28 November, 2015
In August 2014, the Energy Regulatory Commission (ERC) announced the Ground-Mounted Solar Energy Project for the Government Sector and Agricultural Cooperative, a program that aims to boost solar power generation to meet the Thai government’s Alternative Energy Development Plan, which promotes renewable energy as a sustainable alternative to fossil fuels and imported oil.
As part of the remit to boost solar power generation, the program establishes solar farms through public-private partnerships (PPPs), which are ventures with incentive mechanisms that are funded and operated by the govern- ment or agricultural cooperatives as public partners, in partnership with the private sector as project supporters.
In March 2015, the ERC issued a regulation entitled “The Power Purchase Agreement of Power Plant Projects from Ground-Mounted Solar Energy for the Government Sector and Agricultural Cooperatives B.E. 2015” (Regulation) to regulate this program.
The program has an overall capacity of 800 megawatt peak (MWp) and a maximum capacity of 5 MWp per solar farm project. Only certain solar farm projects are eligible to participate in the program, and there are a number of requirements and provisions to be aware of.
Eligibility
In order to generate and sell electricity under the program, a project supporter must be a juristic person (i.e., a limited company or a public limited company) that is registered in Thailand. A foreign company is only eligible to support a project if it is registered in Thailand as a foreign majority-owned company.
A project supporter must obtain a certification of standardized equipment for generating power, which includes equipment such as crystal solar cells or thin solar cells. In addition, the project supporter must be an experi- enced company or affiliate with not less than one year of experience in solar energy power production, which is counted from the project-submission date.
Alternatively, a project supporter must have staff with knowledge of and not less than one year of experience in solar energy power production, which is counted from the project-submission date. In addition, the project supporter must have a related license, such as a Control Engineering Professional License, over the ordinary level or the equivalent.
The selection process is carried out by lucky draw, as opposed to competitive bidding.
Minimum Investment
A project supporter must fulfill the following criteria:
Possess registered capital of not less than THB 2 million per 1 MWp, due to support-installed capacity, and at least 25 percent of this registered capital must have been paid, in accordance with rules set by the Ministry of Commerce; and
Investment credit and all types of capital circulating in the company, both of the financial institution and/or the supplier, must have evidence showing that this financial institution and/or supplier can provide various types of support to cover the required financial amounts of the project.
A project supporter is entitled to support more than one project, but its total selling capacity must not exceed 50 MWp and its minimum capital qualification must cover the total capacity of all projects.
Power Purchase Agreement
Approved project owners will be granted a power purchase agreement (PPA) for a term of 25 years, commenc- ing from the scheduled commercial operation date specified in the PPA, the commercial operation date, or the actual operation date, whichever comes first.
In the PPA, the sale of power in the portion of not exceeding “capacity factor” will be granted a THB 5.66 per kWh feed-in tariff (FiT) rate. Capacity factor refers to the percentage of total energy produced annually compared to a multiple of installed capacity and the number of hours in a year. With a capacity factor of 16 percent, a maximum of 1,401,600 kWh per kW installed in a year with 365 days or 1,405,440 kWh per kW installed in a year with 366 days will be remunerated with the FiT.
The Regulation restricts the assignment of rights under the PPA and introduces a three-year shareholding lock-up period. The rights and obligations under an application to sell electricity or an agreement to sell and purchase electric- ity cannot be assigned unless the authority responsible for the sale of electricity gives consent and the ERC approves it. In addition, the Regulation does not permit the PPA to:
- change the number of shareholders in a way that causes the original shareholders of the project to subscribe to less than one half of the project; and
- change the distribution of shares among the new share- holders in a way that causes the original shareholders to subscribe to less than 51 percent of shares during the first three years after the commercial operation date.
Summary
The ERC has set out a clear framework for private participation in ground-mounted solar energy projects owned by the government sector and agriculture coopera- tives. Private sector participation is essential, as most government projects and agricultural cooperatives lack much-needed funding.
In the future, the Regulation may allow foreign companies to participate as project owners and not only as supporters. Power production is considered to be a manu- facturing business under the Foreign Business Act, meaning that foreigners can operate a power production business without the need to obtain a foreign business license. If the current trend continues, Thailand will be on its way to making renewable energy a sustainable alternative to fossil fuels and imported oil.
For further information, please contact:
Theerapat Sombatsatapornkul, Tilleke & Gibbins
theerapat.s@tilleke.com
