Investment and innovation in Thai renewable energy
Renewable energy capacity will increase by two terawatts in the Asia Pacific region over the next decade, driven by population growth, strong economic performance, and significant market potential. Southeast Asia will play an important role in this growth, with the region's electricity demand expected to double by 2040, twice the global average rate.
Thailand currently has installed renewable energy capacity of over 15 GW, contributing roughly a third of the overall power mix. That is forecast to rise to 63 Gigawatts and a 39% share by 2030, potentially positioning the country as one of Southeast Asia's regional leaders for renewable energy.
In its recent report, Riding the Renewables Wave in Asia Pacific, Boston Consulting Group (BCG) explores this substantial growth potential. The region's renewable capacity is projected to grow at a world-leading rate of 7% year-on-year. This marks a US$3.7-trillion investment over the next 20 years under stated policy goals, more than the commitments of North America and Europe combined.
Attempts to promote a green post-pandemic recovery offer a valuable pathway to more sustainable energy systems in Southeast Asia, expanding government revenues up to 30% through coal subsidy elimination, and creating fertile ground for investors and operators.
Renewable energy technologies offer an attractive power generation solution. The levelised cost of energy (LCOE) for solar power has fallen by 19% annually over the last decade. Offshore wind also presents an increasingly cost-effective technology, supported by technology transfer from mature European markets. Renewable energy expansion also benefits from support for emerging technologies such as green hydrogen and utility-scale batteries.
Solar and wind technologies will drive regional renewables growth, with 24% annual growth in installed capacity turning Asia Pacific into the second-biggest offshore wind market. This will be driven by geographical advantages in a region with significant wind potential, alongside strong early-phase development returns.
Thailand has a relatively diverse installed renewables base, not relying on a single primary generation source such as hydropower or solar like many regional neighbours. Hydropower as of 2019 contributed 30% of the 51 GW of existing renewable capacity, with solar providing 28%, biomass 27% and wind 15%. The challenge of such diversification can be achieving scale in any single technology.
This diversified base offers a valuable opportunity to take advantage of the cost benefits across a range of renewable technologies. Recent expansion has focused on wind and solar technologies in particular, with impressive annual growth of 89% and 83% respectively over the last decade.
While future projections show notable headwinds for wind power, solar technology is predicted to achieve 10% annual growth over the next decade.
Southeast Asia is a diverse region, and no single solution or investment strategy will guarantee success across these varied markets. There is no one-size-fits-all solution for operators or investors.
Players must adopt a country-specific approach that reflects the challenges and opportunities of the local market, particularly in terms of key market dynamics and specific technology potential.
There is clear ambition to drive forward renewable adoption in Thailand, and it will be a vital step in meeting the country's target of reducing greenhouse gas emissions (GHG) by 20.8% below business-as-usual levels by 2030.
One of the greatest barriers to deepening renewable investment is a contemporary power landscape facing an existing oversupply, largely dominated by gas-fired power generation. This leaves limited scope for a shift from conventional power toward renewable energy opportunities.
Solar power offers the clearest area of opportunity for significant renewable energy development, largely driven by the national Power Development Plan (PDP) which targets 15.6 GW of installed solar capacity by 2037. This presents the most lucrative avenue for financiers and investors, supported by the government's national renewable energy agenda, and reinforced by incentives for investors.
Small to medium-sized projects show evidence of attracting large numbers of investors, although the current landscape is dominated by five companies that account for 84% of the market. Entry at earlier stages of the solar power market in areas such as feasibility studies and design provides the greatest potential for investor returns.
While wind power has experienced impressive growth over recent years, its future looks less certain. Government targets may be perceived as less ambitious than for solar technologies, although with the right industry push and Government support, onshore wind in particular could emerge as an enticing and competitive opportunity.
With the current power oversupply, wind looks to be a low priority for government and industry, with the dominant market player Wind Energy Holdings (WEH) actively branching out to seek renewable investment opportunities in other countries such as Australia.
Biomass and hydropower all contribute important elements of Thailand's current renewable energy capacity, but are unlikely to be focus areas for future opportunity. Biomass is not particularly cost-competitive against solar and wind, and requires close integration with upstream players, limiting it largely to captive generation players in focused industries.
Hydropower is dominated by the role of Electricity Generating Authority of Thailand (Egat), and is also protected by strict laws and regulations. While that is important to ensure both economic and social viability of these projects, it makes it largely unattractive to market entrants.
Thailand is ranked 21st globally in the World Bank's Ease of Doing Business Index, and boasts welcoming foreign investment conditions, revealing a broadly positive environment to encourage further investment -- but more can be done.
Further liberalisation of Thailand's power system could play an important role in this transition, helping the country achieve the planned 50% total production capacity increase highlighted in the PDP.
Liberalisation efforts that introduce enabling regulations and unbundle utilities, further supported by a competitive wholesale and retail market, could be an important trigger for much-needed investment that allows the country to adopt renewable energy technologies more rapidly and comprehensively.
Such efforts could go a long way to spurring investment and supporting important innovations that could unlock further potential for renewables.
Thailand is already taking a pioneering approach with its pilot of peer-to-peer solar-generated electricity trading, using a blockchain platform. This could also feed into the government's Energy for All programme, developing community-owned power generation through both waste-to-energy and solar technologies.
Energy storage technologies are another important area of enabling opportunity. Developing energy storage systems that work to complement intermittent renewable energy generation is one of the attractive areas addressed by energy players such as Egat and Global Power Synergy Plc. The first private-sector investment saw $7 million invested by the Asian Development Bank in 2020 to develop battery storage combined with utility-scale wind power.
Thailand has a welcoming investment environment, and clear ambitions for a more sustainably powered future. With greater liberalisation, and supportive tweaks to the landscape, that potential could be accelerated to unlock a new future of renewable power investment for the nation.
Aman Modi is a managing director and partner at Boston Consulting Group. Dr Marko Lackovic is a partner at Boston Consulting Group.