THAILAND'S ENERGY PLANS

UNCLAS SECTION 01 OF 03 BANGKOK 004889 SIPDIS SIPDIS E.O. 12958, AS AMENDED: N/A TAGS: ECON ENRG TH SUBJECT: THAILAND'S ENERGY PLANS ¶1. Summary: Despite rising energy prices and environmental concerns, Thailand expects to continue its reliance on traditional fossil fuels for its energy demands for the near future. Although varying alternatives to carbon-based fuels have attracted some government support, costly production practices, conflicts of interests and a lack of technical expertise lead energy experts to doubt their growth as a percentage of Thailand's consumption. One exception may be a reduction in petroleum usage for transportation, as Thailand flirts with measures promoting natural gas and ethanol to power vehicles. However, some observers have expressed reservation at the government's commitment to ethanol as well, noting both the dearth of available biomass for conversion and inconsistent incentives. End summary. ¶2. Largely reliant on natural gas and petroleum to satisfy its energy demand, Thailand is attempting to shift the composition of its fossil fuel usage. The Energy Policy and Planning Office (EPPO),which develops its research for the Ministry of Energy, forecast increasing substitution of coal over natural gas as a source of electricity. Other government policies are promoting natural gas and ethanol-mixed gasoline to replace petroleum and diesel in transportation. However, others contend that without greater support for non-carbon based alternatives, Thailand's energy growth may not be commensurate with economic growth. Dr. Prida Wibulswas, energy specialist and a member of the prestigious think tank Royal Institute, noted that EPPO's own figures put the current ratio at 1:1.4, with energy lagging behind economic development. ¶3. According to Ms. Narupat Amornkosit, director of the power division at EPPO, Thailand currently derives around 70 percent of its electricity from natural gas. At current usage rates, Thailand has sufficient domestic natural gas reserves for another 25 to 30 years. To ensure these reserves are not tapped too quickly, Narupat said the Electricity Generating Authority of Thailand (EGAT) seeks increased coal usage for the immediate future, identifying as a source bituminous coal from Australia. Coal also benefits from still large global reserves and low prices, a primary concern for profit-oriented EGAT. She conceded the challenge of convincing affected communities to accept new power plant construction, but stressed that public education and outreach efforts have improved since beginning the controversial Banpu Public Company (BLCP) plant in Rayong province in 2003, which generated widespread opposition in the community and whose opening subsequently has been delayed repeatedly. Independent Power Producers (IPP) like BLCP now engage directly with community leaders and provide financial incentives, said Narupat. These private companies must take the initiative in community development, as some 70 to 80 private sector projects, including Small Power Producers (SPP),now produce nearly half of all electricity generated in Thailand. Do renewable energies have a future in electricity generation? -------------- -------------- ¶4. Experts disagree on the ability to expand certain renewable energy supplies. For example, hydropower now contributes around 7 percent of Thailand's electricity, including 2 percent purchased from Laos. Narupat does not expect any significant increase in hydropower production, stating that Thailand lacked major internal waterways. However, Prida asserted that Thailand still has untapped 70 percent of its own hydropower capacity, mostly through smaller dams. He suggested EGAT's hesitation in pursuing new hydropower projects in Thailand is because it emphasizes more profitable, larger dams. But Narupat countered that the problem is bureaucratic, since new proposals for small dams must go through a separate Royal Irrigation Department. She opined that these institutional complexities make any significant construction of new dams unlikely. (Note: Because of the political sensitivities surrounding potential electricity purchases from controversial Salween dam projects in Burma, EPPO avoided comment on their role in future planning. End note.) ¶5. The Thai government has set policies to promote other renewable energies. The Department of Alternative Energy Development and Efficiency (DEDE) reported that biomass composed 16 percent of Primary Energy Consumption (PEC),but mostly for traditional energy like cooking and rural heating. The Energy Conservation (ENCON) program in 1994 has helped subsidize production of 16 biomass projects since 1995, including 1 billion baht (USD 25 million) for pig farm biogas projects. Nonetheless, biomass still only contributes just over one percent of total electricity generation, according to Energy for Environment (E for E),an EPPO-funded NGO and self-described "Biomass Clearing House". ¶6. Many with whom we spoke were less sanguine about any significant expansion for biomass electricity generation. Thailand has enough land to supply agricultural conversion products, especially rice husks and straws, believed Mr. Winai Praphakornkiat, information and engineering manager at E for E. But the high costs of current production technologies and still minimal government support proscribe wider development. Winai blamed government indecision and its lack of political will to promote biomass-generated electricity, so now few producers can compete with cheaper natural gas alternatives. Both Narupat and Prida also agreed that biomass BANGKOK 00004889 002 OF 003 conversions will have supplementary roles at best. As an alternative, Winai proposed wider usage in heating as a substitute for fuel oil, as biomass offers a "good payback". Bureaucratic and policy failures -------------- ¶7. Prida noted the percentage of renewable energy use for PEC has actually decreased in the past ten years. He blamed some of these failures on funding mismanagement. For instance, he claimed the government has directly used only 12 percent of the allocated 20 billion baht (USD 525 million) from oil sales to develop and publicize alternative energies over ten years, and much of the money went to inefficient or unrelated projects. He also stated that too often MoE members have vested interests in steering energy policies towards sources like coal, as they may personally operate mines or processing plants. However, EPPO reiterated its preference for coal because of its relative abundance and political viability. ¶8. A weak, short-term outlook at the Ministry of Energy also contributes to Thailand's desultory policies, suggested Prida. He personally advocated a concerted effort promoting nuclear power, but recognized the many obstacles to actual plant construction. However, without domestic educational development, Thailand now has only two available experts on nuclear energy in EGAT, both of whom are expected to retire soon. He is also concerned about some popular fears over safety and recognized that the government would have to educate the public. Prida estimated that the total time for Thailand to prepare and construct a working nuclear power plant would be 16 years. He feared, however, that Thailand lacked the required foresight and economic objectivity for such coordinated planning. Saying no to petrol, yes to natural gas -------------- ¶9. Some of these concerns extend to the transport sector. Composing 37 percent of Final Energy Consumption (FEC),government policies have promoted natural gas vehicles (NGV) and gasohol, a blend of petroleum and ethanol. Tax incentives were initially granted for vehicle alteration to compressed natural gas (CNG) usage and the purchase of E20 cars, which are specially made to run with 20 percent ethanol content in the petroleum. By the end of this year, the government has mandated the phasing in of 10 percent ethanol gasoline for all 95 octane fueling stations. ¶10. However, industry figures in agricultural products doubt the Thai government's commitment to ethanol. The government officially reports that an increasing number of licensed ethanol producers can supply Thailand with one million liters per day by the end of this year and three million by the end of next year. Producers, however, are not so optimistic. They worry that despite its gasohol measures, efforts to secure enough ethanol production are progressing too slowly, currently at only 300,000 liters per day, far short of the one million target for next year. Like biomass electrical generation, costs are prohibitively high without improved subsidies. While there are more licensed producers now, only a few are actually making ethanol. The Thai Sugar Producers Association considered that current high sugar prices prevent its industry from processing sugar into ethanol content. Moreover, a spokesman from U.S. agricultural company Cargill also worried about Thailand's ability to secure tapioca chips from its cassava output, the second largest potential ethanol source in the country. He noted that instead of selling domestically, Thai producers sell three million tons of tapioca chips to China each year, leaving little available for conversion to ethanol. ¶11. Finally, some are concerned whether the government will put more emphasis on natural gas. Mr. Arnupab Tadpitakkul, government affairs director at Ford Motors in Thailand, noted the example of the government's sudden decision to postpone excise tax reductions from Ford's E20 car imports until January 2009 while maintaining the same reductions for CNG vehicles. Ford's requests for a rationale last year were diverted from one ministry to another, each fingering others for the decision. However, he speculated that since the now-private Petroleum Authority of Thailand (PTT) controls significant portions of Thailand's natural gas reserves, CNG promotion would boost its profits. Local press also reported in June that PTT has decided to manage a 7-billion-baht fund to finance CNG conversions, set up jointly by PTT and the Energy Conservation Promotion Fund. Arnupab also noted that Toyota, one of Thailand's largest investors, has only NGV-capable vehicles, possibly influencing the postponement. ¶12. Comment: Thailand's current plans seem to favor less radical approaches despite considerable government talk about renewable energies like ethanol as a means to achieve greater energy independence and improve farmer incomes. Preparations for renewable energy will require the political will to allow higher energy prices and shoulder the costs of subsidies. This requires the collaborative support of various ministries to share the same goal. However, the cheaper access and more lucrative profits in fossil fuels seems for now too alluring, thus resisting a genuine BANGKOK 00004889 003 OF 003 commitment to renewable energy. End Comment. Arvizu