Watershed
November 1, 2003

Cambodia’s Renewable Electric Action Paln provides a framework for supporting small-scale generation of electricity for local communities.

The Government of Cambodia’s Renewable Electricity Action Plan provides a framework for supporting small-scale generation of electricity for local communities. The plan is the product of a major effort by Cambodia’s Department of Energy Technique to design a decentralised system of electricity supply based on innovative thinking and the latest renewable energy technologies.

Renewable energy advocates call it a “milestone in the development of Cambodia’s renewable electricity technology” – a made-in-Cambodia guide for promoting public and private investment in renewable energy technologies in order to meet the needs of Cambodia’s rural population.

The Renewable Electricity Action Plan (REAP) is the outcome of nearly three years of unprecedented consultations and participatory workshops with the private sector (i.e., rural entrepreneurs, business operators, and renewable energy experts) and the government sector (i.e., government, the national utility, Electricite du Cambodge, aid-donors, and aid-financed technical experts) in Cambodia.

The guide envisions development of the renewable electricity sector over ten years. Phase One focuses on market preparation: establishing the institutional and regulatory framework, and building capacity for public and private sector involvement. Phase Two concentrates on early market growth and in- vestments in small-scale hydro and solar
photovoltaic.

According to Cambodia’s lead proponent of the REAP, Dr. Sat Samy, Director, Department of Energy Technique, Ministry of Industry, Mines, and Energy, “Promoting renewable energy technologies that produce electricity can boost our rural electrification efforts and help us to achieve our goal….[to] provide a safe and reliable supply of electricity to 70 per cent of the population by year 2030.”

The REAP’s key conclusions

• Decentralised (or distributed) generation technologies, solar, micro-hydro, biomass, and biogas could be developed quickly “given the entrepreneurial zeal already demonstrated by the 600 to 1,000 Rural Electricity Enterprises, several solar power firms, and donors.”
• Renewable technologies can provide electric power at least cost, especially relative to grid extension to smaller villages and outlying areas.
• Decentralised electricity systems are appropriate for rural Cambodia due to its lack of existing, integrated infrastructure.
• Renewable technologies provide the option of replacing dirty, high cost fuels currently used to produce electricity with clean sources such as solar photovoltaic, hydropower, and biomass technologies.
• Grid-based electric service has limited reach for the next two or three decades.
• In some areas, such as urban centres, fossil fuel power plants may currently be the best alternative, whereas in remote villages far from town centres, solar, micro-hydropower, and biomass technologies may offer cost-effective and efficient options.
• Investment opportunities can be developed through renewable electricity projects that will attract private investors.
• The government will act as a market enabler. Private sector firms will serve as market developers and suppliers. Subsidies will be used carefully. Renewable electricity technologies will be used when economically and environmentally least cost.
• Cambodia can benefit from provisions in the Kyoto Protocol to attract foreign investment, create employment, promote a clean environment, and provide green electricity production.

The plan has four types of activity:

 
1. Technical assistance for policy and regulation development Public and private sector human resource and institutional capacity building National awareness and market structure development Implementation of priority renewable electricity projects.

 

Priority renewable electricity projects include:

• support businesses to market and service 10,000 to 20,000 individual and institutional systems, including pico-hydro and solar photovoltaic, (training, technical and financial support to commercial businesses)
• support development of 6 to 10 community scale micro-hydropower or hydro-hybrid generating plants serving 10,000 to 30,000 households.

Expected results and costs:

• 10-year programme at a cost of about US$50 million 145,000 households, commercial enterprises, and institutions supplied at least 10 to more than 17 megawatts of renewable generation capacity installed by private power producers, including community-scale grids
• A new regulatory environment that promotes private sector participation in rural economic development and decentralised decision-making.

Financing is expected from a combination of private investors, households, communities, and developers of grid-connected projects in the form of equity. Loans will be secured through commercial banks and other financial intermediaries. Where appropriate and applicable, grants and loans will be sought from multilateral development banks,
the Global Environment Facility, Prototype Carbon Funds, and the Clean Development Mechanism.

Why the REAP is different

Unlike other donor-driven, top-down power sector plans for Cambodia, the REAP advocates a participatory and decentralised approach to development of renewable energy technologies, based on respect for the rights of consumers and citizens. Most importantly, it advocates creating an open and efficient regulatory framework for governing power
providers, both private and public sector. Where other plans assume state ownership and monopoly control of the entire electricity business by a single utility, the REAP does not
assume state ownership equals public control and interest. Rather, it recognises the economic advantages of decentralised private sector investments, and particularly the importance of consumer-producer accountability to the financial success of renewable initiatives.

Japan’s Energy and Industrial Technology Organisation, by contrast, is preparing a master plan for urban and rural electrification in Cambodia with virtually no role for the private sector. Electricite du Cambodge (EDC) would own and control through contractual  arrangements all system grid-connected and isolated-grid generation, transmission and
distribution assets. The private sector is only discussed in terms of investing in generation projects that sell their entire output to EDC. Similarly, the Asian Development Bank (ADB) plans to lend US$18 million to Electricite du Cambodge for upgrading distribution and providing new diesel-fuelled generators (250 to 500 kilowatts) to eight provincial
towns. If implemented, the generators are to be skid mounted to enable relocation of the units in the event that load growth does not meet expectations or other more economic options become available. Although the scale is appropriate, the ADB is essentially financing the old-style monopoly model that Thailand adopted, a model devoid of
producer-consumer accountability, and one that many energy experts now argue is not the fastest or least-cost strategy for extending electricity service.

The REAP notes that Cambodia is well positioned to become a renewable energy leader because it has not yet developed the one big system utility model adopted by Thailand and other developing countries, which tends to inhibit renewable energy growth potential. In Thailand, for example, renewable energy investments must be subsidised by 50 per cent
or more to be competitive with the government-subsidised rural electricity supplied by the national utility.

According to one expert participating in the REAP process: “Now is the time to ensure renewable technologies have a role to play. The regulatory framework must specifically Page 40 Watershed Vol. 9 No. 2 November 2003 – March 2004 lean toward renewable electricity technologies or the one-big system will inhibit all future growth.
Plans to import power from Thailand and Vietnam, while on the surface appear better than using imported diesel fuels, still locks Cambodia into a future of dependence. Renewable electricity technologies offer the opportunity for Cambodia to be self-reliant.”

REAP: Cambodia’s power situation

• Cambodia is the first of the lower Mekong countries to have an electricity regulatory body independent from the state utility, with the authority to set rules, approve rates, license power companies, set and enforce operating and safety standards, grant injunctions and impose fines for anyone violating the country’s Electricity Law. The Electricity Authority of Cambodia was established by law in 2001 and is responsible for regulating the provision of electricity services, including licensing of companies for electricity generation,
  transmission, and distribution.
• Cambodia has one of the lowest electrification rates outside sub-Saharan Africa coupled with some of the highest electricity prices in the world.
• Less than 15 per cent of Cambodians (eight per cent of rural communities) have access to safe and reliable electricity. Cambodia has no transmission grid to serve areas outside Phnom Penh. Total installed capacity is less than 400 megawatts (MW); entirely inadequate for meeting the basic lighting and other electricity needs of a rapidly growing population of 12 million, of which 80 per cent
  live in rural areas.
• In the absence of a state-run electricity system, private electricity services are already common. Cambodia’s private sector currently operates an estimated 200 to 300 MW of generating capacity, mostly in the form of thousands of diesel-fuelled generators.
• The state utility, Electricite du Cambodge, operates less than 100 MW, and provides electricity to about 130,000 customers, of which about 110,000 are in Phnom Penh. By law, EDC has the non-exclusive right to generate, transmit and distribute electric power throughout Cambodia.
• As a state enterprise it is competing with private sector investors for customers.
• There are between 600 to 1,000 small, independent electricity providers (diesel generator operators and battery charging companies) supplying electricity to about 120,000 households, providing power for an average of four hours per day.
• Services ranges from battery recharging to fully metered service for entire  communities. Electricity provided by private suppliers is expensive, reflecting high fuel costs mostly.
• EDC supplies electricity to Phnom Penh and a few provincial towns.
• The ADB is preparing loans for linking Cambodia to medium and high voltage lines in Vietnam and Thailand – but these grid connections are designed to primarily serve urban areas. Extending a central grid to rural areas is likely to take several decades.
• EDC has power purchase contracts with several private companies, such as Jupiter Power, which operates several 5 MW power plants that run on fuel oil. (Cambodia does not yet have a natural gas supply).
• Many other private firms, such as garment manufacturers, hotels, shopping centres, restaurants own and operate facilities independently of the EDC grid. In Phnom Penh and other urban areas, there are more than 25,000 standalone portable and semi-portable generators.
• In 1999, China Electric Power Technology Import & Export Corporation obtained a 30-year concession from EDC to rehabilitate the 12 MW Kirirom hydroelectric dam and rebuild the transmission line linking it to Phnom Penh. The plant began delivering electricity in 2002 supplying Kompong Speu and Phnom Penh.
• Cross Border Imports – Several border communities are already served by suppliers in neighbouring countries, using 22 kilovolt lines.
• 1999 – the Cambodian government signed an agreement with Vietnam for the purchase of 80 MW of power each year from 2000 to 2005, and up to 200 MW after 2005. 2002 – the Cambodian government signed an agreement with Thailand’s privately owned Electricity Generating Company (EGCO) to build a 115 kilovolt line to supply three provinces in western Cambodia, Banteay Meanchey, Battambang and Siem Reap.
  

  Project cost is $20 million for 25 years under a Build-Operate-Transfer agreement. 2003 – the ADB announced financing for a 220 kilovolt transmission line from the Vietnam border to Phnom Penh via Takeo
  province.

REAP: Cambodia’s renewable energy sector now

• Installed solar photovoltaic capacity in Cambodia is about 250 kilowatts, most of it installed at telephone repeater stations and training centres run by nongovernmental organisations.
• Regional analysis of wind currents indicates that Cambodia has relatively Watershed Vol. 9 No. 2 November 2003 – March 2004 Page 41 little potential for scalable wind power applications. (‘Scalable’ – designed to allow for gradual increases in generation capacity.)
• No private investor-funded electricity generating biomass or biogas projects are operating in Cambodia. Europe’s Cogen 3 programme, Japanese aid agencies, and other donors are assessing possibilities.
  Two biomass projects, one using rice husks and another using palm waste (100 kilowatt capacity), are under consideration. Japan’s New Energy and Industrial Technology Development Organisation (NEDO) is developing two pilot projects in 2003: one photovoltaic-hydroelectric hybrid system in Kompong Cham province and one photovoltaic-biogas system in Sihanoukville.
• The European Energy for the World Foundation has equipped 45 rural
  health clinics with solar energy systems between 1999 and 2002. It has
  also developed a Khmer-language training module on renewable energy
  with the Cambodian Institute of Technology.

REAP: Key challenges for Cambodia’s renewable energy future

Lack of Bankable Projects

Few biomass and biogas projects identified are fully bankable (financially viable and with a secure source of fuel) and capable of being supported by private investors at this stage. However, with policy and regulatory reforms, as infrastructure is developed, and more
financial intermediaries (banks and other sources of funding) begin operating, more bankable projects should be forthcoming.

Lack of accurate data

“Due to the lack of reliable data, forecasting consumer and commercial demand for electricity and formulating plans for supplying generation capacity contains inherent risks.” Lack of reliable hydrological data is also a key barrier to investment in micro-hydro systems.

Fundamental capital market problems

The weakness of the national capital market is a critical constraint for funding renewable electricity projects.

Small and medium enterprises need both short- and long-term capital to upgrade equipment and production technology and expand business operations to become competitive and viable. This especially holds true for the rural electricity enterprises who have installed generating capacity and a stable customer base, but little ability to invest in
better equipment or expand service to more customers. It is compounded by the government’s issuance of only short term licenses to Rural Electricity Enterprises (REEs).

Insufficient access to loans forces rural and renewable electricity businesses to invest in technologies that have low initial investment costs but due to their high costs of operation are not least-cost.

REAP: What is needed

Policy and regulatory improvements

An efficient regulatory framework for private sector initiatives in rural electrification, “which protects the rights and interests of consumers as well as of investors in rural electrification”. The Cambodian government is writing a Rural Electrification Policy and
a Private Power Policy and associated rules to provide a transparent competitive bidding practice for all electric power projects in Cambodia. This will include regulations for Independent Power Producers at 5 MW or more, and Small Power Producers scaled at less than 5 MW.

Fair subsidies: Rural and renewable electrification fund

If REEs were provided a small yet fair subsidy of $100 to $200 per household connection to fund upgrades in generating and distribution equipment, then REEs could produce and sell electricity at a price equal to or slightly higher than electricity the national utility could
provide through grid extension at a much higher price per connection.

The proposed fund would provide grants to co-finance rural electrification initiatives; subsidy revenue would be performance-based; rules and procedures would be transparent and enforceable. This would help secure other sources of project finance where the capital market is underdeveloped.

The Cambodia Renewable Electricity Action Plan: A Guide for Renewable Electricity Development for Cambodia was published by the Department of Energy Technique, Ministry of Industry, Mines, and Energy, Phnom Penh, Cambodia in May 2003. For more information, see www.RECambodia.org Pages 39 – 42 Watershed Vol. 9 No. 2 November 2003 – March 2004