THAILAND'S ENERGY PLANS

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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

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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

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commitment to renewable energy. End Comment.

Arvizu