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close this bookThe Global Greenhouse Regime. Who Pays? (UNU, 1993, 382 p.)
close this folderPart III National greenhouse gas reduction cost curves
close this folder11 Thailand's demand side management initiative: a practical response to global warming
View the document(introduction...)
View the documentIntroduction
View the documentEnd-use energy efficiency policies
View the documentCosts and benefits of the DSM master plan
View the documentCO2 reductions from the DSM Plan
View the documentWhy should other developing countries adopt DSM?
View the documentThe role of the multilateral development banks
View the documentConclusions
View the documentReferences

End-use energy efficiency policies

Considerable scope exists to improve end use efficiency in Thailand's energy consumption. Recent studies have estimated that, in the power sector alone, efficiency improvements could reduce the projected growth in demand by 2535 per cent over the next decade (Monenco 1991, IIEC 1990). Similar improvements can be made in thermal (non-electric) energy use in factories, but this area has not been adequately studied.

Thailand is currently pursuing two main initiatives to improve end-use energy efficiency: an energy conservation law and a utility-run demand side management (DSM) programme.

The Energy Conservation Promotion Act

The National Assembly passed Thailand's first-ever energy conservation law in February 1992. The Energy Conservation Promotion Act gives the Department of Energy Affairs (DEA, formerly the National Energy Administration), the power to issue an energy code for new buildings. Initially, the code will be voluntary, and developers of new buildings will be encouraged to abide by it. The code will establish minimum performance levels for the insulating properties of building materials and glazing, and will recommend levels of lighting and energy intensity.


Figure 11.4 Thailand's electricity production by fuel type, 1997 and 2006

At the same time, the law will require the owners of large buildings and factories (with power demand of more than 2,000 kW) to appoint an energy conservation manager and to submit a comprehensive energy management plan to DEA. The owners will have three years to submit the plan; if they fail to do so, they will receive a surcharge on their electric bill. In its initial stage the requirement to submit an energy conservation plan will apply to 220 large industrial facilities and 60 buildings.

The Energy Conservation Promotion Act also empowers DEA to establish minimum efficiency standards for electric appliances and energy-consuming equipment. It is likely that these standards will be coordinated with the efforts of the Thailand DSM Office to set minimum energy efficiency requirements for its various programmes.

Finally, the law also establishes the Energy Conservation Promotion Fund, which will be available for energy conservation and renewable energy projects in all sectors. The cabinet has recommended that the initial amount in the fund be US$60 million. Thus there will be two major sources of funds for end-use efficiency projects in Thailand: the Energy Conservation Promotion Fund (for all sectors and fuel types) and the DSM programme, described below (for electricity measures).

The demand side management programme

In November 1991, the Thai government approved a five-year Demand Side Management Master Plan that will allocate US$188.5 million to the purchase of energy-efficient equipment in the commercial, industrial, and residential sectors. The plan calls for the three utilities (the Electricity Generating Authority of Thailand - EGAT, the Provincial Electricity Authority - PEA, and the Metropolitan Electricity Authority - MEA) to establish jointly a Demand Side Management Office, which will operate a comprehensive set of energy conservation programmes (Cherniack and du Pont, 1991).

Both the Energy Conservation Promotion Act and the DSM Master Plan will bring about efficiency increases in all sectors and help to reduce Thailand's CO2 emissions substantially. In the case of the DSM, no central government monies need to be allocated for the CO2 reduction measures, since the cost will be borne by utilities, just as they currently bear the cost of building power plants. The following section describes the principles of DSM, how it is being applied in Thailand, and the potential for reducing CO2 emissions from the power sector.

When it passed its DSM Master Plan in November 1991, Thailand became the first Asian country to incorporate energy efficiency formally into its power planning process. Top management at the Thai electric utilities, with some prodding from the National Energy Policy Council, decided to spend money to produce energy efficiency as a future resource for the electric power system. The Thai DSM initiative was inspired by a decade of experience with DSM at more than 500 American utilities. These utilities now spend US$1.2 billion annually, and have sponsored 1,400 different DSM programmes (see box).

The role of demand side management

International commitment is growing to sustainable development at the local and national levels in a wide variety of social and economic conditions. Three important criteria for establishing sustainable development in the power sector are efficiency in electricity generation, transmission and distribution; efficient use of electricity; and renewable energy resources, with emphasis on solar (thermal and photovoltaic), wind (mechanical and electrical) and biomass (small and large scale).

The major components of end-use efficiency in the power sector include the principles of integrated resource planning and demand side management. These principles are the fundamental basis for sustainable energy planning in the power sector.

Integrated resource planning (IRP) is an effort to fully integrate both supply and demand-side options into a utility system expansion plan that provides reliability, lowest total system cost, and acceptable levels of risk. It is a rational enhancement to the least-cost generation planning framework that has governed utility expansion planning worldwide for decades and been promoted by the Bank and other multilateral lenders. What distinguishes IRP from current power system supply planning is that conservation - the efficient end-use of electricity competes directly with generating resources for consideration in meeting a utility's future load growth requirements. Both supply and demand are considered formally in the utility planning and resource acquisition process. IRP can also be called least-cost utility planning (LCUP) since it describes the truly lowest cost system for meeting all electricity service needs in society.

Demand side management (DSM) can be defined as the systematic effort by the electric utility to influence the timing and magnitude of customer electricity use in order to optimize power system operation and planning. DSM includes tariff pricing mechanisms, load management techniques and increased efficiency in all end-uses of electricity. An integrated resource plan typically includes a comprehensive demand side management plan that is implemented by the utility to create the least-cost operation and expansion of the power system

Beginning in the United States in the early 1980s, electric utilities began the most advanced work in the world on developing demand side resource options for their electric power systems. In North America, where most DSM work to date has taken place, more than 500 utilities have sponsored DSM programmes; these included 1,000 programmes for residences and 400 programmes for commercial and industrial buildings.

Carbon dioxide emissions from electricity generation are exported to rise dramatically in the US during the next 20 years, increasing by 68 per cent between 1990 and 2010. As a share of emissions from fuel combustion, CO2 emissions from the power sector will rise from 31.5 per cent to 39.4 per cent during this period (Foruqui and Haites 1991). DSM programmes have the potential to reduce electricity use in the year 2010 by 20 per cent (Hirst 1991). They also have the potential to reduce projected emissions of CO2 from the power sector by up to 18 per cent (Faruqui and Haites 1991).

Because the cost of most energy conservation measures is typically less than the cost of building new power plants, the adoption of DSM measures by a utility actually saves money (that is, produces a net benefit). This means that the net cost of conserved carbon for DSM measures is negative in most cases. One US study estimated that about 23 per cent of US carbon emissions in 2010 could be eliminated at a negative cost of conserved carbon, and that up to 39 per cent of emissions could be eliminated if all the conservation measures were adopted. The most expensive of the conservation measures would have a net cost of conserved carbon of just US$43 per tonne of carbon (Atkinson et al. 1991).

In Table 11.1, we list the estimated programme costs and savings associated with the Thai DSM effort. These programmes will provide financial incentives for customers to purchase energy-efficient equipment. The utilities compare the cost of purchasing electricity savings to the cost of building new power plants. Only measures that cost less than the cost of building new generation capacity are included in the programmes. The average long-term cost of savings from all of the DSM programme measures is US$0.017/kWh (see Figure 11.5). When these costs are compared to EGAT's adjusted long-term cost of US$0.0621kWh (see below) to produce new electricity supply, it is clear that the least-cost investment for the utilities is in energy efficiency.

Thailand's five-year plan aims to save an estimated 238 megawatts (see Figure 11.5). Although this is a pioneering effort for an Asian utility, the US$188.5 million allocation represents just a small portion of the estimated US$36 billion that the Electricity Generating Authority of Thailand will need for its capacity expansion programme over the next decade (EGAT, 1992). In fact, capital constraints are one reason that EGAT stands to benefit from an aggressive DSM programme.


Figure 11.5 Thailand's power sector, 5-year DSM budget and demand savings

Table 11.1 Thailand's proposed demand side management programmes

Programme Peak savings
(MWp)
Energy saved
(GWh/yr)
Cost
($m)
CSE
(cts/kWh)
CAP
($/kW)
Lighting 133 677 101.0 2.2 759
Residential refrigerators 28 186 6.0 0.4 214
Residential air conditioning 23 117 3.0 0.3 130
Commercial programmes 15 180 12.0 0.8 800
Industrial motors 30 225 19.0 1.1 633
Contingency 9 42 11.5 3.6 1,278
Whole programme 238 1,427 188.5 1.7 792

Notes
EGAT estimate combining New Commercial Building Design Programme with Peak Shaving.
Whole programme budget includes laboratory and testing, consulting, training, programme administration, and public relations.

CSE (cost of saved energy - (CRF* DSM Cost)/(GWh/yr saved) EGAT LRMC = 4.2 cts/kWh
CAP (cost of avoided peak) - DSM cost/kWp saved EGAT new capacity = $1,500/kW

CRF = capital recovery factor

0.147 CRF lighting 0.117 CRF commercial
0.131 CRF refrig 0.131 CRF motors
0.131 CRF A/C 0.131 CRF contingency

Source: International Institute for Energy Conservation, 'Thailand: Promotion of Electricity Energy Efficiency. Final Report of Pre-investment Appraisal,' report to World Bank/Global Environment Facility & United Nations Development Programme, Bangkok, 1993.

On average, the DSM options outlined in the five-year Master Plan will provide MW savings at a cost of less than half the cost of building new capacity. The 238 MW is just the tip of Thailand's iceberg of efficiency potential, however. Studies conducted by various Thai agencies and outside consultants of Thailand's electricity end uses have identified an achievable DSM potential of at least 2,000 MW over the next decade (Monenco 1991, IIEC 1990). This represents nearly 20 per cent of EGAT's planned system expansion, which can be avoided at half the cost of new capacity. An aggressive, 10-year DSM effort to save 2,000 MW of peak demand would yield EGAT US$2.9 billion net savings in capital costs for system expansion (see Table 11.2).