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MACRO ENVIRONMENT ANALYSIS

2.1 INTRODUCTION

For analyzing the Macro Environment of the selected Industry which is

Power, we have considered using S.P.E.N.T Analysis as a tool. The brief

explanation of the said analysis is as follows

S.P.E.N.T

‘S’ - Analysis of Social and Cultural Environment of the Industry

‘P’ - Analysis of Political and Legal Environment of the Industry

‘E’ - Analysis of Economic Environment of the Industry

‘N’ - Analysis of the Natural Environment of the Industry

‘T’ - Analysis of the Technological Environment of the Industry

2.2 SOCIAL & CULTURAL ENVIRONMENT

Ever since the environmental concerns were raised about 6 decades ago,

there has been steady increase of opposition to conventional energy sources

and increasing demand of clean energy sources.

The famous Kyoto Protocol which was adopted in Kyoto, Japan on 11th

December 1997 was built strongly on a premise that

a) Global Warming Exists

b) Man-Made Co2 emissions have caused it

This was a significant step because until Kyoto Protocol there had been wide

debate about whether man made Co2 emissions is indeed responsible for

the Global warming, the Kyoto Protocol hit the nail in the coffin of this

debate.

Although Kyoto protocol seemed to be a significant step in curtailing Co2

emissions, it was termed as “Failure” mainly because the overall Co2

emissions of the world was not cut down but instead raised. See the Fig 2-1

and Fig 2-2

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*Source – www.theguardian.com

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The raise in emissions in spite of Kyoto Protocol can be mainly attributed to

growth in China which cannot be prevented given the reasoning from

developing nations. This is particularly a key aspect to be paid attention

because the coming decade would see much more development in big chunk

of Asia which includes India and SE Asia.

Kyoto Protocol signifies the first step taken towards combating climate

change, the failure of which triggered a more ambitious step which

eventually culminated in the sign of COP21 Paris Agreement.

COP21 is widely regarded now as the real agreement with some teeth to

combat climate change, there are a few notable points in COP21 which made

it gain such fanfare

(i) First of all, the countries are required to come up with their own

Intended Nationally Determined Contributions (INDC) which was later

discussed, negotiated and once signed, the country is expected to

reach the target

(ii) Mandatory Review of the progress of policies and action taken by

countries to meet their INDC at regular intervals

Here is an excerpt from www.theguardian.com

“The greenhouse gas reduction promises made in COP21 by 187 countries in Paris – even if they

are kept (and that’s a very big if) would result in warming of between 2.7 and 3.5C. Almost 1C of

warming is already locked in. To get to 1.5C most scientists think the world would have to suck

back greenhouse emissions already in the atmosphere, using processes that remain uncertain”.

The real goal of COP21 is to form a framework for limiting the global warming

to 2°C. The interesting fact is that there are so many island nations including

some low lying countries such as Indonesia, Bangladesh, Philippines and

Vietnam are running a campaign to limit the global warming to 1.5°C.

Long story short, it is already late for implementing preventive actions and

whatever steps taken now is for corrective action & limiting the damage. It

will only get worse and worse as years go by leading to stricter and stricter

rules for limiting carbon emissions.

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These stricter rules is already evidenced by increased taxation to utilizing

coal even in developing nations such as India which has doubled the coal tax

continuously for the past 2 years.

The whole social environment is good for renewable energy sector,

particularly solar because of the following

Estimated energy demand by 2050 – Population 10 Billion – (30-60 TW)

Renewable sources except solar

World’s Hydropower resources – 4.6 TW

World’s Wind energy resources – 4.0 TW

World’s Biomass energy resources – 7.0 TW

World’s Tidal current resources – 2.0 TW

World’s Geothermal resources – 12.0 TW

Mineable resources – 0.9 TW

Total – 30.5 TW

Solar energy – 600 TW (available)

The math is quite simple, Solar energy will play a very important role in

combating climate change even if we take into account all the other

resources available.

The only possible alternative to solar energy at present seems to be Nuclear

but it has its own sets of problems and if we have to make the world 100%

nuclear powered by 2050, then we would have to build 2 Nuclear plants of

1000 MW size somewhere on this planet starting today, every day for the

next 34 years.

No other breakthrough technology even comes close to the energy

requirement. Considering all of this, we can safety assume that this is a very

positive sign for solar industry which will only become better and better in

the future.

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2.3 POLITICAL & LEGAL ENVIRONMENT

Thailand is one of the developing nations in the SE Asia. As this study is about

a sustainable business plan in Thailand, study of political & legal environment

of Thailand is undertaken.

Thailand’s total solar energy in 2008 accounted for less than 2 MW of total

installed capacity. Today, in the year 2016, the total capacity reached is 93.22

MW, cumulative growth of 4661% in 8 years. This tremendous pace was

achieved mainly because of variety of policies supported by the Thai

government. Some of them are listed below

Policies setting the Feed in Tariffs in 2013 for solar rooftop systems at

a rate higher than normal retail rates

Updated Alternative Energy Development Plan (AEDP) in 2015 to fix

new FIT rates for solar rooftop installations for 25 years

National Reform Council (NRC) reviewing possibility of implementing

‘Net Metering’ scheme

Exempting Solar PV roof tops that generate power under 1 MW from

factory licenses.

Energy Conservation & Promotion Act (ENCON) fund and Energy

Service Companies (ESCO) fund allocation to stimulate investment in

solar roof tops

60% of the total energy consumption in Thailand originates from the import of fossil fuels,

Alternative Energy in Thailand which includes solar, wind, biomass, hydro etc., accounts for nearly

12% at 7,400 MW. This share is planned to be increased to 20% by 2036 up to 19,684 MW in which

solar will play a key part.

*Source: Thailand board of investment – Investment review Jan 2016

The present feed – in tariffs for solar power is at an impressive 6.85 THB per

kwhr paid out over a period of 25 years compared with average feed in tariff

for conventional power sources at THB 4.15 per kwhr.

New policies and framework are also being adapted which includes making

Energy Service Companies (ESCO) eligible under ‘A1’ category investment

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which gives 8 years corporate income tax exemption and exemption of

import duty on machinery.

Thailand is presently leading by example in SE Asia as regard to solar power

evidenced by the fact that as on end of 2015, Thailand has more solar power

than all the rest of Southeast Asia combined.

The best political situation among SE Asia right now is in Thailand for

investment in Solar. There are few more strides to take which hopefully may

happen in the future such as taxing the carbon polluters (Conventional

Power Plants) so that the cost of polluting will be added to their energy cost

which will bring even more feasibility for Solar power.

The constraint is the grant of Power Purchase Agreement (PPA) from the

Government which is controlled. Depending on the policy, requirement &

number of other factors, Thai government opens the window for authorizing

the PPA and after issuing a round of permits, it is closed again. There are also

added constraints of quota limit, area, too short time frame etc. However,

even with all these constraints, commercial roof-top solar has exceeded the

targeted capacity while residential roof-top solar did not get enough

investors and was lingering at 30% of target capacity by the year 2015.

The recently proposed ‘Quick Win’ proposal for Solar PV roof-tops aims to

do away with all the restrictions imposed on time frame, quota limit, area

etc., so that individual house owners, commercial building operators can be

their own power producer and seller through Net metering system. This

policy is pending approval from Cabinet and once it gets approved, real

growth in roof-top solar in Thailand can be seen.

It is not a question of whether ‘Quick Win’ proposal will get approved, it is

just a question of when and how the regulations will be formed. In any case,

it is guaranteed that Thai Solar Roof-Top market will see growth in the future.

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If the electricity generated from Solar is not sold to the Government and used

internally, there are no regulations & restrictions however such a system is

not feasible for the general public.

While one might say that the regulations & government support in Thailand

is much better than other SE Asian countries, it still has a long way to go to

make the solar market truly explode and become main stream. Given the

external environment and added international pressure in the future,

hopefully these rules will become even more supportive for solar. As of now,

the political & legal environment is moderately in favor of solar expected to

become completely in favor of solar in the future.

2.4 ECONOMIC ENVIRONMENT

Thailand’s GDG per capita stands at US $ 5,426 which generally refers to a

country with fairly good purchasing power when it comes to basic amenities

such as Food, Electricity, Water & Clothing.

The standard purchasing rate of electricity ranges from THB 3 – THB 8 even

for residential areas. Government subsidizes electricity for rural areas and

for specific uses such as farming etc.

In the long term, Thailand is an important member of ASEAN (Association of

South East Asian Nations), a 10-member nation association which includes

Indonesia, Malaysia, Philippines, Singapore, Thailand, Brunei, Cambodia,

Laos, Myanmar and Vietnam. The different FTA’s planned among these 10-

member nation will facilitate in increasing the GDP of Thailand substantially

given it’s close proximity to Laos & Myanmar, two important markets with

room for good growth in future.

The economic environment of Thailand can be classified as favorable for

solar industry considering the present GDP per capita and expected growth

in the future.

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2.5 NATURAL ENVIRONMENT

Thailand is located near the equator which means the sun irradiation levels

reaching the surface of Thailand will be relatively stable when compared with

the countries which are located away from the equator.

Furthermore, as Thailand is located near the equator, it naturally gets more

solar irradiation when compared with most other countries. This gives

Thailand a natural favorable factor of condition for Solar power.

The Figure 2-3 shows the solar irradiation levels in the world map and the

Figure 2-4 shows Thailand solar irradiation levels.

As can be seen in the maps, Thailand has much better potential for Solar

power than most of the developed nations including US, EU, Japan.

Generally, Thailand has been a country with not many natural disasters as

well and the country’s agricultural capability is an example of richness of

Thailand in terms of Natural environment.

The location of Thailand in the middle of ASEAN also is an added advantage

as they can easily extend their reach towards some of the major markets in

SE Asia such as Myanmar, Cambodia, Laos etc.,

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Fig 2-3 – Solar irradiation levels World map

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Fig 2-4 – Thailand Solar irradiation levels

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2.6 TECHNOLOGICAL ENVIRONMENT

PV Cells

Solar PV cells have come a long way since 1960s when it first had a

considerable price cut which making it feasible for space applications. Using

solar cells for commercial use was still a very long shot because the

technology was very expensive.

Over a period of few decades, the solar cell efficiency reached 10% by 1990

compared with 2% in 1960s. This improvement spurred more interest in PV

cells, resulting in more investment, more innovation which accelerated the

efficiency growth.

The latest PV cell recorded efficiency made available for commercial market

stands at 22% (By Panasonic), common residential solar panels have reached

14-16% efficiency. The solar panels for space has peaked to reach near 48%

efficiency. Figure 2-5 shows the PV cell efficiency growth by various

companies over the years.

In Thailand, about 10 – 15 years back, Solar projects were operated at a

special tariff from the Government of THB 18-20 per unit. Presently, this has

reduced to THB 6.85 per unit which shows clearly the level of technological

improvement, cost reduction achieved in the Industry which as invariably

made Solar projects feasible at 1/3rd the cost expected to incur 15 years back.

There is still room for improvement and solar PV cells are expected to

continuously improve over the next few decades. If the commercially

available PV cells reach an efficiency of 30% at the same cost, it will open the

flood gates as Solar power would be the cheapest form of electricity without

any subsidies.

Various technological improvements are already underway such as Quantum

dot cells, Thin Film Technologies etc., in addition to that the module

arrangement has also dramatically improved with Concentrated solar power

technology, Parabolic solar power, Solar to Thermal energy modules etc.,

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Overall, the PV Cell technology seem to have reached a scale which enables

them to compete with conventional sources of electricity with little support.

The increasing investments in research of PV cells by major companies is

creating a virtuous cycle where more efficiency is expected to be achieved

soon which in turn will spur more investments.

Energy Storage

Energy storage is the ‘Holy Grail’ of Solar Industry because one of the most

severe constraint in utilizing solar energy is the fluctuation in energy

production from day to night, from season to season, from one minute to

the next.

Due to this fluctuating nature of solar energy production, Countries cannot

afford to go 100% solar yet because the necessary energy storage is not

available. In fact, Countries cannot go beyond 25% penetration level in the

total energy mix because this in itself will create issues such as production of

excess electricity at certain times which cannot be used, this kills the ROI of

the project making it less feasible.

It is in this context, Energy Storage is becoming a most critical issue. Recent

developments in Mobile & Laptop technology has spurred the innovation in

Lithium-Ion batteries making it cheaper and more capable as each year

passes by. Traditional energy storage batteries are Lead-Acid type which is

not suitable for Utility scale storage considering weight, cost and other

factors.

On the other hand, Lithium-Ion batteries assembled in modules and

arranged in a 40’ container are becoming more and more feasible for utility

scale energy storage. Samsung, Siemens, Tesla Energy are few of the big

companies who have entered into Lithium-Ion battery production sensing

the growth in this market in future.

With or Without Solar, Lithium-Ion batteries have a unique selling point of

their own as they would help the electricity distributors easily stabilize the

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grid and also provide feasible emergency backup. Considering the fluctuation

in solar energy production, Li-ion batteries is the much needed catalyst to

quicken the transition to carbon-free economy.

Siemens has already deployed pilot scale Li-ion battery storage in Germany

whereas Samsung plans to deploy similar package for commercial sales by

second quarter of 2016. Tesla Energy has already deployed residential

battery storage package aimed at revolutionizing residential solar market in

US. It is expected that in the next Five (5) years, there will be substantial

development in Energy storage market which will lead to more interest in

Solar industry.

Apart from Li-ion battery storage, there are other technologies as well which

is gaining traction such as using excess electricity to generate Hydrogen from

water through electrolysis and using that Hydrogen during low energy

production in Fuel cells to compensate. This combination is widely

popularized by Japanese auto makers, particularly Honda & Toyota who are

pioneers in Fuel Cell Automobiles, the idea is to use Solar energy as not only

the substitute for normal electricity use but to use it as transportation fuel

as well.

A slight modification to the above mentioned idea is implemented in Europe

by Power to Gas consortium (refer www.powertogas.info), the idea is same

as above until producing Hydrogen, instead of using Hydrogen in fuel cells,

the idea is to mix hydrogen with carbon dioxide in the atmosphere to

produce Methane (CH4) and supply it through the already established

Natural Gas grid to operate conventional power plant. This technology

addresses all issues including utilization of existing infrastructure to the

fullest.

It can be concluded that overall Technological environment is definitely in

favor of Solar Industry.

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Fig 2-5 – Solar Cell efficiency time scale