45923-014: Provincial Solar Power Project

Extended Annual Review Report

Project Number: 45923-014 Loan Numbers: 2875 and 8256 October 2020

Bangchak Solar Energy Company Limited Provincial Solar Power Project (Thailand) This is an abbreviated version of the document, which excludes information that is subject to exceptions to disclosure set forth in ADB’s Access to Information Policy.

CURRENCY EQUIVALENTS

Currency unit – baht (B)

At Appraisal At Project Completion (1 April 2012) (3 January 2014)

B1.00 – $0.03247 $0.03033 $1.00 – B30.80000 B32.97000

ABBREVIATIONS ADB – Asian Development Bank BCP – Bangchak Petroleum Public Company Limited BCPG – BCPG Public Company Limited BSE – Bangchak Solar Energy Company Limited COVID-19 – coronavirus disease CTF – Clean Technology Fund EGAT – Electricity Generating Authority of Thailand EHS – environment, health, and safety EIRR – economic internal rate of return FIRR – financial internal rate of return FIT – feed-in tariff ISO – International Organization for Standardization LTA – lenders’ technical advisor MEA – Metropolitan Electricity Authority MSL – mean sea level NEPC – National Energy Policy Council O&M – operation and maintenance OHSAS – occupational health and safety advisory services PEA – Provincial Electricity Authority PPA – power purchase agreement RRP – report and recommendation of the President SPP – small power producer SSA – sponsor support agreement VSPP – very small power producer

WEIGHTS AND MEASURES GWh – gigawatt-hour kWh – kilowatt-hour MW – megawatt tCO2 – ton of carbon dioxide

NOTES (i) The fiscal year (FY) of Bangchak Solar Energy Company Limited ends on 31

December.

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

Vice-President Ashok Lavasa, Private Sector Operations and Public–Private Partnerships Director General Michael Barrow, Private Sector Operations Department (PSOD) Director Marife Apilado, Portfolio Management Division (PSPM), PSOD Team leader Suhail Khan, Principal Investment Specialist, PSPM, PSOD Team members Jhiedon Florentino, Economics Officer, Private Sector Transaction Support

Division (PSTS), PSOD Broderick Garcia, Senior Investment Officer, PSPM, PSOD Karan Gulshan, Investment Specialist, PSPM, PSOD Manfred Kiefer, Senior Economist, PSTS, PSOD

Jose Manuel Limjap, Consultant, PSPM, PSOD Arlene Porras, Senior Safeguards Officer, PSTS, PSOD Raneliza Samiano, Senior Social Development Officer (Safeguards),

PSTS, 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

BASIC DATA i

EXECUTIVE SUMMARY ii

I. THE PROJECT 1

A. Project Background 1 B. Key Project Features 2 C. Progress Highlights 3

II. EVALUATION 4

A. Project Rationale and Objectives 4 B. Development Results 4 C. ADB Additionality 6 D. ADB Investment Profitability 6 E. ADB Work Quality 6

III. ISSUES, LESSONS, AND RECOMMENDED FOLLOW-UP ACTIONS 6

A. Issues and Lessons 6 B. Recommended Follow-Up Actions 7

APPENDIXES 1. Project-Related Data 8 2. Results and Ratings for Project Contributions to Private Sector Development and

ADB Strategic Development Objectives—Infrastructure 9 3. Sector Review 14 4. Financial Analysis 16 5. Environmental Impact 18 6. Social Impact 21

BASIC DATA Provincial Solar Power Project

Loan numbers 2875 (ADB) and 8256 (Clean Technology Fund) - Thailand

Key Project Data As per ADB Loan Documents

(B million) Actual

(B million)

Total Project Cost 3,900.00 3,626.00 ADB Loan Committed 780.00 753.78 Disbursed 719.00 Outstanding 328.38

Clean Technology Fund Loan ($ million) Committed 15.00 12.15 Disbursed 11.60 Outstanding 5.06 ADB = Asian Development Bank.

Key Dates Expected Actual

Concept Clearance Approval 14 November 2011 14 November 2011 Fact-Finding Mission December 2011 December 2011 Board Approval 25 June 2012 25 June 2012 Loan Signing 12 December 2012 12 December 2012 Loan Effectiveness 11 April 2013 11 April 2013 First Disbursement 30 April 2013 30 April 2013

Project Administration and Monitoring Number of Missions Number of Person-Days

Due Diligence and Appraisal 1 15 Project Administration 3 10 XARR Missiona 0 0 COVID-19 = coronavirus disease, XARR = extended annual review report. a The XARR mission was canceled because of travel restrictions related to COVID-19.

EXECUTIVE SUMMARY On 25 June 2012, the Asian Development Bank (ADB) approved a local currency loan of up to B780 million and the administration of a $15 million loan through the ADB Clean Technology Fund to Bangchak Solar Energy Company Limited (BSE) for the 32-megawatt Provincial Solar Power Project in Thailand. The project was developed and implemented in two phases under four standard renewable energy power purchase agreements of 8 megawatts each with the Provincial Electricity Authority (PEA) in Chaiyaphum and Ayutthaya provinces. The tariff applicable under each power purchase agreement includes an B8 per kilowatt-hour adder to the wholesale tariff until 2023—10 years from the date of commercial operation. ADB’s 18-year term loan provided a long repayment profile that the project needed to reach financial close and achieve sound debt service levels over its life. The project is consistent with ADB’s Strategy 2020, which supports the expansion of environment-friendly technologies for clean and efficient energy generation and use as well as a larger role for the private sector in infrastructure financing through public–private partnerships. ADB’s investment also aimed to help the country achieve its goal of developing renewable energy resources to diversify its energy mix, boost energy security, and save foreign exchange by reducing energy imports. In October 2015, the lenders approved BCP’s group restructuring plan to spin off its renewable energy business to a new subsidiary, BCPG Public Company Limited (BCPG), to create synergy of its business operation and gain access to more funding resources. As part of the restructuring, BCP transferred all its shares in BSE as well as ownership of five permitted subsidiaries to BCPG. The project and corresponding loan remained with BSE. The restructuring had no impact on the business operations of BSE and BCP. BCPG was listed on the Stock Exchange of Thailand in September 2016, and the initial public offering for 30% of its shares raised B5.8 billion. Following BCPG’s successful listing on the Thai stock exchange, the lenders approved BCP’s request to include BCPG as sponsor under the sponsor support agreement. ADB approved the request based on BSE’s strong operating and financial performance, BCPG’s satisfactory liquidity and debt service capability, and BCPG’s importance to the BCP group. BCP still holds 70% stake in BCPG and remains BSE’s ultimate parent company. The project’s overall development results and contribution to private sector development and ADB’s strategic objectives are satisfactory. The outputs and outcome in the design and monitoring framework have all been met. The project was completed on time and within budget. The average annual output of 74 gigawatt-hours (GWh) since 2013 exceeds the 60 GWh target and avoided carbon dioxide emissions of about 44,900 tons annually exceeds the 38,000-ton target in the report and recommendation of the President (RRP). ADB’s financing structure also set new standards in long-term local currency-denominated project financing. The project’s financial results outperformed RRP projections. Actual FY2013–FY2019 revenues were 29% higher than RRP base case estimates. Based on favorable actual operating and financial results, projections have been adjusted accordingly and the project is expected to continue posting strong profitability and cash flows. Based on BSE’s financial results for the first quarter of 2020, the project has not been adversely affected by the coronavirus disease (COVID-19). Availability factors and performance ratios remained within company expectations and unaudited financials are broadly in line with the company budget for 2020. While the COVID-19 pandemic is expected to adversely impact the PEAs as offtakers, confidence in the state-owned PEAs remains strong.

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BSE has satisfactorily implemented its occupational and community environment, health, and safety plans from construction to operation. BSE will continue to conduct staff capacity training; maintain close collaboration with the host communities; and regularly update environment, health, and safety management plans to ensure a healthy and safe environment within the solar plants and its surrounding communities. No indigenous peoples were impacted by the construction and operation of the solar plants, and no grievances have been received from any stakeholder. ADB has provided satisfactory support to the project. The 18-year term financing extended by ADB helped the project reach financial close and achieve sound debt service levels over its life. The safeguards team provided guidance on addressing environment and social safeguard issues and reviewed the BCP group’s environment and social management system. BSE has been making principal and interest payments on schedule and based on the updated projections, the borrower will continue to service debt on time until final maturity. The loan’s all-in pricing was supported by the Office of Risk Management from a risk–return perspective and approved by the Investment Committee. ADB overall work quality is satisfactory. The 18-year loan tenor benefited the project’s cash flow and liquidity position by spreading debt repayment over a longer period. BSE also benefited from ADB’s AAA credit rating; ADB executed a local currency swap transaction and passed its lower funding cost to BSE. ADB succeeded in executing a swap transaction that had a larger amount and longer tenor than what BSE could have achieved at that time. The deal team closely monitors BSE’s operating and financial performance through regular communication and follow-ups on timely submission of financial statements and semiannual operation reports. ADB has also been prompt in responding to waiver and approval requests. Recommended follow-up action. The increasing share of variable renewable energy generation brings new challenges to the power sector in Thailand. One challenge is how to integrate larger amounts of variable generation without adversely affecting grid stability. ADB could build on its technical capability and knowledge network to advise stakeholders on how to address this issue. For instance, ADB could continue supporting the Thai power sector through policy dialogue, technical assistance, and financing of smart grid technologies or storage to address variable renewable energy integration. ADB has at least one battery storage project in its development pipeline for Thailand.

I. THE PROJECT A. Project Background 1. The Asian Development Bank (ADB) approved on 25 June 2012 a local currency loan of up to B780 million and the administration of a $15 million loan through the ADB Clean Technology Fund (CTF)1 to Bangchak Solar Energy Company Limited (BSE) for the Provincial Solar Power Project in Thailand. The project, which involves developing and operating four power plants with total power generating capacity of 32 megawatts (MW), is part of the corporate strategy of Bangchak Petroleum Public Company Limited (BCP) to expand its operations into renewable energy and become carbon neutral. ADB had also provided a corporate finance loan to BCP’s first solar power project with total capacity of 44.5 MW in 2010. 2. ADB’s investment played a crucial role in helping BCP achieve its first limited recourse project financing for renewable energy. Despite its complexity, project finance is deemed the most appropriate form of financing for renewable energy projects—supporting their financial viability and optimizing their cash flow through longer tenors and advantageous debt sizing. The ADB direct loan and CTF tranche have an 18-year tenor. The project needed the longer repayment profile to reach financial close, achieve sound debt service levels over its life, and mitigate the risk to solar power projects arising from their high upfront investment costs, which have to be amortized over the long term with intermittent revenue generation. The project’s viability is further enhanced by the Government of Thailand’s support through a strong public–private partnership regulatory and legal framework combined with a favorable tariff regime. In addition to the wholesale tariff, the project benefits from an adder of B8.0 per kilowatt-hour (kWh) applicable for 10 years from the date of commercial operation. The government provided this subsidy to incentivize the development and operation of renewable energy projects and to help diversify the country’s energy sources from mostly natural gas, coal, and lignite. 3. The project is also consistent with ADB’s Strategy 2020, which supports the expansion of environment-friendly technologies for clean and efficient energy generation and use as well as a larger role for the private sector in infrastructure financing through public–private partnerships.2 The project is also in line with ADB’s country partnership strategy, 2007–2011 for Thailand3 and Energy Policy.4 The country partnership strategy’s three core strategic areas are infrastructure, environmental sustainability, and capital markets. The government’s Alternative Energy Development Plan, 2012–2021 underscores the country’s immense energy potential in solar radiation and the energy imports that can be avoided through its use with private sector participation. ADB’s Energy Policy emphasizes investments in energy efficiency, renewable energy projects, and wider access to energy. 4. Thailand is one of the largest electricity consumers in Southeast Asia. At the time of the loan proposal in 2012, Thailand’s installed power generation capacity of 31,447 MW was heavily

1 The CTF provides scaled-up financing to demonstrate, deploy, and transfer low-carbon technologies with significant

potential to avoid greenhouse gas emissions. The CTF is channeled and administered through multilateral development banks, including ADB, and is one of the funds available to help developing countries fill gaps in financing climate change mitigation. ADB acts as lender of record for the CTF loan; the CTF assumes all credit risks on principal and interest repayments related to its tranche.

2 ADB. 2008. Strategy 2020: The Long-Term Strategic Framework of the Asian Development Bank, 2008–2020. Manila.

3 ADB. 2007. Country Partnership Strategy: Thailand, 2007–2011. Manila. The country partnership strategy for 2012–2016 was still under preparation at the time of approval request. The project remains consistent with subsequent versions of the country partnership strategy.

4 ADB. 2009. Energy Policy. Manila.

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dependent on conventional fuels, with 64% produced by natural gas and 22% by coal and lignite.5 However, because of growing demand and dwindling oil and gas reserves in the Gulf of Thailand, the country had been relying on energy imports. The government decided to develop its abundant renewable energy sources to boost the country’s energy security, save foreign exchange, and protect the country from the volatility of oil and gas prices. The Thailand Power Development Plan, 2015–2036 was approved by the government in December 2014 as part of its strategy to promote renewable energy and diversify the energy mix.6 It set a target to generate at least 25% of primary commercial energy from renewable energy sources by 2036. The target includes 19,634 MW of renewable energy capacity, of which 6,000 MW is solar, by 2036. To reach the target, the plan encourages private sector development and the promotion of new technologies. 5. To complement the renewable energy strategy, the Ministry of Energy decentralized power generation and encouraged public–private partnerships through its small power producer (SPP) and very small power producer (VSPP) programs. The SPP program allows private developers to build, own, and operate 10–90 MW power projects and enter into power project agreements (PPAs) with the Electricity Generating Authority of Thailand. The VSPP program covers projects up to 10 MW and may execute PPAs with the Metropolitan Electricity Authority or the Provincial Electricity Authority (PEA). Renewable energy SPPs and VSPPs are eligible for a feed-in tariff (adder) incentive in addition to the wholesale electricity price.7 B. Key Project Features 6. The project used multicrystalline photovoltaic technology. It was developed and implemented in two phases—Phase 2A in Chaiyaphum Province and Phase 2B in Ayutthaya Province—under four standard renewable energy PPAs of 8 MW each with the PEA in Chaiyaphum and in Ayutthaya. Wuxi Suntech Power Co., Ltd. supplied the photovoltaic solar panels. The tariff applicable under each PPA includes an B8 per kWh adder to the wholesale tariff until 2023—10 years from the date of commercial operation. The project achieved commercial operation in March 2013 for Phase 2A and in April 2013 for Phase 2B; project completion under the finance documents was achieved on 3 January 2014. The project will receive only the wholesale tariff rate starting in FY2024. 7. BSE is the project borrower, and BCP is the project sponsor. BSE is a special-purpose company incorporated in Thailand and 100% owned by BCP, a leading integrated oil refining and distribution company in Thailand. BCP was established in 1984 and is listed on the Stock Exchange of Thailand with market capitalization of about B26.6 billion as of 10 August 2020. BCP has initiated a zero-carbon strategy that tracks and monitors its carbon footprint company-wide and implements strategies to offset carbon emissions to reach zero emissions. BCP has won many awards for its high standards of corporate governance and corporate social responsibility. 8. In late 2011, flooding from heavy monsoon rains severely affected at least 63 provinces in Thailand, including Ayutthaya. BPC’s solar power plant in Ayutthaya was adjacent to the Phase 2B project site and was declared total loss by insurers, which delayed the start of commercial operation. Phase 2A is in Chaiyaphum, a province in northeastern Thailand with low flooding risk because it is at least 205 meters above mean sea level (MSL). In contrast, Ayutthaya is in central Thailand where floods had reached as high as 6.25 meters above MSL against province-wide

5 ADB. 2012. Report and Recommendation of the President to the Board of Directors: Proposed Loan and

Administration of Loan for the Provincial Solar Power Project in Thailand. Manila. 6 Government of Thailand, Ministry of Energy. 2015. Thailand Power Development Plan, 2015–2036. Bangkok. 7 The sector review is in Appendix 3.

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flood reserve structures of 6.50 meters above MSL. Learning from the 2011 flood experience, BSE programmed the construction of flood mitigation structures in both sites, with Phase 2B having flood protection of up to 8.50 meters above MSL. The flood protection structures were built before all other facilities. The lenders’ technical advisor opined on the design concepts of the flood mitigation structures and deemed them acceptable. 9. A key risk resulting from the 2011 flooding was the withdrawal of most flood insurance coverage in Thailand. However, the project’s enhanced construction design allowed it to secure an insurance package that covers some flood risk. C. Progress Highlights 10. In October 2015, the lenders approved BCP’s group restructuring plan to spin off its renewable power business to a new subsidiary, BCPG Public Company Limited (BCPG), to create synergy of its business operation and gain access to more funding resources when BCPG is subsequently listed on the Stock Exchange of Thailand. 8 As part of the restructuring, BCP transferred all its shares in BSE as well as ownership of five permitted subsidiaries to BCPG. The permitted subsidiaries with assets totaling B4.0 billion are solar power projects with total capacity of 48 MW and fully funded by BCP equity. The assets transfer reduced BSE’s total assets to B3.5 billion and equity to B2.0 billion as of 31 December 2015. The project and corresponding project loan remained with BSE. The restructuring had no impact on the business operations of BSE and BCP. The lenders also continued to benefit from the security arrangements and conditions in the original financing structure, including the sponsor support from BCP. 11. Following BCPG’s successful listing on the Stock Exchange of Thailand, the lenders approved BCP’s request to include BCPG as sponsor under the SSA and other relevant finance documents. The SSA amendment and restatement and novation agreement was signed on 31 March 2017. ADB approved the request based on BSE’s strong operating and financial performance, BCPG’s satisfactory liquidity and debt service capability, and BCPG’s importance to the BCP group. BCP still holds 70% stake in BCPG and remains BSE’s ultimate parent company. BCPG’s revenue and earnings contributions to BCP are expected to grow and help stabilize the volatility in BCP’s other business operations. BCPG also acquired the entire solar energy business of SunEdison, Inc. in Japan, increasing BCPG’s solar energy capacity to more than 400 MW and making the BCP group one of the largest solar energy players in Southeast Asia. BCPG had a market capitalization of B31.2 billion as of 10 August 2020. 12. The project’s operating and financial results outperformed report and recommendation of the President (RRP) projections. The annual actual output from 2013 to 2019 averaged 74 gigawatt-hours (GWh)—23% higher than the RRP estimates for a P50 scenario.9 Revenues from 2013 to 2019 exceeded RRP base case estimates by 29%. The actual minimum debt service coverage ratio was at 3.72x compared with 2.85x in the RRP.10

8 BCPG was listed on the Stock Exchange of Thailand in September 2016, and the initial public offering for 30% of its

shares raised B5.8 billion. 9 P50 denotes 50% likelihood that the predicted annual energy production or higher will be achieved. 10 The financial analysis is in Appendix 4.

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II. EVALUATION A. Project Rationale and Objectives 13. ADB’s participation in the debt financing helped the project achieve financial closure through the longer tenor and repayment profile and helped the country achieve its goal of developing renewable energy resources to diversify its energy mix, boost energy security, and save foreign exchange by reducing energy imports. The project supported the expansion of environment-friendly technologies for clean and efficient energy generation and use, advanced private sector participation in infrastructure financing, and promoted wider access to energy, consistent with ADB’s Strategy 2020, Energy Policy, and country partnership strategy for Thailand. B. Development Results

1. Contributions to Private Sector Development and ADB’s Strategic Development Objectives

14. The results and ratings for project contributions to private sector development and ADB’s strategic development objectives are in Appendix 2. 15. The project’s overall contribution to private sector development and ADB’s strategic development objectives is satisfactory. The outputs and outcome in the RRP’s design and monitoring framework have all been met. The project was completed on time and within budget. The average annual output of 74 GWh from 2013 to 2019 exceeds the 60 GWh target in the RRP, and about 44,900 tons of carbon dioxide emissions were avoided annually. The project provided jobs to more than 100 people during construction and about 80 people annually during operation. 16. ADB’s investment also encouraged local Thai banks to provide financing to the project. The project was the first private sector project with cofinancing from the CTF administered by ADB. The CTF participated in the financing because the project supports the Thai government’s objective of accelerating and expanding private sector investment in clean energy infrastructure.

2. Environment, Social, Health, and Safety Performance 17. The project was classified as category B for impact on the environment. Based on the review and evaluation of relevant project documents—such as the lenders’ technical advisor monitoring reports, BSE’s annual environment and social monitoring reports, and conference calls with BSE’s technical staff—ADB and national environment, health, and safety (EHS) requirements of the project have been adequately met. The review revealed that BSE has satisfactorily implemented its occupational and community EHS plans from construction to operation. No major construction accidents that caused work stoppage or damage to properties have been reported. There are no public complaints, and the construction passed all inspections by concerned authorities. BSE, with the support of the lenders’ technical advisor and operation and maintenance contractor, is committed to continue the implementation of EHS management plans and apply the International Organization for Standardization (ISO) policies and procedures to maintain smooth operation. BSE will continue to conduct staff capacity training, maintain close collaboration with the host communities, and regularly update EHS management plans to ensure a healthy and safe environment within the solar plants and its surrounding communities.

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18. The project was classified as category C for impact on involuntary resettlement and indigenous peoples. BSE owns the land where the solar farms were built, and no individual or household was physically or economically impacted by the project. Transmission lines were built along the PEA’s right-of-way and did not entail any damage to improvements or structures. No indigenous peoples were impacted by the construction and operation of the solar plants. BSE complied with national labor policies and regulations, and no violation has been reported. No grievances have been received throughout the project, either from within the company or from any of its stakeholders. 19. Based on the above findings, the project’s environment, social, health, and safety performance is satisfactory.

3. Business Success 20. Testing at the start of commercial operation showed that the plants’ output exceeded the guaranteed capacity by an average of 13.16%. The annual average actual output from 2013 to 2019 was 74 GWh, 19% higher than the RRP estimates for a P50 scenario. The project’s financial results outperformed RRP projections. Actual FY2013–FY2019 revenues were 29% higher than RRP base case estimates. Although growth in operating expenditures exceeded revenue growth, it did not have a significant impact on annual income as operating expenditures (excluding depreciation) accounted for only about 7% of revenues. The actual minimum debt service coverage ratio was at 3.72x compared with 2.85x in the RRP. 21. Based on BSE’s financial results for the first quarter of 2020, the project has remained largely unaffected from any adverse impact from the coronavirus disease (COVID-19). Availability factors and performance ratios remained within company expectations, and unaudited financials are broadly in line with the company budget for 2020. However, the COVID-19 pandemic is expected to adversely impact the PEAs as offtakers, although confidence in the state-owned PEAs remains strong given the expectation of continued government support. 22. Based on favorable actual operating and financial results up to 2019, projections to 2037 have been adjusted accordingly. The project will continue to post strong profitability and cash flows.

4. Overall Development Results 23. The project’s overall development results are satisfactory. The project has supported government efforts to increase Thailand’s portfolio of renewable energy generating capacity to 19,634 MW by 2036 or nearly 28% of total installed capacity from 8% in 2014. In addition, implementation of the BCP group’s solar power projects has helped increase the private sector’s participation in Thailand’s renewable energy sector. The project supported the expansion of environment-friendly technologies for clean and efficient energy generation and encouraged private sector participation in infrastructure financing. It has also contributed significantly to ADB’s strategic objectives by having good demonstration effects, setting new standards in long-term project financing, and improving people’s social and economic well-being and overall quality of life. The project has also demonstrated business success, economic sustainability, and sound environmental performance and socioeconomic impact.

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C. ADB Additionality 24. ADB has provided satisfactory support to the project. The 18-year term financing offered by ADB helped the project reach financial close, achieve sound debt service levels over the project life, and mitigate the risk to solar power projects arising from their high upfront investment costs. ADB’s involvement in the project also encouraged local commercial banks to provide term financing to renewable energy projects. ADB shared international best practices in areas such as safeguards and corporate governance. The safeguards team provided guidance on addressing environment and social safeguard issues and reviewed the BCP group’s environment and social management system. ADB also provided guidance on addressing potential shortfall related to flood damage. D. ADB Investment Profitability 25. Under the loan agreement, the interest margin received by ADB for the ordinary capital resources loan was supported by the Office of Risk Management and approved by the Investment Committee and deemed appropriate for this kind of risk. BSE has been making principal and interest payments on schedule and based on the updated projections, the borrower will continue to service debt on time until final maturity. E. ADB Work Quality 26. Screening, appraisal, and structuring. The financing structure arranged by ADB was innovative in addressing the long-term financing need and critical commercial risks of a renewable energy project. The 18-year loan tenor benefited the project’s cash flow and liquidity position by spreading debt repayment over a longer period. By offering a local currency-denominated debt, foreign exchange risk was minimized. BSE also benefited from ADB’s AAA credit rating. ADB executed a local currency swap transaction and passed on its lower funding cost to BSE. ADB succeeded in executing a swap transaction that had a larger amount and longer tenor than what BSE could have achieved at that time. The financing arrangement also included an SSA to cover any cash shortfall in debt service and flood risk. 27. Monitoring and supervision. The deal team closely monitored BSE’s operating and financial performance through regular communication and follow-ups on timely submission of financial statements and semiannual operation reports, which also cover the project’s compliance with its environment and social safeguard policies. ADB has been prompt in responding to BSE’s waiver and approval requests. 28. ADB’s overall work quality is satisfactory.

III. ISSUES, LESSONS, AND RECOMMENDED FOLLOW-UP ACTIONS

A. Issues and Lessons 29. Importance of local currency loan in developing solar power generation projects. ADB’s 18-year baht-denominated loan provided BCP and BSE the tenor needed for the project to be commercially viable. The long-term financing matched the project’s cash flow generation given its long asset life, high upfront investment costs, and low operating costs. The project’s repayment schedule was likewise front-loaded so that at least 78.5% of principal amounts would be paid within the first 10 years of operation while the project benefits from the adder premium. Once the adder is removed, project revenues are expected to still be sufficient to meet the lower

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annual debt repayments. The financing helped reduce the risk perception from commercial lenders and private investors. ADB’s involvement gave local commercial banks the confidence to enter the solar power business. With local commercial banks now more willing to provide longer-term financing, ADB should further develop its local currency loan product to stay competitive. 30. Subsidized tariffs to kickstart renewable energy generation. The first solar power projects in Thailand were commercially viable because of the adder premium payable for the first 10 years of operation. The premium was necessary to incentivize the developers to invest and the banks to provide debt financing. The subsidy has been reduced for new projects as solar photovoltaic technology has become cost competitive with conventional energy technologies. Power utilities and investors must now explore ways to integrate variable wind and solar power in the most efficient and stable manner. Investments in smart grid and storage technologies, for instance, may be needed. 31. Stable regulatory environment. The Government of Thailand established stable, clear, and transparent policies to support the development of more renewable energy generation plants and improve the country’s energy security. The National Energy Policy Council provided the necessary policies, rules, and regulations governing public–private partnerships in electricity generation. The PPAs with the Electricity Generating Authority of Thailand and the PEAs benefit from strong government support. The government’s objective to diversify its energy sources and encourage the use of renewable energy is supported by a transparent tariff-setting mechanism, which helped attract private sector investments. 32. Enhancement of project design. The project benefited from the unfortunate experience of BCP’s first solar project in Ayutthaya during the 2011 flooding. The project design was enhanced to incorporate construction design to mitigate flood risk, especially in Ayutthaya. This helped the project secure an insurance package that covers some flood risk and supplemented by the SSA. B. Recommended Follow-Up Actions 33. ADB should closely monitor the project’s operating and financial performance given its long asset life and termination of the adder subsidy in 2023. There is also a need for closer supervision and monitoring to ensure that the project’s environmental management plan is implemented as planned. 34. The increasing proportion of variable renewable energy generation brings new challenges to the power sector in Thailand. One challenge is how to integrate larger amounts of variable generation without adversely affecting grid stability. ADB could build on its technical capability and knowledge network to advise stakeholders on how to address this issue. For instance, ADB could continue supporting the Thai power sector through policy dialogue, technical assistance, and financing of smart grid technologies or storage to address variable renewable energy integration. ADB has at least one battery storage project in its development pipeline for Thailand.

8 Appendix 1

PROJECT-RELATED DATA

Table A1.1: Investment Identification Item Description

1. Country Thailand 2. Project number 45923-014 3. Loan numbers 2875 (ADB), 8256 (CTF) 4. Type of business Solar power generation 5. Project title Provincial Solar Power Project 6. Investee company and/or borrower Bangchak Solar Energy Company Limited 7. Amount of approved ADB assistance B780 million (ADB’s OCR) $15 million (CTF) ADB = Asian Development Bank, CTF = Clean Technology Fund, OCR = ordinary capital resources. Source: ADB. 2012. Report and Recommendation of the President to the Board of Directors: Proposed Loan and

Administration of Loan for the Provincial Solar Power Project in Thailand. Manila.

Table A1.2: Investment Data

Item Description

1. Concept clearance approval 14 November 2011 2. Date of Board approval 25 June 2012 3. Signing date of loan agreement 12 December 2012 4. Date of loan effectiveness 11 April 2013 5. Amount and date of initial disbursement B718.9 million (ADB) $112.6 million (CTF) 30 April 2013 ADB = Asian Development Bank, CTF = Clean Technology Fund. Source: ADB.

Appendix 2 9

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

Results Area Actual Achievements Justification Potential Future Achievements

1.1 Improved skills. New or strengthened strategic, managerial, operational, technical or financial skills

Expertise in large solar technology and wind power introduced

The project is the BCP group’s second large solar power project and developed additional solar projects totaling 48 MW. The group is developing more renewable energy projects and started a wind power project in 2018.

The BCP group plans to develop more renewable energy projects as part of its goal to be carbon neutral.

1.2 Improved business operations. Improved ways to operate the business and compete, as seen in investee operational performance against relevant best industry benchmarks or standards

BCP’s capacity to operate large renewable energy projects strengthened to diversify to clean energy businesses

BCP has established BCPG to manage all renewable energy projects. BCPG is now listed on the Thai stock exchange. The company developed a wind power project in 2018.

The BCP group plans to develop more renewable energy projects as part of its goal to be carbon neutral.

1.3 Improved governance. As evident in set standards related to corporate governance, stakeholder relations, EHS fields, and/or energy conservation, and their implementation

Environment and social management system established, and safeguards monitoring and compliance improved

The BCP group still has room for improvement as regards ESHS monitoring and reporting.

The group is expected to achieve higher standards of CSR and safeguards monitoring and reporting.

1.4 Innovation. New or improved infrastructure design, technology, and service delivery; ways to cover or contain costs, manage demand, or optimize utilization; improved risk allocation between private companies and government; financial structure, etc.

Enhanced construction design to mitigate flood risk incorporated Local currency swap

The BCP group learned from the 2001 flooding that completely damaged its first solar project in Ayutthaya. This project adopted design changes to mitigate flood risk. This helped the project secure an insurance package that also covers flood risk. The financial structure was innovative in covering certain critical commercial risks. Introducing a local

Design improvements will be applied in future renewable energy power projects. ADB’s local currency product will be developed to finance

10 Appendix 2


currency loan through a cross-currency swap agreement covered the borrower’s currency risks.

projects that match revenue currency.

1.5 Catalytic element. Mobilizing or inducing more local or foreign market financing or foreign direct investment in the company

Model for large solar power projects demonstrated Diversification to renewable energy achieved

The project was the third large solar power project developed in Thailand. At that time, long-term financing for such projects was still not readily available. This project further encouraged the BCP group to develop more solar projects and recently started a wind power project.

The continued financial success of the BCP group’s solar projects will encourage more investments in renewable energy power generation. The BCP group is expected to expand further its involvement in renewable energy.

2.1 Private sector expansion. Contribution by a pioneering or low-profile project that facilitates in its own right, or paves the way for, more private participation in the sector and economy at large

Number of new investments and jobs increased

By October 2015, 290 VSPP PPAs were signed with the PEA or the MEA for a total selling capacity of 939 MW.

The Ministry of Energy targets renewable energy projects with total capacity of about 2,000 MW for 2017–2036.

2.2 Competition. Contribution of new competition pressure on public and other sector players to raise efficiency and improve access and service levels in the industry

PPAs under the VSPP program implemented successfully

The project has demonstrated the commercial viability of the VSPP program.

Private sector interest and participation in developing projects under the government’s incentive schemes will be continued.

2.3 Demonstration effects. Adoption of new skills, improved infrastructure assets and services, more efficient processes, maintenance regimes, improved standards, risk allocation, and mitigation beyond the project company

The project has demonstrated high production efficiencies, with annual output exceeding RRP projections even at P50 level.

The BCP group’s successful solar projects encouraged the development of more renewable energy projects.

The private sector can branch out to other renewable energy technologies, especially with government support.

Appendix 2 11


2.4 Linkages. Relative to investments, the project contributes notable upstream or downstream linkage effects to business clients, consumers, suppliers, key industries, etc. in support of growth.

Downstream use of clean energy increased Suppliers’ expertise improved, resulting in lower production cost of photovoltaic solar panels

The project contributed to greater use of clean energy in the country. It developed and disseminated local expertise of its employees, contractors, and business partners to operate the world-class solar plant facility. The project’s suppliers of also benefited because it showcased the reliability of the technology. The project also led to more technical expertise in the installation of the solar panels by the local EPC partner.

Greater efficiencies in project development and costing for future projects will be explored.

2.5 Catalytic element. Mobilizing or inducing more local or foreign market financing or foreign direct investment in the sector (beyond the company) through pioneering or catalytic finance

Innovative local currency long-term financing with matching cross-currency swap implemented, allowing the project to benefit from ADB’s AAA credit rating with lower interest rates Project implemented successfully, encouraging local commercial banks to provide more long-term debt financing for renewable energy projects

The BCP group developed more renewable energy projects with ADB providing financing to the wind power project.

Increased longer-term financing will be available from local commercial banks.

2.6. Affected laws, frameworks, regulation. Contributes to improved laws and sector regulation for PPPs, concessions, joint ventures, and build–operate–transfer projects; and liberalizing markets as applicable for improved sector efficiency

The financial viability and sustainability of investing in a solar power plant in the current regulatory environment demonstrated

The power sector is expected to grow further with greater contribution from renewable energy and continued support from the Thai government. The government plans to increase installed solar capacity to 6,000 MW by 2036. The National Energy Policy Council has progressively replaced adder-rate

New power projects using other renewable energy technologies, such as wind power, will be developed.

12 Appendix 2


payment structures with a feed-in tariff in which a fixed amount per kWh is paid during the PPA’s life. This fixed rate would be less volatile for the offtaker and could provide entrants with longer financial certainty (as much as 20 years).

3.1 Sector development outputs. Contribution to other sector development outputs not captured under point 2, such as capacity or network expansion

Contribution to the government’s solar generation target achieved Energy security for Thailand improved and import of energy from neighboring countries reduced

The project’s electricity output averaged 74 GWh annually from 2013 to 2018. The power sector continues to benefit from government support.

The government plans to increase installed power generation capacity to 70 GW with renewable energy contributing 19 GW by 2036.

3.2 Sector development outcomes. Contribution to other sector development outcomes not captured under point 2, such as increased infrastructure utilization or consumption, improved in-country connectivity, improved energy security

Energy security improved Solar energy, being an indigenous energy resource, reduces the country’s reliance on imported fuel and energy.

Installed power generating capacity will increase with continued government support.

3.3 Inclusion. Improved access to, availability, or affordability of infrastructure services for the poor and other disadvantaged groups

Dependable capacity increased, generally benefiting the poor by adding to energy security in the area of electricity

The BCP group developed four additional solar projects with aggregate capacity of 48 MW thereby providing additional reliable electricity generation to the system.

Provision of reliable electricity to the grid will continue.

3.4 Job creation. Creation of additional sustainable jobs or self-employment; distinguish between jobs created within and beyond the company

Jobs provided, turning the BCP group into a major employer in Ayutthaya and Chaiyaphum

More than 100 people involved in construction and more than 80 people hired during operation.

The BCP group will continue to employ locally.

3.5 Environmental sustainability. Project net impact on GHG emissions; any

Annual GHG emissions of more than 40,000 tons of carbon dioxide avoided

This is consistent with BCP’s plan to be carbon neutral.

BCP will continue to provide environment-friendly electricity and

Appendix 2 13


other contributions to environmental improvements

reduce carbon emissions.

3.6 Regional integration. Project contributions to regional cooperation and integration by facilitating trade, cross-border mobility, cross-border power supplies, etc.

Photovoltaic solar panels purchased from Wuxi Suntech Power Co., Ltd. in the People’s Republic of China

Continued business expansion leads to increased trade flow. Suntech also provided solar panels for BCP’s other projects.

The BCP group is expected to develop more renewable energy projects.

ADB = Asian Development Bank, BCP = Bangchak Petroleum Public Company Limited, BCPG = BCPG Public Company Limited, CSR = corporate social responsibility, EHS = environment, health, and safety, EPC = engineering, procurement, and construction, ESHS = environment, social, health, and safety, GHG = greenhouse gas, GW = gigawatt, GWh = gigawatt-hour, kWh = kilowatt-hour, MEA = Metropolitan Electricity Authority, MW = megawatt, PEA = Provincial Electricity Authority, PPA = power purchase agreement, PPP = public–private partnership, PSD = private sector development, RRP = report and recommendation of the President, VSPP = very small power producer. Source: Bangchak Petroleum Public Company Limited.

14 Appendix 3

SECTOR REVIEW A. Sector Framework 1. The power sector in Thailand is managed by the National Energy Policy Council (NEPC), established under the National Energy Policy Council Act, 1992. The Energy Policy Committee has been established to assist with the work of the NEPC.1 The Energy Policy and Planning Office acts as the secretariat to NEPC and is responsible for drafting all energy-related policies and proposing development plans. 2. The NEPC recommends national energy policy and energy management and development plans to the Cabinet of Ministers and to lay down rules and conditions for prescribing energy prices in Thailand. Among its responsibilities is to monitor, supervise, coordinate, support and expedite the operations of all committees, government agencies, and state and private enterprises related to energy so that their operations follow the National Energy Policy and the National Management and Development Plan. The Energy Regulatory Commission regulates the power sector, monitors energy market conditions, reviews tariffs, issues licenses, approves power purchases, and considers development planning and investment in the power sector. 3. The Electricity Generating Authority of Thailand (EGAT) is Thailand’s principal offtaker, system operator, and leading state-owned power utility under the Ministry of Energy. In addition to its power generation and transmission mandate, it is a buyer of electricity produced by private producers 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. The MEA handles end users in Bangkok, Nonthaburi, and Samut Prakan, while the PEA caters to retail customers and industrial users in the areas beyond the MEA’s scope. 4. Thailand uses the enhanced single buyer structure for its power sector, with EGAT, the MEA, and the PEA acting as sole buyers of electricity from private power projects. EGAT is obligated to purchase all electricity generated from renewable sources. 5. Consumers can own and operate power generation facilities for their own use and may sell excess power to EGAT, the MEA, or the PEA. There are three types of private power projects: independent power producers whose capacity is above 90 megawatts (MW) with offtake by EGAT; small power producers whose capacity is up to 90 MW with offtake by EGAT; and very small power producers (VSPP), which are small, renewable projects with capacity up to 10 MW and offtake by the MEA or the PEA. B. Electricity Demand 6. Thailand has one of the largest energy markets in Southeast Asia.2 From 2009 to 2017, demand in the power sector grew at an annual average growth rate of 3.5% but dropped by 0.8% in 2018 (–240 MW).3 Peak demand rebounded in 2019 and reached 30,853 MW (+2,515 MW) during the hot month of April.4 Power demand is forecast to grow 2.67% annually until 2036. By 2036, the expected energy demand would be 326,119 gigawatt-hours and the expected power

1 http://www2.eppo.go.th/doc/doc-manage.html 2 Government of Thailand, Ministry of Energy, Energy Policy and Planning Office. Economic Data and Analysis.. 3 ADB. 2019. Report and Recommendation of the President to the Board of Directors: Proposed Loan and

Administration of Loan to Lomligor Company Limited for the Southern Thailand Wind Power and Battery Energy Storage Project in Thailand. Manila.

4 ADB. 2020. Thailand: Energy Sector Assessment, Strategy, and Road Map. Manila.

Appendix 3 15

demand would be 49,655 MW based on average gross domestic product growth of 3.94% from 2014 to 2036 and average population growth of 0.03%.5 However, projected growth is likely to decelerate in the next 2 to 5 years because of the coronavirus disease (COVID-19) pandemic. C. Electricity Supply 7. As of December 2019, 212,049 gigawatt-hours of electricity were generated from natural gas (57%), imports and renewables (22%), coal and lignite (18%), hydro (3%), and others (<1%). The country’s overreliance on natural gas and its exposure to oil price volatility make it more prone to political and economic risks, and the government recognizes the need to increase the role of alternative energy. Thailand has set a target that at least 25% of electricity will be generated from renewable energy sources by 2036. Based on the Thailand Power Development Plan, 2015–2036, total generating capacity is projected to grow to 70,335 MW by 2036, with new capacity accounting for 57,459 MW. By 2036, renewable energy capacity is expected to reach 19,634 MW, with solar contributing 6,000 MW. D. Tariff Structure 8. The electricity tariff rates for EGAT, the MEA, and the PEA are closely regulated by the Energy Regulatory Commission and approved by the NEPC and the Cabinet of Ministers. The tariff structure is set to (i) reflect economic costs and promote efficient electricity use, (ii) secure the financial health of the three state power utilities, (iii) be fair to all power consumer categories by reducing cross subsidization, and (iv) adjust tariffs through a flexible and automatic mechanism. 9. Thailand’s electricity tariff structure has two components. The first component is the base tariff, which is a bulk supply tariff summing the wholesale tariff that EGAT charges the MEA and the PEA and the fixed retail tariff that the MEA and the PEA charge power consumers 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 there are changes in the base case assumptions beyond the control of EGAT, the MEA, and the 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 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. 10. The Provincial Solar Power Project was developed under a tariff structure that provided eligible projects with a feed-in premium on top of the base tariff payment (i.e., the adder scheme). It has benefited from an B8 per kilowatt-hour (kWh) adder, which will expire in 2023. In 2014, the adder scheme was replaced by a feed-in tariff (FIT) scheme for new projects, wherein a fixed amount per kWh is paid during the life of the power purchase agreement. Initially, these new projects were procured on a first come, first served basis. A reverse auction system was later adopted, wherein bidders compete based on their proposed discount to the published FIT. All FITs cover a 20-year period, except for landfill gas projects, where the FIT applies for 10 years. In the small power producer hybrid firm tender conducted in 2017, the average bid received was $0.0739 per kWh compared with the FIT ceiling of $0.1109 per kWh.

5 Government of Thailand, Ministry of Energy. 2015. Thailand Power Development Plan, 2015–2036. Bangkok.

16 Appendix 4

FINANCIAL ANALYSIS 1. The Asian Development Bank (ADB) assistance is a limited recourse loan provided to Bangchak Solar Energy Company Limited (BSE) for the construction of two multicrystalline photovoltaic solar power plants operating under four standard renewable energy power purchase agreements of 8 megawatts each with the Provincial Electricity Authority (PEA) in Chaiyaphum Province (Phase 2A) and in Ayutthaya Province (Phase 2B). The loan agreement was signed on 12 December 2012 for B753.78 billion for the ADB direct loan, including contingency of B34.92 million, and $12.15 million for the Clean Technology Fund (CTF) loan, including contingency of $0.55 million.

A. Project Investment and Financing 2. The project achieved commercial operation in March 2013 for Phase 2A and in April 2013 for Phase 2B, with debt-to-equity ratio of 48:52. BSE completed the project within budget and did not need to draw on the contingency. Project Performance 3. Testing at the start of commercial operation showed that the plants’ output exceeded the guaranteed capacity by an average of 13.16%. The annual average actual output from 2013 to 2019 was 74 gigawatt-hours, 23% higher than RRP estimates for a P50 scenario.1 This led to higher revenues and net income as well as better debt service coverage than forecasts. 4. The project’s financial results outperformed RRP projections. Actual FY2013–FY2019 revenues were 29% higher than RRP base case estimates. Although growth in operating expenditures exceeded revenue growth, it did not have a significant impact on annual income as operating expenditures (excluding depreciation) accounted for only about 7% of revenues. The actual minimum debt service coverage ratio was at 3.72x compared with 2.85x in the RRP. Table A4.2 shows the actual operating results of the project in its first 7 years of operations. 5. Based on BSE’s financial results for the first quarter of 2020, the project has remained largely unaffected by any adverse impact from the coronavirus disease (COVID-19). Availability factors and performance ratios remained within company expectations, and unaudited financials are broadly in line with the company budget for 2020. While the COVID-19 pandemic is expected to adversely impact the PEAs as offtakers, confidence in the state-owned PEAs remains strong given the expectation of continued government support. The financial projections assume that the project will continue to operate at capacity.

Table A4.1: Assumed and Actual Operating Results (B million)

FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 Average

Total Revenues Actual 684 919 890 843 836 835 853 RRP 626 722 693 666 639 614 589 % change 9.3 27.3 28.4 26.5 30.8 35.9 44.7 29.0

Total Operating Expenses Actual (45) (55) (49) (55) (63) (69) (63) RRP (35) (41) (41) (41) (41) (41) (50) % change 27.4 34.9 20.4 35.0 52.6 68.9 26.9 38.0

Net Income Actual 468 642 614 582 574 583 614

1 P50 denotes 50% likelihood that the predicted annual energy production or higher will be achieved.

Appendix 4 17

RRP 383 463 469 474 480 487 481 % change 22.2 38.5 31.1 22.7 19.5 19.8 27.7 25.9

DSCR Actual 4.77x 4.11x 4.01x 3.81x 3.72x 3.72x 3.84x RRP 2.96x 2.88x 2.87x 2.87x 2.87x 2.86x 2.85x

( ) = negative, DSCR = debt service coverage ratio, FY = fiscal year, RRP = report and recommendation of the President. Source: Bangchak Solar Energy Company Limited annual reports.

B. Key Base Case Assumptions 6. Foreign exchange rate and inflation rate. BSE’s operational currency is the baht. The base case model assumes a constant exchange rate of B31 = $1. Debt and equity financing are both assumed to be denominated in baht, as are all project revenues. While the CTF loan is denominated in United States dollars, BSE entered a cross-currency swap with a local bank lender to mitigate currency mismatches. Most project capital expenditures are denominated in baht, as are all operating expenses, such as maintenance, salaries, and insurance. The base case projections use the actual Thai consumer price index for FY2013–FY2019, while inflation from FY2020 onward was assumed at 1.1% per year. 7. Revenue. Actual FY2013–FY2019 project revenues from the two ADB-financed plants were used, adjusted to exclude revenues from subsidiaries. Capacity is assumed at current actual levels. The purchase rate for the generated electricity from BSE comprised the wholesale tariff and the adder for the first 10 years. Once the adder is removed in FY2024, the assumed tariff will be at the estimated market rate plus an annual growth rate of about 2.0%. However, the tariff increase will be slightly offset by an assumed annual degradation of 0.8%. 8. Operating expenses. Actual FY2013–FY2019 operating costs from the two ADB-financed plants were used, adjusted to exclude costs from investing in subsidiaries. Operating expenses include maintenance, salaries, general and administration expenses, and insurance. All cost items are denominated in baht and assumed to inflate along with the Thai consumer price index throughout the projection period. 9. Depreciation and maintenance. Consistent with the terms of the photovoltaic module warranty from the engineering, procurement, and construction consortium, the project adopted a straight-line depreciation method over 25 years. During operation, the inverters will benefit from extended warranty coverage that exceeds the full term of the debt and therefore will not expose the project to any material capital expenditures for replacement. 10. Taxation. For the calculation of taxable income, a holiday on corporate income tax for 8 years from the start of operation is reflected for BSE. BSE will start paying corporate income taxes at a rate of 15% on taxable income for the following 5 years and a regular income tax rate of 20% for the rest of the project life.

18 Appendix 5

ENVIRONMENTAL IMPACT A. Introduction 1. Bangchak Solar Energy Company Limited (BSE) developed two solar farm projects with a total capacity of 32 megawatts. Phase 2A occupies an area of about 41.12 hectares in Baan Phet Subdistrict, Bamnet Narong District, Chaiyaphum Province, which is about 340 kilometers northeast of Bangkok. Phase 2B is in the Hunsang and Tub Namin subdistricts in Bang Pa-hun District, Ayutthaya Province, which is about 40 kilometers north of Bangkok. Phase 2B occupies a total area of 47.5 hectares. The commercial operation of Phase 2A was successfully achieved on 6 March 2013 and Phase 2B was successfully achieved on 8 April 2013. The project consisted of the following works and equipment: (i) civil works of the site, (ii) substation, (iii) support structure and photovoltaic module installation, (iv) water retention pond, and (v) distribution line systems connecting the project with the Provincial Electricity Authority (PEA) system. The project was designed to provide safe and clean renewable energy with minimal environmental impacts compared with traditional power generation fueled by coal or natural gas. The project is part of Thailand’s very small power producer program and has a 5-year power purchase agreement with the PEA, with automatic renewal or extension for the next 5 years until the end of the agreement.1 Electricity generated from the solar power plants is sold to the PEA. 2. Because of the coronavirus disease (COVID-19) pandemic, no actual site inspection was conducted and this report is based on the following: environment and social questionnaire filled up by BSE, conference calls with the borrower, and monitoring reports submitted by BSE. BSE also provided additional information to facilitate the assessment of project performance and compliance with Asian Development Bank (ADB) safeguard requirements and applicable national and local environment and social laws and regulations. B. Desk Review Findings 3. Compliance with ADB and national environment, health, and safety regulations. As the project was classified as category B for the environment, BSE prepared an initial environmental examination report to comply with ADB Safeguard Policy Statement (2009) requirements.2 A lenders’ technical advisor (LTA) was engaged to monitor project construction and operation activities, and provide advice in all technical; environment, health, and safety (EHS); and management issues that may have a material impact on the project’s financial standing and success. The LTA confirmed that BSE has obtained all required permits and licenses3 before construction and operation. No government regulatory fines or violations have been charged against BSE. 4. Environmental impacts during construction. The project’s environmental impacts were assessed to be minor and temporary during construction, and few and limited during operation. The project area is not in a national forest reserve zone or a wildlife sanctuary. No endangered flora and fauna species were found in the project area. Short-term and minimal impacts on ambient air quality in the form of dust, exhaust gases, and noise from the operation of construction

1 BSE installed about 84,760 photovoltaic multicrystalline solar panels for each project phase. The photovoltaic

modules are the HiPerforma Pluto 295-Vdm model made by Wuxi Suntech Power Co., Ltd. Spare photovoltaic modules are kept inside the main control building.

2 For solar power projects, Thailand’s Ministry of Natural Resources and Environment does not require the preparation and submission of an environmental impact assessment.

3 Permits for landfilling, construction, connection to the public road, groundwater or surface water extraction, factory operation, electricity generation, and generation of regulated energy.

Appendix 5 19

equipment and delivery trucks have been immediately addressed. The engineering, procurement, and construction contractor handles the implementation of the environmental management plan as presented in the initial environmental examination during construction. The LTA validated the engineering, procurement, and construction contractor’s monthly construction progress through site visits and meetings with BSE and submitted corresponding reports. All construction workers received training on safety and occupational health management during construction. The workers were provided with protective equipment, such as safety helmets, goggles, gloves, and boots. Consequently, throughout construction, no major accidents that caused work stoppage or damage to properties were recorded. The contractor appointed a safety manager to manage the environmental management plan implementation under BSE’s supervision. No public complaints have been raised, and construction activities passed all inspections by responsible authorities. 5. Environmental management and monitoring during operation. The operation of a solar power project neither creates significant pollution nor exploits a considerable amount of natural resources. Solar power plants consume natural and renewable raw material (sunlight) to produce electricity with their photovoltaic equipment. The project does not generate any harmful atmospheric emissions, effluents, or solid contaminants during operation. Residents did not raise any notifications or complaints regarding impacts from the light and illuminations from the solar panels. Surface water samples were collected and analyzed for temperature, pH, dissolved oxygen, biochemical and chemical oxygen demand, total suspended solids, oil, and grease; and were found to have met the required national standards. Municipal water (i.e., tap water) is used for photovoltaic module cleaning and therefore has no impact on groundwater quality. BSE decided to stop using underground water because of the high operating cost of the water treatment system. There is no impact on the water quality of nearby rivers or creeks because the wastewater from solar panel cleaning contains only dust and is drained into the soil within the sites. 6. Occupational and community health and safety activities. The EHS manual of Bangchak Petroleum Public Company Limited, BSE’s parent company, has been adopted and is being as a guide to address any issues on occupational and community health and safety (e.g., emergency incidents). An emergency response and evacuation plan provides guidelines, direction, and supporting information to all personnel and visitors to ensure expeditious response, minimize the loss of lives, and reduce injuries and property damage. 4 The plant operation manager, who also acts as the EHS officer and emergency response team manager, handles the overall management and coordination of emergency operations. A first aid team was trained on more advanced needs that might arise during emergency cases. The company installed a fire protection system—smoke detector, push button, and alarm unit—at the control building and several fire extinguisher-type carbon dioxide units in all inverter building control rooms, including the guardhouse and generator room. All sites are built with a flood protection system, including a perimeter flood protection dike, water retention pond,5 pumping station, and stormwater drainage system.6 The ponds were built to reduce the impact of rainwater runoff, which may cause flash floods during heavy rains, from the project sites to the surrounding villages. All damaged and/or defective solar panels are disposed by (i) engaging a registered company to collect, transport, and dispose to a government-designated dumping area or landfill since no recycling company is available in Thailand now; or (ii) returning all damaged or defective solar panels to the original

4 The plan describes the characteristics of different types of emergencies (e.g., fires and explosions, oil and chemical

spills, medical emergencies, bomb threats, floods, adverse weather, and pandemics) and sets out measures to be taken by all project site personnel in the event of an emergency.

5 The capacity of the retention pond is 80,000 cubic meters for BSE-2A and 40,232 cubic meters for BSE-2B. 6 The site perimeter and stormwater drainage system were designed to carry runoff to the on-site retention pond. The

pumping system is used to manage the water level in the retention pond and in the public canal during heavy rains.

20 Appendix 5

supplier. BSE has made it a policy to not donate broken or damaged solar photovoltaic panels to the community for safety reasons. Damaged and/or defective solar panels are temporarily stored inside the solar farm complex before they are collected or returned to the supplier. Regular site inspection of the physical and structural conditions of the water retention ponds, concrete dike along the site boundary, mounting structures and foundations, electric fence, and wiring connections are carried out. Observations such as cracks, soil settlement, soil erosion, or corrosion are recorded and immediately fixed to avoid any major structural damage that might harm the workers and the community, stop solar farm operations, or damage properties. 7. Environment, health, and safety staff capacity and training programs. The following training activities have been provided on an annual basis to BSE staff during operation: (i) firefighting training and fire drill, (ii) safety measures when working on electrical equipment, (iii) health and safety in the workplace, and (iv) emergency response for chemical spillage. BSE has also offered technical training related to operation and maintenance (O&M) activities to relevant personnel to help develop staff competency and improve EHS management and plant maintenance quality. Solartron Public Company Limited is the O&M contractor for both sites and was mobilized when plant operation started. BSE supervises the O&M staff and its preventive and corrective maintenance activities. The O&M contractor team is composed of 1 engineer, 6 technicians, and at least 20 workers. The engineer and technicians handle all O&M works, routine works, supervisory control and data acquisition (SCADA) monitoring, plant walkdowns, report preparation, and inspection. The workers handle photovoltaic module cleaning, vegetation control, and office cleaning. Most dust particles on the photovoltaic modules come from crop residue burning at the nearby sugar cane and cassava farmland. Photovoltaic modules are cleaned up to twice a month depending on the photovoltaic module surface condition. Preventive maintenance has been properly scheduled and meets industrial standard practice. There are seven security guards outsourced from the War Veterans Organization of Thailand; three guards work during the day and four guards work the night shift. Staff members must undergo annual medical check-ups. 8. Status of International Organization for Standardization certification. Both Phase 2A and Phase 2B solar farms have received International Organization for Standardization (ISO) certification for ISO 14001:2015 (environmental management system) and ISO 9001:2015 (quality management system) on 16 May 2018, and Occupational Health and Safety Management System (OHSAS) certification for OHSAS 18001:2007 on 14 May 2018. The migration from OHSAS 18001 to ISO 45000 happened on 27–30 April 2020. C. Conclusion and Recommendation 9. Based on the review and evaluation of relevant project documents—such as LTA monitoring reports, BSE’s annual environment and social monitoring reports, and conference calls with BSE’s technical staff—ADB and national EHS requirements of the project have been adequately met. The review revealed that BSE has satisfactorily implemented its occupational and community EHS plans from construction to operation. No major construction accidents that caused work stoppage or damage to properties have been reported. There are no public complaints, and construction passed all inspections by concerned authorities. BSE, with LTA and O&M contractor support, is committed to continue implementing the EHS management plans and applying ISO policies and procedures to maintain smooth operation. BSE will continue to conduct staff capacity training, maintain close collaboration with the host communities, and regularly update EHS management plans to ensure a healthy and safe environment within the solar plants and its surrounding communities.

Appendix 6 21

SOCIAL IMPACT A. Introduction 1. The Provincial Solar Power Project was developed and implemented in two phases: Phase 2A in Chaiyaphum Province and Phase 2B in Ayutthaya Province. The project has a total capacity of 32 megawatts using multicrystalline photovoltaic technology. No actual site visit was undertaken because of the coronavirus disease (COVID-19) pandemic, and information in this report was based on the following: teleconference with Bangchak Solar Energy Company Limited (BSE) staff, environmental and social questionnaire filled up by the borrower, and monitoring reports submitted by BSE. B. Findings 2. Social safeguards. The project was classified as category C for involuntary resettlement and indigenous peoples under the Asian Development Bank Safeguard Policy Statement (2009). The sites where phases 2A and 2B were constructed are owned by BSE and acquired on a willing buyer, willing seller scheme. The transmission lines were built along the right-of-way of the Provincial Electricity Authority (PEA) and did not require further land acquisition. Establishing the project, including the transmission line, did not lead to physical or economic displacement. No grievances or cases were filed in relation to the land where the solar plants are located. The project did not lead to any impact on indigenous peoples as the area is not within any ethnic or tribal domain or land used, claimed, or owned by any ethnic groups.

Table A7.1: Project Land Requirement Component Phase 2Aa Phase 2Bb Remarks

Solar plant, including other facilities (access road, switchyard, administration building)

41.12 ha 47.52 ha The land was purchased on a willing buyer, willing seller scheme. The land purchase did not lead to any involuntary resettlement impact.

Transmission line 7.5 km 1.76 km The transmission lines were built within the PEA’s right-of-way and did not entail any damage to improvement or structures.

ha = hectare, km = kilometer, PEA = Provincial Electricity Authority. a Phase 2A is in Baan Phet Subdistrict, Bamnet Narong District, Chaiyaphum Province. b Phase 2B is in the Hunsang and Tub Namin subdistricts in Bang Pa-hun District, Ayutthaya Province. Source: Bangchak Solar Energy Company Limited.

3. During peak construction, BSE was able to engage at least 685 workers for both sites. Of this number, 60%–70% (411–480 people) were from local communities and held mostly unskilled jobs. BSE has 84 workers at both sites, and 12–18 of these workers oversee module cleaning and were recruited from the local communities. BSE strictly supervised the contractor in implementing all measures to ensure workers’ health and occupational safety. All construction workers received protective equipment and training on safety and occupation health management. BSE and its contractors complied with applicable national labor laws and adhered to internationally recognized core labor standards. BSE submitted compliance reports during construction to the Energy Regulatory Commission every 6 months.

22 Appendix 6

Table A7.2: Employment Generation During Construction Position Phase 2A Phase 2B Total

Skilleda 100 58 158

Semiskilledb 36 8 44

Unskilled 209 274 483

Total 345 340 685 a Skilled position include project manager, site manager and/or engineer, supervisor and/or foreman, safety supervisor,

headperson, administrator, monitoring and supervision engineer, drafter, and welder. b Drivers are considered a semiskilled position. Source: Lenders’ technical advisor’s quarterly report dated 31 January 2013.

4. Consultation, participation, and grievance redress. BSE conducted public consultation on both sites as part of its information campaign about the project. Public consultation for Phase 2A was held on 18 April 2012 while that for Phase 2B was done on 11 September 2011. In both instances, the participants comprised village representatives, central and local government representatives, and representatives of independent entities within a 2-kilometer radius from the project sites. Participants had no objection to the project but asked about the benefits the community can derive from the project. No community engagements were reported to have been conducted during the operation of the power plants. In keeping with BCPG Public Company Limited’s Good Corporate Governance Policy, BSE has a grievance redress mechanism in place. No grievances have been received throughout the project, either from within the company or from any of its stakeholders. 5. Corporate social responsibility. BSE consistently implemented corporate social responsibility projects in the two project sites throughout the project. These consist of plant visits by local government officials, students, and community leaders; scholarships at local schools; support for learning activities of local students; gift giving on Children’s Day; and sponsorship of sports activities. Although the project was categorized no gender elements with regards to gender mainstreaming, these activities benefited women and girls in both project sites. C. Conclusion and Recommendation 6. Based on the review of relevant documents, BSE’s performance is satisfactory.