An economic evaluation of electricity feed-in-tariff in Thailand

Abstract

This research aims to estimate the economic loss from the Feed-in Tariff (FiT) policy and also proposes an appropriate purchase price for each energy source in power generation. The study employs data from IRENA, IEA, IPCC, EIA, EGAT, EPPO, ERC, CEIC, the World Bank, and the Bureau of Trade and Economic Indices from the first quarter of 1993 through the first quarter of 2019.

Before determining an appropriate purchase price, a demand and supply curve is created by using the Seemingly Unrelated Regression (SUR) method and investigating the Marginal Environmental Cost (MEC) to assess the economic loss under the FiT policy. Findings from the SUR estimate shows that the supply of each energy source does not respond to the purchase price, except in the case of natural gas. Increases in the purchase price of natural gas increase the quantity used to produce electricity using natural gas at a significance level of 1 percent. The FiT policy is found to create economic losses that come from (1) the expenditure loss, (2) the externalities loss, and (3) the quantity constraint loss, amounting to a total economic loss of THB2,608.39 billion per year.

Thus, three different electricity purchase price policy models are proposed: (1) a revenue generation electricity FiT scheme, (2) a balanced budget FiT scheme, and (3) a deficit financing FiT scheme. All of these follow the law of one price and take externalities into account. Results show that this can save government expenditure up to THB926.41 billion per year and generate government revenue equal to THB352.98 billion per year.

Therefore, the government should set the electricity purchase price by following the law of one price, which also reflects the full-cost pricing of power generation, and in the long term, the government should let the price and quantity follow market mechanisms.