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Thailand Joins the Solar Fast Lane

Economic renewable energy development typically requires that countries exploit their natural renewable resources with subsidies reducing in line with technology costs and market maturity. Thailand has adopted such an approach to renewable development and while its biomass has the greatest renewable generation potential, the rapid growth of solar development could conceivably see solar challenge wind power as the kingdom's second most important renewable resource by the next decade.

As a country, Thailand benefits from strong year-round solar radiation with the largely rural northeast Isaan region of the country benefitting most. It is not surprising then that Solar Power Company (SPC), a Thai developer, has plans for 34 solar plants in Isaan totalling 204 MW by the end of 2012. But while SPC will likely be the major player in Thailand’s fast-developing solar sector, the honour of developing the largest solar plant to date will go to Natural Energy Development (NED), a cooperation of local and foreign financial institutions together with manufacturer Sharp Corporation.

NED is constructing a 73 MW (DC) solar plant in Lopburi province, about two hours north of Bangkok, and earlier this year the company announced it would expand the gross capacity of the plant to 84 MW (DC). The first phase of the plant is due to commence operations as REW goes to press, with an installed capacity of 8 MW and additional capacity expected to come on line in monthly phases until the full capacity is reached in 2013.

The project has been supported by local and foreign financial institutions; the Asian Development Bank (ADB) has provided a loan up to US$70 million (approximately THB 2 billion), with Kasikorn Bank PCL, Bangkok Bank PCL and Siam Commercial Bank PCL providing a total of THB 3 billion (about $98 million). Kasikorn Bank PCL and Bualuang Securities PCL also acted as the financial advisors. And, all the banks involved have agreed to expand the loan facility to support another THB 1.2 billion (around $39 million) for the 11 MW second phase expansion.

Commenting on the project, NED chairman Vinit Tangnoi said: ‘The Lopburi solar project is the first project that responds to the Thailand 15 Year Renewable Energy Development Plan of the Ministry of Energy. After committing to invest THB 8 billion in the Lopburi 73 MW solar farm, the company is moving forward and plans to invest another THB 1.2 billion for an additional 11 MW in the same area.’

Vinit explained that NED signed the construction and supply contract to purchase over 540,000 thin-film solar panels from Sharp back in 2010. He added: ‘The company has also signed agreement for construction with Italian Thai Development PCL and Italthai Engineering Co. Ltd.’ ‘Furthermore,’ he concluded, ‘the project plans to develop a renewable innovation centre on the site, to showcase renewable energy technologies, especially solar technology to the general public. Together with Pa Sak Dam and Sunflower Field, this will become the third tourism landmark in Lopburi province.’

NED has signed a five-year non-firm power purchase agreement (PPA) with the Electricity Generating Authority of Thailand (EGAT) for purchasing 55 MW from the commercial operation date. Although this was originally scheduled for 1 November the date slipped a month to December 2011. NED said the tariff rate stated in the regulation of non-firm power purchase agreements for a small power producer (SPP) will be applied, that is, the time of use wholesale electricity price plus the adder [a supplement added to peak electricity rates] rate.

NED managing director Woramol Khamkanist believes Lopburi province is the most suitable place for the solar project ‘because it is well connected with transmission line[s] and has good solar intensity,’ adding that the plant, when fully operational, is expected to cut approximately 1.3 million tonnes of CO2 over its project cycle and reduce fossil fuel imports by more than 35,000 tonnes per year, which will support the Thai government target announced in Copenhagen in 2009 to combat climate change.

While the NED solar project will be Thailand’s largest, it will be dwarfed by the combined installed capacity of the solar projects planned by SPC. And like NED there has been no shortage of funding for its solar revolution, with Thailand fast becoming a magnet for solar investment.

In November 2010, International Finance Company (IFC), a member of the World Bank Group and the largest global development institution focused on the private sector in developing countries, invested $1.1 million for a 9% equity stake in two of SPC’s planned solar plants following a $1.7 million investment in SPC’s first 6.1 MW solar plant in Nakhorn Rachasriuma (Korat) in June 2010, known as Solar Power (Korat 1) Company Limited (KR1).

KR1 is located at Don Chomphu Sub-district, Non Sung District, in Nakhorn Ratchasima Province. Development of the project commenced in 2008, with the project receiving long-term loans from Kasikornbank PCL. Construction commenced in December 2009 and it was completed in April 2010, with commercial operation and exports to the Provincial Electricity Authority commencing on 21 April 2010.

Before the Lopburi plant, KR1 was the largest commercial solar farm in Thailand and indeed in Southeast Asia. The plant uses polycrystalline solar panels from Japan’s Kyocera Corporation and inverters from Germany’s SMA Solar Technology. The major shareholders of KR1 are SPC, IFC, the Environment for Energy Foundation and Thai Fa Power Company Limited.

SPC plans to replicate the KR1 plant model across the northeast of Thailand, with another eight solar plants envisaged in NakhornRachasrima, 10 in Khon Kaen, three each in Bureerum, Surin and Nakorn Phanom, two each in Sakon Nakorn and Udorn Thani, and one each in Nong Kai and Loei districts.

According to IFC executive vice president and chief executive Lars Thunell, ‘Developing countries need new sources of energy that allow them to grow their economies without adding to greenhouse gas emissions and climate change… SPC is showing how companies can innovate and make solar energy a long-term solution for Thailand’s energy needs.’

Another Thai energy company that has identified the opportunities provided by solar power is oil company Bangchak Petroleum, which secured a THB 4.2 billion loan from the Asian Development Bank last year for two solar power plants in Ayuttaya, north of Bangkok. The loan is part of the ADB’s Asia Solar Energy Initiative that seeks to support solar projects to assist Asia in capitalising on its solar power potential. The initiative aims to provide financial support of $2.25 billion to meet 3 GW of solar power in the bank’s developing member countries by mid-2013.

Solar installations continue to rise, despite cuts to the adder support scheme (Source: Asian Development Bank)

The ADB loan will run over a 15-year repayment period, according to Bangchak Petroleum president Anusom Sangnimuan, who further explained the company is seeking to raise the capacity of the solar project to 120 MW in five years at a cost of some THB 12 billion (about $39 million).

The first solar plant, with a rated capacity of 38 MW, started supplying electricity to the national grid in August 2011, with construction of the second 32 MW plant now underway. The third plant, with a capacity of 48 MW, is expecetd to commence construction in 2012 and will be due to commence operations in the following year.

DuPont Apollo also recently completed its 8.7 MW solar photovoltaic plant in Prachin Buri province, 180 km north of Bangkok. The plant was jointly developed with Thai conglomerate Loxley and utilises DuPont Apollo’s thin-film photovoltaic modules. Electricity from the plant will be supplied via the Provincial Electricity Authority of Thailand under the VSPP (very small power purchase) tariff scheme.

In addition to solar projects already in operation or construction there are a number of companies eyeing Thailand as a solar development hub. Among these are the world’s largest solar module manufacturing company, Suntech Power Holdings, and North America’s largest solar services provider, SunEdison.

SPC solar projects planned, operating and under construction (Souce: SPC)

Suntech is looking to invest $20 million (THB 1.2 billion) in a solar cell assembly plant in Thailand, but a final decision is not expected until 2013 as it waits to see how supportive the new Thai government is of solar and any changes to the adder support system. Any investment in the Thai solar market may well be a partnership, with the company apparently interested in joining forces with Bangchat Petroleum.

Thailand was Suntech’s second-largest Asia-Pacific market in 2010 after Australia, with chairman and chief executive Shi Zhengrong recently explaining: ‘We are looking at opportunities for getting closer to the market, and we need to hear support from the government before planning our investment. Our plan could be feasible if the Thai market grows to a big enough level.’

Bangchat Petroleum president Anusorn believes the Thai government will come up with a clear renewable policy this year. If he is right, and the policy proves to be supportive of solar investment, then SunEdison could become a major player in Thailand’s emerging solar sector, with plans to invest over $100 million (THB 3 billion) in solar power plants through a local partnership.

Pashupathy Gopalan, managing director of SunEdison, explained: ‘We hope to build a meaningful capacity, pending upcoming government approval of the 6.50 baht adder… There is great potential in Thailand and many parts of Asia as rapid growth results in higher demand for energy.’

For all the positive talk on the potential for Thailand’s solar market, like all renewable energy resources the key to developing the potential is the amount of subsidy provided by the government, which has been supporting solar development since 2002 when it introduced the adder.

Unfortunately for the embryonic solar PV market the adder was not considered sufficient. After a series of amendments in response to investor unease the government agreed on an adder rate of THB 8/kWh for a period of 10 years and the revised subsidy scheme proved a great success.

As of October 2010, applications for 397 PV projects totalling 1600 MW and an additional 302 concentrating solar power (CSP) projects totalling 1503 MW had been submitted to the VSPP programme. Additionally, eight solar projects totalling 477 MW had been submitted to the SPP programme. Yet a year later only 55 PV projects totalling just 16 MW were selling electricity to the Thai utilites, with no CSP projects online and the remaining 3500 MW of proposed projects in various stages of planning.

This volume of projects in the pipeline caused concern to policymakers, as it was significantly higher than the Thai solar targets of 55 MW by 2011, 95 MW by 2016, and 500 MW by 2022. But of more concern was the potential impact of solar tariffs on consumers of the 3 GW of pipeline projects, which policy makers estimated could add THB 31 billion (around $1 billion) to consumer costs.

Policymakers were also concerned that many pipeline projects could be speculative if they had not progressed in 12 months and as such could prevent legitimate projects from advancing. And there was concern that the potential volume of new solar projects could undermine the security of EGAT’s transmission system and consequently undermine Thailand’s supply security.

These were all legitimate concerns and Thailand is not the first country to review its solar subsidy levels in response to the success of the scheme. Consequently, a resolution reduced the adder to THB 6.5/kWh for all projects that were not approved as of 28 June 2010, and refused to accept new project applications after this date. Interestingly, the resolution also agreed in principle to work towards establishing a fixed FiT rather than an adder, but with a new government taking office within two months of the resolution being passed the development of such a tariff may be delayed until the new government gets round to revising any exisiting renewable energy policies.

Unsurprisingly the revised subsidy support has not deterred the main solar investors, with SPC managing director Wandee Khunchornyakong understanding the decision to reduce the rate: ‘I think they want to slow down the new applications until they can see how many of the projects with PPAs have reached their goals.’

But new potential developers have questioned the financial viability of solar investment at the current adder rate, and fear that the door for new entrants has now been firmly shut. It’s a legitimate concern, but almost 10 years after the government started its solar support the market has moved beyond its embryonic phase and into fast track development. And those companies investing in solar this decade are likely to enjoy a rewarding future. 

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