The story of Thailand’s centralized power sector

1. The story of Thailand’s centralized power sector Palang Thai Chuenchom Sangarasri Greacen 5 October 2009 MeeNet, Thailand

2. 1. The origin

3. Bangkok’s first paved road (New Road) Electricity was introduced by King Rama V. Electric tram in Bangkok (powered by a wood-fired steam engine) in 1884.

4. Late 1800s – early 1960s • Initially electricity served mainly the elites • With series of wars and coups, not much happened in terms of spreading electricity • By early 1960s, only 2% of Thais had electricity • No consensus on form ofownership: private or state or coop model • Diverse forms of ownership: over 200 separate small cooperative, municipal or privately ownedutilities

5. At a cross road: centralized or decentralized model? • Like the US Bonneville Power Authority, Thai National Energy Authority (NEA) was created to regulate hundreds of small utilities and built early power plants. • Also served as the MRC secretariat and pushed large dam projects on the Mekong. • With WB advocating central planning, fragmented state-owned enterprises • Metropolitan Electricity Authority, Yanhee Electricity Authority, Northeast Electricity Authority, and the Lignite Authority

6. Decentralized Micro-hydro technology Source: Inversin, A. R. (1986). Micro-Hydropower Sourcebook.

7. Centralized generation Transformer High voltage transmission Centralized generation Medium voltage distribution

8. Deciding factor: Cold War politics • USAID poured in billions of dollars to Thailand, seen as a regional power to be courted in containing communism • USAID advisors considered micro-hydroelectricity but dismissed the option for large central generation with transmission and distribution • In contrast to China’s extensive adoption of community-owned village-scale micro-hydro • The USAID pre-feasibility study adopted verbatim as Thailand’s rural electrification master plan • Electricity used to win the hearts & minds in “red/pink areas”

9. The birth of centralized utilities • Creation of Electricity Generating Authority of Thailand (EGAT) • By merging 3 SOEs • With Metropolitan Electricity Authority (MEA) & Provincial Electricity Authority (PEA) in charge of distribution

10. Moral of the story… • Centralized grid: in many cases, makes economic and technical sense, however… • Control of a central grid need not be monopolized by one group • Structure of centralized control determined by Cold War politics, not technical superiority • Electricity played a political role

11. 2. The Evolution

12. 1970s – 1980s • Centralized structure and control facilitated rapid expansion of grid, rural electrification • Monopoly status with state power to provide essential public service • Generous support from WB in particular • Cost-plus structure • State-owned utilities also grew in size and political power

13. 1990s – Neo-liberal agenda • With rise in global private capital, WB & IMF pushed privatization agenda • Sale of EGAT’s assets: EGCO, Ratchaburi • Giving “concessions” to private power producers (IPPs, SPPs) to generate & sell power • Plan to create “Power Pool” and privatize the 3 utilities

14. 2000s – National champion • EGAT resisted neoliberal reforms • Power Pool plan aborted • EGAT aspired to be partially privatized “National Champion” but effort thwarted by civil action • Still an SOE, EGAT has monopoly and public rights but with profit-seeking aspirations • Use of profit-seeking subsidiaries to expand and pursue commercial interests • Large capital and captive consumer base allows EGAT/its subsidiaries to invest abroad in competition w/ other transnationals

15. Power Grid & Pipelines are analogous to a giant’s arms reaching to grab resources to feed its endless appetite.

16. Changing role of electricity • Electricity changes from a public service to a profit-making commodity • With cross-border grid extension or regional grid, “Energy commons” (e.g. rivers w/ hydroelectric potential, natural gas) in countries surrounding Thailand are become a transnational commodity

17. 3. The Character

18. Unchecked centralized power • “A minority must sacrifice for the greater good” • “out of sight, out of mind” • Results: • Structural violence • Inequality • waste

23. Siam Paragon 1700 families relocated 123 Loss of livelihood for >6200 families MBK 81 Loss of 116 fish species (44%) Central World Mae Hong Song Fishery yield down 80% 75 65 Electricity production and consumption (GWh) Impacts of Pak Mun Dam alone Source: MEA, EGAT, Searin, Graphic: Green World Foundation Pak Mun Dams Malls Province

24. Unlimited living? http://www.soho-properties.com/condobangkok-leraffine31/

25. The Champagne Glass UNDP, Human Development Report, 1998

26. Nam Theun 2 1000 MW Mainly to serve Thailand 6,200 people in Laos resettled Dam will dry Nam Theun River and swell Xe Bung Fai River Endangered species, elephant habitat to be flooded

27. 4. The driver

28. Cycle of (over-)expansion under the centralized monopoly system Deterministic planning based on demand forecast leads to over-investment in capital-intensive power projects Power demand (over-)projections 1 2 Utilities’ Profits 3 Tariff structure that allows pass-through of unnecessary investments

29. Incentive structure for utilities:the more expansion, the more profits • Financial criteria for utilities link profits to investments • Thailand uses outdated return-based regulation • WB’s promoted financial criteria such as self financing ratio (SFR) also have similar effects • ROIC (Return on Invested Capital means: the more you invest, the more profits 4.8% Result: Demand forecast have systemic bias toward over-projections Too many expensive power projects get built

30. Power demand projectionSep 2007(PDP 2007revision 1) MW 48,958 MW 2,477 2,399 2,287 37,382 MW 2,235 2,178 2,131 2,035 27,996 MW 1,832 Demand increase per year 1,759 1,629 1,361 1,410 1,268 1,444 1,449 2550 – 2554 average increase 1,386 MW 2555 – 2559 average increase 1,877MW 2560 – 2564 average increase 2,315MW แผนพัฒนาฯ ฉบับที่ 10 แผนพัฒนาฯ ฉบับที่ 11 แผนพัฒนาฯ ฉบับที่ 12 ที่มา กฟผ.

31. Power Demand: Projections vs. Actual1992 – 2008If no systemic bias, the chance of over-projecting demand 12 times in a row should be 1/4096!! MW

32. Why assume exponential growth?Linear vs. exponential extrapolation 31 power plants

33. Planning of capacity additions (Total capacity requirement = peak demand + 15% reserve margin)

34. Many questions for PDP2007 New capacity added to the PDP 2007 • Why only 1700 MW of distributed generation allowed? • Why 4000 MW of nuclear in all options? • Why DSM/energy efficiency not considered as an option? L = low case B = base case H = high case 1=“lowest cost” 2=“as much coal as acceptable” 3=“LNG + imports”

35. หมายเหตุ 1. ใช้สมมติฐานว่าต้นทุนร้อยละ 12.4 ของค่าไฟฟ้ามาจากธุรกิจสายส่ง 2. ใช้สมมติฐานว่าต้นทุนร้อยละ 14.5 ของค่าไฟฟ้ามาจากธุรกิจจำหน่าย 3. ค่า CO2 ที่ 10 ยูโร/ตัน 4. ค่า Externality ตามการศึกษา Extern E ของสหภาพยุโรป และนำมาปรับลดตามค่า GDP ต่อหัวของไทย 5. การศึกษาของ World Bank 2005 6. ตามระเบียบ SPP 7. ที่มา : กฟผ. 8. Cost of liability protection, Journal “Regulation” 2002 – 2003

36. Lack of accountability in demand over-projection and over-investment made of possible by guaranteed rate of return for utilities • ROIC (Return on Invested Capital means: the more you invest, the more profits 4.8% Guaranteed rate of return means central planners are rewarded, not held accountable, for their repeated errors in demand forecast

37. Cycle of over-expansion under the centralized system with return-based regulation Deterministic planning based on demand forecast leads to over-investment in capital-intensive power projects Power demand (over-)projections 1 2 Utilities’ Profits 3 Tariff structure that allows pass-through of unnecessary investments

38. 5. The alternatives

39. Centralized generation Transformer High voltage transmission Centralized generation Medium voltage distribution

40. Centralized & decentralized generation Transformer High voltage transmission Centralized generation Cogeneration Medium voltage distribution Gasifier

41. Thai civil society created an alternative PDP that meets govt’ objectives, is more economic and cleaner. But it was not considered by the government ที่มา มูลนิธินโยบายสุขภาวะ 2552

42. Supply curve of Pacific NW Resource potential for generic coal, gas & wind resources shown for typical unit size. Additional potential is available at comparable costs. Source: Northwest Power and Conservation Council

43. Thank youwww.palangthai.org