Modelling of Government Support in Biopower Plant Projects: The Case of Thailand

AbstractOver the past decade, several policies have been developed and implemented to support the investment in renewable energy (RE) projects around the world. One of the most popular support programs is Feed-in Tariff or FIT. In Thailand, a type of FITs called “adder program” is employed to pay additionally RE producers for the amount of electricity generated from RE sources, at a fixed rate as specified in power purchase agreement (PPA), regardless of the actual operating costs of the RE projects. For biopower plants, it is commonly known that biomass price fluctuation is the most important risk of the projects. This paper examines the efficiency of current subsidy policies used in Thailand in supporting the development of biopower plant projects. We then propose two new mechanisms of governmental support: biomass price guarantee (BPG) and minimum income guarantee (MIG). We compare the expected costs of subsidy under each subsidy program, assuming that the biomass prices follow a stochastic process called Ornstein-Uhlenbeck. The results of risk analysis using Monte Carlo simulation show that the most cost-effective mechanism is the BPG