Incentives and Barriers for Decentralised Power Generation in Finland and in Thailand Greenfield Consulting Ltd PHONE: +358 40 502 8300 Reelinki 30, 01100 Itäsalmi, Finland FAX: +358 9 8683 6980 www.greenfieldconsulting.fi E-MAIL: herkko@greenfieldconsulting.fi Structure of Presentation Finland - Fully liberalised power system Thailand From state monopoly to Single Buyer system Overview of the Power System Technical, capacities and energy resources Institutional Commercial, trading arrangements Historical background Decentralised Generation, Renewable Energy, CHP Incentives and barriers Access to grid Off-taking and trading Share and Role of Private Participation Minsk, Dec. 7, 2006 Decentralized Power Generation 2 1
Facts about Finland Area: 337,030 square kilometers Population: 5.2 million Electric consumption: 84,9 TWh (2005) Electric generation: 67,9 TWh (2005) Electricity Market Act 1995: liberalized market, point access (stamp) tariff 1998: all customers to choose supplier freely Minsk, Dec. 7, 2006 Decentralized Power Generation 3 Power System in Finland Finland is part of the fully liberalised Nordic power system with... open access, market competition... and very limited government control and involvement in electricity supply. Minsk, Dec. 7, 2006 Decentralized Power Generation 4 2
Electricity Supply in Finland 2005, by Energy Source (84,9 TWh) Oil 1,8 % Coal 8,2 % Natural gas 10,5 % Net imports 20,0 % Hydro power 16,0 % Wind power 0,2 % Nuclear power 26,3 % Peat 5,3 % Biofuel 10,5 % Waste fuels 1,2 % Municipal CHP 17,0% Industrial CHP 13,8% Condensing power 6,7% Minsk, Dec. 7, 2006 Decentralized Power Generation 5 Nordic Power System Minsk, Dec. 7, 2006 Decentralized Power Generation 6 3
Institutional Structure of the Finnish Power System EMA Electricity Market Authority Monitoring natural monopolies (transmission and distribution) and markets Under the Ministry of Trade and Industry TSO Transmission System Operator: Finngrid Owner and operator of the HV Transmission System Maintaining power balance (inc. fast reserve) Settlement of power deliveries between parties State of Finland 12%, two major power co s 25% each, institutional investors 38% Nord Pool the Nordic Power Exchange Power Producers About 90 sellers: power co s, industry, municipalities, others More than 400 power plants Pay a fee/kwh for delivering to grid Off-Takers Distribution companies (about 100) and large consumers Distribution and electricity sales are fully unbundled Minsk, Dec. 7, 2006 Decentralized Power Generation 7 Trading in Nord Pool The Nordic Power Exchange Nord Pool was established in 1996 Facilitates open competition among producers and off-takers Power generation differs considerably among the Nordic countries => benefits Physical market On Elspot, hourly power contracts for physical delivery in the next day's 24-hour period. The price is based on the balance between bids and offers. The Elbas market provides continuous trading, up to one hour prior to delivery. The traded products are one-hour long power contracts. Financial market: price securing contracts (futures) At a specific volume and hedge price The contract applies to one specific day, week, month, quarter or year Purely a financial contract, the settlement between parties takes place with money, without physical delivery of electricity Nord Pool charges fixed and/or variable fees for trading Also bilateral trade is possible Minsk, Dec. 7, 2006 Decentralized Power Generation 8 4
Decentralised Power in Finland Making full use of local fuels (inc. wood waste) and CHP opportunities have a long history and strong position Diversified ownership from the beginning of electrification: industry, municipalities, private parties Grid connection: via Fingrid or local distribution co, based (mostly) on pre-defined technical and commercial rules Power delivery: bilateral or Nord Pool trading No special arrangements needed: DG is part of the liberalised market Quite few specific incentives from Government anymore investment subsidy for wind and solar grants for new technology some tax incentives Market based incentives emission trading (CO2) voluntary premium price for green electricity Minsk, Dec. 7, 2006 Decentralized Power Generation 9 Power System in Thailand Thailand applies currently Enhanced Single Buyer model This enables private participation While still maintaining the government control on power system plannig, operation and pricing Total capacity 26 450 MW Peak load 20 538 MW Annual consumption 134,8 TWh/a Average growth 6,7 %/a Main fuel : natural gas, ca 70 % Minsk, Dec. 7, 2006 Decentralized Power Generation 10 5
Electricity Generating Authority of Thailand (EGAT) State (majority controlled) enterprise under the Ministry of Energy, est. 1969 To generate, acquire, transmit electricity to the Metropolitan Electricity Authority (MEA, 35%), the Provincial Electricity Authority (PEA, 63%) and other consumers Own capacity of 15 795 MW, about 60% of the country s 26 450 MW MEA and PEA are state enterprises responsible for electricity distribution in the country Minsk, Dec. 7, 2006 Decentralized Power Generation 11 From State Monopoly towards Open Market The role of EGAT in Enhanced Single Buyer (ESB) model the largest power producer the single buyer from other producers the supplier of bulk electricity to distribution companies owner and operator of the national transmission network national system operator, dispatch of generation state mechanism for maintaining balance in the system and controlling the electricity price Minsk, Dec. 7, 2006 Decentralized Power Generation 12 6
The Changing Role of EGAT EGAT s wholly owned subsidiary, EGCO is Thailand s first Independent Power Producer established in 1992 to set a prototype of privatization in generation business In Dec. 2005, EGAT completed the account unbundling of its generation and transmission businesses and completed the ring fencing of the System Operator activities to ensure transparency National Energy Policy Council (NEPC, 2005): 50% of the future power capacity to be implemented by EGAT whereas the other half is open to private power producers Privatization attempts of EGAT have failed so far Minsk, Dec. 7, 2006 Decentralized Power Generation 13 Private Participation in Thailand Private Power Producers: IPP Independent Power Producers Large power plants selling to EGAT under IPP Program SPP Small Power Producers Small renewable energy and CHP plants selling to EGAT (or industry) under SPP Program VSPP Very Small Power Producer Program Electricity consumers selling occasionally back to distribution companies (PEA, MEA) from <1MW (<5MW) plants EGAT s Power Purchase in 2005 Own power plants IPPs (1 SPPs Import Total MW 9883 8000 2015 640 20538 TWh/a 64,9 65,5 4,4 134,8 1) including EGAT s affiliates (EGCO) plus captive industrial plants not connected to grid, some 2500 MW Minsk, Dec. 7, 2006 Decentralized Power Generation 14 7
Independent Power Producer program Established in 1994, for private participation in large scale power projects IPPs must sell their entire output to EGAT based on long-term power purchase agreements (PPAs) PPAs are awarded based on competitive bidding, organised by MoE/EGAT 7 contracts have been signed for the sale of 5943 MW into the system. 4 IPPs are currently operational, further 3 are under construction. Next bidding round is targeting 5000 MW in 2011-2015 bidding documents available early 2007 40% coal, 40% gas, 20% import main criteria: price, also public acceptance (another 5000 MW by EGAT) Minsk, Dec. 7, 2006 Decentralized Power Generation 15 IPP Awards Status as of Oct. 2006 PPAs have been awarded based on competitive bidding, organised in subsequent phases. Company Capacity Fuel Commercial Contract (MW) operation (years) Phase I (1996-2000) Independent Power (Thailand) Co., Ltd. 700 Gas 2000 25 Eastern Power & Electric Co., Ltd. 350 Gas 2003 20 Tri Energy Co., Ltd. 700 Gas 2000 20 Phase II (2001-2003) Ratchaburi Power (2 x 700 MW) 1 400 Coal* - 25 Glow IPP Co., Ltd. (2 x 356,5 MW) 713 Gas 2003 25 BLCP Power Limited (2 x 673 MW) 1 347 Coal - 25 Gulf Power Generation Co., Ltd. (2 x 734 MW) 1 468 Coal* - 25 Total 6678 * Under negotiation due to the delay of projects and the changes of location and fuel. Minsk, Dec. 7, 2006 Decentralized Power Generation 16 8
SPP - Small Power Producer program Established in 1992 to promote the construction of small power plants to provide power and steam to private industry as part of privatization process. The regulations authorized EGAT to purchase excess power from SPP projects. SPPs can sell their electricity to EGAT (max. 90 MW) and/or to industrial customers located next to the SPP plant SPP : Enterprise that generates electricity either (a) from non-conventional sources (wind, solar, mini-hydro, waste, biomass, max. 25% fossil fuel allowed) (b) from conventional fuels but using cogeneration (CHP, efficiency >45% and steam >10%) 5-25 years PPA with EGAT, with terms set by MoE (and EGAT) The PPAs allocate market risk to EGAT leaving SPPs (and IPPs) to manage the operating and fuel price risks Minsk, Dec. 7, 2006 Decentralized Power Generation 17 SPPs Status as of August 2006 Projects Supplying Power to The Grid No of Projects Capacity, MW Sale to EGAT, MW 1. Non-Conventional Energy Bagasse 31 605,4 181,8 Paddy Husk 5 53,4 41,8 Paddy Husk, Wood Chips 2 57,8 49,0 Black Liquor 1 32,9 25,0 Municipal Waste 1 2,5 1,0 Waste Gas 1 19,0 6,0 Bagasse, Wood bark, Paddy Husk 3 114,9 64,0 Paddy Husk, Bagasse, Eucalyptus 1 3,0 1,8 Wood bark, Wood Chips, Black Liquor 1 87,2 50,0 Bagasse, Paddy Husk, Biomass 2 12,5 9,5 total 48 988,6 429,9 2. Commercial Energy Natural Gas 21 2277,6 1465,2 Coal 4 392,2 196,0 Oil 1 10,4 9,0 total 26 2680,2 1670,2 3. Mixed Fuel Waste gas from production process / Oil / Coal 1 108,0 45,0 Black Liquor /Coal 1 40,0 8,0 Coal / Eucalyptus bark 2 328,0 180,0 total 4 476,0 233,0 TOTAL 78 4144,8 2333,1 Minsk, Dec. 7, 2006 Decentralized Power Generation 18 9
SPP Power Purchase Agreement A standard 25 year PPA with EGAT EGAT guarantees to buy 80% of the Contracted Capacity each year amount of energy not less than 80% of Contracted Capacity times 8760 hours/a (take-or-pay) Pre-determined tariff Firm Capacity Rate + escalation formula (USD/THB exch. rate) Firm Energy Rate + escalation formula (natural gas price) Invoicing once a month, EGAT to pay in 30 days At the end of each month, EGAT to send a 3-month advance electricity purchase plan Minsk, Dec. 7, 2006 Decentralized Power Generation 19 SPP Interconnection to Electrical Grid SPP is responsible for the design, construction, installation and maintenance of the Interconnection Facilities SPP is responsible for costs of interconnection and modification of EGAT/PEA s system SPP PPA attachments include: SPP Grid Code Provisions on Information Transmitting System, Communication System Provisions on Electricity Metering Regulations for Synchronization of Generators to PEA System Minsk, Dec. 7, 2006 Decentralized Power Generation 20 10
VSPP - Very Small Power Producer program Established in 2002, as a simplified program for very small SPPs Up to 1 MW (to be/has been increased to 5 MW) Sales to distribution companies PEA or MEA Biogas engines, small hydro, wind, homes with solar roofs, small industrial CHP/sale of surplus energy Net Metering : Consumer buying: at normal distribution price Consumer selling: at distribution price minus ca. 20 % Minsk, Dec. 7, 2006 Decentralized Power Generation 21 VSPPs Status as of Sept. 2006 Fuel MEA PEA Total No. Max. Capacity to Grid No. Max. Capacity to Grid No. Max. Capacity to Grid (kw) (kw) (kw) 1. Solar cell 44 6,5 22 59,8 66 66,3 2. Biogas 1 950,0 15 8 180,0 16 9 130,0 3. Paddy Husk - - 5 3 235,0 5 3 235,0 4. Wood Chips - - 1 400,0 1 400,0 6. Palm oil empty bunch - - 3 3 000,0 3 3 000,0 8. Rice Straw - - 6 1 030,0 6 1 030,0 Total 45 956,5 52 15 904,8 97 16 861,3 MEA - Metropolitan Electricity Authority (Bangkok area electricity distribution) PEA - Provincial Electricity Authority (other cities and rural electricity distribution) Minsk, Dec. 7, 2006 Decentralized Power Generation 22 11
Other Incentives EPPO (Energy Policy and Planning Office) provides a subsidy of 0.89 USc/kWh for the first 5 years of operation to eligible SPPs strict public hearing, 70 % approval required BOI (Board of Investments) may provide tax exemptions corporate tax import duty on investment goods RPS (Renewable Portfolio Standard) all new fossil fuel projects need to supply 5% renewable energy implementation still unclear Minsk, Dec. 7, 2006 Decentralized Power Generation 23 Share and Role of Private Participation in the Thai Power System The process from state monopoly to open market has been started EGATs role is changing corporatisation and privatisation efforts unbundling, EGCO Enhanced Single Buyer Well functioning programs for private investments IPP for large projects SPP for medium, renewable and CHP VSPP for very small local opportunities For private investors, the ESB model is easier/better than fully liberalized market Long term, fixed Power Purchase Agreements (PPAs) facilitate investment decisions and (project) financing Large, reliable off-taker Predictable pricing and terms Minsk, Dec. 7, 2006 Decentralized Power Generation 24 12