Preparing for the utility green tariff
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Preparing for the utility green tariff

EXPLAINER: Clarity on rates next month is projected to facilitate greater investment in Thailand

The announcement of a utility green tariff (UGT), scheduled for February, is expected to mark a significant step in renewable energy use to support local businesses and draw foreign investment.

Many companies interested in expanding into Thailand not only want infrastructure to facilitate their operations, but also clean power to support plans to reduce their carbon footprint.

As the details of the UGT are revealed, renewable energy suppliers will know how much they will benefit from electricity sales, while users can calculate how much they have to pay for clean power.

Clarity on rates is expected to be a major factor for Thailand to achieve its goals to reduce carbon dioxide emissions and increase investment as it strives to expand the economy.

Q: What is the UGT?

The tariff is used to calculate the prices of electricity generated by renewable resources. Officials divided the tariff into UGT 1 and UGT 2.

UGT 1 refers to rates for existing renewable power operators and apply to certain types of renewables. UGT 2 refers to rates for new clean power developers who will be allowed to use various types of renewable energy, said Samerjai Suksumek, chairman of the Energy Regulatory Commission (ERC).

UGT 1 rates are slightly higher than the current power tariff of 4.2 baht per kilowatt-hour (unit), while UGT 2 rates are estimated in a range from 4.55-4.56 baht a unit, she said.

The ERC bases its calculation of the UGT on three factors: the base tariff, fuel tariff and other expenses, including those incurred by management of Renewable Energy Certificate (REC) trade.

The base tariff, also known as the base factor, indicates the costs of power plants and distribution systems, while the fuel tariff is determined mainly by prices of renewable fuels.

REC refers to an economic incentive aimed to encourage power plant owners to produce electricity from clean fuels. Each REC, which certifies the bearer generates one megawatt-hour (MWh) from renewable energy resources, can be traded as an energy commodity.

Ms Samerjai said she believes renewable energy developers will be more interested in projects under the UGT 2 category because the rates can be applied to many renewable energy sources.

Whether UGT will be expensive should not be an issue because foreign investors are more focused on a stable power supply for their businesses, a source at the Energy Ministry said earlier.

Large companies will accept the rates as long as they are calculated in a transparent manner, said the source.

Q: How is the UGT rate determined for projects?

UGT 1, under which power purchase contracts last one year, mainly applies to the six hydropower plants operated by the state-run Electricity Generating Authority of Thailand (Egat).

Electricity generation from these facilities can be certified under the REC scheme.

UGT 2, with power purchase contracts lasting up to 10 years, applies to the state's 5.2-gigawatt renewables scheme. Many energy companies awarded a right to develop renewable power plants under the scheme already signed contracts with authorities, according to the ERC.

The 5.2GW capacity includes electricity from biogas, wind power, on-ground solar farms and on-ground solar farms with energy storage systems.

The ERC plans to organise an auction for power projects under the second phase of the renewable scheme, with a capacity of 3.6GW, within this year. UGT 2 will also apply to these new projects.

Q: How much renewable power supply do businesses want?

Factories in Thai industrial estates demand a total of 10GW of renewable power, said Yuthasak Supasorn, board chairman of the Industrial Estate Authority of Thailand.

Their clean energy demand is based on a recent survey of nearly 5,000 factories.

Businesses need to use more renewable power to avoid a non-tariff barrier if they export products to countries within the EU, which began enforcing the Carbon Border Adjustment Mechanism (CBAM) on Oct 1, 2023.

The transitional phase of CBAM requires importers of iron and steel, aluminium, cement, fertiliser, electricity and hydrogen to report greenhouse gas emissions embedded in their imports without being subject to financial payments or adjustments, according to the EU.

Importers are scheduled to pay a levy for CBAM certificates from Jan 1, 2026.

Other businesses want to use more clean power because of their campaigns to achieve carbon neutrality, a balance between CO2 emissions and absorption.

Many foreign companies that are interested in investing in Thailand want to use clean energy, according to investment executives.

For example, Microsoft signed a memorandum of understanding for a partnership in Thailand. The company and the Thai government are partnering to use artificial intelligence and cloud technology to strengthen the country's economic competitiveness.

Microsoft said it plans to work towards achieving 100% renewable energy usage for potential investment in the country.

Government spokesman Chai Wacharonke said earlier the country's plan to adopt the UGT should be one factor that attracts the interest of tech firms.

In addition, the Industry Ministry plans to revise investment incentive packages for companies in the RE100 group to better attract investors to the country.

Several hundred companies worldwide have joined RE100, a global renewable energy initiative that commits its members to using 100% renewable energy.

In 2021, Prime Minister Prayut Chan-o-cha vowed at the 26th UN Climate Change Conference Thailand would be more serious in dealing with climate change, striving to reach carbon neutrality by 2050, along with a net-zero target, a balance between greenhouse gas emissions and absorption, by 2065.

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