Friday 26 October 2007

Does a small-scale power scheme work?

Unique Thai programme was launched five years ago to reduce need for imported fuel and protect environment
 

By CHRIS WEBBER

In May 2002, the cabinet approved regulations enabling very small power producers (VSPPs) to sell electricity to the grid. Since then, these innovative entrepreneurs have been creating electricity for their own operations, using agricultural or industrial waste, and then selling any excess power to the Metropolitan Electricity Authority (MEA) or to the

Provincial Electricity Authority (PEA). What has happened with the programme launched five years ago? Has it been successful or has it failed to achieve the stated objectives?

Over the past year, I have conducted site visits, interviews and/or surveys of all 23 VSPPs currently selling electricity under contract. These enterprises come in all shapes and sizes. There are pig farms. There are rice, flour, feed and sugar mills, and palm oil and fertiliser plants.

In the group is also a municipal waste dump, landfill site, fuel cell developer and residential solar installation. Finally, there are ''green energy'' generators that are solely dedicated to making and selling electricity.

The members of the initial group of VSPPs are the pioneers of this unique programme. What they all have in common is that they use renewable energy technology (RET) to turn agricultural or industrial waste into electricity, thus promoting a clean environment.

When the regulations were first introduced, a VSPP was defined as a power producer that sold no more than one megawatt (mw) of electricity to MEA or PEA. Since then, MEA and PEA have been working with the original VSPPs to facilitate connection to the grid and to purchase electricity from these companies. In December 2006, the maximum for sale to the grid was increased to 10mw.

So have the objectives for the VSPP regulations, as set out by the Energy Policy and Planning Office, under the Ministry of Energy, been achieved? The stated objectives, below, are matched with the findings of my research.

1. To promote the participation of VSPPs in electricity generation.

There has been modest participation (only 23 contracted VSPPs as of March 2007) in the programme since its inception. There is promise of more enterprises becoming VSPPs within the next few months. However, with many thousands of very small scale agricultural or industrial enterprises throughout the country (there are approximately 50,000 pig farms alone), the current contracted number indicates that more public awareness is required to expand the group. It is not unreasonable to envision hundreds, if not thousands, of very small scale renewable energy power generators in all provinces engaged in this programme.

2. To promote efficient use of domestic resources and reduce dependency on fuel imports from foreign countries to lessen environmental impact.

The many types of operations of these 23 small-scale agricultural or industrial undertakings, spread across 12 provinces, shows the government is moving in the right direction to achieve this objective. As the number of VSPPs grows then the amount of electricity sold to the grid will increase, thus reducing the need for fossil fuel generation. This will then lead to a cleaner environment.

3. To provide opportunities for people in remote areas to participate in electricity generation.

The 23 pioneer VSPPs are situated in 12 different provinces with a cluster within 150km of Bangkok. PEA said that with the additional 35 VSPPs which are to sign contracts in September or October, there will be more VSPPs situated in remote areas. If this occurs then the government will move closer to achieving this objective.

4. To alleviate the government's investment burden in the electricity generation and distribution systems.

With the small number of VSPPs currently under contract, it is premature to say if government expenditures will be decreased by the programme.

From this brief review, we can conclude that the objectives have not been fully achieved, but progress is being made. There are also other factors that should be taken into consideration.

The VSPPs have made positive comments regarding the programme. Many have noted that the regulations were a critical component in the overall programme since they set out the mechanism by which these enterprises could sell electricity to the grid.

As well, a majority of these enterprises have stated that the financial compensation for electricity sales to the grid seems fair. VSPPs are paid a ''base tariff'' rate for each kilowatt hour (kw/hr) of electricity they sell.

The Energy Ministry sweetened this compensation in February 2007 by introducing the ''adder'' which is an additional amount per kw/hr paid to the enterprise based on the type of fuel or renewable energy technology being used. A VSPP can also increase revenue by selling more generated power to the grid during peak hours (9am to 10pm, Monday-Friday). A lesser amount is paid for electricity sold into the grid during off-peak hours.

Many of the companies integrated newly acquired RET into existing operations in order to reduce their operational costs for electricity consumption from MEA or PEA. They also realised they could enhance profitability for the core business if they sold more electricity to the grid. To that end, many have expanded generation capacity to increase revenue from electricity sales.

For most, the efforts are paying off. I have recorded recommendations from the VSPPs who asked they be passed on to the government.

Generally, the areas for improvement relate to the need for more information regarding financial and other support available to them, a review of the technical specifications regarding very small-scale generation to make them simpler and less expensive, a ''one-stop-shopping'' approach where a special agency is designated to work with VSPPs during the application process and greater consideration for enterprises in more remote geographic areas. If implemented, these suggested improvements could enhance the approach taken by the government agencies involved.

So what has happened with the programme over the last five years?

The regulations created the foundation for Thailand's pioneer VSPPs to sell electricity. These enterprises have demonstrated initiative, ingenuity and commercial sensibility. They have also paved the way for Thailand's budding industry where the use of RET is combined with agricultural to develop alternative power generation businesses.

Most recently, the subsidy adder has enhanced the financial returns for programme participants. Finally, with the maximum amount of electricity that can be sold to the grid increasing to 10mw, the number of VSPPs will increase dramatically.

Has the programme been successful?

Yes, but much more can be done to increase the number of participants and the geographic areas where they are operating. Five years after the introduction of VSPP regulations, we see reasonable progress. The results are encouraging and demonstrate the tremendous potential for this innovative programme.

Chris Webber is a research associate with the Institute for Development Policy and Management, University of Manchester.