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Enhancing regional water cooperation

Prime Minister Hun Sen inspects the Lower Sesan II Dam during its inauguration in September in Stung Treng.
Prime Minister Hun Sen inspects the Lower Sesan II Dam during its inauguration in September in Stung Treng. Hong Menea

Enhancing regional water cooperation

by Jake Brunner, Brian Eyler, Courtney Weatherby, Eloise Kendy, and Nikky Avila

Water management in the Mekong region is, in practice, dominated by energy objectives. In Cambodia, the priority is to substitute domestically produced hydropower for expensive diesel and electricity imports. In Laos, the priority is to generate revenue by drawing in foreign investment in dams and export excess electricity to its neighbours, with Thailand as its biggest market. In Vietnam, which has already built out most of its hydropower potential, the priority is to meet a projected tripling in energy demand by 2030 while protecting the economically vital Mekong Delta from the impacts of upstream dams.

Experts have produced volumes of peer-reviewed economic and environmental studies showing how much Cambodia and Vietnam will lose from reduced capture fisheries and sediment delivery to the delta as a result of dam building upstream.

These arguments have not yet influenced hydropower development policy. This point was brought home by the recent completion of the Lower Sesan II Dam in Cambodia, which has blocked off the major Sesan and Srepok tributaries, potentially reducing Mekong-wide fish production by 9 percent according to a 2012 paper published in a pre-eminent US scientific journal. Cambodia has the second highest electricity prices in Asean and so despite significant dependence on protein from Mekong fisheries, the government has implicitly prioritised the energy security over food security.

However, recent work by the Stimson Center, IUCN, the University of California-Berkeley, and The Nature Conservancy shows if Cambodia, Laos and Vietnam take advantage of recent advances in renewable power generation and transmission technologies, they can achieve energy security (defined as the uninterrupted availability of energy sources at an affordable price) at significantly lower social, environmental and political risks.

This is possible because the prices of solar and wind power have collapsed globally, making these renewable energies financially competitive at the utility scale. Moreover, solar and wind plants can be built in less than a year compared to 10 years for large dams, so they can be quickly deployed to relieve electricity supply shortages and accelerate rural electrification.

Advances in transmission technology make completion of a regional grid a reality. According to the ADB, a regional energy grid would reduce the total energy supply needed to meet regional demand by 20 percent, allowing Mekong countries to meet occasional peak demand and power reserve needs through energy trade instead of building excess capacity.

Improved modelling capacity now allows planners to explore different dam development portfolios and compare their social and environmental impacts, supporting the identification and prioritisation of dams that would meet power needs with fewer environmental impacts.

Together, the integration of non-hydro renewables, regional power trading, and smart hydropower planning could reduce the number of dams that need to be built and improve the siting, design and operation of the dams that will be built.

These advances have important implications for Laos, which aspires to be the “Battery of Southeast Asia”. Because nearly all the dams built in Laos are foreign-invested projects following the Build-Own-Operate-Transfer (BOOT) model, all revenues flow to the investor for the first 20-30 years of operation before ownership is handed over to the Lao government. As a result, these dams generate very little government revenue in the near term.

A national grid, however, could generate $400 million a year through wheeling charges, provided that it remains sovereign property of the government. Laos also has substantial wind and solar potential (which peaks in dry season) that could balance hydropower (which peaks in wet season). So Laos can indeed become a Battery of Southeast Asia, but one that is more diversified and more resilient to market and climate shocks.

Shifts in regional power demand also raise the question, which country is the key long-term market for Lao energy? Thailand has historically been the major investor in and purchaser of Lao hydropower, and has an agreement to purchase 10,000 megawatts in the future.

However, Thailand has recently introduced energy efficiency measures and plans to greatly increase investment in domestic renewables, which will likely reduce future demand for electricity imports from Laos. Vietnam already has an memorandum of understanding (MoU) to buy 5,000 megawatts of electricity from Laos by 2030, but it currently imports less than 1,000 megawatts. Despite the projected tripling of power, Vietnam’s Power Development Plan VII projections indicate that imported power will remain low.

While counterintuitive, Vietnam can influence decisions over which dams are built upstream by substantially increasing its import of power from Laos. Vietnam will need to make a choice between importing either coal or electricity in order to meet rising demand from urbanisation and industrialisation. If Vietnam doubles its power purchase to 10,000 megawatts, it could add conditions as to what type of power it will purchase. For instance, Vietnam could sign a conditional power purchase agreement to only buy power from dams with the lowest environmental impacts on the Mekong Delta or from solar and wind power plants. This provides a market-based case for Laos to deepen its investments in renewable energy.

Cambodia can speed up its transition to energy security through the large-scale deployment of solar power, which capitalises on its high levels of sunshine and the fact that solar power peaks during the dry season when hydropower’s reliable electricity generation is vastly reduced. Solar power will reduce the cost of meeting its energy needs: the construction cost per megawatts of a 10 megawatts solar plant in Bavet in Svay Rieng province is less than half that of the Lower Sesan II Dam.

Regionally, there is growing private sector investment in large-scale renewables. In southern Laos, Thailand is building a 600 megawatts wind farm and US investors have signed MoUs for hundreds of megawatts of solar plants. In Cambodia, private sector investment is expected to take off once the government issues a regulation for independent power producers, which is expected this month. Private sector investment in renewables in Vietnam is currently limited by the low, subsidised cost of electricity and weak regulatory framework. While fair prices are offered to independent power producers, Vietnam Electricity, the state-owned utility, retains considerable discretion over whether projects get approved.

But rising government debt and power demand are likely to accelerate the use of renewables. This could include the construction of solar and wind plants in Cambodia and Laos, where land is relatively cheap, for export back to Vietnam. One of Cambodia’s 10,000-hectare economic land concessions, for example, could generate an estimated 3,000 megawatts. That would open the door to large-scale deployment of solar for export to southern Vietnam.
While financing and technology are now readily available, the regulatory landscape is slow to adjust.

For example, while it makes little economic sense, many government officials instinctively favour energy independence over power trading. And some interest groups have done very well from a project-by-project approach to hydropower development. But the economic case for fewer dams and more solar and wind power is overwhelming and if governments take advantage of these new opportunities, they can achieve energy security at far lower social and environmental risks.

IUCN’s Jake Brunner, Stimson Center’s Brian Eyler and Courtney Weatherby, The Nature Conservancy’s Dr Eloise Kendy, and UC Berkeley Energy and Resources Group’s Nikky Avila lead the Mekong Basin Connect Initiative.

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