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Australia Puts Its Power behind Pumped Hydro Energy Storage Plants

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Australia, as most countries across the globe, is increasing its focus towards renewable energy for future sustainability. These initiatives are faced with the inherent challenge in the renewable energy development – intermittency of supply, i.e. the fact that the supply is not continuously available (e.g. sunlight or wind) and it cannot be modulated according to demand. To tackle this, power companies and the Australian government are making significant investments in pumped hydro energy storage (PHES) plants. These plants facilitate the storing of energy when supply is high but demand is low, so that it can be used when demand supersedes supply levels. Currently, several PHES projects are under assessment and development in Australia.

In 2015, the Australian government set renewable energy targets of 33,000 GWh in large-scale generation, equaling to about 23.5% of Australia’s total electricity generation by 2020. The ongoing pace of new and upcoming solar and wind power projects during 2017, 2018, and 2019 has ensured that the targets set under the Renewable Energy Targets (RET) scheme are met. Moreover, if the current rate of renewable installations continues, Australia is on track to achieve 50% renewable electricity by 2025 and 100% by early 2030’s.

To make renewable energy more sustainable, the government is looking at storage options for solar and wind energy. Solar and wind energy are inherently intermittent in nature. This means that energy can be harnessed based on availability of these resources and not based on the demand at a certain time. This makes renewable energy supply less predictable and dependable in comparison with fossil fuel-based energy.

This is where pumped hydro energy storage can prove useful. PHES plants can store renewable energy on a large scale within the electrical power grid. Fundamentally, PHES plants work in a similar way as regular hydro energy plants, wherein water flows from a higher reservoir to a lower reservoir, generating electricity by spinning the turbines. However, the key difference in case of a PHES plant is that in case when more energy is being produced than the current demand level, the plant uses the spare energy to pump the water back from the lower reservoir to the higher reservoir, thereby making it available again to generate power when the demand rises.

PHES stations are all the more beneficial when integrated with renewable energy generating grids. Since it is difficult to ascertain how much energy will be produced through wind and solar at a given time, pumped hydro energy storage helps balance it in accordance to the demand levels. When wind and solar grids produce more energy than currently required, the excess energy can be used to push the water uphill in the integrated PHES plant, which can be used later when energy produced through renewables is lower than the demand levels. Thanks to this, these plants act as energy-storing batteries.

PHES stations are all the more beneficial when integrated with renewable energy generating grids. Since it is difficult to ascertain how much energy will be produced through wind and solar at a given time, pumped hydro energy storage helps balance it in accordance to the demand levels.

PHES projects across Australia

Owing to these benefits, Australia is extensively exploring this technology. It is estimated that the country is looking to add about 363 GWh of new pumped hydro energy storage capacity, through nine projects that are under consideration and development. In addition to this, there are several other projects that are at initial stages of assessment and do not have a specified capacity yet. As per experts, Australia needs about 450 GWh of storage to support a 100% renewable electricity grid. Some of the most prominent PHES projects in Australia include Snowy 2.0, Marinus Link Project (Battery of the Nation), and Kidston project.

Snowy 2.0

Snowy 2.0 (an expansion of the 70-year-old Snowy Hydro scheme) is the largest energy storage project in Australia, with capacity of 2,000 MW. The plant will offer 350 GWh of pumped storage. The project, which is to be developed and operated by Snowy Hydro (an Australia-based electricity generation and retailing company), is estimated to cost US$2.8-4.2 billion (AU$4-6 billion) and is expected to commence operations by 2024. It has received US$1 billion (AU$1.38 billion) in federal funding.

Moreover, it has partnered with large global technology companies, such as Germany-based Voith Group, which has been contracted to supply the electrical and mechanical components such as the reversible pump turbines and variable-speed pump turbines to be used in the storage hydro power plant.

Marinus Link Project (Battery of the Nation Project)

The Marinus Link Project is a part of Tasmania’s Battery of the Nation program, under which a second interconnector will be built across the Bass Strait. This high voltage interconnector will ensure smooth supply of hydro power to Australia’s mainland. Tasmania has huge potential for wind and hydro electricity generation and an initial assessment by state-owned Hydro Tasmania (Tasmania’s largest electricity generator) indicates that the state has 14 potential sites for PHES plants, with a cumulative capacity of 4,800 MW.

The project is expected to cost US$0.9-1.2 billion (AU$1.3-1.7 billion) for the 600 MW capacity interconnector link or US$1.3-2.2 billion (AU$1.9-3.2 billion) for the 1,200 MW capacity link. The Australian government has provided US$39 million (AU$56 million) in federal funding to help fast-track the interconnector, while the Tasmanian government has committed about US$21 million (AU$30 million) to support the feasibility assessment of three shortlisted pumped hydro energy storage sites in north-western Tasmania.

The interconnector, which is expected to deliver 2,500 MW of renewable hydro power along with 16 GWh of storage to Tasmania and Victoria is expected to be completed by 2025 and reach economic feasibility by early 2030s.

Kidston Pumped Hydro Project

Another project that is gaining significant traction is the Kidston pumped hydro energy project, which is a 250 MW project (2 GWh of pumped storage) in northern Queensland, and is proposed by Genex Power. It is estimated to be completed by 2022.

The Kidston project will also be integrated with an already built 50 MW solar farm. It will help store solar energy when it is in surplus and release it back to generate more electricity when solar energy cannot be harnessed.

Genex Power plans to build another 270 MW solar plant and 150 MW of wind energy capacity over a phased period. In June 2018, the company’s pumped hydro project secured about US$358 million (AU$516 million) in concessional loans from the federal government’s Northern Australia Infrastructure Facility (NAIF).

Moreover, in December 2018, Genex Power signed a deal with EnergyAustralia (Australia’s third-largest power company, owned by Hong Kong’s CLP Holdings), giving exclusive rights to the latter to negotiate an off-take agreement for Kidston’s (solar plus pumped hydro) output, encompassing an option to buy 50% stake in the PHES component. Under the term sheet of the agreement, EnergyAustralia will have exclusive rights to negotiate, finalize, and execute a long-term purchase agreement with Genex, however the contract currently is non-binding and is subject to a number of conditions.

In addition to these, there are several other projects that are currently in the feasibility or development stage. In May 2018, Delta Electricity, an Australian electricity generation company, received development approval from the South Australian government for a 230 MW Goat Hill pumped hydro project. Altura Group (Australia-based renewable energy project developer and advisor) has been hired as the project developer. The project is expected to cost about US$284 million (AU$410 million) and the South Australian government has committed about US$3.3 million (AU$4.7 million) to facilitate final project development. The project is expected to be completed by late 2020.

Another such project is EnergyAustralia’s Cultana Pumped Hydro Energy Project, which is the first sea water pumped hydro energy storage project in Australia. The project will have a capacity of 225 MW. In 2018, it received US$0.35 million (AU$0.5 million) funding from ARENA (Australian Renewable Energy Agency) to support the US$5.6 million (AU$8 million) feasibility study. The project is currently undergoing feasibility studies and concept development and, if approved, it is expected to be completed by 2023.

Similarly, in April 2019, Australian utility company, AGL Energy, unveiled plans to build a 250 MW pumped hydro energy storage facility in South Australia’s Adelaide Hills region. While the company has received the right to develop, own, and operate the plant, the project is currently under assessment. If approved, the project is expected to be completed by 2024.

PHES projects and their viability

Large sums of investment into PHES projects by private companies as well as the federal government indicate its criticality in the overall transition of Australia’s energy grid to include a larger share of renewable sources. Moreover, several coal-based energy plants are retiring in Australia in the near future, which will further create an opportunity for renewables with storage options to replace the current form of generation. As per experts, the cost of energy from wind and solar combined with storage (from either pumped hydro or other form of batteries) will be lower than generation from new coal or natural gas plants post the retirement of existing coal and gas plants. This further makes the case for huge investments in pumped hydro energy storage.

As per experts, the cost of energy from wind and solar combined with storage (from either pumped hydro or other form of batteries) will be lower than generation from new coal or natural gas plants post the retirement of existing coal and gas plants. This further makes the case for huge investments in pumped hydro energy storage.

However, apart from PHES plants, there are other forms of storage as well. These primarily comprise of lithium-ion batteries. One example of such a battery is Tesla’s Hornsdale Power Reserve Battery. It is located in Narien Range (South Australia), was constructed in December 2017, and has a storage capacity of 129 MWh. However, these batteries are not a direct competitor/substitute for PHES plants, as they are usually smaller projects than pumped hydro energy storage plants and have a relatively shorter life as well. Moreover, pumped hydro energy storage is a more cost-effective way of storing energy, when compared with lithium-ion batteries.

Investments in PHES projects are significantly higher, when compared with lithium-ion batteries. This makes these projects long-term in nature, especially with regards to return on investments. These projects have a lifespan of about 90-100 years (and are highly capital intensive), whereas lithium-ion batteries have a lifespan of 10-15 years.

Therefore, the government is being fairly cautious about commissioning PHES projects at the moment. In fact, all of the current projects under review may not be commissioned considering their economic viability. PHES plants need a revenue of about US$139,000 (AU$200,000) per MW per year to be economically viable. While this can be achieved in the long run when there is higher electricity volatility owing to greater dependency on renewables (after the coal generators have retired), currently this cost cannot be justified as electricity volatility is lower with coal and natural gas generation. Moreover, different political parties have a different take on Australia’s energy mix. Thereby, the boost provided to the PHES sector with respect to cheap financing and subsidies will depend on the political party in power, which in turn will affect the economic viability and profitability of pumped hydro energy storage plants.

Moreover, new technologies are being developed at lightning speed, which may further affect the uptake for PHES plants. One such emerging technology is concentrating solar power, in which solar energy is stored in molten salt. This technology can provide several hours of storage and can also act as a baseload power plant. However, currently, this technology is much more expensive when compared with pumped hydro energy storage technology. At the same time, with growing focus on renewables globally, there are always possibilities of new technologies that solve the energy volatility problem in a most cost-effective and efficient manner.

EOS Perspective

Pumped hydro energy storage plants seem to surely have a secure place for themselves in Australia’s energy grid in the long run. With coal and natural gas generators retiring, there will be an increasing push for renewables to fill in their shoes. Renewable energy needs storage options that are stable and effective. PHES plants developed today will be operating for the next century providing a good base for Australia to move to a 100% renewable energy when it is ready. While investments in these projects run high, several large energy players in the Australian market are looking for investment opportunities in this form of storage as they believe it will play a critical role in Australia’s energy grid in the coming years.

However, most of the works regarding PHES plants is currently on paper, with majority of the projects still at the stage of seeking financing. The project closest to completion currently is the Kidston Project, which also failed to secure a confirmed off-take agreement (i.e., pre-contracted purchase agreement) with EnergyAustralia and had to settle for an agreement to negotiate an off-take based on the fulfillment of a few conditions. This hints towards a cautious approach adopted by large utility players when it comes to investing in pumped hydro energy storage projects. With utility players, such as EnergyAustralia, claiming that before committing to huge investments in this space, they would like clarity and stability in the national energy policy (that includes an emission trajectory), a lot falls into the government’s keenness to support renewable energy in the future. While it may seem like things are moving in that direction, a stronger emission policy or a higher renewable target is likely needed for matters to gain momentum.

by EOS Intelligence EOS Intelligence No Comments

Argentina Powers its Way through Renewables

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Despite having abundance of renewable resources, Argentina has always had an inclination towards the non-renewable energy in its energy mix. However, in 2016, the incumbent government announced its intentions to explore the renewable resources, especially wind, to ensure that about 20% of the energy mix is contributed to by green energy by 2025 (a shorter-term goal entailed 8% of the energy to be contributed to by renewable resources by the end of 2017). Both local and foreign players have welcomed this announcement and have started pouring in investments into related projects. However, the path to achieving the targets does have obstacles other than investment, such as lack of speedy financing and poor energy transmission.

At the time of the 2015 elections, Argentina was going through an energy crisis. Owing to a shortage of local energy generation, Argentina had been dependent on imports to meet its energy requirements post 2010. This was underpinned by lack of incentives for local and foreign investors to invest in the energy sector and the de-dollarization of energy tariffs (which prevented private, especially foreign investment into the sector, since most companies were not confident about the stability and value of the Argentina peso).

Also, despite Argentina’s abundance of renewable sources, the country’s energy mix was heavily dependent on non-renewable sources, which were imported from neighboring countries – gasoil from Venezuela and LNG from Bolivia. Thus, when pro-business candidate, Mauricio Macri, took office in 2015, his government adopted several reforms to uplift the country’s energy sector, with a prime focus of promoting the use of renewable energy. In October 2015, the Macri government introduced a new program called, RenovAr, to attract local and foreign investments in Argentina’s renewable energy sector.

argentina renewable energy

The RenovAr program aims to achieve 20% share of renewable energy in the energy mix by the end of 2025. It has also set a target of achieving 8% of its energy from renewable sources by the end of 2017 (which in absence of the government’s statements of the latter being achieved at the time of preparing this publication, it is fair to assume that the 2017 target was unlikely to have been met). These targets appear rather ambitious, considering that just recently, in 2016, only 1.8% of power demand in Argentina was supplied through renewable energy.

These targets appear rather ambitious, considering that just recently, in 2016, only 1.8% of power demand in Argentina was supplied through renewable energy.

The RenvoAr program has been designed to provide a host of fiscal benefits and financial support to companies interested in investing in the development of renewable energy projects. These include (but are not limited to) exemption of import duties for all projects commencing construction before the end of 2017; accelerated fiscal depreciation of applicable assets; early VAT refund for assets and infrastructure; exclusion from minimum presumed income tax for eight years from project commencement; exemption from dividend tax (subject to reinvestment in infrastructure); extension of income tax loss credits to 10 years; tax deduction of all financial expenses; tax credit on locally sourced capital expenditure.

However, the tax benefits were the highest for projects commencing before the beginning of 2018 and will diminish gradually up till 2025. In addition to these benefits, the government has set up a sector-specific trust fund called Trust Fund for Renewable Energy (FODER), to provide payment guarantees for all tendered power purchase agreements (PPAs) and to also support project financing. This further helps secure investors who have historically been hesitant to invest in Argentina. The government has allocated ARS 12 billion (US$860 million) to the trust fund. Also, the World Bank has approved US$480 million in guarantees to support the PPAs under the RenvoAr program.

Owing to a great deal of benefits and securities offered, the RenvoAr program has been modestly successful. In Round 1 of the RenvoAr program held in October 2016, the government awarded contracts for 1,142 MW capacity (through 29 contracts) instead of the initial plan of 1,000 MW. This was due to a great deal of interest in the auction, which received 123 bids for more than 6,300 MW. The awarded projects included 707 MW of wind energy projects and 400 MW of solar energy projects. The average prices for the projects were US$59.70/MWh for solar and US$59.40/MWh for wind.

The second round of auctions held in November 2016 (Round 1.5) witnessed equal success with a total capacity of 1,281 MW being auctioned off through 30 contracts. The 765 MW of wind energy was auctioned at an average price of US53.3/MWh, while the 516 MW of solar projects were auctioned at an average price of US$54.9/MWh, signifying a visible drop in prices over the two rounds. The auctions were expected to increase renewable energy contribution to Argentina’s energy mix to close to 6% and to bring in about US$3.5 billion in financing over the next two years.

Argentina’s Renewable Energy Potential

Wind Energy — Argentina has immense potential for wind energy generation. As per various estimates, a region that has an average wind speed of and above 5m/s has a good potential for wind energy generation. In Argentina, about 70% of its territories have an average wind speed of 6m/s, while one of the country’s regions, Patagonia, has an average wind speed of 9m/s. In fact, Patagonia is among the top three wind corridors globally.

Solar Energy — The northwest region of Argentina boasts of being among top four locations globally for having the greatest thermal solar power potential. About 11 provinces across Argentina have high potential for installation of photovoltaic panels, which is the most widely used solar generating technology in Argentina.

 

In addition, Argentina also has an immense potential to source energy from small-hydro, bioenergy, and biomass projects.

After two hugely successful auctions, the government had planned the third auction (Round 2) in summer 2017, however, the round was later pushed to November 2017 due infrastructure bottleneck. The country has limited transmission nodes in areas with good wind and solar potential and also require to boost the transmission infrastructure to go hand in hand with the RenvoAr program. About 5,000 kilometers of transmission lines would be required over the next three years to match the expanding capacity.

In addition to avoiding infrastructure bottlenecks, the government pushed back the next round of auctions to ensure there were no financial bottlenecks as well. With the winners of the 2016 auctions still seeking financing by mid-2017, the government did not wish to start another auction before the earlier projects were structured.

The Round 2 of the auction (which was held in November 2017) also saw significant success and auctioned off about 2,043 MW capacity instead of the initially planned 1,200 MW. The tender was largely oversubscribed and received 228 bids representing 9,403 MW of capacity. The auctioned bids included about 816 MW of solar power capacity at an average price of US$43.46/MWh and about 993 MW of wind energy at an average price of US$41.23/MWh. This round is expected to bring in a further US$2.5-3 billion in investment.

While the three rounds of auctions can easily be termed as success, it is important to note that most contracts were bagged by local players instead of large international players (such as Spain’s Acciona and US-based AES Corp). This was primarily because large international companies still consider Argentina to be a slightly risky market and the price quoted by them reflected this risk (whereas most local players quoted much lower prices).

Moreover, with every proceeding auction, the average price declined significantly (from US$59.70/MWh and US$59.40/MWh for solar and wind, respectively in October 2016 to US$43.46/MWh and US$41.23/MWh in November 2017). Following this trend, the ceiling for the next auction have been announced as US$41.76/MWh for solar and US$40.27/MWh for wind (however, the date of the next auction has not been announced). This raises major concern, especially for international players, that the prices have declined to a point where projects may not be economically viable. This is valid considering that the Argentinian market holds some risk as well (the country has a credit rating of B+ as per S&P and B3 as per Moody’s). Lower prices may also act counter-productive because in case the winning projects fail to get financing in accordance with the low output prices, the overall confidence in the renewables program may fall.

Lower prices may also act counter-productive because in case the winning projects fail to get financing in accordance with the low output prices, the overall confidence in the renewables program may fall.

However, international players can come into play with regards to president Macri’s another policy that promotes generation and use of clean energy. As per a new rule passed in September 2017, large power consumers are allowed to directly meet their renewable power obligations (8% by 2017 and 20% by 2025) through private supply contracts. This is expected to further pour in investments worth about US$6 billion over the next three years and also lead to the installation of close to 4GW generation capacity. Several players, such as Argentina-based Luft Energia (which has partnered with US-based PE firm, Castlelake) are focusing on this route to enter Argentina’s lucrative renewables energy market, rather than competing in a price-war in the auctions.

EOS Perspective

Generation and use of renewable energy definitely holds an important place for president Macri and his government is definitely pulling many strings to advance the cause. The three rounds of auction up till now can be termed as success by almost any measure, however, it is too early to comment if the government will be able to reach its ambitious targets. While the RenvoAr program and the FODER trust fund provide real benefits and security to investors, the smooth and timely financing of these projects, especially with declining bidding prices, still remains to be a challenging task. Moreover, the lack of transmission infrastructure leads to further uncertainties regarding the program’s success.

The government has probably remained slightly short of its 2017 target of meeting 8% of its energy needs from renewable sources, however, it is on track to achieve its goal of 20% energy-mix being contributed by renewable energy. Thus, it is safe to say, that while Argentina’s renewable energy goal may be a little too ambitious, the government does seem optimistic about achieving it on the back of a solid incentive program, the World Bank’s support, and keen interest from foreign and local energy players.

by EOS Intelligence EOS Intelligence No Comments

USA-China Solar Dispute – Will Sanctions Really Aid the US Solar Market?

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Trade disputes are not a rare sight in the current competitive era. Especially the USA and China have a history of such disputes in last couple of decades and both have locked horns again, this time over solar equipment trade. Chinese manufacturers are being accused of unfair trade practices as they sell solar modules at a considerably lower prices than producers from other countries, using government subsidies to finance their operations and to create a glut of imports. In response to such a practice, American manufactures filed a petition with US International Trade Commission (USITC) seeking steep tariffs and a floor price for the Chinese solar imports. The commission voted on the merits of the petition in late September 2017, and decided that there has indeed been a considerable damage to the US manufacturers. The USITC’s recommendations for sanctions will be sent to the White House to decide the course of action in the following month. If sanctions are introduced, will the US producers be the ultimate winner after the final verdict in November?

The solar power generation technology was invented in the USA which have dominated the solar industry for last three decades of 20th century. The global solar industry is now a US$100 billion market, a fact that leads to a large number of players being interested in grabbing their share of this mammoth opportunity. As solar energy is considered clean and renewable, countries suffering from high pollution levels increasingly demand efficient and cheap solar energy generation equipment.

This strong demand is expected to continue, luring many players around the globe towards venturing into solar equipment manufacturing and this in turn has led to intense competition in this market. With China rising as a manufacturer of cheaper solar equipment since 2011, it has become increasingly difficult for other players to compete with China, and many producers, especially in the USA, are not very pleased with that.

This strong demand is expected to continue, luring many players around the globe towards venturing into solar equipment manufacturing and this in turn has led to intense competition in this market.

This is not the first solar battle between the USA and China. The countries were in a solar dispute back in 2011 when the USA hit China with 25-70% tariffs on solar module exports. It was due to a trade complaint filed by SolarWorld Americas along with six other US manufacturers about unethical trade practices undertaken by their Chinese counterparts. And now, Suniva, a Georgia-based solar cell and module manufacturer, filed a Safeguard Petition with the USITC in April 2017, just one week after it had filed for chapter 11 bankruptcy.

The USITC, in its unanimous vote, agreed that the US companies suffered injury from cheap imports. Following these developments, the markets are waiting for the president Trump’s decision over the case in November, and if the White House follows with sanctions and remedies, this might be the beginning of a significant wave of changes in the solar equipment market.

China has not always been the market leader for solar products. Way back in 1990s, when Germany could not meet its rising domestic demand for solar equipment, it started working with Chinese players to manufacture the equipment for German market. Germany did not only provide the capital and technology but also some of their solar energy experts to those Chinese manufacturers.

The high demand was a result of German government’s incentive program to use the rooftop solar panels. Needless to say, those Chinese players happily accepted the opportunity. Further they got lured with the rising demand for solar equipment in other European countries such as Spain and Italy, where similar incentive programs started to be rolled out. The Chinese producers started hiring experts and expanding their capacities to tap the surge in demand.

With rising pollution levels and global demand for cleaner energy, solar industry became an attractive opportunity for China, and this resulted in the government’s willingness to invest as much as US$47 billion to develop China’s solar industry. With the beginning of 21st century, China started inviting foreign companies to set up plants in the country and take benefit of its cheap labor.

The Chinese government also introduced loans and tax incentives for renewable energy equipment manufacturers. By 2010, the solar equipment production in China increased at such levels that there were almost two panels made for every one demanded by an importer. In 2011, China took the German route and started incentivizing domestic rooftop solar installations, which rocketed the domestic demand so much that it surpassed Germany’s in 2015 to become the largest globally. China deployed 20 GW capacity in the first half of 2016, whereas the entire US capacity at that time was 31 GW.

The Chinese government started perceiving solar power generation as a strategic industry. It started a range of initiatives to help the domestic manufacturers to increase production of solar equipment, be it through subsidies for the purchase of the land for factories or through lower interest loans from banks. These moves and gigantic Chinese production capacities drove the global solar panel prices down by 80% from 2008 to 2013, which further increased China’s exports as its prices were the lowest.

Before 2009, the USA used to import very little from China in the solar domain and by the end of 2013, the Chinese imports rose to over 49% of total solar panels deployed in the USA. This increase in the imports resulted in 26 US solar manufacturers filing for bankruptcy in 2011, one of which was SolarWorld which also filed a trade complaint. The situation was not very different in several European countries.

The Chinese government started perceiving solar power generation as a strategic industry. It started a range of initiatives to help the domestic manufacturers to increase production of solar equipment.

China was accused of unfair trading and dumping exports below market prices which led the Obama government and EU to imposing import duties of 25-70% on Chinese solar products in 2011 for the following four years. In return, in 2012 China threatened to impose tariffs on US imports of polysilicon used in solar cells, and actually announced tariffs of 53.5% to 57% in 2013. Also, finding loopholes in the tariff system imposed by the Americans, Chinese manufacturers set up facilities in countries such as Malaysia and Vietnam, as the tariffs were not applicable for imports from those countries. The US imports of Chinese solar products continued.

The current Suniva’s case has received a mixed support within the US solar industry. While the US solar installers, for obvious reasons, will not support the case, some of the well-known manufacturers in the country have also stood up against it. They think the tariffs will almost double the prices of solar equipment in the USA which will eventually lower the demand of their products as well.

Following the USITC vote agreeing with Suniva’s petition, the industry is awaiting the final decision on the extent of the recommended tariffs and remedies, which are expected to affect jobs, innovation, and growth of the solar industry in various ways.

Impact of tariff decision on jobs in solar industry

Out of the total 260,000 US solar jobs, installers accounted for more than 80%, and around 38,000 people were working in manufacturing in 2016, a 26% increase over 2015. As the prices of solar panels dropped to around US$0.4/watt in 2016 from US$0.57/watt in 2015 thanks to the availability of cheap Chinese imports, solar installations boomed in the USA.

Manufacturers and experts supporting the Suniva case (supporters) argue that if the suggested tariffs of US$0.4/watt on imported cells and a minimum price of US$0.78/watt on panels are implemented, it will help the domestic manufacturing and around 114,800 new jobs will be created. The installers and some manufacturers opposing the case (adversaries) say that the tariffs on import will hurt everyone including the manufacturing sector. If the prices increase, this will cause the demand to go down which is likely to affect around 88,000 jobs in the US solar industry.

A group of 27 US solar equipment manufacturers including companies such as PanelClaw, Aerocompact, IronRidge, SMASHsolar, Pegasus Solar, on behalf of their combined 5,700 employees, wrote a letter to trade commissioners not to impose new import tariffs. With Chinese solar imports as high as 49% of the total US requirement, increased prices are expected to affect thousands of jobs in the solar installation sector which is the primary sub-sector of solar industry.

However, if the Chinese imports continue at the current rate, the demand for solar equipment will eventually decrease. Over long term, the manufacturers will have to lower their production and installers will have no new clients. So, the economy of scale effect will not work after that and that might affect the US solar jobs.

Impact of tariff decision on innovation in solar industry

The one factor that genuinely seems affected with the rise of China in the solar industry is innovation. Being the pioneers of the solar power generation technology, Americans are undoubtedly good at innovation. However, with dozens of US companies being on the verge of bankruptcy and lowering sales for remaining manufacturers because of glut of cheaper Chinese imports, the innovation budgets have seen a large blow in the country.

China is still producing the first generation, traditional solar modules and doing little, if anything at all, to improve the efficiency of the existing products. Chinese are not known for investing much in R&D departments and top seven Chinese solar manufacturers invested a mere 1.25% of total sales in R&D in 2015. Compared with what electronics firms invested in 2015 towards R&D, this number is six times lower. Compared with US clean energy firms, Chinese firms patent 72% less.

However, the US innovation receives targeted help and support from the government, which is not the case for Chinese innovation. US Department of Energy has come up with a loan program of US$32 billion to help clean energy companies innovate efficient solar products while still being price competitive with Chinese products. Nonetheless, US innovations are expected to dry up if the Chinese solar equipment dumping continues.

US-China Solar Dispute

Impact of tariff decision on solar industry growth

Growth of the solar industry should probably be the prime factor to consider for the Trade Commission and the White House while deciding about the potential introduction of solar tariffs.

As of 2016, US solar industry is worth roughly around US$23 billion. Moreover, solar energy accounted for 40% of new generation in the US power grid and 10% of total renewable energy generated in the USA in 2016, while the recent cost declines have led American utilities to procure more solar energy. This energy has witnessed 68% of average annual growth rate in terms of new generation capacity in the USA in last decade and as of first half of 2017, over 47 GW of solar capacity is installed to power 9.1 million American houses. There are currently about 9,000 solar companies in the USA employing around 260,000 people. In 2016, solar power generation was at 0.9% of total US power generation, a share that is expected to grow to more than 3% in 2020 and hit 5% in 2022.

The Suniva case supporters believe that this growth can slow down once the solar equipment demand is satisfied through Chinese imports, which is likely to eventually lead to job cuts and no innovation that in turn will put a break on any further growth in the US sector. They also argue that the solar equipment manufacturing sector in the USA will be destroyed if the right steps are not taken to safeguard the manufacturers from cheaper imports.

After the tariffs are introduced, for some time, the prices will be parallel for locally manufactured as well as imported solar products. Later on, with innovation and competitiveness between the domestic manufacturers coming back (currently absent from US solar market), the prices are expected to go down as per the allies.

At the same time, the Suniva case adversaries believe that the dream run for solar industry’s growth in the USA should not be hindered by imposing tariffs on imports as it will jeopardize even up to half of all solar installations expected to be demanded by 2022. In case of US$0.78/watt minimum module price scenario, US solar equipment installation is expected to fall from 72.5 GW to 36.4 GW between 2018 and 2022 or to 25 GW in case of US$1.18/watt minimum price scenario.

Solar energy is believed to be price sensitive and if the government aims to motivate the clean energy development, the origin of equipment used for this development should not matter. Some of the US solar equipment manufacturers are even opposing the tariffs which means they think there is still potential in the domestic manufacturing industry and with innovation they can gradually increase their share in the market.

EOS Perspective

The US government will have to take a responsible decision on the trade tariffs. The issue looks very sensitive and can directly affect the growth of the US energy sector. A win-win situation seems impossible if the tariffs are levied, and in its deliberations the government should consider the effects of the past US tariffs imposed on Chinese products. When the USA took anti-dumping steps against Chinese steel, China fired back with tariffs on caprolactam, a textile material. China re-imposed duties on US broiler chickens, after the USA announced duties on Chinese tires in June 2015.

So, none of the trade wars have proved to be beneficial for either of the sides. In the current dispute, the stakes are also high, and the wrong decision might have repercussions in a range of sectors. For instance, China placed a US$38 billion order to Boeing for commercial aircraft in 2015, an order that has not been delivered yet. This aspect should be kept in mind by the USA.

China currently dominates solar products supply with 80% of global solar equipment manufacturing capacity. The USA need to understand that their role in the global solar market is decreasing, and is no longer what it used to be. It would be beneficial for the USA to focus on strengthening the role in innovation of solar technology rather than looking to be the leading solar equipment manufacturer by volume.

Even if the US government supports the manufacturers by slapping tariffs on imports, the country is not ready with the required infrastructure for solar generation equipment manufacturing to satisfy the domestic demand in absence of the imports from other countries. Solar equipment producers cannot instantly set up infrastructure to manufacture a number of solar products, such as solar cells, junction boxes, extruded aluminum, glass, etc., that too in a cost-effective model. President Trump’s support for reviving local manufacturing, while at the same time favoring fossil fuels over the green energy (also manifested through his withdrawal from Paris Climate Accord), makes the outcome of the case uncertain, and interesting to follow.

by EOS Intelligence EOS Intelligence No Comments

GCC Warms Up to Renewable Energy

The development of fossil fuels in the GCC has led to a rapid economic growth of the region. A couple of the GCC countries boast some of the highest GDP per capita globally, with the good economic performance attributed primarily to the hydrocarbon sector growth. Saudi Arabia, the UAE, and Kuwait are the second, sixth, and ninth largest producers of oil in the world, respectively in 2015, reflecting their position as hydrocarbon exporters and producers. However, with rising domestic demand for energy and the need for a sustainable future energy supply, GCC has been making efforts to introduce renewable energy sources with a view to balance economic needs with environmental factors.

The Gulf Cooperation Council (GCC) comprises countries that are among the largest hydrocarbon producers in the world, with GCC collectively holding around one third of crude oil reserves and almost one fifth of global gas reserves. While oil and gas exports have underpinned an extraordinary economic growth of the GCC over the past several decades, the increasing domestic demand for energy has made it difficult for these countries to maintain their export levels. For instance, in 2014, Saudi Arabia, one of the largest oil producers globally, was the seventh largest consumer of oil in the world. In the same year, its domestic energy consumption stood at 28% of production against 17% in 2000, reflecting a rising domestic demand.

Domestic demand for energy is increasing in GCC 

Various reasons including industrialization, water desalination, and increase in population size, have led to this increase in domestic demand for energy in GCC. Industrial sector (comprising mostly oil refining, petrochemical, water, and fertilizer industries) accounts for nearly half of the total demand in the region.

The growth of the residential and commercial sector has also contributed to the rising energy demand, and currently almost half of the total electricity produced in the region is used by the residential sector. Moreover, electricity consumption by recent housing and commercial projects has grown at an average rate of 6% to 7% per year between 2003 and 2013, faster than anywhere else in the world in this time period.

Furthermore, rapid economic development in the region has led to rising water demand, leading countries to generate fresh water through seawater desalination. Desalination fulfills a large share of GCC’s water demand (e.g. around 27% of the total water demand in Oman and 87% in Qatar in 2015). Since desalination is an energy-intensive process, it has also put pressure on the consumption of fossil fuels.

These factors have forced GCC to focus on diversifying its energy mix to meet the domestic demand while still sustaining the countries’ economic growth. A diverse energy resources portfolio is needed to allow GCC to make the domestic energy production available for export. In addition, it would also reduce carbon-dioxide emissions to create a more environmentally sustainable future. Countries in the GCC region are thus focusing on developing the renewable energy sector, particularly solar energy.

The region is turning to alternative sources of energy

Several GCC countries have embarked on a path of setting more aggressing targets for sustainable energy production from sources other than traditional fossil fuels.

For instance, UAE plans to invest US$ 163 billion in the next 30 years in renewable energy sector. Moreover, it aims to increase the contribution of clean energy in total energy mix from 25% at present to 50% by 2050. It also plans to generate 44% of its power supply from renewable sources (e.g. solar), 12% from clean fossil, and 6% from nuclear energy.

Further, as Saudi Arabia’s renewable energy represents merely 1% of the total energy produced, the kingdom targets to increase the renewable energy share to 4%, an equivalent to around 3.45GW.

Other countries are also developing plans, and these include the renewable energy program in Kuwait that aims to generate 2GW energy from renewable sources, thus contributing 15% of the total energy produced by 2030. The country also commissioned its first solar power project of 10MW with an investment of US$ 99 million in 2016 and plans to generate around 20% electricity from alternative sources by 2020.

Qatar aims to generate 200MW solar energy by 2020, an equivalent of electricity for 66,000 homes per year. In addition, it also plans to install 1.8GW of solar power capacity by 2020.

GCC Warms Up to Renewable Energy

EOS Perspective

While GCC is putting in efforts to become an energy efficient region and reduce its revenue dependency on exports, the pace of alternative energy sources development has been rather low. Lack of clarity in roles and responsibilities of policy makers as well as uncertain policies and regulations around energy planning are contributing to the slow growth of renewable energy generation.

Lack of clarity in roles and responsibilities of policy makers as well as uncertain policies and regulations around energy planning are contributing to the slow growth of renewable energy generation.

In most countries, no authority has been assigned at the governmental level to handle the affairs of the renewable energy sector. There is no doubt that more dedicated efforts towards the implementation of energy development projects would surely help speed up the process of the sector’s development.

The governments of the Gulf countries should focus on establishing renewable energy corporate framework and assign a body to handle the development and implementation of policies and projects in this sector. Only few countries have assigned units within governmental structures to take the responsibility of overseeing the renewable energy production capacity growth.

The governments of the Gulf countries should focus on establishing renewable energy corporate framework and assign a body to handle the development and implementation of policies and projects in this sector.

For example, in 2010, UAE, set up a dedicated department called Directorate of Energy and Climate Change (DECC) within the Ministry of Foreign Affairs (MOFA), to lead the development of renewable energy in the country, supporting the national climate change strategy. DECC was also established to coordinate with stakeholders for the promotion of green energy in the UAE. It engaged with International Renewable Energy Agency (IRENA), an intergovernmental organization assisting its member countries to include green energy in their energy portfolio. IRENA acts as a center of excellence offering expertise and financial support to its members.

All GCC countries are members of IRENA which aids them in scaling up green energy in their respective countries. For instance, in 2014, it conducted Renewables Readiness Assessment (RRA) with the Government of Oman with a view to create a renewable energy roadmap comprising policies, regulations, and the infrastructure required for the country to meet its energy goals. The organization, thus, helps in the decision making as well as the implementation of strategies regarding renewable energy in GCC countries.

GCC should also focus on nurturing the development of R&D institutes which could offer expertise to policy makers in energy portfolio diversification. Such institutions could also offer workforce training to enable faster project deployment along the value chain.

GCC should also focus on nurturing the development of R&D institutes which could offer expertise to policy makers in energy portfolio diversification.

International collaboration with private and public companies in the GCC to set up renewable energy facilities could also support the development of the renewable energy sector in the region. Furthermore, incentives should be offered to these companies to encourage the establishment of green projects and facilities.

Endowed with hydrocarbon resources fueling economic development, GCC now has the potential to fuel its economic growth in a more sustainable manner, taking advantage of other resources at hand (e.g. by utilizing abundant sun available in the region throughout large part of the year). However, a greater and more structured regulatory support and more focused implementation is required to pave the way for the renewable energy sector development in the GCC.

by EOS Intelligence EOS Intelligence No Comments

Investors Wary of Intense Bidding War in Indian Solar Sector

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India is seen as an upcoming solar energy investment hotspot after its announcement of an ambitious target to install 100 GW of solar power capacity by 2022, which we wrote about in our article “Solarizing India – Fad or Future?” in July 2015. However, in view of record low tariffs following the competitive bidding, investors have begun to raise concerns over the viability of such solar projects and doubt to earn desired returns on their investment.

 

Bidding War in Indian Solar Sector - EOS Intelligence

Bidding War in Indian Solar Sector - EOS Intelligence

Bidding War in Indian Solar Sector - EOS Intelligence

EOS Perspective

Indian government has been strongly in favor of competitive bidding or reverse auctions in order to bring down the cost of solar power. Though the solar power costs have significantly declined, aggressive bidding wars have resulted in irrational competition and unsustainable business models. Amidst concerns over viability of solar projects with such low tariffs, investors have become extremely cautious and suspect solar might be a risky investment. Developers may soon find themselves in financial constraints if the investors’ confidence continues to wane.

In such a scenario, Indian government should review the reverse bidding process of solar projects to balance the bid tariffs with viability. Another alternative is to device low cost financing avenues for solar projects. For instance, the government is planning to raise US$600 million for renewable energy projects by issuing tax-free bonds. This fund will be made available for development of renewable energy projects (including solar projects) at an interest rate of 10.5%, which is lower than the rates offered by the domestic banks. Solar projects are highly capital intensive and the government will need to be at the forefront in raising adequate funds to achieve its ambitious solar target in time.

by EOS Intelligence EOS Intelligence No Comments

Solar Rises in the East

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The international solar arena which was once dominated by the developed countries in the West is now flaring in the emerging markets of Asia. We are looking at a holistic view of solar PV market across selected Asian countries – the finale of our series focusing on solar photovoltaic market landscape across selected Asian countries.


Our previous articles of the series took a detailed look into current scenario and future prospects of solar PV market in China (China’s Solar Power Boom), India (Solarizing India – Fad or Future?), Thailand (Utility-scale Projects to Boost Thai Solar Market), as well as Malaysia (Uncertainty Looms over Future of Solar PV Market in Malaysia).


 

Solar Rises in the East - Markets Overview - EOS IntelligenceSolar Rises in the East - Markets Are Moving Towards Solar Power - EOS IntelligenceSolar Rises in the East - Growth Drivers - EOS IntelligenceSolar Rises in the East - Growth Challenges (1) - EOS IntelligenceSolar Rises in the East - Growth Challenges (2) - EOS IntelligenceSolar Rises in the East - Opportunities - EOS IntelligenceSolar Rises in the East - Our Perspective - EOS Intelligence

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Utility-scale Projects to Boost Thai Solar Market

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In July 2015, Federation of Thai Industries’ renewable energy division indicated that Thailand is expected to add about 1,200-1,500 MW of solar capacity in 2015, which would require about THB 90 billion (~US$2.5 billion) of investment. Most of this capacity is expected to be installed through utility-scale solar PV projects.


This article is part of a series focusing on solar PV market across selected Asian countries: China, India, Thailand, and Malaysia.
The series closing article Solar Rises in the East examines challenges and opportunities in all four markets, with additional look into Indonesia and
The Philippines.


 

Market Overview

The development of solar market in Thailand can be traced back to 1993, when the solar PV installation was focused mainly on electrification of remote areas not connected to the grid. Between 1993 and 2011 a total of 1,756 systems, with a total solar power generation capacity of 3,905 kWp (output power achieved under full solar radiation conditions), were installed on schools, hospitals, community centers, military bases, national forests, and such other areas.

Thailand was one of the first Asian countries to pursue solar energy development by putting in place policy incentives. Introduction of feed-in premium or “adder” scheme for solar PV installations in 2006 attracted private investments in the sector (under the adder scheme, solar developers were offered premium/bonus in addition to basic electricity tariff, when selling electricity to power utilities).

The first commercial solar PV project was a 6 MW solar farm project, named Korat 1, built by SPCG which is now Thailand’s biggest solar power operator in terms of capacity. The project is located in Nakorn Ratchasima and has been operating since 2010. With continued support from Thai government and increasing participation of private investors, Thailand has become one of the fastest developing solar market in Southeast Asia. According to Thailand’s Ministry of Energy, by the end of December 2014, 294 solar farms had started selling 1.32 GW electricity to the grid, while 14 solar farms with total capacity of 296 MW had signed sales contracts but did not supply power yet.

This rapid development is largely attributable to Thai government’s support to solar PV industry to achieve its solar target: government of Thailand outlined a 10-year Alternative Energy Development Plan (AEDP: 2011-2021), with the aim to boost renewable energy output to account for 25% of the total energy consumption in Thailand by 2021. The target is to generate 13,927 MW of electricity from renewable sources by 2021, compared to 3,343 MW in mid-2013. Under AEDP, Thailand aims to achieve 3 GW of installed solar PV capacity by 2021.

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This appears to be a rather modest target considering that Thailand, being located in equatorial region, has abundant solar power potential. In 2012, Thailand Ministry of Energy – Department of Alternative Energy Development and Efficiency (DEDE) estimated country’s solar power potential at about 42,356 MW, with an average daily solar irradiation 18.2 Mega Joules per square meter (MJ/m2) per day. Northeastern region and certain areas in central region exhibit great potential for solar power generation.

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Key Growth Drivers

Commitment to develop a clean energy society

High dependence on natural gas for the country’s energy needs is affecting its energy mix. Natural gas has been Thailand’s primary source of energy for the past three decades. In 2014, 66.5% of country’s electrical power generation was fueled by natural gas. Moreover, country’s dependence on imported energy is high: Board of Investment of Thailand (BOI) indicated that about 67% of energy was purchased from overseas sources in 2012.

“As demand for electricity rises in Thailand, we believe that solar PV will play an increasingly important role in our energy mix, thanks to our country’s abundant solar resources.” – Mr. Soonchai Kumnoonsate, the Governor of Electricity Generating Authority of Thailand, 2014

Furthermore, Thailand encourages clean and environment friendly technologies in order to meet its obligations under Kyoto Protocol to reduce carbon emissions. Thailand is focusing on development of renewable energy sector, including solar PV, to strengthen country’s energy security.

Government incentives

Thai government provides several incentives to support the development of solar PV sector in the country

  • Financial Incentives

 

Thailand introduced adder program in 2006 to encourage participation of private sector in solar power generation. Approved projects received a premium of THB 8/kWh (~US$0.224/kWh) in addition to basic electricity tariff for a duration of ten years. The cost of adder payments was passed directly on to the end-consumers in the form of higher electricity bills. Considering the impact on end-consumers, in 2010, the premium was reduced to THB 6.5/kWh (~US$0.182/kWh). In 2010, the government temporarily stopped approving new projects under the scheme due to over subscription.

In 2013, Thailand introduced Feed-in Tariff (FiT) for rooftop solar PV projects and community ground-mounted solar PV projects.

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These financial incentives are not only expected to yield good returns on investment in solar projects, but they are also likely to help to reduce payback period. Thai Photovoltaic Industry Association (TPVA) estimates that the payback period in case of rooftop solar ranges from 7 to 10 years depending upon the size of the solar project, while in case of community ground-mounted solar projects, the payback period is 8 years for 1 MWp solar project and 7 years for 5 MWp solar project.

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  • Fiscal Incentives

 

Thailand Board of Investment actively promotes investment in renewable energy sector, including solar PV through several fiscal incentives:

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  • Financial Support

 

Besides incentives, the government also extends financial support for development of solar projects. The Energy Conservation Promotion Act 1992 (ENCON Act) established the ENCON Fund, which is Thailand’s primary source of public finance for renewable energy investment incentives and subsidies. A part of ENCON fund is allocated to revolving fund that offers low-interest loans for renewable energy projects (including solar projects) in cooperation with eleven banks in Thailand. DEDE developed ESCO (Energy Service Companies) fund in 2008, under the financial support from ENCON fund, to extend support in the form of venture capital funding, equity investment, equipment leasing, carbon credit facility, technical assistance, and credit guarantee facility.

Government’s constructive measures have helped to create conducive business environment for solar investors and developers.

Challenges

Regulatory uncertainty and loopholes in policy framework have affected investor’s confidence

A major difficulty with the adder scheme, introduced in 2006, was that the project approvals far exceeded the completed projects. Projects of over 2,000 MW were awarded under the scheme, but only about 800 MW solar capacity was installed at the end of November 2013. There were many speculative rather than realizable project applications, as there was no set timeline recommended or mandated for the completion of the proposed project after receiving approval under the adder scheme. This led government to introduce corrective measures such as termination provisions. In 2009, the government also introduced bid bonds in the form of security deposits of THB 200/kW (~US$5.6/kW) for project size greater than 100 kW. The security deposit was introduced to discourage those applicants who had intentions of revising and reselling power purchase agreements (PPAs) for a profit. Furthermore, the approval of new applications under the adder scheme was stopped in 2010.

Such frequent changes in policy framework have resulted in reduced investor confidence. Moreover, lack of transparency in the process of approval of the proposed solar projects raises concerns whether the scrutiny mechanisms are fair and independent of business interests. These issues may continue to have a negative impact the growth of solar PV development in Thailand.

 

Poor governance and inadequate planning stall community ground-mounted solar projects

With announcement of FiT for community ground-mounted solar projects, government planned to install 800 MW of combined solar capacity by the end of 2014, by installing one MW per village in Thailand. Financing was to be provided by a government bank, either Government Savings Bank or Bank for Agriculture and Agricultural Cooperatives. However, the scheme could not be implemented as it faced issues in raising the required finance for the projects due to political crisis in the country. In 2014, following the ouster of the last government under Prime Minister Yingluck Shinawatra in a coup, the military took control of the country. Amid uncertainties in the status of the interim government, the Government Savings Bank rejected the loan request of THB 48 billion (~US$1.34 billion) for community ground-mounted solar projects. In an effort to still achieve the proposed 800 MW target, community ground-mounted solar was transformed into Government and Agricultural Cooperative Program. Revised program encourages construction of solar farms with up to 5 MW in size in the form of public-private partnerships with the governmental sector or agricultural cooperatives. The proposed deadline for 800 MW quota under this program has been postponed to December 2015.

 

High up-front costs and insufficient FiT rate have impacted residential rooftop solar installations target

The Energy Regulatory Commission (ERC) of Thailand opened the first round of applications for residential rooftop solar PV FiT in October 2013 with a target to approve projects for total rooftop solar power generation of 100 MW. But the response was low, with only 33 MW of residential solar rooftop projects approved.

“In Thailand, 99% of the households that joined the solar feed-in tariff program are from the high-income segment. There has never been any inquiry or interest from customers in the middle-income household bracket.” – Dr. Dusit Krea-Ngam, Chairman of TPVA, September 2014

Subsequently, second round of applications was opened in February 2015, but applications for only 21.3 MW were received by May 2015. This low interest was partially attributed to higher than expected costs of developing power from solar energy in residential segment. In a media article released in May 2015, ERC Commissioner, Viraphol Jirapraditkul, emphasized that many people deem the FiT incentive insufficient as compared with the high investment required for installation of residential solar systems. Installation of solar rooftop systems involve high upfront cost, which is around THB 400,000 (~US$11,200) for a typical 5 kW solar PV system for residential usage in Thailand. This is a huge amount to shell out at once for people from middle income segment in Thailand. Hence, solar rooftop installation might remain a privilege only with higher income population in Thailand, unless third-party financing structures evolve to ease the need of out-of-pocket investment on installation of solar rooftop systems.

Opportunities

Developing solar market in Thailand offers ample opportunities for know-how and equipment producers from abroad

According to BOI, by first quarter of 2014, Thailand had only three companies manufacturing solar cells and modules using imported wafers, and another four assembling imported cells into modules. Local industry lacks expertise and competence to compete with the quality of solar PV modules from Germany or the USA, or with the price of solar PV modules from China. Thailand imports most of the equipment used in solar projects as the domestic supply does not meet the needs of expanding solar market. This could possibly create an unrest among domestic solar PV module industry, but as solar energy is high on Thai government’s agenda, imports of solar PV modules is likely to continue. Leading solar module producers from China, Japan, Taiwan, and Germany have already been able to tap considerable market in Thailand. Following is the list of some of the international companies whose solar PV modules have been installed in Thailand.

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Leading engineering, procurement and construction (EPC) companies see emerging market opportunity in Thailand

Solar developers in Thailand have been increasingly hiring leading international EPC firms owing to their experience and technical know-how. With push to realize the solar projects that have been approved for the FiT, a number of international EPC and project development firms have been able to rope in contracts to develop solar PV plants in Thailand. In October 2013, Conergy, a Germany-based EPC company having a joint venture with local company Annex Power, indicated to have a 20% market share in Thailand. The company has developed 70 MW with a further 100 MW in pipeline. Juwi, another Germany-based company, also has a strong presence in Thailand and it is developing 61 MW capacity solar PV projects. In 2014, Sharp, a Japanese company, signed EPC contract to construct a 52 MW solar PV plant in Thailand for Thai company Serm Sang Palang Ngan (SSP). Chinese EPC service providers, such as Anwell Technology and Yingli have also gained EPC contracts for development of solar projects in Thailand.

 

EOS Perspective

While rooftop solar market faces many challenges, the growth of Thai solar market is expected to be driven by utility-scale solar projects

Despite abundant potential for solar power generation, Thailand has set modest targets for solar PV development. In 2013, the share of solar power in Thailand’s total electricity generation (168,478 GWh) was only 0.553%. Under AEDP, Thai government targets only 3 GW of solar PV installation by 2021, though the country has the solar potential of around 42 GW.

Thai solar market is expected to exhibit high growth in the short term, owing to the uptake in utility-scale solar projects, till the government’s target for utility-scale solar PV installation is achieved. Government have approved PPAs for around 1 GW utility-scale solar projects in 2015. Thailand’s rapidly growing utility-scale solar market presents manifold opportunities for international solar companies with adequate experience and expertise.

Utility-scale solar PV installations accounted for 98.73% of grid-connected solar power in 2013, while expansion of the rooftop solar segment is still limited. In particular, development of residential rooftop solar market in Thailand has been sluggish and it will need more promotion and better incentives to shape up. The turnaround of solar rooftop market will largely depend on development of third-party financing structures to set up solar rooftop systems. Property developers have found unique business opportunity amidst challenging rooftop solar market. For instance, Prinsiri Plc, a Thai property developer, plans to invest in and install solar cells and other equipment for customers at its housing projects. The company will earn from electricity sold to the Metropolitan Electricity Authority (which supplies electricity to the Bangkok region) and as an incentive to home buyers, the company will not charge any common-area fees from them (common area is the area in the building that is available for use by all owners and tenants; common-area fees is the amount charged by the developer for upkeep and maintenance of common area). In June 2015, another Thai property developer, Sena Development PCL, signed a partnership deal with US-based First Solar and private equity firm Confidence Capital to develop a solar rooftop business in Thailand. Such business models, if successful, might change the scenario for Thai rooftop solar market. Moreover, it is yet to be seen whether public-private partnerships would be successful in achieving community ground-mounted solar targets.

The solar market in the country is currently witnessing interesting times. Utility-scale solar PV projects in Thailand are expected to drive the capacity build in 2015-2016, while further development of the Thai solar market is likely to depend on effective implementation of rooftop and community ground-mounted solar PV projects.

by EOS Intelligence EOS Intelligence No Comments

Solarizing India – Fad or Future?

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The new Indian government, elected in 2014, has created a wave of enthusiasm in Indian solar sector with its announcement of an ambitious target to install 100 GW of solar power capacity by 2022. But considering that India had an installed solar PV capacity of only 3.74 GW as of March 2015, achieving this target seems to be a herculean task.


This article is part of a series focusing on solar PV market across selected Asian countries: China, India, Thailand, and Malaysia.
The series closing article Solar Rises in the East examines challenges and opportunities in all four markets, with additional look into Indonesia and
The Philippines.


Market overview

India’s still modest solar PV capacity indicates how ambitious the 2022 target is. The country expanded its cumulative solar PV installed capacity from a mere 35.15 MW in March 2011 to 3.74 GW in March 2015. According to Indian government calculations, the country would need to invest US$110 billion between 2015 and 2022 to achieve the target of 100 GW solar power capacity. While obtaining such funding seems like a challenging task, it seems India has it all sorted out. At RE-Invest 2015 (a renewable energy global investment promotion conference held in New Delhi in February 2015), Piyush Goyal, minister of state for coal, power, and renewable energy, managed to get commitments worth US$200 billion from Indian companies as well as foreign investors. Furthermore, government managed to get commitment to build 166 GW solar installations from several solar developers.

Government is in talks with leading multilateral funding and lending agencies, such as the Asian Development Bank, World Bank, Germany-based KfW, Japan International Cooperation Agency, and Japan Bank for International Cooperation, to raise US$3 billion for solar power projects. In 2014, India received a funding of US$1 billion from US Exim Bank for solar power projects in the country. Announcement of 100 GW solar target has also caught attention of several private equity firms such as Goldman Sachs, Morgan Stanley, IFC, and Standard Chartered. All of these efforts to secure funding for solar projects allow to hope that the 100 GW target by 2022 is achievable.

As India is blessed with virtually limitless solar energy, such inflow of NREL - Indialarge-scale investment can aid rapid development of solar market in the country. With more than 300 days of sunshine, India ranks among the highest irradiation-receiving countries in the world. Most parts of the country receives solar irradiation between 4-7 kWh/m2 per day (as seen in India Solar Resource Map, sourced from National Renewable Energy Laboratory).

A report, released in November 2014, by Indian Ministry of New and Renewable Energy estimated the country’s solar power potential at about 750 GW indicating that India has the prospects to become one of the largest solar power markets in the world. As per the report’s estimates, regions of Rajasthan (142 GW) and Jammu & Kashmir (111 GW) have the highest solar power potential in the country. More than 60 GW of solar power potential is estimated for Madhya Pradesh and Maharashtra, which are among the largest of the Indian states with large wasteland resources.

Key growth drivers

Rising Energy Gap

India is experiencing unprecedented energy demand from its increasing population (1.27 billion as of 2014) and rapidly developing economy (India’s economic growth rate for fiscal year 2014-15 is estimated at 7.4%). The country consumed 869,000 GW of electricity in 2012, representing 130% increase as compared to electricity consumption in 2000.

India remains a power-deficit country, with 25% of its population not having access to electricity, according to Census 2011. The country suffers from severe shortages of electricity, particularly during peak hours of demand. Moreover, significant dependence on oil imports to meet energy needs poses threat to country’s energy mix. Considering country’s tremendous solar potential, solar power generation can potentially fill in the mounting energy gap of the power-hungry nation.

 

Declining cost of solar power generation

Solar power is becoming increasingly affordable, with cost of solar equipment declining significantly over the last few years as a result of rising competition and technology advancements and innovation.

 

We are already close to grid parity as the cost of modules has come down and the generation cost of thermal and gas plants has gone up due to increase in fuel cost.
Rajya Wardhan Ghei, CEO, Hindustan Cleanenergy, 2014

In case of utility-scale solar PV projects, solar power generation costs in India have come down from about INR 18 (US$0.28) per kilowatt-hour (kWh) in 2010-2011 to INR 5.25 (US$0.08) in 2014, which is comparable to cost of electricity generation by power plants using imported coal (coal accounted for 59% of total installed electricity capacity in India in 2014, and about 23% of the demand for thermal coal, which is used primarily in power generation, was met by imports in 2014). Institute of Energy Economics and Financial Analysis concluded in 2014 that newly built imported coal-fired power plant would require power purchase agreement of INR 5.4-5.7/kWh (US$0.85-0.9/kWh).

Solar is going to become one of the lowest-cost forms of generating electricity, even cheaper than fossil fuel.
Pashupathy Gopalan, Head of Indian operations and President-Asia Pacific, SunEdison, 2014

An A.T.Kearney publication in 2013 suggested that solar power would achieve grid parity (grid parity occurs when an alternative energy source can generate power at a cost lower than or equal to the price of purchasing power from the electricity grid) with conventional power between 2016 and 2018. Similarly, in 2014, Bridge to India, a solar consultancy firm, suggested that the grid parity would be achieved by 2018.

In case of roof-top solar PV projects, experts believe that grid parity is nearly achieved. An article published in The Hindu in March 2015 suggested cost of electricity generation through roof-top solar PV was almost at par with cost of conventional power for commercial consumers (rate of electricity in India varies depending upon state of location, e.g. Gujarat, Rajasthan, Haryana, etc., and type of consumer i.e. domestic/residential, commercial, industrial, and agricultural consumers) in 40% of the Indian states.

As the economic viability of solar power generation continues to increase in India, solar power is expected to gain traction over conventional energy sources, which would further accelerate development of solar market in the country.

Government incentives for solar development

Indian government has taken several initiatives to support solar market growth. Central and state governments offer both tax and non-tax benefits to promote investment in solar power sector.

TABLE I: Tax and Regulatory Benefits (Source: RE-Invest 2015)

Income Tax Holiday
  • 100% for 10 consecutive years – 20% Minimum Alternate Tax (MAT) to apply (if a company’s income tax in India is less than 18.5%, then it has to pay the MAT)
Accelerated Depreciation
  • Accelerated depreciation – 80% on solar assets
  • Additional depreciation – 20% on new plant/machinery in the first year
Deemed Export Benefits
(“Deemed Exports” refer to those transactions in which goods supplied do not leave country, and payment for such supplies is received either in Indian rupees or in free foreign exchange)
  • Advance authorization from Directorate General of Foreign Trade
  • Deemed export drawbacks on the customs duty paid on the inputs/components
  • Exemption/return of Terminal Excise Duty
Service Tax
  • Services of transmission or distribution of renewable source-generated electricity by an electricity utility are exempted from service tax
Customs And Excise Laws
  • Various duty concessions and exemptions to Renewable Energy (RE) Sector
Reduced VAT
  • Certain states allow reduced value-added tax rates (around 5%) on RE projects
Additional One-Time Allowance
  • 15% additional one-time allowance available in budget 2014 on new plant and machinery
Tax-Free Grants
  • Grants received from the holding company engaged in generation, distribution, or transmission of RE power

TABLE II: Non-Tax Benefits (Source: RE-Invest 2015)

Feed-in-Tariffs
  • Applicable when renewable generators sell to state utilities under the MoU route (MoU route means agreements entered into bilaterally without inviting bids)
Rebates
  • Available on the manufacturing of solar and wind components
  • Targeted at specific types of renewable energy technology
  • Include subsidies and rebates on capital expenditures
Government R&D Programs
  • Improve renewable energy technologies
  • Lead to growing performance, importance, and reducing costs

Government-led measures to create a conducive business environment for solar sector in India are expected to lure new players – local as well as global – and eventually expand the market space to support country’s solar mission.

Key challenges

Inefficient transmission infrastructure

Inadequate transmission infrastructure to connect solar power to the grid is expected to be a major roadblock to country’s 100 GW solar ambition. Federation of Indian Chambers of Commerce and Industry indicated in 2013 that the transmission and distribution losses due to poor grid structure were around 23% of the electricity generated. This clearly shows that a rapid up-gradation of transmission infrastructure would be essential to sustain the envisaged growth in solar power generation.

The solar target is very ambitious. There will be transmission and other infrastructure constraints to contend with.
Bharat Bhushan Agrawal, Analyst, Bloomberg New Energy Finance, 2014

India has begun to work on developing high capacity transmission systems to accommodate the projected solar capacity as part of the US$6.96 billion ‘Green Energy Corridor’ project (announced in 2013), under which the government has planned to construct inter-state and intra-state transmission infrastructure across seven states of the country by 2017-2018. KfW, a German government-owned development bank, is expected to lend an initial US$285 million for this project. However, despite availability of funds, not much progress has been noted in the proposed ‘Green Energy Corridor’ project. By early 2015, just two sub-stations were constructed, one each in Tamil Nadu and Rajasthan, to feed renewable power to the main grid. Power Grid Corporation of India, which is to execute the project, argues that there is not enough renewable energy capacity addition and they are still on wait-and-watch mode. With this approach, the proposed green corridor project is likely not to be completed within the proposed time frame. So, it seems that despite concentrated efforts to improve the transmission infrastructure, the progress has been slow, which will hamper the proposed development plans of solar market in the country.

Difficulties in land acquisition

The challenges and menaces involved in sourcing land for large-scale solar projects is daunting many solar developers in India. Large-scale solar power plants require huge space – construction of a 100 MW solar plant typically require around 500 acres of land. The issue is that, in India, land is very fragmented (according to a media article by The Indian Express in March 2015, the average landholding size in India was three acres). And, as per the Land Acquisition Act (The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013), in order to acquire a tract of land, private companies need to get consent of 80% of the land owners of the particular area, while public-private partnership projects need to get consent of 70% land owners. Thus, it becomes extremely difficult to individually negotiate with all the land owners in an area selected for construction of a solar plant, and convince them to sell their respective portion of land and make a large space available. Furthermore, in India, the records of landholding cannot be easily verified and authenticated and many land owners do not have clear title to the land they possess, which might lead to litigations and disputes over the land at a later stage.

Land titles are usually not very clear [and] even if a land deed is shown to be in one person’s name, another relative can come forward and stake his claim and the matter can be sub-judice for years, if not decades. – Jasmeet Khurana, Solar Analyst, Bridge to India, 2014

Many solar projects have been stalled in the country due to these challenges in land acquisition, which has eventually impacted the project budget and costs.

Challenges faced by Essel Infraprojects in acquiring land for solar power plants

In June 2014, Essel Infraprojects, infrastructure arm of an Indian conglomerate – Essel Group, were nearing the completion of a 20 MW solar power plant in Maharashtra, and only last 10 km of transmission lines were to be set up to connect the INR 2 billion (US$31.5 million) plant to the state electricity grid. However, owners of the land on which the transmission towers were to be erected refused to allow their construction.

Negotiating terms with the land owners resulted in delay of project completion by six days. Though the delay was relatively short, unlike in other large-scale infrastructure projects where the litigations with land owners can go on for years, even the six day delay lead to a considerable loss of INR 500 million (US$7.87 million) in bank guarantees.

Learning from their experience in Maharashtra solar power plant project, for their next solar project (a 30 MW solar power plant in Punjab) Essel Infraprojects first acquired the land for transmission towers. In this case, the company struggled to acquire the land for plant itself. The company had started negotiating land deals at INR 800-900 thousand (US$12,598-14,173) per acre, but during the talks the price demanded by land owners increased, and the company had to settle paying INR 2.5 million (US$,39,370) per acre.

Land acquisition for solar projects has proved to be challenging not only for private companies, but also for state-owned enterprises. In 2014, Mahagenco, Maharashtra state-run power utility company, reported delay in construction of solar projects of 125 MW capacity (100 MW in Osmanabad and 25 MW in Parbhani) due to difficulties in acquisition of land. The land holdings on the proposed construction sites are in small segments and Mahagenco is facing difficulty in convincing all the land owners in that area to sell their respective parcels of land to create a larger land area available for the solar plant. Because of the delay, the state missed its target of installing 313 MW of solar capacity for 2013-2014.

Difficulties in sourcing land for solar projects has resulted in delay of project execution and escalated costs. Government has proposed amendments in the Land Acquisition Act, including removal of ‘consent’ clause, to ease and expedite the process of securing land for reform-oriented projects. But this proposal has been stalled due to immense opposition from most political parties and social activists, who argue that the proposed amendments would weaken the rights of land owners. Unless the issues pertaining to land acquisition process are addressed, the country’s solar ambitions are likely not to be achieved in the desired time frame.

Opportunities for global solar companies

Global solar companies eye India as an emerging market opportunity

Indian government offers favorable policy framework for foreign investment in solar sector. 100% foreign direct investment is allowed under the automatic route, without any approval from the government of India. Further, no approval is required for up to 74% foreign equity participation in a joint venture. Additionally, 100% foreign investment as equity is permissible with the approval of Foreign Investment Promotion Board. Investors are also allowed to set up a liaison office in India.

Apart from this favorable framework, global companies are attracted to Indian market thanks to the promising returns on investments. Bridge to India concluded in 2015 that global utility companies could expect 13-15% return on equity invested in solar projects in India, while return for global solar developers could be expected to be in the range of 15-17%.

India is seen as an upcoming solar investment hotspot. Given the conducive business environment and attractive returns, many global solar firms have announced investment plans in Indian solar market. These include leading global solar developers and utilities such as Acme (joint venture between France-based EDF Energies Nouvelles, Luxembourg-based EREN, and India-based ACME Cleantech Solutions), US-based SunEdison, US-based First Solar, France-based Solairedirect, to name a few.

Insufficient domestic solar PV cells and modules production capacity offers opportunities for global suppliers

Minister Piyush Goyal stated in 2014 that domestic manufacturing capacity of photovoltaic cells (PVCs), which accounts for 60% of the cost of a solar module, is 700-800 MW, which is not sufficient to meet country’s solar ambitions. Indian PVCs manufacturers have also been unable to compete with cheaper Chinese and Taiwanese imports. In 2014, the Ministry of Commerce in India proposed anti-dumping duties of between US$0.11-0.81 on PVCs/modules imported from China, USA, Malaysia, and Taiwan (accounting for about 80% of modules used in Indian solar projects).

Indian government rejected the proposal to impose anti-dumping duties on import of solar PVCs and modules, explaining that as the domestic solar PVCs and modules production capacity was inadequate to meet the demands of country’s envisaged solar plans, the proposed anti-dumping duties would result in higher costs for solar projects and eventually hinder the growth of solar market in the country. With no protective measures in place to support the indigenous PVC manufacturing industry, India’s dependence on imports of solar PVCs and modules is likely to increase with expansion of solar PV market, creating manifold opportunities for global solar PVCs and module suppliers.

EOS Perspective

Abundance of solar irradiation along with continuously falling solar PV prices have created a distinctive opportunity for electricity-deprived India to bank on solar power generation. Realizing this, Indian government is marching towards the goal of installing 100 GW solar PV capacity by 2022. Favorable policy environment and government incentives would be pivotal for the growth of solar market in India. Government’s dedicated efforts to raise institutional funding and develop other financing avenues to support country’s solar power ambitions have received impressive response from investors across the globe.

However, experts caution that most of the announcements in solar sector are made based on just preliminary commitments or MoUs. It is yet to be seen to what extent these plans materialize over the coming years. Despite challenges, Indian solar market is poised to grow rapidly in the near future owing to the euphoria created by recent announcement of government’s ambitious solar vision followed by private sector’s surge of enthusiasm in the solar market. However, whether the country will be able to sustain the growth stride, remains a question.

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