The struggle in harnessing power prices

The struggle in harnessing power prices

EXPLAINER: While the Energy Regulatory Commission eased the planned hike of the power tariff for firms, there are limits to how much the group can do as it tries to balance rates and costs

As the country grapples with pricier power bills, businesses are poised to raise their product prices.
As the country grapples with pricier power bills, businesses are poised to raise their product prices.

Following protests from the business community, the Energy Regulatory Commission (ERC) reduced its planned hike to the power tariff for companies to 13%, down from 20.5%, but entrepreneurs say they cannot maintain product prices at these rates.

The Bangkok Post looks into factors that make it difficult to control electricity prices and power tariffs that satisfy both businesses and households.

Q: Why are power bills more expensive?

Energy officials and analysts often blame increasing imports of costly liquefied natural gas (LNG) and the country's huge surplus of power generation capacity in reserve for the surge in the price of power bills.

The ERC said Thailand needs to purchase more LNG because gas makes up 60-65% of the fuel used for electricity generation, with the other sources being coal, diesel and renewable energy.

Gas from the Gulf of Thailand is cheaper than LNG, the imports of which have increased to offset the drop in domestic gas supply.

Around 40% of gas comes from domestic sources, while the remainder comes from the purchase of LNG under long-term purchase contracts and in the spot market, according to the ERC.

Prices of LNG in the spot market are 3-4 times higher than those of domestic gas.

Domestic gas supply has decreased because PTT Exploration and Production Plc (PTTEP), which succeeded US-based Chevron Corp in operating the Erawan gas block in the Gulf of Thailand, faced a two-year delay in entering the site to make preparations for gas production.

The delay was blamed on a legal dispute between Chevron and the Department of Mineral Fuels over who would pay for the decommissioning of transferable assets.

The conflict was settled early last year.

Gas production at Erawan decreased to 200 million metric standard cubic feet per day (MMSCFD) during 2018 to 2020, when operatorship changed hands from Chevron to PTTEP.

Montri Rawanchaikul, president and chief executive of PTTEP, expects gas production to increase to 400-450MMSCFD by the middle of this year and 600MMSCFD by year-end.

The volume will gradually increase to 800MMSCFD, which is the normal production level at this gas field, by April next year, he said.

Another factor keeping electricity prices at high levels involves the country's power generation capacity in reserve.

Analysts say a higher reserve pushes up electricity costs. They estimate the current reserve stands at almost 50% of total capacity, much higher than the internationally accepted reserve rate of 15-20%.

The Electricity Generating Authority of Thailand (Egat) is blamed for signing too many power purchase agreements with power companies to buy their electricity. Each deal, lasting 25 years, commits Egat to pay for electricity throughout the whole period. This is known as an availability payment (AP), though the actual usage may be less during the agreed upon time frame.

An AP ensures electricity is always available to avoid blackouts, but it increases the power tariff.

Some 30 years ago, Egat took full control of electricity generation, but later allowed the private sector to produce electricity under the enhanced single buyer model, in which Egat is the sole buyer that sells electricity to the public.

Rosana Tositrakul, an energy advocate and former Bangkok senator, said if more power generation is operated by Egat, authorities will not spend so much on APs to energy firms, most of which are listed on the stock market.

In 2022, Egat remitted 28 billion baht in AP payments to these companies, she said.

Q: How did the ERC reduce the planned increase in power bills for businesses?

The ERC decided to cut the power tariff increase, initially set to jump from 4.72 baht per kilowatt-hour (unit) to 5.69 baht per unit, after disgruntled business groups petitioned Prime Minister Prayut Chan-o-cha to ease the financial burden.

The new tariff stands at 5.33 baht per unit.

The higher power tariff is being driven by a higher fuel tariff (Ft).

The power tariff adjustment followed a change in the estimate of natural gas prices, according to an ERC press release.

The commission earlier estimated the natural gas price at 493 baht per million British thermal units (BTU), but later slashed the estimate to 466 baht per million BTU, leading to a lower power tariff.

The ERC also agreed to adjust its diesel price estimate to 28.22 baht per litre, down from 31.9 baht per litre.

The power tariff calculation also includes an estimation of the foreign exchange rate, which has been reduced from 37 baht per US dollar to 35.68 baht per dollar.

The new calculation caused the Ft for businesses to dip to 1.5492 baht per unit, down from the previous estimate of 1.9044 baht per unit.

Q: Are there any other measures to tame the increase in the power tariff?

Energy Minister Supattanapong Punmeechaow said authorities plan to better manage fuels used by power plants for electricity generation in the country.

Cheaper fuels will receive first priority in terms of usage, he said.

The move followed an order by Gen Prayut after he received a plea from business leaders to cap the Ft for one year.

The Department of Mineral Fuels has urged PTTEP to increase gas production at Erawan to 600MMSCFD by the end of this year.

The department is also in talks with the operators of the Malaysia-Thailand Joint Development Area and Myanmar gas block about higher gas supply.

Egat also plans to use more diesel as fuel for electricity generation. The authority was asked by energy officials to delay a plan to decommission some coal-fired power plants.

Egat governor Boonyanit Wongrukmit said the government can help curb the Ft by postponing Egat's commitment to give part of its revenue to the Finance Ministry.

The state enterprise, which is facing losses after helping the government cap electricity prices, is required to pay 17 billion baht in fiscal 2023.

The National Energy Policy Council also asked national oil and gas conglomerate PTT Plc to allocate 6 billion baht between January and April to help the government cap the increasing power tariff.

The new power tariff is enforced during this four-month period.

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