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Is coal still king in South East Asia?
11th Capacity Building Programme for Officers of Electricity Regulatory Commissions
Dr. Bikal Pokharel, Principal Analyst, Asia Power & Renewables, Wood Mackenzie 14 December 2017
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At a glanceIs coal still king in South East Asia?
Solar starts to compete with coal at base load and battery
can take over peak load
2017 2025 2035
Coal’s dominance in South East Asia will continue for 10 years or more
Coal is the most economical source of fuel. Renewables
competition with gas depends on gas prices
Solar and battery start to compete with gas-fired plants
at lower gas prices. Coal continue to be the most
economical option
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AgendaIs coal still king in South East Asia?
Capacity and generation mixCan South East Asia get away from coal – how fast?
LCOE of various technologiesHow does the cost compare as the cost of renewables decline rapidly?
Current tariff comparisons and policyDoes the current tariff provide incentive for renewables as yet?
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South East Asia power demand is expected grow at 5% in the next decade
Source: Wood Mackenzie
MyanmarLaos
Cambodia
Brunei Malaysia
Indonesia
PhilippinesVietnam
Thailand
Singapore
Is coal still king in South East Asia?
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9 21 36 49 18
45
69
95
7
18
26
35
4
15
29
45
1
13 200 200
-50
0
50
100
150
200
250
300
2020 2025 2030 2035
GW
Gas CCGT Coal Fuel OilGas OCGT Nuclear OthersHydro Solar WindBiofuels Geothermal Existing capacity
Source: Wood Mackenzie
39 40 36 33 29 28 26
1823 29 33
34 34 34
17 1820
1919
1716
0 0 13
69 11
0 0 0 1 2 3 3
0
10
20
30
40
50
60
70
80
90
100
2005 2010 2015 2020 2025 2030 2035
%
Gas CCGT Coal Fuel Oil Gas OCGTNuclear Others Hydro SolarWind Biofuels Geothermal
Source: Wood Mackenzie
Incremental capacity growth by technology
Total capacity in South East Asia will double in the next 15 years with equal share from coal and renewables in 2030 Share of thermal plants marginally decrease but with declining domestic piped gas supply led by decline in
Thailand and Indonesia, attractiveness of gas-fired plants have declined Coal is displacing gas at base load and the trend is expected to continue
Is coal still king in South East Asia?
Capacity mix by technology
Renewablesincluding hydro
Thermal Plants (55%)
Renewablesexcluding hydro
Hydro
ThermalPlants (60%)
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37 73 154 220 133
302
471
646
33
74
104
136
7
22
42
65
4
35 942 942
-200
0
200
400
600
800
1000
1200
1400
2020 2025 2030 2035
TWh
Gas Coal DieselFuel Oil Nuclear ImportHydro Solar WindBiofuels Geothermal Existing capacity
Source: Wood Mackenzie
48 4640
34 29 28 26
22 26 3844
47 47 47
10 11 14 1414 13 12
0 0 0 12 3 3
0 0 0 1 1 1 2
0
10
20
30
40
50
60
70
80
90
100
2005 2010 2015 2020 2025 2030 2035
%
Gas Coal Diesel Fuel OilNuclear Import Hydro SolarWind Biofuels Geothermal
Source: Wood Mackenzie
Incremental generation growth by fuel
…however share of generation from coal will be higher by two-folds than that of renewables in 2030 Share or renewables with hydro increases from 19% to 24% whereas share of non-hydro renewables increase
from 5% to 11% by 2030
Is coal still king in South East Asia?
Generation mix by fuel
Renewablesincluding hydro
ThermalPlants (70%)
Renewablesexcluding hydro
Hydro
ThermalPlants (73%)
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0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2005 2016 2030 2035
% G
ener
atio
n
Indonesia Vietnam Thailand Malaysia Philippines
Myanmar Singapore Cambodia Brunei
Source: Wood Mackenzie
942 942
0
200
400
600
800
1,000
1,200
1,400
2020 2025 2030 2035
TWh
Indonesia Vietnam MalaysiaPhilippines Thailand MyanmarCambodia Singapore BruneiExisting capacity
Source: Wood Mackenzie
Generation mix by country
Indonesia and Vietnam contributes to 67% of the incremental generation growth in the next 20 years
Is coal still king in South East Asia?
Incremental generation growth by country
35%
58%
47%
45%
56%
37%
33%
67%
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Power tariffs vary significantly across the various markets and hence the attractiveness of renewables vary as well
Average power tariffs in major South East Asian countries
Is coal still king in South East Asia?
Power tariffs in the Philippines have been consistently higher than Vietnam and Indonesia by more than two-folds
0
50
100
150
200
250
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US
$/M
Wh
Vietnam Indonesia Malaysia Thailand Singapore Philippines
Source: Wood Mackenzie
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0
50
100
150
200
250
Coal CCGT Solar Wind Integrated Solar &Battery
Battery OCGT - Existing Gas Engines -New Build
US
$/M
Wh
Fixed cost Variable cost - Low Variable cost - Base Variable cost - High
Firming cost Charging Cost min Charging Cost max Solar + 25% Storage
Solar + 50% Storage Solar + 75% Storage Current tariffs min Current tariffs max
Source: Wood Mackenzie, GTM, MAKE
Renewables and battery in South East Asia are still a costlier option compared to the conventional plants for both baseload and peaking operations
Is coal still king in South East Asia?
2017 LCOE by technology
Peak load
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By 2025, Renewables starts to compete with gas at baseload but coal continue to be the most economical option for baseload
Is coal still king in South East Asia?
2025 LCOE by technology
0
50
100
150
200
250
Coal CCGT Solar Wind Integrated Solar &Battery
Battery OCGT - Existing Gas Engines -New Build
US
$/M
Wh
Fixed cost Variable cost - Low Variable cost - Base Variable cost - High
Firming cost Charging Cost min Charging Cost max Solar + 25% Storage
Solar + 50% Storage Solar + 75% Storage Current tariffs min Current tariffs max
Source: Wood Mackenzie, GTM, MAKE
Batteries but with charging from coal plants can replace peaking gas plants;
Peak load
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0
50
100
150
200
250
Coal CCGT Solar Wind Integrated Solar &Battery
Battery OCGT - Existing Gas Engines -New Build
US
$/M
Wh
Fixed cost Variable cost - Low Variable cost - Base Variable cost - High
Firming cost Charging Cost min Charging Cost max Solar + 25% Storage
Solar + 50% Storage Solar + 75% Storage Current tariffs min Current tariffs maxSource: Wood Mackenzie, GTM, MAKE
Solar starts to compete with coal at baseload; Battery can replace gas at peak loadIs coal still king in South East Asia?
2035 LCOE by technology
Peak load
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Coal will continue to dominate the developing economies in South East Asia for the next decade or so (provided coal financing do not cease)
Based on the LCOE forecasts, coal will continue to be the cheapest source of generation for the next 15 years or more and hence the investment decisions made in regulated and developing markets to meet the increasing demand will lean towards coal (in absence of carbon price).
Incentives will continue to drive solar growth in the SE Asian markets as the extent of renewables growth need to factor in affordability.
However, by 2025, solar starts to compete with combined cycle gas plants at baseload and battery starts to compete with open cycle gas plants for peak load. Hence the pace of renewables growth will likely accelerate.
By 2035, solar starts to become the cheapest source of generation for baseload operation.
ConclusionsIs coal still king in South East Asia?
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woodmac.comTrusted commercial intelligence
Outlook for Singapore’s Electricity MarketTowards a Fully Liberalised Market in 2018
11th Capacity Building Programme for Officers of Electricity Regulatory Commissions
Dr. Bikal Pokharel, Principal Analyst, Asia Power & Renewables, Wood Mackenzie 14 December 2017
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Full retail contestability needs a continuous assessment of the possible outcomes
Enablers/Barriers
ChallengesSustainable
Prices
Marketoutlook
Full RetailContestability
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Current reserve margin stands close to 85%COP21: Singapore has committed to emission reduction by 36% from 2005 levels by 2030. Replacement of fuel oil generation by gas from 2005 to 2014, further replacement of fuel oil by gas plants in future and solar contribution to grid should be enough to meet this target
Existing and planned capacity with peak load Available capacity by plant type with peak demand
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2015 2018 2021 2024 2027 2030 2033
GW
Source: Wood Mackenzie
Existing Planned Generic
Peak Generation GW at 30% RM
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2015 2018 2021 2024 2027 2030 2033
%GW
Source: Wood Mackenzie
CC STFuelOilSTCoal STCT SolarPeak Generation Reserve Margin (%)
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Significant interest in retail following the introduction of Electricity Futures in 2015
Electricity retailers have more than doubled in the last couple of years
Percentage retail share (2005-2015)
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%SP Services Pre-2014 Retails (Five)PacificLight Energy Hyflux Energy Pte LtdRed Dot Power Pte Ltd
Source: EMA, Wood Mackenzie
Number of retailers
Pre 2014 5
2015 9
Today 25
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Current licensed capacity is enough to keep the reserve margin above 30% for the next 20 years
Reserve margin
-60
-40
-20
0
20
40
60
80
100
2014 2017 2020 2023 2026 2029 2032 2035
Res
erve
Mar
gin
(%)
Licensed capacity Existing and planned CC with retirements
Existing and planned CC without retirements Capacity Assurance Scheme (30%)
Source: Wood Mackenzie
Reserve margin above 30% based on licensed capacity (includes steam plants)
Reserve margin with combined cycle plants drops to below 30%
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Low electricity prices are not sustainable for Gencos
WEP, Vesting Price and LNG Price Wholesale prices at operating cost level
Losing retail consumers will make it even more challenging for the incumbent players
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15Fe
b 15
Mar
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S$
/ MW
h
Wholesale Electricity Price CCGT opex cost with LNGSource: EMC, Wood Mackenzie
SembCorp & Keppeloperational – 800MW addition
Power plantsoutages(800 - 1200 MW)
Tuasring commissioning(411 MW). Oil pricedecline further
CCGT with LNG struggle to recover operating costs
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Aug
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b 16
Mar
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S$/
mm
btu
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WEP Vesting Price LNG Price
Source: EMC, Wood Mackenzie
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0
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/ M
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Source: Wood Mackenzie
Average Annual Price US$/MWhCost of newbuild CC fueled by LNG
The price outlook continues to remain depressed in future
A flat short run marginal cost indicates that flatter wholesale prices will continue
Annual average power price forecastMerit Order (2020)
Fuel Oil plants setting the price during peak periods
With LNG regasstart-up, gas plants starts setting the price
Additional gas plants brings down prices further
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US$
/MW
h
MW
Source: Wood Mackenzie
CC STFuelOil STCoal ST CT IC Solar
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Expectation of a competitive retail market
Increased competition - retail providers would have to attract consumers to choose them – incentives, promotions etc
Lower rates - something everyone will appreciate!
Flexible plans
Reliable service - system security still with the system operator
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Enablers and barriers to consumer engagement
Source : https://www.ofgem.gov.uk
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Price is the key motivator when switching
A survey in the UK suggested that on average ~ £300 of savings per year (£25 or S$45 per month) are needed to make it worth changing supplier or tariff
Source : https://www.ofgem.gov.uk
Motivators to retail switching (UK)
woodmac.com 25Switching rates are an important indicator but not necessarily the only measure of success
Japan switching rates (April 2016 to March 2017) Australia switching rates (2016)
Access to price comparisons & online accounts are necessary to engage consumers
Note - Utilisation assumption in the range of 60% to 85%
0
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Mill
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Source: Wood Mackenzie
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Jan-
10M
ay-1
0S
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0Ja
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Sep
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Jan-
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May
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6S
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Perc
enta
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Source: AEMO
Queensland New South WalesVictoria South Australia
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Default retail providers have been used to encourage switching in Texas
• Default service price might have to be much higher than Wholesale Electricity Prices (WEP) to induce consumer switching (comparable prices may not work – Massachusetts experience)
• Texas success came from the price differentials – default service prices were much higher)
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Increased competition comes with challenges
Declining firm demand• With demand uncertainty, longer term contracts will be difficult• Short-term hedging activities
Product differentiation• 100% renewables• Discount on regulated tariffs• Bundling with gas retails, cable network providers, telecom• Pricing incentives – fixed, variables, S-curve
A strong political commitment to reform is necessary• Unexpected problem will require major or minor refinements• Solution should not undermine the expected competiveness of the market
woodmac.com 28Key takeaways
Amidst depressed prices, sustainability is becoming an issue for Gencosand full retail contestability can bring further challenges
Amidst depressed prices, sustainability is becoming an issue for Gencosand full retail contestability can bring further challenges
Amidst depressed prices, sustainability is becoming an issue for Gencosand full retail contestability can bring further challenges
Switching rates are an important indicator but not necessarily the measure of success of retail competition
Switching rates are an important indicator but not necessarily the measure of success of retail competition
Switching rates are an important indicator but not necessarily the measure of success of retail competition
Ease of access to information and price deals will be key to engaging consumers and success of the full retail contestability
Ease of access to information and price deals will be key to engaging consumers and success of the full retail contestability
Ease of access to information and price deals will be key to engaging consumers and success of the full retail contestability
Product differentiation would be necessary for the retail providers to remain competitive
Product differentiation would be necessary for the retail providers to remain competitive
Product differentiation would be necessary for the retail providers to remain competitive
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Bikal leads the power market research for Asia Pacific. He is a seasoned power and renewables analyst with an established track record of research and consulting in market modeling, inter-fuel analysis, generation planning, cost analysis and bidding strategies. He has been with Wood Mackenzie since 2007.
Prior to Wood Mackenzie, he was a power market specialist at PowerSeraya, a local power generation company in Singapore.
Bikal holds a PhD in Power Engineering from Nanyang Technological University, Singapore with specialisation on the aspects of generation planning in competitive electricity markets.
Principal Analyst, Power & Renewables, Asia Pacific
T +65 6518 0857
Dr. Bikal Pokharel
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Strictly Private & Confidential
This report has been prepared by Wood Mackenzie Limited. The report is intended solely for the benefit of Wood Mackenzie clients and its contents and conclusions are confidential and may not be disclosed to any other persons or companies without Wood Mackenzie’s prior written permission.
The information upon which this report is based has either been supplied to us or comes from our own experience, knowledge and databases. The opinions expressed in this report are those of Wood Mackenzie. They have been arrived at following careful consideration and enquiry but we do not guarantee their fairness, completeness or accuracy. The opinions, as of this date, are subject to change. We do not accept any liability for your reliance upon them.
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