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Future Scenarios Toward SustainableEnergy Policies and Practice in Thailand

Workshop Proceedings

Renewable Energy and Energy Efficiencywith International Experiences

Monday, August 28, 2006Shangri-La Hotel

Bangkok, Thailand

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Copyright © 2007

National Economic and Social Development Board (NESDB)Bangkok, Thailandand The International Bank for Reconstructionand Development/The World BankWashington, U.S.A.

All rights reservedThis material may be copied, translated and disseminated (as long as no profitis derived there from).

This publication has been published to communicate the results of the meetingconcerned to the development community with the least possible delay. Thisdocument therefore has not been prepared in accordance with the proceduresappropriate to formal documents. Some sources cited in this paper may beinformal documents that are not readily available.The findings, interpretations, and conclusions expressed in this paper areentirely those of the author(s) and should not be attributed in any manner tothe NESDB of Thailand or the World Bank, or its affiliated organizations, or tomembers of its Board of Executive Directors or the countries they represent.The NESDB and World Bank do not guarantee the accuracy of the dataincluded in this publication and accept no responsibility whatsoever for anyconsequence of their use.

Future Energy Scenarios Toward Sustainable Energy Policies and Practice in Thailand — Workshop Proceedings2

Office of National Economicand Social Development Board

962 Krungkasem Rd., PomprabBangkok 10100, ThailandTel. (662) 280 4085Fax. (662) 280 1860

http://www.nesdb.go.th/

World Bank Office, Bangkok

30th Floor Siam Tower989 Rama I Road, Pathumwan

Bangkok 10330, ThailandTel. (662) 686 8300Fax. (662) 686 8301

http://www.worldbank.or.th/

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ContentsPress Release: New Partnerships Envisioned for Renewable Energies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Workshop Agenda . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Welcome Address NESDB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9Arkhom TermpittayapaisithDeputy Secretary GeneralNational Economic & Social Development Board (NESDB)

Welcome Address World Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11Ian PorterCountry DirectorWorld Bank Office in Bangkok

Energy Scenarios & Thailand Experience on Renewable Energy and Energy Efficiency

Energy Scenarios: From the Present to the Next Decade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13Antonie de WildeWorld Bank

Thai Experiences in Renewable Energy and Energy Efficiency – 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19Chavalit PichalaiDirector, Energy System Analysis BureauEnergy Policy and Planning Office (EPPO)Ministry of Energy, Thailand

Thai Experiences in Renewable Energy and Energy Efficiency – 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26Amnuay ThongsathityaDepartment of Alternative Energy Development and EfficiencyMinistry of Energy, Thailand

Thai Experiences in Renewable Energy and Energy Efficiency – 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34Anon SiriaengtaksinSenior Executive Vice President, Corporate Strategy and Development, PTT

Renewable Energy: International Experiences

Renewable energy policy: Formulation and implementation in China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39Peter MeierENTEC

Renewable Energy Policies: Impacts and Effectiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54Jan HamrinPresidentCenter for Resource Solutions

Ethanol and Other Biofuels: Panache or Dream . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63Masami KojimaWorld Bank

Energy Efficiency: International Experiences

Energy Efficiency in the Global Context: Role and Opportunities for Enhancing Energy Security . . . . . . . . . . 69Ashok SarkarWorld Bank

3Contents

Future Energy Scenarios Toward Sustainable Energy Policies and Practice in Thailand — Workshop Proceedings

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Energy Efficiency Policy Development and Planning in Japan: Strategies, Programmes,Impacts and Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84Takeshi SekiyamaEnergy Conservation Center, Japan (ECCJ)

International Experience in Energy Efficiency: Drawing Lessons for Thailand . . . . . . . . . . . . . . . . . . . . . . . . . . 97Vincent DavidEconoler

International Implications for Thailand

National Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101Arkhom TermpittayapaisithDeputy Secretary GeneralNational Economic and Social Development Board

Renewable Energy is not only Sustainable but also Affordable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106S ChandrasekarManaging directorBhoruka Power Corporation, Bangalore, India

Financing Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114Anat PrapasawadExecutive Officer, Business Development Department,TMB Bank Public Company Limited

Financing Considerations for Renewable Sources and Energy Efficiency Projects . . . . . . . . . . . . . . . . . . . . . 121Guido DelgadoCEO, GAAD Inc.

Closing Remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127Arkhom TermpittayapaisithDeputy Secretary General, NESDB

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Press Release

New Partnerships Envisioned forRenewable EnergiesBBaannggkkookk,, TThhaaiillaanndd,, AAuugguusstt 2299,, 22000066 – Thailand can look forward to moreaffordable and cleaner energy as it moves ahead with plans to strengthen nation-al competitiveness and improve the well-being of the population, according toparticipants at a workshop held in Bangkok yesterday.“Access to adequate, modern and affordable energy services is an importantcomponent of a better quality of life,” said AArrkkhhoomm TTeerrmmppiittttaayyaappaaiissiitthh, DeputySecretary General of the National Economic and Social Development Board(NEDSB), who opened the meeting. “To reach the ultimate goal of less pover-ty and more welfare in the country, a national and multi-level cooperation isneeded to overcome energy problems.”The workshop brought together 70 energy specialists from government bodies,the private sector and research institutes, including ten from Asia, Europe andNorth America. Looking at the subject of Future EEnergy SScenarios ttowardsSSuussttaaiinnaabbllee EEnneerrggyy PPoolliicciieess aanndd PPrraaccttiiccee iinn TThhaaiillaanndd, the meeting focused onnational and international experience in renewable energy and energy efficien-cy. The workshop is intended to help boost the country’s strategic planning inthe field of energy, an area the National Economic and Social DevelopmentBoard (NESDB) is currently developing.“The World Bank is grateful that we can participate in this process by giving accessto international experience and expertise,” emphasized IIaann PPoorrtteerr,, CCoouunnttrryyDDiirreeccttoorr, World Bank of Bangkok. The World Bank, through the Asia Sustainableand Alternative Energy program (ASTAE), co-sponsored the meeting.

A low-carbon futureReferring to the new set of challenges Thailand faces, along with many otheroil-importing countries, Porter pointed to recent rapid rises in oil prices andpredicted changes in the climate, which will require a move away from fuels thatemit carbon dioxide and other pollutants into the atmosphere, causing thegreenhouse gas effect.“If countries are to improve energy access for all their people, and meet soar-ing demand, while trying to follow a ‘low-carbon path’,” he said, “they will needsubstantial investment over the next decade—a total of US$ 150 billion eachyear. Public funding alone will not be sufficient for this investment. The coun-tries concerned will need also to reform their energy sectors to make them moreattractive to private sector investors.”

Building on achievements, involving private sectorWith a goal of meeting eight percent of all energy needs with renewable sourcesby 2011, multiplying their share several-fold from the 2005 level of less thanone percent, Thailand will invest heavily in solar energy, hydropower and bio-

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fuels (fuels from plants, which can replace diesel, mixed with petrol or used ontheir own). Their use will be promoted in industry and transport, which eachaccount for more than one-third of the nation’s energy bill. More efficient usesof energy and energy conservation will be actively promoted, building upon someachievements in helping households (which use more than 20 percent of thecountry’s energy) and businesses to save energy, and to decrease their energy bills.During the workshop, experts from abroad stressed the growing role of privatefinance, alongside public investment. The growth of private companies in powergeneration, and their influential role in helping businesses and consumers useenergy more efficiently, demonstrates the need for banks and other financialinstitutions to be more involved, especially in terms of investments.Representatives from the banking sector also stated that further studies arerequired to explore how banks—given national and international guidelinesregarding prudential regulations in the banking sector—can expand their portfo-lios in the energy sector.

First and foremost, a business propositionSpeakers and representatives present at the event also reiterated the fact that ener-gy is a business, including renewable energy and energy efficiency. This furtheremphasizes the need for more incentives and information for bankers to see‘bankable’ projects—in turn, requiring clearer and enforceable regulations, andsound data and statistics. The use of feed-in laws, which regulate the tariff paidfor energy delivered to the national grid by local producers, or of energy portfo-lios which dictate how much of the local energy mix should be from renewable,are two of the many options studied in detail.

Least-cost optionsMost of the representatives at the workshop noted that renewable sources of ener-gy have recently become the least-cost option, replacing fossil fuels. However, thisis not true in all cases, given that sometimes there is little wind to ‘fuel’ wind tur-bines, or little rainfall to feed reservoirs for hydropower. Increases in prices offeedstock such as sugar will mean that crops are better sold in food markets thanas a basis for biofuels, thus removing their recent popularity in the energy sec-tors. These issues can, with proper research, be accounted for. A series of optionswas discussed during the workshop. Sharp awareness of market fluctuations willalso be an essential asset for energy investors and planners.

The only way outThose who attended the workshop agreed to discuss and research the issues fur-ther, as well as to identify the appropriate next steps to translate policy into wideraction. “We shall need more systematic data collection and analysis,” saidTermpittayapaisith in his closing remarks, “more knowledge creation and moreparticipation from the private sector, financial institutions and government inthe energy sector.” He also suggested that very clear policies, based on long-termperspectives and not only short-term responses will be needed, given that energyis a resource which powers other sectors. All in all, he concluded, “renewableenergy and energy efficiency is, in Thailand, probably the only way out.” ■

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Future Energy Scenarios toward Sustainable Policies and Practice in Thailand

Workshop on Renewable Energy and Energy Efficiencywith International ExperiencesMonday, August 28th, 2006Rattanakosin Room, Shangri-La Hotel, Bangkok, Thailand

Workshop Agenda

Registration & Welcome Addresses

08:00–08:45 Registration08:45–08:55 Welcome address: NESDB

• Arkhom Termpittayapaisith, Deputy Secretary General08:55–09:05 Welcome address: the World Bank

• Ian Porter, Country Director

Energy Scenarios & Thailand Experience on Renewable Energy and Energy Efficiency

09:05–09:35 Energy Scenarios: Present to the Next Decade• By Dr. Antonie de Wilde, World Bank

09:35–09:45 Coffee Break09:45–11:00 Thai Experiences: Renewable Energy and Energy Efficiency

Moderator: Dr. Porametee Vimolsiri, Senior Advisor,NESDBPanel:• Amnuay Thongsathitya, Deputy Director General,

Department of Alternative Energy• Chavalit Pichalai, Executive Director, Bureau of Energy

System Analysis, Energy Policy and Planning Office• Anon Sirisaengtaksin, Senior Executive Vice President,

Corporate Strategy & Development, PTT PublicCompany Limited

11:00–11:10 Open Discussion

Renewable Energy: International Experiences

11:10–12:25 International Experiences on Renewable Energy• Renewable Energy Policies: Impacts and Effectiveness –

Janice Hamrin, Executive Director, the Center forResource Solutions

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• Renewable Energy Policy Formulation andImplementation in China – Peter Meier, Entec

• Ethanol and Other Biofuels: Panache or Dream –Masami Kojima, World Bank

12:25–12:35 Open Discussion12:35–13:35 Lunch

Energy Efficiency: International Experiences

13:35–14:50 International Experiences on Energy Efficiency• Energy Efficiency in the Global Context: Its Role and

Opportunities for Enhancing Energy Security – AshokSarkar, World Bank

• Energy Efficiency Policy Development and Planning inJapan: Strategies, Programs, Impacts and Indicators –Takeshi Sekiyama, Energy Conservation Center of Japan

• International Energy Efficiency DevelopmentExperience: Drawing Lessons for Thailand – VincentDavid, Econoler International

14:50–15:00 Open Discussion15:10–15:20 Coffee Break

International Implications for Thailand: National policies, the private-sector experiences, and financing issues

15:20–17:00 Panel/Workshop on International Implications forThailandModerator: Dr. Praipol Koomsup, Professor, Economics,Thammasat University• National policies – Arkhom Termpittayapaisith, Deputy

Secretary General, NESDB• Private-sector experiences and needs – Chandra Shekar,

Managing Director of Bhoruka Power, Bangalore, India• Financing issues/providers – Anat Prapasawad, Executive

Officer: Energy and Environment Business Department,Business Development, TMB Bank Public CompanyLimited; and Guido Delgado, Former MD, NorthernMindinao Development Bank and Former President ofPhilippine Power Corporation

17:00–17:30 Open Discussions17:30–17:45 Closing Remarks18:00–20:00 Cocktail Reception

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Welcome Address NESDB Arkhom TermpittayapaisithDeputy Secretary GeneralNational Economic & Social Development Board (NESDB)

Excellencies,Distinguished Participants,Ladies and Gentlemen,On behalf of the Royal Thai Government and the Office of the NationalEconomic and Social Development Board (NESDB), it is my great pleasure towelcome all of you to this ‘Future Energy Scenarios toward Sustainable EnergyPolicies and Practice in Thailand’ Workshop on Renewable Energy and EnergyEfficiency with International Experiences.I wish to take this opportunity to express our sincere thanks to all the expertswho have come here to share their expertise on Renewable Energy and EnergyEfficiency, both Thai and International experiences. We are grateful to theDepartment of Alternative Energy, the Energy Policy and Planning Office, thePTT Public Company Limited, the TMB Bank Public Company Limited, theCenter for Resource Solutions, Entec, Energy Conservation Center of Japan,Econoler International, Bhoruka Power, as well as international organizations,and non-government organizations that have demonstrated their support byparticipating in this workshop, especially to the World Bank and the AsiaAlternative Energy Program (ASTAE) for the cordial reception accorded to usand the excellent arrangements made for this workshop.Ladies and Gentlemen,The Government of Thailand and the World Bank since 2005 have jointly ini-tiated the Country Development Partnership for Infrastructure (CDP-NFRA)program as a knowledge-based partnership for analytical works and actions inkey areas of the country’s infrastructure development agenda. This leads tostrengthening the national competitiveness and improving the well-being of thepopulation, by supporting the development and implementation of infrastruc-ture strategy, policy and regulatory and institutional actions. Among nationalinfrastructure issues, the energy strategy is one of the key priority areas in thisCDP-INFRA.At present, the Energy situation is one of the most concern issues not only fora single country but all countries around the world, particularly these few yearsas the oil prices surge and fluctuate.Accessing an adequate, modern, and affordable energy services is an importantcomponent of better quality of life. Thus, to reach the ultimate goal of lesspoverty and more welfare in the country, a national and multi-level coopera-tion is needed to overcome energy problems. This includes participation fromall in the private and public sectors, as well as individuals. In the meantime, a

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technical study is necessary to guide us to a right direction of the energy strate-gy planning. Balancing among energy availability, energy efficiency and theenvironment management; as well as renewable energy and energy efficiency, isalso important and is a challenge for the sustainable development.Ladies and Gentlemen,For Thailand, His Majesty the King’s initiatives on alternative energy date backto over two decades ago. In 1979, His Majesty the King instructed the RoyalChitralada Project (RCP) to experiment with biogas production from dairy cowmanure. The Royal initiative on alternative energy development projects,focusing on biofuels, in particular palm oil, as a diesel fuel substitute and alsoa cost study for ethanol production from sugarcane, dates back to 1985. Andthis year marks the 60th Anniversary of His Majesty the King BhumibolAdulyadej’s Accession to the Throne. At present, Thailand is working toimprove the yield of feedstock for bio-fuel production and striving to developefficient technologies for the best use of alternative energy. The need for cleanfuels and vehicle technologies is greater today than ever before.People in Thailand as well as many countries now realized the energy securityconcerns, alternative energy initiatives and energy efficiency issues associatedwith meeting rapidly rising energy demand. There is a need to integrate sus-tainability issues in the design of energy strategy so as to reduce overall socialcost, prolong the fossil energy utilization and secure the energy availability inthe long run.Ladies and Gentlemen,This workshop is a good starting point to lead to an increase in the share ofrenewable sources in Thailand’s energy portfolio. Compared with other neigh-boring countries, the renewable sources’ share in Thailand’s overall energymatrix is low. As well, Thailand energy efficiency improvement should be moreproductive and well-planned for the next five to ten years. The morning ses-sions will be on energy scenarios, renewable energy and energy efficiency dis-cussions. Then, the afternoon is more about implications, policies and prac-tices oriented. This workshop will help us gather inputs from international andnational-level consultations for further studies over the next few months, to beconcluded early next year with a dissemination workshop.Since we have diverse strengths and experiences, I encourage all participants towork together to make the most of this opportunity to learn from one another,to share research and development, to transfer know-how and address the issuesof useful inputs for energy strategies. With the valuable expertise and knowledgeof all the distinguished panelists and participants, I am confident that thisworkshop will generate concrete proposals and recommendations forThailand’s energy plan.On this note, it is my great pleasure to declare this Future Energy Scenariostoward Sustainable Energy Policies and Practice in Thailand workshop open.I wish you every success in your discussions as well as an enjoyable and memo-rable stay in Thailand.Thank you. ■

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Welcome Address World BankIan PorterCountry DirectorWorld Bank Office in Bangkok

Deputy Secretary General Arkhom, Distinguished Guests, Ladies andGentlemen,It is my great pleasure on behalf of the World Bank to be welcoming you todayto the workshop on renewable energy and energy efficiency policies, which wehope will contribute to the development of sustainable energy policies andpractices in Thailand.Like many other countries, Thailand is facing a new set of challenges inaddressing its energy strategy. The most immediate, and the most dramatic, isthe recent rapid rise in oil prices.Other challenges lie ahead, including the need to deal with predicted changesin climate, changes that will have different implications for different countriesand regions, but that will require us all to move towards a ‘low-carbon’ econo-my. At the same time, we must deal with the needs of today, and with the risingdemand for energy.The world’s demand for primary energy is expected to increase overall by a fac-tor of between 1.6 to 3.5 in the four decades up to 2050. In non-OECD coun-tries, including ASEAN countries, demand for primary energy will grow by afactor of between 2.3 to 5.2 over the same period. These countries will needsubstantial investment over these decades if they are to improve energy access forall their people and to meet this soaring demand while trying to follow a ‘lowcarbon path’.In this overall context of immediate and longer term supply and demand chal-lenges in the energy sector, every country—and Thailand is no exception—isanxious not only to meet energy demands in a sound way, but also to be do soin a sustainable fashion: in short, to achieve a better energy security. With ener-gy security for all as the ultimate goal, a country has two main targets:

(1) to diversify its energy mix; and(2) to improve energy efficiency.

In diversifying and improving its Energy Mix, a country has to answer two keyquestions. Firstly, what energy sources should be selected to reduce and ulti-mately replace crude oil and any other energy imports? And, what should theproportion of renewable sources of energy be? And, secondly, how should theintroduction of new energy sources and the decommission of the importedsources (crude oil)—a long and complex process of transition—be managed andachieved?As for improving Energy Efficiency, and reducing energy intensity, there aretremendous gains to be made, that need to accompany changes in the energy

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mix. In the case of Thailand, the relationship between its energy intensity andits GDP, known as energy elasticity, has risen gradually since the early 1980s tothe relatively high level of 1.4 to one. In other words, each one percent increasein GDP causes a increase of 1.4 percent in energy consumption. WhenThailand’s GDP increases by five percent annually, then with current consump-tion and efficiency patterns its energy use rises by seven percent. That is lowerthan some other ASEAN countries, but is notably higher than the slowly shrink-ing energy elasticity of most OECD countries.Thailand’s target is to reduce its ratio to one-to-one. The important questionis how in terms of behaviour, regulation, and technology adoption, along all thelinks in the energy chain. What steps will encourage changes on the supply-sideand in demand-side management? What energy mix will be most appropriate?And, what changes in consumption can help towards the low-carbon future?The National Economic and Social Development Board (NESDB), is current-ly trying to answer these important questions through in-depth analytical work,and the development of an energy strategic plan for Thailand’s sustainabledevelopment in the long term.And, the World Bank is pleased that we can participate in this process, by shar-ing with the Thai policy makers, our experience in other countries. This dia-logue, which has already begun and which will continue today, is part of abroader infrastructure dialogue, the Country Development Partnership onInfrastructure that is being developed between NEDA and the World Bank.This Partnership will enable Thailand to access international experienceand expertise as well as enable the World Bank to share Thailand’s policies inInfrastructure in general and in the Energy sector in particular with othercountries in the region and beyond.Ladies and gentlemen, with those words of introduction, let me again welcomeyou all to what I am sure will be a very interesting day of presentations and dis-cussion.And thank you all for your attention. ■

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Energy Scenarios: From the Present tothe Next DecadeAntonie de WildeWorld Bank

At its Annual Meeting in Singapore, in September 2006, the Bank willpresent the ‘Clean Energy and Development Investment Framework’. Itis seen as a serious response to today’s cascade of severe energy challenges.

This is against a background in which current development scenarios have faileddue to rapid price increases of fossil fuels. Net oil-importing countries havelost around 3.5 percent of GDP. Businesses—and the economy—are sufferingfrom higher prices, and heavier costs for energy. Households—and society—aresuffering from reduced benefits of energy.The evidence of climate change is requiring additional drastic steps in the ener-gy, transport and industrial sectors to adjust to change and reduce further cli-mate change by reducing greenhouse gases from energy use and production.These steps are starting to take shape, as witnessed by such indicators as the 48percent growth in World Bank investment in renewable sources of energies andenergy efficiency, and soaring investments in China, Germany, Spain, Japanand many more countries. Yet demand for energy is such—and set to rise by 60percent by 2030—that public investment cannot meet the needs in full. Policychanges are required to facilitate private sector investment.The new investment characteristics for today’s and tomorrow’s energy portfo-lios are drastically different to those of yesterday. In addition to the imperativeof low(er) carbon, they incorporate security and climate change risks and theconsequent need to diversify technologies; that is, clean coal, oil and gas fueled,hydro and wind turbine, solar-PV and solar heat, etc.

Diversification of operations and ownershipDiversifying operations due to less firm energy capacity is also an imperative.Droughts and rainfall fluctuations are leading to empty reservoirs, or changesin wind patterns or no wind, and high costs for gas and oil. Combinations ofrenewable sources often make sense and meet needs where a single energysource is too vulnerable. This too requires new forms of resource optimizationand management, new methods of managing technology.Diversified ownership, in public, private, community forms, are coupled todiversified maintenance and operation standards, and the need for differentregulations.These circumstances lead to changing financing terms and conditions, such aslonger terms and different risk patterns, loans against Power PurchaseAgreements and reinsurance against (in)security and weather conditions.

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Despite the many challenges of these emerging situations, what stands out clear-ly are two elements. Firstly, many countries are demonstrating their commit-ments to renewable sources and energy efficiency, through renewable portfoliostandards (RPS), feed-in laws, targets, investments in liquid biofuels and more.Secondly, the fundamental importance of energy as a key to economic oppor-tunities is never out of sight. The total factor productivity of micro-, small-,medium- and large-scale enterprises can vary by up to more than 60 percentdue to energy and infrastructural factors.These challenges are highly visible in the East Asia and Pacific region, the regionwith the fastest growth in energy demand of any region in world. Coal willaccount for nearly half of primary energy, and it has known environmentalimpacts. Oil imports will rise, with growth in known concerns about energysecurity. Natural gas supplies are low, the use of renewable sources is low andthere is a need for aggressive promotion here.The associated development challenges are also well known. There are globaland domestic environmental impacts. One-third of land in China is affected byacid rain. Over the period 1990 to 2004, the number of people affected by cli-mate change events—many people several times during the period—reached 34million in Thailand and 1.8 billion in China, the latter representing an aver-age of more than 100 million cases each year.

A switch in timeThere is much reason for hope. In the week before this meeting, as evidencethat renewable sources can be the least-cost energy solution, the Netherlandsstopped applications for subsidies for the installation of renewable technolo-gies. And Fiji aims to have its electricity supply 100 percent from renewablesources by 2012 in a least-cost scenario. Elsewhere in the Pacific, shipping andtransport companies in Pacific are switching to coconut oil.New financial models and methods are emerging. Long-term finance is com-ing online, even at the micro-level: in Papua New Guinea, loan guarantees tolengthen loan tenure are allowing teachers to reduce their energy costs byswitching to renewable sources.At the macro level, the Clean Energy Financing Vehicle and Carbon FinanceBusiness lines, and other World Bank Carbon Finance Products, now representa total of funds under management of about US$ 1.7 billion.Problems may be almost as numerous as solutions, but many aspects are to befound in the situation of declining supply from the existing hydro plant atWailoa in Fiji. By mixing in variable power from hydro storage (when it rainsextra), plus wind (when it blows), plus biomass (its growth subject to climate),the Fiji Electricity Authority can continue to meet growing demand. The tech-nologies, once separate, are now linkable. The challenge is in the mix and thechanging environment. While we may have mastered the technologies, we needto develop the experience to operate systems with multiple energy sources andwith variable availability. ■

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Thai Experiences in Renewable Energyand Energy Efficiency – 1Chavalit PichalaiDirector, Energy System Analysis BureauEnergy Policy and Planning Office (EPPO)Ministry of Energy, Thailand

Energy is an important factor to the economic and social development ofthe country. The high volatility of world oil prices and unpredictablepolitical tension in major oil exporting countries affects our national

energy security. It is in order to strengthen energy security that the Ministry ofEnergy has initiated strategies and measures to reduce dependency on oilimports while enhancing utilization of domestic energy resources. These meas-ures, under the general heading of implementation of energy conservation, canbe divided into the following economic sectors:Transport: to reduce oil consumption by 25 percent by 2009Industrial: to reduce oil consumption by 20 percent by 2008Household: to reduce energy consumption by ten percent, with the kick-off

of an energy savings campaign on 1 June, 2005Government: to reduce energy consumption by ten to 15 percent with imme-

diate effect

Focus on transport, industry and residencesThe measures are focused on the three key economic sectors: transportation,industrial and residential. They account, respectively, for a share of 37 percent,36 percent and 21 percent of the total energy consumption. In theTransportation Sector, the target is to reduce 25 percent of oil consumption by2009, through the promotion of new/alternative transport fuels—to reduce oildemand by 15 percent by 2008.• Gasohol: Eight M litres/day in 2006; replace gasoline 95 as from 1 January

2007• Biodiesel: 5.2 M litres/day in 2006; 8.5 M litres/day by 2012• NGV: 180 NGV stations in 2006, to replace ten percent of oil by December

2008; 500,000 NGV-fueled vehicles by 2010, with 740 NGV stations.Measures will also improve transport system efficiency, to reduce oil demand byten percent, by the following means:• Promotion of rail waterway transport modes, and public transport systems• Improvement of the traffic management system• Promotion of oil transportation via pipelines• The use of town planning to enhance transportation system efficiency• Promotion of energy saving vehicles



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From energyefficiency cancome energy

security, throughsector-specific

measures



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• Application of tax measuresIn the industrial sector, the target is to reduce 20 percent of energy consump-tion by 2008, through the promotion of natural gas to replace five percent offuel oil consumption in large industrial factories, through• Promotion of CHP system (Cogen) the gas district cooling (for example at

Suvannabhumi Airport)• Promotion of power and cool-water generation using distributed-generation

(DG) systems in large department storesWe shall also devote great efforts towards improving energy efficiency, to save 15percent of energy, through the following measures:• Speed up EE improvement in SMEs, including through revolving funds/tax

incentives/investment promotion measures via BOI• Promotion of energy services company (ESCO) businesses• Restructuring of the industrial sector to become non-energy intensiveIn the household sector, the target is to reduce ten percent of energy consump-tion, by way of promoting high-efficiency household equipment, through:• Minimum energy performance standards (MEPS): air-conditioners, refrig-

erators, ballast, fluorescent lamps and compact fluorescent lamps• Energy efficiency labeling• Establishment of the standards of LPG-fired cookers• Promotion of high-efficiency cooking stoves• Establishment of building code and building material standards• Public awareness campaigns

Energy conservation includes promotion of additionalsourcesThe Renewable Energy Development Program is a major sub-program of theEnergy Conservation ENCON Program, and focuses on the following fiveareas:• Promotion of the use of biofuels—gasohol/biodiesel• Promotion of RE utilization for power generation• Promotion of RE utilization for heat generation in industrial factories• Policy study and R&D on RE—solar, micro-hydropower and biomass energy• Human resources development, public awareness campaignsIn the Promotion of the use of biofuels—gasohol/biodiesel, our targets are asfollows:• By 1 January, 2007: Replace premium gasoline (gasoline octane 95) with

Gasohol 95 (“E-10” —a mixture of ethanol and gasoline octane 91 at a ratio1:9) nationwide

• From 2008 onwards: Replace gasoline octane 91 with Gasohol 91The Government’s measures to promote gasohol are, primarily, in price meas-ures, keeping the price of gasohol cheaper than the premium gasoline at1.50 Baht (~US$ .375)/litre. In terms of government support, this includesBOI investment promotion for fuel-ethanol production plants; the reduction




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of import excise taxes for flexible-fuel vehicles (FFV), and soft-loans fordomestic FFV manufacturing.The Government measures to promote biodiesel include steps to increase palmoil plantation by five million rais (approximately 31.25 m hectares) by 2009,and to expand small-scale projects at community level. At present, there are 11pilot communities; this is expected to expand to 60 in various provinces by theend of 2006.The Government’s measures to promote the use of natural gas vehicles (NGV)are primarily to meet the target of 500,000 NGV-fueled vehicles by 2010, withthe major focus on public transport fleets, taxis and government car fleets. Inthe immediate future, there will be an increase in NGV stations from 60 to 200stations by the end of 2006, and to 740 stations by 2010.These measures will further include price measures, to set the NGV retail priceat 50 percent of the diesel retail price. This may be adjusted to 55 percent and60 percent of gasoline 91 in 2007 and 2008 respectively.Government support in this field will include soft loans for the installation ofNGV conversion kits, the establishment of standards for NGV equipment andreduced import taxes, plus tax incentives for NGV vehicle manufacturing.In the industrial sector, the use of renewable energy, especially biomass, is beingpromoted for heat generation through:• the establishment of minimum efficiency of the combined heat power (CHP)

system• measures on biomass management in industrial factories• tax incentives for industries using biomass fuel; and legislative measures on

wastewater treatment and waste disposalIn addition, natural gas will be promoted to replace the use of oil, and gas dis-trict cooling and cogeneration will be expanded. The greater use of RE forpower generation will also be promoted, with the key focus on four domestic REsources with high potential: solar, wind, biomass/biogas and mini- or micro-hydro.Furthermore, Thailand is seeking cooperation on hydropower developmentwith neighbouring countries: Laos, Myanmar, China and Cambodia.

The role of regulation, and the private sectorTo support the encouragement of RE use in power generation, a renewableportfolio standard (RPS) measure will be taken. It is expected that 140 MW willbe generated by RE by 2011.Measures will also ensure the improvement of power purchase regulations, theintroduction of “Feed-in Tariff” such as ROIC ≥11 percent. Finally, fiscalfinancial incentives, such as tax privileges, soft loans, investment promotionthrough BOI, measures on externality costs and in terms of carbon tax, will beintroduced.In conclusion, the private sector realizes the benefits of energy efficiency andthe use of NRE. To facilitate improved energy efficiency, the Thai Governmenthas promoted ESCO services, especially in large factories and buildings.

Natural gas will bepromoted to

replace the use ofoil, and gas district

cooling andcogeneration will

be expanded


Financial measures have been devised to boost investment in EE improvement:soft loans, tax incentives, promotion measures via BOI.For NRE, the private sector has taken part in implementing a number of proj-ects, such as biogas for power generation in livestock farms and for waste watertreatment in agro-industry factories. In these efforts, academics and industryhave taken part in research and development of NRE technologies, includingsolar cells for tropical climate, fuel cell development and wind resource assess-ment. The Government’s efforts in policy development in the elaboration ofenergy conservation strategies, and these measures rely upon private sectorcooperation and the energy-saving consciousness of the public. In conse-quence, national energy security will be strengthened and sustainable develop-ment and the well-being of the people will be enhanced. ■


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Thai Experiences in Renewable Energyand Energy Efficiency – 2Amnuay ThongsathityaDepartment of Alternative Energy Development and EfficiencyMinistry of Energy, Thailand

The purpose of the presentation is to review the present scenarios and plansfor change in terms of Thailand’s energy situation. According to the figuresfor 2005, Thailand’s consumption is divided 49 percent oil and 51 percent

electricity (three percent hydro, 13 percent coal and 35 percent natural gas). Itspends 15.7 percent of its gross domestic product (GDP), namely THB 1,150 bil-lion, on energy. The three large consuming sectors are logistics and transporta-tion (37 percent), industrial (36 percent) and residential and commercial (21percent). The agricultural sector accounts for the remaining six percent.Thailand’s renewable energy (RE) target for 2011 is to generate eight percent ofits energy from renewable sources, compared with three percent in June 2006—including hydro. The milestones on the roadmap to that target include:research and development, renewable portfolio standards (RPS) and feed-inlaws, support and incentives and a role of facilitator. Important growth is fore-seen in a mixed portfolio of RE, embracing biomass, municipal solid wastes,hydro, wind, biogas and photovoltaic.For the process of renewable energy development, measures will be taken tooptimize research and demonstration, aimed at increasing efficiency, increas-ing local content and reducing investment costs.

Incentives measures to enable renewablesA significant role lies in the stimulation of the market, with private and publicinvestment being enticed by a combination of RPS, small and very small pro-ducers, feed-in laws and other incentives. These measures will be encouragedand overseen by a national renewable energy committee, under which will be anational RE development and promotion committee, and a national biofueldevelopment and promotion committee.The key incentive measures are led by an RPS, which requires that five percentof new installed capacity of power generation plants must be from renewablesources, and feed-in laws. Further, biomass producers will be able to bid for topup tariffs; renewable (very) small power producers will be stimulated by differ-ential peak/off-peak tariffs and net metering above a minimum level of 1 MW.Other incentives will include soft loans and excise tax exemptions.

Rapid rise in biofuelsGreat attention is being paid to the development of the liquid biofuels sector.Ethanol production is being encouraged from domestic and imported feed-


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Changing theenergy portfolio

requires acombination of

market stimulation,detailed R+D and

standards

Measures aimedat increasing

efficiency,increasing local

content andreducing

investment costs


stock, including molasses, cassava and sugar cane, and further stimulated by theobligation of government vehicles using gasohol. Biodiesel production is set torise from 0.3 ML per day in 2006 to 8.5 ML per day in 2012. This will requirethe expansion of plantation areas for oil palm and jatropha to more than 6m rai(31.25 m hectares).Key to the promotion of the use of biofuels is the national biofuel developmentand promotion committee, which, as well as setting and maintaining standards,watches over a set of criteria, measures and conditions for the production, pro-curement, import, export, pricing, sale, distribution, storage, developmentand promotion of liquid biofuels. An important thrust in this is the encour-agement of gasohol distribution and sales through ‘gas’ service stations, whichtotaled more than 3,100 in mid-2006.With regard to increasing the use of renewable energy resources, plans havebeen drawn up for a doubling of biomass use for power generation by 2020.Micro-hydro and photovoltaics are expected to grow by a factor of 10, andmunicipal solid wastes, wastewater and wind are projected to grow in use by evengreater factors.Parallel to these thrusts to increase use of renewable sources are to significantlyimprove the energy elasticity of the country, namely the percentage increase inenergy use for each percentage increase in GDP. In the short-term, these sav-ings are expected to bring the elasticity to 0.85:1 by 2011, from a baseline of1:1 in 2006. In the longer term, the so-called challenge case target for 2020has been set at 0.6:1.In the industrial sector, great savings are planned in terms of energy efficiencythrough a series of measures, from tax incentives and investment support fortechnology development and technology transfer, to soft loans (including con-comitant steps with the country’s financial institutions), energy conservation,and sharper, enforceable standards and criteria for energy use. Similar savingsare foreseen for the household level, with a great emphasis on public educationand awareness building about energy conservation. ■



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Thai Experiences in Renewable Energyand Energy Efficiency – 3Anon SiriaengtaksinSenior Executive Vice President, Corporate Strategy and Development, PTT

T he purpose of this presentation is to examine a number of aspects ofenergy efficiency, and the contribution made by increased use of naturalgas.

Underlying the basic principles of energy efficiency policies are the fundamen-tal tenets that efficiency has highly a domestic initiative, it reduces imports ofenergy, it substitutes new supply, it is cheaper and faster and it reduces pollu-tion.Natural gas contributes by reducing imports of energy, and improves thermalefficiency.Since 1981, the place occupied by natural gas in Thailand’s electricity genera-tion has grown from an insignificant fraction to 31 percent of all energy sourcesin 2005. This growth has helped to replace imported oil at the value in 2005terms of US$ 58 billion. Furthermore, natural gas has improved the thermalefficiency of power generation.

More improvements in energy intensityPartly as a result of these changes, Thailand has improved its energy intensity,or the total primary energy consumption per dollar of GDP. However, its levelis still twice that of many OECD countries and four times higher than Japan’s.There is a strong need for Thailand to decrease its energy consumption inorder to increase its competitiveness.Important roles can be played by natural gas in two key sectors: firstly in trans-portation, where there is a target set for 2010 to have 500,000 cars and trucksrunning on natural gas, and 740 retail stations providing distribution andsales. The second sector is in heating and cooling, through greater use of nat-ural gas in district cooling and in combined heat and power.To meet this growth, the networks for natural gas distribution are set to growfrom the 2006 level of 774 km to more than 1,700 km in 2010.The increased use of natural gas in power generation will further reduce pollu-tion and greenhouse gas emissions. ■


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The multiplebenefits of energyefficiency policies,

aided in partthrough natural gas

There is a strongneed for Thailand todecrease its energy

consumption inorder to increase

its competitiveness




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39Renewable Energy: International Experiences


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Renewable energy policy: Formulation andimplementation in ChinaPeter MeierENTEC

T he purpose of this presentation is to provide some insight into therenewable energy debate since 2000, and in particular to illustrate therole of economic analysis in this policy debate.

Clearly the problem in 2000, after a decade of largely unsuccessful efforts tobring more renewable sources into the system, was not how to get yet anotherdemonstration project, or even how to get carbon finance or the CleanDevelopment Mechanism (CDM), but rather was how to achieve a really large-scale implementation of renewable energy, grid-connected renewable energy,such that China’s potential could be realized.And from this insight, that we needed a policy vehicle to deliver this debate asto what should be the appropriate options, came into being the so-called ChinaRenewable Energy Scale-Up Program (CRESP). It was a collaborative effort ofthe World Bank, the Global Environment Facility (GEF) and the Governmentof China.

Wind and water above allClearly the main challenge in China is the implementation of wind energy. Thefirst large renewable energy project in China—World Bank and GEF-support-ed—started in 2001. It had two main components: off-grid solar PV and windpower. The PV component has been a real success. In 2005, 100,000 solarhome systems were sold in China. The price of solar home systems has comedown dramatically, quality control has improved, and most of the PV compa-nies are ISO 9000 certified. In short, it has been a great success.Unfortunately, with the wind component, the story is somewhat different. Theoriginal design included a US$ 100 million loan for wind farm developmentprojects; of these, only one could be realized. The difficulty was simply to securea Power Purchase Agreement that was acceptable to the buyer. In the end, thewind component of the project was scaled down to only some 21 MW and a US$13 million loan for a wind farm in Shanghai.The big Asian Development Bank (ADB) wind farm project in China suffereda very similar fate. Three large wind farms were planned, no buyer was found tobe willing to pay the actual costs and in 2003 ADB cancelled the loan.So today’s situation is that in terms of small hydro, China is the world leaderand accounts for about 60 percent of global small hydro capacity. In wind, it israther more modest; probably accounting for two to three percent of globalwind capacity by the end of 2005, with a little over 2,000 MW in place. Asnoted before, there have been good results for PV.

The elaboration ofa national

renewable energypolicy requires

broad and deepanalyses


Renewable Energy: International ExperiencesFuture Energy Scenarios Toward Sustainable Energy Policies and Practice in Thailand — Workshop Proceedings40

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So what were the initial expectations of the policy debate? The table of targetsset by the State Planning Commission of the 1990s, which anticipated that, evenin the absence of additional policy incentives, wind would reach 3,000 MW andsmall hydro 28,000 by 2010, and with some additional incentives, in the pol-icy scenario number two, there would, by 2010, be 10,000 MW of wind.Tabulations of targets like this in China are really a residuum of the old Statecentral planning tradition of the State Planning Commission. Given China’scommitment to market reforms, it was quickly realized that, for targets to bemeaningful, there needed to be both the carrot and the stick.Yes, there had to be packages of incentives, but there also had to be sanctionsfor non-compliance. In other words, without penalties for not meeting targets,targets do not make a great deal of sense, other than to demonstrate theGovernment’s general commitment.

When renewables are economicalSo there was a set of expectations in the senior policy making community thatwe had to deal with. And in 2000 and 2001, the biggest concerns were China’simpending accession to the World Trade Organization and, more importantly,about the competitiveness of Chinese industry. My colleague Dr. de Wildetalked this morning about the importance of energy and infrastructure to fac-tor productivity—this was a main concern. Yes, renewable energy is fine andgood, but it is warranted only if it is economical. Coupled with this was themore important realization that with China’s energy dependence so heavilyfocused on coal, the health damage costs in China were particularly serious. Inaddition to this, the damages from acid rain, the material damage, the wholerange of pollutants associated with coal burning and power generation, hadserious economic consequences. Therefore, it followed that in the calculationof what was economic, one should consider not just the straightforward produc-tion costs of coal generation, but also the damage costs of coal and fossil gener-ation needed to be considered in the economic analysis. There was a fairly earlyagreement that, yes, one needed to consider these so-called damage costs in theeconomic analysis but only those that related to local air pollutants: particu-lates, sulphur dioxide, nitrogen oxide—these were the ones that were causinglocal health damage costs and the acid rain problem. As for global warmingCO2 emissions, China acknowledged the seriousness of that, but it was not real-ly part of the national debate. If the global community was willing to pay foradditional emission reductions of CO2, that was fair and good, but that shouldnot be part of the national target which would be warranted on the basis ofnational economic considerations alone.There was an expectation that, as a large country, most of China’s renewableenergy resources are located in the country’s western regions. The map showsdarker areas stronger in small hydro resources, and the next map shows mostwind resources in Inner Mongolia and the north-east; in the central part thereare not so many and in the eastern coastal part there are greater resources. Theexpectation was that if could develop western regional renewable resources, thiswould contribute to the economic development of the region, which is a veryhigh priority of the central government in Beijing.

One shouldconsider not just

the straightforwardproduction costs of

coal generation,but also the

damage costs ofcoal and fossil

generation




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The advocates of renewable energy said “what is the problem? Look at Germany.They have a generous feed-in law price for wind of US$ 0.7/kWh. If Germanycan put up thousands of MW of wind, we can do 10,000 MW, no problem. Allwe need is a generous feed-in tariff.”

That is of course true; however, the question was to what extent is this a reason-able expectation, and the early failure both of the ADB project and of the windcomponent of the Renewable Energy Development Project of the World Banktestifies to the fallacy of that expectation. The slide with Figure 6 shows thatprogress with wind power has been modest.

China has over 200 MW in 2004, and that expanded significantly in 2005when China reportedly added about 500 MW compared with 2,400 in theUnited States, 1,400 in Germany.

Another expectation was better data. It was quickly realised that in terms of windresource data China was rather poor. Several major projects were started to doa better job of wind mapping and wind resource site assessment.

The basic questions

So, let us move to the analytical questions that were posed to the CRESP studygroup, a group of senior policy makers, economists, and some of China’s lead-ing renewable energies resource experts. The questions are as follows:• First question: How much renewable energy generation is justified with and

without consideration of externalities; namely, these damage costs caused byfossil fuel generation?

• Second: Given such a target, how is it best achieved? There are many possibleapproaches that have been tried elsewhere; but what would be best for China,and why?

• Third: How do the various policy options perform on criteria other than eco-nomic efficiency, such as, in particular, western region economic develop-ment, employment—a great concern of the government, because employmentis being lost in the coal mining industry of which a lot is in the west—and whatis the impact of large-scale renewable energy targets on employment, or ener-gy supply diversification?

There is the fundamental question about the economic quantity that is justifieddue to something economists called the supply curve. A supply curve is simply arepresentation of a cumulative quantity of a particular renewable energy. Theslide shows the rising curve of small hydro supply. Where that line intersects theprice of coal-fired generation is the economically optimal quantity of smallhydro that is warranted on the basis of economics. In the case of wind, thatcurve is higher. The cost of wind generation is that much more expensive.

But the moment you add the costs of the damages associated with coal-firedgeneration, the higher the true social cost. As a result, a small part of wind gen-eration cost becomes economic, and a much larger part of small hydro becomeseconomic. This is a fairly traditional economist’s tool to look at supply-demandissues and, in this particular case, at what are the relative economics of the var-ious generation forms.


The table of the province of Zhejiang shows which projects above the line of thecost of externalities (damage costs) would be economic.

The next tables show the same approach being applied in several countries,firstly in Croatia. The case of South Africa is particularly difficult becauseESKOM, the state generating company, has access to coal-fired generationprojects that cost almost nothing: mine-mouth projects, lots of projects thatwere constructed in the days of apartheid with a huge amount of capacity—anda very difficult state in which to implement renewable energy projects. Closer toThailand, we see the potential of small hydro in Vietnam. It is, thus, a fairlycommon tool.

Issues of capacity

The realities are less promising than the apparent potential of renewable ener-gies. Let us look at the realities of the capacity credits of renewable energies. Welooked at what would happen if we set a target of 2,600 MW of wind, forced intothe north China grid, most of it located in Inner Mongolia. It only displacesabout 1,000 MW (880 MW of coal and 250 MW of CCCT—combined cyclecombustion turbines driven by steam heated by fossil fuels). Why? Becausewhen you look at the system as a whole, given that wind projects do not operateall day, in order to meet the peak load you need stand-by capacity. Therefore,the capacity credits from non-dispatchable renewable energies (that is, renew-able energies which cannot be turned on and off—dispatched—in response toshifts in demand) are much smaller than you may think. There is a real eco-nomic cost.

In the case of small hydro, the value of a kilowatt hour of electricity to the gridis critically dependent upon the time of day. A pure run-of-river project hasrelatively little economic value to the grid. Yet providing only just a few hoursof peaking storage transforms the economic value of the small hydro project tothe grid. In some projects like in Zhejiang, on the eastern coast, which benefitsfrom a lot of large-scale irrigation projects, most small hydro projects had somestorage. But in some of the western provinces, such as Sichuan, 64 percent ofSichuan’s hydro projects are pure run-of-river only, thus with no peaking stor-age and their economic value is quite small.

Another reality in the economic issue of where do you build renewable energyplant is the fact that the damage costs vary by an order of magnitude, depend-ing upon where you are in the country. In the western region, where popula-tion densities are not quite so high, incomes are low and damage costs are low.In the eastern provinces on the coast, in the big cities, with high populationdensity and much higher incomes, damage costs associated with health, and lossof production in industry and agriculture, are high.

The key lessons of the analytical work are as follows: One, given that the windturbines do not blow all day, we looked at six different sites of turbines in thenorth and south of the province of Inner Mongolia. The average of wind speedsfollowed pretty much the same seasonal pattern, whether in the north or thesouth. There are no real gains to be made by spreading out the sites inside theprovince. What about different provinces? Looking at Inner Mongolia in the


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north, or Fujan on the eastern coast, there is the same situation, so you cannotdiversify spatially on wind energy.The same problem exists with hydro. Looking at the annual demand curve forZhejiang Province, we see that conventional models may have a limited ability toportray the value of renewable sources, especially in terms of effects on theportfolio. In Zhejiang, the small hydro projects show a high degree of season-ality, with low output in winter months and high output in the summer. Thereis a poor match between demand and output. Again, these are unoptimizedreservoir operating rules—basically, they are run-of-the-river. To optimizereservoir management rules does play a key role in a portfolio.In terms of wind farms, and their output and demand in Zhejiang, we see thesame problem, but in the opposite form. Wind farm output is high in winter,and in summer it is far below the demand curve.When, however, you put the two together, you find that the effect of this com-bined portfolio is to smooth out the output at least on an annual basis. So if youdo have some storage capacity, a combination of wind and small hydro will solvethe particular problem of seasonal variation.

The importance of detailed dataSeasonal variation is fine, but what about daily variation? In Zhejiang, the windfarm output on an hourly basis does not match the hourly demand. But whenyou put it together with hydro, and provided that there is at least six hours dailypeaking storage, using optimised operating rules, just as in the example of Fijigiven by Dr. de Wilde earlier, with matching portfolios, you can then solve someof the typical objections that people have to renewable energy. That is, that it isnon-dispatchable and does not have a capacity credit.A conclusion to be drawn here is that it is necessary to have a simulation modelshowing hourly chronological production in order to properly assess the port-folio effects.The same problem of interpretable data applies in the case of wind speed esti-mates, where resource estimated is often too high and projections are too opti-mistic! This was the case in a feasibility study in Sri Lanka, and in Denmark. Inthe latter, wind speed data from the Danish Windstats database was reviewed for1,080 turbines with more than six years of operating data, and a comparison wasmade between the actual annual load factor and the capacity factor which hadbeen estimated in the design phase. The review showed that actual wind speedswere on average 12 percent less than the design estimate! That situation gotworse, with the more recent the wind farm the greater the error in the projec-tions. This is a universal problem with wind farms: there is a need for great carewith the resource estimates which you think you have.The next lesson is about the importance of year-on-year variations. In SriLanka, over the period 1988 to 2002, there was very little difference betweenthe average annual production cost for CCCT (based on actual variations inauto-diesel prices, one of the most volatile fossil-based fuels in terms of prices,and widely used in Sri Lanka) and for energy from the south coast wind farm(based on annual variations in observed wind speeds at Hambantota). It is only



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since 2002 that the price difference, with all the upward movements in fossilprices, has become truly distinguishable.

At the level of implementation, there are three key questions:• Do you set the price, such as in the German feed-in law, and allow the mar-

ket to determine the quantity, or do you set the quantity, as in the ‘mandatedmarket share’, and allow the market to determine the price?

• Who pays the incremental cost? The market pays the cost of coal generation,but the market does not pay the costs of avoided health damage. Someone hasto pay them. In the United States, a large part of this incremental cost is paidthrough the production of tax credits. In many other countries, the cost ispassed on to the consumer, in a variety of formulas.

• Who enforces the rules?

In China, a concession model has been developed which aims at encouraging thedevelopment of an indigenous Chinese wind turbine industry. The model pro-vides guaranteed off-take (purchases), and guarantees for the transmission line,access roads and the length of the concession period (25 years). The model is nowemerging in several large projects, but it is too early to report on its benefits.

Where is best?

The conclusion with regard to where to build renewable energy projects inChina is that, from the perspective of economic efficiency, the best locationsare not necessarily those with the best physical resources. Inner Mongolia hasthe best wind regimes, but it is not necessarily the best place to build farms. Ithas low damage costs, and it benefits from mine-mouth coal-fired generationand, thus, it has very low generation costs. The avoided cost is low. It also has asmall proportion of storage hydro.

The eastern coastal provinces, on the other hand, where coal has to be shippedlong distances or imported, have high generation costs and the damage costs aremuch higher. So you need only medium wind resources to make for an eco-nomic wind farm in these coastal provinces, but you need super, really super,resources in Inner Mongolia (which are rare) in order to be able to offset thelow damage costs and the low economic price.

The question of How much? raises the issue that China is clearly committed tomarket reforms, and these days there is a bias towards approaches that rely onthe market mechanism. We were therefore able to show that, from an econom-ic efficiency point of view, the best system was a mandated market share, orrenewable sources portfolio standard, in which it was justified, by 2010, to haveabout four percent of total generation from renewable energy, excluding largehydro. More recently announced targets are ten percent and 15 percent(including large hydro), both for 2020.

The development of the western region is indeed stimulated by the sale of trad-able green certificates. The western provinces benefit from selling their renew-able energy production to, for example, Shanghai, which, instead of buildingan expensive wind farm, purchases a certificate from a small hydro station inSichuan.


This system of mandated market share does require penalties for non-compli-ance. All energy distribution companies have to purchase at least four percentof their total sales from renewable energy—and you have to penalize them if theydo not.Targets without penalties and enforcement mechanism do not make a great dealof sense.As to Who enforces?, the Renewable Energy Law of China is the first step in thisprocess, setting the ground rules. However, the implementing rules and regu-lations are being devolved to the reform commission and to provincial entities.Regarding Who Pays?, the first set of rules implementing the Renewable EnergyLaw were issued early in 2006. Essentially, it provides that incremental costs aremet by the country as a whole. Hydropower will be implemented as now on aprovincial basis; the price difference between RE power and the cost of powergeneration from coal fired projects will be shared across power sales at theprovincial level and above nationwide; agricultural power users, Tibet, andcities and counties with their own power grids are exempt from the surcharge;power price for wind projects is set by bidding (‘government guided pricing’)and for biomass, geothermal, and others by ‘government fixed pricing’.The status of the China Renewable Energy Scale-Up program is that it will ini-tially focus on capacity building, institutional strengthening, and implement-ing the Renewable Energy Law, in four pilots at the provincial level (eachprovince with its own investment component), namely Fujan (wind); Jiangsu(Biomass power plant 110t/h straw-fired boiler, 25 MW); Zhejiang (small hydrorehabilitation) and Inner Mongolia (wind).Finally, as for the question, Will China attain its renewable energy target?, theanswer is that it is probably too soon to say. ■



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Renewable Energy Policies: Impactsand EffectivenessJan HamrinPresidentCenter for Resource Solutions

In her Comparison of Feed-in Laws, RPS, and Tendering Policies, JanHamrin presented the key National Renewable Energy Policies in terms of acomparison of feed-in laws and tariffs, renewable portfolios standards

(RPS) and the tendering approach. Based on a comparison of the results of thevarious approaches, and the primary criteria for decision makers, a set of con-clusions was described. For the purposes of facilitating the given comparisons,part of this summary of the presentation is given in a matrix form.The first of national renewable energy (RE) policies, feed-in laws, is basedupon a price which is fixed by government, known as a government mandatedprice. Under this approach, a utility company must take power from eligiblefacilities and power production sources. These laws are focused on new andemerging technologies.There are four methods of setting price. First, the price can be based upon theestimated long-term cost plus a reasonable profit. The second method is to takethe wholesale avoided cost of power (as in California in the 1980s). Thirdly, thewholesale avoided cost of power can be used as a basis, plus an incentive (as hasbeen practised in China). The fourth method is to take a percentage of the retailelectricity rate (as is the case in European feed-in laws).

Factors of successThe key success factors to the feed-in laws approach are, primarily, that there isthe security of a long-term contract, usually between 15 to 20 years. There is aguaranteed buyer, a tariff which gives reasonable rate of return and, finally,there is the flexibility to capture cost efficiencies. These facets require theinvolvement of the private sector, because utility companies have been, in thepast, unfamiliar with such approaches.In the case of renewable portfolio standards (RPS), there is a government man-date which is quantity-based. As with feed-in laws, the approach is focused onemerging and new renewable energy technologies (RET). There is also arequirement placed upon wholesale or retail market participants (such as theutility or grid company).The factors of success in an RPS approach are that the design of the policy iscritical to success. The levels of quantity targets are based upon energy and out-put, and increase over time. Once again, new and emerging RE are eligible.There is a need to create a certificate trading platform, which is based upon thetracking of compliance with the stipulated quantities.


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Which policieswork best under

whichcircumstances,

with whichobjectives andwhich results?


In the case of tendering policies, there is a government-sponsored competitivebidding process for RE, with contracts awarded to the lowest priced projects.Guarantees are given, by contract, to take all power generated at specified pricesover a fixed-time period. In this approach, it is the government which pays theincremental cost of renewable energy. A tendering policy is usually combinedwith other policies, such as public benefit funds (as with the non-fossil fuelobligation NFFO in the United Kingdom) or resource concessions (as withwind in the case of China).The factors of success with tendering policies are, primarily, that the existenceof a long-term standard contract reduces the level of risk for investors. Thecontracts and tenders that are awarded must be large enough to achieveeconomies of scale, and they should be awarded every year to create stability.That same stability can be enabled by having a stable source of funding.Compliance can be facilitated by the imposition of appropriate penalties fornot meeting milestones.There is a rich mix of primary criteria to be met for successful performance ofeach of these three approaches.Firstly, there must be a clear volume of renewable energy for a specified time,and the approach must result in both cost and price reductions, and ofresources used. Equally, the market for RE must become and remain sustain-able. Furthermore, the approach should lead to the development of localindustry, it must provide certainty of sound performance for investors andthere must be simplicity in implementation.

Criteria Feed-in laws RPS TenderingQuantity of RE Development Feed-in laws can produce large If strongly enforced, RPS can meet Tendering: Related only to quantity

amounts of RE in a short time period realistic RE targets of RE established by process

Cost and Price Reductions n.a. RPS and Tendering are best at Tendering:reducing both cost and price, using As with RPS, plus this approachcompetitive bidding. is good at reducing cost.Need long-term PPAs There is a need for a mechanismEnforcement of penalties is critical to reduce price over timeespecially for RPSMust have competition and multiplebiddersVolume: large projects, many projects

Resource Diversity Feed-in laws: Excellent at bringing in RPS and Tendering: Both approaches See RPSwide diversity of technologies favor least-cost technologies

Diversity possible with separatetechnology targets or tendersAdministrative complexity adds costs

Sustainability of Market Feed-in laws & RPS: Have been the See Feed-in laws Tendering : Tied to resourcePolitical sustainability needs to be most technically and economically planning process—sustainable ifconsidered (Feed-in more vulnerable) sustainable in international experience planning supported, stable source

Most vulnerable to political of fundingunsustainability

Local Industry Development Feed-in laws: Excellent for RPS & Tendering: Favours least-costcreating local manufacturing technologies and establishedand infrastructure industry player

Needs companion policies

Certainty for Investors Feed-in laws: Price guarantee & PPA RPS: Lack of price certainty difficult Tendering: Can provide certaintyAll 3 policies can be designed to give great certainty to investors for investors if well designedreduce investor risk PPA recommended to reduce Somewhat more risk than

investor risk Feed-in Law

Simplicity Feed-in laws: Most simple design, RPS: More complex to design Tendering: More complex thanadministration, enforcement, & administer & complex for Feed-in laws, simpler than RPScontractual generators

On the basis of the above comparison, it can be generally concluded that feed-in laws are the simplest to administer and enforce. They provide the greatest



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There must bea clear volume ofrenewable energy

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resource diversity, and the most development of local industry. However, theymay be the more expensive in the short run. This can be mitigated by adjustingthe price over time. It goes without saying that the feed-in laws approach worksbest in regulated markets.The approach using the renewable portfolio standard (RPS) arrives at a goodminimization of both cost and price, if it is accompanied by long-term powerpurchase agreements and if it is well designed. It also encourages a goodresource development, through the use of certificates for development in less-populated regions. Additionally, while the approach is more compatible withreformed electricity markets, it is more complex to administer and it may takelonger to build local industry and to meet resource targets.As far as the tendering approach is concerned, it is the best way to achieve priceminimization, if the industry established—or, it may be noted, in scenarios ofvolatile, emerging sectors with an uncomfortably broad raft of operators. Thetendering approach can be combined with RPS, resource concessions and publicbenefit funds, and these companion policies are indeed necessary to help buildup the market. If the approach is not carefully implemented, it can discourage theformation and development of local industry formation. Finally, there can bepolitical challenges to overcome in finding stable sources of funding.

A policy you can enforceIn conclusion, and by way of comparison, each of these three policies has prosand cons, with different policies better matched to different goals.Consequently, it is important to articulate and prioritize goals, and to adopt theposition that there is no one perfect policy—there are benefits to be gained fromdeveloping an integrated policy framework that may change over time. For eachpolicy, the issue of timing is important to infrastructure development.The ability to enforce mandates, and clear policy design, is critical to success. Itis worse to have a policy which you cannot enforce than to have no policy at all. ■


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Ethanol and Other Biofuels:Panache or DreamMasami KojimaWorld Bank

T here is an increasing global interest in liquid biofuels. There are threeunderlying reasons for this. Firstly, liquid biofuels have a strong poten-tial for reducing greenhouse gas emissions (GGE) in the transport sec-

tor, the sector widely seen as presenting the greatest challenges for the mitiga-tion of GGE. Secondly, liquid biofuels are perceived as offering significantcontributions towards energy security. When produced nationally, throughreducing a nation’s reliance on imported oil, and through creating an alterna-tive source of supply, GGE contributes towards diversification, often seen as akey facet of energy security. Thirdly, increased activation of the liquid biofuelssector provides, in many countries, a direct opportunity to provide support todomestic farmers. It is considered by some to be a significant driver in theuptake of liquid biofuels, and a driver that must not be overlooked. Indeed, itis sometimes seen as serving almost as a substitute for former subsidies, anincome support mechanism for farmers which is rapidly being eliminated inmany countries.

Among the principal producer countries of feedstock for ethanol and biodiesel,considerable use is made of subsidies to producers, principally in OECD coun-tries in North America (USA) and Europe (Spain, Sweden and France for sugarbeet and cereal crops for ethanol, and France, Germany and Italy for oil seedsfor biodiesel). Brazil is widely known as the major producer of ethanol fromsugar, with subsidized fuel sales prices. In Asia, China produces ethanol frommaize, sugar cane and some cassava. Malaysia and Indonesia foresee biodieselproduction from palm oil, and India from jatropha, although the logisticalchallenge of harvesting and shipping from marginal lands should not be over-looked. Elsewhere, Brazil and Argentina are expected to use soybeans extensive-ly as a source of biodiesel.

Determined stimulation of the market

The market for liquid biofuels, primarily for transportation, is heavily protect-ed. There is a variety of support mechanisms in use. Reductions in fuel taxes andother fuel charges are universal. As well as subsidies to feedstock producers inOECD countries, many countries use tools such as blending and mandated con-sumption requirements, import tariffs, subsidies on vehicles and price support.Among the powerful mandates which have been introduced recently, the UnitedStates requires that by 2012, 7.5 billion gallons of renewable fuels will be in gaso-line—approximately five percent of 2005 levels of consumption. Brazil has longrequired that between 20 to 25 percent of ethanol be present in gasoline.

The potentialimpact of biofuels

raises issues ofcompetition, from

multipleperspectives


Given that liquid biofuels will continue for some time to represent only a smallportion of total petroleum fuel production, they are not expected to have anysignificant reduction effect on fuel prices. They may have some slight effect onthe rate of fuel price rises, but even there it must be recalled that these pricesare also subject to upward pressure as a result of fuel economy measures.Furthermore, the price level of liquid biofuels is also subject to relatively highenergy costs in feedstock production (including fertilizer), in biofuel manufac-ture and in shipping and transportation costs.

Price levels and the ‘food or fuel’ issuePrice levels of liquid biofuels are, from another perspective, subject to compe-tition in agricultural products. Many feedstocks such as sugar and molassescompete in the sweetener market, while maize, cereals, root crops and oilseedsare in demand as food and, increasingly, animal feeds. As well as affecting, orbeing affected by, other demands for biofuel feedstock, these same feedstockhave a relationship with other non-biofuel feedstock, on croplands and evenmarginal land.Given the link between petroleum fuel prices and liquid biofuel prices, there isalso a direct co-relationship between these prices and the prices commanded byagricultural crops.In Brazil, E5 fuel has been mandated for almost 70 years. Its use, especially thelaunch of a specialized product in 1975, has been heavily promoted by priceguarantees, price subsidies, public loans, and state-guaranteed private bankloans to processors and growers. Nonetheless, after peaking, the sale of hydrousethanol declined from 1989 to 2004; so-called flex-fuel vehicles and high oilprices boosted ethanol consumption more latterly. However, with high worldsugar prices in 2006, ethanol become more expensive than gasoline, and hassuffered from millers switching to other sugar-based products.There have been continuing improvements in production efficiency, resultingin large cost reductions through the decades. They have also benefited from therelatively low (rain-fed) production costs of sugarcane and ample land, plusextensive R&D.The apparent alternative of cassava has emerged to less attractive than original-ly thought: it has higher energy costs in processing (no bagasse); its mass culti-vation is sensitive to pests and disease; and harvesting is labour-intensive.

The broader picture of broader costsIf there was a worldwide mandate to blend five percent of biofuels in gasolineand diesel by 2015, according to a study in 2006 on the impact of biofueldemand for agricultural commodities by LMC International, an additional50 million hectares would be required for ethanol production, and a similararea for biofuels.The prospects for the biofuels market are therefore tempered by such parameters.The pressures for increased cultivation areas pose environmental problems, andare also confronted by the physical limitations of competition for land andlabour. Furthermore, the close and upward (although slowing) relationship of


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liquid biofuels …are not expected

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liquid biofuels prices to fossil fuel prices has an impact on other agriculturalproducts. These developments contain additional costs which also need to beweighed alongside the substantial cost of subsidies to the biofuels market which,from a historical perspective, has long appeared to be ubiquitous. ■



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69Energy Efficiency: International Experiences


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Energy Efficiency in the Global Context:Role and Opportunities forEnhancing Energy SecurityAshok SarkarWorld Bank

The rise in primary energy demand is set to expand in particular in devel-oping countries, according to the International Energy Agency (IEA).Whereas developing countries accounted for 38 percent of global

demand in 2003, the share is expected to grow to 48 percent by 2030 and to55 percent by 2050. Similarly, the CO2 emissions of developing countries areprojected to grow faster than other regions, overtaking the OECD set of coun-tries at some point in the decade 2020.Such growth in energy is not sustainable. This business-as-usual expansion sce-nario cannot be sustained for a number of factors. There are constraints oninvestment on the supply side, and the significance of the current regime ofhigh oil prices is likely to grow; projections for 2006 are that prices are likelyto remain above US$ 70/barrel. This is likely to have a major impact on thegrowth of net oil-importing countries. Furthermore, there are massive envi-ronmental implications with enormous impacts at local, regional and globallevels. All in all, this expansion would lead to energy security.Steps to improve energy security are seen as the single one major way to reduceCO2 emissions, accounting for almost one-half of all energy reductions.According to the IEA, by 2050, improved energy efficiency—that is, reducingemissions by about 40 percent on current standards—can actually reduce totalemissions in OECD countries to a third below their 2003 level. In developingcountries, by 2050, the total volume of emissions would grow to two-thirdsabove their 2003 level.

Achieving the correct mix of efficiency and alternativesCompared with energy efficiency, other measures take a clear second place,while remaining doubtless important. The use of biofuels in transport wouldresult in about four percent of the global total of reduced emissions, and a fuel-mix in buildings and industry perhaps six percent. The accumulated total ofsaved emissions in power generation would account for about one-third of allemissions, being the sum of savings achieved in diverse generation scenariossuch as coal to gas, fossil fuel generation efficiencies, use of renewable sources.Consequently, improved energy efficiency is seen as the most important con-tributor to reduced emissions.The renewed global interest in energy efficiency is expressed through variousinitiatives such as those of the World Bank Group, regional development banks,

Energy efficiency isseen as the most

importantcontributor to

reduced emissions,but more

indicators areneeded


the European Union, the ASEAN Energy Ministers and such individual coun-tries setting up EE targets, legislations and institutions as China, India,Morocco, South Africa, Tunisia, Sri Lanka and Vietnam.From the perspective of Thailand, there is much to commend in the emphasisplaced on improving energy elasticity. Historically, the energy efficiency stepstaken in OECD countries since the energy shocks of 1973 are calculated to haveled to an avoidance of additional energy use of 48 percent in the period up to1998. This is slowly leading to a decoupling of energy and GDP growth. Since1971, each percent increase in GDP has resulted in a 0.64 percent increase inprimary energy consumption, globally. Between 2006 and 2030, world GDP isexpected to grow by an average of about three percent per year, while primaryenergy demand is projected to increase only by 1.7 percent per year, to reach15.3 billion tons of oil equivalent (toe) by 2030.Nonetheless, in Thailand, while many steps have been taken to improve energyefficiency, including standards and labeling criteria, demand-side managementmeasures by utilities and the promotion of energy efficiency funding, the coun-try’s energy intensity still remains on the higher side.

The central role of efficient indicatorsThe reason for this is hard to explain, in the absence of systematic energy effi-ciency indicators. These are designed to monitor levels and changes in energyefficiency for the two primary purposes of 1) allowing comparisons betweencountries of their relative energy efficiency situations, at national as well as sub-regional levels and by fuel type and sectors, and 2) for understanding and com-municating the impact of energy efficiency policies, legislation and institution-al development, in terms of how these are turned into actions on the groundand how they are implemented.The importance of energy efficiency indicators is that they can underpin themethodology for analyzing energy-use trends, which distinguishes among threemain components affecting energy use; namely, 1) activity levels, 2) the struc-ture and mix of activities within a sector, and 3) energy intensities (energy useper unit of sectoral activity).The separation of impacts on energy use from changes in activity, structure andintensity is critical for policy analysis as most energy-related policies targetenergy intensities and efficiencies, often promoting new technologies.Accurately tracking changes in intensities helps to measure the effects of thesenew technologies, and changes in energy use within sectors can be analyzed interms of sectoral activity, sectoral structure, and energy intensity of each sub-sector. The national policy targets are ambitious, comprising a reduction intotal energy consumption by 20 percent by 2009; a reduction in energy elas-ticity from 1.4 to 1.0 by 2011; reduced oil use for transportation by 25 percentby 2009, reduced energy consumption in the industrial sector by 25 percent by2008, and reduced energy consumption in public offices and buildings by 10-15 percent immediately.The first steps to achieving these targets is to build upon existing successes, suchas scaling up demand-side management and expanding it beyond the important

Energy Efficiency: International ExperiencesFuture Energy Scenarios Toward Sustainable Energy Policies and Practice in Thailand — Workshop Proceedings70

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The separation ofimpacts on energyuse from changes

in activity,structure and

intensity is criticalfor policy analysis




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areas of lighting and household appliances with the essential labels, standardsand incentives. As well as Thailand’s own progress in these fields, the work ofother countries such as Mexico, Brazil and India demonstrates how publicawareness and utility incentives can make an important difference.Beyond this, it is necessary to move into a systems approach dealing withmotors, pumps and compressors. The latter area—of motor systems energy con-sumption—accounts for about 50 percent of industrial energy conservationopportunities.The energy services company (ESCO) approach, renowned, amongst others, inChina and the United States, has provided a model for inducing significantenergy efficiencies in the industrial and commercial sectors. The investmentsmade through ESCO could be expanded in important and sustained waysthrough additional measures in the financial sphere.Similarly, their work could be underpinned by wider use of energy audits,building codes and an enabling environment. ■

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Energy Efficiency Policy Development andPlanning in Japan: Strategies,Programmes, Impacts andIndicatorsTakeshi SekiyamaEnergy Conservation Center, Japan (ECCJ)

The purpose of the presentation is to describe the evolution and extent ofenergy conservation in Japan. The promotion of energy conservation inJapan has taken place against a background of increases in energy con-

sumption gradually moving towards stabilization. In the 30 years since theenergy shocks of 1973, consumer sector consumption has risen from a baselineof 100 in 1973 to a level of 220 in 2003. The transportation sector rose to 210,but like the consumer sector, it had been a few degrees higher in the late 1990s.The industrial sector, after a long period from the late 1970s to the mid-1990sbelow the 1973 level of 100, has slowly increased its final energy consumptionlevel to 105 in 2003.

Persistent improvements in energy intensityBehind the picture of these overall rises in consumption, there has been a pos-itive development in the primary energy intensity ratio. After a dramatic fallfrom the level 1,966 ton oil equivalent (toe) per billion yen after the first oilcrisis in 1973, which continued past the second oil crisis in 1979, and lasteduntil the mid-1980s, the reduction has become more gradual, continuing to965 toe/bYen in 2003.Much of this is due to vast improvements in industrial processes. Improvedcaster technology in the iron and steel industry had gains in energy intensity of81 percent over the period 1973 to 1994; there were gains of 58 percent in thepetrochemical industry, 65 percent in cement production and 61 percent inpaper and pulp. Such measures in the industrial sector were followed by meas-ures in the residential and commercial sectors in the 1990’s. More recently, allthe measures, aimed initially at energy conservation have been extended inefforts to curtail CO2 emissions.As a result, the energy intensity of Japan, according to the International EnergyAgency, is 106 toe per US$ million. This compares with a world total average of317 toe/US$ m, 152 toe/US$ m for Germany, 201 toe/US$ m for all OECDcountries, 570 toe/US$ m for Malaysia, 629 toe/US$ m for Thailand and 1,025toe/US$ m for China.This has been enabled through the law concerning the rational use of energy,also known as the energy conservation law. Enforced initially in 1979, it has

Significant resultsin energy

conservationhave followedthe application

of detailedregulations,

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been amended and enforced another five times. It aims to enhance energy effi-ciency in order to achieve the so-called 3E harmonization of economic growth,environmental protection and energy security. The law has been supported bythe passage of the associated energy conservation and recycling assistance lawwhich makes provision for low-interest loans and tax incentives, includingdeductions on tax for the acquisition cost of equipment or special depreciationon these costs.In turn, these measures have been supported by programmes of subsidies forthe installation of advanced energy efficiency facilities, co-generation systems,new low-energy buildings, low-emission vehicles, and research, developmentand support for energy services company (ESCO) enterprises.In this, the ECCJ provides advice and information on the above measures toconcerned stakeholders.

Smart modelsIn the industrial sector, a special feature in the promotion of energy conserva-tion has been the introduction of legislation to require enterprises to appointenergy managers. They must properly maintain energy using facilities and makebinding recommendations to company management on improvements in theenergy efficiency of these facilities.In the consumer sector, the notion of top runner has played a critical role inimproving standards for machinery and equipment. The first batch of 11 toprunner appliances—air conditioners, vehicles and fridges and freezers—wasestablished in 1999. The full list of 21 items, as of mid-2006, now includesspace and water heaters, cookers, ovens and DVD recorders. The top runnerscheme, accompanied by labeling and retailer support, has resulted in efficien-cy gains of 40 percent with air conditioners and 83 percent with electric refrig-erators. A new notion is being added alongside the top runner: that of the smartlife, which aims at heightened consumer awareness and yet more energy effi-ciency lifestyle and behaviour.The transportation sector has seen similar gains through the idling-stop systemof driving style, and through extensive traffic management measures.Underlying these sectoral advances has been the careful work of ECCJ, not onlyin enabling and supporting legislative measures and in consumer awareness andeducation, but also through the practice of energy audits. Funded by theMinistry of Economy, Trading and Industry (METI), these energy conservationaudits have been undertaken in the factories and buildings of a wide variety ofindustrial and commercial undertakings, at no cost to the beneficiary. A decentrange of economies (energy-saving effects) have been achieved through one-dayaudits, ranging from 7.5 percent in printing and publishing, to 9.1 percent inchemical industries and up to 12.1 percent in waste disposal.The ECCJ maintains programmes of international cooperation with severaldozen countries in Asia, Africa, the Caribbean, the Pacific, Europe and theAmericas. A recent project supported by the Japanese International CooperationAgency (JICA) has aimed at the establishment of Thailand’s National Trainingand Examination System for Qualification of the Certified Energy Manager. ■

energy efficiencyto achieve the

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International Experience in EnergyEfficiency: Drawing Lessonsfor ThailandVincent DavidEconoler

T he objective of this presentation is to briefly report on internationalexperiences in the planning and implementation of energy efficiencypolicies and programmes. It emphasises the importance of how measur-

ing energy efficiency is a very significant part of an energy efficiency policy. Itdraws on two experiences for that purpose: the United States and its energyintensity ratio (also expressed as energy elasticity), and the custom-made indexdeveloped in Canada.A study of the evolution of the energy intensity ratio over the period 1949 to2005 shows how it fell continuously throughout the period. However, adetailed analysis shows that from 1949 to 1973, the compound rate of change ofthis ratio was -0.4 percent per year. From 1973 till 2005, this rate changed to-2.1 percent per year. Clearly, the 1973 oil crisis had strongly changed the per-ception of energy supply security as well as oil prices. Both factors, energy sup-ply security and energy price, proved to be strong motivators for energy inten-sity improvement.

Pointers for directions in energy efficiencyThe energy intensity ratio is a useful instrument for monitoring how efficient-ly energy is used in countries or regions. As such, intensity comparison canprovide signals to decision makers about general orientation for energy effi-ciency trends, but probably not much more. Energy intensity depends on anumber of factors, with energy efficiency being one of them.An energy efficiency policy should preferably have its own information tool onenergy efficiency potentials, and policy and programme impact on energydemand. A simple description of changes in the volume of energy use over theperiod 1990 to 2003 in Canada shows that secondary energy use was 13 percentless than it would have been without energy policy.In fact, a detailed analysis of the different components that impact on energydemand in Canada shows a much more differentiated picture, of great signifi-cance to energy policy design. Compared with 1990, the year 2003 showed:• A 35 percent increase in activity (comprising commercial/institutional and

residential floor space, number of households, passenger- and tonne-kilome-tres, industrial gross output, physical production and gross domestic product[GDP]). This resulted in a 2,356.5 petajoules (PJ) increase in energy

Sound comparativedata on energy use

is the key toeffective energy

efficiency

Energy intensitydepends on a

number of factors,with energy

efficiency beingone of them


• The winter of 2003, which was five percent colder than the winter of 1990,and the summer, which was 24 percent warmer, led to a 71.3 PJ increase insecondary energy demand

• Changes in the structure of most sectors in the economy increased energy use;however, these increases were completely offset by a shift in the industrial sec-tor towards industries that are less energy intensive, the net result was savingsof 148.2 PJ

• Changes in the auxiliary equipment service level (i.e. increased use of com-puters, printers and photocopiers in the commercial/institutional sector)raised energy use by 70.9 PJ

• Improvements in energy efficiency saved 883.3 PJ of energy• Furthermore, it is clear that changes in the energy intensity ratio do not fully,

or properly, reflect the impact of energy efficiency measures. Sometimesother factors have significant influence on the overall picture. A detailedanalysis of the energy intensity ratio over the period 1990 to 2003 shows thatthe energy intensity ratio underestimates the efficiency effect in the early1990s and overestimates its impact in the latter part of the period.

• Before 1998, intensity improvements appear to be modest because colderweather (1992–1997) and a shift towards more energy-intensive industries(1990–1993) in fact masked energy efficiency progress

• In 2000, a switch to less energy intensive industries, which began in the mid-1990s, combined with energy efficiency improvements, accelerated theobserved decline in energy intensity

These detailed observations have been made possible by the Canada EEDatabase, operated under the auspices of the Centre for Data and Analysis inTransportation (CDAT), the Canadian Industrial Energy End-Use Data andAnalysis Centre (CIEEDAC) and the Canadian Building Energy End-Use Dataand Analysis Centre (CBEEDAC).Its data comes from various sources in the community, including universityresearch centers sponsored by the national research facility of Canada and otherfederal departments, provincial agencies, associations, and energy supply utili-ties.The experience of operating the database for more than 20 years has led to theconclusion that developing and maintaining a good database on energy use isone aspect of a deep-rooted and enduring energy efficiency policy. ■


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National PoliciesArkhom TermpittayapaisithDeputy Secretary GeneralNational Economic and Social Development Board

T he purpose of the presentation is to look forward at a range of futureenergy scenarios for Thailand. The presentation therefore examines theenergy problems faced by the country, looks at the issues involved in

energy self-sufficiency, and reviews the framework of the 10th National Plan andthe National Energy Development Plan.With more than 80 percent of Thailand’s energy consumption dependent onoil import bills, the continuous series of largely upward fluctuations in oilprices and their associated volatility inevitably leads to national account imbal-ances. This does not contribute towards energy security at all, and it adds ele-ments of insecurity and risk into the key oil-dependent sectors of transporta-tion, industrial production and residential and commercial consumption.

The extent of self-sufficiencyIn consequence, it is important to examine the extent to which Thailand mayconsider itself to have self-sufficiency in energy. In fact, with energy produc-tion self-sufficiency being at approximately one-third of existing production,for the country to become more self-sufficient, it must either reduces con-sumption or increase domestic production.However, the consumption behaviour will determine what type of fuel is need-ed to be produced.In its elaboration of the 10th National Plan by NESDB, in its analysis of themacro-economic factors which contribute to its energy vulnerability, a frame-work was developed which rooted itself in the philosophy of sufficient economyfrom His Majesty the King. The philosophy stresses “…appropriate conductand way of life while incorporating moderation, due consideration in all modesof conduct, and the need for sufficient protection from internal and externalshocks.” Through its application in the value system of Thais, in communityinstitutions, and in the economic and administrative systems, the philosophycan facilitate the emergence of the Green and Happiness Society. The newissues and challenges which arise concern the transition towards the Asia centu-ry, characterized by a knowledge-based economy, an ageing society with issuesof savings and productivity, energy security and energy efficiency together withopportunities for global consumption.In the elaboration of the national energy development plan, three principalgoals have been set: namely, the reduction of energy imports, the leveling downof energy production costs (public energy expenditure) and minimizing pollu-tion created by all economic sectors. In working towards these goals, five oper-ational objectives have been set:

101International Implications for Thailand


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production costand minimizing

pollution are thethree goals

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BKK proceedings S4 V2:ASTAE Thailand proceedings V3 22/01/07 22:08

• increase the consumption level of new alternative sources of energy to eightpercent

• increase the energy security of the nation for the next 50 years• increase efficiency in energy consumption of all economic sectors• reduce energy elasticity from 1.4:1.0• reduce energy intensity in the transport sectorA nine-pronged action plan has thus been elaborated, featuring these steps:1 Short-term management in transportation sector; for example, rail for mer-

chandise transportation in the Eastern seaboard area2New investment; long-term management in modal shift. To illustrate, a

redesign of rail system and mass transit. This includes consideration and seri-ous study about DC, ICD, and CY.

3New sources of energy supply from both local and international sources tostrengthen energy security. Thailand is negotiating a long-term contract fornatural gas supplies from neighbouring countries, and will purchase addi-tional thousands of MW of electricity from neighbouring countries.

4Usage of alternative energy in order to increase knowledge and participation.This is to produce and to implement alternative sources of energy by bothgeneral public and private sources.

5 Demand management like energy saving and electrical appliances6Research and development on alternative sources of energy and renewable

sources of energy. This also includes improving technology on energy saving.7 Seriously planning for domestic production of bio-diesel from palm oil, also

contract farming in neighboring countries8Private participation in financing projects9Value creation in petrochemical industries ■

International Implications for ThailandFuture Energy Scenarios Toward Sustainable Energy Policies and Practice in Thailand — Workshop Proceedings102

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Renewable Energy is not only Sustainablebut also AffordableS ChandrasekarManaging directorBhoruka Power Corporation, Bangalore, India

In the energy mix decision, there are two additional elements to the classictrio of availability, affordability and reliability. Factors which can play a rolein this scenario are environment and employment.

In the recent past, there has been a general perception in favour of convention-al power, from fossil fuels; while it is recognized as being a limited resource, itis regarded as being reliable and affordable. Non-conventional power, alsoknown as renewable sources, is, on the contrary, recognized as being an unlim-ited resource, while it is regarded as being unreliable and unaffordable.That perception is changing, in part under pressure from an additional ele-ment in the energy mix: energy security. In the vision of the President of India,His Excellency Abdul Kalam, “…we can achieve energy independence by 2030”if we focus on renewable energy sources, and if we increase renewable energysources in the energy mix from five to 25 percent.

The firm hand of the lawsThis political will has been translated into law in the Government of India’sNational Electricity Policy of 2005, which states “that the feasible potential ofnon-conventional energy sources, mainly small hydro, wind and biomass wouldalso need to be exploited fully to create additional power generation capacitywith a view to increase the overall share of non conventional energy sources inthe energy mix. Efforts will be made to encourage private sector participationthrough suitable promotional measures.”Referring to the topics of co-generation and non-conventional energy sources,the policy document further states that “non-conventional sources of energybeing the most environment friendly, there is an urgent need to promote thegeneration of electricity based on such sources of energy. For this purpose,efforts need to be made to reduce the capital cost of projects based on non-con-ventional and renewable sources of energy. The cost of energy can also bereduced by promoting competition within such projects. At the same time, ade-quate promotional measures would also have to be taken for the development oftechnologies and a sustained growth of these sources.”

Pricing and targetsIn order to promote the use of renewable sources, provision is made for a com-petitive bidding process and for differential pricing: “considering the fact that itwill take some time before non-conventional technologies compete, in terms of


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cost, with conventional sources, the (state electricity regulatory) commission maydetermine an appropriate differential in prices to promote these technologies.”Similarly, with regard to other forms of incentives often used with renewables,the policy makes allowance for targets to be fixed which will encourage the use ofrenewable energy sources. It is thus stated that: “the appropriate commissionshall fix a minimum percentage for the purchase of energy from such sourcestaking into account availability of such resources in the region and its impact onretail tariffs. Such percentage for purchase of energy should be made applicablefor the tariffs to be determined by the (commissions) at the latest by 1 April2006. It will take some time before non-conventional technologies can competewith conventional sources in terms of cost of electricity. Therefore, procure-ment by distribution companies shall be done at preferential tariffs determinedby the appropriate commission.”This enabling environment for renewable sources is of particular value to ruralareas. Other than the ecological perspective, renewable sources stand out forthe reasons that they are available mainly in rural areas, they add value to localresources, they increase employment opportunities, they improve the qualityand reliability of power through distributed generation, and they help toimprove local infrastructure.In short, renewable sources offer the only reliable route to rural development,moving from a scenario of valueless rural resources to one of high-value ruralproducts.

The varied perceptions of riskThe private sector is a key player, but it must be recognized that the risk percep-tion held by each player is different, and it is unlikely that one single policy cansatisfy all of the stakeholders all of the time. Each step that is taken to mitigatethe risk of a particular stakeholder—be it banker, utility company, regulator,private operator or government—will increase the cost of the undertaking. Yetthere is often an alternative to either risk mitigation, or expensive risk cover,which is usually expressed in fiscal policies. It is possible to achieve risk avoid-ance, and that is through information. One such piece of information whichmerits wider awareness is that the initial high cost of renewable energy power,often at 130 percent of conventional power at the outset, drops to 60 percentor 65 percent of conventional power cost after a maximum of 15 years, and con-tinues at a lower level thereafter.In such circumstances, greater certainty could be assigned to renewable energyprojects, if the following conditions were met:• Resource availability studies on a long-term basis are the key to realistic via-

bility projections• Authentic data needs to be made available by government departments• Banks could help in keeping local currency interest rates below ten percent• Banks could also help in increasing the loan tenure to 15 years, thus helping

to keep tariffs down in the initial start-up years• The World Bank through IFC could help in achieving the above two objectives

through long-term dedicated funds

Renewable sourcesoffer the only

reliable route torural development,

moving from ascenario of

valueless ruralresources to one

of high-value ruralproducts


• The funds could be for the development of at least 200 MW renewable ener-gy projects initially

• Renewable energy projects could serve the World Bank’s objectives of ruraldevelopment as well as sustainable energy development ■


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Financing IssuesAnat PrapasawadExecutive Officer, Business Development Department,TMB Bank Public Company Limited

The purpose of the presentation is to review the issues around the creationand attainment of finance for sustainable energy. The presentationtherefore examines the opportunities that are represented by renewable

energies (RE), and provides an overview of the barriers and/or risks affectinginvestment in RE projects. It continues to address the issues of risk/returnanalysis for the assessment of each major risk and the means to mitigate itspotential impact on the project. Having discussed the instruments for financialrisk management currently supporting RE projects and those that could bedeveloped to reduce uncertainty as barriers, the presentation looks at someinnovative financial services.

In terms of opportunities for investment, the field of renewable sources andenergy efficiency represent a diverse collection. In renewable energies, oppor-tunities exist in biofuel (biodiesel ethanol), PV, biomass generation, co-gener-ation, conversion of waste to energy, wind turbines, hydro and geothermal.Energy efficiency represents opportunities for the many aspects of controlling,replacing and modifying energy production, distribution and use. In the fieldof fuel switching and machine conversions related to changes of fuel, includingfrom conventional fuel to new fuels, such as liquid biofuels and natural gas,there are equally many opportunities.

More frameworks, lower risks

Having reviewed the newly established targets for changing the configuration ofthe national energy portfolio towards greater use of new and renewable ener-gies, and the modalities such as incentives and renewable portfolio standards(RPS) for achieving such targets, the presentation emphasized the importanceof financial risk management in dealing with the barriers formed by risks.

The presentation reflected the views of the former director of the Division ofTechnology, Industry and Economics of the United Nations EnvironmentProgramme that “financial risk management is a key element of any commercialinvestment in conventional energy…, yet little attention has been paid to its usein the development of renewable energy technologies, particularly in develop-ing countries, … if used, it can transfer certain types of risks away frominvestors and lender.” It continued to cite from the World Bank DiscussionPaper No. 391 which states that, “The financial incentive package for eachcountry is carefully crafted to suit its economic, legal, and fiscal system. Thetypes of incentives used include concessional import duties, excise tax benefits,corporate and income tax benefits (including tax exemptions, holidays, credits,

The studioususe of risk

management toolswill lower many

barriers toadoption of

renewable energy


and deduction as well as depreciation), subsidies against investment cost, low-interest loans, and premium power purchase prices.”Addressing the type of finance, the four main elements were described as beingthe funding of major capital:• cash flow of the project as sources of fund for repayment• assets of the project as collateral• risk management through transfer• allocation of risks to parties best able and willing to acceptDescribing the process of project feasibility analysis, with financial, marketing,technical and management aspects, the presentation discussed the major riskcategories during the project cycle. Typical barriers were illuminated, includ-ing high transaction costs, relatively small size, low marginal return, the per-ceived weak creditworthiness of companies, resource availability and supply risk,lack of legal and institutional frameworks to support RE projects, analyticalbarriers (quality and availability of information), cognitive barriers, unfamil-iarity with technologies, and lack of knowledge in the financial institutions.

Measures to change perceptions of riskNonetheless, there is a diverse list of risk management instruments, includingcontracts, insurance/reinsurance, credit enhancement products (guarantees),alternative risk transfer instruments (various type of asset-backed securities),risk pooling, bundling of small projects (to reduce transaction cost) and carbonfinance guarantees.The lessons learned in the process of identifying and analyzing such barriersand opportunities has demonstrated the need for knowledge enhancement onthe part of financial institutions, private sector bodies and energy service com-panies. Using the example of the learning processes during the financing of anethanol project, the presentation emphasized how this applies to variousdimensions of renewable energy and energy efficiency projects, including tech-nology, organization, service and energy supply and generation. ■



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Typical barriers ….include analytical

barriers (qualityand availability of

information),cognitive barriers,unfamiliarity withtechnologies, and

lack of knowledgein the financial

institutions.



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Financing Considerations for RenewableSources and Energy EfficiencyProjectsGuido DelgadoCEO, GAAD Inc.

In the Philippines, the power generation mix is dominated by coal (31 per-cent), geo (25 percent) and hydro (20 percent). Natural gas and oil/dieseleach take approximately 12 percent of the mix, according to 2003 statistics.

The power needs requiring attention in the country are those of grid electrici-ty, renewable sources in both grid and off-grid distributed generation, andenergy management. The latter comprises a reduction of consumption, andproper management of the load profile.The Spanish gas and electricity company Unión Fenosa, the country’s thirdlargest electric utility behind Endesa and Iberdrola, has a slogan that “the clean-est energy is the energy which is not consumed (saved)”. To this could be addedthe closing slogan: “and which costs less.”From the perspective of the private sector, it is important that grid tariffs reflectthe real costs in the grid load profile. This will provide market opportunities forenergy management services (ESCO) and for renewable power. It will further-more reduce actual use of fossil fuels in peak time generation, leading to reduc-tion in emissions. With energy management, a load profile can be more evenlyspread across peak and off-peak periods, resulting in noticeable savings.From the perspective of the banker, these elements do not carry the same attrac-tions as they do for a private operator. The issue for the banker is how to ensurethat financial savings can be guaranteed. This can only happen under a regula-tory order, or a long-term power sales contract.The same applies in the financial scenario for off-grid solar systems, where theissue is to spread the initial investment out over a long period of installments—financed from the revenue of the user which accrue from the savings achievedby switching from, for example, diesel to solar. A banker will look carefully atsuch a scenario, because neither the user nor the banker, has control over theprice of diesel, and thus no genuine control over the savings (to be) achieved.The only genuine guarantee that will satisfy a financier of private sector involve-ment in renewable sources, or energy efficiency, is a clear regulatory frame-work. If this is not available and enforceable, then bank financing for the pri-vate sector will, in part to meet the requirements of the Bank of InternationalSettlements, be based upon collateral and balance-sheet financing. ■

Regulatoryframeworks are

the only guaranteefor the positions ofthe banker and theenergy operator to

converge

neither the usernor the banker has

control over theprice of diesel, and

thus no genuinecontrol over thesavings (to be)

achieved



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Closing RemarksArkhom TermpittayapaisithDeputy Secretary General, NESDB

This is the last session. We have had a full day of discussions, and they havebeen very fruitful. As I mentioned in the morning, this is the beginningof our CDP (country development program) on infrastructure. This is

the first workshop that the NESDB and the Bank are co-organising as a kick-offworkshop for our infrastructure development program. We have learned fromall the speakers in Thailand and from abroad as well.As I mentioned, RE—renewable energy—and energy efficiency, perhaps are theonly way out to solve the problem of energy in Thailand. Actually, our commit-ment, particularly in the NESDB, who is the one who works closely with thegovernment, is to achieve this structure of the energy use in the longer term.Energy is not a single issue but energy issues are related to other economic activ-ities, as I mentioned: you know, building, transport and services that we have towork out with the others.But how can we change our structure? Because as I mentioned we are heavilyimporting energy, at 80 percent. How to implement is perhaps different foreach country’s experience. And we need more participation from the privatesector, from the financial institutions and also from the Government. And Ihave to say that the Government should indicate very, very clear policies onenergy.We have discussed investment costs. At the same time the private sector and thefinancial institutions need a clear policy on tariffs. And also on our projects, inenergy projects, we need to look more at the longer term than the short term,because several things that may work in one country may not work in the other.And some short-term policy has already been announced. For example, thebioenergy and the ethanol projects, we go on. But for the biodiesel we may needsome time to investigate whether it’s feasible and viable in terms of finance.And the last one, I think we also need knowledge creation in the energy sector.I liked the presentation of Vincent in Canada. You start from data collectionand analysis. In Thailand, too, we need more consistent data collection andanalysis. We need this because we need the benchmark for the country and forthe firms and for the financial sector to use the idea for consideration.And the last one is knowledge, knowledge creation: not from the Governmentbut from academics. So our academic friends may be able to help us in knowl-edge creation.I think what is very important is the university, industry and community link; itis very crucial for any success in any policy.So, I think, may I conclude, thank you once again for the Bank, and for thehonorable speakers and particularly to Antonie who devoted his time traveling

127Closing Remarks


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between DC and Bangkok so many times. Next week he’ll be coming back again,so we need to talk about our further work. I’m sure that we need the more in-depth analysis on particularly issues in energy policy.So, may I, thanks once again for all the participants who have stayed with usuntil late in the evening. I’m sure you’re waiting for the party, so thank you verymuch. ■

Closing RemarksFuture Energy Scenarios Toward Sustainable Energy Policies and Practice in Thailand — Workshop Proceedings128

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