Thailand Private Sector Power Project
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THAILAND PRIVATE SECTOR POWER PROJECT FINAL REPORT PREPARED UNDER IQC PDC-5730-I-00-6110-00 DELIVERY ORDER No. 9 PREPARED FOR OFFICE OF PROJECT DEVELOPMENT AND SUPPORT USAID/BANGKOK AND THE OFFICE OF TECHNICAL RESOURCES BUREAU FOR ASIA AMD NEAR EAST U.S. AGENCY FOR INTERNATIONAL DEVELOPMENT PREPARED BY DE.UCIA AND ASSOCIATES, INC. 5 HASTINGS SQUARE CAMBRIDGE, NA 02139 (617) 576-0646 TELEX: ITT 4944478 FAX: (617) 547-4286 MARCH 1989 THAILAND PRIVATE SECTOR POWER PROJECT FINAL REPORT PREPARED UNDER IOC PDC-5730-1-00-6110-00 DELIVERY ORDER NO. 9 PREPARED A SR OFFICE OF PROJECT DEVELOPMENT AND SUPPORT USAID/BANGKOK AM THE OFFICE OF TECHNICAL RESOURCES BUREAU FOR ASIA AND NEAR EAST U.S. AGENCY FOR INTERNATIONAL DEVELOPMENT PREPARED mY DELUCIA AND ASSOCIATES, INC. 5 HASTINGS SOUARE CAMBRXDGE, NA 02139 (617) 576-0646 TELEX: Ir 4944478 FAx: (617) 547-4286 MARCH 1989 TABLE OF CONTENTS Section 1 BACKGROUND ........... ....................... 1 Section 2 OVERVIEW ............ ........................ 3 Section 3 SUMMARY ............ ......................... 6 3.1 Privatization Announcement ........ ................ 6 3.2 Draft Regulations .......... ..................... 7 3.3 Model Power Purchase Agreement ....... .............. 9 3.4 Pro Forma Financial Model ...... ................. ... 10 3.5 Introduction of Larger-Scale IPPs .... ............. ... 11 3.6 EGAT Power Development Plan ("PDP 88-02") .. ......... ... 12 3.7 Meetings with EGAT ............................. .. 13 Section 4 COMMENT ............ ......................... 18 Appendix A - EGAT POWER DEVELOPMENT PLAN Annex I - SCOPE OF WORK ........... ...................... A-1 Annex 2 - PRESS RELEASE: PRIVATIZATION ..... ............... ... A-2 Annex 3 - RECOMMENDED DRAFT REGULATIONS (proposed by team) ..... ... A-3 Annex 4 - EGAT DRAFT REGULATIONS .......................... .. A-4 Annex 5 - MODEL POWER PURCHASE AGREEMENT ..... .............. .A-5 Annex 6 - PRO FORMA FINANCIAL MODEL FOR PROJECT ANALYSIS ........ .. A-6 .knnex 7 - EGAT POWER DEVELOPMENT PLAN: COMMENTS BY TEAM ... ....... A-7 Annex 8 - PROPOSAL FOR FOLLOW-UP TECHNICAL CONFERENCE .......... A-8 'iAILAND PRIVATE POWER 1 SECTION 1 BACKGROUND USAID/Thailand and ANE/TR/ENR arranged for the services of two consultants - an energy policy expert and an electric utility expert - through deLucia and Associates, to assist the Government of Thailand (RTG) in the development of policies to encourage private sector participation in power generation. Peter Borr6, President, Boston Energy Associates (an affiliate of J. Makowski Associates), and John Levett, Manager, Alternate Energy Projects, New England Power Service Company, were selected as the Team for the assignment. The Team visited Thailand from February 5 through February 25, 1989. The Team's Scope of Work (Annex 1) in summary consisted of the following: o Analyze policy guidelines currently under consideration; o Work with the RTG, including the National Energy Policy Office (NEPO), and the national utility (EGAT) to develop the basic elements of a private power program, including solicitation and selection procedures, model purchase agreements, and techniques for evaluating purchase prices; doLwia and Assoclates, Inc. THAILAND PRIVATE POWER 2 o Work with EGAT on potential technical problem areas; o Prepare procedures to implement a cogeneration and small power program; o Analyze issues involved in implementing a larger-scale IPP program. The Team's report follows. deL~Aia and Agacojatam Inc. THAILAND PRIVATE POWER 3 SECTION 2 OVERVIEW The RTG has recently made considerable progress in initiating a private power program for electricity generation. At a February 16 meeting of the National Energy Policy Committee (NEPC the RTG's cabinet level oversight interagency group), the RTG made the policy decision to invite the private sector to participate in the production and distribution of electricity (press report, Annex 2). Within this policy framework, the Team was able to accomplish the following: 1. Redrafting of regulations for cogeneration and small power (Annex 3), modifying to some degree the provisions of a previous draft (Annex 4); 2. Drafting of a Model Power Purchase Agreement for cogeneration and small power (Annex 5); 3. Providing NEPO with a modelling structure (through a Lotus - PC compatible program diskette) for the evaluation of tariffs, costs and profitability of a cogeneration project (sample pro forma printout, Annex 6); doLucia and Aasoclatm, Inc. THAILAND PRIVATE POWER 4 4. Comments on EGAT's proposed expansion plan, Power Development Plan PDP 8802 (comments provided as Annex 7, PDP 8802 provided as Appendix A), and recommendations that selected EGAT expansion projects be identified as candidates for development by the private sector as larger-scale, so-called Independent Power Projects ("IPPs": defined as generating units which do not "cogenerate" steam for thermal applications); 5. Briefing on February 24 to the Privatization Working Group of the NEPC on the Team's redrafted regulations for cogeneration; 6. Presentation on February 23 to the Thailand Development Research Institute on private power in the U.S.; 7. Meetings with high level RTG officials on the U.S. private power program and its implications for Thailand; 8. Four meetings with EGAT officials, both at the senior management and at the working level, to describe the technical and reliability aspects of private power in the U.S.; dinLuaa and Associat , ma. THAILAND PRIVATE POWR 5 9. A recommendation for a Technical Conference, to brief the Thai private sector on the proposed regulations on cogeneration, and draw their comments before the regulations are made final (draft announcement of the conference prepared for NEPO is provided as Annex 8); RTG officials indicated they would hold the conference, and tentatively set it for March 27. doLcla md Aa~ocfata, Inc. THAILAND PRIVATE POWER 6 SECTION 3 SUMMARY The following topics are described below in summary form: o Privatization announcement; o Team's draft regulations; o Model power purchase agreement; o Pro forma financial model; o Introduction of larger-scale IPPs; o EGAT Power Development Plan; o Meetings with EGAT. The Annexes noted above give a more comprehensive discussion on each of these topics. 3.1 Privatization Announcement The NEPC policy decision appears to have come as a surprise ("striking and unexpected" as reported by the Bangkok Nation on February 17; see Annex 2). The driving pressures are (1) the dilemma created by EGAT's projections of negative reserve generating margins in May, 1990 (and thus the prospect of deLcia and Associata, Inc. THAILAND PRIVATE POWER 7 electric capacity constraints well into the 1990s) and (2) the financial burden on public sector debt of financing the capacity expansion program needed to bring reserve margins back to more acceptable levels. The National Economic and Social Development Board (NESDB) is well aware of the problem and sees the introduction of private power as a way of accomplishing some important public policy objectives: relieving the public sector of some future debt otherwise incurred through EGAT; arid getting the benefits of competition in the electricity sector, both for project development and project operations. The strategy for the time being is, apparently, to proceed in phases, first introducing cogeneration and small power, then going to larger-scale IPPs, and finally, perhaps, a partial flotation of EGAT shares. 3.2 Draft Reiulations The draft regulations prepared by the Team (Annex 3) are an important work product. The earlier version (Annex 4) might constrain the growth of cogeneration and small power, relegating it to a surplus power activity. Of the many modifications introduced into the draft regulations by the Team, the following are considered the most significant: deLucia and Associata., Inc. THAILAND PRIVATE pOWER 8. o Establishment of annual solicitations and a first level of 300 MWe (p. 2); o Additional objective, "to meet the nation's growing needs" (p. 5); o Expansion of residue fuel category to include renewables and solid waste; latitude to use conventional fuels up to 67% of annual needs (p. 6); o Removal of size limit (50 MWe) for cogeneration facilities; definition of operating standard at 10% thermal energy against total energy output (p. 6); o Substantially modified pricing provisions (pp. 9-12), including: Fixed capacity charges averaging, based on preliminary analysis, 220 Baht per kilowatt per month ($8.8/KW month, $105.6/KW year); Monthly (rather than yearly) nominations of stated capacity levels (to reflect the extensive seasonal and monthly "swings" in power available from agricultural waste cogenerators); deLucia and Associates, Inc. THAILAND PRIVATE POWER 9 Flexibility for EGAT to weight the monthly capacity payment to match its peaking needs, provided the average monthly value over the year is 220 Baht per kilowatt per month. 3.3 Model Power Purchase Agreement Neither of the Team members is a lawyer. The Model Agreement (at Annex 5) is no more than a first draft, prepared by combining elements from purchase agreements currently in use by U.S. utilities with active programs for purchasing cogeneration and small power. Before a Thai cogeneration program is launched, this draft agreement should be reviewed thoroughly for conformity with legal practices and other conditions in Thailand. Moreover, given how dynamic the PURPA industry has proven to be in the U.S., it is entirely possible that important new provisions may be developed and