Extended Annual Review Report

Project Number: 46934-014 Loan Numbers: 2992 and 8268 September 2017

Loan Central Thailand Project (Thailand)

This is the abbreviated version of the document that excludes commercially sensitive and confidential business information that is subject to exceptions to disclosure set forth in ADB’s Public Communications Policy 2011.

CURRENCY EQUIVALENTS Currency unit – baht (B)

At Appraisal At Project Completion 28 February 2013 31 December 2016 B1.00 – $0.03 $0.03 $1.00 – B29.84 B35.82

ABBREVIATIONS

ADB – Asian Development Bank COD – commercial operation date CRS – community relations staff CSR – corporate social responsibility CTF – Clean Technology Fund EGAT – Electricity Generating Authority of Thailand EGCO – Electricity Generating Public Company EHS – environmental, health and safety EIRR – economic internal rate of return EPC – engineering, procurement, and construction EPPO – Energy Policy and Planning Office FIRR – financial internal rate of return GHG – greenhouse gas IEE – initial environmental examination LCL – local currency loan LTA – lender’s technical agent MEA – Metropolitan Electricity Authority NEPC – National Energy Policy Council O&M – operation and maintenance PEA – Provincial Electricity Authority PPA – power purchase agreement PV – photovoltaic RRP – report and recommendation of the President SPP – small power producer SPS – Safeguard Policy Statement tCO 2 – ton of carbon dioxide VSPP – very small power producer WACC – weighted average cost of capital

WEIGHTS AND MEASURES

kWh – kilowatt-hour MW – megawatt MWh – megawatt-hour

NOTES

(i) The fiscal year (FY) of Solaro Company Limited ends on 31 December. FY before a calendar year denotes the year in which the fiscal year ends, e.g., FY2000 ends on 31 December 2000. (ii) In this report, "$" refers to US dollars.

Vice -President D. Gupta, Private Sector and Cofinancing Operations Director General M. Barrow, Private Sector Operations Department (PSOD) Director C. Roberts, Portfolio Management Division, PSOD

Team leade r A. Patil, Investment Specialist, PSOD Team members L. Johannes, Senior Results Management Specialist, PSOD P. Macabuhay-Ohunov, Associate Investment Officer, PSOD K. Paocharoen, Senior Investment Officer, PSOD A. Porras, Senior Safeguards Officer, PSOD R. Samiano, Safeguards Officer, PSOD

In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

CONTENTS

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BASIC DATA i

EXECUTIVE SUMMARY ii I. THE PROJECT 1 A. Project Background 1 B. Key Project Features 1 C. Progress Highlights 2 II. EVALUATION 2 A. Project Rationale and Objectives 2 B. Development Impact 3 C. ADB’s Additionality 5 D. ADB’s Investment Profitability 5 E. ADB’s Work Quality 6 F. Overall Evaluation 6 III. ISSUES, LESSONS, AND RECOMMENDED FOLLOW-UP ACTIONS 6 A. Issues and Lessons 6 B. Recommended Follow-up Actions 7

BASIC DATA Central Thailand Solar Power Project (46934-THA)

As per ADB Loan Documents Actual Key Project Data (B million) (B million) Total project cost 6,600 5,821 ADB investment: Loan: Committed 1,650 1,650 Disbursed 1,650 Supplementary cofinancing CTF loan: Committed $35 million $35 million Disbursed $35 million

Project Administration and Monitoring No. of Missions No. of Person - Days Due diligence and loan negotiation 1 12 Project administration 1 4a XARR mission 1 12 ADB = Asian Development Bank, CTF = Clean Technology Fund, XARR = extended annual review report. a Two safeguards officers in the Private Sector Operations Department participated in the project administration mission.

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EXECUTIVE SUMMARY

On 28 February 2013, the Board of Directors of the Asian Development Bank (ADB) approved (i) a local currency loan not exceeding B1,650 million from ADB’s ordinary capital resources and (ii) the administration of a loan funded by the Clean Technology Fund (CTF) of up to $35 million to Solarco Company Limited (Solarco) for the installation and operation of a 57-megawatt (MW) thin-film photovoltaic solar power project at three main sites in Nakhonpathom and Suphanburi provinces in Thailand.

The Electricity Generating Public Company, the first independent power producer in Thailand, has the exclusive rights to manage the project, which reinforced the viability of solar power generation in the country. The project is a public–private partnership under Thailand’s very small power producer (VSPP) program, a modality that promotes private participation in the development of clean energy infrastructure in the country. The project comprises six subprojects of 9.5 MW each under six power purchase agreements with Thailand’s Provincial Electricity Authority for a power offtake of up to 57 MW. The project was cofinanced by Bangkok Bank and Kasikorn Bank, local Thai commercial banks. It was completed within budget and on schedule. Three subprojects began commercial operations on 18 November 2013, while the other three started on 16 December 2013.

The project was assessed as highly successful overall, based on the criteria in (i) the Project Administration Instructions 6.07B on the preparation of extended annual review reports for nonsovereign operations, issued in July 2008; and (ii) the Guidelines for the Preparation of Project Performance Evaluation Reports on Nonsovereign Operations, issued in November 2014. The four main criteria used were (i) development results, (ii) ADB’s additionality, (iii) ADB’s investment profitability, and (iv) ADB’s work quality. Development results were evaluated based on (i) contributions to private sector development and ADB’s strategic development objectives; (ii) economic performance; (iii) environmental, social, health, and safety performance; and (iv) business success.

The contributions to private sector development and ADB’s strategic development objectives were rated excellent . The project demonstrated the effectiveness of public–private partnerships, given that the private sector’s long-term capital investment played a critical role in the development of clean energy infrastructure.

The project also demonstrated environmental sustainability and helped expand environment- friendly technologies for clean energy generation and use. From 2014 to 2016, the project transmitted 353,237 megawatt-hours of electricity and avoided 196,187 tons of greenhouse gas emissions. The project fully aligned with ADB’s Strategy 2020, country partnership strategy for Thailand, and Energy Policy. It met the policy objective of environmentally sustainable development and demonstrated the efficacy of a private initiative in infrastructure development to meet growing energy demand in the region. The project supported the Government of Thailand’s long-term objective for the Thailand Clean Technology Fund Investment Plan.

The project was rated satisfactory for economic sustainability. It contributed to social and economic well-being and the quality of life of the people living in the service area.

The project was rated satisfactory for environmental, social, health, and safety performance. It has adequately met the national laws and ADB’s requirements for environmental and social safeguards. Solarco implemented adequate mitigating measures during construction and operation. No issues related to environmental and social safeguards are outstanding.

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Business success was rated excellent .

ADB’s additionality was rated satisfactory . Its participation was important in boosting private involvement in the sector of Thailand. It facilitated local Thai commercial banks to extend their loan tenor, thus narrowing the financing gap between developing and mature markets for funding the solar power project. ADB identified the project as an eligible clean energy project and administered the CTF loan to support the government’s strategic direction. ADB’s participation and assistance was critical in establishing the maturity of the renewable solar power industry in the region and to reaffirm that the perceived risks of solar power in the industry’s early development stage are no longer relevant. Long-term financing is essential for renewable energy projects to reduce asset–liability mismatches and better amortize the high upfront costs associated with renewable energy. ADB’s full amortization of the local currency loan and the CTF loan (both with 15-year tenors) made the overall financing structure viable for the project.

ADB’s investment profitability was rated satisfactory . The project was completed within budget and on schedule, complies with all financial covenants, and has been making timely interest and principal payments. The loan margin and fees yielded a gross contribution to ADB income that exceeds (i) the amount compatible with the direct transaction cost, (ii) the risk profile of the project, and (iii) the country risk at the time of investment.

ADB’s overall work quality was rated satisfactory . ADB conducted due diligence on technical, legal, environmental, social, and financial aspects to confirm the project’s fundamentals and development impact. Its work quality for screening, appraisal, and structuring was rated satisfactory . Its work quality for monitoring and supervision was sufficient and rated satisfactory . ADB maintains constant communications with Solarco’s management and the other lenders.

The project has helped Thailand diversify its energy mix and make progress toward its clean energy targets to achieve sustainable, long-term economic growth. It supported the government’s objective of accelerating and expanding private investment in clean energy infrastructure in Thailand, boosted private investors’ confidence in solar power in Thailand, and promoted further sector development in the country and region. ADB will closely monitor the project’s performance as well as the progress of ongoing regulatory reforms in the renewable energy sector.

I. THE PROJECT

A. Project Background

1. Thailand has 41,393 megawatts (MW) of total installed power generation capacity as of April 2017. The country’s electricity generation depends heavily on conventional fossil fuels, with 60% of power outputs using natural gas and 18% using lignite and coal. Natural gas has traditionally been a reliable and low-cost energy source, but growing demand and dwindling natural gas reserves in the Gulf of Thailand are driving the country to diversify and secure alternative energy sources to generate power. Thailand has abundant renewable energy sources such as biomass, biogas, mini-hydro, solar, and wind. Exploiting these clean, domestic sources of renewable energy can help boost Thailand’s energy security, save foreign exchange, and protect the country from global price volatility in fossil fuel markets.

2. The 57 MW Central Thailand Solar Power Project was developed by Solarco Company Limited, a special-purpose company incorporated in Thailand and 100% owned by Yanhee EGCO Holding (YEH). 1 This private initiative accords with Thailand’s national energy policy, which evolved into the Thailand Power Development Plan, 2015–2036, as endorsed by the National Energy Policy Council (NEPC) and acknowledged by Thailand’s cabinet in June 2015. The plan incorporates a revised Renewable and Alternative Plan, which targets an installed renewable energy capacity of 19,684 MW by 2036. The revised targets for each class of renewable energy are in Table 1.

Table 1: Revised Targets for Renewable Energy Source Type Unit Current a Share Target Share Target Share (%) by 2021 b (%) by 2036 c (%) Solar MW 2,582 26.47 3,000 21.54 6,000 30.5 Wind MW 549 5.63 1,800 12.92 3,002 15.2 Small hydropower MW 182 1.87 324 2.33 376 1.9 Biomass MW 2,943 30.17 4,800 34.47 5,570 28.3 Biogas MW 440 4.51 3,600 25.85 1,280 6.5 Municipal solid waste MW 152 1.56 400 2.87 550 2.8 New energy MW - 3 0.02 - Large hydropower MW 2,906 29.80 - 2,906 14.8 Total MW 9,755 100.0 13,927 100.0 19,684 100.0 MW = megawatt. a As of March 2017 b Department of Alternative Energy Development and Efficiency. 2012. Alternative Energy Development Plan, 2012– 2021 . Bangkok. c Department of Alternative Energy Development and Efficiency. 2015. Alternative Energy Development Plan, 2015– 2036 . Bangkok.

B. Key Project Features

3. On 28 February 2013, the Board of Directors of the Asian Development Bank (ADB) approved (i) a local currency loan and (ii) the administration of a loan funded by the Clean Technology Fund (CTF) to Solarco Company Limited for the installation and operation of a 57 MW solar power project with three main sites in Nakhonpathom and Suphanburi provinces in Thailand.

1 EGCO owns all the common shares of YEH and has exclusive rights to manage YEH and Solarco, while Yanhee Solar Power owns preferred shares of YEH.

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4. The project was developed and implemented under Thailand’s very small power producer (VSPP) program, whereby the borrower signed six power purchase agreements (PPAs) with Thailand’s Provincial Electricity Authority (PEA) for a power offtake of up to 57 MW by PEA. Each PPA has a 5-year automatic extension mechanism and provides a wholesale tariff and an adder of B8 per kilowatt-hour (kWh) applicable for 10 years from the date of commercial operations. Renewable energy projects in Thailand benefit from a strong legal and regulatory framework, the provision of an adder tariff, and favorable policies and commitment from the government. The project supported the Government of Thailand’s long-term objective for the Thailand Clean Technology Fund Investment Plan to use CTF resources to support renewable energy projects by the private sector.

5. The project utilizes photovoltaic technology, and the solar panels are supplied by REC Modules, a subsidiary of the REC Group. The REC solar module was announced as the best performer in the independent Photon Field Performance Test in September 2011, which demonstrated a 6% greater electricity yield on average than the modules of other leading companies. REC Modules guarantee module defect and provide the 25-year efficiency warranty.

C. Progress Highlights

6. The project was completed within budget and on schedule. From 16 December 2013, when the plant began full commercial operations, to the end of 2016, the project’s operations have been satisfactory and has continuously exceeded its initial operational targets, experiencing only minimal system and equipment failures, and conducted regular training of its staff. Maintenance work and inspections occur regularly, which minimizes the probability of unexpected breakdowns. The project’s operations largely benefit from the solid experience of its operation and maintenance (O&M) contractor, EGCO Engineering & Service Company Limited, a wholly owned subsidiary of EGCO.

II. EVALUATION

A. Project Rationale and Objectives

7. The project has met all its significant development targets as articulated in the report and recommendation of the President (RRP)2 by (i) successfully commissioning 57 MW of solar power capacity; (ii) delivering, on average, more than 90,000 megawatt-hours of solar power per annum to the offtaker; (iii) avoiding, on average, 53,820 tons of carbon dioxide equivalent emissions per annum; and (iv) employing 150 people during construction and over 50 people during operations. The project was only able to purchase B1.54 billion in local goods and services during construction, missing the RRP target of B1.72 billion, because it was completed below the budgeted project cost. The project contributed to the diversification of Thailand’s energy mix by adding to power generation from renewable energy sources.

2 ADB. 2013. Report and Recommendation of the President to the Board of Directors: Proposed Loan for the Central Thailand Solar Power Project. Manila.

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B. Development Impact

1. Contributions to Private Sector Development and ADB’s Strategic Development Objectives

8. Contributions to private sector development and ADB strategic development objectives were rated excellent .

9. The project was EGCO’s second utility-scale solar power project, and ADB’s fourth private investment in solar power in Thailand. It is fully aligned with ADB’s Strategy 2020, the country partnership strategy 2007–2011 for Thailand, and the Energy Policy. It met the strategy and/or policy objective of environmentally sustainable development and demonstrated the efficacy of a private initiative in developing energy infrastructure to meet growing regional demand. It also helped ADB achieve its target of investing $2 billion per year in clean energy by 2013 to accelerate low-carbon growth and reduce regional greenhouse gas emissions, as well as the Private Sector Operations Department’s target to receive 25% of its annual approvals, by numbers, for clean energy projects.

10. The project created new jobs, directly employing 250 people during peak construction and 51 staff during operations. The project’s links included its extensive partnerships with solar panel suppliers; engineering, procurement, and construction (EPC) contractors; private financers; and public partners to assure the project’s viability and sustainability. The project’s procurement of over B1.54 billion in local goods and services during construction achieved effective industry links.

2. Economic Performance

11. The project contributed to social and economic well-being and the quality of life of the people living in the service area. The project’s economic performance was rated satisfactory .

3. Environmental, Social, Health, and Safety Performance

12. The project’s environmental, health, safety, and social performance was rated satisfactory . The project complies with the host country’s environmental, health, and safety (EHS) laws and regulations and ADB’s Safeguard Policy Statement (2009). Solar power is a clean technology that does not generate residual waste, greenhouse gas emissions, harmful pollutants, and noise, as do conventional forms of power generation. Since the project was classified environmental category B , Solarco prepared an initial environmental examination (IEE) report to meet the Safeguard Policy Statement requirements. 3 The company obtained all related EHS and business permits or licenses prior to construction and operation. The EPC contractors were tasked to implement the EHS management plan through monitoring and testing for ambient air quality, sound level, heat stress, occupational and community health and safety aspects, in compliance with the requirements of ADB, Solarco, and the regulator 4 . The lender’s technical advisor confirmed that no accidents, penalties, or violations had been recorded during construction. 5 The project also demonstrated environmental sustainability, and contributed to the expansion of

3 For solar power projects, Thailand’s Ministry of Natural Resources and Environment does not require the preparation of an IEE or an environmental impact assessment. 4 The EPC contractors are Italthai Engineering Co., Ltd., Process Engineering Services Co., Ltd., and Phoenix Solar Pte. Ltd. All have experiences in project construction, including commercial-scale solar projects in Thailand. 5 The lender appointed Poyry Energy as technical advisor for the construction period to monitor the progress of the project and advise the lender on all technical and management issues that might have material effect on the financial standing and success of the project.

4 environment-friendly technologies for clean energy generation and use by tapping Thailand’s solar power potential. Since the start of operations, the project has avoided 196,187 tons of greenhouse gas emissions.

13. The project’s environmental impacts were assessed in the IEE to be minor and temporary during construction and operation. The project area is neither in a national forest reserve zone nor a wildlife sanctuary. No endangered flora or fauna species were found in the project area. Impacts on ambient air quality and sound level from the exhaust of construction equipment and delivery trucks were localized and temporary due to the short construction period. Measurements on ambient air quality (total suspended particulates and particulate matter of less than 10 microns) and sound level monitoring conducted by the EPC contractors showed satisfactory results and met national standards. A flood protection system was constructed at all sites, including the perimeter flood protection dike, water retention pond, and the pumping station.6 The impact on groundwater use is minimal because the cleaning of the panels requires only 2 liters of water per panel. The wastewater from the cleaning process contains only dust and is drained into the soil at the project site, leaving no impact on the water quality of nearby rivers or creeks. The domestic wastewater is collected and treated in the septic tank before it is released into the receiving water outside the project site. The impact on visibility is low because the solar panels selected are designed to reduce the reflection from sunlight. All damaged solar panels are collected, temporarily stored, and sent to a recycling facility or a licensed waste processor. 7 All contractors are required to attend safety induction prior to actual work on the project site. Other training provided by the O&M contractor to staff and subcontractors covers first aid, fire drill, and emergency and evacuation plans. Fire detection and protection systems, around-the-clock security guards, closed-circuit television, and perimeter fencing are present throughout the facility for the security and safety of both the staff and the community. The plant manager acts as the EHS officer and as emergency response team manager, and is responsible for the overall management and coordination of emergency operations. A first-aid team is trained on more advanced needs that might arise during emergency cases. The corporate EHS division is tasked with overseeing and monitoring the O&M contractor’s performance during the project’s operation.

14. The project was categorized as C for both involuntary resettlement and indigenous peoples based on the Safeguard Policy Statement. The solar farms and their buffer zones occupy a total of 198.67 hectares of private land on six sites in the provinces of Nakhonpathom and Suphanburi. Solarco entered into two lease agreements, one with a private company and another one with a landowner, for the use of land on which the project was to be constructed. The 9.9- kilometer transmission line was built by PEA using its existing right of way, and no additional land was acquired. Solarco also confirmed that occasional solar farm workers in the area under lease also work on a eucalyptus farm owned by the private company. In addition, these workers independently own large agricultural lands, and agriculture is their main source of income. The project sites and surrounding areas have no record of settlement of any ethnic groups that meet Safeguard Policy Statement criteria and could be considered as indigenous peoples.

15. During peak construction, 250 local people were employed, 22% of whom were women. No incidence of noncompliance with labor policies and regulations were reported then, or have been reported since. A community relations officer was engaged to foster a good rapport, help receive and resolve community complaints, and assist in the identification and implementation of

6 Site perimeter and internal open channels are designed to carry the runoff collected in the project area to the retention pond on the site that also serves as a detention pond. The pumping system helps manage the water level in the retention pond and discharge in the public canal during heavy rains. The pumps have sufficient capacity to drain the the catchment area discharge volume up to 12 hours. 7 REC Group will be responsible for handling the end-of-life collection and recycling of photovoltaic modules.

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corporate social responsibility (CSR) activities. Except for one complaint during project construction, which has been resolved, no complaint against the project has been filed to date. 8 The community leaders are also supportive of the project, acting as focal points for grievance management and resolution. Solarco, through its CSR activities, was able to financially support 20 CSR activities from 2013 to 2016. A detailed discussion of social impacts is in Appendix 8.

4. Business Success

16. Solar power generation involves a higher upfront capital requirement and relatively lower maintenance costs than conventional power generation. As such, a long-term financing is required to ensure its business viability. The project’s financial and operational performance for the last 3 years shows that it has been on track with the original projections. The project was rated excellent for business success.

C. ADB’s Additionality

17. ADB’s additionality was rated satisfactory . Its participation and assistance in financing its fourth solar power project in Thailand was critical in establishing the maturity of the solar power industry in the region and in reaffirming that the perceived risks of early-development solar power are no longer relevant. Long-term financing is essential for renewable energy projects to reduce asset–liability mismatches and better amortize the high upfront costs associated with renewable energy. ADB’s fully amortizing LCL and CTF loans (both with 15-year tenors) made the overall financing structure viable for the project. ADB was able to reduce the loan tenor to 15 years, and help the local Thai commercial banks to extend their loan tenor up to 12 years for the first time, to narrow the financing gap between developing and mature markets for solar projects. Previously, local banks had been constrained from providing loans with a maturity longer than 10 years after commercial operations for solar power projects on a project finance basis. ADB played a catalytic role in helping extend the tenor of long-term local financing.

18. The project demonstrated the critical role of the private sector in the viability of infrastructure projects such as solar power generation, which is usually characterized by high upfront costs. ADB’s participation further boosted private investors’ confidence in and experience with solar power in Thailand, and led to subsequent larger-scale replications of the project by private investors—e.g., Energy Absolute's two solar photovoltaic projects of 90 MW each in Lampang and Phitsanulok provinces were financed by local Thai commercial banks and began commercial operations in February 2015 and April 2016, respectively.

D. ADB’s Investment Profitability

19. ADB’s investment profitability was rated satisfactory . The borrower has complied with its debt service obligations to date. The loan margin and fees yielded a gross contribution to ADB income that fairly matched (i) the loan tenor, (ii) the project’s credit risk profile, (iii) the amount

8 The one complaint received concerned the environmental impacts of the operations of the Sai Phet solar farm. Chairat Adirek Larpkul, from Sai Phet, complained that about 0.33 hectares of his agricultural farm had been affected (water intrusion and soil contamination leading to low yield) by the construction of the dike. He was initially compensated for damage due to water intrusion (B7,000) but when it was established that the farm yield was also affected, the contractor paid an additional compensation amounting to B500,000 to the farmer. A portion of the money was used by the farmer to convert the affected farm area to a fish pond, giving him an additional source of income. The issue was thus successfully managed. No other grievances or complaints in conjunction with the land lease agreements, workers’ compensation and benefits, or core labor standards emerged.

6 compatible with the direct transaction cost, and (iv) the country risk at the time of investment. The level of investment return remains adequate in view of the project’s stable risk rating.

E. ADB’s Work Quality

20. Screening, appraisal, and structuring. Following its concept clearance, ADB conducted due diligence on the project’s technical, legal, environmental, social, and financial aspects, confirming the project’s development impacts and ensuring that it was fundamentally sound. By structuring the ordinary capital resources and CTF-backed long-term loans, ADB played a key role in mobilizing and extending the tenor of the local commercial banks’ loans, which was critical in ensuring the project’s economic and financial viability. The financing structure was replicated in two larger-scale solar power projects that were backed by private investors' enhanced confidence in Thailand’s solar power industry (para. 18). ADB’s overall performance in relation to screening, appraisal, and structuring was rated satisfactory.

21. Monitoring and supervision. ADB’s work quality in terms of monitoring and supervision was rated satisfactory . ADB has kept itself updated on the project and the borrower’s performance in all material areas through monitoring reports submitted by the borrower and through site visits. ADB remains in constant communication with the project’s management and the other lenders.

F. Overall Evaluation

Table 4: Evaluation of the Central Thailand Solar Power Project

Partly Indicator/Rating Unsatisfactory Satisfactory Satisfactory Excellent Development Results Contributions to private X sector development and ADB’s strategic development objectives Economic performance X Environmental, social, X health, and safety performance Business success X ADB’s Additionality X ADB ’s Investment X Profitability ADB ’s Work Quality Screening, appraisal, and X structuring Monitoring and supervision X

Highly Unsuccessful Partly Successful Successful Successful Overall Rating X ADB = Asian Development Bank. Source: Asian Development Bank.

III. ISSUES, LESSONS, AND RECOMMENDED FOLLOW-UP ACTIONS

A. Issues and Lessons

22. Public–private partnership role in renewable energy development. The Thailand Power Development Plan, 2015–2036, under the Renewable and Alternative Energy

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Development Plan, has an ambitious target to achieve an installed renewable power capacity of 19,684 MW by 2036. Private participation in renewable power generation is essential to achieve the targets. To encourage this, the VSPP program was set up. Under it, PEA, as a state-owned enterprise, is obligated to offtake all the electricity generated by the project, thus mitigating commercial risk for the private participants. PEA enters into a PPA with private participants, which is designed to be a standard document with a 5-year automatic extension mechanism that assures revenue generation during the project’s economic life, thus making the project bankable and, at the same time, providing fair economic returns to private participants. The VSPP program is in line with the government’s strategic mandate to achieve renewable energy targets and has now matured into a well-oiled machinery with consistent government support. The VSPP program has huge potential to be replicated across the region for renewable power generation.

23. Support infrastructure and regulatory environment for project development. The project has faced issues related to the perfection of its securities, i.e., mortgage of land and buildings. The lenders had to extend the deadline for the perfection of securities several times, but still Solarco has not been able to perfect securities related to mortgage of land and building. The delay in the documentation can be attributed to changes in Thailand’s mortgage laws and a lack of timely coordination by the administration, including the local district office. This has been a consistent issue across several renewable power projects funded by ADB in Thailand and needs to be addressed on a macro level by the government by instructing the local district offices to act as facilitators so that private investor interest and the bankability of projects are not jeopardized. Consistency in the regulatory environment is key to maintaining private investors’ confidence in the renewable energy industry. The ongoing changes to the regulatory framework—such as new implementing guidelines and tariff policies, including a shift from the adder mechanism to a feed- in tariff mechanism for new VSPPs—may impact the long-term status of existing projects in this sector.

24. Negative automatic tariff adjustment (Ft). The Ft for FY2017 is assumed to be –0.3698 Baht/kWh, which is significantly lower than the original assumption of 0.4474 Baht/kWh as a result of the decision by the Energy Regulatory Commission to reduce the Ft. The Ft is a tool for the government to adjust the tariff to reflect changes in fuel costs (among other items) over a given period, hence it moves in consonance with markets. This is different from the adder tariff, which serves as an incentive for investors in renewable energy projects. The Ft constituted only 5% of the overall tariff assumed for the project, and its impact on revenues is therefore very limited. Thailand is expected to rely on more imports of liquefied natural gas in the future as cheap domestic reserves dwindle. Lower fuel costs, delays in commercial operation dates, and cancellations by some independent renewable energy producers led the government to cut the Ft provided to renewable energy generation. Hence, although the long-term trend is expected to favor increases in the Ft, the extended annual review report assumes it to remain at –0.3698 for the remaining tenor of the loan when calculating FIRR and EIRR.

B. Recommended Follow-up Actions

25. ADB will closely monitor the project’s performance until the full maturity of the ADB facilities. The progress of regulatory reforms, such as in the tariff regime, will also be monitored to assess potential impacts on the project and further private investments in the sector.