A Gamble That Leaves Us Holding the Bill

Chris Greacen, Palang Thai
Thursday, June 30, 2005

Opinion piece by Dr. Chris Greacen published in the Bangkok Post that outlines why the Mekong Power Grid is risky for electricity consumers in the region.

Electricity rate payers in the entire Mekong region are being signed up for a risky scheme involving a US$1.2 billion (THB 48 billion) transmission system that will link Thailand with its Mekong region neighbors. The benefits from this gamble, if there are any, are likely to flow to investors, but if you are an electricity customer in Thailand, Vietnam, Yunnan, Laos, Cambodia or Burma the bill is guaranteed to be sent to you.

On the 4th and 5th of July, leaders from the region will gather at the Second Greater Mekong Subregion (GMS) Summit in Kunming, China to sign a Memorandum of Understand on the Implementation of Stage 1 of the Regional Power Trade Operating Agreement (RPTOA). Stage 1 is the first of four stages that promoters envision leading to a region–wide transmission network and accompanying power market. A Thai cabinet resolution last week authorized Thai delegates to sign the Kunming MOU.

According to the Cabinet resolution, the claimed benefit of the scheme is that sharing electricity will lower costs: while Thailand’s peak electricity demand occurs during the middle of a hot day in April, our neighbors’ greatest power needs might occur at other times and we will all be better off by sharing what we have when others need it. To communicate the concept of a regional grid to the public, a Thai utility used an advertisement campaign featuring the common Thai dish kraprao gai khai dao, or "chicken stir–fry with basil and fried egg." To eat the stir–fry without fried egg, or fried egg without chicken stir–fry, is considered incomplete. In the advertisement, an exchange between two countries with complementary electricity resources is likened to two people, one with chicken stir–fry and the other with fried egg, sharing to create a win–win situation.

But GMS studies concede that interconnection will enable a peak load reduction of only 2.5%. If you look at the numbers, the hope that the scheme will pay off is actually based on the assumption that lots of cheap hydropower will be built in Laos, Burma and Yunnan, and that this hydropower will displace electricity generation from gas and coal. The problem is that no one knows what these hydropower projects will really cost. The RPTOA final report confesses that "there is not enough base information to estimate costs for developing hydro plants" yet a companion document, the Indicative Master Plan on Power Interconnection in GMS Countries somehow or other derives a set of favorable hydropower cost assumptions for an analysis that concludes that the scheme will save US$914 million (THB 36.6 billion).

As of August 2004 only five of eight Lao hydropower projects even had feasibility studies. It is an understatement to say that without feasibility studies for all the main proposed projects, the economic benefit of the projects, and thus the entire interconnection plan, is uncertain. Truth be told, feasibility studies offer no guarantees: a World Commission on Dams study found that the average cost overrun for 248 large dam projects was 54%.

While uncertainty in hydropower costs are important, they’re just the tip of the iceberg. Equally important is a profound underestimation of the costs, time and leadership required to harmonize technical planning and operating standards across the region required to operate an interconnected connected grid that has to respond without fail to disturbances, within minutes, in a coordinated fashion, 24 hours a day 7 days a week. Though the technical challenges are formidable, the political ones are even tougher. It takes good neighbors to share a transmission link. The Canadian economy lost US$400 million (THB 16 billion) in August 2003 when a negligent USA utility caused a massive cascading blackout throughout the east coast that literally pulled the plug on Ontario’s industries. Is Thailand ready to tie the reliability of its electricity grid, a lifeline of its economy, to split–second consequences of actions by transmission grid operators neighboring countries? We have a long way to go, considering that just two and a half years ago Cambodian people expressed their appreciation of Thailand by burning down the Thai embassy in Phnom Penh.

Promoters (the Asian Development Bank and dam developers) of the grid say that it will yield benefits. But they’re not the ones who will be left holding the bill. The additional US$1.2 billion (THB 48 billion) in costs for transmission scheme go, as do all costs ultimately, to the electrical consumer, embedded in the rates we pay for power. The benefits (if there are any) go to the private sector electricity producers. If (and this is a very big "if") there is sufficient competition to force producers to forgo some of their profits then the resulting lower costs trickle down to consumers. But experience in California showed all too clearly that the two relatively unique traits of electricity –– its non–storability and the "obligation to serve" of utilities (effectively eliminating price elasticity for short–term price movements) –– allows even small suppliers to gouge customers when supplies are tight.

Without a strong independent regulator and a regulatory process that guarantees public involvement there is little reason to believe the interests of the consumers and other vulnerable stakeholders will be protected. In GMS plans we have found no mention of public hearings which would allow for transparent oversight of transmission investments. Perversely, the RPTOA report recommends against implementing "a highly independent regional regulatory agency" because "the introduction of liberalization and truly competitive markets is not a short or medium–term objective of GMS countries." This makes little sense. It is precisely the lack of competition that is a primary motivation for strong and independent regulation. Without competition, an independent regulator is essential to ensure that monopolies or oligopolies do not gouge ratepayers, and that regional transmission investments are prudent, timely and in the best interests of consumers.

The regulatory process must include a mandatory Integrated Resource Planning (IRP) decision framework that selects risk–adjusted economic least–cost alternatives. The options considered should not exclude demand side management (DSM) and clean distributed generation, which have proven again and again to be cheaper and less risky than building massive transmission and centralized generation. Strong independent regulatory authorities, public participation, and IRP have been three pillars of successful utility practice for decades in developed countries and have saved consumers billions of dollars.

Such an independent regulatory process is needed, before aggressively pursuing cross–border transmission investments, to provide for meaningful intervention by consumers and other vulnerable stakeholders in investments decision that will ultimately become their lasting burden.

Is the Mekong Power Grid a case of sharing chicken stir fry and basil with our neighbors? Most likely not. It’s caviar and fine French wine for lunch at the Mekong Country Club. But it looks like we ratepayers are buying. And we’re not invited to the table.

This article is based on an analysis by Bretton W. Garrett, P.Eng., Ph.D. Dr. Garrett is a registered Professional Engineer in the Canadian province of British Columbia and has some 30 years of experience in various aspects of power systems engineering with a focus on transmission planning and operations. His analyses of GMS grid documents are available at www.palangthai.org/en/policy

Chris Greacen, Ph.D. is director of Palang Thai, an independent public interest energy analysis organization. He is also a Thailand electricity ratepayer.