Renewables Outlook Stable, 2014 Solar Flare

BMI View : We are maintaining both our short- and long-term forecasts for non-hydropower renewables generation and capacity in Thailand this quarter as our assumptions remain relevant. Growth in 2014 will be driven largely by the solar sector as conditions for both commercial and residential solar energy remain attractive. Meanwhile, our sanguine long-term outlook can be attributed to the unsustainable nature of the country's current energy mix and the increasingly attractive regulatory conditions for renewables.

We are maintaining our 2014 forecasts for non-hydropower renewables generation and capacity in Thailand this quarter as our assumptions remain relevant. Growth in 2014 will be driven largely by the solar sector, with the wind and biomass sectors playing second fiddle.

We are forecasting 440MW of new solar capacity installations in 2014, with commercial and residential solar accounting for approximately equal shares of new capacity additions. This would be the highest amount of solar capacity additions in a single year, and would more than double the cumulative solar capacity in Thailand.

Solar: Big Jump
Thailand - Non-Hydropower Renewables Capacity, MW

BMI View : We are maintaining both our short- and long-term forecasts for non-hydropower renewables generation and capacity in Thailand this quarter as our assumptions remain relevant. Growth in 2014 will be driven largely by the solar sector as conditions for both commercial and residential solar energy remain attractive. Meanwhile, our sanguine long-term outlook can be attributed to the unsustainable nature of the country's current energy mix and the increasingly attractive regulatory conditions for renewables.

We are maintaining our 2014 forecasts for non-hydropower renewables generation and capacity in Thailand this quarter as our assumptions remain relevant. Growth in 2014 will be driven largely by the solar sector, with the wind and biomass sectors playing second fiddle.

Solar: Big Jump
Thailand - Non-Hydropower Renewables Capacity, MW

We are forecasting 440MW of new solar capacity installations in 2014, with commercial and residential solar accounting for approximately equal shares of new capacity additions. This would be the highest amount of solar capacity additions in a single year, and would more than double the cumulative solar capacity in Thailand.

Commercial: The pace of development of commercial scale solar projects continues to hasten despite stricter regulations passed by the Thai government in 2009 and 2010 ( see 'Solar: Twin Engines Of Growth', January 30 2014). In fact, we have seen a number of large commercial scale projects commence development in recent months, and some of the more notable projects expected to come online in 2014 include:

  • A 52MW solar power plant in Lop Buri Province - Japan's Sharp Corporation received an order for equipment for the plant on January 27 2014. Construction of the 52MW plant will begin in January 2014, and operations are expected to start by the end of 2014.

  • The third 25MW phase of the 75MW Bangchak Solar Energy Project: China's Trina Solar had shipped 25MW of PV modules for Phase III of the project at the end of 2013. The plant is currently being constructed by local company Gunkul Engineering, and is expected to come online by mid-2014.

We have also seen work on five smaller commercial solar plants - such as the 7.5MW Sakon Nakorn 2 plant, the 6MW Siam Solar Generation project and three more projects with a combined capacity of 16MW - commence, and we expect them to come online during 2014.

Residential: The Thai government introduced a feed-in tariff (FiT) programme for rooftop and village-based solar energy projects in July 2013 which we believe will act as a catalyst for sector growth in 2014 ( see 'Conditions For Solar Increasingly Conducive', August 6 2013). This is because power purchase agreements (PPAs) offered to households under this new system are longer (25 years) and at comparable rates to the 10-year adder programme for commercial projects ( see 'New Regulations A Boon For Residential Solar', July 26 2013).

Fact Box: FEED-IN TARIFFS AND ADDER PROGRAMME FOR SOLAR ENERGY, THAILAND
Type Scale Tariff, THB/kWh Payment period, years Notes
Solar PV, rooftop <10kW 7 25 For projects completed before Jan 1 2014
10kW =< 250kW 6.6 25 For projects completed before Jan 1 2014
250kW =< 1000kW 6.2 25 For projects completed before Jan 1 2014
Solar PV, ground-mounted (village/community-owned) 1MW blocks 9.75 1 to 3 For projects completed before Jan 1 2015
6.5 4 to 10 For projects completed before Jan 1 2015
4.5 11 to 25 For projects completed before Jan 1 2015
Solar, ground-mounted (commercial) Any 6.5 10 Adder: THB1.5/kWh for projects in 3 southernmost provinces; THB1.5/kWh for diesel replacement projects
Source: BMI's Feed-In Tariff Database

We are also forecasting 115MW of wind capacity additions in 2014. This will come primarily from the 60MW Khao Kor wind farm project being developed in Petchabun Province by Ratchaburi Electricity Generating and Wind Energy Holdings (WEH), and also other wind farms currently being developed by WEH. WEH has a sizeable portfolio of wind projects in various stages of development - licences for the development of four wind farms with a total capacity of 300MW, and is in the process of securing PPAs for three more projects with a combined capacity of 270MW - and is likely to develop these projects over the next two years.

Positive Fundamentals Drive Growth Over Long-Term

We are also maintaining our long-term forecasts this quarter, and are forecasting non-hydropower renewables generation to grow by an average of 9.2% per annum between 2014 and 2023. Our sanguine long-term outlook can be attributed to the unsustainable nature of the country's current energy mix and the increasingly attractive regulatory conditions for renewables.

Strong And Sustained Growth
Thailand - Non-Hydropower Renewables Capacity, MW

We believe that the current energy mix in Thailand is unsustainable over the long-term, in terms of both costs and availability of fuel. There is limited scope for growth in gas-fired generation - which accounts for 70% of the electricity mix - as the country's gas reserves will be insufficient to meet its needs over the long-term and imports are becoming increasingly costly. Gas reserves in Thailand have been declining since 2002 and we estimate that the country is likely to exhaust its gas reserves in around eight years at the current rate of production, barring any major gas discoveries. Meanwhile, Myanmar - which supplied more than 75% of Thailand's gas imports via pipeline in 2012 - is likely to cut down on export volumes as gas consumption in Myanmar is increasing following the opening of its economy ( see 'Domestic Needs Hit Thai Supplies', October 5 2012). The only other option left to Thailand is to import LNG, but this will be substantially more expensive than piped gas from Myanmar ( see 'PTT Looks To Long-Term LNG For Domestic Needs', October 17 2013).

Insufficient Gas Reserves
Thailand - Natural Gas Production and Consumption, bcm (LHS) and Natural Gas Reserves To Production Ratio, years (RHS)

On the other hand, the regulatory conditions for renewables have grown increasingly conducive. As highlighted earlier, the introduction of a FiT programme for rooftop and village-based solar energy in July 2013 will provide a boost to the sector over the near-term, and we could see similar programmes rolled out over our forecast period. The government had also approved a 51% increase in its target for renewable energy generation in July 2013, and said that it would provide incentives in order to reach this goal. This means that we could see a boost in existing schemes such as tax incentives and the introduction of tax exemptions for imported machinery and materials over our forecast period.

FACT BOX: NEW RENEWABLE ENERGY TARGETS, 2013
Technology Capacity (MW)
Biomass 4,800
Biogas 3,600
Solar 3,000
Wind 1,800
Total 13,200
Source: Ministry Of Energy

That said, we believe that the government is still overly bullish in its target and projections for renewable energy. In particular, we believe that the government's biomass and biogas targets appear unachievable given the relatively low FiTs (relative to solar and wind) for them and a lack of commercial-scale projects. While we have seen a number of commercial-scale projects in solar and wind energy (including over 1,000MW capacity of wind farms being planned by WEH), the pipeline and scale of biomass and biogas projects remain extremely conservative.

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This article is tagged to:
Related sectors of this article: Renewables, Biomass, Solar - Renewable, Solar - PV - Renewable, Wind - Onshore - Renewable, Regulatory/Policy
Geography: Thailand
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