Countries like Cambodia have a choice between fossil fuels or breaking out to renewable energy … now’s the time to leap ahead
A version of this story ran first in the Phnom Penh Post.
Price of coal (US$/ton)
Source: tradingeconomics.com/commodity/coal
Like the rest of Southeast Asia and the world, Cambodia is feeling the squeeze from soaring coal and oil prices. Power company Electricité du Cambodge (EDC) would certainly be hurting from this reality. They asked coal power plants to stop operating and are likely re-assessing their plans to add more coal power stations.
Quite a squeeze
EDC buys half of Cambodia’s electricity from plants that burn coal and oil. EDC’s price for that power is linked to global prices that are eye-wateringly high. However, the price EDC can charge customers for electricity is fixed. Quite a squeeze. The company can ask the coal plants to stop producing power, but, under their Power Purchase Agreements, they still have to pay 80% under terms known as “Take or Pay.” Electricity would then need to be sourced from elsewhere, most likely hydropower imports from neighboring Laos.
In addition to the three existing coal power stations in Cambodia, plans are approved for two more, along with intentions to buy power from coal plants in Laos that are dedicated to Cambodia. In September 2019, when Cambodia’s Cabinet signed off on the Laos coal deal, the global coal price was $68 per ton. This week the price is over $390 per ton — an increase of 550%.
The price of solar power has decreased by three and a half times.
Meanwhile, solar and wind fuel are free. Solar power costs have fallen dramatically. EDC’s latest solar purchase price was 2.57 c/kWh, announced last month. EDC signed its first solar electricity purchase deal in 2017 at 9.1 c/kWh. So the price of solar power has decreased by three and a half times.
Financiers are fleeing coal
The developers of the proposed Laos coal power projects must be feeling the pain too. Cambodia signed a deal for two projects totaling 2,400 megawatts at a fixed price of 7.7 c/kWh at the border. The intention was to mine the coal in Laos at the site, but some observers have noted that open-cut coal mining isn’t possible with the geology of the coal seams. Because of that, Laos is looking to import the coal via rail from seaports in Vietnam, linking the project to the global market and, consequently, these wildly-oscillating, high prices.
Any financier would be factoring in high-fuel supply price, with a premium for volatility risk for coal power projects. That is, of course, if you can find anyone willing to finance coal power — China, Japan and South Korea all announced they would not support coal overseas due to its high contribution to climate change. With a fixed power sale price, skyrocketing fuel costs and difficulty accessing finance, there’s a high chance these projects won’t go ahead.
Energy security challenges
Looking at this through an energy security lens, the global fuel crisis is challenging for everyone. Countries highly dependent on imported fossil fuels, like many in Europe, are hurting. Cambodia’s electricity is only half reliant on fossil fuels, with six percent from solar and the rest from hydro. That’s half of their total energy from domestic, renewable sources that aren’t relying on imports. In Southeast Asia, only Vietnam and Laos have similar shares of renewables.
Cambodia’s electricity is only half reliant on fossil fuels, with six percent from solar and the rest from hydro.
Last month, the Ministry of Mines and Energy (MME) announced its proposed power plan to 2040 (PDP 2040), which will increase its share of coal. If this comes to fruition, the share of the electricity supply dependent on fossil fuel imports will go up from half to 75%.
Wisely, the PDP 2040 also focuses on efficiency, working on getting more economic productivity out of each unit of electricity, which will result in customer savings and reduce the amount of electricity the EDC needs to buy to power the economy.
The contingency plan is looking better — lower cost and more secure
The PDP 2040 also lays out a contingency plan in case the largest coal plant isn’t realized (1,800MW in Laos). The good news is that this contingency scenario will be cheaper by 2030. It also improves energy security because it decreases Cambodia’s dependence on imports.
This results in the same supply reliability, but it’s even cheaper and has far better energy security.
In fact, it’s also cheaper if they don’t utilize any of the planned coal. A system analysis was completed that excludes all un-financed coal (3,100MW), replacing it with solar, gas, battery storage or pumped hydro. This results in the same supply reliability, but it’s even cheaper and has far better energy security. It would also help companies that buy Cambodian-made products – brands like Adidas, H&M, Specialized Bicycles and Heineken — as they try to meet green targets for their supply chains.
Preparation and planning are key
The lesson from Europe is: be prepared; imports can’t be halted overnight. It requires planning, investment and incremental steps for readiness, especially when incorporating weather-dependent solar and wind power. The whole electricity system can balance the variability of solar or wind distributed across Cambodia, but it will require investment in energy storage and fast-acting power equipment. The evidence shows that moving towards more renewables will be cheaper, even accounting for additional investments to balance variability.
EDC is already moving forward quickly on this. In 2016, there were no solar farms on the grid. Now 6% of Cambodia’s generation comes from solar. To balance this and future solar projects, EDC has already commissioned 400MW of fast-acting engines (burning imported oil) in Kandal province to balance the variability in customer demand. With financing from French Development Agency and EU support, EDC is investing in modernizing the grid, which is essential. The Australian government is supporting MME and EDC in developing a strategy to support the integration of more solar and wind into the grid.
While the ideal scenario for lower costs and energy security has an equal balance of existing coal, gas, hydro and solar, it is challenging due to existing coal deals that may never secure financing. Preparing for the inevitable scenario of more solar and wind is critical to avoid long-term pain.
