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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


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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


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


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


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


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


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


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


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


Generation mix by country

Indonesia and Vietnam contributes to 67% of the incremental generation growth in the next 20 years


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


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


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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


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



0

50

100

150

200

250



US

$/M

Wh



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



US

$/M

Wh



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?


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

0

2

4

6

8

10

12

14

2015 2018 2021 2024 2027 2030 2033

GW


Existing Planned Generic

Peak Generation GW at 30% RM

0

10

20

30

40

50

60

70

80

90

0

2

4

6

8

10

12

14

2015 2018 2021 2024 2027 2030 2033

%GW


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)

0

10

20

30

40

50

60

70

80

90

100

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

%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%)


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

0

50

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Sep

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Oct

14

Nov

14

Dec

14

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15Fe

b 15

Mar

15

Apr

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May

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Jun

15Ju

l 15

Aug

15

Sep

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16Fe

b 16

Mar

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Apr

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l 16

Aug

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16

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17Fe

b 17

Mar

17

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

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

0

50

100

150

200

250

300

350

400

Sep

14

Oct

14

Nov

14

Dec

14

Jan

15Fe

b 15

Mar

15

Apr

15

May

15

Jun

15Ju

l 15

Aug

15

Sep

15

Oct

15

Nov

15

Dec

15

Jan

16Fe

b 16

Mar

16

Apr

16

May

16

Jun

16Ju

l 16

Aug

16

Sep

16

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16

Nov

16

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16

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17Fe

b 17

Mar

17

S$/

mm

btu

S$

/ MW

h

WEP Vesting Price LNG Price

Source: EMC, Wood Mackenzie

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0

20

40

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100

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140

160

180

200

2010 2013 2016 2019 2022 2025 2028 2031 2034

US$

/ M

Wh


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

0

20

40

60

80

100

120

140

160

180

200

0 5,000 10,000 15,000

US$

/MW

h

MW


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

0.5

1

1.5

2

2.5

3

3.5

4

Mill

ion


0

2

4

6

8

10

12

Sep

-09

Jan-

10M

ay-1

0S

ep-1

0Ja

n-11

May

-11

Sep

-11

Jan-

12M

ay-1

2S

ep-1

2Ja

n-13

May

-13

Sep

-13

Jan-

14M

ay-1

4S

ep-1

4Ja

n-15

May

-15

Sep

-15

Jan-

16M

ay-1

6S

ep-1

6

Perc

enta

ge

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



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



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

E [email protected]

T +65 6518 0857

Dr. Bikal Pokharel

woodmac.com 30

Disclaimer

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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is coal still king in south east asia? photos/ppts... · naturally along the energy value chain to...

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