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Lao PDR : Challenges and Opportunities for Solar Power Development 

by .

Published: July, 2017

Submission: July, 2017

 



 The hydropower ambitions of the Lao PDR are well known. The aspiring “battery of Asia”, the Lao PDR has proven successful at attracting and maintaining hydropower investment in recent years. In January 2017, the Ministry of Energy and Mines reported that by the close of the calendar year some 50 power plants around the country would be generating electricity with an installed capacity of almost 6,860MW, with nearly two-thirds of this power being exported to neighboring countries.[1] At present, hydropower generators account for 98.80% of the total annual electricity production in the Lao PDR, comprising 3,295 MW.[2]


With all the attention paid to hydropower, solar power production has received comparatively little “buzz” and even fewer investment dollars. Further, hydropower alone is not likely to deliver universal electrification or energy security.  Partly due to transmission limitations, the country currently imports energy to meet its domestic needs, which continue to grow. In addition, the domestic demand for energy is most acute during the dry season, when hydropower generation is at its lowest.


While hydropower development continues apace (there are currently 75 such projects at some stage of the development process) the Government is now turning its focus to diversifying the power generation grid. After first gaining momentum in 2013 with the Draft Decree on Solar Energy Development, solar power projects are again in the spotlight. At present, around 13,000 households, mostly in remote areas have been supplied with home solar systems. However, limited progress has been made in the grid-connected solar sector, with only one existing rooftop solar system installation to date: a 236kW plant at Wattay International Airport.


The Government has set a goal of increasing   renewable (excluding hydropower) energy production to meet 30% of total domestic consumption by 2025. The first significant project, undertaken by the publicly traded EDL-GEN, will start small, producing 10 MW of solar power for the Vientiane Market. The project will then scale up incrementally to a total of 100 MW by 2020.


While ambitious, the necessary resources are available. The Lao PDR has an average of 1,800 – 2,000 hours of sunlight per year (representing 200-300 sunlight days per year) with more sunlight days in the south of the country. Solar irradiance levels in the Lao PDR are between 3.6 – 5.5 kWh/m2 per day. With this technical capacity, solar power has the potential to play a major role in providing off-grid electric power for remote rural areas.


There are clear reasons why solar has lagged so significantly behind the local hydropower sector as well as solar power development in neighboring Thailand, namely (i) tariffs, which currently do not favor solar over hydropower; (ii) lack of non-tariff incentives; and (iii) lack of solar-specific regulation.


Tariffs


As per the Electricity Law, offtake tariffs in the Lao PDR are subject to the approval of the Prime Minister. To date, the Government has been unwilling to provide more beneficial tariffs to solar (or other producers) than is provided to hydropower producers. While this decision has protected the hydropower market, it has reduced the economic viability of solar production. However, as solar capital and operating costs continue to drop solar power is becoming more viable. From a sustainable grid perspective, it complements existing hydropower production as solar production peaks during the dry season. Solar investors can also draw on the expertise and technology base of neighboring Thailand.


Incentives


Solar power investment incentives have played a key role in the development of solar power industries in ASEAN, with the most notable examples being the Philippines and Thailand. Incentives are necessary to mitigate risk in a new industry and to ensure that solar power is economically viable until such time as volume and technology can bring the cost per MW in line with competing energy sources. To date, the Government has been reluctant to provide such incentives in the Lao PDR. However, with increasing interest in solar throughout the region and a proposed emphasis on environmentally friendly investment as a cornerstone of the draft Investment Promotion Law scheduled for April 2017, it is increasingly likely that the Government will focus its energy on promoting solar investment.


Regulatory Framework


As per Article 2 of the Electricity Law, solar power is subject to the same regulatory framework as electrical power generated by other means. As such, it is “owned” by the national community and may only be developed upon approval of the Government. For projects of less than 15 MW (but more than 100 KW), approval must be obtained at the provincial level. Projects up to 100MW are approved at the central level, while larger projects require approval by the National Assembly. However, solar projects may be developed without a concession agreement with the Government, provided they comply with the relevant laws and regulations. However, without enabling regulation, it remains unclear just how a non-concessionary solar project might be developed. Further regulatory guidelines would go a long way in facilitating solar investment, particularly in clarifying the requirements for foreign investment and project development.


Next steps


While solar generation may not be ready to compete directly with hydropower in the Lao PDR, solar development is well positioned to serve special economic zones (“SEZs”) and other off-grid commercial and residential power consumers. The numerous advantages of targeting SEZs and other off-grid consumers speak directly to the challenges raised above.


If a solar project is not selling to the national grid, tariffs are not subject to government approval and the project does not have to compete with large-scale hydropower generated or imported electricity. As per the Electricity Law, all electricity production sources shall transmit electricity through the national electricity transmission grid, unless such distribution is (a) in the immediate  vicinity of an electricity generating plant, (b) where there is a small scale production of electricity or (c) where the national electricity transmission grid is not yet available. Therefore, such projects may also leverage the regulatory framework for SEZs to mitigate risks associated with the dearth of solar specific regulation. With a new SEZ law scheduled for consideration by the National Assembly in the first half of 2017, there is a real opportunity for joint development of SEZs and solar power production.


On this basis, the future of solar power in the Lao PDR may be a two part process. Initial investments serving SEZs and off-grid consumers may pave the way for larger investment, encouraging regulatory change and reducing production costs.


DFDL Contact : 
Rutherford Hubbard
Senior Legal Adviser
rutherford.hubbard@dfdl.com


 


 


 

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