Renewable Energy in Thailand: Green Policies Take off
by Jon Fox
23 April 2010
Initial regulations for SPP had only limited success, and did not take off until 1994. Many of the early projects focused on cogeneration using natural gas and steam for nearby industrial estates. Several bio-fuel projects were implemented across Thailand, utilizing the Kingdom’s robust agriculture resources. Instead of being discarded, organic wastes such as bagasse from sugar mills, used rice paddy husk, and woodchips from paper factories were recycled into renewable fuel.5
The 1997 Asian economic crisis reduced Thailand’s demand for energy, which slowed the progress of the SPP program. To further encourage eco-friendly energy production, the Thai government introduced the Very Small Power Producer Program (VSPP) in 2002. The VSPP supported even smaller private micro-production of energy, feeding up to 10 MW of energy directly into either the MEA or PEA. By producing energy near the source of consumption, the SPP and VSPP programs contributed to lowering transmission costs and waste for EGAT.
Bureaucratic uncertainty, confusing regulations, and apprehensive energy suppliers also slowed the progress of both the SPP and VSPP programs. By the end of 2006, there were only about one hundred SPP and VSPP projects supplying 2,344 MW of electricity to Thailand’s national grid.6 In 2007 after the military coup installed the Surayud Chulanond government, it made several key changes to the SPP and VSPP policies in order to promote the use of renewable energy.
First, the SPP and VSPP regulations were amended to be more “investor friendly”, practical, and transparent. Second, regulations created a financial incentive, called an “adder”, on top of the normal tariffs to encourage SPPs and VSPPs to use renewable energy. The amount of “adder” increases depending on the type of renewable energy being used. For example the “adder” provides an additional 2.5 Baht per Kilo Watt (kWh) of energy produced using municipal waste; 3.5 baht per kWh of wind power; and 8 Baht per kWh produced through solar energy.7 The new regulations paid small-scale energy producers higher tariffs for feeding electricity into the grid during peak consumption times when most needed.
In order to promote the use of domestic resources and reduce dependence on foreign fuel imports, successive governments have distributed additional loans and expanded investment subsides to support renewable energy projects. The government of Prime Minister Abhisit Vejjajiva approved a 15 year Alternative Energy plan in January 2009, placing national importance on producing renewable energy and providing support for initiatives. Large budgets to provide technical assistance as well as pilot project funding for private investors interested in joining the green energy market have been approved. Further, Thai Ministries have been implementing micro hydro power plants in areas too difficult for the private sector to access, setting a goal of creating 112 MW of new green energy capacity by 2011.
Easy regulations lead to more investment
The essential requirements for successful renewable energy programs include energy prices that reflect production costs; utilization of market forces and incentives; clear rules, regulations, standards, and
incentives; competitive markets; and the development of the necessary human capacity. By 2010, Thailand has successfully addressed these requirements.
Austin Arensberg, the Business Development Manager at Nollen Group - Prime Energy Investment (PEI) Fund commented that the PEI Fund has committed €16 million for investments in biogas, landfill gas, biomass, and gasification technology companies and projects throughout Asia. Based in Bangkok, the PEI Fund seeks to bridge the gap between green energy entrepreneurs and the various financial support mechanisms available.
Mr. Arensberg noted that from an investor’s point of view, Thailand holds the lowest risk for renewable energy markets. “There are literally hundreds of developers, thousands of installed MWs on the grid, and a strong regulatory environment that has the government as a guaranteed off-taker of all electricity produced under 10 MW with an attractive tariff,” Mr. Arensberg said. In December 2008, the Philippines passed a law facilitating grid connected renewable energy projects. Yet by the first quarter of 2010, not a single project has supplied energy into the Pilipino energy grid. According to Mr. Arensberg, if you look at the total number of actual projects installed - ranging from large hydro to the smallest solar systems selling into the national grid - “Thailand literally dwarfs other countries in the region.”
“In Indonesia when we review an investment in a potential renewable energy project, we first have to check if the national power grid is even located within 10 km of the project site – often it isn’t. Then we would have typically a six month negotiating process with the PLN [the equivalent to Thailand’s PEA] just to get a price that would not be competitive to Thailand’s. Add country risk and ease of doing business and you can quickly see why most foreign investors in the market have chosen Thailand over its neighbors” Mr. Arensberg said. He added that in Thailand the PEI fund can conclude a project “and within six months have a BOI license granting us 7 years of income-tax free revenue.”
In order to encourage private sector investment in renewable energy in Thailand, the BOI provides a wide range of incentives. Thai regulations provide 8 years corporate income tax exemption for manufacturing solar cells, generation of alternative source energy, manufacturing of energy-saving machinery or renewable energy equipment and machinery, and energy service consulting firms who provide consulting services on the use or installation of energy-saving machinery and equipment. Depending on the location and character of the project, the BOI will also provide a 50% reduction of corporate income tax; exemption or reduction of import duties on machinery; an exemption of import duties on raw materials; land ownership rights for foreign investors and work permit and visa facilitation for foreign experts and technicians.8
  
5. Piyasvasti Amranand, Alternative Energy, Cogeneration & Distributed Generation.
6. Piyasvasti Amranand, Alternative Energy, Cogeneration & Distributed Generation.
7. Piyasvasti Amranand, Alternative Energy, Cogeneration & Distributed Generation.
Thai Board of Investment, Alternative Energy Brochure. Accessed April 2010 at http://www.boi.go.th/english/services/BOI-Brochure-Energy1.pdf
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