No end in sight to the high cost of electricity in Thailand

Thai households have been burdened with high electricity bills for years, often blamed on mismanagement by successive governments, including the current dispensation.

The problem began with the overestimation of electricity demand by the Yingluck Shinawatra government that was in power from 2011-2014.

In order to encourage investment towards building greater capacity, the government provided subsidies to electricity producers, obliging them to receive funds known as availability payments (AP), even if they did not need to operate their power plants.

This practice of APs was continued by the General Prayut Chan-o-cha government that followed Yingluck, alongside other initiatives to promote production of renewable energy.

High global energy prices during Prayut's time in power, driven by geopolitical tensions and unstable changes in gas exploration concessions in the Gulf of Thailand, also contributed to rising electricity costs. The increase in the price of liquefied natural gas, a key raw material, exacerbated the situation.

Reluctant to alter course, the governments of Srettha Thavisin in 2023 and Paetongtarn Shinawatra continued what have been deemed by their predecessors as flawed energy policies, particularly the AP incentive and long-term renewable power purchase agreements (PPAs) with private operators. Consumers and businesses have paid a high price for this adamant approach, while renewable power operators have made a pretty penny.

Impact on government’s popularity

The high cost of electricity was a major cause of public disgruntlement with Prayut’s military-backed government. During the campaign for the May 2023 general election, rival political parties promised to lower electricity prices and reform the energy sector. The Pheu Thai Party, which currently leads the coalition government, also made such promises.

After more than a year and a half in power, the government stands accused, especially by the main opposition People's Party, of failing to honour its commitments.

Political patronage

The opposition has accused the government of cronyism, alleging that the renewable PPAs benefit certain operators with close political connections to the government, including Thaksin Shinawatra, the father of Prime Minister Paetongtarn.

Academics have called for a review of these PPAs, but they were disappointed when the Electricity Generating Authority of Thailand (EGAT), a state-owned enterprise, recently signed PPAs for 25 years.

Supachot Chaiyasat, a People’s Party MP, estimates that this decision could cost the public over 100 billion baht through higher prices.

Independent economist Praipol Koomsup, who closely monitors the energy sector, believes “the PPAs should have been for a shorter duration to adjust to the cost of electricity production in line with the trend of lower costs for renewable energy production”.

The government’s defense

State authorities have defended the government's recent actions. Wattanapong Kurovat, director-general of the Energy Policy and Planning Office, denied that the renewables PPA scheme would increase power prices in the country.

The EGAT sells electricity on the state grid at 3.18 baht per kilowatt-hour (unit) to two state power distribution arms: the Metropolitan Electricity Authority and the Provincial Electricity Authority.

This average wholesale price is higher than the price set under the 5.2GW renewables scheme, which averages 2.7 baht per unit, he said.

Wattanapong explained that solar electricity costs 2.18 baht per unit, wind electricity costs 3.10 baht per unit, and solar with battery energy storage system costs 2.38 baht per unit. He emphasized the importance of the renewables scheme for attracting investment in clean energy, which is in increasing demand from both Thai and foreign companies.

Manufacturers aiming to export goods to the EU must reduce carbon-dioxide emissions to avoid non-tariff barriers, known as the Carbon Border Adjustment Mechanism.

Concerns over pricing and policy corruption

Sarinee Achavanuntakul, an independent researcher, believes that electricity prices charged to consumers may not align with the declining costs of renewable energy production. She raised concerns about policy corruption related to the PPAs, noting transparency issues in the selection process of eligible power operators conducted by the Energy Regulatory Commission.

While she agrees that renewables are essential in light of the EU’s Carbon Border Adjustment Mechanism, she criticized Wattanapong for not mentioning the need for decentralization of power production and the liberalization of solar rooftops.

Another issue is the government’s AP incentive scheme for renewable energy producers to maintain spare capacity for any surge in demand. Praipol called for the cancelation of these payments as Thailand is sitting on electricity inventory as high as 40 per cent.

He raised questions over the delay by the government in implementing the Power Development Plan for the period 2024 to 2040 (PDP 2024). The plan aims to reform the energy sector by increasing the share of renewable energy and introducing small-scale nuclear plants.

Praipol, a subcommittee member involved in drafting the plan, revealed that the draft had been ready for a year but was yet to be approved by the Cabinet.

“I don’t understand why the Energy Ministry has not forwarded the draft Power Development Plan to the Cabinet. What I hear from a senior official is that they are trying to amend the draft,” Praipol said.

Overestimation of electricity demand

Another critical issue is the overestimation of the demand for electricity, which was misaligned with Thailand's stagnant economic growth. This overestimation has led to excessive investment in electricity production, resulting in high prices for consumers and businesses.

Some officials in the energy sector defended the past policies, arguing that it was impossible to predict economic growth correctly and nobody could have imagined that a military coup would toppled the Yingluck government, followed by years of sluggish economic growth and demand for electricity falling short of estimates.

Recommendations from TDRI

The independent think tank, Thailand Development Research Institute, has made several recommendations:

1. Adjust electricity demand forecasts: Revise the forecasts in the draft PDP 2024 to reflect current economic growth estimates and the reduced growth potential based on projections from the Bank of Thailand and other agencies.

2. Revise the 2024 gas management plan: Modify the plan to reduce LNG imports and support the development of domestic clean energy sources for enhanced energy security.

3. Delay LNG terminal investment: Postpone investment in the third LNG terminal as current capacity is not fully utilized.

4. Renew existing hydropower contracts

Governments past and present have provided subsidies to households and businesses through the EGAT from time to time. These subsidies aim to lower the financial burden from high electricity costs.

Currently, the average electricity price stands at 4.15 baht per unit. The government plans to reduce this price to 3.99 baht per unit from May to August. Critics warn that such measures would offer only a temporary respite and that the cost burden was only being delayed rather than addressed. They are calling for comprehensive reforms in the energy sector.

Trade tensions and solar panel prices

Given the ongoing trade tensions between the US and China, and the imposition by the Trump administration of high tariffs on solar cells and solar panels manufactured in China and by Chinese factories in Southeast Asia, this situation is expected to further lower prices for solar panels in the local market.

“Due to these favorable conditions that are expected to last for the next five years, there is an opportunity for Thailand to accelerate renewable energy production, particularly by liberalizing solar rooftop electricity generation,” Praipol said.