Interior regarding refuse and harmful waste management. The applicant must have the agreement to purchase community waste for fuels from the relevant authorities in place to confirm its capacity of electricity production over the life of the project. The location of the power plant must be under the ownership of local government authorities, Bangkok or Pattaya.


Restrictions on Foreign Investment

 

Generally, there is no restriction on the number of shares or percentage of shares to be held by a foreign entity, as the power generation business is not a restricted business activity under the Foreign Business Act B.E. 2542 (1999) (“FBA”). However, under the Land Code of Thailand (“Land Code”), a company in which more than 49% of the total shares are held by foreigners or where foreign shareholders make up more than half of the total number of shareholders, shall be considered a foreigner and shall not be permitted to own land.

 

However, given that the renewable energy projects are types of businesses which are eligible for Board of Investment promotion, certain privileges are granted, and one of the key privileges (other than tax holidays and custom duty exceptions) is the ability of the project company to have ownership over the land in which the project will be located, despite the restriction under the Land Code.

 

 

Change of shareholding restriction under PPAs

 

There is also a restriction on change or restructure of the shareholding in the company which is a party to such PPA, whereby no change in the shareholding structure of the company will be permitted during the first 3 years after the COD, if such change would result in:

 

  • the number of the original shareholders being less than half; or
  • the percentage of the shares held by the original shareholders being less than 51%.

 

Our energy project team in Thailand is based on the ground and comprised of experts with sector-specific understanding and knowledge of international market practices, as well as key legal and regulatory issues. We are the leading firm in the renewable sector in Thailand with a range of experience across all renewable energy transactions, ranging from the very first wind power project in Thailand (which is also the largest wind power project in South East Asia) and our continued involvement in a number of major wind projects, to biomass, waste-to-energy and solar, which includes experience advising on bidding regulations and other regulatory requirements, project development and financing, acquisitions, initial public offerings and infrastructure funds.

 

 

For further information, please contact:

 

Wilailuk Okanurak, Partner, Linklaters

wilailuk.okanurak@linklaters.com