green electricity project Revive the Thai solar business

The demand for electricity from solar energy is expected to grow well in the long term. It is expected that by 2569 the European Union will begin collecting carbon fees on targeted industrial goods imported from manufacturers outside the European Union, such as iron and steel, aluminum, and cement[1]. In addition, the Thai government has plans to collect carbon taxes from the private sector in the future[2], which will pressure the private sector to adapt and turn to electricity from renewable energy to reduce the carbon fees of goods in the future, especially solar energy which can reduce greenhouse gas emissions by up to 500 tCO2 _/ megawatt/year[3], which is equivalent to planting 62,500 trees[4].

Most recently on April 5, 2566, the Energy Regulatory Commission (ERC) announced the purchase of electricity from renewable energy. This includes solar energy. Through a project to purchase green electricity from those selected in the said project. To ensure the demand for electricity from clean energy in the private sector in the future.

For the first round of the green electricity purchase project Initially, it is expected that there will be a power purchase contract for a period of 25 years and to purchase electricity from solar energy totaling 3,362 megawatts, divided into 1) receiving electricity from a solar power plant, 2,368 megawatts, at a purchase price of 2.17 baht per unit of electricity. and 2) the remaining 994 megawatts will be purchased from a solar power plant installed with an energy storage system (Battery Energy Storage System: BESS) at a purchase price of 2.83 baht per electrical unit. It is expected to begin supplying electricity into the commercial system in 2567-73. In addition, this project is likely to enter into contracts to sell electricity to large operators for a period of 10-25 years and provide renewable energy production certificates. (Renewable Energy Certificate : REC) which can be used to claim electricity from renewable energy. with entrepreneurs who purchase electricity from this project as well [5]

The project to purchase electricity from solar energy mentioned above will have a positive impact on the solar power plant business. and related businesses, such as the solar panel installation business. It also helps entrepreneurs who want to export products to Europe reduce carbon fees in the long run as well. which will be analyzed in this article.

1. Green electricity purchase project How much does it help support the growth of solar power plants? And is it worth investing in or not?

The government's announcement of a 3,362-megawatt solar power purchase program through the Green Power Purchase Scheme is expected to stimulate future investment in solar power plants by approximately 1.3 billion baht and generate increased revenue for solar power plant operators from electricity sales under this program of around 1.37 billion baht per year.

The policy is expected to generate approximately 1.28 billion baht in investment in developing the solar power plant business, divided into 1) solar power plants of approximately 7.48 billion baht and 2) solar power plants installed together with energy storage systems. Around 5.3 billion baht

In addition, it can increase total income to the said business by approximately 3.42 billion baht over the life of the green power project's power sales contract of 25 years, or an average of 1.37 billion baht per year, which is 38% of the value of the solar power plant market in Year 2564, divided into 1) income from solar power plants approximately 2.21 billion baht or an annual average of 8.83 billion baht/year and 2) income from solar power plants installed together with energy storage systems approximately 1.21 billion baht. or an average of 4.84 billion baht/year When all solar power plants in the said project are able to supply electricity into the commercial system in the specified quantity and period of time.

Considering the payback period of green electricity projects, solar power plants and base energy storage systems (BESS) solar power plants have payback periods of 9.3 years and 9.8 years, respectively, compared to a 25-year power purchase agreement (PPO) term for these projects. The investment costs for these two types of solar power plants are approximately 32 million baht/megawatt and 53 million baht/megawatt, respectively, and they are expected to generate revenue from selling electricity to the government of approximately 3.7 million baht/year/megawatt and 4.9 million baht/year/megawatt, respectively.

However, it is expected that the solar power plant and the solar power plant installed together with BESS in this project will have an internal rate of return (IRR) of around 9.1% per year and 7.4% per year, respectively, which is lower than the rate of return of solar power plants that the listed companies have invested in, which is around 10-15% per year [6]. This is because the purchase price of electricity from both types of solar power plants in the Green Power Purchase Project is 2.17 baht/unit of electricity and 2.83 baht/unit of electricity, respectively, which is lower than the purchase price of electricity from solar power plants that started commercial operation in 2559-66, which is around 2.97-5.66 baht/unit of electricity [7].

The expansion of the solar power plant business through the latest project to purchase electricity from renewable energy will have a positive impact on related industries. especially the solar panel industry Because solar power plant business operators are more likely to use the services of the said industry. To support business growth over the next 7 years from the Green Power Purchase Project, Krungthai COMPASS will analyze the benefits that Thai industry will receive in the next section.

2. How much does the Thai solar panel industry benefit from the green electricity purchase project?

Before analyzing the benefits that each business in the solar panel industry will receive. will explain the supply chain of the Thai solar panel industry. which has the following details:

As for the supply chain (Supply Chain) of the said industry, it consists of 3 groups[8] which are:

1) Upstream group : This group comprises businesses that process primary raw materials, such as manufacturers of solar cell-grade silicon, which is mostly imported from countries like China, Australia, and Brazil.

2) The midstream group includes businesses that manufacture solar panels, and those involved in the production and distribution of battery-powered energy storage systems (BESS) and related equipment such as solar inverters (devices that convert electricity from solar power generation systems into grid power). Businesses in this group typically import raw materials and finished products from China and Australia, such as solar-grade silicon and unassembled solar panels, for further production, primarily for export to the United States.

3) Downstream group It is a contracting business for installing panels and constructing solar cell systems. Most of which import products from China such as solar panels and Solar Inverters to provide installation services. The main customers of this group are power plants.
Solar and industrial plants

^{Currently, there are 63} Thai companies in the solar panel industry. The majority, at 54%, are concentrated in the business of installing and constructing solar systems. The remaining 46% comprises companies from various sectors, such as manufacturers and distributors of connectivity equipment and solar panel manufacturers.

Considering the details of the solar panel industry's supply chain, Krungthai COMPASS identifies four business groups that are poised for significant growth from upcoming green light power purchase agreements:

• Group for installation and construction of solar cell systems has the most outstanding growth direction in the group According to the demand for solar cell system installation and construction services from the entrepreneurs who won the bid in the said electricity purchase project. It is expected to increase income for this group approximately. 7 billion baht In which income of 9.2 billion baht will be gradually recognized during 2566-73 [9] and another 5.3 billion baht will be recognized after another 15 years according to the lifespan of the solar inverter. All of this income is divided into 3 parts: 1) Income from selling solar panels, approximately 6.7 billion baht [10] 2) Income from selling solar inverters, approximately 1.1 billion baht¹⁰ and 3) income from construction services for solar power plants approximately 1.9 billion baht.¹⁰ The total average annual income is 113% of the total income of this business in 2565.
• Solar panel manufacturers May benefit from the highest sales of solar panels. 5 billion baht¹¹ Although at present almost all such entrepreneurs export to foreign countries, however, if entrepreneurs in this group turn to selling more products domestically. There will be additional income from selling solar panels to installation and construction service providers for power plants in the green electricity purchase project. which is expected to be gradually recognized during 2566-73⁹ The average annual total income is 10% of the total income of this business in 2565.
• Group of manufacturers and distributors of connected equipment such as Solar inverter It is expected that there will be additional income from selling solar inverters to installation and construction service providers for power plants in the green electricity purchase project of approximately 7 billion baht [11] Revenue of 4.35 billion baht will be gradually recognized during 2566-73.⁹ And another 4.35 billion baht will be realized after another 15 years according to the useful life, with the average annual total income accounting for 11% of the total income of this business in 2565.
• Group of manufacturers and distributors related to lithium batteries It is expected to benefit from the sale of lithium batteries to solar power plants that win bids in the green power purchase project. 2 billion baht[12] Although the current production capacity is related to Thai lithium battery manufacturing products, To enter the electric vehicle (EV) market, however, there may be good growth opportunities from green electricity purchasing projects in the future. Because we are starting to see more entrepreneurs in this group planning to produce batteries for energy storage systems (Battery Energy Storage System: BESS) to enter the market, such as Nuovo Plus Co., Ltd., which is a company in the PTT group. Established NV Gotion Co., Ltd. together with Gotion Singapore Pte. Ltd., a company in the group of leading manufacturers of lithium batteries for electric vehicles and BESS in China, to carry out the business of importing and assembling battery packs for BESS and electric vehicles (EV) are expected to begin producing lithium battery production lines by 2566 with an initial production capacity of 1 gigawatt/hour/year. and will expand production capacity to 2 gigawatts/hour/year by 2568 [13] It is therefore expected that there will be benefits from the BESS investment of the operators who win the bid in the said electricity purchase project. The said investment budget of 1.1 billion baht will be gradually recognized as income for operators in this group during 2566-73, and another 1.1 billion baht will be recognized after another 15 years, according to the useful life of the vehicles. BESS, whose average annual total revenue accounted for 57% of this business's total revenue in 2565

Green electricity purchase project In addition to helping promote the Thai solar panel industry to grow exponentially. It also helps the private sector in other industries. Especially the iron and steel industry. and aluminum exported to the European Union. Reduce carbon fees in the long term after it is expected that by 2569 the European Union will begin collecting carbon fees. Because this project aims to sell electricity from solar energy that can reduce the Carbon Footprint (the amount of greenhouse gases emitted by products throughout the product cycle) to entrepreneurs for use in producing products for export to the European Union. This is expected to be beneficial in reducing carbon fees for those products in the future. More details will be analyzed in the next section.

III. How much does the green electricity purchasing project help the Thai private sector?

Before analyzing the benefits of the Green Power Purchase Program in terms of saving on carbon fees for goods exported to the European Union (EU), let's explain the EU Carbon Import Tax (CBAM) measures. Basic details are as follows:

The CBAM measure is the EU's carbon import tax mechanism, which requires non-EU exporters to report data and pay a carbon fee based on their greenhouse gas emissions (CBAM Certification) before selling their goods in the EU. From 1 October 2566, exporters of goods in the first phase of targeted industries, namely iron and steel, cement, electricity and aluminum, must report the amount of greenhouse gas emissions of the goods to be sold in the EU. Initially, they will not have to pay a carbon fee before it is collected in 2569, which will be linked to the price of the EU Emission Trading System (EU ETS) [14]. Boston Consulting Group (BCG) expects the carbon fee to be around EUR 75 /tCO ₂ (2,800 THB/tCO ₂ ) in 2569 [15].

Considering the value of exports of goods in the target industries in the first phase of Thailand's CBAM measures to the EU in 2565, it was found that the industries affected by the measures were the iron and steel industry, which had a total export value and volume of approximately 4.9 billion baht and 45,000 tons, respectively, and the aluminum industry, which had an export value and volume of 3.4 billion baht and 18,530 tons, respectively. [16]

Krungthai COMPASS estimates that Thai exporters of iron and steel and aluminum to the EU, which are affected by CBAM measures, will have to pay total carbon fees of approximately 194 million baht/year and 244 million baht/year, respectively, if the EU imposes carbon fees on these exporters as projected by BCG in 2569. This estimate is based on the assumption that the carbon footprint of iron and steel and aluminum is the same as in 2565, which was approximately 69,850 tCO2 _and 87,810 tCO2, _{respectively.} [17]

Krungthai COMPASS estimates that for every 1 megawatt that manufacturers exporting iron and steel and aluminum to the EU purchase electricity from solar power in the Green Power Purchase Program, it will save carbon fees of approximately 0.7% and 0.6% of the total fees of each product, respectively, or a value of approximately 1.4 million baht/year, since these manufacturers can use electricity from this project to produce goods for export to the EU, which will reduce the carbon footprint[18] of those goods, thus being beneficial in reducing carbon fees in the long term. This estimate is based on the assumption that electricity from solar power can reduce the carbon footprint of approximately 500 tCO2 _/ megawatt/year[19].

The aforementioned government renewable energy power purchase scheme is likely to help save carbon fees for businesses exporting to the EU in the initial target industries and other industries that the CBAM measures will expand to cover, such as refined products and polymers, etc.16 ^This will result in these exporters becoming more competitive in the EU market in the long term.

The government's purchase of electricity from solar energy through the Green Power Purchase Project can increase income for the solar power plant business by as much as 3.42 billion baht over the 25-year power sales contract, or an average of 1.37 billion baht per year. Help support related businesses to grow rapidly as well. The business that grows prominently will be the business of installing and constructing solar cell systems. It is expected to increase income for this group by approximately 9.7 billion baht. In addition, this project will also help the private sector that exports products to the European Union (EU) to reduce carbon fees in the long term after the EU begins collecting carbon fees. By 2569 because such entrepreneurs can purchase electricity from such projects. to be used to produce goods exported to the EU, which will save on carbon fees for those goods. However, the solar power plant in this project has a lower rate of return than in the past.

[1] Article on “Getting to know CBAM”, Research Department, Stock Exchange of Thailand (July 2565)

[2] Article titled “Thailand plans to collect carbon tax in 66. Energy business is the champion of greenhouse gas emissions”, Prachachat Turakij newspaper (8 April 2566)

[3] Article titled “Assessing the amount of greenhouse gas reduction for electric power generation projects from renewable energy technology”, Greenhouse Gas Management Organization (Public Organization)(TGO) (July 2562)

[4] Calculated by Krungthai COMPASS using data from https://www.irradiance.co.th/th/home (2563)

[5] Provincial Electricity Authority (September 2565), documents for hearing opinions on (draft) criteria for setting green electricity service rates (Utility Green Tariff: UGT), Office of the Energy Regulatory Commission ( Energy Regulatory Commission (Feb. 2566) and compiled by Krungthai COMPASS.

[6] Based on an interview with an executive of Super Energy Corporation Public Company Limited (Jan. 2563), article titled “GUNKUL Brokerage increases profits in 63 after having sales profits. Power plants, look forward to new projects in 64”, Thanhun Newspaper (Jan. 2564) and compiled by Krungthai COMPASS.

[7] Annual report 2565 of Super Energy Corporation Public Company Limited, article titled "Krungsri" grants SUPER loan of over 1,000 million baht to expand power plant", Thansettakij newspaper ( 15 March 2566) and compiled by Krungthai COMPASS

[8] Report on the status of electricity production with solar cells in Thailand in 2561, Department of Alternative Energy Development and Efficiency (2561), Ministry of Commerce (2566), Trade Map (2566) and compiled by Krungthai COMPASS.

[9] Analyzed by Krungthai COMPASS under the assumption that The solar power plant takes 1 year to construct, making it possible for entrepreneurs in the solar panel industry to receive income. Before solar power plants supply electricity to the commercial system

[10] Calculated by Krungthai COMPASS under the following assumptions: 1) Solar cell system contracting and construction business purchases solar cell panels with a cost of approximately 20 million baht/megawatt and solar inverters with a cost of approximately 1.6 million baht. /megawatt to install as well as provide construction services to employers. 2) Solar inverters will be changed 1 time according to their 15 year lifespan, while solar panels will not be changed. Throughout the life of the electricity sales contract of 25 years (Source: Energy For Dummies (2564)), article on “Simulation of a floating solar cell power generation system in the Bang Phra Reservoir area. Chonburi Province”, Chairit Mon. (Jan. 2563)), GROWATT (Sept. 2565) and compiled by Krungthai COMPASS)

[11] Calculated by Krungthai COMPASS under the assumption that solar panel manufacturers and manufacturers/distributors of connection equipment sell at a price 18% lower than the selling price of solar cell system installation and construction contractors to such operators. to continue providing installation services which estimates According to the average proportion of cost of sales of solar cell system installation and construction businesses (82%)

[12] Calculated by Krungthai COMPASS under the following assumptions: 1) Lithium batteries can store electricity for 2 hours/day. The reason for choosing lithium batteries that can store electricity for 2 hours comes from the electricity purchase structure. Green regulations require the power plant to supply 60% of the electricity according to the power purchase agreement for 2 hours during periods when the sunlight intensity is insufficient to produce electricity. 2) Cost of lithium batteries of the power plant in the project this Based on the cost of Chinese lithium batteries in 2565, which is around USD 127/kilowatt/hour (Source: BloombergNEF (Dec. 2565)) and the Provincial Electricity Authority (PEA) (Sept. .2565))

[13] PTT Public Company Limited (15 Dec. 2565)

[14] Article on “Getting to Know CBAM”, Research Department, Stock Exchange of Thailand (July 2565) and compiled by Krungthai COMPASS.

[15] Article “The EU's Carbon Border Tax Will Redefine Global Value Chains”, Boston Consulting Group (BCG) (Oct. 2564)

[16] Article on “Getting to Know CBAM”, Research Department, Stock Exchange of Thailand (July 2565), Ministry of Commerce (2566) and compiled by Krungthai COMPASS.

[17] Calculated by Krungthai COMPASS under the assumption that the average Emission Factor of the iron and steel and aluminum industries is 1.55 tC0 ₂ /ton and 4.36 tC0 ₂ /ton, respectively (Source: article on “Emission Factor values ​​divided by industry group type”, Greenhouse Gas Management Organization (Public Organization) (GGM) (July 2565) and compiled by Krungthai COMPASS).

[18] Carbon footprint of a product is the amount of greenhouse gases emitted by the product throughout the product lifecycle (source: TGO).

[19] Article titled “Assessing the amount of greenhouse gas reduction for electric power production projects from renewable energy technology”, Greenhouse Gas Management Organization (Public Organization)(TGO) (July 2562)