ANALYSIS: Solar Lessons for ASEAN from Thailand's Feed-in Tariff Success

ANALYSIS: Solar Lessons for ASEAN from Thailand's Feed-in Tariff Success
Photo Credit: Reuters / 達志影像
What you need to know

Thailand has powered past regional peers when it comes to solar power capacity via astute implementation of feed-in tariffs.

Feed-in tariffs (FITs) are innocuous yet powerful financial tools that enable countries to rapidly build solar or other renewables when supply chains have not had time to develop.

While it is true that globally the cost of solar and wind continues to decline, large discrepancies remain in various international markets. Globally, electricity generation makes up 25 to 35 percent of greenhouse gas (GHG) emissions, according to the Intergovernmental Panel on Climate Change (IPCC), so transitioning to non-fossil fuel-based energy continues to be a major challenge. On top of that, you have major growth and therefore major electricity consumption in a rising Southeast Asia.

The IPCC suggests that oil demand alone is projected to expand from 4.7 million barrels per day (mb/d) currently to an estimated 6.6mb/d by 2040 due to increasing energy demands from rising populations. Economically, the 10 members of the Association of Southeast Asia Nations (ASEAN) expect continuing economic growth, which is strongly correlated with electricity demand. Consultancy EY (also known as Ernst & Young) estimates that rising economies like Cambodia, Laos, and Myanmar will see GDP grow at 7 percent while economic activity in more developed economies will expand at a still rapid 5-6 percent.

The International Energy Agency estimates a two-thirds increase in power by 2040. Most electricity production in Southeast Asia relies heavily on coal and oil. As of 2015 fossil fuels made up 75.2 percent of the energy mix, with oil at one-third followed by natural gas at 23.7 percent and coal at a relatively low 18.5 percent.

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Photo Credit: Reuters / TPG
A worker walks at a solar power plant by Superblock, Southeast Asia's biggest producer of solar power in Phetchaburi province, Thailand, Aug. 23, 2017.

If sustained economic and electricity growth continues as forecast without major changes, it will drive significant contributions to global climate change, not to mention deaths related to air pollution.

Pollution causes an estimate 9 million premature deaths per year, 92 percent of which occur in low income countries. Burning fossil fuels for energy (both heat and electricity) makes up a significant contribution to mortality. But reducing fossil fuel ratio does more than save lives. Researchers model that, if it is implemented to the fullest possible extent, green energy could generate an estimated 24.3 million long-term net jobs.

And you don't need to be a wealthy "Western" country to begin using renewable energy, as evidenced by Thailand. For them, FITs have helped drive massive change.

FITs drive solar growth

When a power utility or government body pays for electricity at a higher rate than standard power and guarantees long-term, fixed-price rates for renewable electricity, they create a “feed-in tariff” (Huenteler, 2014). The success of FITs in increasing renewable energy capacity has been thoroughly documented in Europe (Zhang, Van Gerven, Baeyens, & Degrève, 2014).

By looking at the translation of these policies into foreign contexts, policymakers can understand the benefits and costs and create better frameworks as the rest of Southeast Asia increases its electricity consumption. For example, it is more likely that a policy from Indonesia or Thailand would have relevance to Cambodia or Vietnam than a policy from the United Kingdom.

Understanding directly causal or even correlative relationships at a country level for infrastructure development can pose serious challenges. Numerous factors influence investment decisions in newer technologies. Furthermore, global economic flows and local regional characteristics also play a strong role.

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Photo Credit: Reuters / TPG
A partial solar eclipse is seen in Bangkok, Thailand, March 9, 2016.
The Thai model

Thailand has an energy mix of 60 percent natural gas, 12 percent coal, 7 percent oil, 7 percent solar. However, solar photovoltaic system generation - the production of solar energy - was not above 1 MW in 2000, meaning all new capacity occurred in the last 18 years. In 2013, the Thai government developed a FIT for distributed solar. By 2016 the country had secured 3,016 MW of solar capacity, beating out other countries in the region. Thailand had achieved 100 percent electrification by 2016, from 82.1 percent in 2000, according to the IEA.

Thailand's FIT is managed under the Ministry of Energy – Energy Policy and Planning Office and covers Very Small Power Products (VSPP), which are less than 10 MW. This policy also impacts small-scale wind, hydropower, and biogas (from crops and waste). All FITs last for 20 years except for landfill methane extract, which only covers 10 years .

Thailand's FIT for solar has a different rate for different capacities. The lowest 0-10 kW has a FIT of 6.96 baht/kWh, with the largest solar range of 250 kW- 1 MW only earning 6.16 baht/kWh. This incentivizes small-scale solar developments that may not be able to utilize the economies of scale of a large project.

FIT for solar exceeded all other sources of energy except for small-scale incineration and wind. Within Thailand's plan, community solar, defined as a solar plant whose electricity is shared by more than one household, has a higher rate in the early years of plant operation. For the first three years, community solar receives 9.75 baht/kWh before finally dropping to 4.5 baht/kWh after 11 years. This helps to stabilize development in the beginning of community projects and spread electrification quickly.

Year Solar PV Production (MW)
2000 0
2010 49
2016 3,016
Reflecting on Asia

Looking across the four largest economies in ASEAN we see similar policies, yet with differences in implementation, and wildly different results.

Clearly, multiple factors influence the development of solar ranging from foreign investment, financial policies within the country, human capacity to implement projects, bureaucratic efficiency, and of course how much sun falls on that country.

FIT differences

While Thailand had a lead already in 2010 in terms of their solar development, it has since progressed much faster than Indonesia, Malaysia and the Philippines, breaking well past the 1 GW mark and into 3 GW of total capacity by 2016.

Power usage alone does not fully explain this as Thailand's total power output is below Indonesia's, so the drive to develop solar is not from pure power usage alone. Another explained factor could be total GDP, yet Thailand has almost half Indonesia's and only US$100 billion more than Malaysia.

Country Solar 2010 (MW) Solar 2016 (MW) Total Power (GW) GDP (2016) Billion US$
Indonesia 14 96 59 932.3
Malaysia 13 319 33 296.4
Philippines 1 900 twenty one 304.9
Thailand 49 3,016 43 406.8

Solar data from Bloomberg New Energy Finance, GDP data from World Bank

Looking at total power capacity we see that the largest users of power, Indonesia and Thailand, also have the largest GDP, fitting in line with traditional development economics, although the "consensus" faces many challenges, especially in Europe.

In Thailand the data suggests the country has skipped or is quickly moving through the fossil fuel development phase. Indonesia is following a more typical developmental arc and is only now starting to make serious progress on renewables.

However, other factors could explain this relationship, although the Philippines provides more evidence that higher GDP does not necessarily correlate with rising carbon emissions.

In the following, the growth rate was so fast it is possible they could continue without receiving significant diminishing returns. You can only build solar in so many locations. But the question remains: what really drove the growth?

Causation or Correlation?

Many factors contribute to the potential rise of solar, but first and foremost is economics. While ample sunlight can provide steady electricity, financial policies such as the FIT can help make solar a reality. But some other enabling factors must exist as well: an open electricity market, minimization of fossil fuel subsidies, and a supportive policy framework.

Just because the sun is out does not mean your solar project will take off. While the price continues to decrease, solar panels remain expensive. If they cannot expect a return on investment in five years or less, few will be willing to invest. Price further depends on competition from other fuels.

According to the World Bank , as of 2014 Thailand imported roughly 40 percent of it's energy from abroad, Indonesia exports twice as much as it imports. Malaysia is also a net exporter, while the Philippines is a net importer, requiring 40 percent of its energy from overseas.

Solar and other renewables such as wind and hydro ensure some measure of energy security. This, combined with ample sunlight and strong motivation from the relevant government sectors, came together to boost Thailand's solar capacity in a very short period of time. To be clear, lowering the price of solar through the FIT and other government support generated this rapid growth rate. As solar costs continue to decline, we should continue to see rising growth.

While further and timely research is needed to understand this industry as it evolves, early signs indicate rapid growth. If other countries can copy Thailand's success there is a good likelihood they can achieve their Paris Agreement carbon reduction commitments. Understanding and applying this formula to the rest of the region remains essential not only for sustainability, but for the global environment and climate.

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Editor: David Green