Here comes the sun: Thailand needs to think deeper about solar

Here comes the sun: Thailand needs to think deeper about solar

Thailand ranks an impressive fifth in Asia behind China, Japan, India and South Korea in terms of solar’s share of electricity production. Photo: Somchai Pomlard
Thailand ranks an impressive fifth in Asia behind China, Japan, India and South Korea in terms of solar’s share of electricity production. Photo: Somchai Pomlard

As Thailand looks for sunrise industries to target, it should look more closely at the booming solar photovoltaics (PV) manufacturing industry. Global new investment in solar installations totalled US$161 billion in 2015, according to Bloomberg New Energy Finance. That figure will grow dramatically in the years to come, judging from capacity demand forecasts. Bloomberg projects that annual demand for photovoltaic modules will reach 170 gigawatts by 2030, far above the 64GW of solar modules being produced in 2016.

To be sure, the photovoltaic equipment manufacturing industry is volatile and fiercely competitive, dominated by big companies in China that have large economies of scale and benefit from supportive government policies. Chinese makers now have a massive 51GW of annual module production capacity.

Unfortunately, Thailand lacks competitive advantage in the key PV module production processes, namely manufacturing solar-grade silicon and solar silicon wafers, which are capital-intensive, energy-intensive businesses that require low-cost electricity supply. But Thailand still has opportunities to capture more of the PV industry's huge overall value chain by attracting more foreign direct investment and developing local players. By sharpening their strategies, both the government and private sector can help Thailand increase its solar success.

Where does the country's photovoltaic production industry now stand? Using imported silicon wafers, factories in Thailand will produce some 1.2GW of modules in 2016, six times the amount in 2014. Most of this growth comes from plants owned by Chinese companies, which have been investing overseas to avoid anti-dumping tariffs and countervailing duties imposed by the United States and European Union. In 2015 and the first half of 2016, the Board of Investment (BoI) approved over 7 billion baht in investment in solar panel manufacturing.

This figure might seem impressive, but Malaysia is well ahead of Thailand in photovoltaics manufacturing. It is currently the third-largest producer in the world, with 3GW of PV module production capacity as of 2016. It aims to overtake Taiwan as the world's second largest producer by 2020. Meanwhile, Vietnam has attracted big-name solar manufacturers and developed a thriving foreign-invested original equipment manufacturer (OEM) business.

If Thailand wants to keep pace in this important manufacturing industry, the government and local companies should undertake six broad efforts.

First, we need to ensure that we attract quality technologies. Solar is a fast-changing industry, so the BoI's investment programmes should be adjusted to target companies that make high-quality, high-efficiency products. This will help Thailand avoid getting stuck with plants that become stranded by technological progress.

To attract top manufacturers, Thailand's foreign direct investment (FDI) policies need to be competitive relative to those of neighbouring countries, particularly Malaysia. Unlike Thailand, Malaysia includes renewables manufacturing companies in its strong investment incentives targeting high technology.

Second, we need to look beyond PV panels. As the market for solar PV expands, so will demand for the components and equipment that are integrated with panels, such as solar inverters, mounting systems and sun trackers. This so-called balance of system (BOS) comprises 20% of the cost of a typical solar installation project.

The BoI should offer incentives for investment in BOS components to broaden the solar supply chain here. This would take advantage of a variety of Thailand's existing production capabilities, such as for wiring and electronic components, and help develop new capabilities in adjacent industries, such as smart grid and energy storage systems.

Third, we need to expand opportunities downstream, such as in PV-related services to the power generation industry, where Thailand is already competing well in solar. With 2.4GW of PV power generation capacity already installed, Thailand is far ahead of Malaysia where installed capacity is only 275 megawatts. Impressively, Thailand ranks fifth in Asia behind China, Japan, India and South Korea in terms of solar's share of nationwide electricity production.

The upshot is that Thai companies have already accumulated substantial project development experience at home, and are starting to lead projects overseas. Thailand should expand this business, exporting solar project development services and system integration services to neighbouring countries. Partnerships with manufacturers will help to ensure that project developers and energy management businesses are on top of the latest technological trends and customer needs.

Fourth, the government should ramp up its modest targets for solar power installations, which would bolster the local PV manufacturing industry. The latest Alternative Energy Development Plan (AEDP 2015) calls for just six gigawatts of solar generation capacity by 2036. This is low compared with other Asian countries. Vietnam, with negligible capacity today, targets 12GW by 2030. India aims for 100GW, while Indonesia targets 8GW. These countries will attract the lion's share of solar manufacturing investment.

Fifth, Thailand should strengthen PV research and development. R&D here should focus on two objectives. First, improve cell and module manufacturing processes to increase factory efficiency. Second, promote basic research on improving cell efficiency, with a focus on PV in high- temperature climates.

R&D should look beyond solar panels to include balance-of-system components. For example, sun-tracking technology has improved the performance of solar farms in sunny regions. The BoI can further promote solar R&D by offering incentives to foreign investors to undertake research locally, as Malaysia does.

Sixth, we need to increase the electricity grid's flexibility to better accommodate solar and other renewable energy. This calls for investment in technologies, infrastructure and personnel that can manage the more dynamic grid. Capacity building in grid improvement should focus on the general goal of better integrating renewable energy into the grid and more flexibly managing energy production and consumption. It's too early to focus on selecting the right specific technologies, since smart grid systems are still emerging and evolving.

If Thailand fails to fully develop its potential in the photovoltaic manufacturing value chain, the lost opportunities will be large. Annual worldwide investment in renewable power capacity exceeded non-renewables for the first time in 2015, with solar taking the largest share.

The prices of solar PV systems are falling each year, nearing the point where clean, solar-generated electricity is cost-competitive with power from fossil fuels. When this point, known as grid parity, is reached, demand for PV equipment will surge among homeowners and businesses. The future of photovoltaics looks bright indeed, and is soon to arrive.


EIC, a unit of Siam Commercial Bank Public Company Limited, offers in-depth macroeconomic outlook and sectoral impact analyses. For more information, please visit www.scbeic.com or contact eic@scb.co.th

SCB EIC

A unit of Siam Commercial Bank Public Company Limited

EIC, a unit of Siam Commercial Bank Public Company Limited, offers in-depth macroeconomic outlook and sectoral impact analyses. For more information, please visit www.scbeic.com or contact eic@scb.co.th

Do you like the content of this article?
COMMENT (4)