Financial measures for promoting residential rooftop photovoltaics under a feed-in tariff framework in Thailand

Energy Policy 109 (2017) 260–269

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Financial measures for promoting residential rooftop photovoltaics under a feed-in tariff framework in Thailand

MARK

⁎

Thanapol Tantisattayakula, , Premrudee Kanchanapiyab a b

Faculty of Science and Technology, Thammasat University, Phathum Thani, Klong Luang, Thailand National Metal and Material s Technology Center (MTEC), National Science and Technology Development Agency (NSTDA), Pathum Thani, Thailand

A R T I C L E I N F O

A BS T RAC T

List of acronyms: AEDPAlternative Energy Development Plan Alternative Energy Development Plan EGATElectricity Generating Authority of Thailand Electricity Generating Authority of Thailand FiTFeed in tariff Feed in tariff Ft The Fuel Adjustment Charge at the given time GHGGreenhouse gas greenhouse gas IRRE Internal rate of return on equity MEAMetropolitan Electricity Authority Metropolitan Electricity Authority NESDNational Economic and Social Development Plan National Economic and Social Development Plan NPVNet present value Net present value PDPPower Development Plan Power Development Plan PEAProvincial Electricity Authority Provincial Electricity Authority PVPhotovoltaic Photovoltaic REDPRenewable Energy Development Plan Renewable Energy Development Plan RPVRResidential photovoltaic rooftop system Residential photovoltaic rooftop system SPPSmall power producer Small power producer T-VERThailand voluntary emission reduction program Thailand voluntary emission reduction program VSPPVery small power producer Very small power producer

A feed-in tariff (FiT) framework has been implemented in Thailand since 2007 to encourage and stimulate the development of renewable energy. As a result, the capacity of solar photovoltaics (PVs) has increased significantly and has reached 1902 MW. Nevertheless, the installation of PVs on rooftops in the residential sector accounts for only a minute percentage (0.003%) of the total capacity of installed PVs. In this paper, a feasibility analysis of grid-connected solar PV rooftops for households under the present feed-in tariff framework was performed. The results demonstrate that the current feed-in tariff is not sufficient to promote investment in PV rooftops in the residential sector under the current market situation. Moreover, in order to support the current framework, additional supportive measures including (1) an appropriate feed-in-tariff rate, (2) personal income tax exemptions, (3) carbon trading, and (4) low interest rate loans, were proposed, and their effects were evaluated. The low interest rate loan appears to be the best measure for promoting and stimulating investment in residential-scale PV rooftops without additional subsidy. The leverage effect of debt, with different debt portions, loan terms and interest rates, was investigated to suggest a suitable policy.

Keywords: Grid connected rooftop photovoltaics Feed-in tariff Financial measures Residential sector

⁎

Corresponding author. E-mail addresses: [email protected], [email protected] (T. Tantisattayakul).

http://dx.doi.org/10.1016/j.enpol.2017.06.061 Received 23 January 2017; Received in revised form 22 June 2017; Accepted 28 June 2017 0301-4215/ © 2017 Elsevier Ltd. All rights reserved.

Energy Policy 109 (2017) 260–269

T. Tantisattayakul, P. Kanchanapiya

support the technological maturity of renewable technologies that have a higher investment cost than that of conventional technologies. The FiT has been an effective policy instrument to accelerate the deployment of solar energy in many countries, such as Europe (Pyrgou et al., 2016; Campoccia et al., 2014), Japan (Muhammad-Sukki et al., 2014), New Zealand (White et al., 2013), China (Wang et al., 2016), Malaysia (Lau et al., 2016), and Thailand (Tongsopit and Greancen, 2013). As of year-end 2015, FiT scheme has been applied in 75 countries worldwide (REN21, 2016). Net metering is an renewable energy supportive policy which allows residential and commercial electricity customers to offset some or all of their electricity use with self produced electricity from renewable energy (Darghouth et al., 2011). With net metering, the electricity produced has the same economic value of the electricity consumed from the utility grid. At the end of billing period, the customers are billed only for the net electricity used. In case that more electricity is produced than consumed, the excess electricity will be delivered back to the utility grid and can be sold at retail price. Net-metering is a widespread mechanism for supporting PV systems in many countries, such as USA, Australia, Denmark (Poullikkas et al., 2012; Poullikkas, 2013), and Spain (Dufo-Lopez and Bernal-Agustín, 2015). Thailand is the first ASEAN country that implements policies to promote electricity generation from renewable energy sources. To achieve the target of the REDP and AEDP, the royal government of Thailand has continuously implemented stimulus measures to encourage development of the renewable energy sector. The policy being implemented in Thailand is the FiT scheme. The first FiT program implemented in 2007 was a premium FiT program called "Adder". The program is implemented through Thailand's three electric utilities: the Electricity Generating Authority of Thailand (EGAT), the Provincial Electricity Authority (PEA), and the Metropolitan Electricity Authority (MEA). The electricity producers are classified into two types: (1) Very Small Power Producers (VSPP), producing up to 10 MW, and (2) Small Power Producers (SPP), producing greater than 10 MW and less than 90 MW. Electricity produced by the SPP is sold to EGAT and electricity produced by VSPP is sold to PEA or MEA. The Adder is a premium rate paid on top of the normal tariff of electricity to VSPPs and SPPs. The normal tariff is the utility's avoided cost of purchasing electric power which varies over time. The rates of Adder and the duration of support differ by technology. For solar projects, an Adder rate of 8 THB/kWh (0.246 USD/kWh) is paid for 10 years to solar project of all sizes of installed capacity, resulting in a total electricity tariff ranging between 11.5 and 12 THB/kWh (0.354–0.369 USD/kWh). From 11th year onward, electricity producers will receive the normal tariff. In 2010, the Adder rate was adjusted to 6.5 THB/kWh (0.200 USD/kWh) (EPPO, 2010) due to a falling market prices of PV system. Applications to the Adder program for new solar projects stopped being accepted in the same year due to a great amount of anticipated capacity resulting from the attractive incentive. Because the Adder rate for solar projects is identical for every system capacities, it probably not reflect the actual investment costs of project which usually depend on the system size. Consequently, in 2013, the Adder program was replaced with a fixed FiT system in which the rate varies according to the installed capacity of the system with the duration of support of 25 years. The residential-scale PV rooftop, which has a limited installed capacity that does not exceed 10 kWp, has the highest FiT rate of 6.96 THB/kWh (0.214 USD/kWh) among all the capacity ranges

1. Introduction Electric energy consumption in Thailand has continuously increased with the economic growth and development in the country. In 2014, Thailand's energy demand reached 180,945 GWh, almost all of which was produced from power plants using conventional fossil fuel, i.e., 66% from natural gas, 21% from coal and 1% from oil (DEDE, 2015a, 2015b). As an energy net-importer, Thailand has been aware of their need for energy security and has developed policies designed to decrease their dependency on fossil fuel for electricity production and increase their use of renewable energy sources. In 2008, the first renewable energy plan, called the Renewable Energy Development Plan (REDP) (DEDE, 2008), was enacted to strengthen the country's energy security by developing renewable energy as one of the country's main energy sources for a sustainable replacement of fossil fuel and oil import. In 2011, “management of natural resources and the environment toward sustainability” was included in the 11th National Economic and Social Development Plan(NESD) (2012–2016) as one of the most important development topics. In this plan, various issues will be addressed, including creating a low-carbon society, increasing energy awareness and preparing for climate change and natural disasters (NESDB, 2011). To support the NESD, the REDP was reconsidered and revised as the Alternative Energy Development Plan (AEDP 2012–2021) in 2011, setting the target of renewable energy to be 25% of the total final energy consumption (DEDE, 2011). In December 2014, the plan was re-envisioned as the Alternative Energy Development Plan 2015 (AEDP 2015) and formulated in line with the Power Development Plan 2015–2036 (PDP 2015), a long-term electricity generation framework, to target electricity generation from renewable energy. The PDP 2015 aims to increase the electricity capacity to 70,410 MW (Ministry of Energy, 2015) with the installed capacity of renewable energy at 19,635 MW in 2036, as detailed in Table 1(DEDE, 2015a, 2015b). As presented in Table 1, solar energy is the largest expected renewable energy source for electricity generation in the plan, with a target for installed capacity of 6 GW. Thailand has high solar energy potential, with an average solar radiation of approximately 17.6 MJ/m2 day (DEDE, 2014), which can be estimated as 42,356 MW of electricity generation capacity (calculated as 1% of the total solar radiation energy) (Achawangkul, 2015). Photovoltaic (PV) technology has been the most widely adopted for electricity generation in Thailand (Chaianong and Pharino, 2015). PV systems range from distributed residential PV rooftop system (RPVR) or integrated building installations to large, centralized utility-scale power plants. Distributed PV can reduce distribution loss in transmission and distribution lines compared with the centralized utility-scale (Phayomhom et al., 2015). Furthermore, as it has no moving parts, PV technology is silent, and it is easy to install on rooftops; consequently, it is suitable for residential applications. The well-known supportive renewable policies designed to accelerate investments in renewable energy technologies are feed in tariff (FiT) and net metering. FiT scheme provides long-term contracts to renewable energy projects with a predetermined rate (higher than a price of grid electricity). The rate and duration of payment of FiT are determined by considering the initial investment, operating and maintenance cost of each type of renewable energy system, and return on investment for project owners. The FiT schemes aim to encourage investment in new renewable energy sources for power generation and

Table 1 Target installed capacity of different types of renewable energy. Source: DEDE (2015a, 2015b). Type

Solar

Biomass

Hydro

Wind

Energy crops

Waste

Biogas

Total

Unit: MW Target in 2036

6000

5570

3282

3002

680

501

600

19,635

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Table 2 Feed-in tariff rate for solar rooftop projects in Thailand. Source: (EPPO, 2010, 2013, 2014). Premium FiT (Adder)a

Fixed FiTc

Adder rate (USD/kWh)

Total tariffb (USD/kWh)

2007

2010

2007

2010

0.246

0.200

0.354–0.369

0.308–0.323

Years supported

10

Type of building

Residential house (0–10 kWp) Small business ( < 10–250 kWp) Medium - large business ( < 250–1000 kWp)

FiT rate (USD/kWh) 2013

2014

0.214 0.202 0.190

0.211 0.197 0.185

Years supported

25 25 25

Exchange rate: 1 USD = 32.5 THB. Note: . a : A special adder of (1) 1.50 THB/kWh (0.046 YSD/kWh) is added for diesel replacement projects, and (2) 1.50 THB/kWh (0.046 YSD/kWh) is added for projects implemented in three southernmost provinces. b : Calculation based on normal tariff of electricity ranging between 3.5 and 4 THB/kWh (0.108–0.123 USD/kWh). c : A FiT premium of 0.5 THB/kWh (0.015 USD/kWh) is added for projects implemented in the southern provinces, including Yala, Pattani, Narathiwat and 4 districts in Songkla province (Chana, Thepa, Saba Yoi and Na Thawi).

(EPPO, 2013). However, this rate was not sufficient to allow significant growth in the residential sector (Tongsopit, 2015). In August 2014, the FiT rate was revised. The FiT rate for the residential scale has decreased to 6.85 THB/kWh (0.211 USD/kWh) (EPPO, 2014); however, it is still higher than that of the other type of buildings. The progress of Thailand's FiT for solar PV rooftop is summarized in Table 2. Under FiT program, the whole electricity generated from RPVRs is distributed to the utility grid via a separate meter and sold to electric utilities. Therefore, all units are eligible for the FiT rate. As a result of the policies, the share of electricity generation by renewable energy in Thailand has increased significantly. Fig. 1 shows the development of electricity generation capacity classified by type of renewable energy during the 2009–2014 period. The figure shows that solar energy has the highest growth with an annual average rate of approximately 104% (DEDE, 2012, 2013, 2014). At present (as of Jul, 2016), the total installed capacity of PV in the electric grid is 1902 MW, which can be classified by the scale of the system, as shown in Table 3 (ERC, 2016). Almost 99% of solar PV installations are centralized power utilities and on commercial scales, while the residential scale accounts for a very small proportion (0.003%). The current situation indicates that there might be barrier to the implementation of solar rooftops in the residential sector. High initial cost, lack of financial feasibility, less awareness of energy security, and conflict between laws are some of the critical issues causing the delay of implementation of

Table 3 Installed capacity of photovoltaics. Source: the analysis is based on ERC (2016) as of Jul, 2016. Type of photovoltaic

Residential scale (≤ 10 kWp) Commercial scale (10–1000 kWp) Utility scale ( > 1000 kWp) Total

Installed capacity MW

%

0.0617 28.9 1873 1902

0.003 1.519 98.477 100

residential solar rooftops in Thailand (Chaianong and Pharino, 2015). This paper evaluates the financial return on investment of the solar rooftop system for the residential sector under Thailand's current FiT framework and proposes additional appropriate stimulus measures to encourage the investment for households. The paper is structured as follows: Section 2 presents estimations of the electricity generated by solar PV rooftop. The investment appraisal for households under the current FiT system is presented in Section 3. Section 4 describes additional measures proposed in this study and their potential effects on both the residential sector and the government. In Section 5, the conclusions and policy implications are presented.

Fig. 1. Electricity generation capacity by renewable energy type. Note: the analysis is based on DEDE (2012, 2013, 2014).

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Table 4 Technical and system assumptions for RETScreen's input parameters. Parameter

Value

Input Location Capacity Solar tracking mode PV type Installation slope Miscellaneous PV array Inverter efficiency Solar radiation

Bangkok 13.7°N 100.6°E 1 kWp No tracking Polycrystalline 13.7° 10% 90% Data in Fig. 2

2. Estimation of the electricity generated by the residential PV rooftop system The electrical energy generated from the RPVR was estimated by RETScreen software. RETScreen is an Excel-based clean energy project analysis software developed by the Government of Canada. It can simulate energy production by various types of renewable energy sources. RETScreen has been used in many studies for assessing the technical and financial viability of the solar PV system (Mirzahosseini and Taheri, 2012; Mondal and Islam, 2011; Harder and Gibson, 2011; Peerapong and Limmeechockchai, 2014; Sundaram and Badu, 2015). The key technical and system assumptions are summarized in Table 4. The capacity of the system was assumed to be 1 kWp. The merit of using 1 kWp is that the results can be interpreted on a per kilowatt basis. The RPVR is assumed to be located in Bangkok (13.7°N, 100.6°E). Bangkok is used as a representative location in this research because it is located approximately in the center of country and the irradiation in Thailand and its seasonal distributions are almost the same around the country as shown in Table 5 (DEDE, 2014). Fig. 2 shows the average monthly solar radiation on the horizontal surface in Bangkok during the 2002–2010 period; the data are obtained from the Department of Alternative Energy Development and Efficiency (DEDE, 2016). The solar radiation in Bangkok is in line with the average solar radiation of whole country which is approximately 4.88 kWh/m2 day (DEDE, 2014). The calculated electrical energy generated by the RPVR is presented in Table 6. The annual electricity generation is approximately 1.322 MWh, which corresponds to a capacity factor of 15.1%. This value is in line with the government's estimated capacity factor of solar rooftops used for capacity planning in the PDP 2015 (15%) (Ministry of Energy, 2015). The capacity factor is used as an input for investment assessment of RPVR in the next section.

Fig. 2. Average monthly solar radiation on horizontal surfaces in Thailand (2002–2010). Source: DEDE (2016) Table 6 Annual electricity generated by the solar rooftop system.

Central

Southern

Whole country

Annual radiation (kWh/m2 day)

4.81

4.89

4.94

4.89

4.89

1.322 MWh 15.1%

∑ t =1

FCFEt (1+r )t

(1)

where FCFEt = Free cash flow to equity in year t (USD) r = Discount rate (%) n = Project lifetime (years). The discount rate (r) is the opportunity cost for the households. The FCFE is the net cash flow that the households receive after the payment of operating expenses and debt service (loan principle and interest), as well as the necessary reinvestment in year t, as shown in Eq. (2).

FCFEt = Rt (1 − Tax ) − OMt − Invt − Intt − Deptt

(2)

where Rt = Income generated from selling electricity produced by the RPVR during year t (USD) OMt = Operating and maintenance costs of the RPVR during year t (USD) Invt = Investment costs during year t (USD) Taxt = Personal income tax rate during year t (%) Intt = Interest expense during year t (USD) Deptt = Principle repayment during year t (USD) The benefit to households from installing RPVR is the income generated from selling electricity to the electric grid with the FiT rate over the project lifetime of 25 years, and this can be calculated as shown in Eqs. (3) and (4).

Table 5 Solar radiation in each regions of Thailand. Source: DEDE (2014). Northeastern

Output Electricity produced Capacity factor

n

The investment appraisal indicator for households used in this study is the net present value (NPV) and the internal rate of return (IRR) on equity, i.e., equity IRR (IRRE). The NPV is calculated as shown in Eq. (1).

Northern

Value

NPV =

3. Investment appraisal for households

Regions

Parameter

Rt = FiTRate × EG t

(3)

EGt = InsCap × 8760 × CF × (1−Degt )

(4)

where FiTRate = FiT rate (USD/kWh)

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Table 7 System and operation assumptions for solar rooftops.

Table 9 Return on investment for residential scale solar rooftop systems.

Parameter

Value

Indicator

Value

System cost System lifetime Inverter cost Inverter technical life time O & M cost

2.28 USD/W 25 years 0.41 USD/W 11 years (replaced in year 11 and 22) 1% of investment cost (escalation rate = inflation rate) 0.5% per year 15.1%

IRR on equity NPV

6.4% − 747 USD

Module degradation rate Capacity factor Exchange rate 1 USD = 32.5 THB.

EGt = Quantity of electricity generated by the RPVR in year t (kWh/ yr) InsCap = Installed capacity of the RPVR (kWp) CF = Capacity factor of the RPVR (%) Degt = Accumulated degradation of the PV panels up to year t (%) 8760 = Number of hours in one year (h) The second indicator used in this study is IRRE, as shown in Eq. (5). n

0=

∑ t =1

FCFEt (1 + IRRE )t

(5)

where

Fig. 3. Impact of the system cost and personal income tax rate on households' investment of the RPVR.

IRRE = Internal rate of return on equity (%) FCFEt = Free cash flow to equity in year t (USD) n = The project lifetime (years)

Table 9 shows the NPV and IRRE of the households' investment for the system, operation and financial assumptions in Tables 7, 8. The NPV of the RPVR is −475 USD, indicating that with an expected return of 12%, the investment in RPVR should not be accepted under the current FiT framework and market situation. The IRRE of the investment is 6.4%, which is less than the accepted return. Furthermore, this return is less than the average loan interest rate of commercial banks in Thailand, which is approximately 6.5% (as of May 2016). Such a return might not be attractive enough for households with residential mortgage loans because the return received from the investment in RPVR is lower than the return that they would receive from repayment of the loan. Furthermore, to evaluate the effects of the system cost and personal income tax rate, a sensitivity analysis was performed. Fig. 3 shows the results of the sensitivity analysis according to varying system cost and marginal income tax rate. The contour plot in Fig. 3 is adapted from the way of presenting a feasibility study results of the PV systems in Cyprus by Fokaides and Kylili (2014). The return for households increases as the system cost and the marginal income tax rate decreases and vice versa. The return of the investment will not meet the expected return if the system cost is greater than 1.82 USD/kWh, even for the case of zero tax rate. With the marginal income tax rate of 10%, the return of the investment will meet the expected return if the system cost is no greater than 1.64 USD/W (point a). Line b in Fig. 3 indicates the return for households for the assumed system cost in this research (2.28 USD/ kWh). This line also falls into financial infeasible region (IRRE < 12%). Table 10 shows the values of IRRE of the points on line b and the corresponding NPVs. The results imply that the RPVR is not attractive to high-income households (high personal income tax rate) that have

The project is accepted if the IRRE is equal to or greater than the households' expected return or the households' opportunity cost. The system and operation assumptions are shown in Table 7. The system costs are the average market price surveyed with system integrators during 2014–2015. The system costs, including PV modules, invertors, mounting system, installation and commissioning, are approximately 2.28 USD/W. The survey of system cost in this research shows approximately 15% lower prices than that reported by Tongsopit (2015) which is a survey during 2013. The inverter was assumed to have a technical lifetime of 11 years (Solarpraxis, 2013) and therefore must be replaced in years 11 and 22. The annual operating and maintenance cost was assumed to be approximately 1% of the investment cost (European Commission, 2005; Koner et al., 2000) and increases with the inflation rate. The PV modules were assumed to have an approximate degradation rate of 0.5% per year (Limmanee et al., 2016; Jordan et al., 2011; Jordan and Kurtz, 2012) over the project lifetime. The financial assumptions are summarized in Table 8. In this study, the RPVR was assumed to be funded by equity only. The expected return, used as the discount rate for calculating NPV and the criteria for IRRE, was set to12%, which is the Thai government's assumption for the return on investment for rooftop solar systems (EPPO, 2013; Tongsopit, 2015). Table 8 Financial assumptions. Parameter

Value

D: E ratio Income tax rate FiT rate FiT term Inflation rate Discount rate (expected return)

0 (self-funding) 10% 0.211 USD/kWh 25 years 3%a 12.0%b

Table 10 IRR on equity for varying marginal income tax rates.

Notes: . a : Thailand's historical average inflation rate during 2003–2013 (BOT, 2014). b : Thai government's assumption.

264

Income tax rate

0%

5%

10% (base case)

15%

20%

25%

30%

35%

IRRE NPV (USD)

8.1% −536

7.2% −642

6.4% −747

5.5% −853

4.5% −959

3.5% −1064

2.5% −1170

1.3% −1276

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investment capabilities. Instead, it is more attractive to low-income households that may not have enough upfront payment for the initial investment. Furthermore, even for the best case of zero tax rate, the return still does not meet the expected return, i.e., IRRE equals 8.1% and NPV equals −536 USD. 4. Proposal for additional supportive measures The results in the previous section suggest that investment of the RPVR is not financially feasible for households under the current FiT framework. The negative NPV and IRRE under expected return indicate that the benefit obtained from FiT does not sufficiently cover the investment and the O & M cost required for the system. To increase the return on investment, benefits from the RPVR project should be increased by a more appropriate FiT rate or other earning associated with the activity of the project or that the expenses of the project should be decreased. The IRRE value of 6.4% for without a loan suggests that the RPVR might become financially feasible if a low-interest rate (below 6.4%) loan is available for the households to cover the initial investment of the system. Based on these reasons, this study proposes additional supportive measures that are as follows: (1) appropriate feed-in-tariff, (2) personal income tax exemption for households, (3) carbon trading mechanisms, and (4) low interest rate loan. Furthermore, to compare the effectiveness of each additional measure, additional subsidy costs required for adoption of the proposed measures were estimated by the net present value (NPV) of incremental subsidy cash flows from the government throughout the project lifetime, as shown in Eq. (6). n

NPVSub =

∑ t =1

Subt (1 + r )t

Fig. 4. Appropriate feed-in tariffs at varying system costs of solar rooftops.

Adjustment Charge at the given time (Ft)". The Ft is an automatic tariff adjustment mechanism for adjusting the electricity tariff so that it reflects the actual fuel cost for power generation at a given period of time. The Ft will be adjusted in line with changes in fuel cost in power generation, the power purchase cost, and the impact of policy expenses including the expense in the FiT programs. Consequently, this additional proposed measure will increase the Ft rate and affect all electricity users (Pita et al., 2015). Furthermore, the proposed FiT is higher compared to the FiT in other countries as shown in Table 11. The proposed FiT is approximately equal to the FiT rate applied in Japan; however the supported duration in Japan is only 10 years. It may be concluded that a larger FiT can cause the IRRE of the households to meet the expected return; however, the rate will be significantly higher than that in other countries, and additional subsidy, which will be passed to electricity end users, will be required. Therefore, the larger FiT may not be a proper measure for social benefit to promote the investment in RPVR.

(6)

where 4.2. Personal income tax exemption

NPVSub = Additional subsidy by the government (USD) n = Project lifetime (years) Subt = Incremental subsidy cash flow incurred from additional measures by the government in year t (USD) r = Discount rate (%)

In Thailand, under the investment promotion act, production of electricity or electricity and steam from renewable energy, such as solar energy, wind energy, and biomass or biogas, is one activity that is eligible for receiving financial investment promotions, such as an 8year corporate income tax exemption (BOI, 2014). Electricity production from the RPVR falls under this category. However, these promotions are applicable only to projects in which companies or foundations invest; they are not applicable to projects in which households invest. Therefore, the commercial-scale PV rooftops (installed capacity > 10 kWp) can earn this financial incentive, while the RPVR (installed capacity ≤ 10 kWp) in which households invest cannot. Currently, households that install the RPVR must pay personal income tax for the

Subt is the estimated cash flow from the government (excluding administrative expenses) subtracted by the estimated cash flow to the government resulting from principle and interest repayment occurring in year t. In this study, the 25-year Thai government bond yield of 3.27% (ThaiBMA, 2016) was used as the discount rate (r) for calculating the additional subsidy. Additional proposed measures are discussed and appraised in the following subsections.

Table 11 Comparative FiT rate for residential PV in Thailand and other countries. Source: Chowdhury et al. (2014), Feed-In Tariffs Ltd. (2016), (IEA, 2016a, 2016b, 2016c), Muhammad-Sukki et al. (2014), Pyrgou et al. (2016), SEDA (2016).

4.1. Appropriate FiT rate The appropriate FiT that causes the household's return on investment to equal the expected return rate was estimated under the current market situation. With the same system, operation and financial assumptions described in Table 7 and 8, and the appropriate FiT rates, which causes the NPV to equal 0 and IRRE to equal 12%, were investigated. Fig. 4 shows the appropriate FiT at different RPVR costs. With the assumed system cost in this study (2.28 USD/W), the FiT causes the IRRE to meet the expected return at 0.294 USD/kWh (9.54 THB/kWh). This FiT rate is greater than the current rate by approximately 20.7%, so it requires an additional subsidy of 1758 USD per kilowatt installed. Moreover, with the current FiT rate, the return of the investment in RPVR will meet the expected return if the system cost is no greater than 1.64 USD/W. In Thailand, the financial burden incurred from the FiT program has been passed to electricity end users via a component of the electricity retail price called "the Fuel

Country

FiT rate (USD/kWh)

Years supported

Thailand - 2014 rate - proposed rate Malaysia Japan Germany Italy United kingdom France Denmark China

0.211 0.294 0.185 0.297 0.131 0.182 0.052 0.263 0.086 (year 1–10) 0.058 (year 11–20) 0.059

25 25 21 10 20 20 20 20 20 20

Exchange rate: 1 USD = 32.5 THB; 1RM = 0.23 USD; 1 JPY = 0.009 USD; 1 EURO = 1.07 USD; 1 GBP = 1.25 USD; 1CNY = 0.14 USD.

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Table 12 The return for households with a personal income tax exemption incentive.

Table 13 The return for the households from the carbon credit trading benefit.

Income tax exemption (years)

0

5

8

12

25

Carbon credit (USD/tCO2e)

0

7

20

21

36

246

IRR on equity NPV (USD) Government subsidy (USD/kW)

6.4% −747 0

7.0% −648 125

7.3% −611 190

7.6% −578 266

8.1% −536 448

IRRE NPV (USD)

6.4% −747

6.5% −726

6.8% −687

6.8% −684

7.1% −638

12% 0

Note: exchange rate: 1 USD = 32.5 THB.

income obtained from selling electricity to electric grid. Furthermore, the tax is calculated based on the whole income before the O & M expense. A personal income tax exemption would promote investment in RPVR by households. The effect of this measure was investigated in this study. Personal income tax was assumed to be exempt for 8 years, as is similar to the case of the commercial scale PV rooftop. In this scenario, the NPV and IRRE will increase to −611 USD and 7.3%, respectively. This measure requires an additional subsidy of approximately 190 USD per kilowatt installed. Furthermore, Table 12 shows the return for different numbers of years of income tax exemption. This measure does not appear to be appropriate because even though the income tax is exempted throughout the project lifetime of 25 years, the returns of the IRRE and NPV will be 8.1% and −536 USD, respectively, which still do not meet the expected return, and it incurs a large government burden of 448 USD per kilowatt installed.

trading, the IRRE will increase from 6.4% to 6.8% for cases of prices for the Thailand domestic market and Asia ETS medium carbon tax (20 and 21 USD/ tCO2e). However, the return in this case does not meet the expected return. With increased prices for carbon credits, the return for the households will increase. For the Asia ETS high carbon tax (36 USD/ tCO2e), the IRRE and the NPV will increase to 7.1% and −638 USD, respectively. The price of carbon that causes the return to meet the expected return is 246 USD/tCO2e, which is approximately 14 times greater than the suggested price in Thailand. This price is higher than the Swedish carbon tax (168 USD/tCO2e) which is the highest rate in the world (Alexandre et al., 2015). The results indicate that the carbon credit trading mechanism can help stimulate households to invest in PV rooftops at some level. Nevertheless, the return for households, including this measure, still does not meet the expected return. Since the carbon credit will be traded among companies and organizations, this measure requires no additional subsidy from the government. However, administration cost should be considered. To promote this measure, the government must establish an institutional framework to support the households in necessary processes, including project design, validation, registration, and monitoring/verification/issuance of the carbon credit to facilitate and reduce the cost of the processes. The concept of bundled projects should be considered for economization of project registration.

4.3. Carbon emission trading scheme Electricity generation from renewable energy is considered a clean technology that supports sustainable development. It contributes to greenhouse gas (GHG) reduction by displacing electricity that would be provided to the grid by more-GHG-intensive means. In Thailand, a domestic institutional framework for GHG mitigation called the Thailand voluntary emission reduction program (T-VER) is currently being developed. This program allows the project owners to obtain benefits from domestic carbon credits with a 7-year crediting period. At present, this program is voluntary, and the price of a carbon credit is still unavailable. However, a study conducted regarding carbon pricing in the domestic market suggests that a suitable price of a carbon credit is approximately 20 USD/tCO2eq (TGO, 2015). This price is consistent with the suggested carbon tax for the Asia emission trading scheme (Asia ETS), which is classified into three cases: 1) low carbon tax (7 USD/tCO2eq), 2) medium carbon tax (21 USD/tCO2eq), and 3) high carbon tax (36 USD/tCO2eq) (Massetti and Tavoni, 2012). Therefore, in this study, the return for households with benefits from carbon credit trading was investigated using these price scenarios. The GHG emission reduction can be calculated with the following equation (UNFCCC, 2016).

ER t = EGt × EFGrid

4.4. Low interest rate loans The high initial investment cost of the RPVR is one of the most important barriers for low-income households to participate in the FiT program. A debt with an appropriate interest rate in capital can financially support the up-front payment and potentially increase the return on investment for these households. Since the IRRE of the RPVR is 6.4%, the rate of return increases if a loan with an interest rate below 6.4% is provided. However, funding options for households in implementation of the RPVR has been limited in the current status. In this study, the leverage effect of debt was investigated to suggest a suitable loan policy. Fig. 5 shows the interest rate that causes the household return to meet the expected return (NPV = 0), and associated additional subsidies in different cases of debt portion and loan periods. A negative subsidy means that the net present value of the repayment of the loan principle and interest is greater than the net present value of the debt, which is the case when the interest rate is greater than the 25-year Thai government bond yield (3.27%). The results indicate that with a debt portion greater than 90%, the expected return can be achieved for some loan term conditions without requiring additional subsidy. For a loan term of 12 years, suggested interest rates are 3.3% and 4.3% for debt portions of 90%, and 100%, respectively. For a loan term of 10 years, the suggested interest rate is 3.3% for a debt portion of 100%. For loan terms of 8 years, additional subsidy will be required for all debt portion scenarios with an interest rate below 1.8%. It can be concluded that the investment in RPVR in Thailand may become financially feasible, without additional subsidy required, if the government supports households with at least 90% of the total upfront cost with a maximum interest rate between 3.3% and 4.3%, depending on the loan term (10–12 years). However, this interest rate is less than the current market interest rate of Thai commercial banks. Further analyses of simultaneous effects of the low interest rate loan and carbon trading measure was performed, which are detailed in the

(7)

where ERt = Emission reduction in year t (tCO2e/yr) EGt = Quantity of electricity generated from solar rooftop systems in year t (MWh/yr) EFGrid = Emission factor for grid connected power generation (tCO2e/MWh) The EFGrid used in this study was set equal to 0.5661 tCO2e/MWh (TGO, 2014) and was assumed to be constant over the project lifetime. The EGt was calculated by using Eq. (4). The benefit from the carbon credit trading in year t can be calculated by the ERt and multiplied by the price of the carbon credit with a 7-year crediting period in this study. This benefit will be added into the household income in Eq. (3). Table 13 presents the IRRE and NPV in the case of having a carbon credit trading benefit. The results suggest that with carbon credit 266

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Fig. 5. Appropriate loan rates and required additional subsidy for different loan terms and debt portions for low interest loans at (a) appropriate loan rates, and with (b) additional subsidy.

Fig. 6. Appropriate loan rates and required subsidy for different loan terms and debt portions for low interest rate loans with a carbon credit mechanism including (a) appropriate loan rates and (b) additional subsidy.

following subsections to investigate the optimal solution for both households and the government.

proper measure to promote the investment in RPVR. On the other hand, the low interest rate loan appears to be an additional measure that can support and stimulate the investment of the RPVR without an additional subsidy. This measure will provide double effects by causing the household return on investment to meet the expected return without an additional subsidy from the government and simultaneously supporting low-income households to make the initial investment. An interest rate ranging from 3.3% to 4.3% for a debt portion of 90–100% with the loan terms of 10–12 years are suggested. With simultaneous implementation of a carbon trading measure, an interest rate ranging from 4.1% to 5.0% for a debt portion of 90–100% and the loan period of 10–12 years can be given without additional subsidy required. A summary of the effect of the proposed measures is shown in Table 14. In addition, it should be noted that the analysis in this study does not include administrative and transaction costs that could occur from implementation of each measure. The negative subsidy gained from the low interest rate loan may be allocated and applied to these administrative and transaction costs.

4.4.1. Low interest rate with a carbon credit trading mechanism With carbon credit trading at 20 USD/tCO2e for a 7-year credit period, the appropriate interest rate and associated additional subsidy are shown in Fig. 6. The results show that with a debt portion greater than 90%, the expected return can be achieved for some loan term conditions without additional subsidy required. For a loan period of 12 years, the interest rates are suggested to be 4.2% and 5.0% for a debt portion of 90% and 100%, respectively. For a loan term of 10 years, the interest rate is suggested to be 4.1%for a debt portion of 100%. For loan periods of 6 and 8 years, additional subsidies will be required for all debt portion scenarios. This scenario has an additional subsidy lower than that of Section 4.4 because the household can obtain increased income from carbon credits, which is not a subsidy from the government. 4.5. Comparative analysis

5. Conclusions and policy implications

From the results in the previous section, it can be concluded that measures that can increase the household IRRE to the expected return are appropriate FiT rate measure and low interest rate loan measure. The personal income tax exemption measure and the carbon trading measure can increase the IRRE, but are not sufficiently. The results suggest that the appropriate FiT rate under the current market situation is 0.294 USD/kWh. However, this rate is higher compared to the FiT in other countries and requires an additional subsidy of 1758 USD per kilowatt installed, which will be passed onto electricity end users. For this reason, it may be concluded that the larger FiT is not a

Under the present FiT scheme and market situation, investment in grid-connected residential rooftop solar systems in Thailand is found to be financially infeasible. The lack of financial feasibility has been causing residential-scale rooftop solar projects to experience delays in their implementation. The results have shown that the return of investment for households will meet the expected return only if the system cost is no greater than 1.64 USD/W, which is approximately 35% below the current market average price. To promote the invest267

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Table 14 Summary of investment return for households. Measure

IRRE

Additional subsidy (USD/kWp installed)

Current FiT framework With additional measures 1) Appropriate FiT rate 2) Personal income tax exemption 3) Carbon trading 4) Low interest rate loan Including carbon trading

6.4%

–

12.0% 7.0–8.1% 6.5–7.1% 12.0% 12.0%

1758 190–480 – (141)–0 (245)–(98)

Condition

FiT = 0.294 USD/kWh Exemption duration varies from 5 to 25 years Assumed price of carbon credit is between 7 and 36 USD/tCO2e Interest rate = 3.3–4.3%, debt portion ≥90%, loan term 10–12 years. Interest rate = 4.1–5.0%, debt portion ≥90%, loan term 10–12 years.

and principal to the bondholders from the loan repayment obtained from the households. The carbon trading may be considered an optional measure as it does not require additional subsidy from the government and it can help reduce the governmental burden. The negative subsidy may be allocated and applied to the administrative and transaction costs incurred from policy implementation. Such a structural model would help expand investment in solar rooftops in the residential sector to improve energy security and drive sustainable development. References Achawangkul, Y., 2015. Overview of Alternative Energy Development Plan (AEDP) 2015. Thailand Integrated Energy Blueprint 4th June 2015. Department of alternative energy development and efficiency, Ministry of Energy of Thailand. Alexandre K., Grzegorz P., Klaus O., Nicolai P., Noemie K., Kornelis B., Long L., Lindee W., Bram B., 2015. State and trends of carbon pricing, World bank (2015). 〈http:// documents.worldbank.org/curated/en/636161467995665933/State-and-trends-ofcarbon-pricing-2015〉. Bank of Thailand (BOT), 2014. Macroeconomic indicators of Thailand. 〈www2.bot.or.th/ statistics/ReportPage.aspx?ReportID=409〉 (Accessed 10 October 2014). Chaianong, A., Pharino, C., 2015. Outlook and challenges for promoting solar photovoltaic rooftops in Thailand. Renew. Sust. Energy Rev. 48, 356–372. Campoccia, A., Dusonchet, L., Telaretti, E., Zizzo, G., 2014. An analysis of feed in tariffs for solar PV in six representative countries of the European Union. Sol. Energy 107, 530–542. Chowdhury, S., Sumita, U., Islam, A., Bedja, I., 2014. Importance of policy for energy system transformation: diffusion of PV technology in Japan and Germany. Energy Policy 68, 285–293. Darghouth, N.R., Barbose, G., Wiser, R., 2011. The impact of rate design and net metering on the bill savings from distributed PV for residential customers in California. Energy Policy 39, 5243–5253. Department of alternative energy development and efficiency (DEDE), 2008. Renewable Energy Development Plan. Ministry of Energy (REDP)., Ministry of Energy, Thailand. Department of alternative energy development and efficiency (DEDE), 2011. Alternative Energy Development Plan (AEDP 2012–2021)., Ministry of Energy, Thailand. weben.dede.go.th/webmax/content/10-year-alternative-energy-development-plan (Accessed 10 December 2015). Department of alternative energy development and efficiency (DEDE), 2012. Thailand alternative energy situation 2012. Ministry of Energy of Thailand. Department of alternative energy development and efficiency (DEDE), 2013. Thailand alternative energy situation 2013. Ministry of Energy of Thailand. Department of alternative energy development and efficiency (DEDE), 2014. Thailand alternative energy situation 2014. Ministry of Energy, Thailand. Department of alternative energy development and efficiency (DEDE), 2015a. Energy statistic of Thailand 2015. Ministry of Energy, Thailand. 〈www2.eppo.go.th/info/cd2015/index.html〉 (Accessed 15 July 2016). Department of alternative energy development and efficiency (DEDE), 2015b. Alternative Energy Development Plan 2015 (AEDP 2015)., Ministry of Energy, Thailand. 〈www.dede.go.th/download/files/AEDP2015_Final_version.pdf〉 (Accessed 21 September 2015). Department of alternative energy development and efficiency (DEDE), 2016. Historical Solar radiation data. 〈www4.dede.go.th/dede/index.php?Option=com_content & view=article & id=81%3A2010-05-03-10-29-08 & catid=52 & Itemid=68 & lang=th〉 (Accessed 2 December 2015). Dufo-Lopez, R., Bernal-Agustín, J.L., 2015. A comparative assessment of net metering and net billing policies. Study Cases Spain Energy 84, 684–694. Energy Policy Planning Office (EPPO), 2010. The National Energy Policy Council resolution in the 131th meeting on Jun 28, 2010 (in Thai). 〈www.eppo.go.th/index. php/th/eppo-intranet/item/1283-nepc-abhisit131〉 (Accessed 15 March 2016). Energy Policy Planning Office (EPPO), 2013. The National Energy Policy Council resolution in the 145th meeting on Jul 16, 2013 (in Thai). 〈http://www2.eppo.go.th/ nepc/kpc/kpc-145.html〉 (Accessed 15 March 2016). Energy Policy Planning Office (EPPO), 2014. The National Energy Policy Council resolution in the 1 /2014 meeting on Aug 15, 2014 (in Thai). 〈www.eppo.go.th/ index.php/th/component/k2/item/1263-nepc-ncpo1〉 (Accessed 15 March 2016).

Fig. 7. Structural model of the effective stimulus measure for the residential sector.

ment in RPVR, additional supportive measures, including (1) appropriate FiT rate, (2) personal income tax exemptions for households, (3) carbon trading, and (4) low interest rate loans, were analyzed to evaluate their effects on stimulating household investment. The results indicated that, among these four measures, the appropriate feed-in tariff rate measure and low interest rate loan measure can increase the IRRE for households to meet the expected return. On the other hand, the personal income tax exemption measure and the carbon trading measure can increase the IRRE, but are not sufficiently. The results imply that self-financing is unable to provide adequate return for households even for the case of being able to get financial incentives from tax exemption and carbon credit. Furthermore, although the larger FiT rate measure has a satisfying effect, it may not be a suitable measure due to the increased financial burden that would be incurred from adopting it. Therefore, the low interest rate loan appears to be the best measure to stimulate investment in the RPVR. This measure will provide double effects by causing the household return on investment to meet the expected return without an additional subsidy from the government and simultaneously supporting low-income households to make the initial investment. A debt portion greater than 90% with a maximum interest rate between 3.3 and 4.3% for the loan period of 10–12 years can support the upfront cost of the system and increase the potential return for the households to a satisfactory level. Moreover, simultaneous adoption of a carbon trading mechanism can reduce the governmental burden. Fund-raising for household loans can be conducted through bond issuances, as shown in the structural model of the proposed measures in Fig. 7. In this model, a government entity issues government bonds to interested investors. The money raised from the bonds is re-loaned at a low interest rate to the households, who want to invest in installation of the RPVR, to reduce the overall cost of capital of financing and upfront costs of investment. The households (debtors) repay the principal and interest from the revenue obtained from selling electricity to utility and the government entity repays the bond coupons 268

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