Myanmar: Solar Investment Opportunities Emerging Markets Task Force Report

Chair of the SolarPower Europe Emerging Markets Task Force: Stefano Mantellassi, Eni SpA.

Authors: ABO Wind AG (Alden Lee, Anna Aleksanova).

Coordinator of the SolarPower Europe Emerging Markets Task Force: Máté Heisz, SolarPower Europe.

Contact: info@solarpowereurope.org.

Acknowledgements: SolarPower Europe would like to extend a special thanks to ABO WIND AG and all Task Force members that contributed with their knowledge and experience to this report. This would never have been possible without their continuous support.

Project information: The SolarPower Europe Emerging Markets Task Force was launched in March 2018 and, since then, has become an active working group of nearly 100 experts from almost 50 companies. The objective of the Task Force is to identify business and cooperation opportunities and thereby contribute to the energy transition in emerging markets outside Europe.

Design: Onehemisphere, Sweden.

Published: May 2019.

Disclaimer: This report has been prepared by SolarPower Europe. It is being furnished to the recipients for general information only. Nothing in it should be interpreted as an offer or recommendation of any products, services or financial products. This report does not constitute technical, investment, legal, tax or any other advice. Recipients should consult with their own technical, financial, legal, tax or other advisors as needed. This report is based on sources believed to be accurate. However, SolarPower Europe does not warrant the accuracy or completeness of any information contained in this report. SolarPower Europe assumes no obligation to update any information contained herein. SolarPower Europe will not be held liable for any direct or indirect damage incurred by the use of the information provided and will not provide any indemnities.

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TABLE OF CONTENTS

FOREWORD 5

CONTEXT 7

MYANMAR ELECTRICITY MARKET 14

RECOMMENDATIONS 20

REFERENCES 22

“This report series, developed by our Emerging Markets Task Force, provides quality market information to solar investors looking for opportunities around the world. It will help solar companies to better access new markets, and thus ultimately, accelerate the global energy transition.” Walburga Hemetsberger CEO, SolarPower Europe

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Clean Energy Associates

Sponsor Members:

SolarPower Europe would like to thank the members of its Emerging Markets Task Force that contributed to this report including:

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FOREWORD BY STEFANO MANTELLASSI, Vice-President Energy Solutions ENI SpA and Chair of the SolarPower Europe Emerging Markets Task Force, and ALDEN LEE, Head of International Solar Department, ABO Wind AG.

In March 2018, Solar Power Europe launched the Emerging Markets Task Force to identify business and cooperation opportunities and thereby contribute to the energy transition in emerging markets outside Europe. Since then, the Task Force has become an active working group of nearly 100 experts from almost 50 companies, working on a suite of market reports and investigating available financing instruments for solar project development in emerging markets.

The task force has operated through a series of physical and virtual meetings, visits in the selected markets and conferences. We have also engaged in productive discussions with other relevant initiatives such as the Africa-EU Renewable Energy Cooperation Programme (RECP), GET.invest and the IRENA Coalition for Action’s Business and Investors Group. After a year of intense work, we are proud to present the Task Force’s first report on a Southeast Asian country, Myanmar.

This report developed by ABO Wind AG, with the support of the Task Force, provides an overview of investment opportunities for solar deployment in Myanmar. It offers a snapshot of the country’s business environment and an overview of the major demographic and macroeconomic trends. It also addresses issues related to the country’s credit and political risk. The report focuses on the energy context, relevant actors and the regulatory framework for investments in renewables. The research finds that Myanmar has an incredible potential for solar energy, but the government still has a lot of work to do to unleash the potential and to attract foreign direct investments into Myanmar´s solar industry. Rising electricity demand, rapid demographic growth and strong neighbour solar countries like China, India, and Thailand give Myanmar great opportunities to increase the installed solar capacity.

With the support and excellent contribution of other Task Force members, we have published additional reports on Ivory Coast, Mozambique and Senegal. In 2019, we are working on market reports on India, Kazakhstan, Morocco, Tanzania and Tunisia, and technical reports on digital solar and quality assurance in emerging markets.

If you want to be part of this initiative and discover new business opportunities, join SolarPower Europe's Emerging Markets Task Force.

STEFANO MANTELLASSI Vice-President Energy Solutions, ENI SpA.

Chair of the SolarPower Europe Emerging Markets Task Force.

ALDEN LEE Head of International Solar Department, ABO Wind AG.

SOURCE: World Bank, 2017 Solargis.

GLOBAL HORIZONTAL IRRADIATION

MYANMAR

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1. CONTEXT

WORK STREAM

MYANMAROFFICIAL LANGUAGE CAPITAL LARGEST CITY CURRENCY SURFACE POPULATION (2017) URBAN POPULATION (% TOTAL POPULATION)(2017) UNEMPLOYMENT RATE (2017) GDP PER CAPITA (CONSTANT 2010 US$) GDP GROWTH (2017) GDP GROWTH SOUTHEAST ASIA (2017) HUMAN DEVELOPMENT INDEX (HDI) (PERMITTED) INVESTMENTS IN POWER SECTOR IN 2018 (%) PEOPLE USING AT LEAST BASIC DRINKING WATER SERVICES (%)

Burmese (Myanmar) Naypyidaw Yangon Kyat (MMK) 676,578 km2 53.4 million 29.5% 2.2% 1,484.20 US$ 5.7% 5.3% 0.578 (medium) 27.6% 67.5%

SOURCE: IMF, ADB, etc. All data given for year 2017, if not mentioned otherwise.

ENERGY GEOGRAPHY

Myanmar is one the most poorly electrified countries in Southeast Asia, with an average electrification rate of only 39% at the end of 2017. Yangon, its largest city and the former capital, consumes almost half of the country’s electricity supply. Myanmar has tremendous solar resources and vast hydro potential. The International Growth Centre (Energy in Myanmar, 2016) estimates the country’s solar potential to be 51.973 TWh per year. The Asian Development Bank assesses the opportunity for solar in Myanmar up to 27 GWp. The average yearly total of PV power production varies between 1,150 kWh/kWp and 1,600 kWh/kWp with high values in the central region. In the mountains, the power production is lower by up to 20% (or even more, due to terrain shading).

According to other research, conducted by ESMAP (Suri, et al., 2017), Myanmar has very good potential for development of solar power, especially in the lowlands of the central part of the country, where demand is the highest.

One of the most disaster-prone countries in the world

Myanmar is one of the most vulnerable to natural disasters countries in the world. The country ranks 14th

out of 191 countries in INFORM 2019 Risk Index (INFORM Index for Risk Management, 2019); it is highly exposed to floods, earthquakes and tsunamis.

According to the Germanwatch Global Climate Risk Index (Germanwatch, 2019), Myanmar was one of the countries most affected by extreme weather events between 1997 and 2016. Therefore, Myanmar would benefit from decentralized power generation like solar.

DEMOGRAPHICS

Myanmar’s population is relatively young – according to the 2014 Census, half of the population is under 30 years old. However, life expectancy at birth is rising and reached 66 years in 2016.

Despite significant progress made in poverty reduction (the poverty rates decreased by 33% between 2004/2005 and 2015 from 48.1% to 32.1%, IMF), the disparities between urban and rural areas remain very stark (14.5% compared to 38.8% in 2015, IMF). Around half of the population continues to live under the near-poor line (IMF Country Report No. 18/91, 2018).

Myanmar´s HDI values have increased constantly during the last decades so that Myanmar has entered the “medium” group in the year 2016, ranking now 148th out of 189 countries.

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MACROECONOMIC CONTEXT

Myanmar is one of the fastest growing countries in Southeast Asia: as projected by the International Monetary Fund, the country’s GDP growth for 2018-2019 is expected to be in the range of 6.9%-7.0% (IMF, 2018).

Myanmar is working on a series of economic reforms, one of them being the implementation of the Myanmar Sustainable Development Plan.

As projected by Coface, Myanmar’s economy growth will continue to be one of the most dynamic in the region. The agricultural sector which accounts for nearly a third of the GDP is benefiting from public investments, although the productivity remains quite low. Growth is also stimulated by Chinese investments in infrastructure.1 Economic growth will also persist thanks to the manufacturing sector (textile, automotive, machinery and electronics) and external demand.

1 CONTEXT / CONTINUED

FIGURE 1 COMPARISON: EDUCATION MYANMAR VS. THAILAND

0

0.2

0.4

0.6

0.8

Ed

ucat

ion

Ind

ex

1980 1985 1990 1995 2000 2005 2006 2007 2008 2009 2010 2011 2012 2013Thailand

Myanmar

SOURCE: United Nations Development Programme, Human Development Reports.

FIGURE 2 REAL GDP GROWTH (2000-2022)

0

4

8

12

16

%

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022Emerging and Developing Asia

Southeast Asia

Myanmar

SOURCE: The International Monetary Fund.

1 In September 2018 the Government of Myanmar signed a memorandum of understanding with China on the construction of the China-Myanmar Economic Corridor. The countries are intending to collaborate in many sectors: from infrastructure, construction and manufacturing to agriculture, transport, telecommunications, as well as research and technology.

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The manufacturing sector in particular has a growing demand for low-cost electricity, which solar could provide.

Because of its strategic geographical location, Myanmar is benefiting from proximity to China, Thailand, India and other fast-growing countries in ASEAN. Half of the trade is with China, while India is the third largest neighboring trade partner and one of the main investors in Myanmar. The countries are working on improving air, sea and road connectivity and boosting trade.

Thailand is also a major trade and investment partner of Myanmar. Thailand is developing its Eastern European Corridor (EEC), in order to improve connectivity with other ASEAN countries, including Thailand’s eastern seaboard to Myanmar’s Dawei deep-sea port project. Around 75% of domestic gas production is exported to China and Thailand. Gas exports account for the majority of Myanmar’s GDP. Strong exports reduced trade and current account deficits in 2017/2018 (World Bank Group, 2018).

After a period of relative currency stability in 2017, Myanmar experienced rapid depreciation of Kyat against major currencies, such as the US dollar and Yuan, driven by increased prices on imported goods (including fuel) and rising public salaries. The inflation rate also peaked, exceeding 8% in October 2018. Recognizing that further development of monetary and fiscal policies is required in the country, the IMF in its 2023 projections expects the inflation rates to remain relatively stable.

As instructed by the Central Bank of Myanmar (CBM), state and regional government as well as private businesses are to undertake local transactions in Myanmar Kyat. Since the high volatility and low convertibility of Kyat, investors are facing significant exchange rate risks. According to MHM Yangon, the hedging opportunities for currency risks in the country are quite limited.

The results of the latest World Bank survey of economic conditions in Myanmar, conducted in February-March 2018, points out that businesses in the country are in general optimistic about the future, referring to improved availability of credit, growing employment, public consumption and private investments (World Bank Group, 2018).

Myanmar has double tax treaties with India, Laos, Singapore, South Korea, Thailand, the United Kingdom, and Vietnam. Consequently, many investments are are flowing to the country via Singapore, which would also be a convenient hub for foreign solar investors. The country also has economic agreements with China, Cuba, Kuwait and Singapore and economic and trade agreements with Australia, Cambodia, Indonesia, New Zealand and Turkey (KPMG, 2018).

FIGURE 3 INFLATION RATE, AVERAGE CONSUMER PRICES

-10

0

10

20

30

40

50

60

70

% a

nnua

l cha

nge

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024Southeast Asia

Myanmar

SOURCE: The International Monetary Fund.

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BUSINESS ENVIRONMENT

According to the Heritage Foundation’s Index of Economic Freedom 2018, Myanmar ranked 33rd among 43 countries in the Asia–Pacific region, and its overall score is below the regional and world averages, which allows to conclude that the country is economically “mostly unfree”. The main concern is the conflicts over land titles and poorly established property rights. Corruption, especially among the police, is also one of

1 CONTEXT / CONTINUED

the main issues. The access to credit remains very poor, while state-owned banks dominate the underdeveloped financial sector. The prevalence of state-owned enterprises is limiting foreign investment in the country. Myanmar is also struggling with the enforcement of contracts and protection of minority investors (The Heritage Foundation). Since local debt financing and international investors are vital for solar projects, this is a rather challenging situation for the growth of the industry.

Myanmar also scores rather poorly compared to other countries in East Asia and the Pacific region in the ranking of Doing Business (Ease of Doing Business in Myanmar, 2018). Although the ease of doing business significantly improved in 2015-2016 compared to

previous years, the business conditions for getting credit, protecting minority investors and dealing with enforcement of contracts make Myanmar one of the most difficult countries for doing business in the world (Ease of Doing Business in Myanmar).

FIGURE 4 ECONOMIC FREEDOM SCORE

0 100

53.9 (up 1.4 points)

61.1: World average

NOTABLE SUCCESSES: TRADE FREEDOM AND GOVERNMENT SIZE

CONCERNS: RULE OF LAW, INVESTMENT FREEDOM, AND FINANCIAL FREEDOM

OVERALL SCORE CHANGE SINCE 2014: +7.4

61.0: Regional average (Asia-Pacific region)

50 60 70 80

SOURCE: The Heritage Foundation (2019).

FIGURE 5 DOING BUSINESS EAST ASIA & PACIFIC, RANK (2018)

Myanmar

Lao PDR

India

Indonesia

Malaysia

0 20 40 60 80 100 120 140 160 180

Rank

SOURCE: Doing Business, The World Bank Group (2018).

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Project financing

There is no established practice for project financing in Myanmar so far. Most of the project finance is realized by international development banks and institutions, such as the International Finance Corporation (IFC), the World Bank, and the Asian Development Bank (ADB). KfW, the German development bank, is also realizing projects in the framework of the Rural Electrification Programme. According to the Myanmar Legal Services Limited, the local banking sector has very limited capital to provide financial services required to support project financing in the country.

ADB participated in the development of Myanmar Companies Law, enacted in December 2017, while IFC supported the implementation of Myanmar Investment Law, which came into force in October 2016. Both organizations also helped the Ministry of Electricity and Energy (MOEE) to draft the first PPA agreement for a CCGT power plant, located in Myingyan. This was the first project awarded by a competitive bidding procedure.

As reported by the MHM Yangon, “any investment that is strategically important, capital intensive, uses state-owned land, or may have a large impact on the environment or local community, requires permission from the Myanmar Investment Commission (MIC) - (Project Finance Report 2018 - Myanmar, 2018).” A foreign company also requires the MIC permit in order to obtain land rights authorization for the initial term of 50 years with two 10-year extensions. Power projects that are bigger than 30 MW, additionally require MOEE approval.

Banking sector

From 1963 to 1990 Myanmar’s banking system was completely state-owned. However, according to the International Monetary Fund, private banks now account for more than half of banking system assets. In 2003, Myanmar suffered a severe banking crisis that was triggered by the collapse of ‘informal finance companies’ that offered high rates of return, while engaging in highly speculative investments (IMF Country Report No. 18/91, 2018). Confidence in the financial system was weakened by large-scale deposit withdrawals, despite the preventive measures of the Central Bank of Myanmar. Lack of access to deposits made it difficult for companies to make payments to suppliers and employees. It took almost a decade for the banking system to recover and it still remains fragile.

Nevertheless, the sector began to open up in 2015/2016 when the first branches of foreign banks were granted banking licenses. In December 2017, foreign banks were permitted to provide export financing to local corporations. The Central Bank of Myanmar is planning to grant more banking licenses in 2019. As of today, there are four state-run banks, 24 private banks and 13 foreign banks active in Myanmar.

The private sector’s credit share of the GDP is currently around 25%. 95% of private sector lending is to large enterprises, while households and SMEs rely on credits from non-bank and informal lenders at higher interest rates (IMF Country Report No. 18/91, 2018).

FIGURE 6 RANKINGS ON DOING BUSINESS (2018), BY TOPIC

0

50

100

150

200

Rank

Starting a business

Dealing withconstruction

permits

Gettingelectricty

Registeringproperty

Gettingcredit

Protecting minorityinvestors

Payingtaxes

Tradingacrossborders

Enforcingcontracts

Resolvinginsolvency

SOURCE: Doing Business, the World Bank Group.

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Legislation and regulatory framework

The Myanmar Companies Law (MCL) was enacted on December 6, 2017 by the Directorate of Investment and Company Administration (DICA), and entered into force in August 2018. The law stipulates the provisions on registration and incorporation of companies (including overseas corporations) in Myanmar. MCL allows for up to 35% of foreign shareholding in companies classified as Myanmar companies (Project Finance Report 2018 - Myanmar, 2018).

There is no specific legal framework for renewable energy investments. The development of medium and small power projects (of capacity lower than 30 MW), that are not connected to the national electricity grid, requires the permission of state and regional governments.

Tax exemptions can be granted to the company by the Myanmar Investment Commission for periods of three, five or seven years, depending on the place of investment.

The Economist Intelligence Unit also points out low government effectiveness and high legal/regulatory, as well as infrastructure risks.

Special Economic Zones (SEZ)

The Myanmar Government enacted the Special Economic Zone Law in 2014. There are currently three SEZs under development: Kyauk Phyu in Rakhine State, Dawei in the Thanintharyi Region and the Thilawa in Yangon Region. According to DICA, SEZs may be “Free Zones”, “Promotion Zones” and others. “Free Zones” are deemed to be situated outside the country and subject to custom duty and other tax exemptions, while “Promotion Zones” are based mainly on the domestic market (DICA).

Among others, the law offers the following incentives to investors (Myanmar Legal, 2018):

• 100% foreign ownership;

• The right to lease land for 50 years with an extension of 25 years;

• 5-7 years income tax exemption, depending on whether SEZ defined as a “Free Zone” or “Promotion Zone”;

• No custom duties in “Free Zones”; relief or exemptions on imported materials or equipment;

• Some reliefs and exemptions from value-added tax and commercial tax;

• The right to open foreign currency accounts with approved banks.

As reported by Myanmar Times (Myanmar Times, 2019), Thilawa SEZ has attracted US$1.5 billion of foreign investments to date.

POLITICAL AND SOCIAL CONTEXT

After almost five decades of military regime, Myanmar is undergoing a period of political liberalization. The first democratic elections with participation of all opposition parties took place in 2012 and then again in 2015. National League for Democracy (NLD) leader, Aung San Suu Kyi, became State Counselor (Coface). The next general elections are scheduled for 2021.

The declared aim of the government to pursue inclusive economic growth and Myanmar’s Sustainable Development Targets, however, is affected by the military conflict with the Rohingya minority in Rakhine State. There are more than 135 distinct ethnic groups living in Myanmar. According to the 2014 Census, almost 88% of the population was identifying as Buddhist. The Rohingya people were historically denied citizenship status and regarded as illegal immigrants. Since August 2017, more than 700,000 Rohingya have fled the country, mostly to Bangladesh. The humanitarian crisis resulted in the EU member countries, the United States and Australia implementing economic and political sanctions on Myanmar (Coface). Many international organizations actively involved in the country have reconsidered their development policies there.

Myanmar therefore remains among the countries with high political and business environment risks for enterprises, as the military continue to dominate politics and ethnic tensions remain unresolved (Euler Hermes Global).

1 CONTEXT / CONTINUED

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FIGURE 8 POLITICAL RISK INDICATORS (SACE)

Average political risk War and civil disturbance risk

Transfer and convertibility risk

Expropriation and breach of contract risk

Southeast Asia

Myanmar

0

20

40

60

80

SOURCE: (SACE) Data (2017) Risk Map.

FIGURE 7 RISK RATINGS

CURRENT RATING

CURRENT SCORE

PREVIOUS RATING

PREVIOUS SCORE

Overall assessment D 62 D 62

Security risk C 50 C 50

Political stability risk C 60 C 60

Government effectiveness risk E 81 E 81

Legal & regulatory risk E 83 E 83

Macroeconomic risk B 30 B 30

Foreign trade & payments risk D 61 D 61

Financial risk D 67 D 67

Tax policy risk C 44 C 44

Labour market risk D 61 D 61

Infrastructure risk D 80 D 80 NOTE: E=most risky; 100=most risky. The risk ratings model is run once a quarter. SOURCE: The Economist Intelligence Unit 2018.

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COUNTRY ENERGY SECTOR SITUATION

Because of poor electricity access, especially in rural areas of Myanmar, wood, kerosene, candles and diesel generators are still the main sources of lighting among the majority of the country’s population.

The government of Myanmar, with the help of the World Bank, has developed a National Electrification Plan (NEP, 2015) that calls for universal electricity access by 2030, or 7.2 million new connections. In accordance with the plan enacted in November 2015, the government expects to reach 50% electrification in 2020, 75% in 2025 and 100% in 2030. The US$ 400 million loan for the project is provided by the World Bank, while its realization is carried out by the Ministry of Electricity and Energy (MOEE) and the Department of Rural Development (DRD) in the Ministry of Agriculture, Livestock and Irrigation (MOALI). The plan aims to facilitate both grid extension and installation of mini-grid and solar home systems.

Myanmar’s energy mix is dominated by hydro sources (61%, or 3,221 MW), followed by gas (36%, or 1,919 MW) and coal (3%, or 120 MW).2 Because of a very high share of hydropower production, which is very seasonal,

scheduled load shedding is needed, especially during the dry season. The problem of secure power supply remains especially acute because most of the produced electricity is exported to Thailand and China.

The Myanmar Energy Master Plan, introduced in December 2015 with the help of ADB, provides projections for long-term future energy demand and fuel supply mix up to the year 2030. The plan foresees that by 2030 Myanmar, which is currently—thanks to large natural gas resources—one of the main energy suppliers in the region, will become a net importer of energy. While the plan offers scenarios that could reduce the country’s dependency on hydro energy through increased production from coal, the share of solar and wind in the total energy mix in 2030 is expected to be very modest at around 1.2%. However, recent plans of the Ministry of Electricity and Energy (MOEE) to diversify the country’s power mix raise optimism for the future of the solar sector in the country. The ministry has introduced quite ambitious renewable energy targets – to increase the share of renewables in electricity production to 8% by 2021 and to 12% by 2025. The MOEE is currently working on a draft of the new reform (Myanmar Times, 2018).

2 MYANMAR ELECTRICITY MARKET

2 May 2017 estimate, provided by the Ministry of Electricity and Energy (Ministry of Electricity and Energy, 2017).

FIGURE 9 ELECTRICITY OUTPUT, COMPARISON

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

200,000

Tota

l Ele

ctri

city

Out

put

(GW

h)

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2014Vietnam

Thailand

Cambodia

Bangladesh

Myanmar

SOURCE: Sustainable Energy for All.

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As reported by the Myanmar Times in June 2018, Yangon consumes around 1.5 GW of electricity, which is half of the country’s electricity output, and its demand is expected to double by 2021-22 (Myanmar Times, 2018). In order to meet the growing power demand, investments in the amount of approximately 1 billion Kyat will be required to develop infrastructure, including transmission lines and substations. According to the source, there are also plans to construct 77 66 kV substations between 2018-19 and 2021-22. The Government is planning to approach the Asian Development Bank in order to upgrade several 230 kV substations across the region.

According to the study on solar resources and solar PV potential in Myanmar, conducted by the World Bank, most of the population (75%-85%) lives within a 25-50 km radius of HV power lines, which overall are good premises for developing medium- and large-scale solar projects in the country.

3 Peak demand in 2017 was ~3000 MW.

The Japan International Cooperation Agency (JICA), together with the Ministry of Electric Power (MOEP), worked on the creation of the National Electricity Master Plan in 2015. The installed capacity in the country was projected to rise from 5 GW (2017)3 to around 15 GW by 2030. However, as reported by the MOEE in its more recent presentation (The Role of Renewable Energy in Myanmar’s Future Energy Mix, 2017), the plan is currently being updated. The new estimate of power demand in 2030 is 23.6 GW, which creates a gap of almost 8 GW necessary to be filled in order to avoid power shortages in the future. The gap could potentially be met by the mix of solar and wind, plus biomass energy.

ELECTRICITY INFRASTRUCTURE

Due to the poor electricity infrastructure, Myanmar is suffering from significant power losses, especially in the distribution system, which reached between 20.5%-25% in 2012-2014 (The World Bank Data).

JICA has been actively supporting the development of the national transmission grid in Myanmar, particularly carrying out projects in Mandalay, Bago, and Naypyitaw regions (JICA).

FIGURE 10 DEMAND FORECAST RESULTS

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

MW

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

High caseLow case

Year

1,600 1,850 2,055

2,157 2,376 2,617 2,884 3,178 3,5033,862

4,208 4,585 4,9965,443 5,930

6,4617,039

7,6688,353

9,100

2,248 2,527 2,8403,192 3,587

4,0324,531

5,0925,723

6,4317,227

8,121

9,125

10,253

11,520

12,944

14,542

3,075 MW(23.05.2017)

SOURCE: The Ministry of Electricity and Energy, Presentation “The Role of Renewable Energy in Myanmar’s Future Energy Mix”.

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2 MYANMAR ELECTRICITY MARKET / CONTINUED

KYAUKPAHTO

KALAWAUNGTHAPYE

MONYWA

ZAWGYI-1ZAWGYI-2

PYINOOLWIN

SEDAWGYI

LETPANHLA

MANN

CHAUKWAZI

KYUNGCHAUNG

PAKOKKU MYINGYAN

NYAUNGBINGYIMANDALAY

AUNGPINLE

THAPHANSEIK

BHAMO

NGATPYAWDINE

SHWEGU

KYAWSWA

MYANAUNG

SINDE

PYAY

THAYET

TAUNGDWINGYIPYINMANA

BAGO

ZAUNGTU

SHWE DAUNG

TAUNGOO

BALUCHAUNG-2BALUCHAUNG-1

THAZI

KINDA

MAGWAY

YWAMA

THAKETA

MAWLAMYINE

PHAAN

THATONHLAWGA

PATHEIN

YEGYI

HINTHADA

SALENYAUNGOO

MYAUNGMYA

AHLONE

THAILAND

LAOS

INDIA

BA

NG

LAD

ES

H

CHINA

NATIONAL GRID SYSTEM

MYANMAR

SOURCE: Global Energy Network Institute (GENI).

FIGURE 11 TRANSMISSION, DISTRIBUTION LINES AND SUBSTATIONS (AS OF AUGUST 2014)

VOLTAGE (kV) LENGTH (KM) SUBSTATIONS CAPACITY (MVA)

230 3,156 32 4,105

132 2,189 21 1,248

66 3,003 188 2,421

Total 8,348 241 7,774

SOURCE: Department of Hydropower Implementation Ministry of Electric Power.

LEGEND

Substation

Gas Turbine Power Station

230 kV Transmission Line

66 kV Transmission Line

Hydro-power Station

132 kV Transmission Line

33 kV Transmission Line

Steam Turbine Power Station

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OFF-GRID RENEWABLE ENERGY DEMONSTRATION PROJECT

MYANMAR

SOURCE: Myanmar Off-Grid Renewable Energy Demonstration Project funded by ADB (Asian Developemnt Bank).

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ACTORS, TARIFFS AND REGULATORY NETWORK

The key regulatory institutions in Myanmar are the Myanmar Investment Commission, the Directorate of Investment and Company Administration and the Central Bank of Myanmar. The main regulatory body in the energy sector is the Ministry of Electricity and Energy (MOEE).

Myanmar has one of the lowest electricity tariffs in the world. The average power tariff in 2017 was $51/MWh (69 Kyat/kWh). Residential prices in Myanmar are 35 Kyat/kWh for the first 100 units, 40 Kyat/kWh for the next 100 units, and 50 Kyat/kWh for all units after that. According to the Myanmar Times, the average cost of supplying 1 kWh in 2016/17 fiscal year was 96 Kyat, which means that the government is losing between 59-74 Kyat for every unit sold to residential consumers (Myanmar Times, 2018).

IPP projects in Myanmar could be implemented on either joint venture (JV) or build-operate-transfer (BOT) basis (Myanmar Legal, 2018). Regulatory approvals of the following institutions are required in order to develop and implement the project:

• Attorney General’s Office (AG),

• Ministry of Planning and Finance (MOPF),

• Myanmar Investment Commission (MIC).

• Ministry of National Resources and Environmental Conservation (MONREC).

More than 30 laws govern land management, at least 20 government agencies are involved in land issues, at both national (Union) and provincial (State) levels. MIC is responsible for granting land to foreign investors.

NEW DEVELOPMENTS FOR SOLAR POWER

Large-scale PV-projects

According to different sources, Myanmar’s large-scale solar pipeline is estimated to be between 470 MWp and 1.5 GWp (PV Magazine Global, 2018).

Several PPAs were concluded with the MOEE in 2016. Among them, the 220 MWp Minbu project, with the first 50 MWp phase expected to be completed in the first quarter 2019. Thailand-backed Green Earth Power, GEP (Myanmar) Co. Ltd has signed a 30-year PPA with the MOEE for 150 Kyat per unit (likely meaning ~€8.6 ct/kWh). The US$275 million project is planned to be realized in three 50 MWp phases and the last 70 MWp phase. Two Thailand-based construction companies were initially engaged for the first phase of the project, which in turn contracted a Chinese state company specialising in New Energy, CTIEC Ltd. as EPC with its strategic PV partner WEink Energy Ltd providing EPC management services. As reported by PwC and the Myanmar Times, Synergy Business Development Co. Ltd. (SBD) and its foreign partner have submitted a proposal to the MOEE for the construction of a 200 MWp solar power plant in Meiktila Township, Mandalay (PwC Myanmar, 2018).

According to PV Magazine (PV Magazine Global, 2018), Thailand-based Modern Energy Management (MEM) is planning to develop a 130 MWp project in Myanmar. The plant is expected to come online in Q4 2019. No further details are known so far.

Mini-grid and off-grid solar projects

A large number of international development organizations, banks and corporations are working on various rural electrification projects in Myanmar.

2 MYANMAR ELECTRICITY MARKET / CONTINUED

FIGURE 12 LARGE-SCALE PV PROJECTS IN MYANMAR

PROJECT INSTALLED CAPACITY (MWp)

LOCATION (REGION/STATE) REMARKS

Nabuai and Wandwin 300 Mandalay Region MOA (Memorandum of Association) & PPA

Minbu 220 Mandalay Region MOA & PPA

Shwe Myo 10 Nay Pyi Taw MOU (Memorandum of Understanding)

Sagaing and Mandalay 880 Sagaing and Mandalay region MOU

Thapaysan 100 Nay Pyi Taw MOU

SOURCE: PV Magazine, with reference to Myanmar Ministry of Electricity and Energy.

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The German Society for International Cooperation (GIZ) completed its project “Promoting Rural Electrification in Myanmar”, which was commissioned by the German Federal Ministry for Economic Cooperation and Development (BMZ). The project, implemented during 2016-2018, also supported NEP and aimed at creating policy framework and capacity building, especially in the area of renewable energy-based mini-grids (GIZ).

Pact, a non-profit international organization with the support of ABB, Chevron and Shell is working on providing Myanmar’s local communities with solar home systems and mini-grids (Pact, 2018).

Overall, the power sector accounted for 27.8% of Foreign Direct Investment in Myanmar during the period 1988-2017 (US20.7 billion)(EuroCham Myanmar, 2017).

The UK has established a £15 million (30 billion Kyat) fund that will be used until 2020 for carbon reduction and renewable energies in ASEAN countries, including Myanmar. The fund’s sources will also be directed on conducting feasibility studies for wind and solar projects (Myanmar Times, 2018).

FIGURE 13 PILOT PROJECTS WITH RENEWABLE ENERGY MINI-GRIDS

TOWNSHIP VILLAGE NUMBER OF HOUSEHOLDS

POPULATION PV CAPACITY (kW)

BATTERY CAPACITY (kWh)

TOTAL COST (USD)

TYPE

MAGWAY REGION

Thayet Gon Ma Ni 197 931 7.2 57.6 73,350 Stand-alone

Sinbaungwe Kone Thar 270 2,170 8.7 63.3 82,368 Stand-alone

Minbu Pauk Lay Pin 89 336 4.9 57.6 44,100 Diesel hybrid

Yenangyaung Koke Ko Gwa 330 1,654 13.0 92.2 102,300 Stand-alone

Salin Kone Char 143 625 6.5 38.4 50,832 Stand-alone

Pauk Mone Kone 157 836 6.0 46.1 50,856 Stand-alone

MANDALAY REGION

Kyaukse Myin Chi Naing 317 925 10.8 86.4 98,580 Grid ready

Nyaung-U San Kan 200 977 9.8 115.2 75,000 Stand-alone

Kyaukpadaung Kyet Su Taw 103 484 4.9 57.687,980

Stand-alone

Taungtha Son Lun 110 654 4.9 57.6 Stand-alone

SAGAING REGION

Sagaing U Aing Kyun 170 569 6.0 46.1102,770

Stand-alone

Khin-U Yauk Thit Kan 165 668 7.0 61.4 Stand-alone

In the framework of one of its power/infrastructure development projects in the country, the Asian Development Bank has installed solar mini-grid systems in 12 villages located in the Dry Zone (Magway, Mandalay and Sagaing regions), and developed a geospatial plan for off-grid renewable energy investment opportunities. 80% of installation costs were financed by ADB, the remaining 20% was contributed by the villagers.

As mentioned in the ADB’s report (Asian Development Bank, 2017), solar irradiance can go down by as much as 50% in the rainy season, hence, areas with heavy and prolonged rainy seasons may be less suitable for solar.

The International Finance Corporation (IFC) also supports the Myanmar’s National Electrification Plan by implementing its Lighting Myanmar program in the country, which focuses on supplying local households with solar lanterns, solar home systems and potentially off-grid systems. The project was launched in 2016 and is planned to be completed in 2022 (Lighting Global).

SOURCE: Developing Renewable Energy Mini-Grids in Myanmar.

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3 RECOMMENDATIONS

FOR INTERNATIONAL INVESTORS

Compared to other ASEAN countries like Thailand, Vietnam, and Indonesia and compared to the vast solar potential of Myanmar – especially in the central region where demand is high – the amount of new constructions of solar power plants is expected to be rather small in Myanmar for the next ten years. Also, in terms of general business conditions, Myanmar is not yet considered an attractive country for foreign direct investments.

However, there is strong demand for electricity, especially in rural areas, which might offer business opportunities. Frequent power cuts also result in certain demand for independent power production.

Still, there are no standard terms and conditions for PPAs, therefore prospective investors should design a bankable PPA. They should also envisage instruments to hedge against currency risk, inflation and economic volatility.

While there is currently no sufficient legal framework for PV power plants, the government has announced to issue regulations during 2019. Therefore, it is recommended for investors to wait for the publication of these rules before entering the market.

Among European organizations, the German Chamber of Commerce Abroad (AHK) seems to have the best insight into Myanmar’s solar PV market, so it might be helpful to get in touch with them for further information.

FOR LOCAL PUBLIC DECISION-MAKERS

It is most important for Myanmar to re-evaluate the current plan to increase electricity output mainly by building coal-fired power stations. A careful analysis will most likely show that the life-time cost for solar PV power plants is more economical. In addition, solar power can effectively counter-balance the electricity shortage during the dry season, while not occupying too much grid capacity during the rainy season.

The improvement of framework conditions for doing business in solar PV would be another important step to develop Myanmar´s potential. Currently the prevalence of state-owned enterprises is limiting foreign investment in the country. Tendering renewable energy projects with non-discriminatory and transparent allocation schemes – instead of signing bilateral agreements – would support project developments and attract investments.

Tenders are an important tool, since the heavily subsidized tariffs in Myanmar are a main obstacle for renewable energy developers to invest in projects which compete with consumer prices.

It is fundamental to clarify the rules of engagement in tenders. Tenders should be based on clear rules and technical parameters on the nature of the projects such as size, targets, location and timeline, in order to produce the expected outcomes and to attract participants.

The participation of free riders to the calls should be discouraged: pre-qualification criteria such as bid bonds in tendering should aim to attract only those actors able to take responsibility for the projects. Selection criteria should be designed in a way that a sufficient amount of companies with experience in renewable energy will participate in the tender.

The adoption of a PPA in the new regulatory framework should follow international standards. This type of PPA includes inflation, exchange rate and default risk of the sovereign counterparts. Moreover, financial development institutions should be part of the contract providing financial guarantees for the counterparts.

The regulatory framework should also clarify and simplify procedures for land access. Conflicts over land titles and poorly established property rights are a main concern for investors. In addition, the rules to get access to the grid should be clear and transparent.

In general, the enforcement of contracts as well as the protection of minority investors must be improved. This is because potential investors might otherwise consider Myanmar as a high-risk investment, which would cause higher electricity prices.

FOR LOCAL PRIVATE STAKEHOLDERS

Capacity building and skills should be the focus of stakeholders working locally to increase Myanmar’s potential to attract investments in solar PV. Training and skills could open up opportunities not only in the operations, but also in local production of materials applied in PV projects, e.g. mounting systems and fences.

Increased work opportunities, skills and know-how transfer would also contribute to support renewable energies’ deployment politically.

As solar projects advance in the country, interested parties should seek partnerships with experienced counterparts to ensure a socially sustainable value chain.

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FOR DEVELOPMENT FINANCE INSTITUTIONS

The access to credit remains very poor, while state-owned banks dominate the underdeveloped financial sector. Therefore, multilateral development finance institutions such as the World Bank and the Asian Development Bank, as well as national development banks such as the German KfW bank, are involved in the energy sector of Myanmar. Their financial, technical and governance support currently drives investments in renewables and even the infrastructure to enable small as well as utility scale solar power plants. Furthermore, their presence reassures investors concerned by the country’s macroeconomic fundamentals and contributes to share best practices.

Project financing should be established for Myanmar’s solar PV projects. The local banking sector has very limited capital to provide financial services for projects. Therefore, development finance institutions are key players in Myanmar and should continue to assist the development of a sustainable market for private investments. In the future they should support the market with guarantees to attract foreign direct investment.

Development finance institutions’ long-term commitment to the country contributes to providing credibility to national policies and their country strategies are taken into high consideration by international investors. Technical assistance programs and other forms of support from international development organisations are key to improve the energy access rate in the continent.

Thus, development finance institutions have a central role to play in easing investment conditions for renewable energies in Myanmar. Credit enhancement mechanisms can play a central role in making renewable electricity projects financially sustainable. Commercial or sovereign-backed guarantees provide the security that the energy produced and sold to the national utility will be paid so that costs can be recovered over the project’s long lifetime.

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4 REFERENCES

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“There is huge potential for the development of solar in emerging markets, where different paths to the sustainable energy transition are possible: the Task Force will allow members to analyse and benchmark the accessibility of selected markets, untangle barriers to investment and engage with local stakeholders”. Stefano Mantellassi - Eni Emerging Markets Task Force Chair