Transforming Power Development Planning in the Greater Mekong Subregion

A Strategic and Integrated Approach

• Verlag: Asian Development Bank
• Jahr: 2020
• ISBN:
  9789292623937
• Thema: Tecnología e ingeniería
• Thema: Recursos de energía renovable

This publication provides guidance on how governments and utilities in the Greater Mekong Subregion (GMS) can develop sustainable power development plans based on current international best practices. It outlines how the integration of strategic environmental assessments to an integrated resource planning approach can enable power development plans to explore or better manage renewable energy sources efficiently. It also discusses the benefits and key principles of this approach, with technical guidelines for each of the six GMS countries and tools aimed for use by practitioners in Asia and beyond.

1 Introduction

1.1 Purpose and Rationale

This report aims to guide how the preparation of a country’s power development plan (PDP) can be transformed—providing enhanced sustainability—through integrating strategic environmental assessment (SEA) into an integrated resource planning (IRP) approach. TA 9003 is providing country-specific technical guidelines to the Greater Mekong Subregion (GMS) counterparts in separate documents. The rationale behind this document is to consolidate the knowledge gained under TA 9003 into a knowledge product aimed at practitioners in the GMS countries, other Asian countries, and beyond.

SEA is a concept that is steadily gaining traction. In the GMS countries, the application of SEAs in the power sector was initially quite gradual. The application of SEAs in the power sector in Viet Nam extends back to around 2005, when the Law on Environmental Protection (LEP) required all strategic plans, including PDPs, to incorporate an SEA as part of their preparation. Subsequently, Viet Nam has developed its policies, institutions, and processes to the extent that it is now an excellent model for other countries in the GMS—while it acknowledges that there remains scope for improvement. The extended experience with SEAs in Viet Nam in the power sector is such that a separate knowledge product has been prepared, tracing the evolution of the process of integrating an SEA into strategic planning—either by sector or nationally—from having no experience with SEA integration to having the SEA fully integrated into the PDP process.¹

As the issues and constraints relating to PDP preparation have become increasingly complex, Viet Nam has found that the inclusion of the SEA has provided a better understanding of the implications of the different development options in the PDP, resulting in significant changes to the final contents of the plan and ensuring alignment of the PDP with the overall national development policies of the country.

Of the other GMS countries, the PRC and Thailand have followed practices with some similarities to those adopted by Viet Nam, but without a formal SEA structure. In very recent years, Cambodia, the Lao PDR, Myanmar, and Thailand are showing considerable interest in integrating SEA into the PDP preparation process. This document provides policy makers with the evidence to support the case for such integration.

As outlined in this document, there has perhaps never been a time when there was a more apposite case for the introduction of SEA to PDP preparation.

1.2 Dynamics of Change in Global Power Generation

All the GMS countries are experiencing strong and sustained economic growth. Globalization has resulted in a marked shift in industrial production from developed to developing economies. The rapid increase of demand for electricity by industry, together with strong residential growth, is requiring major expansion of the power systems in the GMS countries. The PDPs in these countries typically include significant capacity additions from thermal generation sources, and particularly from coal-fired power stations. This is a cause of consternation to the international community seeking to mitigate the risk of climate change and global warming due to greenhouse gas (GHG) emissions.

In recognition of the need to act on global warming and climate change, the United Nations Framework Convention on Climate Change (UNFCCC) Conference of Parties (COP) has been meeting annually since 1995. There have been many breakthroughs made since these meetings began, three of which have particular impact on the profile of climate change in power development planning:

(i)At COP 19, held in Warsaw, Poland in 2013, UNFCCC created a mechanism for intended nationally determined contributions (NDCs), which were to be submitted 2 years in advance of COP 21. All the GMS countries prepared and submitted contributions—typically with both unconditional commitments and alternative commitments that were conditional on support from the donor agencies.

(ii)The Paris Agreement, arising from COP 21 in 2015, aimed at limiting global warming to less than 2°C, and to pursue efforts to limit the rise to 1.5°C.

(iii)COP 24, in 2018, agreed on rules on implementing the 2015 Paris Agreement. However, although this agreement aimed at limiting global warming to 2°C, concerns were raised that even limiting global warming to 1.5°C would still have severe consequences for billions of people around the world.

The inference is that the intended NDC commitments may need to be tightened soon.

In addition to worries over thermal generation in the region, the fact that all the GMS countries have plans to develop and/or import from large hydropower projects in the Mekong basin has caused concern about the adverse social and environmental impacts of these projects. These concerns include the significant diminution of fisheries in the lower reaches of the Mekong basin due to the retention of fertile silts in the proposed hydropower reservoirs.

The concern that GMS country PDPs focus on large thermal and hydropower projects is compounded by the fact that these plans are broadly inconsistent with major international trends in the power industry. There are examples of these trends:

(i)GMS country PDPs typically contain negligible to modest renewable energy capacity, such as wind and solar.² This runs counter to the international trend in the industry wherein generating capacity from renewable energy sources (RES) is outstripping that from non-RES technologies due to the sustained reduction in the cost of RES capacity—notably solar and wind. There is evidence of this trend:

(a) In 2016, capacity additions from conventional technologies was approximately 212,000 megawatts (MW), whereas that from RES was approximately 163,000 MW.

(b) Between 2010 and 2017, the weighted-average levelized cost of energy (LCOE) fell by 73% for utility-scale photovoltaics, 23% for onshore wind, and 33% for concentrated solar power.

(c) Between 2010 and 2017, the total installed cost of photovoltaics fell precipitously from $4,394/kilowatt (kW) to $1,388/kW, the capacity factor of photovoltaics installations rose from 0.14 to 0.18, and the LCOE fell from $0.36/kilowatt-hour (kWh) to $0.10/kWh.

(d) Between 1983 and 2017, the LCOE of onshore wind declined by 85%. In the 10 years to 2017, costs declined by around 50% on average.

(ii)With the notable exception of the PRC, Thailand, and—to a lesser extent—Viet Nam, the GMS countries underperform compared to many developed industrialized and developing countries in terms of including energy efficiency initiatives in their PDPs. In some GMS countries, the energy efficiency ambitions are relatively modest and in some others they are non-existent. Thailand’s Energy Efficiency Development Plan (EEDP) (2011−2030) aims to reduce energy intensity by 25% in 2030, equivalent to a reduction of final energy consumption by 20% in 2030.³ The EEDP will result in cumulative energy savings at an average of 14,500 metric tons (t) of oil equivalent per year, $8.5 billion/year, and cumulative carbon dioxide (CO₂) emission reductions at an average of 49 million t/year. Thailand has been setting an example of energy efficiency in the GMS since 1995, and the EEDP is an integral component of the country’s PDP.

(iii)While all the GMS countries have international transmission interconnections with one or more of their neighbors, cross-border trade is almost entirely limited to projects developed for export purposes. Although the Regional Power Trade Coordination Committee (RPTCC) has been meeting every 6 months since 2004, progress toward establishing a regional electricity market has been extremely slow. There is, therefore, a high potential for more ambitious cross-border arrangements. These are illustrated by experiences in Africa,⁴ Europe, and North America, and in a recent study of potential power trade in the Association of Southeast Asian Nations (ASEAN)⁵ that cross-border trade can work in the best interests of all parties in terms of (i) shared reserve capacity; (ii) shared ancillary services; and (iii) diurnal, weekly or seasonal trade between countries with divergent energy resources, e.g., abundant natural gas in one country and abundant but seasonal hydropower in the neighboring country.

(iv)Solar photovoltaics are a distinctly intermittent RES that the combination with energy storage solutions helps mitigate, in particular, where photovoltaics supplies off-grid networks or where the transmission system is very weak. In the same way that economies of scale have played a major role in driving down the LCOE of photovoltaics—which helps fuel demand for this solar panels, this explosion in the use of photovoltaics is also fueling demand for battery storage to be used with photovoltaics, and scale-effects are driving down battery costs. Also—in response to the necessity to reduce GHG emissions—lawmakers and regulators are promoting the development of hybrid or battery-powered electric vehicles, with the result that battery costs are falling, to the benefit of both the electric vehicle and energy storage markets. Generally, the PDPs of most GMS countries do not account for battery storage.⁶

Other notable global trends are not yet prominent in the GMS countries. Where the regulatory regime permits, utilities rooted in conventional technologies such as coal and gas are often being outmaneuvered by start-up companies that have harnessed disruptive technologies (e.g., solar photovoltaics and solar photovoltaics plus storage) with innovative financing mechanisms. In some instances, these market entrants are consolidating the management of rooftop solar, home battery systems, electric vehicle charging, etc., forming virtual microgrids within existing grids, and using software technologies—such as blockchain—to outcompete the incumbent utilities. Regulatory frameworks in GMS countries do not widely facilitate such innovations to operate, although there are exceptions, such as the so-called “Sandbox” initiative being implemented by the Energy Regulatory Commission in Thailand, which encourages the development of technologies such as peer-to-peer electricity trading and projects to develop electric vehicle charging and storage. The lesson is that where they are allowed to operate, such innovations are delivering commercial efficiencies and lower energy costs for end users, especially the public.

The global changes outlined in this report have focused on the challenges facing the international community in addressing climate change and global warming, and how the rapid penetration of technologies such as wind and solar energy are increasingly prominent in the fight to limit GHG emissions. However, there is another significant area that warrants mention, and that is the liberalization of electricity markets.

Market liberalization has been gathering pace since it was introduced in Chile and the United Kingdom (UK) during 1985−1989, and largely predates efforts to correct global warming. This change to legal and regulatory frameworks has generally been motivated to promote efficiencies and innovation that leads to lower tariffs and better supply reliability to customers. In the UK, industry restructuring, privatization, and the introduction of a pool for trading wholesale electricity were introduced almost simultaneously, and the introduction of a retail market followed within a few years. An industry model like that of the UK has been adopted by a small minority of countries around the world.

Many countries, including all the GMS countries, have modified industry structures and regulatory frameworks to enable the private sector to finance, build, own, and operate generation facilities that feed into the national grid. The businesses that develop these facilities are known as independent power producers (IPPs). The IPPs tend to be large, conventional thermal projects or large hydropower projects that supply power to a transmission entity and/or single buyer under a contractual arrangement known as a power purchase agreement (PPA)—especially in developing countries. Since IPPs are typically under limited-recourse financing arrangements, the PPA instrument is required by the project’s financiers to provide a good degree of assurance that the developer’s debt service obligations will be met in full.

Outside a relatively small number of developed countries, it is rare for IPP companies to construct large projects without a PPA, trusting an electricity market to provide adequate revenues—sustained over several years—to meet all the company’s costs, including the debt service obligations. Electricity markets are uncommon in developing markets. Viet Nam is set to become the first GMS country to introduce a wholesale electricity market (WEM), which may herald significant market liberalization in the GMS countries. Under the Vietnamese WEM, new IPPs will be required to trade electricity in a spot market, and incumbent market participants will be required to gradually increase their exposure in the spot market.

Experience from a handful of countries such as Australia, Japan, the UK, and the United States (US) demonstrates how the private sector—often start-ups financed by venture capital organizations—can develop relatively small-scale renewable energy capacity that is cost-competitive, and with enough conventional sources of generation that slow moving incumbent generators are being displaced from these markets and becoming a burden. Although unfortunate for these legacy generators, it is advantageous to both the innovators and the end users who benefit from lower electricity prices.

The development and operation of electricity networks also need to be adapted to this new context. A considerable change in the role of network users and network operators will be required to attain the various objectives of augmenting security of supply, creating and/or developing competitive markets, and expediting the transition to a low-carbon economy.⁷

Future network users will increasingly be required to play a proactive role in the delivery of services and functionality required to maintain the security of the transmission system (footnote 7).

In the future, operating conditions under the highest levels of RES injection (typically windy/sunny conditions with moderate demand) present major system challenges—particularly where the high RES penetration extends across a complete national system, or even more if covering a total synchronous area. The move toward a more RES-dominated system implies a gradual diminution of the large-scale generation connected at extra high voltage level, which will be further compounded by this generation having much-reduced running hours compared to current levels. The main solution to this is to increase the controllability and the flexibility of all power system elements, including RES, to deliver a power system that can react and cope better with the variability of RES. The establishment of grid codes—including these new requirements of flexibility and controllability—is a major challenge for GMS countries (footnote 7).

To promote private sector participation in power generation—both grid-connected IPPs and off-grid small power producers (SPPs)—it is important to establish an independent regulator for the electricity sector. An Electricity Authority is becoming an established feature in developing markets that are making significant progress in market liberalization.

Internationally, governments have taken important steps toward their energy efficiency potential. Achieving greater energy efficiency that faces up to the challenge of sustainable social, environmental, and economic development has been a key component of energy policies worldwide. Within the GMS, there are significant variations in energy consumption patterns and sectors of economic activity. The rapid economic growth in the GMS is closely linke...