macro-environment analysis - solar industry
TRANSCRIPT
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MACRO ENVIRONMENT ANALYSIS
2.1 INTRODUCTION
For analyzing the Macro Environment of the selected Industry which is
Power, we have considered using S.P.E.N.T Analysis as a tool. The brief
explanation of the said analysis is as follows
S.P.E.N.T
‘S’ - Analysis of Social and Cultural Environment of the Industry
‘P’ - Analysis of Political and Legal Environment of the Industry
‘E’ - Analysis of Economic Environment of the Industry
‘N’ - Analysis of the Natural Environment of the Industry
‘T’ - Analysis of the Technological Environment of the Industry
2.2 SOCIAL & CULTURAL ENVIRONMENT
Ever since the environmental concerns were raised about 6 decades ago,
there has been steady increase of opposition to conventional energy sources
and increasing demand of clean energy sources.
The famous Kyoto Protocol which was adopted in Kyoto, Japan on 11th
December 1997 was built strongly on a premise that
a) Global Warming Exists
b) Man-Made Co2 emissions have caused it
This was a significant step because until Kyoto Protocol there had been wide
debate about whether man made Co2 emissions is indeed responsible for
the Global warming, the Kyoto Protocol hit the nail in the coffin of this
debate.
Although Kyoto protocol seemed to be a significant step in curtailing Co2
emissions, it was termed as “Failure” mainly because the overall Co2
emissions of the world was not cut down but instead raised. See the Fig 2-1
and Fig 2-2
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*Source – www.theguardian.com
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The raise in emissions in spite of Kyoto Protocol can be mainly attributed to
growth in China which cannot be prevented given the reasoning from
developing nations. This is particularly a key aspect to be paid attention
because the coming decade would see much more development in big chunk
of Asia which includes India and SE Asia.
Kyoto Protocol signifies the first step taken towards combating climate
change, the failure of which triggered a more ambitious step which
eventually culminated in the sign of COP21 Paris Agreement.
COP21 is widely regarded now as the real agreement with some teeth to
combat climate change, there are a few notable points in COP21 which made
it gain such fanfare
(i) First of all, the countries are required to come up with their own
Intended Nationally Determined Contributions (INDC) which was later
discussed, negotiated and once signed, the country is expected to
reach the target
(ii) Mandatory Review of the progress of policies and action taken by
countries to meet their INDC at regular intervals
Here is an excerpt from www.theguardian.com
“The greenhouse gas reduction promises made in COP21 by 187 countries in Paris – even if they
are kept (and that’s a very big if) would result in warming of between 2.7 and 3.5C. Almost 1C of
warming is already locked in. To get to 1.5C most scientists think the world would have to suck
back greenhouse emissions already in the atmosphere, using processes that remain uncertain”.
The real goal of COP21 is to form a framework for limiting the global warming
to 2°C. The interesting fact is that there are so many island nations including
some low lying countries such as Indonesia, Bangladesh, Philippines and
Vietnam are running a campaign to limit the global warming to 1.5°C.
Long story short, it is already late for implementing preventive actions and
whatever steps taken now is for corrective action & limiting the damage. It
will only get worse and worse as years go by leading to stricter and stricter
rules for limiting carbon emissions.
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These stricter rules is already evidenced by increased taxation to utilizing
coal even in developing nations such as India which has doubled the coal tax
continuously for the past 2 years.
The whole social environment is good for renewable energy sector,
particularly solar because of the following
Estimated energy demand by 2050 – Population 10 Billion – (30-60 TW)
Renewable sources except solar
World’s Hydropower resources – 4.6 TW
World’s Wind energy resources – 4.0 TW
World’s Biomass energy resources – 7.0 TW
World’s Tidal current resources – 2.0 TW
World’s Geothermal resources – 12.0 TW
Mineable resources – 0.9 TW
Total – 30.5 TW
Solar energy – 600 TW (available)
The math is quite simple, Solar energy will play a very important role in
combating climate change even if we take into account all the other
resources available.
The only possible alternative to solar energy at present seems to be Nuclear
but it has its own sets of problems and if we have to make the world 100%
nuclear powered by 2050, then we would have to build 2 Nuclear plants of
1000 MW size somewhere on this planet starting today, every day for the
next 34 years.
No other breakthrough technology even comes close to the energy
requirement. Considering all of this, we can safety assume that this is a very
positive sign for solar industry which will only become better and better in
the future.
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2.3 POLITICAL & LEGAL ENVIRONMENT
Thailand is one of the developing nations in the SE Asia. As this study is about
a sustainable business plan in Thailand, study of political & legal environment
of Thailand is undertaken.
Thailand’s total solar energy in 2008 accounted for less than 2 MW of total
installed capacity. Today, in the year 2016, the total capacity reached is 93.22
MW, cumulative growth of 4661% in 8 years. This tremendous pace was
achieved mainly because of variety of policies supported by the Thai
government. Some of them are listed below
Policies setting the Feed in Tariffs in 2013 for solar rooftop systems at
a rate higher than normal retail rates
Updated Alternative Energy Development Plan (AEDP) in 2015 to fix
new FIT rates for solar rooftop installations for 25 years
National Reform Council (NRC) reviewing possibility of implementing
‘Net Metering’ scheme
Exempting Solar PV roof tops that generate power under 1 MW from
factory licenses.
Energy Conservation & Promotion Act (ENCON) fund and Energy
Service Companies (ESCO) fund allocation to stimulate investment in
solar roof tops
60% of the total energy consumption in Thailand originates from the import of fossil fuels,
Alternative Energy in Thailand which includes solar, wind, biomass, hydro etc., accounts for nearly
12% at 7,400 MW. This share is planned to be increased to 20% by 2036 up to 19,684 MW in which
solar will play a key part.
*Source: Thailand board of investment – Investment review Jan 2016
The present feed – in tariffs for solar power is at an impressive 6.85 THB per
kwhr paid out over a period of 25 years compared with average feed in tariff
for conventional power sources at THB 4.15 per kwhr.
New policies and framework are also being adapted which includes making
Energy Service Companies (ESCO) eligible under ‘A1’ category investment
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which gives 8 years corporate income tax exemption and exemption of
import duty on machinery.
Thailand is presently leading by example in SE Asia as regard to solar power
evidenced by the fact that as on end of 2015, Thailand has more solar power
than all the rest of Southeast Asia combined.
The best political situation among SE Asia right now is in Thailand for
investment in Solar. There are few more strides to take which hopefully may
happen in the future such as taxing the carbon polluters (Conventional
Power Plants) so that the cost of polluting will be added to their energy cost
which will bring even more feasibility for Solar power.
The constraint is the grant of Power Purchase Agreement (PPA) from the
Government which is controlled. Depending on the policy, requirement &
number of other factors, Thai government opens the window for authorizing
the PPA and after issuing a round of permits, it is closed again. There are also
added constraints of quota limit, area, too short time frame etc. However,
even with all these constraints, commercial roof-top solar has exceeded the
targeted capacity while residential roof-top solar did not get enough
investors and was lingering at 30% of target capacity by the year 2015.
The recently proposed ‘Quick Win’ proposal for Solar PV roof-tops aims to
do away with all the restrictions imposed on time frame, quota limit, area
etc., so that individual house owners, commercial building operators can be
their own power producer and seller through Net metering system. This
policy is pending approval from Cabinet and once it gets approved, real
growth in roof-top solar in Thailand can be seen.
It is not a question of whether ‘Quick Win’ proposal will get approved, it is
just a question of when and how the regulations will be formed. In any case,
it is guaranteed that Thai Solar Roof-Top market will see growth in the future.
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If the electricity generated from Solar is not sold to the Government and used
internally, there are no regulations & restrictions however such a system is
not feasible for the general public.
While one might say that the regulations & government support in Thailand
is much better than other SE Asian countries, it still has a long way to go to
make the solar market truly explode and become main stream. Given the
external environment and added international pressure in the future,
hopefully these rules will become even more supportive for solar. As of now,
the political & legal environment is moderately in favor of solar expected to
become completely in favor of solar in the future.
2.4 ECONOMIC ENVIRONMENT
Thailand’s GDG per capita stands at US $ 5,426 which generally refers to a
country with fairly good purchasing power when it comes to basic amenities
such as Food, Electricity, Water & Clothing.
The standard purchasing rate of electricity ranges from THB 3 – THB 8 even
for residential areas. Government subsidizes electricity for rural areas and
for specific uses such as farming etc.
In the long term, Thailand is an important member of ASEAN (Association of
South East Asian Nations), a 10-member nation association which includes
Indonesia, Malaysia, Philippines, Singapore, Thailand, Brunei, Cambodia,
Laos, Myanmar and Vietnam. The different FTA’s planned among these 10-
member nation will facilitate in increasing the GDP of Thailand substantially
given it’s close proximity to Laos & Myanmar, two important markets with
room for good growth in future.
The economic environment of Thailand can be classified as favorable for
solar industry considering the present GDP per capita and expected growth
in the future.
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2.5 NATURAL ENVIRONMENT
Thailand is located near the equator which means the sun irradiation levels
reaching the surface of Thailand will be relatively stable when compared with
the countries which are located away from the equator.
Furthermore, as Thailand is located near the equator, it naturally gets more
solar irradiation when compared with most other countries. This gives
Thailand a natural favorable factor of condition for Solar power.
The Figure 2-3 shows the solar irradiation levels in the world map and the
Figure 2-4 shows Thailand solar irradiation levels.
As can be seen in the maps, Thailand has much better potential for Solar
power than most of the developed nations including US, EU, Japan.
Generally, Thailand has been a country with not many natural disasters as
well and the country’s agricultural capability is an example of richness of
Thailand in terms of Natural environment.
The location of Thailand in the middle of ASEAN also is an added advantage
as they can easily extend their reach towards some of the major markets in
SE Asia such as Myanmar, Cambodia, Laos etc.,
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Fig 2-3 – Solar irradiation levels World map
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Fig 2-4 – Thailand Solar irradiation levels
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2.6 TECHNOLOGICAL ENVIRONMENT
PV Cells
Solar PV cells have come a long way since 1960s when it first had a
considerable price cut which making it feasible for space applications. Using
solar cells for commercial use was still a very long shot because the
technology was very expensive.
Over a period of few decades, the solar cell efficiency reached 10% by 1990
compared with 2% in 1960s. This improvement spurred more interest in PV
cells, resulting in more investment, more innovation which accelerated the
efficiency growth.
The latest PV cell recorded efficiency made available for commercial market
stands at 22% (By Panasonic), common residential solar panels have reached
14-16% efficiency. The solar panels for space has peaked to reach near 48%
efficiency. Figure 2-5 shows the PV cell efficiency growth by various
companies over the years.
In Thailand, about 10 – 15 years back, Solar projects were operated at a
special tariff from the Government of THB 18-20 per unit. Presently, this has
reduced to THB 6.85 per unit which shows clearly the level of technological
improvement, cost reduction achieved in the Industry which as invariably
made Solar projects feasible at 1/3rd the cost expected to incur 15 years back.
There is still room for improvement and solar PV cells are expected to
continuously improve over the next few decades. If the commercially
available PV cells reach an efficiency of 30% at the same cost, it will open the
flood gates as Solar power would be the cheapest form of electricity without
any subsidies.
Various technological improvements are already underway such as Quantum
dot cells, Thin Film Technologies etc., in addition to that the module
arrangement has also dramatically improved with Concentrated solar power
technology, Parabolic solar power, Solar to Thermal energy modules etc.,
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Overall, the PV Cell technology seem to have reached a scale which enables
them to compete with conventional sources of electricity with little support.
The increasing investments in research of PV cells by major companies is
creating a virtuous cycle where more efficiency is expected to be achieved
soon which in turn will spur more investments.
Energy Storage
Energy storage is the ‘Holy Grail’ of Solar Industry because one of the most
severe constraint in utilizing solar energy is the fluctuation in energy
production from day to night, from season to season, from one minute to
the next.
Due to this fluctuating nature of solar energy production, Countries cannot
afford to go 100% solar yet because the necessary energy storage is not
available. In fact, Countries cannot go beyond 25% penetration level in the
total energy mix because this in itself will create issues such as production of
excess electricity at certain times which cannot be used, this kills the ROI of
the project making it less feasible.
It is in this context, Energy Storage is becoming a most critical issue. Recent
developments in Mobile & Laptop technology has spurred the innovation in
Lithium-Ion batteries making it cheaper and more capable as each year
passes by. Traditional energy storage batteries are Lead-Acid type which is
not suitable for Utility scale storage considering weight, cost and other
factors.
On the other hand, Lithium-Ion batteries assembled in modules and
arranged in a 40’ container are becoming more and more feasible for utility
scale energy storage. Samsung, Siemens, Tesla Energy are few of the big
companies who have entered into Lithium-Ion battery production sensing
the growth in this market in future.
With or Without Solar, Lithium-Ion batteries have a unique selling point of
their own as they would help the electricity distributors easily stabilize the
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grid and also provide feasible emergency backup. Considering the fluctuation
in solar energy production, Li-ion batteries is the much needed catalyst to
quicken the transition to carbon-free economy.
Siemens has already deployed pilot scale Li-ion battery storage in Germany
whereas Samsung plans to deploy similar package for commercial sales by
second quarter of 2016. Tesla Energy has already deployed residential
battery storage package aimed at revolutionizing residential solar market in
US. It is expected that in the next Five (5) years, there will be substantial
development in Energy storage market which will lead to more interest in
Solar industry.
Apart from Li-ion battery storage, there are other technologies as well which
is gaining traction such as using excess electricity to generate Hydrogen from
water through electrolysis and using that Hydrogen during low energy
production in Fuel cells to compensate. This combination is widely
popularized by Japanese auto makers, particularly Honda & Toyota who are
pioneers in Fuel Cell Automobiles, the idea is to use Solar energy as not only
the substitute for normal electricity use but to use it as transportation fuel
as well.
A slight modification to the above mentioned idea is implemented in Europe
by Power to Gas consortium (refer www.powertogas.info), the idea is same
as above until producing Hydrogen, instead of using Hydrogen in fuel cells,
the idea is to mix hydrogen with carbon dioxide in the atmosphere to
produce Methane (CH4) and supply it through the already established
Natural Gas grid to operate conventional power plant. This technology
addresses all issues including utilization of existing infrastructure to the
fullest.
It can be concluded that overall Technological environment is definitely in
favor of Solar Industry.
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Fig 2-5 – Solar Cell efficiency time scale