Thai Government Overhauls Power Purchase Agreements, Abolishing 'Perpetual Contracts'

The Thai government is set to overhaul private power purchase agreements, particularly for renewable energy sources, by abolishing "perpetual contracts" that automatically renew. The purchase price will also be reduced to alleviate the electricity cost burden on citizens. This policy shift, prioritizing public benefit and fairness, is expected to be formally approved by the National Energy Policy Committee (NEPC) soon. According to Mr. Danucha Pichayanan, Secretary General of the National Economic and Social Development Council (NESDC), a key issue identified was the nature of "perpetual contracts" with automatic renewals in agreements with Small Power Producers (SPP) and Very Small Power Producers (VSPP) for solar and wind energy. Historically, these contracts, some referencing wholesale prices plus the Variable Adjustment Charge (FT), exceeded 3 baht per kilowatt-hour, despite renewable energy having no fuel costs. The revised policy will set the purchase price in line with current technology costs, referencing the 2.16 baht per kWh rate from solar community projects. This will initially apply to solar power, with pricing for wind power to be determined separately. Contract revisions will be implemented in two main groups. The first group comprises approximately 515 contracts (around 2,400 MW) whose 25-year terms have expired. These will not be automatically renewed; instead, they will be allowed one final renewal for the original contract duration (3-5 years) at the new rate of 2.16 baht per kWh, after which the contract will terminate. The second group includes about 46 contracts (approximately 1,478 MW) that have completed their 10-year subsidy (Adder) period but not their full 25-year term. These are considered to have recouped construction costs and will have their purchase price reduced to 2.16 baht per kWh for the remainder of their contract. For approximately 4 non-commercial operation (Non-COD) contracts (67 MW) that have been delayed for over two years, contract termination will be considered on a case-by-case basis. While the exact reduction in electricity bills is still being calculated, officials anticipate that aligning the FT component with actual costs will contribute to overall price reductions. However, the full impact on base electricity rates may not be immediate due to the time required to amend all contracts. Regarding large-scale Independent Power Producer (IPP) projects, a separate subcommittee will be formed to review Capacity Charge (AP) and Energy Charge (EP) to mitigate their impact on base electricity rates. The government maintains that these revisions, undertaken for the public good, will not deter investor confidence. Measures such as upgrading substations and promoting Direct Power Purchase (Direct PPA) agreements are also being implemented to support industries with high electricity demands, like data centers.