ENERGY STRATEGY: ENERGY FOR THAILANDíS COMPETITIVENESS
Energy is a factor of the well being of the people and is a production factor of the commercial and industrial sectors. As a result, energy is a prime mover of the countryís competitive edge and economic development in the long term. In order to attain continuous and sustainable economic development, it is essential that energy supplies be adequate and secure, at reasonable prices, and that due consideration be given to the environment so as to enhance the countryís competitiveness.
On 28 August 2003, a workshop on Energy Strategy for Competitiveness was held by the Ministry of Energy, presided over by Prime Minister Pol. Lt. Col. Thaksin Shinawatra with participation of senior officers from related Ministries and private sector representatives. The objective was to determine strategic approaches in the energy sector to increase energy security and to enhance the countryís competitiveness.
Consideration has been given to the fact that the domestic energy reserves will not be able to adequately accommodate the increasing demand of the country due to its increasing economic growth. Hence, Thailand has to depend largely on imported energy at a considerable cost each year. In 2002 the energy consumption in Thailand accounted for a value of about 800 billion Baht (or about US$ 20 billion) [At the exchange rate: US$1 = 40 Baht], which was about 14% of the Gross Domestic Product (GDP), and the value of imported energy was greater than 300 billion Baht.
If the trend of Thailandís energy consumption remains the same as that in the past and given the economic growth rate of 5% per year, it is forecasted that in 15 years, or in the year 2017, the value of energy consumption will increase from 0.78 trillion Baht to 2.1 trillion Baht and that the dependency on imported energy will inevitably increase accordingly.
The high dependency on imported energy will make Thailand at risk of energy supply disruption and volatility of energy prices, apart from a substantial foreign currency loss for the imports of energy.
The incidents at the beginning of 2003 have emphasized the importance of energy security and its impact on the competitiveness of the country. The prolonged demonstration of the oil production workers in Venezuela had caused the decrease of the crude oil volume in the world market by more than 2.5 million barrels per day. Also, the US-Iraq military crisis had caused the oil price hikes at US$ 1.3-5.8 per barrel. Thailand had faced a high risk of oil supply disruption and price volatility so much so that the government had to introduce the oil price stabilization measure in order to alleviate the impacts of oil price hikes on the economic development as well as domestic consumers.
Consequently, with a view to strengthening the national energy security and competitiveness, the strategies for Thailandís energy development will focus on efficient use of energy, acceleration of domestic renewable energy resource development to replace the use of fossil fuel of which indigenous reserves are limited, and efficient energy management to extend, as long as possible, the supply availability of indigenous energy reserves. Simultaneously, efforts will be made to transform Thailand to be the "Regional Energy Center," which will be another means to enhance the national energy security and economic development. At the 28 August workshop on Energy Strategy for Competitiveness, the following four energy strategies have, therefore, been established.
1. Strategic Plan for Energy Efficiency
During the past 15 years, the ratio of energy consumption to the GDP of the country, or the "energy intensity," has increased whereas the energy intensity in developed countries has been decreasing. Considering the energy elasticity, or the ratio of energy consumption growth rate to the GDP growth rate, in the same period, it can be seen that Thailandís energy elasticity is 1.4:1 while in developed countries such as the USA and Japan, their energy elasticity is only 0.8:1 and 0.95:1 respectively. In the case that the GDP growth rate of Thailand is at 5% per year, the national energy demand will then increase by 7% per year, accounting for a value of energy expenditures at about 2.1 trillion Baht in 2017 or in the next 15 years.
Therefore, reduction of energy consumption via economical and efficient use of energy will help not only reduce the public burden on energy procurement but also save foreign currency that will otherwise have to be spent on imported energy. Besides, the impacts from the risk of energy supply disruption and price instability can be reduced.
To reduce the energy elasticity of the country from the current 1.4:1 to 1:1 by the year 2007.
If the government can effectively implement energy conservation measures and promote efficient use of energy as targeted, that is, if the energy elasticity can be reduced to 1:1 by 2007, the national expenditures for energy of the country can be reduced by 3.1 trillion Baht during the period 2007-2017.
In order to achieve the targeted energy elasticity reduction, measures have been established focusing on the two major energy intensive sectors, namely, the transportation and industrial sectors which hold a share of 37% and 36% of energy demand respectively. These two sectors combined together account for 73% of the total domestic energy demand.
1.1 The Transportation Sector
In developed countries, such as Japan and England, the main transportation system in urban cities is the rail system, which is promoted by the governments due to its most energy efficiency. On the contrary, in Thailand, almost 80% of energy consumption in the transportation sector is used for land transportation; of this, 78.6% is for transportation by cars and light/heavy trucks and only 0.5% by rail. Transportation by waterway accounts for only 4.6%, and the remaining 16.3% is for air transportation.
With the growing number of cars in each year, passengers using the mass transportation in Bangkok and its vicinities decreased from 1,224 million in 1997 to 938 million in 2001. Passengers using inter-province buses also reduced from 12.6 million in 1997 to 10.8 million in 2001. Similarly, train passengers reduced from 64.9 million to 56.7 million in the same period.
- Switch the mode of transport, for both passengers and freight, from cars and light trucks to the rail system.
- in Bangkok and its vicinities, investment will be speeded up in the rail system as well as other forms of mass transport;
- in the provincial areas, investment in the dual-rail tracks will be speeded up.
- Develop efficient networks of multimodal transport.
The networks of the transportation systems both by land and by waterway and the depot system nationwide will be improved, including oil transport via the oil pipeline networks.
- Promote the use of energy-efficient vehicles.
- Use the town & country planning system in determining goods transport routes.
- Introduce tax measures to induce energy conservation in the transportation sector.
The sources of capital can be from the investment of the private sector, the public sector and various energy funds, for example, the Oil Fund and the Energy Conservation Promotion Fund.
1. The Ministry of Transport, the Ministry of Finance, the Ministry of Energy and the Office of the National Economic and Social Development Board (NESDB) will jointly study and accelerate joint venture in the integration of the rail system, the coastal navigation and the logistic networks, together with the efficient town & country planning.
2. The Ministry of Energy, the Ministry of Transport, the Ministry of Finance, and the NESDB will jointly review the transportation infrastructure with a view to increasing energy efficiency in the transportation sector.
1.2 The Industrial Sector
The volume of energy demand in the industrial sector is almost at the same level as that of the transportation sector; it holds a share of 36% of the total energy demand. Compared with the developed countries, it is apparent that the manufacturing structure of Thailand has never been reformed to achieve greater energy efficiency or to shift to non-energy intensive industry in order to attain high value-added products. In the USA and Japan, for instance, their industrial structure has been shifted to non-energy intensive industry where energy-efficient machinery and equipment are promoted together with efficient management of the production process.
- The Ministry of Industry, the Ministry of Finance, the Ministry of Energy, the National Competitiveness Committee (NCC) and the NESDB will jointly determine measures and speed up the industrial structure reform to enhance the competitive edge of the country as well as review the investment promotion policy, attaching greater importance to the energy aspect and economic value.
- The Ministry of Finance is to devise tax measures to promote energy conservation in factories and goods transportation. Consideration will be made on exemption of juridical body income tax for the profits gained from auditable energy saving. Interested industries can submit a petition for tax exemption and apply for energy conservation plan development on a voluntary basis.
- The Ministry of Industry and the Ministry of Energy are to jointly speed up the implementation of the following:
- enforcement of the Minimum Energy Performance Standards (MEPS) for electrical appliances and energy-efficiency labeling for cars;
- establishment of the Energy Conservation Certification for factories; and
- promotion of energy production systems with efficient combined use of energy, such as the co-generation system in the industrial estates and the district heating/cooling system.
2. Strategic Plan for Renewable Energy Development: New Options for Thailand
Although non-renewable energy derived from fossil fuel resources will remain the major source of energy for the global consumption for no less than 30-40 years, such energy resources will eventually be depleted. Hence, many countries have paid greater attention to renewable energy development during the past decade (1990-2000). The average growth rate of renewable energy consumption is 8% per year while the consumption of energy derived from various types of fossil fuel grows at a maximum rate of 2% per year.
The objective of renewable energy development is to seek for alternative energy to replace non-renewable energy from fossil fuel. In Thailand, fossil fuel resources are limited and hence are inadequate to satisfy energy demand of the country. Therefore, Thailand has to depend on imported energy from foreign sources, which causes a considerable loss of foreign currency. Renewable energy development will help reduce not only the energy supply burden but also the import of non-renewable energy. In addition, renewable energy will help reduce environmental impacts resulting from energy development and utilization as, among others, it causes less emission of carbon dioxide, a greenhouse gas causing the climate change. Besides, biomass energy development is a means to optimize the utilization value of domestic energy resources, bringing economic benefits to concerned local communities.
To increase the share of renewable energy from 0.5% of the commercial primary energy, or 265 thousand tons of crude oil equivalent (ktoe), in 2002 to 8% of the commercial primary energy, or 6,540 ktoe, by the year 2011, that is, within the next 8 years.
- Establish the regulation or legal enforcement on the Renewable Portfolio Standard (RPS) for new power plants that 4% of their generation capacity must be generated by renewable energy such as solar, wind or biomass.
- Devise incentive measures encouraging purchase of power generated by renewable energy, for example, provision of tax credit, privilege, and subsidies from the Energy Conservation Promotion Fund.
- Support research and development (R&D) on renewable energy of which Thailand has high potential, such as solar, micro-hydropower, wind and biomass (agricultural wastes and municipal wastes).
- Encourage participation and partnership of the local communities in renewable energy-fueled power plants.
The Ministry of Energy, the Ministry of Natural Resources and Environment, the Ministry of Science and Technology, the Ministry of Finance and the Ministry of Industry are to jointly implement every feasible measure to promote, propel and support all kinds of renewable energy development, including expansion of R&D scope of work and support to researchers so that the outcome of R&D could be practically applied to actual implementation.
3. Strategic Plan for Energy Security Enhancement
This strategic plan aims to enhance security of energy resources which the country depends upon, involving electrical energy resources and domestic reserves of fossil fuel energy, such as oil, natural gas and coal, with a view to optimizing their utilization and extending the energy reserve availability.
3.1 Electrical Energy
During the period 1996-1997, the power demand increased at an annual average rate of 1,100 MW. The peak demand in 1997 was 14,506 MW. After the 1997 economic crisis, the power demand decreased; the peak demand in 1999 was down to a level of 13,712 MW. However, with the advent of economic recovery, the peak demand increased again, that is, in 2001 and 2002 the peak demand was at a level of 16,126 MW and 16,681 MW respectively.
Although the current power reserve margin of the country is at a high level, the continuously high economic growth rate necessitates proper planning and management to ensure the power supply stability since the construction of a power plant is time-consuming.
- The power supply must be in balance with the demand to prevent an electrical outage or a voltage drop or an excessive reserve margin.
- The power tariff structure must be reasonable and fair, and the tariff rates for the industrial sector should be low to enhance competitiveness of the country.
- Due consideration is to be given to the quality of life of the communities and localities as well as the environmental impact.
- The Electricity Generating Authority of Thailand (EGAT) is to be responsible for the generation and transmission systems of the country.
- EGAT will also be responsible for the establishment of the Community Development Fund, aiming to improve the quality of life of the communities in the vicinities of power projects and to mitigate the environmental impact. The Fund revenue will be derived from levies imposed on power plants of which the installed capacity is greater than 1,000 kW. The rates will be as follows: 1.30 Satang/unit for lignite and coal-fired power plants, and 1.00 Satang/unit [1 Satang = US 0.025 cents] for other types of power plants.
The framework for authorization of the Fund utilization is divided into 3 categories, namely:
Category 1: For the overall development of quality of life and the environment, the authorization is under the Community Development Fund Committee;
Category 2: For the development of quality of life and the environment of the people in the provinces where power plants are located, the authorization is trusted to the respective Provincial Committees; and
Category 3: For the development of quality of life and the environment of the people in the localities where power plants are located, the authorization is trusted to the respective Community Committees.
3.2 Non-Renewable Energy from Fossil Fuel
Thailand has limited fossil fuel reserves, which currently comprise the following: 33 trillion cubic feet of natural gas reserves, 714 million barrels of crude oil reserves, and 1,330 million tons of coal reserves, accounting for a supply availability of 30, 20 and 60 years respectively. Each year Thailand has to import fossil fuel energy and hence has to face the risk of energy price volatility; therefore, establishment of measures to ensure security of fossil fuel supply is essential.
To expand the availability of energy reserves from 30 years to 50 years so as to adequately meet the domestic demand.
- Promote domestic energy exploration and production;
- Speed up negotiations and agreements with neighboring countries on energy development in joint development areas;
- Cooperate with other countries in the region on energy development;
- Support the Trans-ASEAN Gas Pipeline Project; and
- Encourage PTT Public Company Limited (PTT), PTT Exploration and Production (PTTEP), and potential Thai private companies to invest in overseas energy projects.
The Ministry of Energy and the Ministry of Foreign Affairs are to speed up negotiations on energy development in joint development areas. The Ministry of Energy is to accelerate exploration of energy resources both domestic and overseas and, together with the Ministry of Foreign Affairs, to establish the strategies to open up prospects for potential Thai private companies, such as PTT/PTTEP/EGAT, to invest in energy projects overseas and to create international energy networks.
4. Strategic Plan for Thailand to Be the "Regional Energy Center"
To develop Thailandís capacity to function as the Regional Energy Center can enhance energy security of the country. Being the Regional Energy Center will contribute to Thailandís access to energy supply and hence reduce the risk of energy supply disruption because the country will become the center of energy supply and distribution in the region, whatever it involves -- electricity, oil or natural gas. Thailand has a high potential to function as such for the following factors:
- geographical advantage;
- existing large-scale domestic energy market and expertise in energy business;
- existing energy infrastructure, with considerable idle capacities; and
- opportunities to expand energy trade to other countries in the ASEAN region and to the southern part of PR China.
- To enhance Thailandís capacity to become the Regional Energy Center by restructuring relevant factors and shifting the role from being an energy buyer to an energy trader in the future;
- To increase the national revenue from the increasing value of energy trade; and
- To reduce or nullify the special premium known as the "Asian Premium" imposed on crude oil trading in the world market.
- Review the taxation system and structure to eliminate duplication of tax collection and the barriers to oil trading, and establish the Free Zone (FZ) to facilitate overseas oil trading in line with the international standards. The pilot operation can be implemented immediately on Sichang Island (Chonburi province) and at the Map Ta Phut (Rayong province);
- Develop the power transmission network, the natural gas pipeline network and the networks of other energy types, including international cooperation and cooperation between the public and the private sectors, and the government to government collaboration so as to create joint-venture in natural resource development and efficient joint-utilization of energy infrastructure, especially in the power generation and distribution;
- Optimize the capacity of the existing energy infrastructure and promote oil transportation via the existing pipelines. Connect the north Ė northeast oil pipeline transmission systems, and support the intra-regional connection of transport modes, whether by land, by rail or by waterway, linking up to the southern part of PR China so as to expand the energy market to neighboring countries;
- Develop the "Strategic Energy Landbridge" in southern Thailand linking the oil production sources and oil transportation from the Middle East and South Asia to the East Asia. The project involves the building up of an underground oil pipeline and the setting up of oil stockpile depot system. This will require joint-venture between oil consumers and oil producers, such as Japan, Korea, PR China and India, so as to strengthen regional energy security; and
- Encourage the integration/merger among the domestic producers in order to create the world scale in the petrochemical business.
- All concerned agencies are to implement and support related measures contributing to the development of Thailand to be the Regional Energy Center.
- The Ministry of Finance is to consider the establishment of Free Zone and to revise the taxation structure and relax relevant rules, regulations and measures in order to facilitate the investment as much as possible.
- The Ministry of Energy, the Ministry of Transport, the Ministry of Finance, the Ministry of Foreign Affairs and the Bureau of the Budget are to speed up the development of the Southern Strategic Energy Landbridge, particularly the construction of the oil pipeline linking the western coast (Andaman Sea) with the eastern coast (Gulf of Thailand). The policy on energy cooperation with neighboring countries will have to be undertaken simultaneously.
- The overall objective of Thailandís energy strategy is to integrate the four aspects of energy strategies, namely, the Strategic Plan for Energy Efficiency, the Strategic Plan for Renewable Energy Development: New Options for Thailand, the Strategic Plan for Energy Security Enhancement and the Strategic Plan for Thailand to Be the "Regional Energy Center," so as to strengthen the national energy supply security and to increase the competitive edge of the country.
- The framework of this national energy strategy has been approved in principle by the cabinet resolution of 2 September 2003.
- The next step is to translate the individual strategic plans into practice. In this connection, the action plan of each strategy is being developed.
Download this document in DOC format.
Download all figures in PPT format.
Energy Policy and Planning Office, Ministry of Energy, 4 November 2003