Thailand's Solar Lessons for the World

The IEA has set 2020 targets of 200 GW of global installed capacity for PV and 148 GW for concentrated solar power (CSP), with both figures targeted to soar by 2030. Yet COP 15 — the climate change conference in Copenhagen last December, which failed to agree concrete new targets to limit growth in greenhouse gas emissions — is a glaring example of the gap between talk and action.

The IEA suggests one key to progress — a strong policy regime. But what should such regimes consist of? Feed-in tariffs (FiT) alone or something wider-reaching? And, beyond government policy, what other key areas for action must be addressed?

Ranking 20th in the world by population, 25th in GDP, and 23rd in electricity-generating capacity, Thailand offers a well-developed infrastructure, a free-enterprise economy, generally pro-investment policies, and strong export industries.

From almost every economic angle, and as an established energy producer, Thailand's experience in developing its solar industry could be studied by countries where solar is more embryonic. In 2009 the country adopted an ambitious national renewable energy plan, having already established itself as a regional and global exporter in several manufacturing and processing sectors.

The UN places Thailand about halfway down the world's countries on its Human Development Index (HDI) at 87th among 192, five places above China. The literacy rate is higher than other large countries in the region. In Asia, only Japan, Korea, Singapore, Hong Kong, Brunei and Malaysia achieve a higher HDI score. Thailand's 28 GW energy capacity ranks it as Asean's largest producer.

The country's renewable energy plan placed the greatest emphasis on the development of solar energy and estimated that in theory it could eventually power the whole country. Sensibly it avoided setting such an ambitious target in stone and other renewables such as biomass were included. More modestly, it set the objective of increasing its PV capacity 15 times in 15 years, from around 35 MW in 2007 to 550 MW in 2022.

So is Thailand a perfect base for developing solar technology and should it be aiming for regional leadership? "Not quite" appears to be the answer. Firstly the resource constraints of a developing country apply. Thailand may rank high in total GDP, but it falls far lower on a GDP per capita basis and is rated 120th in the world, according to one table. And, even if political instability there has failed to quash economic growth in the past, unrest could be of concern in the future.

Indeed, it could be asked how stable can government policy be, when the last military coup was only three years ago and protests led to many deaths earlier this year? Transparency International's Global Corruption Report for 2009 ranked Thailand 84th, putting it level with India but less poorly placed than Indonesia and Vietnam.

One Year On: The Scorecard

In the year since Thailand adopted renewable energy laws optimists can find plenty of good news.

Since its introduction, the Thai renewable energy plan has resulted in:

• Over 1 GW of capacity receiving first-phase approval under a feed-in tariff, called an adder (to base electricity prices) of THB8/kWh (US25 cent/kWh). The approval covered only the right to the FiT, not other permits, but has been cited by neighbouring Malaysia as a model for the promotion of renewables.
• Plans to build a 73 MW thin-film PV solar farm outside Bangkok by 2011, by a consortium including Thai, Chinese and Japanese companies. Finance of $250 million has been lined up, through local banks and the Asian Development Bank, backed by a 25-year power purchase agreement (PPA) with the main Thai electricity utility, while a further 92 projects for solar farms, with a total capacity of 250 MW, were announced by March 2010.
• Embryonic moves to rationalise the process for issuing permits.
• A first national conference on PV solar energy in March 2010, attracting speakers and exhibitors from Asia and Europe, and establishing the clear message that Thailand is open for business in solar energy. The conference also helped clarify the technological frame for developing solar, producing a consensus that solar irradiance in Thailand is inadequate to justify major short-term attention to CST/CSP technology at current cost levels.

But the country also amply demonstrates the downside risks involved in the developing world and many remain cautious. There is a suspicion that some successful feed-in tariff applicants have no intention of building facilities but aim to use the approvals as tradeable financial instruments to sell on at a later date. Massive solar projects are to be applauded, but one or two large solar farms do not constitute a broad long-term strategy. The IEA estimates that although the share of large-scale PV applications will increase over time, most of the PV market in 2020 will still lie elsewhere.

More grounds for concern emerge from a comparison of Thailand's progress against the strategic guidance offered by the IEA in its 2010 PV Technology Roadmap.

A Conergy-built 3 MW solar farm near Bangkok symbolises the sector's emergence in Thailand (Source: Conergy)

How Well is Thailand Doing?

The IEA's PV technology roadmap can be used for benchmarking Thailand's success to date. It states there should be:

• A predictable regulatory framework, including grid integration
• A timetable for lowering manufacturing costs, down the experience curve
• A clear, coherent structure of standards and codes
• A plan to optimise use for rural electrification
• Smart grids and storage
• Accessible finance
• Human resources

The IEA framework also covers residential, commercial, utility and off-grid applications.

Against that checklist, Thailand's current performance is mixed. For example:

• Standards and codes: Every country needs a coherent structure, from international standards for core products and their testing down to the fine detail of local building codes. Yet no programme has been introduced.
• Grid integration and PPAs: While the issue has been addressed for specific major farm projects, no evidence has emerged of plans for other applications.
• Local manufacturing strategy: Many industry insiders believe today's small-scale manufacturers of commodity solar panels cannot hope to remain competitive, yet there is no evidence of a coherent strategy for attracting and developing cost-competitive manufacturing. Inward investment specialists were even kept away from some key planning discussions in the first year.
• Rural electrification: While almost all communities have access to electricity, opportunities abound for using distributed power plants as a tool for developing local employment and supply to local business and agriculture. Yet rural politics are so sensitive in the current political climate that many Thais are unwilling even to talk about the issue.
• Regulatory framework: Despite some compliments, general concern about political stability is reinforced by fluctuating announcements of intentions for the FiT. The original THB8/kWh rate was announced, suspended, and then reintroduced at a reduced level. Yet even at THB8, the ROI would barely meet minimum international norms, excluding any premium for political risk and even including top-ups available from the UN Clean Development Mechanism (CDM). Evidence that Thailand recognises the problem can be found in reports that the country is considering joining the IEA's Photovoltaic Power Systems Programme.
• Finance: While one local bank has introduced its first programme to finance solar investments, many more similar schemes are needed if healthy, competitive financial services for the industry are to emerge.
• Human resources: Thailand's educational system and technological ability have long been highly rated, but the task of training thousands of technicians and engineers in renewable energy technology has barely started and young Thais seeking education in the field generally must study abroad.

Problems in raising public awareness and political infighting also prevent clear communication. At least one key business leader with a reputation for making headlines has been blocked from contributing to public debate after offering to participate in a key awareness-building programme. One high-level foreign solar player said the single most important priority for the country's solar industry was to develop a 'pull' from the market, evidence of which is nowhere to be found at present.

What is important in this debate is not whether the good news outweighs the bad, as there is clearly evidence of both, but whether a consensus is possible on what still needs to be done.

The Thai government is struggling to master the full range of policies that have emerged from IEA recommendations and the private sector has yet to step in to provide leadership in areas where its involvement is crucial.

Despite a few significant headlines, the country appears to have a long way to go to achieve a stable basis for growth outside of its largest solar farms.

Lessons for the World?

Thailand's experience illustrates some of the difficulties faced by a developing solar industry, and may offer lessons on how to avoid them. It suggests that the large-scale growth of solar requires not just selective promotion of one or two large projects, but a wide and coherent set of action programmes.

Experience shows that infant solar industries will not survive long-term on aid or government backing, especially as many countries have constraints on public funding. On top of this, heavy reliance on government backing can lead to problems if political instability erupts. Corruption is also endemic in many countries, so a policy of starting clean and staying clean is recommended. In addition, a degree of autonomy from government can allow the private sector to step in and lead progress.

One of the hardest tasks appears to be developing mechanisms to secure private-sector support to build market demand from the start, so that solar can make progress — in partnership with government but not wholly dependent on it.

The simplest example may be a dedicated sectoral trade association, able to lobby government and to launch durable programmes on its own. Associations like this can be found in key countries with major field deployment of solar, such as Germany, the United States and Japan. Thailand has none. With limited support from multinational players that have an interest in the solar market's expansion, it would almost certainly be possible to establish an effective base locally and, maybe, to roll this out globally.

While a trade association could lobby and promote spin-off programmes directly, other examples also emerge from this case:

• Standards and codes: The US has established an industry-led programme. In Thailand an organisation has been identified which could manage one.
• A wider market transformation programme with wide private-sector involvement could suggest content and detailed initiatives. International players could lead this alongside local partners.
• The global downturn has made finance a significant issue for the worldwide solar industry, with some industry players calling it the single biggest obstacle to growth. Thailand's many financial institutions will not supply competitive financial support for solar unless they have been convinced they will obtain a secure return on investment, a job largely in the hands of the industry itself.

The IEA's overriding and universal criticism is that there is too much talk and not enough action in solar in both the developed and developing world. The UN has 192 member countries and even if each seeks its own solutions, there will inevitably be common features among them.

Raymond Schonfeld was responsible for setting objectives, drafting a programme, and carrying out all international liaison connected with Thailand's first national conference on PV solar energy in March 2010. He does similar work in other markets.

The Thai government is committed to developing biofuels infrastructure and production capacity to serve both domestic and export markets. Through price support for feedstocks, ethanol production in Thailand is set to hit 3 million litres/day in the next two years.

Domestically, due to the mandated replacement of traditional gasoline with at least 3% ethanol 'E3 gasohol' by 2012, ethanol use is set to double in two years. In exports, Thailand has already been identified by other east Asian countries as a major biofuels supplier.

In 2010, Thailand's ethanol stock was up to 57 million litres. Two major feedstocks have flourished with significant government support: cassava and sugarcane. Sugarcane bagasse and rice husks are already extensively exploited on a commercial scale for electricity production and are starting to be used for the production of cellulosic ethanol, too.

Cassava

Cassava production has climbed over the past four years. Thailand produced more than 30 million tonnes of cassava in 2009, up from 24 million tonnes in 2007, although 2010 production will probably dip due to an aphid infestation. Cassava accounts for a third of Thai ethanol production and production is growing as it is a cheaper feedstock than sugarcane molasses. Although the price of cassava has crept up in recent years, in 2009 ethanol made from cassava cost THB21/litre (US$0.65/litre) while molasses-based varieties were THB27/litre (US$0.84/litre). Sapthip, Thailand's largest producer of ethanol from cassava, has a plant producing 200,000 litres/day with a capacity of 260,000 litres/day. Sapthip's customers include Esso, Chevron, Shell and Thailand's PTT.

Sugarcane

The US Department of Agriculture predicts that sugarcane production in Thailand will reach 72 million tonnes this year. Due to cheaper fertiliser and government production support, the acreage used for sugarcane production is set to expand further. Support prices for sugarcane are also set to rise from $27—$30/tonne, up from $23/tonne. To protect food supplies, Thai government policies seek to improve the productivity of land currently cultivated through better irrigation and farming techniques. Thai Sugar Ethanol Co produces over 100,000 litres/day. Its main customers are large petroleum companies such as Shell, BP and Bangjak, which are mandated by law to include at least 10% ethanol in any fuel they sell.

Cellulosic Ethanol

Thailand produces over 32 million tonnes per year of rice. Rice husks make up a quarter of the harvest weight and have been used for many years as a feedstock for biomass electricity production. Using rice husks for ethanol production is still at an early stage.

The growth of the sugarcane ethanol industry has spawned a secondary ethanol production method, utilising a sugarcane by-product known as bagasse. Bagasse is the fibrous residue that remains after the extraction of the juice.

Verenium Corporation partnered with the Japanese Marubeni Corporation to build a 3 million litre/year cellulosic ethanol plant in Saraburi. The primary feedstock for the plant is sugarcane bagasse, obtained from a sugarcane ethanol production facility located on the same site.

Market Opportunities

Sugarcane and cassava feedstocks are basically interchangeable in producing ethanol. The distinguishing factor is the commodity price. Thailand's 17 ethanol plants, with a total capacity of 2.7 million litres/day, currently only use 60%-70% of their capacity. The gap between domestic consumption and production capacity shows the major export potential of cassava-based ethanol. Thailand will have an excess of 4 million tonnes/year of cassava, which can be converted to 1.8 million litres/day of ethanol.

David Lonardo is Investment Coordinator, American World Services in Washington, DC