Renewable Energy in the Cambodia Energy Plan (Mar 2022)

1. INTRODUCTION

Cambodia has relatively expensive electricity in comparison to its ASEAN neighbours, in part due to the fact that currently a significant proportion of Cambodia’s electricity is imported. Whilst the level of imports has been steadily decreasing over the last decade, the increasing demand for electricity in Cambodia means that alternative sources must be found to keep up with that demand. Domestic green energy production is not only possible in Cambodia, but would also contribute long term to cheaper electricity prices for consumers, a more attractive environment for investment, an increase in stability of supply and provide national security benefits, notwithstanding the positive environmental impact. This article will explore the laws, regulations and opportunities for renewable producers.

2. THE CAMBODIA BASIC ENERGY PLAN

In 2019 the Ministry of Mines and Energy (‘MME’) produced the Cambodia Basic Energy Plan (‘BEP’) to ensure energy supply for Cambodia, with the principles of affordability, accessibility, security, safety and transparency. Whilst other countries in the region have set ambitious concrete renewable energy goals, the BEP was more focused on guaranteeing energy supply, perhaps understandably, having been drafted against the backdrop of the power shortages of 2019. Moving forward, the BEP recommended the following power generation mix for 2030: coal (35%), hydro power (55%) and other renewable energy (10%). This means that with the exception of hydropower, Cambodia’s renewable energy targets are fairly low in comparison to their ASEAN neighbours, however there is still room for renewable energy producers to grow alongside coal and hydropower plants.

3. THE LAW ON ELECTRICITY IN CAMBODIA

There is a lack of regulations specific to renewable energy in Cambodia. This mean that in general, with the notable exception of solar power, renewable energy producers are dealt with in the same way as those that produce non-renewable power. The 2001 Law on Electricity of Cambodia, and its 2015 amendment, provides the regulatory framework for electric power supply, services and licences, and established the Electricity Authority of Cambodia (‘EAC’).

All electric power service providers are required to have a licence, typically a Generation Licence, issued by the EAC. The Generation Licensee has the right to own, operate and manage the generation facilities. However, it is the responsibility of the EAC to approve tariff rates and charges, meaning that power producers do not have the autonomy to set their own rates. Licensees must submit to the EAC various annual reports and summaries, and follow the standards and procedures set out by the body, for example those regarding metering equipment. The Law on Electricity also gives the EAC the power to revoke licences for violations of the Law, along with monetary penalties for violations of the regulations. The EAC is also required to take into consideration the policies of the Royal Government of Cambodia, through the MME, when operating. Therefore, any policy push towards renewable energy will be reflected by the actions of the EAC.

4. SOLAR POWER

There is a lack of regulations specific to renewable energy in Cambodia. This mean that in general, with the notable exception of solar power, renewable energy producers are dealt with in the same way as those that produce non-renewable power. The 2001 Law on Electricity of Cambodia, and its 2015 amendment, provides the regulatory framework for electric power supply, services and licences, and established the Electricity Authority of Cambodia (‘EAC’).

Cambodia has huge potential for solar energy, with potential generation of up to 5 kWh/m2/day. Of all the renewable energy sources, solar has the largest regulatory framework. In 2018 the Electricity Authority of Cambodia introduced the regulations on General Conditions for connecting Solar PV Generation sources to the Electricity Supply System of National Grid or to the Electrical System of a Consumer connected to the Electricity Supply System of National Grid regulations. The regulations govern both solar power producers that supply energy to the national grid and solar power producers that supply energy directly to consumers.

In order for a solar power producer to supply energy and connect to the national grid, they must be listed on the Power Development Master Plan of Cambodia, or else it must face examination of its feasibility by the Ministry of Mines and Energy (‘MME’). Any solar power injected into the national grid must only be purchased by EDC, under a standardised power purchase agreement approved by the EAC. The regulations also set out the technical standards and conditions required from solar producers, including the limits to DC power injection and harmonic injection.

There are still large swathes of Cambodia without access to the national grid, including rural areas and tourist hotspots such as the islands off the coast of Sihanoukville. The 2018 regulations state that the requirements, standards and conditions are not applicable to off grid solar projects, meaning that solar producers have the opportunity to distribute in these areas without having to rigorously follow the standards they would have to were they connecting to the national grid, although they are responsible for its safe operation. This provides solar power producers with easier access to a large market of those in need of electricity.

As the BEP noted, large scale solar projects often need large areas of land, and with land being a sensitive issue in Cambodia this could act as a discouragement to solar power generation. It therefore recommended rooftop developments along with those on existing dam reservoirs to circumvent this issue.

The hope is that whilst lacking concrete incentives, the clarity the regulations provide will encourage solar producers to consider investment in Cambodia.

5. HYDROPOWER

Hydropower generation has seen a huge increase in the last decade and accounted for around 36% of power generation in 2020. Whilst hydropower is renewable, it does remain slightly controversial due to its environmental impact, with issues such as the flooding of large areas and the blocking of fish migration, as well as forced evictions. These concerns were undoubtedly a factor in the MME halting all hydropower on the main Mekong river until 2030, which has stalled the growth of hydropower to a degree. Other concerns with hydropower include the lack of water during the dry season, the recent record low water levels in general, and the impact other hydropower dams further up river could have, notably the potential dam in Luang Prabang, Laos. Regardless of the controversies, it will continue to increase as a share of power generation in Cambodia and developments on other tributaries continue.

In addition to the requirements in the Law on Electricity, hydropower projects must also be subject to an environmental impact assessment and receive a water use licence from the Ministry of Water Resources Management. Any investment above US$ 50 million must also seek approval from the Council for the Development of Cambodia (CDC).

6. OTHER RENEWABLE SOURCES

The other potential renewable sources often cited as possibilities in Cambodia are wind and biomass. The wind energy generating capabilities of Cambodia have been hotly debated, and the MME, in their Basic Energy Plan, expressed the view that the wind conditions of Cambodia are insufficient and as such, wind projects are difficult to install. However, there are wind farms in Sihanoukville, notably that which powers the Autonomous Port of Sihanoukville, and mountainous areas in the north have been earmarked as having the capability for wind power generation.

Traditional biomass is currently widely used in isolated areas for cooking, and the BEP stated that in 2015 it accounted for 87% of residential energy use. The large variety of agricultural residues left over as a by-product of the agricultural industry, such as rise husks, cassava, coconuts and animal waste, has contributed to its widespread use. The health problems associated with prolonged use of traditional biomass has led to a greater push for the use and supply of clean biomass cooking stoves, the desire for a supply chain for fabricated biomass (such as woodchip), and the promotion of LPG gas as an alternative. In addition, the creation of biomass plants for energy generation, with the large amount of agricultural residue available in Cambodia, is also a source of energy with rich potential.

7. OTHER FACTORS IN THE PROMOTION OF RENEWABLE ENERGY

The Garment Manufacturing Association in Cambodia (‘GMAC’) is also playing a role in increasing the use of renewables in Cambodia, with the garment industry being both an important pillar of the Cambodian economy and a large consumer of energy. GMAC launched the Switch Garment project in 2020, with the aim to promote the use of sustainable energy in the garment industry. Whilst this was done with one eye on the environmental factors at play, the economic benefits the use of renewable energy can bring, with lower energy costs for those in the industry, is a factor in this new project, and may be more influential in renewable adoption.

Certain companies such as H&M and Nike are also members of RE100; a global initiative with the aim of 100% renewable energy. To keep these companies continuing their operations in Cambodia, aligning with their requirements for renewable energy sources is necessary. Thus, using their influential economic position, they have been able to exert pressure and promote the increase in use of renewable energy, which will only continue.

The recent suspension of the extraction of oil from Block A off the coast of Sihanoukville, Cambodia’s first ever attempt at oil extraction, may also play a factor in the promotion of renewable energy sources. One of the intentions of the oil extraction was to provide another source of domestic energy, and the shortfall this creates may lead to the encouragement of other domestic sources, including renewables, although this is of course conjecture at this point.

8. THE LAW ON INVESTMENT

The new Law on Investment (LOI), promulgated in October 2021, provides additional tax incentives to green energy producers. Green Energy producers are able to register as Qualified Investment Projects (QIPSs) and are one of the sectors to be incentivised. The Law offers different options of basic incentives, but the likely the most common used includes an income tax exemption from three (3) to nine (9) years from the time of first earning income. Once the exemption expires, there is then a sliding scale of tax breaks on income tax, starting at twenty-five (25) percent of the tax due for the first two (2) years, fifty (50) percent for the next two (2) years, and seventy-five (75) percent for the final two (2) years. There are also exemptions for Prepayment Tax, Minimum Tax and Export Tax for the duration of the initial period. In addition, there are a host of other incentives. A deduction of one hundred and fifty (150) percent from the tax base is applicable to activities such as research and development, human resource development and the construction of facilities for employees such as accommodation, canteens and nurseries.

Whilst some of the practicalities of the new LOI are to be clarified in a Sub-Decree currently being drafted, the tax incentives to green energy producers are a huge leap forward and should provide an attractive environment for renewable energy producers in Cambodia.

9. ENVIRONMENTAL CODE OF CAMBODIA

The Environmental Code of Cambodia is currently in its 11th draft. Once promulgated, it will provide a host of additional incentives for green energy producers. However, when that will actually be is a source of contention and the momentum of the legislation seems to have stalled somewhat. It is though, something for renewable energy producers and consumers to look forward to and will provide increased economic viability of green energy projects when it is finally introduced.

10. CONCLUSION

The green energy sector in Cambodia is currently underserved and has huge potential for growth into the next decade and beyond. Whilst the regulations and incentives are currently lacking in some areas, the new LOI has helped remedy this and we would expect this to be expanded upon further moving forward, especially once the Environmental Code is promulgated. This continued development has been the case with many areas of Cambodian law, with it being a relatively new legal system, and should provide greater security and opportunities for renewable energy producers in the future.