The Cambodian Electricity Market

35 Picosol- Solar Powered Center[2] With a total installed electricity capacity of 360 MW, Cambodia currently imports 45% of its electricity from Thailand, Vietnam, and Laos. The high cost of imported diesel fuel, fragmented supply system, and lack of consumer subsidies lead to high tariffs—energy prices in Cambodia are among the highest in the region, second only to the Philippines. In 2011, the retail electricity rates ranged from $0.19 USD/kWh in Phnom Penh, $0.25 – $0.40 USD/kWh in other grid-connected areas, and up to $0.50 – $1.00 USD/kWh in rural areas (mostly diesel generators).

Cambodia also has the lowest electricity access rate of any of the 12 countries PFAN-Asia covers with only 31% of the population currently connected to the grid. The government has set ambitious targets to combat Cambodia’s slow energy sector development, including increasing village electrification to 100% by 2020 and individual household electrification to 70% by 2030. But, between now and then, millions of lives will continue to be adversely impacted by the lack of affordable and reliable electricity.

The enabling environment is also extremely challenging. Not only does Cambodia lack feed-in-tariff subsidies for renewable energy, the national electricity utility does not even allow independent power producers to feed energy into the grid—at any price. Moreover, the national grid extension plans are not clear, causing significant uncertainty and risk for power project developers who are weighing investments that can often require more than ten years of visibility to properly assess.

However, it’s not all bad news for renewables. Cambodia possesses immense natural resources that can fuel substantial renewable energy generation. Hydro, solar, biomass, and biogas are in abundance and comprise the majority of the country’s potential renewable energy resources, including 1,400MW wind, 10,300MW hydro, 6,700MW solar, and 16,400MW biofuels. To date, less than 1% of this potential capacity has been developed.

Cambodia Country Assessment Summary

The Opportunity for Off-grid Solar
Against the backdrop of this challenging environment, we believe there are significant opportunities for pioneering private-sector businesses to develop, innovate, and implement profitable business models using solar photovoltaics (PV) technology that can result in significant social and economic returns. The confluence of the following macro factors provide long-term, sustainable growth in this sector for those that are able to successfully navigate and overcome its implementation challenges:

  • High electricity tariffs – As previously mentioned, electricity tariffs in Cambodia are amongst the highest in the region and vary widely, ranging anywhere between $0.19 – $1.00 USD/kWH (possibly even higher in some areas), and is subject to continuous fluctuation due to a number of variables that impact the cost of fuel for generation.
  • Low rates of electricity access – With large parts of the country yet to be electrified, there remains many opportunities for private-sector businesses to fill in existing gaps.
  • Rapidly increasing GDP – With a forecasted GDP growth rate of over 7% in 2014 and 2015, increasing economic activity in the country will enable greater ability and demand for basic services such as electricity. The growth rate in electricity demand is estimated at around 20% per a year.
  • Declining costs of solar PV With costs having already decreased in the neighborhood of 80% in the past five years alone, solar PV technology development has driven down costs and will likely continue to do so – albeit, perhaps less aggressively – for years to come.
  • Uncertain fossil fuel prices – The continuing depletion of fossil fuel reserves combined with rapidly increasing demand from developing countries and rising global population will result in significant long-term price uncertainty and volatility for fossil fuels.

Partnering with Johns Hopkins University
In partnership with a 4-student team from John Hopkin’s University (JHU) School of Advanced International Studies (SAIS), we have been jointly developing a study on “The Business Case For: Solar PV in Cambodia.” The study will provide in-depth market analysis that will backup our initial hypothesis on the attractiveness of the solar market in Cambodia with real data points and detail the breadth and depth of specific commercial opportunities. This unique partnership brings substantial benefits to both parties involved. For PFAN-Asia and Resonance, the SAIS team represents an extremely capable, highly motivated, and cost-effective team with broad experience from both public and private sectors.

Developing The Business Case For: Solar PV in Cambodia
Work began in earnest in October 2014. The team’s research highlighted two distinct models that appeared particularly interesting in the Cambodian context:

  • Revenue diversified mini-grids, which are mini-grids that serve a combination of commercial and household clients with one or more anchor clients, deployed in geographies that do not currently have access to the grid, and;
  • Custom industrial applications, which includes replacing or augmenting diesel-powered systems with solar components wherever such systems are already in operation. This also often includes displacing fuel usage in backup generators for large industrial customers.

The SAIS team traveled to Cambodia in January 2015 to conduct additional primary market research, including customer surveys, interviews, and other forms of data collection to validate their report. The team is currently reviewing their findings and compiling the data they have collected into the final report, which will be launched later this month.

About the Private Financing Advisory Network-Asia
The U.S. Agency for International Development (USAID) regional Private Financing Advisory Network-Asia program (PFAN-Asia) assists businesses, governments, and others in Asia’s developing countries to mobilize and scale up investments in clean energy. The primary goals of the program are to mobilize at least $1 billion in funds for clean energy investments and avoid or reduce greenhouse gas emissions amounting to at least 40 million tons of carbon dioxide equivalent. PFAN-Asia seeks to identify promising clean energy projects that have the capability of raising private sector financing.

About The Johns Hopkins School of Advanced International Studies (SAIS) IDEV Program
The SAIS International Development (IDEV) Program has been training international development practitioners for leadership roles in policy and practice for over seventy years. IDEV provides rigorous academic training in the economic, political and social dimensions of development, and practical skills to prepare students for the challenges of a career in international development.

By Darius Li