1

Securing Electricity Supply in Thailand through Fuel Management: a Crucial Challenge for the Future Thanawat Nakawiro Fuel Management Division Electricity Generating Authority of Thailand 53 Moo 2 Charansanitwong Rd. Bangkrui Nonthaburi 11130 Thailand 1.

Abstract

Electricity has been one of the concrete foundations for sustainable development of each nation. To secure electricity supply, fuel management is a crucial element. In Thailand, electricity generation system depends largely on natural gas for several decades. Even though gas-based power generation is environmentally friendly and cost-competitive, thanks to its relatively low cost from domestic supplies, indigenous gas reserves are unable to expand in the similar pace as demand growth, mainly driven by power sector. Thus, gas import becomes much essential in the recent time. Given these circumstances, security of supply emerges as an important issue from both electricity as well as natural gas point of views. To deal with it, diversification has been addressed in the national Power Development Plan whereby a number of alternatives such as coal, nuclear, and renewable power generations, are carefully planned. In the mean time, security of gas based power generation can also be enhanced by diversifying sources of natural gas as well as developing stand alone gas based power plants in order that gas supply will not depend solely on national gas supply system and transmission pipeline network, which could adversely be affected in case of any disruption. Furthermore, ASEAN Economic Community (AEC), to be established in 2015, could provide a great opportunity for energy collaboration, including fuel supply management for power generation. Given these reasons, this paper aims to explore the key challenges for fuel management in electricity generation in the foreseeable future. These would range from examining theoretical effect of high gas dependence on electricity supply security to discussing the future of gas supply as well as opportunity for stand alone power plant.

2.

Introduction

Electricity is one of the essential driving factors as well as one of the concrete foundations for the modern society. In the mean time, electricity is an important ingredient to social and economic development for both developing and developed countries around the world. Nowadays, a strong growth of electricity demand can be anticipated around the globe,

2 particularly in developing countries, thanks to economic prosperity. Given its crucial role, secured electricity supply becomes one of the influential agendas in energy as well as economic planning for each nation. Compared with other commodities, a number of challenges in securing electricity supply can be raised as from technical and practical points of view, there are limited ways to neither replace electricity by other energy forms nor store it economically. Thus, continuity of electricity supply is of concern whereby fuel management is a part of the keys to accomplish this task.

In Thailand, electricity demand since past two decades has been increasing with a considerable growth rate. To meet the demand, electric capacity has been expanded. Even though fuel diversification is always seriously addressed in the national energy policy to secure electricity supply, natural gas becomes the main fuel in electricity generation for 2 reasons. First, gas–based power generation offers several benefits, namely environmental appeal, less capital intensiveness, shorter gestation period, and higher efficiency, compared with other fuels. Second, public acceptance so far limits opportunity for coal and nuclear power generation, leaving natural gas the only likely choice.

Being highly dependent on natural gas is environmentally clean. But it raises a concern to security of electricity supply that could be more vulnerable. To this extent, limited indigenous gas reserve implies that electricity supply system is prone to gas supply disruption. In addition, if domestic production stagnates or declines, the country would depend more on imported gas whereby instability and volatility of global gas price could adversely affect local electricity tariff.

In the foreseeable future, electricity demand to 2030 will continue increasing considerably and thus electricity generation capacity would be expanded massively. Therefore, it is indispensable for energy policy planning to consider fuel alternatives as well as fuel diversification in order to strengthen supply security and direct electricity development towards a sustainable pathway. Given this objective, alternative fuels, namely clean coal, nuclear, and renewable energy, have been included in the current Power Development Plan (PDP).

But moving towards these alternatives remains challenging for the Thai power sector in several perspectives. First, environmental appeal remains a major concern for coal. Even

3 though domestic coal deposit appears with considerable amount, it is geologically concentrated in a single area in the north whereby the reserves appear mainly lignite with low heat content and. Given this constraint, it is obvious that Thailand would have to rely additionally on imported coal for new power plants making import dependence becomes economic agenda. Second, nuclear power could also face the similar hurdle from public opposition against environmental impact as well as nuclear safety. Third, renewable power generation is widely accepted as an environmental benign option but it still possesses certain limitations, such as cost, availability, and dependability.

Given these issues and challenges, paper aims to explore the key challenges for fuel management in electricity generation in the foreseeable future. These would range from examining theoretical effect of high gas dependence on electricity supply security to discussing the future of gas supply as well as opportunity for stand alone power plant.

3.

Historical Background – Electricity Demand and Fuel Mix

Fig 1 shows peak electricity demand in Thailand (in MW) between 1986 and 2012.

30,000 25,000

15,000 10,000 5,000

Fig.1: Peak electricity demand in Thailand, 1986 – 2012 (Source: EPPO)

2012

2010

2008

2006

2004

2002

2000

1998

1996

1994

1992

1990

1988

0 1986

MW

20,000

4 From fig.1, peak electricity demand (in MW) in Thailand between 1986 and 1996 increased almost continuously about 11% per year. But the Asian economic crisis adversely reduced peak electricity demand between 1998 and 1999 to become less, leaving the first negative growth rate over past 20 years. However, the demand since then has resumed growing. On average the growth of peak electricity demand between 2000 and 2007 is 6.46% per year. In overall, the average growth rate of peak electricity demand between 1986 and 2012 is in an appreciable rate of 7.4% per year. To provide a secured electricity service, electricity generation capacity has been expanded continuously. As of May 2013, Thailand had 33,051 MW of installed capacity as illustrated in fig.3. The majority is Combined Cycle Gas Turbine (CCGT), accounting for 60%. The second largest source, sharing about 16% of the capacity mix, was hydro power that combined domestic generation and power purchase from neighboring country. The following was coalfired power generation, using domestic lignite as well as imported coal, which accounted for 13% of the capacity mix. The remaining was from oil-based and renewable power generation.

Fuel Oil and DieselEGAT, 319 MW (1%) Renewable-EGAT, 5 MW (0.01%)

SPP, 2,895 MW ( 9%)

HVDC-Import, 300MW (1%)

Gas-EGAT, 9,070 MW (27%)

Coal-IPP, 2,007 MW (6%) Lignite-EGAT, 2,180 MW (7%) Hydro-Import, 2,105 MW (6%) Hydro-EGAT, 3,436 MW (10%)

Gas-IPP, 10,735 MW (33%)

Fig.2: Electric capacity mix in Thailand, May 2013 (Source: EGAT) Fig.3 presents fuel mix in electricity generation in Thailand between 1988 and 2011.

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200,000 180,000 160,000 140,000 GWh

120,000 100,000 80,000 60,000 40,000 20,000 201 2

SPP

201 0

Fuel Oil&Diesel IPP

200 8

200 2

200 0

199 8

199 6

RE incl HYD

200 6

Lignite

200 4

Natural Gas

199 4

199 2

199 0

198 8

198 6

0

Imported

Fig.3: Fuel mix in electricity generation, 1986 – 2012 (Source: EPPO)

It is evident from fig.3 that over the last two decades, natural gas played its major role accounting for more than a half of electricity supply in each year. Even though its capacity is the second largest, the share of hydroelectric power generation was less than that of coal. It is also important noting that electricity generation from IPP and SPP became increasing in the recent years whereby most of them are gas-and coal-based. Power generation from oil and power import from neighboring countries played a limited role during the above-mentioned period.

Gas demand from the electricity sector in Thailand so far has been increasing for two reasons. First, after domestic gas reserves was discovered in 1970s, effort from both the Government and energy producers was spent to replace imported fuel oil for power generation by natural gas. Second, rapid development of the Thai economy between 1980s and 1990s brought sky rocketing growth in electricity demand, resulting in a significant increase of gas consumption from the power sector.

6 As a Consequence, the relative gap between gas consumption for power generation and all other fuels, particularly coal and oil, has been considerably enlarged. For the second largest share to fuel mix, coal demand came from a limited number of EGAT, IPP, and a few Small Power Producers (SPPs) coal-fired power plants. Meanwhile, there was a deliberate policy to replace fuel-oil based power generation in view of high oil price situation since late 1970s, which has restricted consumption of fuel oil in power generation and also encouraged EGAT to switch fuel use in some of its steam turbine power plants to natural gas.

Given a concern on high gas dependence, affecting security of electricity supply, fuel diversification in electricity generation has been clearly addressed and ambitiously embraced in the current Power Development Plan (PDP) for the next two decades.

4.

Power Development Plan – Capacity Addition and Fuel Mix

The Thai electricity supply industry (ESI) remains currently in a vertical integration structure as illustrated in fig.4.

Royal Thai Government

EGAT’s Power Plants

IPPs

Import

SPPs

(TNB/EDL)

EGAT Transmission

MEA

System Operator

PEA

Direct Custom ers

R E G U L A T O R

P o L I C y

M O E N

End Consumers Fig.4: Electricity Supply Industry in Thailand (Source: EGAT)

Given the ESI, Electricity Capacity Expansion Planning (ECEP) is mainly centrally planned to adequately meet electricity demand at the least cost while fulfilling all technical, economic,

7 as well as social criteria, namely energy resource constraints, financial requirement, environmental emissions, and political issues. In practice, these constraints are contradictory to each other, causing certain hindrances and making ECEP truly challenging, especially in the recent times that fuel price volatility and cost of the utility business have rendered planning electricity supply more complicated. In particular, fluctuation of global oil price increases risks to investment and operation of electric utilities, significantly. The current electricity expansion plan of Thailand is named as PDP 2010 revision 3. It was approved by the Government on 19 June 2012 whereas according to the plan, peak electricity demand is anticipated to increase significantly from 26,335 MW in 2012 to 37,326 MW in 2020 and continue to 44,521 MW in 2025 and 52,256s MW in 2030, respectively. Fig.5 shows the forecast of peak electricity demand between 2012 and 2030.

60,000

50,000

MW

40,000

30,000

20,000

10,000

2030

2029

2028

2027

2026

2025

2024

2023

2022

2021

2020

2019

2018

2017

2016

2015

2014

2013

2012

-

Fig.5: Peak electricity demand forecast, between 2012 and 2030 (Source: PDP2010 rev 3)

Given the substantial growth of electricity demand and the technical fact that peak demand indicates capacity requirement, additional capacities of 55,130 MW between 2012 and 2030 have been planned t. These new power plants include 4 generation technologies. First, the majority or 25,451MW of total new capacities will remain Combined Cycle Gas Turbines (CCGTs). Second, in light of global trend on green energy and sustainable development, the Thai Government makes an ambitious plan to promote renewable power generation by designating 14,580 MW of new capacity for this energy. In details, the additional capacity of renewable power generation includes 9,481 MW of domestic generation and 5,099 MW

8 imported from neighboring countries. The third is 8,623 MW of thermal power plants, and to increase supply security by enhancing fuel diversity in electricity generation, they will depend on a variety of fuels, including 4,400 MW of Clean Coal, 2,000 MW of nuclear energy, 750 MW of diesel-based gas turbines, and 1,473 MW of lignite power purchase from neighboring country. The final group of new capacity is 6,476 MW of cogeneration that the Government aims to further improve efficient use of energy in electricity generation. These capacities will be added through Small and Very Small Power Producers (SPP and VSPP) programs.

Categorized by power producers, about 41% of the new capacities will belong to EGAT. IPP will account for another 19%. The additional capacities from SPP and VSPP that are cogeneration and renewable energy based power generation will share 28% of total new capacities. The remaining 12% will be fulfilled by power import.

In terms of fuel mix, the expansion plan according to the current PDP poses challenges to enhance fuel diversification by introducing new types of power plant as well as by increasing the significant number of renewable power generation. Based on the massive scale of these capacity additions, fuel mix in electricity generation in Thailand can then be depicted in fig. 6.

400,000 350,000

Nuclear

300,000

TNB Diesel Fuel Oil

200,000

Renewable

150,000

Imported Coal

100,000

Lignite Natural Gas

50,000 2030

2028

2026

2024

2022

2020

2018

2016

2014

2012

GWh

250,000

Fig.6: Fuel mix in electricity generation in Thailand, from 2012 to 2030 (Source: PDP 2010 rev.3)

9 It is evident from fig. 6 that natural gas will remain the major fuel for power generation even though its share to fuel mix will decrease to 58% in 2030. Lignite and imported coal will stand as the second largest source of fuel for power generation whereas its share appears constant at about 19% of the fuel mix. By 2030, 18% of electricity generation will come from renewable energy. Nuclear power generation will also play it significant role in the last few years of the planning horizon as it would account for 5% of fuel mix in 2030. The rest of electricity will be power generation from fuel oil and diesel as well as power purchase from neighboring countries.

The key highlights of the current PDP, as presented above, suggests that fuel management for power generation is the real challenge to ensure security of electricity supply.

5.

Security of Supply – Fuel Diversity

Even though the term security of energy supply could mean different things to different people, this paper refers its definition from the International Energy Agency (IEA) as “the availability of a regular supply at an affordable price”. Given this term, security of electricity could then be “the ability of the electrical power system that provides electricity to end-user with a specified level of continuity and quality at an affordable price”.

In theory and practice, a number of indicators have been used to measure security of energy supply whereas they analyze it in several different perspectives. But these indicators could be summarized as in table 1. However, this paper examines and discusses the impact of fuel use in electricity generation to security of electricity supply through fuel diversity only. Table 1: Indicators for Energy Security Simple Indicators

Aggregated Indicators

1. Resource Estimates

1. Shannon Index based

2. Reserves to Production Ratios

2. IEA’ s Energy Security Index

3. Diversity Indices

3. Supply-Demand (S/D) Index

4. Import Dependence

4. Willingness to Pay

5. Political Stability

5. Oil Vulnerability Index (OVI)

6. Energy Price 7. Mean Variance Portfolio Theory 8. Share of Zero-Carbon Fuels

10 9. Market Liquidity 10. Demand-Side Indicators Fuel diversity in electricity generation is an indicator that is used to measure security of electricity supply in this study. The concept of diversity has been widely used in various areas of which its generic idea relates to balancing a variety of dissimilar things. In general, a highly diverse system tends to respond external changes robustly. Therefore, high diversity in energy system could help mitigate adverse consequences from several external factors, including unstable supply, volatile price, and etc. This also applies to electricity supply as fuel diversity in electricity generation would enhance the robustness of the system to shortage as well as price spike of a single fuel or each generation technology. Therefore, fuel diversity has been accepted as one of the key concerns in electricity supply planning so far.

The main difficulty to determine fuel diversity in electricity generation is to categorize the different sets of fuel as they might be classified by type, source, or technology. But the analysis of this paper is carried out by fuel type only.

The analysis of this paper for fuel diversity in electricity generation in Thailand is based on Shannon – Wiener Index (SWI) that can be mathematically defined by

I

∑ − p ln( p ) i

i

i =1

Where pi is the proportion of generation represented by type of ith type of fuel. SWI is in general a simplified indicator to measure diversity. It has initially been used widely in bio-science whereas the term represents diversity of species in a community or compares the diversity between two or more eco-systems. From a mathematical point of view, SWI provides an advantage to diversity measurement as its logarithmic term can weigh component of a different system based on the individual in each group. Even though SWI has been used in biology and other sciences for years, it can also be applied to electricity system whereas its implication could also be interpreted in a similar fashion.

11 In energy supply context, the higher SWI the greater number of supply sources or with fixed number of suppliers, high SWI could also present the greater share of each supply source. So far, this index has been used to evaluate security of electricity supply in many countries such as U.K. Although the precise implication of different value of SWI might be hard to obtain, the system with SWI less than 1.0 is likely to depend on one or two sources threatening supply security, particularly in case of any sustained disruption. In the mean time, a system with greater than 2.0 SWI contains numerous sources and tends to be secured from interruption in any individual source of supply as none of them dominates the system.

Given its definition, SWI is then applied to the historical data as well as the forecast of fuel mix of electricity generation. The result of this measurement is illustrated in fig 7.

Fig. 7: SWI of fuel diversity in electricity generation in Thailand, from 2012 to 2030 (Source: this study)

From fig. 7, fuel diversity in electricity generation in Thailand has been deteriorating so far whereas it becomes less than 1.0 since 2001. The main driving force for this decreasing SWI is mainly high dependence on natural gas in power sector. In the foreseeable future, fuel diversification plan according to the current PDP would enhance security of electricity supply as SWI tends to increase continually until it sustains over 1.0 since 2026 when the first nuclear power plant is introduced in that year. Given this analytical result, it is evident, more or less from a fuel diversity perspective, that nuclear power plant would become a key factor to improve security of electricity supply in Thailand. Therefore, it is crucial for all

12 participants in electricity supply industry in Thailand, including the Government, public, and private sectors, to collaborate closely and firmly to ensure the success of this project. Otherwise, in case that public opposition against nuclear power remains an influential hindrance, the country is likely to increase its reliance on either coal or natural gas in electricity generation. If that is the case, the concern on security of electricity supply would continue as SWI for fuel diversity in electricity generation in each year remains below 1.0.

5.

Conclusion

To address the challenge, it is important noting that sustainable development may normally perceived by different people in a different definition. However, the term sustainability in energy context generally comprise 4 aspects; Accessibility, Availability, Acceptability, and Accountability. This can be then translated into several challenges for electricity sector, including social and economic development, and environmental protection.

Economic recession, natural disaster, and political turmoil in recent years impacted many regions of the world and influentially posed a direct impact to energy market in global, regional, and national levels. But power development remains an essential task to continue as nowadays electricity becomes a fundamental need for living in a modern society.

Following this current trend, Thailand has also affected by those external factors together with domestic flood problem in 2011. Even though this have slightly reduced electricity demand in short-term, however, governmental plans on post-flooding recovery and economic stimulation would influentially drive electricity demand increase in the foreseeable future as suggested by the PDP. Thus, electricity supply and fuel management crucially face 4 challenges as follow.

1) Economic Challenge – it is widely accepted that economic development is a key driver of electricity demand. Over the past few years, however, unstable conditions in the global economy have more or less impacted the Thai economy as well as the Thai power industry unfavorably. Therefore, economic uncertainty is one of the major risk factors for electricity supply development in the near future, particularly given the fact that electricity business is intensive capital and requires long-lead time for construction. In parallel, economic condition is also a key determinant to fuel cost of power producer, particularly when the level of fuel import for power generation increases drastically in the near future. Thus, economic challenge

13 is the issue that all participants in electricity supply industry would acknowledge and take into account.

2) Social Challenge – electricity supply coverage as well as rural electrification does not only enhance social equity in energy access but also offer a great opportunity to improve socioeconomic status of each community. Over past few years, however, public acceptance for new power plant projects in many areas of the country becomes challenging. But in certain cases it turns out to be a hindrance to power plant development, especially for coal and nuclear. This would consequently affect the plan of the Government to diversify fuel in electricity generation, which could finally deteriorate supply security. Thus, public participation and social acceptance for new power plant project and new power generation technologies would also be an important challenge for developing electricity supply in the near future.

3) Natural Resource Challenge – fuel is a vital source of energy for electricity generation. Currently, Thailand relies heavily on natural gas but domestic gas reserves are considerably definite and the exploration and production cannot cope with the fast growing demand. Thus, imported gas is likely to increase in the near future. In the mean time, fuel diversification policy means that energy import, in terms of natural gas, coal, and uranium for electricity generation together with power import is likely to increase significantly. Therefore, it becomes challenging for the power producer as well as the national energy planner to provide a strategic plan that balances between domestic fuel reserves as well as energy imports to ensure sustainable development of the country.

4) Environmental Challenge – recently, environmental friendliness is a compulsory criterion in development planning. In Thailand, the Government fully recognizes the necessity of maintaining environmental condition in long-term. Thus, the current PDP has been proclaimed as the Green PDP of which one of its objectives is to minimize environmental emissions from power generation through a number of measures. For electricity supply, being highly dependent on natural gas helps the country reduce emission form power generation effectively. But to ensure fuel diversity and supply security, new generation technologies, which are technically more environmental benign, will be added into the system. These include clean coal and nuclear power plants. Second, the share of renewable power generation is set to increase significantly in the foreseeable future. In addition, energy conservation and energy efficiency policies that targets 25% reduction in energy intensity by 2030 would be

14 another influential factor that reduces electricity demand and mitigates environmental impact from electricity generation. D:\Thanawat\Conference\2013\PowerGen Asia\Full Manuscript_THANAWAT NAKAWIRO.doc