Thailand's latest solar lessons for the world
By Raymond Schonfeld
In 2010, as Thailand started its first large-scale drive in solar farms, we offered comments on the lessons that this free-market, mid-size economy could offer to the world’s solar markets. By mid-2013 three years later, Thailand had surged forward, and was starting to expand its solar base beyond farms. The country remains a microcosm of the successes and challenges facing the PV world. Its latest lessons come from its efforts to kick-start growth of PV 1) on rooftops, and 2) in community-scale energy generation.
The good news first
With around 360 MWP total capacity of PV solar energy actually built by the end of 2012 – almost all in solar farms – Thailand ranked 21st in the world in PV (data from EPIA) – the same ranking as the country has in global tables of total electricity generating capacity from all fuels. Not bad from an almost standing start in 2009.
Thailand now has the highest installed PV capacity in ASEAN, an emerging trading block of 10 countries in south-east Asia with a population of 600 million, which lies entirely in the sun-belt. And as the country emerges from developing-country status with rapid economic growth, the future is brighter still. In mid-2013, industry insiders were predicting that by the end of 2014, at least 1.6 GW (1600 MW) of PV capacity will have been installed. Even beyond that, Thailand’s needs for more electricity generation are high: a national plan forecasts 55GW of total new capacity by 2030.
Factor in, on top of all that, a good grid infrastructure, a strong and diversified private sector, and investment-friendly government policies, and the potential for PV is enormous.
Nobody knows how much of the 55GW new construction will be solar, but there is little doubt that solar will continue to increase its share. If the most recent global IEA forecasts are converted into proportionate one-country potential for Thailand, cumulative capital investment potential there in PV to 2030 could exceed $15 billion. Reflecting the optimism, the country’s first PV trade association was formed in 2012.
The lessons from the last 3 years
With the start-up of solar farms now well in hand, Thailand’s latest lessons for the world come mainly from its efforts to expand the use of PV into two new segments: 1) rooftops and 2) community-scale energy programmes
Start with the rooftop segment. No surprise that there was plenty of interest in that in Thailand: the climate, construction practice and state of grid development make it almost ideal. So why was there no significant development until 2013?
In a chain of events – see the section below for more detail on how the story unfolded – the most striking feature was a 3-year game of bluff, during which the private sector, including financiers, tried to negotiate high subsidies from government, but encountered a sceptical response.
A slow birth
How Thailand developed its first small PV rooftop programme
In Thailand between 2009 and 2012, the government FiT (Feed-in Tariff) programme was limited to solar farms. There was a maximum limit, the limit was reached, and the issue of FiT authorisations was then stopped. There was no provision for rooftops in this first programme.
While pushing ahead with solar farms, industry urged an extension of the FiT to rooftops, with a generous long-term FiT. Equally importantly, the financial sector stated that solar was not financially viable without large government subsidy, and refused to finance rooftop programmes without it. This was happening all over the world at this time. Although the financial sector claimed that they were motivated by normal criteria of prudence, others thought that the sector was playing governments off against each other, threatening to abandon all except those that offered the highest subsidies.
The Thai government, meanwhile, was sceptical. In pitching for FiTs, industry all over the world offers the argument that solar is approaching grid parity and therefore that any subsidies will be temporary, until solar becomes viable in its own right. And yet whenever government asks are you there yet? , industry cries off and claims that indefinite subsidy is necessary. Not only does the argument not stand up in logic, but in Thailand’s case, the government saw the existing subsidy for solar farms being siphoned off (see main article). And it had a separate programme to use biomass fuel for energy generation which was doing well. The government refused to play ball. And not for the first time in solar: it had refused to join the subsidy-led rush to attract investment in solar panel manufacturing plants a few years before: a decision which proved remarkably prescient. Rooftop development was blocked.
In mid-2013, Thailand did resolve this problem, at least temporarily. How?
Part of the answer came in 2012 when, independently of negotiations about FiTs, the Thai government nearly quadrupled its earlier 2011/2022 target for solar energy, from 550MW to 2000 MW. Plans at that time for solar farms would not enable the target to be reached, and the argument about subsidies meant that no new concrete projects were emerging. Worse, questions had started to be asked about how far biomass sources could be developed as an alternative. Something had to give.
The remainder of the answer came in 2013, when the Thai government at last decided to offer a Feed-in Tariff for rooftops, lower than industry had been demanding, and for a limited volume only (200MW, to be divided equally between commercial and residential). The FiT offer was accompanied by government calculations which claimed that it would offer investors in rooftops to obtain an IRR of 12%. Despite the earlier demands for even higher subsidies, market reaction was strongly positive, and the programme is under way. No commitment has been made to FiTs or other subsidies for rooftops beyond the initial 200 MW.
This game of hunt-the-subsidy was not limited to Thailand: for example, as recently as 2012, a major European bank listed the most attractive countries in the world to invest in solar, using as its sole criterion the size of government subsidies. Many felt that international firms were playing governments off against each other.
The Thai government didn’t play ball. It was already seeing some undesirable results of its early subsidies for solar farms: the country hadn’t reaped the benefits of the slump in solar panel prices, which were siphoned off by fast-thinking intermediaries who signed up high-price long-term PPAs, rather than letting the benefits of the lower prices filter down to the consumer or the wider economy. And although the govern-ment was keen on solar, it had plenty of biomass projects to work on. Arguably, the demands for large-scale subsidy for solar increased their interest in biomass.
Ultimately, a temporary accommodation was reached in 2013, in which the government offered reduced subsidies for a small initial phase (200 MW) of solar rooftop development, leaving the longer-term policy unclear. Lesson for the world: bluff leads to delay.
There was no such game of bluff in discussion about community-scale energy, for which a programme was announced in mid-2013 aimed at 800 MWP of solar.
Two trends seem to have favoured community-scale energy programmes in Thailand. 1) The growth of biomass had already created new opportunities for community-level energy generation, and logic suggested that the concept could be extended to solar, and 2) Thailand was already seeking opportunities for community empowerment, quite independently of energy issues – an example was an earlier programme to stimulate local manufacturing (the so-called OTOP programme). Both factors offer lessons to other countries. If those factors have worked positively in Thailand, they can probably work elsewhere.
Future opportunities and challenges
Thailand’s areas of opportunity in solar are classic: 1) rooftops, 2) community-scale energy generation, and 3) solar farms. All three segments offer opportunities for regional leadership in ASEAN if Thailand can maintain the lead it has built up in the past three years. But the first two segments are almost totally undeveloped in Thailand, and even in solar farms, there is room for much expansion. The country offers pointers to priorities and action, especially now that it is possible to refer back to some years of experience.
Performance data and skills training emerge as key and feasible for short-term action. Standards and administrative procedures come close behind. And corruption lurks in the background as a crucial danger to avoid. Note: lobbying government for subsidies is not on this initial list.
Let’s take the first of those – performance data – as an example. This is a condition for market acceptance and a sustainable government policy. Most non-specialist stakeholders in Thailand consider solar to be nice but expensive. Industry murmurs that solar is approaching grid parity – indeed in 2013 claims have been made in Thailand that grid parity has been reached, against peak retail electricity prices – but offers no convincing proof. Bluffing hasn’t worked.
Worse, no data is being collected on the wider contribution that solar can make to the national economy -- job opportunities in rural areas are a prime example, or describing and quantifying the skills needed to make that happen. Nobody is identifying and costing the administrative obstacles that offer room for improvement, standards barriers and approval processes.
If that data can be collected, it will open the way to stable government policy and market growth. It can also quickly be fed in to supporting action programmes: skills training is an area where international cooperation agencies are already active.
The fact that Thailand is not yet addressing the full range of issues which arise in large-scale expansion of solar does not diminish the relevance of these early lessons. For some of the longer-term issues such as how to integrate solar into the grid when it becomes a major contributor to national electricity generation, the main lessons to the world still come from more developed economies, and even they are not finding it easy. Thailand has started to look at smart grids, but not much more.
The need for factual performance data on solar is an excellent place to start discussion of the roles of the various stakeholders. In theory, data could be collected by aid agencies, government or major private-sector players. But which? That question will arise frequently.
The most important need for the private-sector is to stop thinking that action has to start with government. Most solar firms and financial services organisations are still following orders or government handouts. “Give us some money for a project and we’re the best to do it or supply the products and/or finance for it”, say many suppliers to the solar sector. That’s no way to develop a market. The private sector has to develop and prove the case for wide programmes. The stronger the benefits they can present, the greater the chances of market acceptance and government support.
So how can the private-sector lead? Keys are emerging in Thailand which are likely to have global relevance:
- Demonstration programmes to prove the real benefits of solar, in every sense. Carefully constructed and monitored demonstrations can contribute to proving the case under every single one of the challenges above. The current, first round of development of rooftops offers an ideal opportunity. Some of the proceeds of government subsidy could be used to invest in proof of performance.
- Build partnerships between 1) local firms with established channels, technical competence and relevant local market knowledge, even if not yet in solar, and 2) experienced firms in countries with deep competence in solar technology, construction operations, or other services. Too many players on both sides – inside the country and outside – think that they can go it alone. They cannot. Germany is an example of a country which has cottoned on to the opportunity here, and has launched a joint programme with the Thai government to promote private-sector partnerships; while the programme leaves the finance and operation entirely to the private-sector, it offers a range of valuable facilitation services. Germany will not be alone.
- Use solar as one plank in broader energy management services which offer combined benefits of economic performance and green performance, with energy efficiency and zero-carbon renewable fuels as central elements.