Flex Fuel – Thailand’s Renewable Energy Transition: Solar Energy and Beyond

Global warming and its impacts on our daily lives have become ever more apparent. While the COVID-19 pandemic stole the headlines over the last two years, awareness of climate change, and the fact that action must be taken, quickly, has been the most important backstory. Investment in renewable energy sources is this century’s megatrend that is fundamentally altering the investment landscape in Thailand and the rest of the world. Thailand is well aware that it needs to make a renewable energy transition for several reasons:

• Mitigation of the impact that climate change will have on the environment as the agriculture industry accounts for 8% of GDP and 31% of employment and its inability to function without electrical energy.
• Compliance with increasingly strict global trade regulations that require greenhouse gas reductions since the Thai economy is highly dependent on exports, which account for over 70% of GDP.
• Satisfying the needs of investors, both local companies and foreign, who are making their location decisions based on whether they can maintain their own carbon neutrality and net zero goals.

Goal Setting

Because of Thailand’s high trade dependency, restructuring its electricity generation and supply from fossil fuels to renewables like solar technologies will mitigate the impacts of carbon taxes that are planned to be applied to imports by its largest trading partners e.g., the EU’s Carbon Border Adjustment Mechanism (CBAM) and the US’ Border Carbon Adjustment tax. The Thai government has targeted renewables to supply 30% of its energy consumption by 2037. This target was established to achieve carbon neutrality by 2050 and net-zero greenhouse gas emissions by 2065. Thailand’s current power generation mix is comprised of 14.9% renewables. Renewable energy is primarily produced from biomass, 30%; hydropower, 25%; solar energy and 24% with wind power accounting for 13%. Solar power has the greatest potential for further increases in capacity followed by hydro. A balanced portfolio of renewables diversifies energy risk and decouples energy supply from fossil fuel volatility. It also helps meet increased demand for electricity, which is forecast to continue to rise.

Increased demand to produce electricity is attributable to economic growth, expanding digital activities, increased electrical appliance usage and expected demand for electric vehicles (EVs). Thailand’s EV production targets are forecast to total more than 6 million vehicles by 2030 and this will be another catalyst for the development of the country’s electric power systems. Specifically solar technologies that can mitigate the demands of EV charging stations across the country. Energy generated from solar panels and thermal energy are less likely to be crippled by an increased demand when used in conjunction with existing systems that produce electricity in Thailand.

To achieve its renewable energy goals, the government has drafted the National Energy Plan 2022 containing the National Power Development Plan 2022 (PDP 2022). The PDP 2022 will be completed this year with the purpose of meeting the carbon neutrality goal and includes sub-plans for each energy type: Gas Plan, Oil Plan, Renewable and Alternative Energy Development Plan (AEDP) and Energy Efficiency Plan (EEP).

Thailand is ranked no. 4 in Asia and no. 3 in ASEAN (after Singapore and Malaysia) and is considered a “Leader” by the World Economic Forum in its Energy Transition Index. The ETI ranks countries on the performance of their energy systems as well as their ability to transition to a renewable energy future.

Incentives for Change

The Thai government also supports renewable energy investment projects through The Board of Investment (BOI). Investment incentives were developed to encourage investment in utility scale renewable energy-related projects as well as to incentivize individual companies to invest in generating electricity through renewable means like solar energy for their own use. Since 2017, 1,169 renewable electricity generating projects have received investment incentives from the BOI accounting for a total investment of more than US$6 billion.

The BOI also provides incentives to existing companies to reinvest under the category of “Productivity Improvement Measures” to promote sustainability and decarbonization.

Into Each Issue Some Rain Must Fall

While Thailand is highly rated by the WEF on its renewable energy transition potential, as of 2021 it was ranked last out of the 16 countries tracked in HIS-Markit’s Clean Power Additions Rankings – Renewable Additions Index (RAI). The RAI tracks renewable energy power project capacity under development in Asia Pacific. Only 3% of its planned energy capacity expansion in 2021 was comprised of renewables. So while the potential is there, Thailand is still falling behind in its implementation of solar energy generation.

The government will need to turn this policy support for solar power and other renewable resources into action and mitigate some of the risks that have been identified in its energy transition: potential shortages of biomass resources, raw material management issues for waste-to-energy projects, and many of the best sites for wind and hydropower are ​​government property. If these issues can be addressed and based on our experience there is a good chance they will, Thailand could become a leader in production of renewable energy, including solar power.

Turbocharging Thailand’s Transition

From constitutions to governments and political parties to gender, Thailand has a long history of successfully transitioning in many areas. Thailand also has a successful history of encouraging and supporting private sector investment. Whether solar power, wind power, hydropower, biomass, or waste, there is a role for foreign investors to benefit from the development of renewable energy in Thailand. Over 78% of existing renewable energy projects are either foreign-owned or joint ventures. Thailand’s incentives for Greenfield investment are some of the bests in Asia. If you are already operating in Thailand, the BoI has incentives for new investments in sustainable projects as well as productivity improvement enhancement investments. Whether you already have BoI promotion or have never applied, regardless of the business sector, there are excellent incentives to build into your decision-making. If you are considering investing in utility scale renewable energy assets or a new manufacturing facility with sustainable targets you need to meet, Thailand should be on your list for consideration.

What We Can Do 

Tractus has been assisting companies to make informed decisions about where to invest and how to expand their business in Asia, and beyond, for over 25 years. Our partners and senior management leverage their experience running successful manufacturing and service businesses, bringing this commercial perspective to our client work. We have proven experience advising companies on developing and executing their investment strategies. From undertaking detailed financial feasibility analyses, identifying acquisition targets and negotiating complex M&A transactions to developing a location strategy and identifying the optimal sites to support their company’s growth in Thailand and beyond. Let us show you how we can support you to make your business a success.

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Authored by

Dennis J Meseroll, Executive Director, Arunrat Chumroentaweesup, Consulting Manager and Khemthong Chanchao, Consultant are based in the Bangkok office.