PROJECT INFORMATION DOCUMENT (PID) CONCEPT STAGE Report No.: AB5800 Project Name. EGAT And PEA Advancing Clean Energy Investment - CTF Region

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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized PROJECT INFORMATION DOCUMENT (PID) CONCEPT STAGE Report No.: AB5800 Project Name EGAT And PEA Advancing Clean Energy Investment - CTF Region EAST ASIA AND PACIFIC Sector Renewable energy (95%); District heating and energy efficiency services (5%) Project ID P Borrower(s) EGAT and PEA Implementing Agencies Electricity Generating Authority of Thailand (EGAT) 53 Moo 2 Charansanitwong Rd Bang Kruai Nonthaburi Thailand Tel: (66-2) Fax: (66-2) sineenat.s@egat.co.th Provincial Electricity Authority (PEA) 200 Ngam Wong Wan Rd. Chatuchak Bangkok Thailand Tel: (66-2) Fax: (66-2) numchai.low@pea.co.th Environment Category [ ] A [ ] B [ ] C [ ] FI [ X ] TBD (to be determined) Date PID Prepared June 2, 2010 Estimated Date of March 2011 Appraisal Authorization Estimated Date of Board Approval July 28, Key development issues and rationale for Bank involvement 1. Thailand s energy consumption and electricity demand have closely followed economic growth over the past 25 years ( ). The annual average growth rate for final energy consumption over this period was 6 percent, while electricity consumption grew even faster at 9 percent. Per capita electricity consumption grew by almost 25 percent in the past five years. The close link between GDP and energy consumption indicates that total energy intensity, defined as total final energy consumption per unit of GDP, has remained relatively constant over time. Thailand s energy intensity of 15 toe/million Baht is one of the highest amongst developing countries. To sustain economic growth, Thailand is facing several challenges to achieve energy security and sustainability.

2 2. Thailand relies heavily on imports to meet domestic energy demand. More than half of primary energy supply is imported, with crude oil accounting for over 70 percent of total imports, mostly for transport and industrial use. Electricity generation relies mainly on natural gas and coal, with the latter generating high greenhouse gas (GHG) emissions. In 2008, 92 percent of total power generation came from fossil fuel sources, mostly natural gas (71 percent) with significant coal and lignite (21 percent). Electricity generated from renewable energy (RE) sources such as biomass, wind, and solar comprise a very small share of the generation mix, only 1.8 percent in Heavy dependence on imports and little fuel diversification in the energy mix posed key challenge to Thailand s energy security. 3. In addition, Thailand is one of the most carbon intensive economies within the South East Asia region. In 2008, CO 2 emissions from fossil fuel combustion were 254 million tons, the third largest among EAP s developing countries after China and Indonesia. GHG emissions from fossil fuel sources have been growing at three percent per year, mostly due to consumption of petroleum products. Electricity generation is the largest contributor to Thailand s emissions with 37 percent share. 4. Development policies and strategies have increasingly focused on GHG reductions and improved energy efficiency. The Government of Thailand has taken several steps to address development challenges while promoting a low carbon growth path. The ongoing Medium Term Energy Conservation Plan ( ) of the Government aims to reduce energy-gdp elasticity of Thailand from 1.4:1 to 1:1 through reduction in total commercial energy consumption, including in industries, agriculture, buildings, transport, etc. In the long term context, the Ministry of Energy (MOEN) has recently announced the Fifteen-Year Alternative Energy Development (AEDP) Plan which is the country s first policy document that clearly lays down its long-term vision and sets out strategic direction for alternative energy development. The Plan sets a target to increase the share of alternative energy from 6.4 percent in 2008 to 20 percent in If the target is achieved, it will help Thailand reduce 42 MtCO2e GHG emissions per year. AEDP identified four areas of alternative energy development to achieve the 20 percent alternative energy share target (equivalent to 19,700 ktoe/ year) by the year The four areas include: (i) increasing the share of power generation from renewable sources by small power producers (SPPs) and very small power producers (VSPPs) (2.4 percent); (ii) increasing the share of thermal applications from renewable sources (7.6 percent); (iii) promoting the use of bio-fuels including ethanol, biodiesel, and hydrogen for transportation (4.1 percent); and (iv) promoting the use of natural gas for vehicles (NGV) (6.2 percent). 5. Substantial investment will be needed to add the 4,000 MW of new renewable power generation capacity needed to reach the AEDP s 2022 target for RE in the power sector of 5,608 MW. MOEN s Department of Alternative Energy Development and Efficiency (DEDE) estimates that this component of the AEDP will require US$10 billion of new investment, or an annual investment of around US$760 million over the next 14 years. This amount of investment is expected to come from both the private sector and the public sector (government and stateowned enterprises). The private sector is expected to take on most of the total investment. 6. To support Thailand in achieving its low carbon growth plan, the Clean Technology Fund (CTF) Trust Fund Committee endorsed the country s Investment Plan (IP) in December 2010.

3 The approved CTF envelope for Thailand is US$300 million to leverage both IBRD and IFC investments in energy efficiency, renewable energy and urban transit facilities. The proposed project is one of three IBRD projects identified in the IP. 7. There is a clear rationale for Bank involvement to continue the role as development partner for Thailand through both financial and technical support. The government seeks the Bank s assistance and knowledge in transitioning towards a low-carbon growth path which is a new area. The Bank s access to global cutting-edge knowledge and international experiences in clean energy development, low carbon-growth and climate change financing are the key areas which the Bank could bring value-added to the Government of Thailand s (GoT s) development agenda. 8. The combination of economic pressures and ongoing political uncertainty has steered the preparation of the draft Interim Country Partnership Strategy (I-CPS) for Thailand 2009 to become a relatively short-term strategy for FY Although not yet finalized, the I-CPS is expected to focus on immediate assistance to Thailand, while supporting reforms that address the country s social and economic disparities, and competiveness challenges. The proposed project will directly support Cluster III of the CPS: Infrastructure and Climate Change, the aim of which is to improve competitiveness and sustainable development of Thailand. This project is part of the overall support to the GoT in tackling the climate change challenge in the context of economic development and access to climate change funding resources. 2. Proposed objective(s) 9. The key project development objectives are to increase the amount of power generation based on renewable energy in Thailand, improve energy efficiency in street lighting on public highways, and thereby help reduce greenhouse gas emission. 10. The key results would be measured by (i) the installed capacity of renewable energy (MW); (ii) energy savings (kwh) and peak load (MW) reduction; and (iii) GHG emission reduction (tons CO 2 ). 3. Preliminary description 11. The proposed project will be implemented by two state-owned power utilities in Thailand: (i) the Electricity Generating Authority of Thailand (EGAT), the national generation and transmission company, and (ii) the Provincial Electricity Authority (PEA), one of two distribution companies, which covers all of Thailand except Bangkok and two other provinces. The project will consist of three components as described below. Component 1: EGAT Renewable Energy Component 12. EGAT has developed their alternative energy strategy with a total installed capacity of 340 MW of renewable energy by 2022, accounting for 19% of the country s renewable target

4 with respect to small hydro, wind, solar and municipal solid waste projects 1. Of the projected 340 MW, small hydro counts for the largest share of 194 MW, followed by 129 MW of wind, 15 MW of municipal solid wastes, and 2 MW of solar. This alternative energy program is estimated to cost around US$980 million, with more than 40 projects. The program will be implemented in three phases: , , and The project will support a time slice of the EGAT s alternative energy strategy over the next 5-6 years. The project plans to adopt a framework approach which would define eligibility criteria for renewable energy sub-projects to be financed under the proposed project. A preliminary list of projects will be agreed with EGAT at appraisal but final decision will depend on projects meeting agreed technical, financial, economic, and safeguards requirements. Thus, some projects may drop out and be replaced by others from the list maintained by EGAT. Investment requirements and therefore descriptions vary from project to project. The project may also retroactively finance a 30 MW 2 small hydro project and an 18 MW wind farm which are under procurement process at the time of project preparation. The inclusion of these two projects will be determined as part of the appraisal process. Component 2: PEA Renewable Energy Component 14. The project will support PEA ENCOM International Company Limited, a wholly owned subsidiary of PEA (established in October 2009), to build up to 100 x 1 MW biomass power plants using gasification technology with feedstock from forest residues to be supplied by the Forest Industry Organization (FIO). PEA is collaborating with the FIO in a pilot biomass power generation project to produce electricity from renewable biomass residue from commercial forest plantations. The proposed project will support up to 100 sites, depending on fuel availability at these sites, with an approximate total capacity of 100 MW in the next five years, and associated investment in transmission lines and substations. As part of good plantation management, residue biomass from thinning/trimming will be used as feedstock. FIO plans to organize local communities to collect the residues and sell to FIO. FIO will enter into fuel purchase agreement with PEA ENCOM. PEA ENCOM will enter into power purchase agreement with PEA. Component 3: PEA Energy Efficiency Component 15. The PEA energy efficiency component aims to improve energy efficiency of approximately 500,000 high mast highway lights in PEA service territory by installing energy saving devices (e.g. voltage control and dimmer devices). These lamps/highway lights are owned and managed by the Department of Highways, but the electricity service for the lighting system is provided by PEA free of charge. It is estimated that there are some 800,000 to 900,000 highway street lights in PEA service territory. The installation of dimmers on the lighting system will reduce illumination levels during the off-peak, low traffic hours at night (10 pm to 5 am). The current annual energy consumption of the 500,000 highway lights is 1,300 GWh, and 1 If biomass and biogass projects are included in the total renewable target, EGAT s share drops to 6% of the country s total. 2 It is noted that hydropower projects larger than 10 MW are not eligible for CTF financing, and therefore, this subproject (if included for retroactive financing) would only be eligible for IBRD financing.

5 savings of 325 GWh or 25% reduction are estimated for a project investment of $67 million. The component will be implemented by PEA ENCOM. 16. Improving efficiency of highway lighting would reduce the energy consumption and, therefore, the electricity bill that PEA pays to its electricity supplier, EGAT. PEA has been investigating energy efficiency interventions and has implemented several smaller scale pilot projects since 2005 dealing with street lighting, and including highways lighting, in Hua Hin, Thanyaburi, Chonburi, Nongkhai, etc. which have demonstrated cost-effective energy savings (up to 30 percent). Specifically in the area of high mast highway/street lights, PEA has piloted installation of energy saving devices (mainly dimmers) in several projects, in collaboration with KMUTT University, Kasersart University, and private sector manufacturers. These programs have saved about 20-30% on average, with resulting power savings of about 3 MW and energy savings of 4.6 GWh per year. 17. Total estimated project costs and indicative financing plan is provided below. The project costs are preliminary figures and will be refined during the appraisal process. Indicative Project Cost and Financing Plan (in US$ million a ) Borrower CTF IBRD Total Project Cost Component A: EGAT Renewable Energy Component B: PEA Renewable Energy b 50 b 50 b Component C: PEA Energy Efficiency 70 TOTAL a Exchange rate: 32 baht/us$ b The breakdown between components B and C will be determined during project preparation. 18. The project will also include a $250,000 knowledge management and dissemination component financed by a CIF project preparation grant as part of a fixed entitlement for CIF projects. Its purpose is to ensure that maximum opportunity is taken at the frontline of CIF operations to capture early experiences and lessons coming out of project implementation, share such lessons with local stakeholders, and contribute to the building of CIF s broader knowledge capital. It would be expected to address three basic elements: (i) communications with local stakeholders, including CSOs and the private sector on project activities, results and lessons; (ii) capture of lessons during the project implementation process; and (iii) the sharing of such lessons with other CIF country partners. The specifics of this will be developed during project preparation. 19. It is also noted that technical assistance to the implementing agencies will be included in a proposed stand-alone GEF project which will be designed to support Thailand s CTF Investment Plan and their broader climate change agenda. The proposed GEF project will be prepared in parallel to, or slightly ahead of, the CTF projects. 20. The three components described above will demonstrate substantial GHG emissions reduction, compared to the business-as-usual baseline grid emissions scenario, which is dominated by fossil-fueled power generation. However, wider scale deployment of renewable energy and energy efficiency measures in Thailand entails higher initial costs and faces

6 implementation barriers. In addition to the CTF financing, some of the barriers and incremental costs could be offset partly by the additional revenues through the sale of emissions reductions (that will come from these three components) in the global carbon market, including through the World Bank-managed carbon funds. Therefore, it is planned to incorporate the Clean Development Mechanism (CDM) activities associated with all the three components. The CDM activities for the three components, will be prepared in parallel to and alongside the main project, using approved CDM methodologies, and appropriate approaches, including as a CDM Program of Activities (PoA). The latter modality of programmatic CDM would bring in the additional flexibility of wider-scale application of these transformational measures, in terms of both time and scope, in that all project sites need not be pre-identified prior to registration of the CDM PoA with the UNFCCC, and would therefore also reduce CDM transaction costs. 4. Safeguard policies that might apply 21. The following safeguard policies will be triggered under the project: Environmental Asessment (OP/BP 4.01), Natural Habitats (OP/BP 4.04), and Safety of Dams (OP/BP 4.37). It is yet to be determined if the following additional safeguards will apply: Forests (OP/BP 4.36), Physical Cultural Resources (OP/BP 4.11), Indigenous Peoples (OP/BP 4.10), Involuntary Resettlement (OP/BP 4.12), and Projects on International Waterway (OP/BP 7.50). Further details can be found in the Integrated Safeguards Data Sheet (Report No. AC5216). 5. Tentative financing Source: ($m.) Borrower 350 International Bank for Reconstruction and Development 110 Clean Technology Fund 110 Total Contact point Contact: Julia M. Fraser Title: Sr Financial Analyst Tel: Fax: JFraser@worldbank.org Location: Bangkok, Thailand (IBRD)