In Episode 7, we visit Thailand, where 80% of the country’s power comes from imported fossil fuels. The government wanted to increase the supply of renewable energy but there were significant obstacles to bringing about an energy transition. Mafalda Duarte, Head of the Climate Investment Funds, explains how a project by the Climate Investment Funds and the Asian Development Bank established the first wind power project in the country, and offers solutions that could be applied in the many countries facing similar challenges.
Tell us about some of the challenges facing Thailand?
Thailand is the second largest economy in South East Asia and the fourth most populous country in the region with 70 million people. Like many countries in the region, its energy consumption has been increasing steeply. But the supply was historically been largely reliant on imported fossil fuels, which supply around 80% of the nation's power. The government of Thailand is committed to accelerating its development using renewable energy sources and set itself a target of having 3,000 megawatts (MW) of wind power capacity installed by 2036. This would be a big increase from slightly more than seven MW available in 2011.
How did this project seek to overcome these challenges?
We went in with our partner, the Asian Development Bank, to finance the first independent power producer with 7.5 MW. This more than doubled the country's wind power capacity, but it was also the first time that an independent power producer was being financed and supported.
There are challenges we face when we come into a country that has limited or no experience in renewable energy investments because there is limited experience from the private sector, investors, commercial banks, financiers and regulatory authorities. There is uncertainty around the technology of wind power, given the variability of wind speeds, which makes these projects appear riskier and more costly. This meant commercial banks were very reluctant to provide loans, and certainly to provide loans with longer than the usual tenure needed to amortise the high initial investments of the project. Also the regulations had not been adjusted to cater for the specific nature of these investments. The institutions responsible for licensing and permits were unfamiliar with wind power infrastructure, which created delays.
So in projects like this one, we work with the authorities so that they can understand what changes are needed in the regulations. We work with commercial banks and provide them with the necessary comfort in these investments because of the support we provide to the project. Over time they become familiar with this type of investment and eventually decide to finance these projects on their own.
What were the results in this specific project?
We established a first-of-its-kind independent wind power producer in Thailand. We demonstrated to the country that this is a viable financing structure, which has paved the way for another 90 MW with another wind farm which we also support. This means Thailand has gone from having seven MW to doubling that capacity and now it continues to increase. The project has catalyzed a growing $2 billion market that will be really key for Thailand to meet its increasingly aggressive long-term clean energy goals.
There are other equally important results. The construction offered employment to around 250 local people. 20% of those were women, which is well above average for this sector. More jobs are needed for the operation of the pipeline. Also, some of the farmers lease their land to the wind power producer. I had the pleasure of visiting the project and I met a lovely lady who has doubled her income by leasing land to the wind project, compared to what she used to earn from farming cassava. This let her invest in fertilisers and now she has better cassava crops as well. She proudly told me that she is able to pay for her niece's education expenses in Bangkok, which is the first time a family member could afford this. It shows that clean energy can have a real impact on communities and people's lives.
What lessons or solutions from this experience could be applied more widely in the fight against climate change?
Many countries face a similar challenge to Thailand of rising energy demand but reliance on imported fossil fuels. The first key lesson is that it is important to stimulate the first, second and third movers to create a new and sustainable market for clean energy. This is where our concessional financing and public resources can play a major role.
The next solution is the importance of working with local financial institutions. We come in with Multilateral Development Banks which providers a lot of comfort to the private sector. In Thailand, we were able to leverage relationships that the Asian Development Bank had with one of the local banks to provide longer-than-usual financing for wind power investments.
Another lesson is the effectiveness of public-private partnerships, in this case on a commercial wind project development. Private investors then pick this up and become active in developing further wind farms. There is now a portfolio of projects in operation and development across Thailand which will supply well over 1,600 MW, which is impressive progress in only a few years.
Last but not least, when we think about the future of the energy sector, this will be as much about social dimension as it will be about technology and finance. We need to support projects that maximise social impact. This sort of intervention is more important than ever at the moment, given that countries are making decisions about how to recover from the impact of COVID-19. It is really important when deciding what stimulus to provide to the economy that we do not lock in fossil fuel investments for decades, but really support these clean energy investments.
Read more in CIF's case study on the Theppana Wind Power Project in Thailand.
Learn more on Climate Solutions Podcast.