Extended Annual Review Report
Project Number: 48233-001 Loan Number: 3219 June 2020
Chaiyaphum Wind Farm Company Limited Subyai Wind Power Project (Thailand)
This is an abbreviated version of the document, which excludes information that is subject to exceptions to disclosure set forth in ADB’s Access to Information Policy.
CURRENCY EQUIVALENTS Currency unit – baht (B)
At Appraisal At Operations Evaluation (1 October 2014) (1 March 2020) B1.00 – $0.02941 $0.03315 $1.00 – B34.000 B31.523
ABBREVIATIONS ADB – Asian Development Bank AEDP – alternative energy development plan ALRO – Agricultural Land Reform Office COD ‒ commercial operations date CTF ‒ Clean Technology Fund CWF ‒ Chaiyaphum Wind Farm Company Limited DSCR ‒ debt service coverage ratio EBITDA – earnings before interest, tax, depreciation, and amortization EGAT ‒ Electricity Generating Authority of Thailand EGCO ‒ Electricity Generating Public Company Limited EPC ‒ engineering, procurement, and construction FIRR ‒ financial internal rate of return GHG ‒ greenhouse gas IEE ‒ initial environmental examination LTA ‒ Lender’s Technical Advisor O&M ‒ operations and maintenance PEA ‒ Provincial Electricity Authority PPA ‒ power purchase agreement PSOD ‒ Private Sector Operations Department RRP ‒ report and recommendation of the President SAO ‒ sub-district administration office SPP ‒ small power producer SPS ‒ Safeguard Policy Statement VSPP ‒ very small power producer WTG ‒ wind turbine generator XARR – extended annual review report
WEIGHTS AND MEASURES bps ‒ basis points Ft ‒ fuel adjustment cost GWh ‒ gigawatt-hour km ‒ kilometer m/s ‒ meter per second MW ‒ megawatt Q ‒ quarter tCO2 ‒ ton of carbon dioxide
NOTES (i) The fiscal year (FY) of Chaiyaphum Wind Farm Company Limited ends on 31 December. (ii) In this report, “$” refers to United States dollars.
Vice-President Diwakar Gupta, Private Sector Operations and Public–Private Partnerships Director General Michael Barrow, Private Sector Operations Department (PSOD) Director Maria Eufemia V. Apilado, Portfolio Management Division (PSPM), PSOD
Project advisor Suhail Yaqoob Khan, Principal Investment Specialist, PSPM, PSOD Team leader Karan Raj Gulshan, Investment Specialist, PSPM, PSOD Team members Jhiedon Florentino, Economics Officer, Private Sector Transaction Support Division (PSTS), PSOD Susanna Irwan, Consultant, PSPM, PSOD Jocelyn Erlinda S. Munsayac, Principal Safeguards Specialist, PSTS, PSOD Arlene Ponce de Leon Porras, Senior Safeguards Officer, PSTS, PSOD Raneliza Deguia Samiano, Senior Social Development Officer (Safeguards), PSTS, PSOD Pinnapa Satitpatanapan, Young Professional, Infrastructure Finance Division 2, 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 iii I. THE PROJECT 1 A. Project Background 1 B. Key Project Features 1 C. Progress Highlights 3 II. EVALUATION 3 A. Project Rationale and Objectives 3 B. Development Results 4 C. ADB Additionality 8 D. ADB Investment Profitability 8 E. ADB Work Quality 8 III. ISSUES, LESSONS, AND RECOMMENDED FOLLOW-UP ACTIONS 9 A. Issues and Lessons 9 B. Recommendations and Follow-Up Actions 10
APPENDIXES
1. Project-Related Data 11 2. Results and Ratings for Project Contributions to Private Sector Development and ADB Strategic Development Objectives 13 3. Sector Review 17 4. Environmental Impact 20 5. Social Impact 22
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BASIC DATA Subyai Wind Power Project (LN3219 – THAILAND)
As per ADB Project Documents Actual Key Project Data ($ million) ($ million) Total project cost 212.56 200.00 Equity commitment 53.15 48.94 ADB investment: Loan—committed 53.15 53.15 Loan—disbursed 53.15 CTF—administered by ADB: Committed 30.00 30.00 Disbursed 30.00 Onshore lenders led by Bank of Ayudhya: Committed 76.41 67.90 Disbursed 67.90 Debt–equity ratio at completion 3.00x 3.00x ADB = Asian Development Bank. CTF = Clean Technology Fund Note: Actual figures are based on the exchange rate prevalent at disbursement.
Key Dates Expected Actual Concept clearance approval April 2014 4 June 2014 Board approval September 2014 5 December 2014 Loan agreement Q4 2014 23 January 2015 First disbursement 23 February 2015 Commercial operations date Q1 2016 16 December 2016 Q = quarter.
Financial and Economic Performance (%) Appraisal XARR Financial internal rate of return 4.5% 3.1% Economic internal rate of return 12.1% 9.4% XARR = extended annual review report.
Number of Person- Project Administration and Monitoring Number of Missions Days Due diligence and appraisal 1 5 Project administration - - Extended annual review 1 12
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EXECUTIVE SUMMARY
In December 2014, the Board of the Asian Development Bank (ADB) approved a local currency loan of B1,807 million to Chaiyaphum Wind Farm Company Limited (CWF) to develop an 81- megawatt wind farm project in Thailand.
The CWF project represents a follow-on project to the smaller 7.5-megawatt Theppana wind project. ADB’s objective in financing the CWF project was to demonstrate the viability of utility- scale wind projects in Thailand. At the project development stage, no utility-scale wind projects had been financed in Thailand, as their development was constrained by issues such as (i) modest wind resources; (ii) high first-mover cost and risk involved in implementing a utility-scale wind project; and (iii) the inadequate availability of long-term debt finance, unclear regulations, and issues with land entitlement policy. The successful implementation of the project was meant to overcome these barriers and lead to significant replication potential.
The CWF successfully showcased that utility-scale wind can be financially sustainable in Thailand given the right site and technology selection, contractual structure, strong counterparties, and provision of concessional finance. The project's implementation fitted well with the priorities of the Government of Thailand and ADB’s mandate to support a transition toward clean energy sources.
The review rates the Project’s contributions to private sector development and ADB’s strategic development objectives as excellent. The CWF met most of its quantitative design and monitoring framework targets, including targets for financial returns, annual electricity generation, greenhouse gas reductions, job creation, and local procurement. More importantly, the project’s successful implementation (and operations) showcased that, given the right site choice, technology selection, and financing mix, private sector participation in wind power is viable in Thailand.
The project is rated satisfactory for economic performance. The CWF’s ongoing operations led to an avoidance of natural gas and coal-based power (Thailand’s main fuels for base load power generation). The recalculated economic internal rate of return of 9.4% exceeds ADB’s current social discount rate of 9.0%, indicating that the project is economically sustainable.
The CWF is rated satisfactory for safeguards compliance. The project met ADB’s environmental and social requirements (including labor standards) and Thailand’s national laws. The project represents a good example of corporate citizenship since it benefits local communities through local job creation, improved social infrastructure, and regular lease payments to farmers for land leased to the project. Significantly, none of the local residents have lodged an environmental or social complaint against the project during its construction and operation.
Business success is rated satisfactory, based on an acceptable financial internal rate of return (FIRR) (3.1% against the target of 3.2%). The project exhibited good operating track record and strong record of borrower compliance. The CWF has consistently demonstrated high availability of its wind turbine generators. Its compliance with its financial covenants, reporting covenants, ADB’s safeguards requirements, and debt service obligations has also been satisfactory.
ADB’s additionality is rated excellent. ADB mobilized concessional financing for this project and worked with local bank to extend their loan tenors. ADB’s presence also reassured the local lender that the CWF would comply with international standards on contract design, technical, and safeguards implementation.
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ADB’s investment profitability is rated satisfactory. The interest margin and fees on the ADB loan yield a net positive gross contribution to ADB.
ADB’s overall work quality is rated satisfactory. The ADB’s Private Sector Operations Department followed the progress of this project from an early stage of development, while financing the Theppana project. The Theppana project set the template on key commercial terms for the CWF project, and consequently project finance for CWF was arranged in relatively short span of time, while ensuring adequate diligence. ADB’s due diligence covered the project’s technical, legal, environmental, social, and financial aspects and development impacts and ensured that the project was fundamentally sound. Project monitoring was overseen by a capable lender’s technical advisor and supplemented with detailed borrower reports and site visits.
Finally, the CWF project offers several lessons for ADB projects aimed at scaling-up renewable energy adoption in Asian countries. (i) Concessional finance played a key role in CWF’s case, in catalyzing other sources of long-term debt and equity. Therefore, the availability of concessional financing should be significantly expanded for developing member countries which are at the early stages of renewable energy adoption. (ii) Multilaterals can spur renewable energy by mitigating key investor risks, some suggestions for this include: (a) Multilaterals should get involved, at early stages of project development, so as to negotiate a balanced risk allocation framework in power purchase contracts. (b) Identify and disseminate widely, the legal issues encountered during project implementation. These could include issues with land entitlement, permitting and security creation. Awareness of these concerns by host governments could help reduce these concerns over time. (c) All power purchase contracts, even within the same country, are not equal. Financiers should appreciate the variation in key terms, tariff structures in these contracts and structure (or price) projects accordingly. (d) Advocate host governments to provide long-term and stable tariff regimes, which allow project capital costs to be defrayed over their useful life. If such changes are difficult, lenders should structure credit enhancements to avoid price and volume risk in their loan documents.
Despite the above issues, the private sector has continued to show great interest in Thailand’s renewable energy sector. This is due to a stable business environment, regulatory regime, favorable (long-term) sector dynamics, and investors’ comfort with the Electricity Generating Authority of Thailand. EGAT’s strong financial profile, credible payment track record, and implicit guarantee from the government has made it an attractive off-taker for independent power producers.
I. THE PROJECT
A. Project Background
1. The Subyai Wind Power Project consisted of the design, construction, and operation of an 81-megawatt (MW) wind farm project in Subyai district, Chaiyaphum Province, Thailand.1
2. The CWF was a follow-on project to the smaller 7.5 MW Theppana wind project, also financed by the Asian Development Bank (ADB) in 2013.2 The Theppana and Subyai projects were developed by M/s Pro Ventum International GmbH and Electricity Generating Public Company Limited (EGCO), as part of EGCO’s diversification into the renewable energy sector. EGCO’s strategy was predicated on the Government of Thailand’s increased emphasis on renewable energy as a means to ensure: (i) long-term energy security for Thailand to offset foreign oil imports and protect the country against the price volatility of fossil fuel markets; (ii) reduce dependence on rapidly declining domestic natural gas reserves, which provided base-load capacity for Thailand; and (iii) to meet the Thai government’s de-carbonization targets.
3. To meet these goals the government formulated an ambitious renewable energy plan, the Alternative Energy Development Plan (AEDP) 2012–2021,3 which targeted an increase in the share of renewable energy generation from 11% of national energy in 2011 to 20% by 2021. As part of the AEDP, the target for installed wind capacity was increased from 224 MW in 2014 to 1,800 MW by 2021. The government also offered several fiscal incentives including (i) a feed-in premium (named ‘Adder’), (ii) exemptions from corporate income taxes (for 8 years), and (iii) exemptions from import duties for renewable energy equipment.
4. Despite strong government intent, no large-scale wind farms had been developed in Thailand as of 2015, and their deployment faced inertia due to an interrelated set of market barriers. The first of these was a limited wind resource in Thailand. Detailed studies indicated that Thailand had only a moderate wind resource, most of which was concentrated in the northeast mountains and southern coastal regions, away from load-bearing centers. Second, renewable energy projects (wind projects in particular) remained a ‘high-cost’ source of generation in 2014. In the absence of precedent utility-scale projects, the first set of wind projects faced materially higher uncertainty and development costs. Third, there was a limited availability of long-tenor financing, lack of clarity of regulations, tariffs, and issues with land entitlement policy. The project’s successful implementation had the potential to overcome these barriers and lead to significant replication.
B. Key Project Features
5. Project overview. The project was implemented by the CWF Company Limited, a special- purpose company, which would sell power to the Electricity Generating Authority of Thailand (EGAT), Thailand’s national power utility. In 2014, ADB appraised the CWF project cost at $212.56 million and financed it through (i) a local currency loan equivalent to $53.15 million, and (ii) a Clean Technology Fund (CTF) concessional loan of $30 million. The Bank of Ayudhaya Public Company Limited, a local commercial bank, provided a senior loan of $106.41 million. Figure A1.1 in Appendix 1 presents the CWF project structure.
1 ADB. 2014. Report and Recommendation of the President (RRP) on a Proposed Loan for the Chaiyaphum Wind Farm Company Limited. Manila. 2 ADB. 2012. Report and Recommendation of the President to the Board of Directors on a Proposed Loan for Theppana Wind Farm Company Limited in the Theppana Wind Power Project. Manila. 3 Energy Policy and Planning Office. 2012. Thailand Alternative Energy Development Plan 2012–2021. Bangkok.
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6. Plant configuration. The project’s scope included (i) the installation of 32 x 2.53 MW wind turbine generators (WTGs), for an installed capacity of 80.96 MW, (ii) an 80-kilometer (km) 115- kilovolt transmission line connecting the project to the Provincial Electricity Authority (PEA) substation, (iii) 11 km of internal access roads connecting the WTGs to public roads, and (iv) a new PEA receiving substation. Key technical aspects of the project included: (i) Site selection. The project site was selected after a 28-month wind resource measurement and situated 300 km northeast of Bangkok.4 (ii) WTG model. The project adopted the model GW121/2500 WTG, an upgraded version of WTG used in the Theppana project. The select WTG was installed at a higher hub height (120 meters [m]) and its blades had a larger swept area, resulting in much higher output and lower noise. the WTG was considered technically appropriate for the low-wind regime in Subyai (Category III).5 (iii) Evacuation facilities. The project is currently connected to EGAT’s Feeder 3 Substation via a 115-kilovolt transmission line. However, at appraisal, it was expected that the project would be connected to the new Chaiyaphum 2 Substation to be built by the PEA. Construction of the PEA substation has lagged, due to procurement delays faced by the PEA, and is now expected to be completed by the second quarter of 2021.
7. Power purchase agreement. In December 2013, the CWF signed a 5-year non-firm power purchase agreement (PPA) under Thailand’s small power producer (SPP) program with EGAT for 90 MW contracted capacity. The PPA was automatically renewable every 5 years. The PPA tariff comprised (i) the wholesale tariff, (ii) the fuel adjustment cost (Ft) component (the first two components constituting the base tariff), and (iii) a feed-in-premium known as “Adder” (of B3.50 per kilowatt-hour) for 10 years from the commercial operations date (COD).
8. Engineering, procurement, and construction (EPC), and operations and maintenance (O&M) contract. The project was implemented under a fixed-rate, date-certain turnkey EPC contract. The EPC work was split between an offshore contractor (M/s Goldwind International Limited for engineering, supply of WTG equipment, testing, and commissioning) and an onshore contractor (M/s Ital-Thai Engineering Company Limited for project civil works and construction of the site-access road). The EPC contract was a fully wrapped agreement, which ensured joint and several obligations on the two contractors’. The CWF also appointed M/s Goldwind International Limited for project O&M for 10-years post-COD.
9. Sponsors. The CWF was sponsored by the same sponsor consortium as Theppana, that is, 90% by EGCO and 10% by Pro Ventum. EGCO was Thailand’s first independent power producer and led the project during the financing and post-COD operations stages.6 Pro Ventum, a German wind farm developer, led the resource assessment, project design, and construction process. EGCO made Pro Ventum’s equity contribution in the project.
4 The 28-month wind resource study (conducted from January 2010 to October 2012) showed the project site would record average wind speeds of 5.4 m per second (m/s) at a height of 100 m. This wind speed was below the Theppana project’s wind resource (5.76 m/second); and this was compensated by using larger capacity WTGs, with larger blades and higher hub heights. 5 Pöyry. 2015. Final Technical Due Diligence Report for Chaiyaphum Wind Farm Project in Thailand. Vantaa. 6 EGCO is a Thai state-controlled enterprise owned by EGAT (25.41%), TEPDIA Generating B.V. (23.9%), and the government (50.7%). As of March 2020, EGCO’s project portfolio comprised 27 operating power plants with a total equity contracted capacity of around 5,315 MW in six countries: Thailand, the Lao People’s Democratic Republic, the Philippines, Indonesia, Australia, and the Republic of Korea. During fiscal year 2018, EGCO generated consolidated revenues of B47,993 million and net profit of B20,825 million, with a return on equity of 22.34%. Its market cap was B130.31 billion as of March 2020. Of the 19 power plants in Thailand, EGCO owns two wind farms.
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10. Power Development Fund. A unique aspect of the project was the Power Development Fund, through which the CWF contributes B0.01 per kilowatt-hour for electricity sold to EGAT. The Power Development Fund supports local community development projects and benefits the surrounding communities by creating local jobs and improving infrastructure, such as access roads, schools, and streetlights.
C. Progress Highlights
11. Project development activity for Subyai coincided with the Theppana project, as shown in Figure A1.2 in Appendix 1.
12. Construction. Construction of the Subyai project commenced with the issuance of the notice to proceed on 24 February 2015, and it achieved COD by 16 December 2016. The project was completed with a mere 15-day delay7 and at a cost of B6,656 million, which was 8% below the budget.8 The lender’s technical advisor (LTA) reported no technical issues during construction, other than the persistent delay in the completion of the PEA substation that was meant to evacuate the CWF’s power, but is currently expected to be completed by the second quarter of 2021.
13. Operations. The plant’s operational performance has been satisfactory post-COD. The CWF recorded an availability of 99.3% (compared to 97.0% projected at appraisal). Annual power generated by the CWF ranged from P75 to P90 level estimates,9 largely due to variations in windspeed at the project site. Other notable post-COD milestones include the following: (i) the project declared its project completion date in September 2018, although the PEA substation was not completed10 (as part of the project completion approval process, project lenders sought and obtained a B40 million reserve to fund construction demand from the PEA); and (ii) the project also saw delayed registration of plant and equipment mortgages, which were completed in September 2018.
II. EVALUATION
A. Project Rationale and Objectives
14. The project rationale was consistent with, and supportive of, Thailand’s national development priorities, ADB’s strategy, and the CTF Thailand’s Private Sector Renewable Energy Program, as outlined below. (i) The project was consistent with Thailand’s energy policy,11 which focused on environmentally sustainable, low-cost energy security. As part of this policy, the government specified an ambitious target of 20% renewable energy generation by 2021 in its AEDP 2012–2021 and supported this objective with fiscal incentives.
7 This delay is measured in comparison to the scheduled COD on 1 December 2016. This delay was due to lightning strikes that damaged some plant equipment toward the end of construction. 8 The cost was lower largely because no contingency funds were utilized. 9 The P90 value refers to a 90% probability of exceedance. Between 2017 to 2019, the CWF generated 11% more power than the P90 appraised value, but this was still lower than the P75 estimate. 10 As the PEA substation is not included in the list of facilities to be constructed by the PEA under the PEA Transmission Line Construction Agreement, completion of the substation was not required prior to the project completion declaration. The project was able to be temporarily connected to EGAT’s substation with no operational disruptions. 11 The government’s Power Development Plan 2012–2030 and Alternative Energy Development Plan 2012–2021.
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(ii) The project was also consistent with ADB’s strategies, particularly (a) Strategy 202012 and the Energy Policy,13 which emphasized environmentally sustainable, private sector-led development in meeting the region’s energy demands; and (b) ADB’s country partnership strategy for Thailand where the three core strategic areas were infrastructure, environmentally sustainable development, and capital market development.14 (iii) The project affirmed the CTF Thailand’s Private Sector Renewable Energy Program, which aimed to hasten the adoption of renewable energy technologies by removing barriers, reducing implementation costs for private developers, and mobilizing significant commercial capital.15
B. Development Results
1. Contributions to Private Sector Development and ADB’s Strategic Development Objectives
15. Contributions to private sector development are rated excellent based on the project’s contribution to the following results chain (Figure 1) and achievement of the project design and monitoring framework indicators (Figure 2).
Figure 1: The Chaiyaphum Wind Farm’s “Theory of Change” towards Renewable Energy Adoption Activities Outputs Outcomes Impact/LT Outcomes
Project Demonstrated the Diversified Thai energy Activities: Installation and operation of viability of utility-wind mix through addition of 81MW wind capacity. projects in Thailand. renewable energy. - CWF constructed completed as per ADB's additionality: schedule. - Mobilized long tenor debt for Increased private wind. sector participation in - CWF's financial - Seeded the first set of utility- wind power. close achieved by scale wind/solar projects with 2014. concessional finance (improving bankabiliy). - Project - Performance of projects was commisioned by widely disseminated through CIF Reduced greenhouse Q4 2016. unit case studies, among other emissions. things.
CIF = Climate Investment Funds, LT = long-term, MW = megawatt, Q = quarter, RE = renewable energy. Source: Design and monitoring framework as per the project’s report and recommendation to the President.
16. Qualitatively, the project’s main contributions to private sector development include (i) the successful implementation and operation of the CWF (and the Theppana wind project previously), by itself clarified several legal and regulatory issues for prospective wind-farm developers; (ii) the dissemination of project issues (and experiences) through case studies, demonstrated that wind projects could be viable in Thailand given the right site selection, technology adoption, and financing mix; (iii) it improved ability of local banks to appraise wind projects. This gave them
12 ADB. 2014. Midterm Review of Strategy 2020: Meeting the Challenges of a Transforming Asia and Pacific. Manila. 13 ADB. 2009. Energy Policy. Manila. 14 ADB. 2013. Country Partnership Strategy: Thailand, 2013–2016. Manila. 15 In 2009, the CTF Investment Plan for Thailand was approved to support Thailand’s goal of increasing its share of alternative energy. The plan was updated in 2012 with $170 million in CTF financing, of which ADB would deploy $100 million for private sector investments.
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confidence to underwrite longer tenor projects (i.e., up to 15 years), and improved sponsors’ return while lowering levelized costs; and (iv) it set a good example of community management.
Figure 2: Chaiyaphum Wind Farm Design and Monitoring Framework Indicators, Targets, and Actual Achievement
High-Level Units of Objectives No. Project Indicators Measure Baseline Target Value Target Year Description
Diversified Increase in wind High likelihood of achievement. 1 MW 223 MW 1,800 MW 2021 energy mix power capacity 1,532 MW of wind capacity has been through installed by 2019. addition of Percentage renewable electricity Not likely to be achieved. Renewable generated from - 25% 2021 energy Increased generation energy generation was 10% by 2019. renewable 2 from renewable energy energy Increased Number of Achieved, over 1,309 MW of new private 3 private wind - 10 2025 wind capacity has been participation projects implemented by over 10 developers.
Annual energy Achieved, annual generation each 4 GWh 0 120 GWh p.a. Annual generated year post-COD exceeded 120 GWh.
Achieved, CO2 reduction greater than Reduced greenhouse 65k tons p.a. Total 180k tons of CO 5 Tons CO 0 65,000 p.a. Annual 2 gas emissions 2 Sustainability emissions saved during 2017–June of private 2019. sector, utility- Real FIRR (3.1%) was marginally scale wind lower due to low sector tariffs and 6 Project FIRR > WACC FIRR > 3.2% - 3.2%+ At PCR projects P90 generation during first few years. Real EIRR (9.4%) was marginally lower than target due to low sector 7 Project EIRR > 10% EIRR > 10% - 10%+ At PCR tariffs and P90 generation during first few years.
Generation capacity 8 constructed under the MW 0 81 Q1 2016 Achieved. project Installation of Additional Achieved, 419 workers employed 81 MW wind 9 # of workers 0 250 2014‒2016 employment created during construction. project
Local purchase of Achieved, US$57 million spent on 10 US$ 0 $29.5 million 2014‒2016 goods onshore EPC work.
CO2 = carbon dioxide; COD = commercial operations date, CWF = Chaiyaphum Wind Farm Company Limited; DMF = design and monitoring framework; EIRR = economic internal rate of return; EPC = engineering, procurement, and construction; FIRR = financial internal rate of return; GWh = gigawatt-hour; MW = megawatt; p.a. = per annum; PCR = project completion report; Q = quarter; WACC = weighted average cost of capital; US = United States. Source: Design and monitoring framework as per the project’s report and recommendation to the President.
2. Economic Performance
17. The CWF’s economic performance is rated satisfactory. The key economic benefit from the project (besides the financial returns) is the avoided cost of natural gas and greenhouse gas emissions. The project’s economic costs include capital costs, and fixed and variable O&M costs. Subyai’s economic internal rate of return (EIRR) was recalculated at 9.4%, lower than the 12.1% EIRR at appraisal. Nevertheless, it still met ADB’s current social discount rate of 9.0%.16
16 ADB. 2017. Guidelines for the Economic Analysis of Projects. Manila.
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3. Environmental, Social, Health, and Safety Performance
18. The project’s environmental, health, safety, and social performance is rated satisfactory. The project was classified as Environment Category B in accordance with the requirement of ADB’s Safeguard Policy Statement (SPS) (2009).17 The CWF prepared an initial environmental examination report in compliance with ADB’s SPS requirements,18 and obtained the required government permits and licenses such as permit to construct access roads, power transmission system authorization, and factory license. The project was situated in an agricultural area (cassava plantations), a largely modified habitat without ecologically significant vegetation. The project site was neither a habitat of terrestrial or avian faunal species, nor is situated along any routes of migratory birds. The nearest national park, Pa Hin Ngam, is approximately 50 km away. The land use changes were restricted to a small area under the turbines, access roads, and substation. The environmental management plan was strictly implemented by the EPC contractor and supervised by the LTA.19 During operations, the environmental management at the project site focused on maintaining site cleanliness and sanitation through the proper disposal of garbage and waste. The O&M contractor was responsible for daily routine activities, scheduled and unscheduled maintenance, remote monitoring and failure response, and monthly reporting. Safety training programs provided to the staff include (i) the first emergency and evacuation plan, (ii) general safety training, (iii) hazardous chemicals list and material safety data sheet, (iv) safety training for working at height, (v) technical training for retrofit orientation, and (vi) safety training for working with electrical equipment. No accidents or injuries were reported during project operation. International Organization for Standardization 14001:2015 (i.e., environmental management system) certification is expected to be completed in 2020, and the CWF has signed a carbon credit trading contract under an international renewable energy certificate.20
19. The project was categorized as C for both involuntary resettlement and indigenous peoples based on the SPS.21 Initially, 43 rais of land were requested for 32 WTGs, a substation, and a wind mast from the government’s Agricultural Land Reform Office (ALRO). A total of 36 rais (equivalent to 5.76 hectares) was eventually allocated, and the CWF adjusted its design based on available land. The CWF entered into a 27-year term land lease agreement with the ALRO commencing on 18 January 2012 with fixed lease payments. The lease agreement was also signed by farmers signifying their consent to make available portions of the land allocated to them by ALRO for the project. The PEA built a 80 km transmission line along the right of way of existing roads, and is planning to construct the substation in 2021. The project sites and surrounding areas have no record of settlement by any ethnic groups that meet SPS criteria for indigenous peoples.
20. During construction, around 419 skilled and unskilled workers were employed, mainly from Subyai. No violations were reported in relation to compliance with labor laws during construction and operation. The CWF continuously informs and consults with stakeholders, including communities in the project’s vicinity, about the project. While the project is categorized as having
17 A detailed discussion of environmental impact is in Appendix 4. 18 Thailand’s Ministry of Natural Resources and Environment does not require an environmental impact assessment for wind power projects. The final initial environmental examination report for the CWF project was disclosed on the ADB website. 19 As the LTA, Pöyry remains responsible for monitoring the CWF. Throughout the project operations period, the LTA makes annual site visits to the power plant and reports on the project’s operations, maintenance, and financial aspects. 20 The international renewable energy certificate is a type of energy attributable certificate representing one megawatt- hour of electricity produced from renewable sources. Renewable energy certificates, also known as green energy certificates or tradable renewable certificates, are proof that energy has been generated from renewable sources such as solar or wind power. 21 A detailed discussion of social impacts is in Appendix 5.
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no gender element, 50% of the workforce during construction were skilled and unskilled women (more than 200), who carried out foundation preparation and underground cabling works.
4. Business Success
21. The project’s real FIRR was recalculated at 3.1%, marginally lower than the weighted average cost of capital 22 of 3.2% in the RRP and lower than the 4.5% FIRR in the RRP due to factors beyond the borrower’s control, including (i) low prevailing wind speeds during 2017–2018, which resulted in a P90 level of generation; and (ii) a lower than expected base tariff because of negative Fts during the first 2 years of operations. However, despite the lower financial returns, the project’s business success is rated satisfactory because of the following: (i) Good operational performance. The project demonstrated high availability throughout its operating period (greater than 99.3%, against the 97.0% contractual requirement). This exemplified good operational performance by CWF as there was low downtime due to good service and maintenance practices followed by the operator and reliable technology implemented by the CWF. (ii) Satisfactory covenant compliance. The CWF complied with all its financial covenants, reporting covenants, safeguards requirements, and debt service obligations. The CWF outperformed its base case financial covenants by drawing less than the expected project debt23 and keeping operating costs low.24
Table 1: Operating and Financial Performance, 2017–Q3 2019 CONFIDENTIAL INFORMATION DELETED
C. ADB Additionality
22. While developers had signed several PPAs under Thailand’s SPP and very small power producer (VSPP) programs, only a limited number of wind projects had materialized by 2014. Concerns over inadequate wind resource, land entitlement, high upfront investment costs, and market risks limited private participation in renewable energy projects. The government did introduce financial incentives (production-based Adders, carbon revenue streams, and investment incentives) to improve commercial viability, but these remained insufficient to address viability issues. The successful demonstration of utility-scale wind projects and availability of concessional financing was needed to induce private developers.25 (i) Financial additionality. ADB brought in significant financial additionality by (a) arranging $30.0 million of concessional financing, without which the project would not been nonviable for developers; (b) mobilizing a significant share of project debt ($83 million, or 48% of the project cost, through ordinary capital resources and the CTF), which helped the CWF achieve quick financial closure; and (c) appropriately structuring the loan offering via a long-term, local currency loan product.26 The ADB loan offering mitigated foreign exchange risks and improved debt service levels and investor returns, while amortizing the loan over the useful service life of the asset (thereby reducing the average tariff for ratepayers).
22 The recalculated weighted average cost of capital is 4.2% taking into consideration (i) higher cost of equity based on the Office of Risk Management’s cost of equity internal memo dated 3 Nov 2014, and (ii) updated inflation rates. 23 The actual loan disbursement was B4,992 million, while the expected loan disbursement was B5,421 million. 24 In Jan–Sep 2019, the actual operating expenses were B94.2 million, compared to the projected B122.7 million. 25 CTF Trust Fund Committee. 2009. CTF Investment Plan for Thailand. Washington, DC. 26 The CTF facility and ADB ordinary capital resources loan both have an 18.1-year door-to-door tenor (maturing on 31 December 2032, with an average weighted life of 9.9 years). Meanwhile, the Thai bank’s door-to-door tenor is 15.1 years (with an average weighted life of 8.77 years).
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(ii) Non-financial additionality. ADB’s presence inspired confidence in local lenders that the CWF’s due diligence (on wind resource assessment and technical risk), review of land acquisition, and safeguards implementation complied with international best practices. Prior to Subyai, there was limited information on wind speed, making the investment risky. The CWF also provided lessons on how to deal with local regulations on using land for wind power.
D. ADB Investment Profitability
23. ADB’s investment profitability is rated satisfactory. ADB’s baht-denominated loan generated an all-in weighted average margin of 221 basis points (bps) above funding cost. The investment committee approved this margin as sufficient from a risk return perspective since it was 18.1 bps in excess of ADB’s cost recovery pricing.27 The loan margin yielded a gross contribution to ADB’s income that fairly matched the loan tenor, the project’s credit risk profile, the amount compatible with the direct transaction cost, and the country risk at the time of investment. Further, the borrower has complied with its debt service obligations to date and ADB’s loan is priced higher than that of the other co-lender (i.e., the Bank of Ayudhya) in the project.28
E. ADB Work Quality
24. Screening, appraisal, and structuring is rated satisfactory. Screening for the project was relatively simple, as the Private Sector Operations Department (PSOD) followed the CWF’s progress from an early stage of development, while financing the Theppana project. The project replicated the key commercial terms of the Theppana project, including the sponsors’ shareholdings, WTG technology, the EPC contractors’ track record, off-taker profile, contracting strategy, and project documentation (except for the PPA, which used a SPP PPA versus the VSPP PPA in the case of Theppana). Therefore, the project loan was appraised and structured in a relatively short span of time, while retaining adequate oversight. The PSOD completed concept clearance in June 2014, received Board approval by December 2014, and signed the loan by January 2015. ADB’s diligence adequately covered the project’s technical, legal, environmental, social, and financial aspects and development impacts to ensure that the project would be fundamentally sound.
25. Without detracting from the assigned rating, the structuring of the loan post-Adder should have been better addressed with additional sponsor or project support arrangements. The Adder ceases from fiscal year 2027, and the CWF could face repayment difficulties if its operating performance and base tariffs decline below appraisal assumptions. While ADB did include a dividend stopper” and a step-up in interest rates to account for this risk, a forward-looking mechanism such as financial covenants (e.g., debt service coverage ratios) to re-evaluate the project’s repayment capacity should also have been considered.
26. Monitoring and supervision are rated satisfactory. During the CWF’s short operating history, ADB has kept itself updated on the project’s construction and operational performance. Much of the project monitoring was overseen by a capable LTA (Pöyry) who provided regular reports. These reports covered material areas and were reviewed and validated by site visits and regular conversations with the project team. ADB also promptly managed Subyai’s requests for
27 ADB. 2014. Final Credit Review Memo for the Chaiyaphum Wind Farm Company Limited. Manila. 28 The Bank of Ayudhya receives an all-in credit margin of 210 bps for its 15-year commercial loan (14 bps lower than the ADB loan), and the Bank of Ayudhya loan has an average weighted life of 8.77 years.
9
waivers and/or amendments in a timely manner. The CWF management confirmed its satisfactory working relationship with ADB during the extended annual review report mission.
III. ISSUES, LESSONS, AND RECOMMENDED FOLLOW-UP ACTIONS
A. Issues and Lessons
27. The CWF project offers several lessons for future ADB projects attempting to scale-up renewable energy adoption. The rapid adoption of renewable energy essentially requires a significant decline in renewable energy’s levelized cost of generation such that the renewable energy cost achieves close to grid parity. This is possible if there is a significant decline in project capital costs, improvements in capacity factors, and reduction in costs of capital.
28. Role of concessional financing. By 2014, capital costs for wind power remained high (approximately $2.6 per kilowatt-hour of installed capacity in the case of the CWF), and wind resource (using available technology) was modest in Thailand. With these two variables as a given, reducing the cost of capital remained the only policy lever. This was achieved in the case of the CWF by providing concessional (CTF) financing, extending local currency, and stretching loan tenors to improve project economics.
29. Other measures that could mitigate investor risks and thus further reduce the cost of capital for future projects include the following: (i) Balance risk allocation in the PPA. The SPP PPA is a brief document which lacks the elements of a “bankable” PPA. Some of its deficiencies are as follows: (a) the PPA lacks a contractual “must-take” dispatch status for renewable energy projects; (b) it does not provide the project company with protection (or tariff adjustments) against changes in the law or regulations, or the application of existing regulations; (c) it does not provide the project company with any termination payments for government- or EGAT-related force majeure events; and (d) it does not provide for independent arbitration in case of disputes. The Energy Regulatory Commission as the sector regulator adjudicates in case of contract disputes. Since Thailand’s entire wind generation capacity has been implemented under the SPP (or VSPP) PPA framework, improving the risk allocation of SPP PPA would significantly improve investors’ risk perception for future projects.
(ii) Land entitlement. Wind projects in Thailand (including the CWF) are mostly situated on Sor Por Kor (agricultural) land.29 The legal status of Sor Por Kor land creates uncertainty for project developers (and lenders) since (a) the law prohibits a single entity from owning more than 50 rai (8 hectares) of land, and a developer using the available WTG technology would be limited to a project size of 110 MW, thus reducing the scale benefits that accrue when developers build large projects; (b) a project company is only allowed leasehold rights over the land; (c) the land cannot be subleased, mortgaged, or transferred to anyone (including lenders); and (d) the ALRO (the lessor) can cancel the lease at any time, without paying compensation to the project company. These concerns came to the fore in August 2016, when the supreme administrative court canceled the lease of a wind developer, the Thepsathit Wind Farm Company, located in the same province as the CWF. The court interpreted that the use of Sor Por Kor land for wind farm
29 Sor Por Kor is a form of government-granted agricultural title. The government owns the land, which is transferred to needy families for agricultural purposes. The ALRO oversees the allotment and use of agricultural land.
10
development went against its intended agricultural use. This ruling led to 18 wind projects in Chaiyaphum being declared illegal (but not the CWF). This issue was temporarily settled when the government stepped in using special powers under Section 44 of the Interim Constitution to decree that the use of ALRO land for wind projects was legal.
(iii) Improving the PPA’s tariff structure. The SPP’s PPA tariff leaves a renewable energy project exposed to (a) price risk (through a potential decline in base tariffs), and volume risk (through lower generation), and (b) margin compression risk (as it provides no tariff indexation). This leaves a developer exposed to price risk (especially in the post-Adder period) and margin compression should O&M costs escalate disproportionate to base tariff changes. Further, the short incentive period (10-years), does not defray the incentive over the useful life of a project (which is normally over 20-years for wind projects). For future projects, deal teams should consider mitigants that either “lock up” cash during the incentive (Adder) period, or secure contingent sponsor cash support should debt service levels decline below acceptable thresholds. While ADB understood these risks it still decided to support this initiative by structuring an 18-year local currency loan. This reassured local lenders and encouraged them to extend their loan tenors to match ADB’s tenor.
(iv) Improved coordination with local governmental departments. Despite the government’s stated intent to promote wind power, implementation at the local government level can still be significantly improved. Issues witnessed during the implementation of the CWF project include (a) delayed implementation of the PEA substation because of bureaucratic and procurement delays at the PEA; and (b) delayed registration of buildings and machinery mortgages, which was delayed by more than a year because of interpretation issues (i.e., whether mortgages are allowed for agricultural land), changes in Thailand’s mortgage law, and a lack of coordination between the borrower, central administration, and local district office.
30. Despite the above, it is evident that the private sector remains interested in participating in Thailand’s forthcoming renewable energy projects. This interest is sustained due to a stable political (and regulatory) regime, investors’ comfort with the off-taker (EGAT, which has a strong financial profile and credible payment track record, and benefits from an implicit guarantee from the national government), and favorable long-term sector dynamics.
B. Recommendations and Follow-Up Actions
31. ADB will continue to monitor (i) the project’s financial, operational, and safeguards performance until maturity; (ii) completion of the PEA substation; and (iii) base tariff levels, particularly during the post-Adder period.
32. For future projects, ADB deal teams should work with regional department and energy sector teams to (i) improve the quality of underlying PPAs (discussed above); (ii) disseminate technical studies (which may include project wind resource assessments, grid integration, and interconnection studies) from existing public and PSOD projects to ensure that newer developers can speed project development; and (iii) consider sharing lessons on legal and administrative issues (such as security creation, local law aspects, regulatory regimes, permitting requirements, and licenses). Such initiatives would improve foreign investors’ and developers’ understanding of local issues.
Appendix 1 11 PROJECT-RELATED DATA
Table A1.1: Investment Identification 1. Country Thailand 2. Project number 48233 3. Loan number 3219 and 3289 4. Type of business Energy (Renewable Energy) 5. Project title Subyai Wind Power 6. Investee company and/or borrower Chaiyaphum Wind Farm Company Limited 7. Amount of approved ADB assistance ADB Direct Loan—B1,807 million CTF Loan—$30 million 8. Other funding Thai commercial banks—B2,598 million Equity—B1,807 billion ADB = Asian Development Bank, CTF = Clean Technology Fund. Source: ADB. 2014. Report and Recommendation of the President to the Board of Directors on a Proposed Loan for the Chaiyaphum Wind Farm Company Limited. Manila.
Figure A1.1: Chaiyaphum Wind Farm Project Structure
PPA = power purchase agreement, SPP = small power producer. Source: Chaiyaphum Wind Farm Company Limited.
12 Appendix 1
Table A1.2: Investment Data 1. Concept clearance approval 4 June 2014 2. Date of Board approval 5 December 2014 3. Signing date of legal agreements 23 January 2015 4. Terms of loan 17 years including 2-year grace period 5. Disbursements First disbursement: 23 February 2015 Last disbursement: 30 June 2016 6. Repayments Initial repayment date: 30 June 2017 Final repayment date: 31 December 2032 bps = basis points. Source: Asian Development Bank.
Table A1.3: Data on Asian Development Bank Missions Number of Person- Project Administration and Monitoring Number of Missions Days Due diligence and appraisal 1 5 Project administration - - Extended annual review report mission 1 12 Source: Asian Development Bank.
Table A1.4: Summary of Project Cost and Funding Sources CONFIDENTIAL INFORMATION DELETED
Table A1.5: Financing Plan CONFIDENTIAL INFORMATION DELETED
Figure A1.2: The Chaiyaphum Wind Farm Project Development
ADB = Asian Development Bank, CTF = Clean Technology Fund, CWF = Chaiyaphum Wind Farm Company Limited. Sources: Theppana Wind Farm Company Limited; Chaiyaphum Wind Farm Company Limited; Asian Development Bank; Global Delivery Initiative. 2018. Case Study on Theppana Wind Power Project. Manila.
Appendix 2 13
RESULTS AND RATINGS FOR PROJECT CONTRIBUTIONS TO PRIVATE SECTOR DEVELOPMENT AND ADB STRATEGIC DEVELOPMENT OBJECTIVES
Results area Actual achievements Justification Potential future achievements 1. Within company PSD effects 1.1 Improved skills. New or EGCO was able to gain valuable experience Successful start-up and stable The CWF’s experience has strengthened strategic, managerial, in appraising, developing, financing, operations of the project. helped EGCO appreciate the operational, technical, or financial constructing, and operating a utility-scale issues in developing wind skills wind power project. projects in Thailand and overseas. This has helped EGCO develop more wind projects nationally and overseas. 1.2 Improved business The CWF introduced an upgraded version of Successful start-up and stable NA operations. Improved ways to the Goldwind WTG. The implementation of a operations of the project. operate the business and compete, higher capacity WTG at high hub height was as seen in investee operational suitable for low wind conditions in performance against relevant best Chaiyaphum. The WTG also used a new industry benchmarks or standards (gearless) technology, which has low maintenance needs and ensures a high availability level (low downtime) for the project.
The project gave experience to EGCO in managing a wind power project, thereby helping it diversify away from conventional fuels. 1.3 Improved governance. As The CWF is a project company but benefits Stable operations of the project. NA evident in set standards related to from the good industry practices followed by corporate governance, stakeholder EGCO. These include satisfactory relations, EHS fields, and/or energy safeguard compliance, good community conservation, and their relations, and regular participation in various implementation CSR activities. 1.4 Innovation. New or improved (i) The adoption of a new generation WTG NA NA. infrastructure design, technology, technology to optimize low wind resource and service delivery; ways to cover while lowering maintenance costs and or contain costs, manage demand or shortening service cycles as compared to optimize utilization; improved risk traditional turbine technology was allocation between private innovative. companies and government; financial structure, etc. (ii) Achieving financial close with the use of CTF funds was key to overcoming the financing viability gap.
14 Appendix 2
Results area Actual achievements Justification Potential future achievements 1.5 Catalytic element. Mobilizing or Financing: ADB’s provision of a longer term, NA Limited. inducing more local or foreign local currency loan, combined with CTF market financing or foreign direct cofinancing (both with an 18.1-year tenor) investment in the company improved investor IRRs for wind projects in Thailand. It also moved local commercial banks to extend their loan tenor up to 15 years, which improved project’s debt serviceability. 2. Beyond company PSD effects 2.1 Private sector expansion. Demonstration of the viability and NA We expect further private Contribution by a pioneering or high- sustainability of a utility-scale wind project in participation in renewable profile project that facilitates in its the country’s private sector. energy projects, including wind own right, or paves the way for, power, in Thailand. more private participation in the EGCO applied its wind power project sector and economy at large development and operation experience in the 7.5 MW Theppana wind farm, 80 MW Subyai wind farm, and 113 MW Boco Rock wind farm in Thailand.
2.2 Competition. Contribution of While direct attribution is difficult, the NA Further promotion of the PPP new competition pressure on public project’s implementation has resulted in modality to enhance efficiency and other sector players to raise more developers gaining confidence to in renewable energy efficiency and improve access and implement wind projects in Chaiyaphum. development, including wind service levels in the industry For example, Energy Absolute sponsored power, in Thailand and the the 260 MW Hanuman wind farm in region. Chaiyaphum. This project started operation in May 2019 and was financed by ADB through green bonds. 2.3 Demonstration effects. NA NA NA Adoption of new skills, improved infrastructure assets and services, more efficient processes, maintenance regimes, improved standards, risk allocation, and mitigation beyond the project company 2.4 Linkages. Relative to The project benefits local farmers by NA Replication of best practices in investments, the project contributes providing a stable rental income from the further projects. notable upstream or downstream leased project lands. linkage effects to business clients, consumers, suppliers, key industries New livelihood opportunities (including etc. in support of growth. project employment) were created in the
Appendix 2 15
Results area Actual achievements Justification Potential future achievements surrounding areas during project construction.
EGCO benefitted from TPW and CWF project experience by (i) learning international best practices in developing a wind project from M/s Pro Ventum; and (ii) entering into new partnerships with wind turbine technology suppliers (Goldwind), lenders (ADB, K-Bank), and public partners, which helped it in later projects. 2.5 Catalytic element. Mobilizing or The project’s sustainability, supported by Successful development of larger NA inducing more local or foreign ADB’s long-term local currency loan and CTF utility-scale wind power projects market financing or foreign direct cofinancing, enhanced private investors’ with sufficient financial viability investment in the sector (beyond the confidence in wind projects. It promoted (e.g., Wind Energy Holding’s 450 company) through pioneering or subsequent replications in larger scale wind MW wind farms supported by local catalytic finance power projects by private investors, including commercial banks, and the local commercial banks providing longer term Hanuman wind farm supported by financing. green bonds) 2.6. Affected laws, frameworks, Supported the government’s objective to NA NA and regulation. Contributes to accelerate clean energy development. improved laws and sector regulation for PPPs, concessions, joint Partnered with the Wind Energy Association ventures, and build-operate-transfer in Thailand to resolve and/or advocate for projects; and liberalizing markets as industry issues to support the government’s applicable for improved sector policy objectives. efficiency 3. Contribution to other ADB strategic objectives 3.1 Sector development outputs. Increased development of larger scale wind Due implementation of subsequent Construction of large utility- Contribution to other sector power projects (e.g., the 80 MW Subyai wind power projects with sufficient scale wind power projects in development outputs and outcomes wind power project in Thailand). viability. Thailand. not captured under point 2, such as capacity or network expansion 3.2 Sector development Increased wind power contribution to Due implementation of subsequent Further private participation in outcomes. Contribution to other Thailand’s energy mix. wind power projects under private increased renewable energy sector development outputs and initiatives. development, including wind outcomes not captured under point Increased private participation in wind power, in Thailand. 2, such as increased infrastructure power in Thailand. utilization or consumption, improved in-country connectivity, and improved energy security
16 Appendix 2
Results area Actual achievements Justification Potential future achievements 3.3 Inclusion. Improved access to, Increased power supplied to the region The improved infrastructure brings NA availability, or affordability of through the PEA’s grids. economic and social benefits to infrastructure services for the poor local peoples and communities. and other disadvantaged groups New access road improving local farmers’ access to markets.
CSR programs implemented to maintain a good relationship with the local community, including regular consultations and participation. 3.4 Job creation. Creation of Direct employment to 419 local hires during Increased business opportunities Further increase job and additional sustainable jobs or self- construction and 30 during operations. (e.g., commodity sales and service business opportunities during employment; distinguish between provisions) for residents around the operations. jobs created within and beyond the Additional job and business opportunities project site. company indirectly brought to the local community. 3.5 Environmental sustainability. Savings of 180,543 tons of CO2 emissions Stable operations of the project Further contribution to GHG Project net impact on GHG during 2017–June 2019. transmitting a total of 325 GWh to reduction. emissions; any other contributions to the national grid from 2017 to environmental improvements 2019. Continued compliance during project operations. Due compliance with environmental standards applicable to the project. 3.6 Regional integration. Project NA NA NA contributions to regional cooperation and integration by facilitating trade, cross-border mobility, cross-border power supplies, etc. ADB = Asian Development Bank; CO2 = carbon dioxide; CSR = corporate social responsibility; CTF = Clean Technology Fund; CWF = Chaiyaphum Wind Farm Company Limited; EGCO = Electricity Generating Public Company; EPC = engineering, procurement, and construction; ESHS = environmental, social, health, and safety; GHG = greenhouse gas; GW = gigawatt; IRR = internal rate of return; MWh = megawatt-hour; NA = not applicable, PEA = Provincial Electricity Authority; PPP = public–private partnership; PSD = private sector development; SPP = small power producer; WTG = wind turbine generator. Source: Asian Development Bank.
Appendix 3 17
SECTOR REVIEW
A. Sector Framework
1. The electricity sector in Thailand operates under an enhanced single buyer model, dominated by wholly or partially state-owned generating companies. The wholly state-owned Electricity Generating Authority of Thailand acts as a generator, owner of the transmission network, and wholesale buyer of generation by private generators. The private generators are classified according to contracted capacity as independent power producers, small power producers (SPPs), and very small power producers (VSPPs). Each type of generator is subject to different rules, such as power purchase agreements and tariff pricing.
2. The distribution market is dominated by the Metropolitan Electricity Authority, which serves the Bangkok Metropolitan Area, and the Provincial Electricity Authority, which serves the remaining areas of the country. Both organizations are under the administration of the Interior Ministry. Currently, the Provincial Electricity Authority distributes around two-thirds of total electricity sold in Thailand, while the Metropolitan Electricity Authority distributes approximately one-third of total electricity sold.1
3. A variety of programs have been put in place to promote renewable energy development. The Thailand Board of Investment has been providing support to alternative energy projects, mostly in the form of tax exemptions, since 2004. In addition, Thailand has a feed-in-tariff program to promote renewable energy, with feed-in-tariffs for solar, wind, biomass, and small hydropower. Developers and investors do not automatically receive the feed-in-tariff; instead, the Government of Thailand usually announces purchases from renewable energy resources, with limited quotas for each opening round.
B. Electricity Supply and Demand Forecast
4. The 2011 data confirmed that over 60% of primary commercial energy demand is derived from imported sources, especially crude oil and natural gas. Local power generation depended heavily on natural gas, which accounted for more than 70% of power. In 2011, the capacity of renewable energy for electricity production was 2,232 megawatts (MW) (10% of all electricity produced), of which wind contributed 20.6 MW. Further, under these policies, wind energy production in Thailand has increased steadily, from 20.6 MW in 2011 to 234.5 MW (including the 7.5 MW Theppana project) in 2015, 628.5 MW in mid-2017, and 1,504 MW in mid-2019.
5. Renewable energy has become an important source of clean energy in Thailand. When the project was proposed, solar and wind renewable energy had not yet been developed at scale, and the market had limited experience with project financing for the renewable sector.
6. As of 2018, electricity generated from renewable energy plants (including hydropower) accounted for merely 18% of total power. The goal is to increase this to 29% by the end of 2038 based on the Power Development Plan for 2018–2037.2 To complement its renewable strategy, the Ministry of Energy advocates decentralized power generation, mainly by supporting the country’s small power producer (SPP) and very small power producer (VSPP) programs. The SPP program allows private developers to build, own, and operate 10 MW–90 MW power projects and enter into purchase power agreements with the state-owned utility company. Renewable
1 Electricity Generating Authority of Thailand (2018), Annual Report. Bangkok. 2 Energy Policy and Planning Office. Power Development Plant 2018. Bangkok.
18 Appendix 3 energy SPPs and VSPPs are eligible for a fee-in tariff (“Adder”) in addition to the wholesale electricity price. In addition to the “Adder”, the government offers tax exemptions for up to 8 years post-commercial operations date and reduced tax rates during years 9–13, as well as import duty exemptions on equipment. The program has successfully promoted wind power investment, and wind power generation has increased from 234 MW in 2016 to 1,504 MW by July 2019.
7. The main goals of Thailand’s previous Alternative Energy Development Plan (AEDP) for 2012–2021 (AEDP 2012)3 were (i) enhance public participation in alternative energy generation and utilization, (ii) revise the incentives and promotional measures to encourage private sector investment, (iii) amend the rules and regulations to support the development of alternative energy projects, and (iv) support research and development programs to develop the alternative energy industry further.
8. The AEDP 2012 was revised in 2015. The AEDP 20154 for 2015–2036 (Power Development Plan 2015) emphasizes (i) adherence to the government’s goal to increase fuel diversification and reduce reliance on fossil fuel; (ii) maintaining a minimum reserve margin of 15% of peak demand; (iii) coherence with the Energy Efficiency Development Plan and the Alternative Energy Development Plan; and (iv) future transmission and distribution development, as well as smart grid technology.
9. In the middle of 2019, Thailand’s Ministry of Energy adjusted the 10-year AEDP, aiming to strengthen the country’s energy security and raise the ratio of power generated from renewable sources. The AEDP 2018 (2018–2037)5 listed three main considerations, as follows: (i) Security; that is, a power supply based on reliable capacity, considering the dependability and reliability of each energy source, to meet demand in each of Thailand’s six regions, rather than applying the 15% reserve margin target. (ii) Economy, to support low-cost producers. (iii) Ecology, to support micro grids in last mile areas and industrial areas, develop a smart grid to decentralize generation further, and promote energy efficiency.
10. In July 2019, the Ministry Energy of Thailand presented the current renewable energy achievement as compared to the AEDPs (summarized in Table A3.1). As of July 2019, the targets stipulated for the original AEDP 2012–2021 for solar, wind, municipal solid waste, and large hydropower energy production have been achieved.
3 Energy Policy and Planning Office. 2012. Thailand Alternative Energy Development Plan 2012–2021 (AEDP 2012). Bangkok. 4 Energy Policy and Planning Office. 2015. Thailand Alternative Energy Development Plan 2015–2036 (AEDP 2015). Bangkok. 5 Energy Policy and Planning Office. 2019. Thailand Alternative Energy Development Plan 2018–2037 (AEDP 2018). Bangkok.
Appendix 3 19
Table A3.1: Alternative Energy Development Plan (MW) 2012‒2021 Existing 2012‒ (revised in (in July 2015‒ 2018‒ Source of Energy 2021 2012) 2019) 2036 2037 Solar 2,000 3,000 2,849 6,000 15,574 Wind 1,200 1,800 1,504 3,002 2,989 Biomass 3,630 4,800 2,290 5,570 5,786 Biogas 600 382 600 928 Municipal solid waste 160 400 500 500 900 Industrial waste 31 50 75 Tidal wave and geothermal 3 3 Small hydropower 324 324 188 376 188 Large hydropower 1,284 2,918 2,906 2,918 Biogas (energy crop) 680 Others 3,600 Total 9,201 13,927 10,662 19,684 29,358 MW = megawatt. Source: Ministry of Energy. 2019. Vision towards the Development of Renewable Energy in the Perspective of Thailand. Bangkok.
11. Wind energy production in Thailand is outlined in Table A3.2, below.
Table A3.2: Wind Power Capacity in Thailand Wind farm project Installed capacity (MW) Contracted capacity (MW) COD Private Baan Chuan Pattana 80 80 13 Apr 2019 Lomligor 9 8.965 11 Apr 2019 KR1 90 90 16 Mar 2019 Krissana Wind Power 90 90 28 Dec 2018 Theparak Wind 90 90 27 Nov 2018 KRS 3 90 90 28 Sep 2018 Tropical Winds 90 90 28 Sep 2018 Chaiyaphum Wind Farm 80 80 16 Dec 2016 Theppana Wind Farm 6.9 6.9 18 Jul 2013 KR2 103.5 90 8 Feb 2013 First Korat Wind 103.5 90 14 Nov 2012
Non-private DEDE 1.5 1.5 24 Jan 2013 DEDE 0.25 0.25 15 Dec 2008
Total 835 808 Prior to Subyai project 235 235 Additional post Subyai 600 573 COD = commercial operations date, DEDE = Department of Alternative Energy Development and Efficiency, KR = Korat, KRS = Krissana, MW = megawatt. Source: Electricity Generating Authority of Thailand, as of December 2019.
After the approval of the Subyai project, an additional 573 MW of capacity was contracted with the Electricity Generating Authority of Thailand. There was also about 260 MW from the Hanuman Project (Energy Absolute) in Thep Sathit and Bamnet Narong.
20 Appendix 4
ENVIRONMENTAL IMPACT
A. Introduction
1. The project is considered to produce safe and clean renewable energy with minimal environmental impacts compared to power generation that uses coal or natural gas as fuel. The project has signed a contract with carbon credit trading under an international renewable energy certificate.1 An evaluation of the project’s implementation and compliance with environmental, health, and safety requirements was conducted.
B. Review Findings
2. Compliance with ADB safeguards requirements and national environmental regulations. Thailand’s Ministry of Natural Resources and Environment does not require an environmental impact assessment for wind power projects. However, the borrower prepared an initial environmental examination (IEE) report to comply with the requirements of ADB’s Safeguard Policy Statement.2 The IEE includes the environmental management plans (EMPs) outlining the key issues and concerns and mitigating measures for the impacts during construction and operation. The borrower obtained the required government permits and licenses such as permits for the construction of access roads, power transmission system authorization, and factory licenses. International Organization for Standardization 14001:2015 (i.e. Environmental Management System) certification is expected to be completed within 2020.
3. Environmental impacts. The project is situated in an agricultural area (cassava plantations), a largely modified habitat without ecologically significant vegetation. The project is neither a habitat of terrestrial or avian faunal species, nor is situated along the route of migratory birds. The nearest national park, Pa Hin Ngam, is about 50 kilometers away from the project site. The land use changes were restricted to a small area under the turbines, access roads, and substation. Water use is low, required for civil works during construction and for domestic use by staff during operation. Impacts on air quality and noise from exhaust of construction equipment and vehicles were localized and temporary due to the relatively short construction period. During operation, emissions and dust generation are minimal. Ambient air and noise levels were monitored, and the results found to meet the relevant standards. Generated non-hazardous and hazardous wastes were handled and disposed of in an approved manner. Transmission lines are located along the right of way of existing roads to avoid disturbance of or damage to ecosystem and land uses. The Engineering Procurement Construction contractor fully implemented the occupational health and safety plan, and there was no recorded accident or fatality during the project construction and operation. The installed height of the generator for this project is around 120 meters (m) and will not cause significant disturbances to birds, which are seen to fly at heights greater than 150 m. The turbines are spaced 300 m apart to allow a wide space for birds to fly through. The impact on birds will be insignificant. As part of corporate social responsibility activities, two small weirs have been completed and this year the CWF will construct a dam to help local people access water for irrigation and solve the drought problem in the province.
1 The international renewable energy certificate is a type of energy attributable certificate, representing one megawatt- hour of electricity produced by renewable sources. Renewable energy certificates, also known as green energy certificates or tradable renewable certificates, are proof that energy has been generated from renewable sources such as solar or wind power. Each renewable energy certificate represents the environmental benefits of 1 megawatt- hour of renewable energy generation. 2 The IEE Report was submitted to the Thailand Greenhouse Gas Management Organization for the project to be registered under the Clean Development Mechanism program.
Appendix 4 21
4. Environmental management and monitoring during operation. Since the wind farm has minimal emissions and does not require water and fuel to generate electricity, no air emissions or wastewater discharge to the environment was observed. Environmental management at the wind power project sites focuses on maintaining of site cleanliness and sanitation through the provision of garbage cans and proper disposal of garbage and waste. Collections of waste oils, recyclable materials, and security and cleaning services in and around each wind turbine have been outsourced to local subcontractors. Although residents near the wind turbine occasionally report noise during high wind speeds, they have not complained as the high noise levels quickly disappear. No significant complaints regarding noise levels and shadow flicker have been raised by local people. Site security has been well established throughout the construction and commissioning of the project.
5. The CWF has maintained the services of a third-party environmental consultant to continuously monitor the ambient air and noise levels twice a year. The annual operations and maintenance (O&M) report of the lender’s technical advisor (LTA) also discussed the status of the project’s environmental and social performance. An action committee has been established consisting of representatives from the village leaders, sub-district administration office (SAO), engineering team, technical expert, and CWF. The action committee is responsible for undertaking regular annual environmental, social, and technical monitoring activities. They conduct meetings prior to site visits to check and inspect the condition of the 32 wind turbine generators (WTGs), and discuss the findings and recommendation after inspection. The results of these inspections are presented during the monthly town hall meeting. The CWF maintains good social relations with the local community.
6. Operation and maintenance (O&M) staff and training programs. Goldwind International (Thailand) Company Limited (WTG operator) and Italthai Engineering Company Limited (balance of plant operator) have been appointed the project’s O&M contractors. They are responsible for O&M on behalf of the project company. For O&M of the WTGs, Goldwind and Italthai’s Occupational Health and Safety Manual has been adopted by the borrower and is now being used by staff, visitors, and operators. The O&M contractor is responsible for daily routine activities, scheduled and unscheduled maintenance, remote monitoring and failure response, and monthly reporting. Safety training programs have been provided to the project company personnel.
C. Conclusion and Recommendation 7. The review and evaluation of the CWF’s environment monitoring reports, LTA monitoring reports, site visits, and meetings with the technical staff, village officials and local residents showed that the ADB and national requirements on the project’s environment health and safety aspects have been adequately met. The services of the LTA and third-party environmental monitoring consultant have been maintained to ensure that environment, heath, and safety management plans are properly implemented. The project’s environmental, health and safety performance is rated satisfactory.
22 Appendix 5
SOCIAL IMPACT A. Introduction
1. The 81-megawatt wind farm comprises the following facilities: 32 wind turbines with a 2.5- megawatt capacity per turbine, a substation, an administrative office, and a met mast located in Chaiyaphum Province, 300 kilometers (km) northeast of Bangkok. The project occupies a total of 5.76 hectares of land.
Table: Land Status Land area required (hectares) Land use before construction Lease for Temporary lease (specify if agricultural, Project Facilities Number 27 years (During construction) forest land, etc.) Wind turbines 32 5.12 35.84 ALRO land (agricultural) Substation 1 0.48 ALRO land (including office and (agricultural) administration building)
Transmission line right 80 PEA right of way of way kilometers Met mast 1 0.16 ALRO land (agricultural) Total 5.76 ALRO = Agricultural Land Reform Office, PEA = Provincial Electricity Authority. Source: Chaiyaphum Wind Farm Company Limited.
B. Review Findings
2. Involuntary resettlement and indigenous peoples. The project was categorized as C for involuntary resettlement and indigenous peoples. No indigenous peoples or ethnic groups are known to have settled, claimed, or owned any land within the project site or vicinity. The establishment of the wind farm required 35.84 hectares of land during construction and 5.76 hectares during operation where the wind turbines, substation (including an administration building), and met mast are located. The land where the project is located was previously utilized for cassava production. The borrower entered into a land lease agreement under the Agricultural Land Reform Office (ALRO), which was also signed by 39 farmers and landowners signifying their consent to make available portions of the land allocated to them by ALRO for the project.1 While most of the land was returned to the ALRO after construction and rental fees were paid only for the remaining area that Chaiyaphum Wind Farm Company Limited (CWF) retained for operation (5.76 hectares), the borrower is also paying B5,000 per year to landowners within a 200 meter radius of the turbines, for providing the CWF with access to the turbines. Interviews with the farmers confirmed that they are satisfied with the fee. They explained that the leased area is small compared to the total area that they utilize for cassava plantation. In addition, the rental fee is higher than their current income for the land. There are no complaints or issues in relation to the land where the project is located. However, the landowners mentioned that they were unaware of the 5% withholding tax applied on the annual rental during negotiations. CWF staff informed them
1 Per the lease agreement, the rental fee is as follows: 35,000 baht per rai per year for the ALRO; 30,000 baht per rai per year for landowners; and 5,000 baht per owner per year for landowners within a 200 meter radius from the turbine. These rates are based on a rate determined by the Land Reform Committee, and annual rental fees for the 39 farmers or landowners were determined after adequate consultation and negotiation, based on a value greater than the revenue generated from 0.16 hectares of cassava plantation per year (one rai = 0.16 hectare).
Appendix 5 23 that this can be reimbursed through their annual tax return filing. Since most landowners are unfamiliar with the process, the CWF was requested to assist landowners on this matter.
3. The CWF is currently connected to the Electricity Generating Authority of Thailand substation, which is about 80 kilometers from the project site and lies along the same transmission line route. The land parcel for the substation has also been negotiated and is also under lease, but its construction has been delayed. It is targeted to be completed by the Provincial Electricity Authority (PEA) by 2021. No land acquisition is required for the 80 km transmission line, which the PEA constructed using its existing right of way.
4. During construction, around 419 people were engaged, mainly as skilled and unskilled workers. Fifty percent of these workers were women, who were involved in preparing the foundation and underground cabling works. There are no reported instances of non-compliance committed by the CWF or its contractors and subcontractors during construction and operation. Stakeholders, including communities in the project’s vicinity, are continuously informed and consulted about the project. The project is categorized as having no gender element, given its limited potential for gender-inclusive design. No violations were reported in relation to compliance with labor laws.
5. The project area is 300 km away from Bangkok, and the land it occupies and the surrounding area are not known to be settled by any ethnic group or indigenous peoples.
6. Grievance redress mechanism. The technical specialist at the site oversees community relations and corporate social responsibility activities, and has been actively engaged with the community during project construction. The CWF maintains three mailboxes strategically located near the houses of the three village heads. To date, no messages or complaints have been received. The CWF also provides contact information details at each turbine in case people have issues related to the project. The CWF also conducts surveys to gauge people’s perceptions and knowledge regarding the project. Other than some safety issues (e.g., a driver driving too fast) raised by the community to the technical specialist during construction, no issues were raised in relation to the project. As past complaints and issues were raised verbally and unrecorded, it was recommended that the technical specialist maintain a record book to document the following: (i) the date of the complaint, (ii) details about the complainant (name and contact information), (iii) description of the grievance, (iv) actions taken, (v) follow-up requirements, and (vi) the target date for implementation of mitigation measures, if any. The record book will include a narrative on the actual measures and/or the process undertaken to handle or mitigate these concerns.
7. Corporate social responsibility activities. Since 2016, the CWF has funded the following projects identified and requested by the community: (i) infrastructure projects such as road rehabilitation,2 small dam and weir construction,3 community water supply innovation,4 the renovation of a temple and three houses;5 (ii) other community support such as the provision of medical equipment to Subyai Hospital, sports equipment to the community, and support for National Children’s Day and Songkran festival; and (iii) a vocational scholarship for select
2 A local access road. Approval of the Sub-District Administration Office (SAO) was secured prior to its rehabilitation. 3 A weir was constructed to reserve water for agricultural purposes from a small tributary on public land. The SAO permit was secured to build the weir, which benefited more than 50 households from two villages. 4 The SAO had previously installed a water tank, but this was not connected to individual households. The new system connects three villages of about 2,000 households. Although the water system is the SAO’s responsibility, the company provided financial support to ensure that the project is implemented immediately, as a limited water supply is one of the challenges faced by the community. 5 Partial funding provided by the CWF as district administration budget is not enough to complete the construction.
24 Appendix 5 students and an internship within the plant.6 The CWF allocates an annual budget for its corporate social responsibility activities based on the list of projects requested by the community and local government during the CWF’s community meetings. The company then validates this list and provides full or partial funding based on its assessment. The borrower plans to build a bigger dam to serve more people in the future.
8. An additional positive impact of the project was that the value of land reportedly tripled after the development of the CWF.
C. Conclusion
9. Based on the review and evaluation of safeguard and technical documents, site visits, meetings with CWF management and staff, and interviews with local community members, the CWF was found to be compliant with all social safeguard requirements.
6 This internship is for locals, who can be hired by the project.