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Soaring global fuel prices: an opportunity for Cambodia?

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Source: tradingeconomics.com/commodity/coal

Soaring global fuel prices: an opportunity for Cambodia?

Cambodia is feeling the squeeze from the soaring global coal and oil prices. Electricity du Cambodge (EDC)would certainly be hurting from this reality, and most likely re-assessing its plans to add more coal power stations.

EDC buys half of Cambodia’s electricity from plants that burn coal and oil. The price EDC pays for that power is linked to global prices that are eye wateringly high. Yet the price EDC can charge customers for electricity is fixed. Quite a squeeze. They can ask the coal plants to stop producing power, but under their Power Purchase Agreements they still have to pay for 80 per cent under terms known as “Take or Pay”. Electricity would then need to be source from elsewhere, most likely from Laos hydropower imports.

In addition to the three existing coal powerstations in Cambodia, two more are planned, plus a plan to buy coal power from plants in Laos dedicated for Cambodia. On the date Cambodia’s Cabinet signed off on the Laos coal deal in September 2019, the global coal price was $68/T. This week the price is around$380/t. So it has gone up 5 ½ times.

Meanwhile, the price of solar and wind fuel never changes. Solar power costshave reduced dramatically. EDC’s latest solar purchase price was 2.57c/kWh, announced last month. EDC’s first solar electricity purchase deal was signed in 2017 at 9.1c/kWh. So solar power price has gone down by 3 ½ 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 totalling 2,400MW at a fixed price of 7.7c/kWh at the border. The intention was to mine the coal in Laos at the site, but some observers have noted open cut coal mining isn’t possible with the geology of the coal seams, so they’re looking to import the coal via rail from seaports in Vietnam. So, it will be linked to the global market, and therefore 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’s of course if you can find anyone willing to finance coal power – China, Japan, 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. Any country that is highly dependent on imported fossil fuels, like many in Europe, is hurting. Cambodia’s electricity is currently only half dependent on fossil fuels, six per cent from solar and the rest from hydro. So that’s half from domestic renewable sources not relying on imports. Only Vietnam and Laos in Southeast Asia have similar shares of renewables.

Last month, the Ministry of Mines and Energy (MME) announced their proposed power plan to 2040 (PDP 2040), which will increase this share. The share will go from half to 75 per cent electricity supply dependent on imports related to fossil fuels.

Wisely, the PDP 2040 focuses investment in efficiency to get more economic productivity out of each unit of electricity, resulting in savings for customers and reduced need for EDC to buy more to power the economy.

The Contingency Plan is looking better – lower cost and more secure

The proposed power plan to 2040 also considersa contingency in case the largest coal plant doesn’t go ahead (1,800MW in Laos). The good news is that this contingency scenario is cheaper by 2030, has less dependence on imports and envisions a higher share of solar so it has improved energy security.

In fact, it’s also cheaper if none of the planned coal goes ahead. System analysis has been completed that excludes all un-financed coal (3,100MW), replacing it with solar, gas, battery storage or pumped hydro. This results in the same reliability of supply, but it’s even cheaper and has far better energy security. It would also make big brands like Adidas, H&M, Specialised bicycles, and Heineken happier as they have green targets for their supply chains.

Preparation and Planning is key

The lesson from Europe is to be prepared – we can’t flick a switch and turn off imports overnight. It requires planning, investment and incremental steps for readiness. Especially when incorporating weather dependant solar and wind power. The whole electricity system can balance the variability of solar or wind distributed across Cambodia, but investments need to be made like storage and fast acting power equipment (noting it is still cheaper, even when factoring in these extra investments).

Thankfully, EDC is already moving forward quickly on this. In 2016 there were no solar farms on the grid, now 6 per cent of Cambodia’s generation comes from solar. To balance this and more solar, EDC has already commissioned 400MW of fast acting engines (burning imported oil) in Kandal province to act quickly to balance the variability in customer demand, or if a cloud passes over a solar farm and reduces solar output (it never goes to zero except overnight). EDC, with financing from AfD and EU support, is investing to modernise the grid, which is essential. The Australian government is supporting MME and EDC to develop a strategy and plan to support the integration of more solar and wind into the grid.

So, while the ultimate scenario for lower cost and energy security is one that has an equal balance of existing coal, gas, hydro, solar and balancing from batteries, this scenario remains in the shadow of the existing coal deals that may never secure finance to go ahead. Doing the work to prepare for the inevitable scenario of more solar and wind is critical to avoid long-term pain.

Bridget McIntosh is the Founder of EnergyLab Cambodia, an organisation established to support the growth of the clean energy market in Cambodia.

Read more at cleanenergycambodia.org

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