Sep 12, 2024
CIF’s Clean Technology Fund (CTF) provided an early boost to Thailand’s green energy transition, enabled private sector investment, and led to a wave of new projects.
Thailand is a country in a hurry. Over just two decades, the Southeast Asian nation has grown its economy almost fourfold and, in the process, transformed the lives of millions of people. But with success comes challenges. The demands of modern life have led to soaring electricity consumption, putting pressure on local power generation and increasing Thailand’s reliance on expensive imports. With the support of the Climate Investment Funds (CIF) and Asian Development Bank (ADB), the Thai government took action – forging a new approach to energy management and enabling the transition to a low-carbon future.
The challenge
As Thailand’s energy demand has risen, so have its greenhouse gas emissions, which reached 450 million tonnes in 2021, compared with 364 million tonnes a decade previously. Over a similar period, the country’s domestic natural gas resources have rapidly declined, leaving the government with little choice but to buy coal-based electricity from overseas.
Thailand’s increasing use of energy imports highlights the need to re-think its energy strategy. But it also reflects the challenges of a journey the country has been on since 2007, when the government created a private sector incentive program to encourage more sustainable energy production. At first, progress was slow, amid factors that included a lack of wind in many regions, difficult terrain for large-scale turbine construction, and a patchy power grid. Moreover, nascent renewable energy producers faced financial headwinds. Commercial banks had little experience of the renewables sector and were often reluctant to support projects with high upfront costs and relatively long exposures (20–25 years) – all acting as disincentive to private sector investment. By 2009, the country had built just 5MW of wind generation capacity and not a single large-scale (over 20 MW) solar plant.
Catalyst for change
In 2012, things started to change. Thailand’s CTF Investment Plan included $100 million from ADB to support private-sector investment in utility-scale solar, wind, and waste-to-energy projects. As of December 2023, CIF had approved $80.6 million in finance for the projects with ADB, with $506 million in co-financing – of which $354 million came from the private sector.
One of the first success stories of this plan was the Theppana Wind Power Project, led by Thai-based Electricity Generating Public Company (EGCO). The project was funded through $4 million in CTF concessional finance, an ADB loan for THB145.2 million ($4.54 million), and Bank of Ayudhya credit amounting to THB145.2 million ($4.54 million).
The Theppana project was a first on many counts. It was EGCO’s first wind farm, CIF’s first investment in a private sector-led wind project in Southeast Asia, and one of the first wind power projects financed by a Thai bank. Construction on the facility began in September 2012 and commercial operations started just 10 months later in July 2013. Before long Thailand’s energy transition was in full flow, supported by local commercial banks and highlighting three key benefits of CTF’s work in the country:
Supporting the clean energy transition: The project’s success encouraged EGCO to proceed with a second facility, the 90MW Subyai project, also called the Chaiyaphum Wind Farm, which became operational in 2016. The project had the same ownership and financing structure as Theppana, based on a partnership between ADB and a Thai commercial bank.
Derisking private sector investment in new markets: Underlying CTF funding is the belief that it can create a virtuous circle of investment and confidence building, leading to a snowball effect. In practical terms, the fund reduces first-mover risk, enables investors to achieve higher debt-to-equity ratios than are common in the commercial sector, and offers attractive fixed repayment rates, rather than more usual, and less predictable, floating rates.
Sparking appetite for new projects: By December 2023, CIF and ADB had approved $80.6 million in finance for Thai renewable energy projects, leading to $506 million of co-financing, of which $354 million came from the private sector.
The impact of these commitments is plain to see:
• Thailand’s installed wind capacity rose seven-fold over just eight years - from 225MW in 2014 to 1 545MW in 2021.
• Solar capacity jumped from 1 304MW to 3 065MW over the same period.
• By 2022, renewable energy sources (including hydropower) provided 17.9% of the country’s electricity.
Progress on Thailand’s renewable energy transition slowed due to the impacts of the global Covid pandemic, but the direction of travel has remained the same. Indeed, the country’s Long-Term Low Greenhouse Gas Emission Strategy targets 65% solar and wind power by 2060. That ambition reflects both Thailand’s dynamism and the potential of private and concessional finance, working together, to achieve transformative outcomes.
