Project Number: 44931-014 Investment Number: 7314 Loan Number: 2678 September 2016

Loan Bangchak Solar Power Project (Thailand)

This is the abbreviated version of the document that excludes commercially-sensitive and confidential business information that is subject to exceptions to disclosure set forth in ADB's Access to Information Policy.

Extended Annual Review Report

CURRENCY EQUIVALENTS Currency Unit - baht (B)

At Appraisal At Project Completion 1 September 2010 14 June 2016

B1.00 = $0.03 $0.03 $1.00 = B31.27 B35.19

ABBREVIATIONS

ADB – Asian Development Bank BCP – The Bangchak Petroleum Public Company BCPG – BCPG Public Co. Ltd. BSE – Bangchak Solar Energy Co. Ltd. CER – certified emission reduction CSR – corporate social responsibility DMC – developing member country EGAT – Electricity Generating Authority of Thailand MEA – Metropolitan Electricity Authority NEPC – National Energy Policy Council PEA – Provincial Electricity Authority PPA – power purchase agreement SPP – small power producer TA – technical assistance VSPP – very small power producer

WEIGHTS AND MEASURES

kW – kilowatt MW – megawatt GWh – gigawatt-hour

NOTES

(i) The fiscal year (FY) of The Bangchak Petroleum Public Company ends on

31 December.

(ii) In this report, "$" refers to US dollars.

Vice-President

S. Gupta, Private Sector and Cofinancing Operations

Director General M. Barrow, Private Sector Operations Department (PSOD) Director C. Roberts, Portfolio Management Division, PSOD

Team leader B. Garcia, Portfolio Management Division, PSOD Team members I. F. Aguilar, Transaction Support Division, PSOD

M. Manguiat, Transaction Support Division, PSOD K. Paocharoen, Office of the Director-General, PSOD A. Taneja, Portfolio Management Division, PSOD K. Taniguchi, Transaction Support Division, PSOD

In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

CONTENTS

Page

EXECUTIVE SUMMARY 6

A. Background 1 B. Project Features 1 C. Progress Highlights 3 A. Project Rationale and Objectives 4 B. Development Results 5 i. Contribution to Private Sector Development and ADB Strategic Development

Objectives 5 ii. Economic Performance 6 iii. Environmental, Social, Health, and Safety Performance 6 Overall, the project’s environmental, social, health, and safety performance is rated

partly satisfactory. 7 iv. Business Success 7 C. ADB’s Additionality 7 D. ADB Investment Profitability 8 E. ADB Work Quality 8

APPENDIXES 1. Project-Related Data 9 2. Results and Ratings for Project Contributions to Private Sector Development and ADB

Strategic Development Objectives—Infrastructure 10 3. Industry and Operations Review 11

BASIC DATA Bangchak Solar Power Project (LN2678/E7314 THA)

Investee: The Bangchak Petroleum Public Co. Ltd. (BCP) Unfunded risk participant: Mizuho Corporate Bank Limited (Mizuho) Key Dates Expected Actual Screening Aug 2010 Appraisal Aug 2010 Preliminary investment negotiations Aug/Sep 2010 Board approval Oct 2010 Final negotiations and investment agreements

2010 Oct 2010

Investment project completion 2012 Jan 2012 Extended annual monitoring report 2016 2016

Project Administration and Monitoring No. of Missions No. of Person-

Days Fact-finding mission Appraisal and negotiations Project administration XARR mission Others

1 3 1 1

NA

12 33 6 8

EIRR = economic internal rate of return, FIRR = financial internal rate of return, NA = not applicable, XARR = extended annual review report

EXECUTIVE SUMMARY

1. In July 2009, the Board of Directors of the Asian Development Bank (ADB) approved a loan [CONFIDENTIAL INFORMATION DELETED] to The Bangchak Petroleum Public Company (BCP) for the construction of two solar power generation plants (the Bangchak Solar Power Project) at a single site next to BCP’s Bang Pa-in terminal facility and biodiesel plant in Ayutthaya Province of central Thailand. The ADB Board also approved capacity development technical assistance of up to $400,000 to support the implementation of carbon-neutral strategies of BCP and other private energy companies in developing member countries. 2. Thailand is one of the largest electricity consumers in Southeast Asia, and most of its energy is sourced from natural gas, coal, and lignite. One of the primary objectives of the Bangchak Solar Power Project was to diversify Thailand's energy mix by adding renewable energy capacity, helping the country achieve its target of 20.3% of primary commercial energy coming from alternative sources by 2022. Thailand was heavily dependent on imports as domestic demand for commercial primary energy outpaced the discovery of indigenous oil and gas. Since the country had abundant renewable energy sources—biomass, biogas, mini-hydro, solar, and wind—development of these domestic sources were expected to boost Thailand’s energy security, allow foreign exchange savings, and protect the country from global price fluctuations, especially in oil. The project was also expected to demonstrate the feasibility of a large-scale, privately operated solar power generation project.

3. The evaluation criteria used are based on Project Administration Instructions 6.07b on Extended Annual Review Reports for Nonsovereign Operations issued in July 2008. Thus the project was evaluated on the following dimensions: (i) development impacts and outcomes, (ii) ADB’s investment profitability, (iii) ADB work quality, and (iv) ADB’s additionality.

4. The development impact is rated satisfactory using four criteria: (i) contribution to private sector development and ADB strategic development objectives; (ii) economic performance; (iii) environmental, social, health, and safety performance; and (iv) business success.

5. The contribution to private sector development and ADB strategic development objectives is rated excellent. BCP succeeded in demonstrating the financial feasibility of a large-scale, privately operated solar power generation project. The project managed to increase supply of clean energy sourced from solar power.

6. BCP’s economic performance is rated excellent.

7. The project’s business success is rated satisfactory.

8. ADB’s additionality is rated excellent because its participation in one of the first solar projects in Thailand played a crucial role in helping the project secure appropriate long-term financing, which is a necessary condition for the viability of a solar project. The long-term local currency loan provided a loan that matches the project’s revenue currency, with a longer tenor at more favorable pricing. ADB's innovative risk participation structure also had a catalytic effect and showed the feasibility of the financing structure.

9. ADB’s investment profitability is rated excellent.

10. ADB’s work quality is rated excellent on the basis of (i) an excellent rating for screening, appraisal, and structuring of the project; and (ii) a satisfactory rating for monitoring and supervision. 11. Overall, ADB's involvement was crucial in achieving financial closure for a project that involved a relatively new technology with unproven financial viability at the time of investment. BCP serves today as a benchmark and model for solar power plants in Thailand. Although the project experienced construction delays because of a force majeure event, it recovered exceptionally well, and its cost was within the estimate of the report and recommendation of the President.

12. Key lessons are that (i) ADB’s innovative approach to meeting the borrower’s funding needs and encouraging other financial institutions to participate in financing private sector projects with developmental objectives was essential to the success of the project; (ii) having a stable regulatory environment helps attract private sector involvement in support of the government’s objective of diversifying the country’s energy sources; and (iii) a strong sponsor is valuable in achieving the demonstrational objective of the project.

THE PROJECT A. Background 1. In July 2009, the Board of Directors of the Asian Development Bank (ADB) approved a loan [CONFIDENTIAL INFORMATION DELETED] to The Bangchak Petroleum Public Company Limited (BCP), the sponsor and borrower, for the development of two solar power plants with a total gross capacity of 44.5 megawatts (MW), collectively referred to as the Bangchak Solar Power Project. [CONFIDENTIAL INFORMATION DELETED] The ADB Board also approved capacity development technical assistance (TA) of up to $400,000 to support the implementation of carbon-neutral strategies of BCP and other private energy companies in developing member countries (DMCs). 2. Thailand, being one of the largest electricity consumers in Southeast Asia, was looking to diversify its energy sources from mostly natural gas, coal, and lignite. The country had been relying on the importation of energy because discovery of indigenous oil and gas could not keep up with domestic demand for commercial primary energy. Over-reliance on natural gas coupled with the volatility of oil and gas prices magnified the country’s political and economic risks. 3. Recognizing the abundance of renewable energy sources such as solar, biomass, biogas, mini-hydro, solar, and wind in Thailand, the government had issued its Alternative Energy Development Plan (2008–2022),1 which set in motion its policy to diversify its energy mix and promote renewable energy resources. The target was for primary commercial energy from renewable energy sources to reach 20.3% (or 5,608 MW) by 2022. Of this renewable energy target, 500 MW was to come from solar energy (compared with 34 MW in 2007).

4. In parallel with the government’s plan to promote the development of renewable energy sources, the Ministry of Energy advocated decentralized power generation through (i) its small power producer (SPP) program for private developers to build, own, and operate 10 MW–90 MW power projects and enter into power purchase arrangements (PPAs) with the Electricity Generating Authority of Thailand (EGAT); and (ii) its very small power producer (VSPP) program for power projects of up to 10 MW to sell to the Metropolitan Electricity Authority (MEA) and the Provincial Electricity Authority (PEA). Renewable energy SPPs and VSPPs can receive incentives over standard tariff arrangements.

5. At the time of the project’s approval in 2010, a large number of small-scale solar power facilities already existed in Thailand, which provided energy to communities with no access to the national power grid. However, these plants were very small, unreliable, and often inefficient, and the cost of generation was generally high.2 The project was one of the first sizable solar power projects supported by ADB, and was expected to show the feasibility of large-scale, privately operated solar farms so that other private sector investors could replicate the model in Thailand and other DMCs.3

B. Project Features

1 Department of Alternative Energy Development and Efficiency. 2009. The Alternative Energy Development Plan

(2008–2022). Bangkok. 2 There were 32 grid-connected solar rooftop projects in total, with a generating capacity of 0.14 MW, and many small

off-grid solar VSPP projects producing a total of 32 MW. In addition, a few small solar farms, sponsored by EGAT and the private sector, have a generating capacity of less than 2.2 MW.

3 ADB also supported a 55 MW solar power plant project in Thailand’s Lopburi Province, which started commercial operations a few days earlier (in March 2012) than the commercial operations date of the project.

2

6. The project involved the construction of two solar power generation plants. Plant A has a gross capacity of 10 MW and is covered by a 5-year automatically renewable PPA with PEA under its VSPP program. Plant B has a gross capacity of 34.5 MW and is covered by a 5-year automatically renewable PPA with EGAT under its SPP program. EGAT and PEA purchase all energy outputs of the plants up to the maximum defined in the respective PPA, i.e., 30 MW and 8 MW. Plants A and B are both on a single site next to BCP’s Bang Pa-in terminal facility and biodiesel plant in Ayutthaya Province in central Thailand. The site consists of about 77 hectares of relatively flat land. 7. The borrower and sponsor, BCP, is a leading integrated oil-refining and marketing company in Thailand. It was established in 1985 and is listed on the Thai stock exchange with market capitalization of roughly B45 billion (as of 30 December 2015). At the time of project approval, BCP’s major shareholders were the national oil company PTT Public Company Limited (formerly Petroleum Authority of Thailand), which owned 29.7%; the Ministry of Finance (11.2%), and the public (59.1%). In May 2015, PTT divested its shares to Vayupak Fund 1 and the Social Security Office, making them and the Ministry of Finance (with a 9.98% share) the three largest shareholders of BCP. 8. BCP used multicrystalline photovoltaic technology produced by Wuxi Suntech PCL (Suntech). Suntech, in a consortium with local contractor Solartron Public Co. Ltd., performed under a date-certain, fixed-price engineering, procurement, and construction contract with liquidated damages for non-timely completion and performance warranty for the photovoltaic modules. PB Power Inc. acted as the owner’s engineer and project management consultant through completion.

9. ADB’s assistance played a crucial role in helping the project secure appropriate long-term financing, which is a prerequisite for the viability of a solar project. ADB encouraged participation in the loan by Japan’s Mizuho Corporate Bank Limited by providing credit enhancements and allowing Mizuho to exit before the end of the ADB loan tenor.4 The unfunded structure was a pioneering initiative for ADB’s private sector operations, allowing ADB to extend the tenor of the financing in a young industry sector where banks had been reluctant to take longer-term risks, while providing cost-effective funding to the borrower. Access to long-term funding was a serious limitation for larger-scale solar photovoltaic projects, which typically had high upfront construction costs and long payback periods. ADB’s facility and structuring helped mitigate that limitation.

10. To provide local currency financing, ADB entered into a local currency swap to match the currency of the project’s revenues. The long-term local currency loan and the proposed pre-financed certified emission reductions (CERs) helped boost the viability of a power generation plant that has high upfront investment costs but no fuel cost. ADB entered into the local currency swap transaction, effectively allowing the borrower to benefit from ADB’s AAA credit rating. ADB was able to pass on its lower funding cost to the borrower and succeeded in executing a swap

4 Mizuho participated in the financing of the loan through an unfunded risk participation (URP) arrangement. URPs

enable ADB to transfer risk and to share returns and any associated recovery rights with respect to a loan provided by ADB with one or more risk participants (typically commercial banks). URPs enjoy the same privileges and immunities as ADB’s A loans. Under the project’s 15-year loan agreement, Mizuho assumed the first 7 years of Facility B, which translates into a large portion of the medium-term risk on the baht-denominated loan. By the end of year 7 until the loan’s final maturity, the credit risk reverts back to ADB.

3

transaction that had a longer tenor and a larger amount than what the borrower could likely have achieved at the time.5

11. The associated capacity development TA (para. 1) helped strengthen the managerial and governance capability of BCP as it made the transition from a fossil-based to a carbon-neutral business model. The TA also organized a workshop to build the capacity of other energy companies in Thailand and the region by raising awareness of the long-term benefits of a low-carbon corporate strategy, and it disseminated knowledge and best practice guidelines for tracking and abating emissions. The work under the TA was completed in December 2012.

C. Progress Highlights 12. Project construction began on 16 August 2010 and targeted completion within 1 year. The main infrastructure involved about 157,200 polycrystalline photovoltaic panels, estimated to have a life cycle of 25 years. The project also involved installation of 31 stations, 65 DC-AC inverters, one substation, two control buildings, and 35 transformer sets of various specifications. The surrounding site infrastructure consists of flood protection dikes and drainage ditches, drainage pumps, a strategically located stormwater retention basin, and inspection roads. Plant A was commissioned on 5 August 2011, while Plant B was targeted for commissioning in the fourth quarter of 2011. 13. In October 2011, Thailand experienced one of its heaviest monsoon rains in several decades, which resulted in severe flooding, particularly in Ayutthaya Province, causing damage to the project. Plant A temporarily ceased operations and Plant B, still under construction at the time, could not continue construction until the flooding was under control. Rehabilitation began in November 2011, when the water was pumped out and the site was cleared of damaged solar panels and equipment. All installed panels and inverters had to be replaced, while new panels and inverters were installed from March 2012. Plant A resumed commercial operations on 2 April 2012, and Plant B started commercial operations on 16 July 2012.

14. The flooding had a bad impact on the project; delaying construction and start of commercial operations for plant B by about 6 months (Plant A was completed on time in August 2011).

15. Borrower expansion in renewable energy. At the time of loan processing, BCP and ADB considered the possibility of BCP increasing its involvement in renewable energy and subsequently disposing its power assets to a wholly owned or majority-owned subsidiary of BCP. In July 2015, BCP started pursuing this plan to spin off its renewable power business to a new subsidiary, BCPG Public Company Limited (BCPG). BCP expected to create synergy in its business operations and gain access to more funding with the proposed plan, since BCPG would subsequently be listed on the Thailand Stock Exchange (target: second half of 2016). In December 2015, BCP transferred the project assets, and six other subsidiaries that own BCP’s other solar assets, to BCPG.6 BCPG also recently acquired the entire solar energy business of

5 At the time of the report and recommendation of the President, BCP was rated BBB+/positive by TRIS (local credit

rating agency). This rating has since improved to A/stable (November 2015). The borrower is rated NSO5 (ORR) and NSO7 (FRR) under ADB’s credit rating scale, but is not rated by any of the major international credit rating agencies.

6 The borrower often refers to the project as “phase 1” of its internal solar energy program. Phase 2 refers to the 16 MW Bamnet Narong project in Chaiyaphum and 16 MW Bang Pa-hun project in Ayutthaya, while Phase 3 refers to five projects totaling 48 MW in northeastern Thailand (Prakhonchai, Nong Ki in Buriram, Dan Khun Thot in Nakornratchasima, Hua-Ta-Lay in Chaiyaphum, and Prachinburi).

4

SunEdison in Japan, increasing BCPG’s solar energy gross capacity to around 400 MW and making the BCP group one of the largest solar energy players in the region. Notwithstanding the aforementioned developments, BCP still remains the borrower for the project.

I. EVALUATION

A. Project Rationale and Objectives

16. BCP was well known for its initiatives in environmentally friendly operations, known as its Greenergy Excellence program, wherein the company endeavored to become a carbon-neutral company to ensure environmentally friendly business growth by the year 2014. ADB and BCP shared this long-term objective of achieving low-carbon growth while adhering to best-practice environmental standards. 17. The project's primary objectives were (i) diversification of Thailand's energy mix through the addition of renewable energy capacity, helping the country achieve its target of 20.3% of primary commercial energy coming from alternative energy by 2022; and (ii) demonstrational impact of the feasibility of a large-scale, privately operated solar power generation project. 18. Diversification of energy mix. Thailand is one of the largest electricity consumers in Southeast Asia. At the time of project approval, it sourced most of its energy from natural gas (around 71% of total installed power generation capacity in 2009) and coal and lignite (19%). Thailand recognized the importance of diversifying and securing sources of fuel for power generation because overreliance on natural gas, coupled with exposure to oil price volatility, had magnified the country’s political and economic risk. Thailand continues to depend on imports, however, because domestic demand for commercial primary energy outpaces the discovery of indigenous oil and gas.

19. Thailand's growth rates in energy consumption are much higher than its respective gross domestic product growth rates. Moreover, energy consumption gives rise to over 50% of the country's greenhouse gas emissions. If unchecked, Thailand's rapidly growing energy consumption will invariably increase the economy’s carbon intensity. In its most recent Power Development Plan, published in June 2015, EGAT projected an average growth rate of 2.67% in energy demand and a 2.7% annual average increase in peak demand between 2014 and 2036. 20. Demonstrational impact. One of the original objectives of the project was to play a pioneering role in demonstrating the commercial viability of large-scale, privately run solar farms. Once such solar farms are shown to be feasible, other private sector investors can replicate the model in Thailand and other DMCs.

21. Soon after the project’s financial close and implementation, new large-scale solar power projects were granted PPAs: Serm Sang Palang Ngan Lopburi (40MW, commercial operation date in February 2015); EA Solar Nakornsawan (90 MW, December 2013); EA Solar Lampang (90 MW, February 2015; EA Solar Pitsanulok (90 W, April 2016); and SPP Six, Lopburi (41 MW, December 2015). In all, 290 VSSP PPAs were signed with PEA and MEA for a total selling capacity of 939 MW.

22. Solar power has also become increasingly attractive economically. Grid-connected solar photovoltaic generation systems, in particular, grew rapidly worldwide, totaling around 7.8 gigawatts by the end of 2007.

5

23. Links to Thailand’s development strategy. The project was in line with ADB's country partnership strategy, 2007–2011 for Thailand, which focuses on three core strategic areas:

infrastructure, environmental sustainability, and capital markets. 7 The project supported the government’s Renewable Energy Development Plan, issued in 2008, wherein it had set a target that renewable energy would account for 20% of Thailand’s energy consumption by 2022. In 2012, this plan was replaced by the Alternative Energy Development Plan, which raised the renewable energy target to 25% of total energy consumption by 2021.8 The latest AEDP in 2015 raised the target even further to 30% of total energy consumption by 2036.9 The project was also consistent with ADB's Energy Policy, which promotes investments in energy efficiency and renewable energy projects.10 B. Development Results

i. Contribution to Private Sector Development and ADB Strategic Development

Objectives

24. Private sector development indicators and ratings are in Appendix 2. The project was developed under ADB’s Strategy 202011, which supports environmentally sustainable, private-sector-assisted development in meeting the growing energy demand in the region, and capitalizes on ADB’s operating strengths in infrastructure development and finance, among other areas. The strategy supports the expansion of environmentally friendly technologies, specifically for clean and efficient energy generation and use, and a larger role for the private sector in infrastructure financing through public–private partnerships. 25. The project played a pioneering role in demonstrating the commercial viability of large-scale, privately operated solar farms, a model that can then be replicated by other private sector investors in the region. The project was one of the first large-scale solar power projects in Thailand. Access to long-term funding was a serious limitation for larger-scale solar photovoltaic projects, which typically had high upfront construction costs and long payback periods. The ADB facility extended the tenor of the financing at a time when local banks had limited capability to take on longer-term risks. ADB provided cost-effective funding in local currency to match the currency of the revenue streams of the borrower. 26. The Government of Thailand was committed to clean energy and provided a supportive tariff scheme to encourage investment in solar energy. The project’s participation in the government’s program encouraged regulatory stability. Recent advancements in solar technology resulted in lower production costs of solar panels, which allowed Thailand to lower the level of subsidy it provides to its solar PPAs without hindering the growth of private sector participation in capacity build-up.

7 ADB. 2007. Country Partnership Strategy: Thailand, 2007–2011. Manila. Available on the internet:

http://www.adb.org/sites/default/files/institutional-document/32384/files/cps-tha-2007-2011.pdf 8 ADB. 2015. Renewable energy developments and potential in the Greater Mekong Subregion. Available on the

internet: http://www.adb.org/sites/default/files/publication/161898/renewable-energy-developments-gms.pdf 9 Department of Alternative Energy Development and Efficiency. September 2015. 10 ADB. June 2009. Energy Policy. Available on the internet: http://www.adb.org/sites/default/files/institutional-

document/32032/energy-policy-2009.pdf 11 ADB. 2008. Strategy 2020: The Long-Term Strategic Framework of the Asian Development Bank 2008–2020.

http://www.adb.org/sites/default/files/institutional-document/32121/strategy2020-print.pdf

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27. At the time of project approval, BCP was working with ADB on prefinancing its CERs under ADB’s Carbon Market Initiative. BCP managed to register with the United Nations Framework Convention on Climate Change. BCP suspended its CER program due to the high cost of registration but plans to resume when the price of CER will make it economically beneficial for the company to pursue a sale. Nonetheless, BCP has since registered with the Thailand Voluntary Emission Reduction Program and receipt of CER cash flows was made an option available to the borrower.12

28. The private sector development impact of the project is considered excellent.

ii. Economic Performance

29. The project has quantifiable economic benefits such as power being an input to economic activity and clean energy having environmental and social advantages compared with other types of electricity sources. Environmental advantages of solar power plants include lower pollution from electricity production, lower greenhouse gas emissions, better air quality, noise reduction, and a lower carbon footprint. Diversifying fuels for power generation was also a high priority for Thailand’s energy policy, since it reduces the country’s dependence on foreign supplies and mitigates commodity and exchange rate risks. 30. Overall, the economic performance of the company is seen to be excellent.

iii. Environmental, Social, Health, and Safety Performance

31. The project was categorized as environmental B based on the Safeguard Policy Statement and was required to prepare an initial environmental examination report in line with the statement. BCP’s environmental and social monitoring reports were submitted up to December 2015. The project complied with ADB requirements during project processing but lacked supporting documents to show that noise monitoring, as part of the environmental monitoring plan, had been undertaken during project construction and that the data was compliant with national regulations and International Finance Corporation guidelines. However, such data was collected during operations and provided. The deal team finds no reasonable cause to believe that the project has breached any of the national regulations and guidelines. The environmental, health, and safety impacts during the construction and operational phases of the project are considered to be minimal. 32. Also, no community complaints or major accidents were recorded since the project started construction in 2012. Similar to the performance of its parent BCP, the newly created BCPG is committed to continuing the implementation of the environmental, health, and safety management plan and achieving satisfactory project operations. 33. The project did not have any involuntary resettlement impact because the project site was neither occupied nor used for residential, agricultural, or economic activities. The project also did not have any impact on indigenous peoples because the project site is not used, claimed, or owned by any indigenous people group. 34. During construction from 2010 to 2011, the project created about 200 jobs, 150 of which for local and unskilled workers. BCPG currently employs 9 technical staffs, observes nondiscrimination in the treatment of its employees, and provides benefits mandated by law.

12 http://tver.tgo.or.th/2015/thai/project2.php

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Based on the review and evaluation of safeguard documents, and ADB’s inspection of project facilities in Bang Krasan as well as interviews with stakeholders (staff at the corporate office, contractors, and the local community), both BCP and BCPG have complied with ADB’s social safeguard requirements. ADB also notes BCP’s and BCPG’s corporate social responsibility program.

35. No complaints were received by BCP during project construction and prior to the transfer of ownership to BCPG. BCPG likewise has not received any complaints since it assumed operations of the solar power complex in 2015. Overall, the project’s environmental, social, health, and safety performance is rated partly satisfactory.

iv. Business Success

36. [CONFIDENTIAL INFORMATION DELETED] The project is rated satisfactory for business success. 37. Overall, development results are rated satisfactory.

C. ADB’s Additionality

38. ADB’s assistance played a crucial role in helping the project secure appropriate long-term financing, which is a necessary condition for the viability of a solar project. The long-term local currency loan increased the viability of a power generation plant with high upfront investment costs but no ongoing fuel cost. ADB’s innovative risk participation structure allowed ADB to extend the tenor of the cofinanced tranche and enabled an international commercial bank, which had limited experience in financing clean energy projects in Thailand, to participate in long-term financing for solar projects. The project would not have been constructed without ADB investment and involvement. 39. ADB provided financing on the basis of BCP’s balance sheet. This was fine at the time because large-scale solar projects had not yet been fully tested. This has changed, however, and phase 2 was financed through a limited-recourse structure. Succeeding phases were financed by local banks, which show the local market’s confidence in large-scale solar power plants. The risk participation structure of the project made it possible to extend the tenor of the loan and bring in private capital, which is critical for such projects. The local-currency swap was also an essential value contribution by ADB because the company would not have secured the same tenor, price, and volume on its own.

40. BCP chose ADB as a strategic partner to expand into solar power because of ADB’s proven experience in financing renewable energy projects combined with its strong mandate, reputation, and commitment to facilitating the transition by DMCs into low-carbon economies. ADB’s loan was well structured, which minimized the risk of dilution as BCP expanded its renewable energy portfolio. ADB’s loan brought in additional financing from private local and international banks to finance succeeding phases of BCP’s solar energy program.

41. The project improved the capacity and strengthened the technical capability of BCP in implementing solar power projects. BCP undertook follow-on projects and overseas investments and acquisitions, which shows the company’s commitment to renewable energy.

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42. ADB's additionality is considered excellent.

D. ADB Investment Profitability

[CONFIDENTIAL INFORMATION DELETED]

43. ADB's investment profitability is considered excellent. E. ADB Work Quality

44. ADB’s overall work quality is rated excellent on the basis of (i) an excellent rating for screening, appraisal, and structuring of the project; and (ii) a satisfactory rating for monitoring and supervision.

45. ADB’s work quality during appraisal and structuring is considered excellent because it took the lead in structuring and negotiating the terms of the legal documentation. The financial structure was innovative in covering certain critical project commercial risks. ADB entered into the local-currency swap transaction, effectively allowing the borrower to benefit from ADB’s AAA credit rating. ADB was able to pass on its lower funding cost to the borrower and succeeded in executing a swap transaction that had a longer tenor and a larger amount than what the borrower could have likely achieved at the time. ADB’s adoption of a risk participation structure allowed ADB to extend the tenor of the cofinanced tranche and enabled participation of an international bank in long-term financing for the project.

46. Monitoring was satisfactory. ADB kept itself informed about the project’s implementation through regular site visits and annual monitoring reviews. ADB actively monitors the project’s implementation and compliance with its environmental and safeguard policies and loan covenants through various reports. Environmental and social monitoring reports are disclosed on the ADB website. An ADB review was conducted periodically.

47. Overall, ADB's work quality is considered excellent.

Appendix 1 9

PROJECT-RELATED DATA A. Investment Identification 1. Country Thailand 2. Loan number 7314/LN2678 3. Type of business Renewable energy—electricity generation 4. Project title Bangchak Solar Power Project 5. Investee company and/or

borrower The Bangchak Petroleum Public Co., Ltd. (BCP)

B. Investment Data 1. Concept clearance

approval 2 August 2010

2. Date of Board approval 5 October 2010 3. Signing date of legal

documents 12 October 2010

4. Date of loan effectiveness 12 October 2010 5. Loan closing date (end of

availability period) 31 October 2011

D. Financing Plan

[Deleted]

E. Data on ADB Missions No. of Missions No. of Person-

Days Fact-finding Appraisal and negotiations Project administration Extended annual review mission

1 3 1 1

12 33 6 8

10 Appendix 2

RESULTS AND RATINGS FOR PROJECT CONTRIBUTIONS TO PRIVATE SECTOR DEVELOPMENT AND ADB STRATEGIC DEVELOPMENT OBJECTIVES—INFRASTRUCTURE

[CONFIDENTIAL INFORMATION DELETED]

Appendix 3 11

INDUSTRY AND OPERATIONS REVIEW

I. Industry Analysis A. Sector Framework 1. The energy sector in Thailand is managed by the National Energy Policy Council (NEPC), established under the National Energy Policy Council Act, B.E. 2535 (1992); the National Energy Policy Office (NEPO) acts as the secretariat. The Energy Policy Committee (EPC) was established to assist with the work of NEPC.1 The Energy Planning & Policy Office (EPPO) acts as the secretariat to NEPC and is responsible for drafting all energy-related policies and proposing development plans. 2. NEPC recommends national energy policy, energy management, and development plans to the Cabinet of Ministers and lays down the rules and conditions for prescribing the price of energy in Thailand. It is responsible for monitoring, supervising, coordinating, supporting, and expediting the operations of all committees, government agencies, state and private enterprises related to energy so that their operations shall be in accordance with the National Energy Policy, and the national management and development plan.

3. The Energy Regulatory Commission (ERC) is an independent body that regulates the power sector. It monitors energy market conditions, reviews tariffs, issues licenses, approves power purchases, and considers development planning and investment in the power sector.

4. The Electricity Generating Authority of Thailand (EGAT) is the country’s principal offtaker and system operator, and the leading state-owned power utility under the Ministry of Energy. In addition to its power generation and transmission mandate, it is a buyer of privately produced electricity and is the sole power importer. EGAT sells electricity through its transmission grids to the Metropolitan Electricity Authority (MEA) and the Provincial Electricity Authority (PEA), which then sell it to end users. MEA is responsible for end users in Bangkok, Nonthaburi, and Samut Prakan, while PEA caters to retail customers and industrial users in the provinces beyond MEA’s scope.

B. Electricity Demand

5. The net peak generation requirement reached 26,942 megawatts (MW) in 2014 and 27,346 MW in 2015. Total energy consumption in 2015 reached 174,833 gigawatt-hours (GWh), led by industrial demand (43% of consumption) and followed by households (24%), commercial activities (19%), and small general services (11%). In 2015, 70% of Thailand’s electricity production was consumed in the PEA area, 29% in the MEA area, and 1% by EGAT’s direct customers

C. Electricity Supply

6. As of December 2015, the total contract capacity was 38,815 MW, comprising 15,518 MW from EGAT, 14,767MW from independent power producers, and 5,144MW from small power producers; and 3,386MW from imported power. Electricity generation reached 180,945 GWh coming from natural gas (65%), coal and lignite (20%), imported electricity (7%), renewable energy (6%), hydropower (2%), and oil (1%). The country’s overreliance on natural gas and its

1 http://www2.eppo.go.th/doc/doc-manage.html

12 Appendix 3

exposure to oil price volatility makes it more prone to political and economic risks, thus the need for alternative energy. D. Electricity Supply and Demand Forecast 7. According to the Thailand Power Development Plan, 2015–20362 power demand would grow by 2.67% annually from 2014 to 2036. In 2036, the expected power demand would be 326,119 GWh and 49,655 MW respectively. This forecast was calculated using an average long-term gross domestic product growth rate of 3.94% in 2014–2036 and an average population growth rate of 0.03%. In addition, the energy-saving target accounts for 89,672 GWh, and the renewable energy development target from the Alternative Energy Development Plan was set at 19,634.4 MW in year 2036.

Table A3.1: Generating Capacity, 2015–2036 (megawatt)

Existing capacity as of December 2014 37,612

New capacity (2015–2036) 57,459

Retired capacity (2015–2036) –24,736

Total capacity by 2036 70,335

8. Of the 57,459 MW in projected additional capacity requirement, around 37.7% are expected to come from renewable power plants.

Table A3.2: Breakdown of New Capacity, 2015–2036

Fuel Source MW %

Renewable power plant 21,648 38%

Domestic 12,105

Power purchase from neighboring countries 9,543 Pump storage hydropower plant 2,101 4%

Cogeneration power plant 4,119 7%

Combined-cycle power plant 17,478 30%

Thermal power plant 12,113 21%

Coal/lignite 7,390

Nuclear 2,000

Gas turbine 1,250

Power purchase from neighboring countries 1,473

Total 57,459

MW = megawatt E. Tariff Structure 9. The electricity tariff rates for EGAT, MEA, and PEA are closely regulated by the ERC and approved by NEPC and the Cabinet of Ministers. The tariff structure is set to (i) reflect economic costs and promote the efficient use of electricity, (ii) secure the financial health of the three state power utilities, (iii) be fair to all categories of power consumers by reducing cross-subsidization, and (iv) adjust electricity tariffs through a flexible and automatic mechanism.

2 http://www.egat.co.th/en/images/about-egat/PDP2015_Eng.pdf

Appendix 3 13

10. Thailand’s electricity tariff has two components. The first component is the base tariff, which is a bulk supply tariff summing the wholesale tariff that EGAT charges MEA and PEA, and the fixed retail tariff that MEA and PEA charge its consumers in each regulatory period. The second component is the fuel adjustment charge, which the power consumers pay. The fuel adjustment charge is an automatic mechanism applied to modify tariffs to the extent that the base-case assumptions change beyond the control of EGAT, MEA, and PEA (i.e., fuel prices increasing at a higher rate than anticipated). It is effectively a pass-through mechanism, allowing unexpected increases in costs to be passed on to end users. It is designed to be added to base tariffs for the next 4-month period to provide reasonable tariff stability for consumers.

11. NEPC is now progressively replacing the “adder” tariff with a feed-in tariff, wherein a fixed amount per kWh is paid during the life of the power purchase agreement (PPA). Future PPAs under the government’s VSSP program will be awarded using a new competitive bidding method. The ERC has now ordered Thailand’s state-owned electricity distributors— PEA, MEA, and EGAT—to no longer offer PPAs to VSPPs (those generating less than 10 MW) and instead to issue PPAs based on the ERC’s feed-in tariff subsidy program. This may be viewed as a positive for the development of renewable energy projects, since a 20-year fixed rate provides financial certainty over a period twice as long as the existing PPAs and, in some cases like wind power, might even provide better financial returns than the current adder system. II. Financial and Operating Performance

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F. Operating and Financial Performance Review

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G. Compliance

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