Thai wind dreams hit by land and grid woes

THAILAND: Incentives for renewable energy, liberal investment policies and an established manufacturing industry could put Thailand on the map as a regional wind-power hub, but challenges remain if growth targets are to be realised.

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Thailand has a target of 800MW installed wind capacity by 2022. To reach this goal — and realise its ambition to become Southeast Asia's wind power hub — the country has come up with an incentive regime designed to attract international investors. And with Thailand's current installed wind capacity standing somewhere between 5.1MW and 7.2MW, creating the right environment for development is key to hitting the 2022 target.

Over the past few years, announcements and press reports on wind projects in Thailand by domestic and foreign developers have indeed suggested there is substantial pipeline in development.

But as of now, the government's Board of Investment (BOI) — which promotes and provides incentives to capital-investment projects in Thailand — has approved only nine wind developments with a combined capacity of just under 300MW. Just two of these, totalling 18MW and built by a domestic developer, are under construction. A further 11 projects with a total capacity of 387MW are in the approval process.

Map of wind farms promoted by the Thai Board of Investment

Wind farms promoted by the Thai Board of Investment

Policy framework

Developers and investors agree that the government of Thailand has a clear renewable-energy policy and one of the most attractive incentive schemes in Southeast Asia.

The government supports wind power by supplementing the normal electricity tariff with 4.5 Baht/kWh ($0.15/kWh) for farms under 50MW and 3.5 Baht/kWh for larger projects. This tariff is paid for the first ten years of operation. BOI also offers an eight-year tax holiday plus a 50% tax reduction for the subsequent five years.

Other incentives include import-duty reductions or exemptions on machinery and raw materials and deductions for infrastructure construction or installation costs.

"The Thai government offers incentives which can be said to fulfil the requirement of TLC — transparent, long term and certain," says Sean Sutton, president of Vestas Asia Pacific.

Land shortage

However, despite Thailand's investment policies, feed-in tariff and renewable-energy targets, there are still barriers that make it difficult to develop wind-power projects. One of those is the availability of suitable land.Land in Thailand is protected and usually not for sale, including areas with the best wind-resource potential. While land is available under long-term lease agreements from the Agricultural Land Reform Office, obtaining such a lease can be time consuming and difficult. An exception is made for projects promoted by BOI.

"On the one hand, Thailand has the most attractive incentive scheme for investments in renewable-energy projects in Southeast Asia," says Herbert Baumgartner, Thailand director at German development-investment specialist Deutsche Investitions und Entwicklungsgesellschaft (DEG). "But on the other hand, the land access issue can pose a real practical obstacle to development."

The wind industry in Thailand is still emerging, which also helps explain the length of time it is taking for projects to reach fruition."Thailand needs to be shown that wind power works," This entails educating local agencies, banks and other investment institutions, he says.

Joint ventures

DEG provides financing of €3-25 million per project. It has a long track record of providing renewable-energy project finance in emerging markets, going back to the early 1990s when it was one of the first to move into the wind industries of China, Taiwan and Turkey. It works with both domestic and foreign firms to develop wind projects in Thailand.

One domestic partner is Wind Energy Holding, which was set up in 2005. Wind Energy Holding's investments include a 60% stake in Sustainable Energy Corporation, which is developing 60MW of wind in Phetchabun. Its wholly owned projects include Huay Bong 1 and 2, under development in Nakhon Ratchasima, which have a combined capacity of 180MW.

Earlier this year, it was announced that DEG was joining forces with German partners Energiequelle and Geo-Net to form the development joint venture WIP. The new company plans to develop 200MW of wind energy in Thailand. DEG brings venture capital to WIP as well as its country know-how and contacts on the ground.

WIP aims to identify suitable locations for wind farms in Thailand, acquire land-use rights and carry out wind studies in economically weak regions of the country to generate work for local companies, create jobs and wealth.

DEG claims a substantial portion of the 200MW — comprising utility-scale projects of at least 50M each — is in the third and final stage of the development process.

Baumgartner says that international investors and developers lacking the extensive track record and contacts network of DEG can overcome the challenge of obtaining land leases by forming a joint venture with a domestic partner. Areas where local knowledge and expertise is critical, for example, include the negotiation of power-purchase agreements.

Vestas' Sutton agrees: "I don't think there is a preferred approach to wind developments, but if foreign developers have ambitions to enter the market, they will likely be more successful with a Thai partner."

Regional wind-hub potential

BOI hopes that the combination of policy support for wind energy, generous tax incentives and existing manufacturing and export industries will, in future, establish Thailand as a regional industrial hub for wind in Southeast Asia.

"Thailand's existing automotive, metal forming and fabrication, basic steel processing as well as its plastic composite manufacturing can all be leveraged, or diversified, to supply parts and components such as blades and towers," says Ajarin Pattanapanchai, deputy secretary-general of BOI."Substantial port infrastructure also exists to support export to regional markets," he adds.

Both Sutton and Baumgartner agree that only if neighbouring countries such as Vietnam and the Philippines establish strong, long-term wind policies and incentives to underpin strong growth of wind power in the region could Thailand become an attractive location to serve as a pillar in any such regional hub strategy.

But before this happens, the country has more pressing challenges to deal with if it is to meet its ambitious installation targets for wind energy. "Thailand offers good support in many ways, but, as in other countries in the region, barriers still prevail and need to be overcome," says Sutton.

"The government needs to sustain such incentives and introduce new policies that will create a vibrant market, for example, by removing some of the existing barriers related to grid and transmission, as well as land restrictions.

"Manufacturers will consider investing only if there is a vibrant market and a firm and certain project pipeline over a significant number of years to support such an investment," he adds.

Baumgartner believes the next two years will start to bear witness to all the leg work put in so far by developers. Indeed, the rest of this year could yield some promising developments to help shore up confidence in Thailand's fledgling wind industry.

For instance, BOI has confirmed that a 90MW Thepsathit wind project in Chaiyaphum province, which was proposed by the local subsidiary of German wind firm Pro Ventum in a joint venture with GE, is in the final stages of gaining approval. When it begins operation in late 2012, it will be Thailand's largest wind farm developed by international players.

Once Vietnam, the Philippines and other countries with a higher natural wind-power potential than Thailand provide similar incentives, their wind-power industries will emerge to provide Thailand with both plenty of competition and opportunities for a strong export market.

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