Major players in Thailand's renewable energy business are asking for a higher power purchasing rate, saying that the current one is too low and deters investors from launching new projects, and may even be encouraging them to invest abroad.
The power purchasing rate, the price at which state utilities buy from solar farm developers, is currently set at 4.12 baht per kilowatt hour, well below the rates of 5.66 in 2013 and 8.5 in 2006.
Strong government support for the sector since 2000 has attracted several companies to join the renewable energy business.
According to Thailand's power development plan for 2015-36, energy policymakers have set the proportion of renewable power to be 20% of the total power-generating system, or 19,634 megawatts, by 2036. The figure is relatively high compared with the current 7,490MW.
An attractive power purchasing rate like the previous and relatively high level of 8.5 baht -- in line with higher production costs -- had lured many companies to jump into the sector.
Some even diversified from other businesses into renewable energy and listed on the Stock Exchange of Thailand to raise more funds to expand their new businesses. Some players had acquired licences from previous licence holders who failed to get loans to start their projects.
This year, energy policymakers plan to provided licences to renewable energy developers for a combined power-generating capacity of almost 820MW, which is expected to help attract investment of up to 70 billion baht in the sector.
In this round of licence-granting, policymakers will allow two types of renewable resources for small power producers and very small power producers: 519MW from solar and 300MW from hybrid resources.
Hybrid resources entail other renewable resources such as agricultural waste that can be used to produce biomass or biogas, which solar farm developers can then employ to provide power to the grid consistently. This could help facilitate the new power purchasing agreement, which will switch to a firm-contract from a non-firm contract.
A firm contract requires solar farm developers to sell power at a consistent level regardless of time of day, unlike under the previous non-firm contract, during which they could only sell solar power during the daytime.
The auction for licences of hybrid solar farms will be opened mid-year, while the operational and commercial dates for the projects are due by the last quarter of this year.
Unfortunately, increasing investment in the solar farm business has created economies of scale, which means lower power-generating costs. This has prompted energy policymakers to revise down the power purchasing rate, also known as feed-in tariff rate (Fit), paid to solar farm developers from time to time.
The latest Fit rate was set at 4.12 baht per unit last November, down almost 30% from the previous 5.66 per unit.
Some solar farm developers have complained that the latest Fit rate is too low and has started affecting their businesses.
Energy Absolute Plc (EA), a SET-listed renewable power developer and operator, said the current rate will result in developers needing several years longer to break even on their investments.
EA vice-president Omsin Siri said with the Fit rate of 5.66 baht per unit, the company needed 6-7 years to break even. But a Fit rate of 4.12 baht means the company will need more than 10 years to do so.
She said that although EA is listed on the SET, it is still a newcomer whose financial status makes it difficult to compete in the market, particularly at the cheaper rate, which entails smaller margins. Because of this the government should provide them some partial subsidy.
EA for its parts experienced some degree of hardship last year, when its licence for a 260MW wind farm in Chaiyaphum was suspended as the project is located on Sor Por Kor land, which had been designated for farming purposes only.
The Agricultural Land Reform Office finally settled the conflict, allowing all developers to continue their projects on such land.
Mrs Omsin said EA would also continue with its project, which has a total investment cost of 20 billion baht.
Another SET-listed renewable power operator, Thai Solar Energy Plc (TSE), said that its wind farm on Sor Por Kor land was an equitable venture, as the developer would share some of the profits from selling power with the farmers who own and rent the land to them.
TSE's chief operating officer Somphop Prompanapitak said he agreed with the flexible regulations on the Sor Por Kor land, which allow developers to carry on with their plans.
But he disagreed with the idea of using hybrid renewable power resources, saying that wind farm developers in certain areas could be limited in their ability to acquire other alternative power resources such as biogas or biomass.
As a result, Mr Somphop said the idea would not be practical.
With unattractive regulations and some limitations, TSE has started developing renewable energy projects to boost its power-generating capacity in Japan, where the state utility pays a higher rate. It has also started investing in some Asean member countries where local governments still provide partial subsidies to foreign investors.
SET-listed Gunkul Engineering Plc, a provider of engineering services and renewable power, was another company that began expanding to Asean and East Asia in 2014.
Chief executive Sopacha Dhumrongpiyawut said there are too many players in Thailand's renewable energy market, while the return on investment continues to shrink as state utilities are paying less for renewable power.
Ms Sopacha said the company has moved to developing greenfield projects and acquiring stakes and assets in renewable energy companies in other Asian countries.
Gunkul plans to double its revenue generated from renewable power to 4 billion baht by 2019 by developing more projects abroad.
Twarath Sutabutr, director-general of the Energy Policy and Planning Office, said the Fit rate was calculated on the same investment return level offered to leading renewable companies in other countries, making it fair for everyone.
But he agreed that the domestic renewable energy business could be saturated since many investors have jumped in.
Mr Twarath said Thailand has lent its full support to the renewable energy sector for about a decade and it is time to free up the market to greater competition.
"We have seen investment costs [in renewable power business] decline gradually. That implies that the market is almost saturated and ready for free-market conditions," he said.
Veeraphol Jirapraditkul, commissioner for the Energy Regulatory Commission, said the ERC will conduct public hearings on business models and investment conditions to help arrive at an appropriate model for investment in renewable energy by the second quarter.