Southeast Asia is blessed with a favourable topology for hydropower development, and an estimated 6.8 GW of power can be generated by the development of small-hydro power (SHP) projects alone. While the majority of the countries in the region have been harnessing SHP for the past two decades, significant potential continues to remain untapped with only 1.25 GW installed so far. The attention towards the segment has been renewed in the recent past, especially in countries like Indonesia and the Philippines, with the announcement of the feed-in tariff (FiT) mechanism for SHP projects.
The development of SHP projects represents a significant opportunity for Southeast Asian countries to bring power to some of the 110 million people in the region who lack access to electricity. SHP is a mature renewable technology that can be easily constructed, operated and maintained locally. It also has the lowest generation cost among all off-grid renewable generation technologies, making it particularly suitable for electrification of remote areas.
Capacity development
Vietnam, Thailand and the Philippines together account for over 80 per cent of the region’s installed SHP capacity against a potential of 72 per cent, considering projects of up to a 10 MW size. Vietnam leads with an installed capacity of about 622 MW according to the World Small Hydropower Development Report 2013 of the United Nations Industrial Development Organization (UNIDO) and the International Center on Small Hydro Power. Small-hydro development has been particularly high in the country in recent years, with capacity increasing from 167 MW in 2006 to over 1.25 GW currently. Despite the growth, a significant potential of almost 28 per cent still remains untapped in Vietnam.
The second highest SHP capacity of 248 MW is installed in the Philippines, representing only 13 per cent of the country’s assessed potential of 1,876 MW. The entire installed SHP capacity in the country is privately developed. In contrast, SHP projects in Thailand, aggregating a capacity of 146 MW, which is the third highest in the region, are owned and developed primarily by the government through the Department of Alternative Energy Development and the Electricity Generating Authority of Thailand.
Indonesia also has significant unexplored SHP capacity with only 99 MW installed against an estimated potential of 1,267 MW. This is despite the fact that the country was among the first in the region to design policies to promote the SHP segment in the early 1990s. Malaysia, which a much lower SHP potential of 116 MW, has already utilised three-fourths of it. It is expected that the country will fully exhaust its rivers and waterways for SHP generation by 2020.
Significant SHP potential of 300 MW exists in Cambodia, almost all of which remains unutilised. Myanmar and Lao PDR have comparatively lower SHP potential, of 167 MW and 50 MW respectively. However, SHP can play a significant role in the development of microgrids to achieve small village electrification in both countries.
Policy push
The SHP segment in Southeast Asia is promoted under either an overall power sector development plan or a dedicated renewable energy development plan. The target is to harness the SHP potential to scale up electricity access, especially in rural areas, through greater private sector participation.
To encourage greater private participation in the SHP segment, the Indonesian government passed a regulation in May 2014 to introduce FiT for hydropower projects of up to 10 MW installed capacity. The tariffs vary depending on the location and capacity of projects and declines by around 30 to 40 per cent after the ninth year of generation. The regulation was further amended in August 2014 to expand the applicability of FiT to mini-hydropower projects utilising multi-purpose dams and/or irrigation channel water resources. The regulation allows for the one-off tariff adjustment for existing projects. It has also introduced new procedures for the purchase of power from SHP projects by the state-owned power utility, PT Perusahaan Listrik Negara (PLN).
With the FiT regulations, the Indonesian SHP segment has become one of the most attractive renewable energy sectors in Southeast Asia. For instance, global clean energy asset manager Armstrong Asset Management has agreed to invest up to $22.5 million for the construction of mini-hydropower projects aggregating 50 MW proposed by PT Inti Duta Energi.
Thailand, which introduced the FiT system for solar power projects in August 2014, is now considering extending the system to other renewable energy sources including wind, SHP and biomass-based power projects. The October 2014 National Energy Policy Council (NEPC) had acknowledged, in principle, a change in the tariff allowance for very small power producer (VSPP) projects from the “adder” to the FiT system.
The Philippines government also announced financial incentives for renewable energy investors in the form of FiT in August 2012. The tariffs approved by the Energy Regulatory Commission for run-of-the-river hydropower projects stood at PhP 5.9 per kWh, and are applicable for three years. Besides, SHP investors in the Philippines are also entitled to various fiscal incentives under the Renewable Energy Act, 2008. The act also provides for the establishment of renewable portfolio standards, which will provide a much-needed demand push to the renewable energy market.
In the absence of an FiT scheme, Vietnam incentivises private investments in SHP projects through the avoided cost tariff regulation, which is applicable to all small-scale renewable energy projects of up to 30 MW capacity. The avoided cost is defined as the production cost per kWh of the most expensive power generating unit in the national grid, which would be avoided if the buyer purchases 1 kWh of electricity from a substitute small renewable energy power plant.
The policy push for SHP has also been designed by countries to support the development of off-grid installations to increase rural electrification. For instance, the Alternative Energy Development Plan 2012-2021 of Thailand aims to generate off-grid hydropower at the village level for non-electrified households and support construction of hydropower plant projects at the community level, allowing local administrative organisations or local people to collaborate as project owners. In Lao PDR, the government’s initial focus while developing policy for off-grid rural electrification was on the introduction of solar home systems; however, it later decided to also include SHP systems.
External support
Small-hydro development in Southeast Asia has received extensive multilateral and bilateral support. For instance, Germany has been instrumental in developing mini-hydropower projects in Indonesia. Deutsche Gesellschaft für Internationale Zusammenarbeit GmbH (GIZ) collaborated with the Directorate General of Electricity and Energy Utilisation and the Ministry of Energy and Mineral Resources in the early 1990s to establish a cooperative called the Mini Hydro Power Project (MHPP).
In its first phase of implementation, during 1991-96, MHPP focused on the introduction of technology to individuals and local institutions already active in micro hydropower project development. In the second phase, during 1999-2002, the scope of the project was broadened to include policy dialogue, scaling up of technology packages, and improving operation and management. Since 2006, the MHPP has been scaled up to further enhance sustainable access to energy in rural Indonesia as part of the global Energising Development Programme (EnDev).
In Lao PDR, there are several ongoing funding programmes by international donors to develop pico-hydropower capacity (projects of under 5 kW capacity). The Japan International Cooperation Agency (JICA) is currently engaged in developing a Master Plan Study on Small Hydropower for the Northern Part of Lao PDR with the Ministry of Energy and Mines. In the past, Netherlands-based not-for-profit organisation ETC Energy had supported the Laos Institute for Renewable Energy (LIRE) to conduct a Pico-Hydropower Innovation and Capacity Building Programme. Another pico-hydropower development programme of LIRE was supported by the Bremen Overseas Development Association and the German embassy.
Multilateral banks have also been supporting the development of SHP projects in the region. JICA in March 2014 announced funding support for 17 mini-hydropower projects in the Philippines. In December 2013, the World Bank extended a $202 million credit to Vietnam to construct nine new SHP plants. The Asian Development Bank had in October 2010 extended $600 million as technical assistance to small and mini hydroelectric development projects in Lao PDR. Funding support from multilateral banks has been especially crucial given the limited investment ability of local governments.
Growth barriers
Despite the support, the development of SHP projects in Southeast Asia has been slow. The policy structure existing in the region is insufficient to support aggressive renewable energy growth. Progress is further bogged down by bureaucratic issues, and institutional and regulatory complexities. Additionally, an updated and easily accessible inventory of basic data on maps, surveys, hydrology, and geology of potential sites is generally missing. Investors also find it frustrating to deal with lack of standard procedures and technical codes.
Recent developments in Vietnam provide an example of the adverse effect that lack of clarity can have on the progress of the SHP segment. In August 2014, the country’s Ministry of Industry and Trade scrapped 12 planned SHP projects in Dien Bien, Quang Ngai and Kon Tum provinces. This increased the total count of scrapped SHP projects in the country to 415. In December 2014, it was reported that government inspectors recommended cancellation of another 31 SHP projects in Gia Lai province. The government’s decision was based on a post-allocation survey and inspection of allocated sites and was attributed to the low economic benefits and high social and environmental risks associated with the projects.
SHP developers in Vietnam, like other countries in the region, are mainly small private firms with poor understanding of the geological issues involved. Consultants, advisory agencies and construction crews hired also have limited experience. Given this, developers often make adjustments to design and capacity parameters during the construction phase without seeking permission from the relevant authorities. This is viewed as a violation of procedures. On the economic front, vast amounts of forests are cut down for SHP development. Compensation for the acquired land is slow to arrive due to the poor financial capacity of small investors. The surge in hydropower development in the country over the past decade is also often blamed for a wide range of environmental problems including flooding, earthquakes, forest loss and ecological destruction.
These issues highlight the need for proper planning and procedural clarity in promoting SHP development. In-depth pre-investment planning is indispensable. Studies have demonstrated that the cumulative impact of SHP projects concentrated in a single basin can actually outweigh those of larger dams. Construction practices and the quality of environmental impact assessments in the SHP segment need to be strengthened. On the government’s part, the requirements for environmental assessment as well as construction monitoring need to be clearly defined in legislation. Besides, capacity building is needed to boost technical and institutional project implementation capabilities. Local equipment manufacturing capabilities also need to be strengthened to not only reduce project costs but also to improve the availability of spare parts.
Another major challenge that needs attention is the financing barrier faced by SHP developers. Institutional and corporate investors often find it more attractive to invest in large hydropower projects as SHP projects provide lesser commercial opportunities. Despite the technology being mature, financial institutions are still prone to overestimating risks leading to higher lending rates.
Grid connectivity is another major challenge faced by developers as the cost of network development in mountainous areas, where most economically viable SHP sites are located, is often prohibitive. Governments need to develop buy-back mechanisms to support investments in off-grid SHP projects. At present, investments are being undermined by prospects of a future grid expansion to remote areas that could potentially make off-grid SHP installations non-competitive.
Conclusion
Southeast Asian countries cannot avoid investments in fossil fuel-based power generation, given the region’s expanding demand. However, the development of renewable energy sources like SHP will not only help complement such investments and help mitigate climate change, it will also help improve rural electrification. It is, therefore, necessary to speed up capacity addition in the segment by defining aggressive targets and designing appropriate policies. At the same time, it is equally critical to make cautious investment decisions as the adverse environmental impact of a poorly selected and designed project cannot be overstated. In general, the future of SHP in Southeast Asia looks promising.
