B&E | The Contextual Analysis of Cambodian Power Sector

B&E | The Contextual Analysis of Cambodian Power Sector

By Richard de Ferranti, David Fullbrook, John McGinley and Stephen Higgins
Mekong Strategic Partners

B&E | The Contextual Analysis of Cambodian Power Sector

This "executive summary" consists of the proposed frameworks, devised to investigate the potential for Cambodia to diversify its power supply technology mix, for greater energy security and sustainability benefits, given changing technology cost relativities. To date almost all Cambodian investment in the power sector has focused on largescale hydropower and coal-fired generation. The Royal Government of Cambodia (RGC) has indicated investing in sustainable energy is a priority [1]: recent technology cost developments mean the RGC can pursue energy security, access, reliability and affordability goals, at least in part, through increased investment in (non-large hydropower) renewable energy. 

The power sector in Cambodia, with domestic generation supply of around 3000 gigawatt hours (GWh) in 2015, is small compared with its ASEAN neighbours Thailand and Vietnam, but it is growing very rapidly.

Generation capacity increased from 308MW in 2009 to 1584MW at end-2014, [2] accompanied by significant construction of a national grid network. This has contributed to the RGC making steady progress towards its overarching electricity access targets (100% of villages to be electrified by 2020 and 70% of households by 2030).

Electricity consumption in Cambodia has also been growing very rapidly – with overall demand growth averaging nearly 20% per annum since 2010. This has largely been due to continuing rapid economic growth, notably in the electricity-intensive garment sector, and the extension of the national grid to more of Cambodia’s population.

From 2018, the Ministry of Mines and Energy (MME) expects (Figure 1) power imports to have been reduced significantly as a proportion of electricity supply and to be able to meet demand almost entirely through domestic generation. MME demand projections are, however, based on a lower demand growth rate than has been evident since 2010.


Part of achieving lower demand growth will be implementing Cambodia’s draft energy efficiency strategy [3], involving a range of actions including to introduce performance standards for the construction sector, industrial equipment and home appliances. If demand does not fall as rapidly as anticipated there may still be a need for additional electricity supply (potentially 1000 gigawatthours (GWh)) beyond MME’s expected domestic generation supply in 2020 (around 7600 GWh).

While RGC has indicated that growing the power sector in an environmentally sustainable way is a key priority, to date investment in (non-large hydro) RE has yielded generation capacity in the order of 35 MW, compared with over 1200 MW put in place under Cambodia’s Power Development Plan (PDP) since 2009. RGC planning for future investment in generation capacity currently remains focused on large hydropower and fossil fuel-fired technologies – which have considerable environmental impacts (and therefore external costs). Cambodia’s PDP forecasts (to 2030, Fig.1) do not currently factor in any significant contribution from (non-large hydro) RE generation even though solar and biomass generation can offset low hydropower output in dry season. Rapidly falling renewable energy technology costs mean Cambodia can cost-effectively strengthen its energy security by balancing proposed investment in large-scale hydro and fossil generation with accelerated investment in solar and biomass technologies.

Global energy transition: Dynamics and Opportunities

Utilities, consumers and investors in developed and developing countries are switching to renewable energy to constrain environmental impacts and reduce the regulatory risk of emissions limits and carbon pricing but also because it is increasingly economic in its own right. Increasing scale is a driver of rapid declines in cost: globally, the installation cost (averaged) of wind and solar fell 28% from 2011 to 2014. In particular, the following prices for utility scale solar and wind generation, achieved in Chile and China in 2015, were competitive against all fossil fuel and large hydro technology bids: Costs are expected to continue falling in coming years due to increasing economies of scale, more efficient designs, and advances in materials and manufacturing. Technological developments such as affordable residential-scale storage devices will also increase the utility (and therefore competitiveness) of rooftop solar. The falling cost of consumer solar and storage raises the prospect of consumers disconnecting from the grid or using the grid for backup. As costs fall and incomes rise Cambodian households and businesses are also likely to become power producers within the next decade.



Rapid growth in renewable energy suggests that transition away from fossil fuels is under way. In 2014, global solar and wind annual installations set a record of 95 GW, almost half of all new generation worldwide. Established business models are now in question, after European utilities, mostly using coal and gas, lost $600 billion in value in the five years to 2014 [5]. Forecasts for power sector business growth suggest declining revenues and asset values for fossil fuel technologies (although current low international prices may moderate this trend somewhat) and growth opportunities for alternative generation.

While these dynamics clearly point to risk for Cambodia in continuing to invest in large-scale hydro and fossil fuel generation, there are also significant opportunities for accessing support for renewable generation uptake. Developed countries at COP21 reaffirmed their previous commitment to $100 billion per annum climate finance assistance to developing countries by 2020 as a baseline for possible increases post-2020. Development partners will likely make available increased technical assistance, grants and concessional loans to support diffusion of de-carbonization technologies and practices. Capital will flow if policy and regulation are clear, simple and stable, putting in place a coherent framework for planning and investment. 

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https://data.opendevelopmentmekong.net/dataset/switching-on-cambodia-s-path-to-sustainable-energy-security-executive-summary/resource/b0e35003-6187-4de6-8018-a7df2789c2b8?view_id=2888836d-d91b-46b8-9719-d926d8e59416

About Mekong Strategic Partners:

Mekong Strategic Partners is a Phnom Penh based investment, advisory and risk management firm focused primarily on the countries of the Mekong region. The firm provides advice on mergers and acquisitions, strategic matters, sustainability approaches, capital raising and corporate finance, as well as asset management services to corporations, conservation & development focused institutions, governments and individuals

References:

1.National Strategic Development Plan (NSDP 2014-18, p.47), Cambodian Climate Change Strategic Plan (2013), National Green Growth Policy (2013) and Intended Nationally Determined Contribution (INDC, prepared for the UN Framework Convention on Climate Change COP21).

2. Electricite du Cambodge Annual Report 2014, p.16. Does not include off-grid generation.

3.Cambodia’s draft national energy efficiency strategy, developed in 2013 but yet to be implemented, proposes a range of actions to reduce energy consumption, including electricity consumption, by 20% over the period to 2035.

4. http://reneweconomy.com.au/2015/solar-energy-costs-continue-to-plunge-across-theworld-17972; Z. Liu, W. Zhang, C. Zhao and J. Yuan, “The Economics of Wind Power in China and Policy Implications,” Energies, vol. 8, pp. 1529-1546, 2015; and http://reneweconomy.com. au/2015/renewables-clean-up-at-chile-energy-auction-including-24-hour-solar-10549

5. The Economist, “How to lose half a trillion euros,” The Economist, 12 October 2013. [Online]. Available: http://www.economist.com/news/briefing/21587782-europes-electricity-providersface-existential-threat-how-lose-half-trillion-euros. [Accessed 3 December 2015]

B. Longstreth, “The Case for Fossil Fuel Divestment,” Huffington Post, 11 July 2014. [Online]. Available: http://www.huffingtonpost.com/bevis-longstreth/post_8010_b_5577323.html. [Accessed 3 December 2015].
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