Bridging the Gap – challenges and opportunities to increasing the role

of renewables in Mekong power supply (MK14)

Gap Analysis of Renewable Energy Generation in the Lower Mekong Basin

2nd Partner MeetingHanoi, 20 November 2013

Alexander Kenny (alex.kenny@icem.com.au)

Gap Analysis Lower Mekong Basin Renewable Energy Targets

• The SEA created scenarios with increased renewable energy. However, strategies to achieve these higher targets were not explored in depth.- How can we get there, and beyond?

Global Trends Energy Planning Paradigm and System Considerations Investor concerns

Renewable Energy Gap in the LMB Percentage of Renewables

• Non-large hydro renewables provide only approximately 3% of global energy production. In the LMB, this figure is 5%.

Renewable Energy Gap in the LMBLower Mekong Basin Power Development Plan Target

Renewable Energy Gap in the LMB

2012 2015 2020 20250

20000

40000

60000

80000

100000

120000

140000

Renewable Energy Output by Scenario: Lower Mekong Basin 2012-2025

PDP Scenario and Energy Efficiency Scenarios

Renewable Energy Scenarios

GWh

Wind

Solar

Geotherm

al

Small

hydro

Biomass / b

iogas

Total

0

20,000

40,000

60,000

80,000

100,000

120,000

Technical PotentialExisting 2010Planned 2025Additional RE Scenario - 2025

Renewable Energy Capacity in the LMB (MW)

Renewable Energy Gap in the LMB

Renewable Energy Gap in the LMB

Hydropower Capacity by Scenario

2012 2015 2020 20250

5000

10000

15000

20000

25000

30000

35000

40000

PDP and 2 Global ScenariosRE-RegionalEE-Regional

MW

LMB in the Global Renewable Energy Context

Globally, “there is clearly going to be a slower pathway to growth than that originally envisaged in 2009” (Ernst and Young) A diminishing role of subsidies and financial incentives, and less investment,

and a concurrent credit crunch. In 2012, investment in the biomass and waste to energy sector fell by

27% to US $9.7b Solar and wind investment fell less, down 9% (to US $142.5b)and down

13% (to US$78.3b) respectively. Due to shale gas, a reduction of 5% of investment in renewable for the world

as a whole is expected in 2013.

“A three-tier world energy market is emerging, with the greatest opportunities for renewables in Asia”

LMB in the Global Renewable Energy Context

• Decreasing costs of renewable technologies– The cost of O&M of wind farms has fallen 38% in four years– The cost of solar panels and equipment continues to

tumble • Supply currently outstrips demand two to one, and the price of

modules could fall from US $0.70 per watt to as low as US $0.48 per watt in 2017 (Lux Research).

• In the United States, installation cost is increasing in importance.

• Improvements in battery technology• Decreasing subsidies for fossil fuels - future cost of

electricity in the Lower Mekong Basin

LMB in the Global Renewable Energy Context Revenue and Cost

Source: Ernst and Young

Relevance of Global Trends to LMB

• How insulated/exposed are Lower Mekong Basin countries to these global trends?

• How do they compare to other “emerging markets”?

Energy Planning Issues

• Current emphasis on centralized generation• Priorities of Energy Planners– Least-cost energy generation optimization

-> But renewable energy is more expensive -> Planning does not adequately include social and

environmental externalities -> Budget for subsidies – EVN already operating at a loss.

Energy Planning Issues

Energy Planning IssuesExternalities not integrated

Energy Planning Issues Reliable system

-> Issues of intermittency as more renewables are deployed. Storage solutions viability of the renewable energy sector • The SEA resulted in increased hydropower pumped storage, and

additional capacity, and increased trading.

Political Economy factors (Possibly overstated demand projections; emphasis on certain technologies)

Energy Planning Paradigm

Fuel-price risk and cost variation are not explicitly integrated into planning decisions-> Portfolio Based Planning is a potential tool

Capital, fuel and operating and maintenance (O&M) costs per unit of output for each technology; the risk of each cost component; and the correlation factors between and within cost components.

Portfolio-Based Planning

Portfolio-Based PlanningFossil Fuel Price Volatility

0

5

10

15

20

25$/mmbtu

WTI CrudeAustralian CoalJapan LNGUSA Gas

Investor Concerns

• Pricing and Costs of Renewable Energy• Policy and Regulatory Climate• Market and Investment Climate

Investor Concerns:Costs/Pricing of Renewable Energy

• Up-front capital costs and pay back period• Often small scale and modular investments

(not always)• Stimulus or lack of for private sector

participation

Investor Concerns:Policy and Regulatory Climate

• Policy coherence and simplicity– Simplicity, clarity and consistency around the policy and

support regime is very helpful.

• Government approval processes – delays, hidden costs, uncertainty

• Transparent government plans– Future electricity pricing– Grid extension plans– Subsidies– World Bank-REF rental scheme, potential market

distortion.

Regulatory Risk

Investor Concerns:Market/Investment Climate

• In-country capacity– Eg. Cambodia biogas operation, absence of a good

network for installation, repair

• Lack of information of costs, benefits, and applications of RE; lack of technical information; lack of market information– Lao PDR small hydro

• Access to financing

Policy Interventions for Case Studies

Thank you