Thailand: Setting Up Solar Business In Thailand

Last Updated: 22 December 2016
Article by Hideshi Obara, Jirapong Sriwat and Apinya Sarntikasem

Private investment in the business of electricity generation in Thailand can be classified into three types based on the total electricity production capacity: (i) IPP (Independent Power Producer), (ii) SPP (Small Power Producer) and (iii) VSPP (Very Small Power Producer) which refer to a private power project generating and selling electricity with the total production capacity exceeding 90 MW, between 10 to 90 MW and less than 10 MW, respectively. What is of particular note in the Thai system is that Thai electricity supply industry is based on a state-owned scheme. Thus, a single buyer of power generated from the IPP and the SPP is the Electricity Generating Authority of Thailand ("EGAT") whereas a single buyer of power generated from VSPP is the Provincial Electricity Authority ("PEA").

Provided the bidding system utilized for selecting the project operator of the IPP, the bidders are typically driven to enter a low bid to be selected. Thereby, investment in the IPP is generally not as commercially profitable and hence not as prevalent among the investors as compared to the investment in the SPP. Similarly, the VSPP scheme is basically devised to accommodate the very small-scale private energy business, especially the operation of rooftop solar project; hence, overall, it is not as commercially profitable as the investment in the SPP. Therefore, most investment in the solar business in Thailand is made in the form of the SPP and this article hence mainly focuses on the SPP under the perspective of Thai laws and regulations.

1. Establishment of the SPP

The SPP is defined in the Regulation on Power Purchase from the SPP for the Electricity Generated from Renewable Energy A.D. 2007 (as amended) and the Regulation on Power Purchase from the SPP for the Electricity Generated under the Cogeneration System A.D. 2007 (as amended) as a project operated by a private or a state entity that generates electricity either from (a) non-conventional sources such as wind, solar and mini-hydro energy or fuels such as waste, residues or biomass, or (b) conventional sources such as natural gas, coal or oil by using cogeneration system.

To apply for the license to operate the SPP for the electricity generated from renewable energy, including solar project, the applicant would be required to submit documents and relevant certificates such as company affidavit, piping and instrument diagram and requisite guarantee, together with a request and an offer to sell power to EGAT. Within 90 days from the date of document submission, EGAT would send a notification to inform the applicant whether or not the license is granted (i.e. whether EGAT would purchase power to be generated by the applicant). If the license to operate the SPP is granted, the Power Purchase Agreement (PPA) shall be concluded within two years therefrom; otherwise, the request and offer to sell power initiated by such applicant shall be deemed cancelled.

Figure: Process from applying for the license to operate the SPP until COD

After obtaining the license to operate the SPP from EGAT, the SPP operator shall fulfill the additional conditions as stipulated in the Regulation on Power Purchase from the SPP for the Electricity Generated from Renewable Energy before commencing the electricity transmission, which includes (i) submitting the Environment Impact Assessment Report at least 15 days before the conclusion of the PPA (if applicable), (ii) submitting the requisite licenses for the operation of the energy project, the examples of which are provided in the table below, at least ten days before the Commercial Operation Date (COD) set by EGAT and (iii) concluding the Sale Contract on Secondary Electricity, the Agreement on Electricity Security Service and the Agreement on Electricity Grid Connection along with other agreements required to be concluded with EGAT.

For your information, please find below examples of the licenses required to be submitted to EGAT for the operation of SPP.

Certificates and Licenses Grantors
Factory License (Ror.Ngor. 4) Department of Industrial Works
Certificate of Building Construction (if applicable) The relevant local administration (e.g. Sub-district Administrative Organization or District Office) or the Industrial Estate Authority
Energy Industry Operation License Energy Regulatory Commission
Controlled Energy Production License Energy Regulatory Commission
Electricity Industry Operation License Energy Regulatory Commission
Certificate of Electricity Quality EGAT

The operation of the SPP can be categorized into two types; the so-called "non-firm and firm agreements". Firm agreement refers to a long-term PPA with a term designated between 20 to 25 years, in which the project operator is required to provide electricity during the peak months to serve the high demand of electricity. On the other hand, the non-firm agreement refers to a short-term PPA with a term of not exceeding five years in which the project operator would not be required to provide electricity during the peak months, but may receive payment for the electricity sold to EGAT in a lower rate than that paid to the project operator of the firm agreement.

The standard form of the PPA set by EGAT will be used for both firm and non-firm agreements entered into between EGAT and the project operator. For the firm agreement, EGAT would be entitled to curtail the power generated by the SPP in the case of force majeure with compensation for the project operator. On the other hand, the standard form of the non-firm agreement has no such provision that will enable the project operator to be compensated for the curtailment in the event of force majeure.

2. Energy Payment

Since 2007, the adder rate structure was employed by EGAT to calculate the electricity price paid to the project operator. Under such adder rate structure, the adder rate would be included in the energy payment on top of the prevailing wholesale price of electricity, which could be as high as 8 Baht per kW in the case of electricity generated from solar energy. Provided that the adder rate would be in fact fall on the consumers in the form of Ft rate included in the electricity price which varies according to the costs incurred to EGAT, it could put too much burden on the consumers. As a result, recently in 2015, the Energy Regulatory Commission has implemented the Feed-in-Tariff (FiT) policy to replace the adder rate structure for the purchase of electricity generated from renewable energy, which would be applicable particularly to the applicants whose applications for the license to operate the SPP have not yet been accepted under the adder rate scheme.

3. Promotion for Solar Business in Thailand

In December 2014, Thailand Board of Investment (BOI) has announced new incentives to promote the investment in renewable energy projects. Under the BOI's investment promotion scheme, solar business would be granted incentives of an eight-year corporate income tax exemption, accounting for 100% of the investment (excluding cost of land and working capital); exemption of import duty on machinery; exemption of import duty on raw or essential materials used in manufacturing export products for one year, which can be extended as deemed appropriate by the BOI; and other non-tax incentives.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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