NGOs question economic viability of Mekong Power Grid

Two recent studies demonstrate major flaws in the ADB's Mekong Power Grid plan. The first, by Canadian power grid expert Dr. Bretton Garrett, raises several questions regarding the economic viability of the scheme and the feasibility of an interconnected grid for the politically and economically diverse countries of the Mekong region. The second study, by Witoon Permpongsacharoen of Foundation for Ecological Recovery, highlights alternative, more sustainable power options for Thailand.

Rajat M. Nag

Director General Mekong Department

Asian Development Bank

PO Box 789 0980

Manila

Philippines

Dear Mr. Nag,

Please find enclosed a recent analysis of the Study for a Regional Power Trade Operating Agreement in the Greater Mekong Sub-Region (RPTOA) by Canadian power grid expert, Dr. Bretton Garrett. Dr. Garrett is an electrical engineer with 30 years of experience in various aspects of power system engineering, including working for a major Canadian utility and a major US provider of Energy Management Systems. Thai NGO Palang Thai commissioned Dr. Garrett to undertake an analysis of the technical and economic viability of the Mekong Power Grid scheme as outlined in the Study for a Regional Power Trade Operating Agreement.

Dr. Garrett's analysis raises several questions regarding the economic viability of the scheme and the feasibility of an interconnected grid for the politically and economically diverse countries of the Mekong region. While the region, and especially the faster-growing countries such as Thailand and Vietnam, will need more power in the coming years, cheaper and more sustainable options are available, as outlined in the other document enclosed entitled An Alternative to Thailand's Power Development Plan by Witoon Permpongsacharoen, from Thailand's National Economic and Social Advisory Council.

Uncertain Costs and Benefits

According to Dr. Garrett, "the most serious concern raised by the report is the wisdom of committing to an expensive, long-term electricity trade arrangement without certainty about the economic benefits."

An earlier study sponsored by the ADB, the Indicative Master Plan on Power Interconnection in GMS Countries (prepared by Norconsult) showed that, for the recommended power trade scenario, the benefits would amount to US$914 million for a total investment of US$43,496 million, a savings of just over 2%. The claimed savings resulted from reductions of $2071 million in power generation costs, made possible by an additional investment of $1157 million in transmission lines.

However, the problem with these claimed benefits is that the transmission costs would largely be paid for by the consumer through their electricity tariffs, whereas the savings in generation costs are likely to accrue to the private sector producers. Dr. Garrett points out that the generation savings would accrue to the consumer only when there is a highly competitive market that will force power producers to forgo some of their profits. According to Dr. Garrett, a true market is only likely to happen by Stage 4 of the plan, which is likely to be in the far distant future. As a result, consumers will be paying for the costs of building the transmission lines, but are unlikely to receive the savings resulting from lowered generation costs.

Another problem casting doubt on the economic viability of the scheme is the uncertainty surrounding the real construction costs of the hydropower projects proposed to fuel the grid. The RPTOA report confesses that "there is not enough base information to estimate costs for developing hydro plants, gas fields or coal mines." Dr. Garrett states that "without completed hydrological, geological/geotechnical and environmental studies, little confidence can be placed in the assumed production costs from these future plants," calling into question the economic viability of the entire plan. Indeed, as of August 2004, only of five of the eight Lao hydropower projects proposed in the Indicative Master Plan had even reached feasibility stage.

In addition, Dr. Garrett found that the RPTOA study fails to address the costs required to implement the harmonized regional operations essential to ensuring an interconnected grid that will run flawlessly 24 hours a day, 7 days a week. These costs can amount to many tens of millions of dollars. In addition, harmonizing operations across the region presents a formidable technical and political challenge for the GMS countries, which have different political systems, languages, stages of development and technical capacities.

No independent Regulator

In a regional power market, strong independent regulation that guarantees public involvement is essential for ensuring that the generation and transmission investments are prudent, timely and in the best interests of the consumer and other vulnerable stakeholders. This leads to the second primary concern with the RPTOA report's proposals: the lack of transparent, independent and participatory regulation in the first stages of implementation.

From a consumer perspective, one of the most valuable roles of independent regulators is critical and transparent review of system expansion plans. Without this critical oversight, engineers tend to make the power systems technically better and better, leading to expensive "gold-plated" systems that are in the end paid for by the consumers in the form of higher power prices. Yet it appears that there are no plans for a true regulator until Stage 4 of the plan, which may already be too late, as many of the transmission investments will have already been made or committed.

According to Dr. Garrett, "well-executed regulatory regimes provide a public forum where utilities must present their development plans for review and approval." Yet nowhere in the PTOA report is there any reference to public hearings or transparent oversight. Neither the local communities potentially affected by the projected hydropower plants, nor the future electricity consumers, have been consulted during the process of preparing the RPTOA study, nor is there any provision for public hearings in the future as the plan is implemented.

Cheaper Alternatives

The Mekong Power Grid relies primarily on hydropower from Lao PDR, Burma (Myanmar) and Yunnan Province of China to power the grid, although there are cheaper and more sustainable options for meeting Thailand and Vietnam's energy needs, including demand side management, renewable energy, cogeneration, and repowering of existing plants.

Thailand's National Economic and Social Advisory Council prepared an Alternative Power Development Plan for Thailand in 2004 (enclosed). The Alternative PDP outlines several erroneous assumptions made by the Electricity Generating Authority of Thailand (EGAT) in its 2004 Power Development Plan that have resulted in an overestimation of power demand growth for the coming 13 years. The PDP is based on over-optimistic GDP growth of 6.5 % per year (for the next 13 years) though the average growth rates during the last 10 years have been just 3.6 % per year. In addition, the ratio of energy use to GDP is overestimated, and taken together with several other adjustments, the Alternative PDP's calculations result in a total peak demand of 34,688 MW instead of 40,978 MW by 2015.

In addition, the Alternative PDP recommends that large industrial consumers negotiate their power purchases directly with independent power producers (IPPs), avoiding the need for EGAT to invest in 8,200 MW of additional power supply.

Projects already under construction and with contracts signed with EGAT (Nam Theun 2 dam in Laos excluded) would generate 4,620 MW for the projected peak demand. The Alternative PDP illustrates how remaining new supply can be met with lower cost, lower impact and lower risk resources, avoiding the need for imported hydropower. These include demand side management (shifting load to off-peak and increasing energy efficiency of the end-user), renewable energy (biomass, solar, and wind energy, small hydropower under 10 MW), cogeneration (combined production of heat and electricity) and optimizing the efficiency of existing plants (repowering). The potential for these options in Thailand is 25,500 MW. In the Alternative PDP the capacity used is 10,510 MW.

The Alternative PDP is also much cheaper for EGAT and Thai consumers. Together with decreased peak demand, a reduced need for the overall sector's expansion and investment in cheaper technologies, the investment required in the years 2004 - 2015 is reduced from 997.6 billion baht (US$25 billion) to 400 billion baht (US$10 billion).

Call for a Comprehensive Options Assessment

The above analyses cast doubt on the viability of the Mekong Power Grid and illustrate that alternative options are available for meeting the region's energy needs. As a result, we are writing to urge the ADB to suspend the Mekong Power Grid, in light of its potential social, environmental and economic costs and questionable benefits for electricity consumers in Thailand and Vietnam. Instead, the Bank should ensure that a comprehensive and participatory assessment of energy options for the region is undertaken in line with the recommendations of the World Commission on Dams. As part of this assessment, studies should be carried out to examine the cumulative environmental and social impacts of the Mekong Power Grid.

This is in line with demands from 150 civic groups from across the Mekong region who met in Chiang Rai, Thailand, at the time of the last GMS Summit in Kunming. The groups demanded the right of Mekong region citizens to determine their development future. The Mekong People's Council called on the Mekong governments and ADB to suspend development projects in the Greater Mekong Subregion until the principles of human rights, people's participation, transparency and accountability are respected.

We await your response.

Sincerely,

Witoon Permpongsacharoen Director, Foundation for Ecological Recovery Witoon@terraper.org

Dr. Chris Greacen Director, Palang Thai chris@palangthai.org

Aviva Imhof Campaigns Director, International Rivers aviva@internationalrivers.org'

cc John R. Cooney, Director, Infrastructure Division, ADB

Dr. Bindu Lohani, Director General, Regional and Sustainable Development Department

ADB Executive Directors

Enclosed:

Comments on "Study For a Regional Power Trade Operating Agreement in The Greater Mekong Sub-Region, TA 6100-REG, Final Report", by Bretton W. Garrett, P.Eng, Ph.D., prepared for Palang Thai, June 2005.

An Alternative to Thailand's Power Development Plan (PDP), by Witoon Permpongsacharoen, The National Economic and Social Advisory Council, May 2004.