Early last month, the US announced plans to impose a reciprocal tariff rate of 36% on goods originating from Thailand due to a trade deficit. This set off alarm bells between Thai policymakers and export-oriented business sectors. So, efforts are underway to negotiate a deal that would safeguard Thailand's highly fruitful trade relationship with the US.
Yet, just how the renegotiated deal pans out might be counterproductive to Thailand's clean energy transition as per the 2024 Power Development Plan draft (PDP2024), which outlines the nation's power development roadmap until 2037. Notably, Thailand's negotiating team is mulling importing more liquefied natural gas (LNG) from the US over the next five years (an additional contract to an existing LNG import deal), a step which will impact the country's energy ambitions.
As the government has stated it might amend PDP2024 to make the pathway towards Thailand's clean energy transition clearer, it must then seriously consider whether increasing LNG imports is a viable bargaining chip.
Revisiting PDP2024
Last June, PDP2024 was put under a public hearing process. While the existing draft indeed underscores Thailand's clean energy transition and puts it on a better path towards its net-zero targets, more can still be done to cement a proper follow-through.
Previously, Climate Finance Network Thailand (CFNT), in our "A Better Path is Possible: Critique and Suggestions to Draft PDP2024" report, noted that PDP2024 still heavily prioritises fossil fuels. Despite the laudable 51% renewables target, fossil fuels would still form a significant portion of Thailand's energy mix by 2037, as the draft stipulates adding 6,300 megawatts of new gas-fired power plants. There is not enough emphasis given to developing renewable energy infrastructure, particularly readily available solar energy (more on that later). Instead, the PDP focuses on novel, unproven and expensive technologies such as steam methane reforming (SMR) and hydrogen-based fuels.
Fortunately, the government is cognisant of the public feedback and isn't rushing to approve the draft(originally meant to be last year), with the Energy Ministry even saying that significant adjustments may be made to better meet Thailand's clean energy ambitions. While this is a positive development, the result of Thailand's trade negotiations with the US might make such welcome adjustments more challenging.
Navigating tariff impacts
Natural gas is the backbone of Thailand's energy sector, accounting for over one-fifth of the national energy mix. PDP2024 highlights that LNG will still play an important part in Thailand's energy future as gas power plants will still constitute 41% of the energy mix generation by 2037, a demand which Thailand seeks to meet by raising LNG imports due to domestic reserve depletion.
This continued reliance is likely to already impede PDP2024's clean energy aim; the results of the tariff talks with the US might even create an LNG surplus, exacerbating an already tenuous situation in managing LNG supply and demand.
This is particularly salient if the Thai-US negotiations result in the stimulation of Thailand's US-bound exports. For example, there may be an opportunity for Thailand's export market to increase its share in the US, as the latter may look for alternatives to imports from China. If more industrial activity is required to meet such demand, there might be a resultant energy demand, with the main source very likely coming in the form of fossil fuels such as LNG.
However, the reality is that we cannot easily determine levels of supply and demand. For instance, there might be an oversupply of LNG imports or terminal capacities, which could create a "stranded effect", defined as investments that suffer from unanticipated or premature write-downs, devaluations, or conversion to liabilities. This is happening due to a shift we're seeing in climate policy, driven by various factors such as country-level targets, technological changes (including falling clean energy costs), as well as evolving social and business norms.
To understand more about the adverse impacts of stranded assets, read our "Thailand's Fossil Lock-In: Stranded Risk of Midstream Oil & Gas Infrastructure" report, which also explains that nearly half of the currently operating and proposed LNG terminal capacities could become economically unfeasible. Bringing the Thai-US trade negotiations back into context, Thailand might reduce its exports from the energy-intensive industrial sector (such as electronics, automotive and petrochemicals). If an alternative to the US as an export market can't be found, LNG supply would exceed demand (especially if exports to neighbouring countries cannot be guaranteed), thus exacerbating the stranded effect.
Scaling up broad adoption
One way to mitigate the increased LNG imports (as well as their impact on Thailand's energy mix) is to raise the active promotion of using renewable energy sources, such as solar, and the infrastructure required to support their wider-scale adoption. Interestingly, this point was made much more explicit in the previous iteration of the PDP in 2018, but is not mentioned in the 2024 draft.
CFNT proposes several financing models aimed at eliminating high upfront costs and attracting impact investors, but requires strong policy support to succeed. Tailored to the Thai context, CFNT's recommendations include: a Pay-As-You-Save model enabling consumers to install rooftop solar systems without upfront costs by repaying through energy bill savings; residential solar rooftop portfolios that aggregate installations to improve financial viability; partnerships with real estate developers to integrate rooftop solar panels into new housing projects; and rooftop solar panels for public buildings, utilising public infrastructure for solar installations that benefit communities. Read more about the potential effectiveness of such measures and others in the CFNT report, "Here Comes Everybody: Boosting Residential Solar Financing with Crowdfunding Models in Thailand".
Another way to maximise the use of renewable energy infrastructure is to plug Thailand fully into the Asean Power Grid (APG), a regional initiative to interconnect the electricity infrastructures of Asean's member nations. This cross-border electricity grid can provide a solution for tackling intermittent renewable energy sources such as solar and wind. This is especially since commercial and industrial sectors, especially factories, are reluctant to use clean energy for fear that an unsteady power supply will affect their manufacturing processes. By pooling energy production across diverse geographic areas, countries' power can significantly stabilise fluctuations in energy supply.
Thailand at a crossroads
Thailand's energy and trade pressures are immediate and real. However, the country must weather the pressure arising from the US trade negotiations; it cannot lose sight of the emphasis PDP2024 has placed on ensuring the nation is on the right path to meeting its energy transition and holistic net-zero goals.
Given that PDP2024 is yet to receive the government's rubber stamp due to allowing more consideration of perspectives from energy and climate change stakeholders, there's still time to revisit it for the long-term benefit of Thailand's energy future. If this can be successfully navigated, Thailand might just set an example for the region on how to balance its current and future energy landscape.
Imran Arif, Communications Strategy Consultant, Climate Finance Network Thailand.