Private Solar Rooftop Policy for Factories REF#6370

Cambodia’s current state of energy transition is in its early stages, with a heavy reliance on fossil fuels and limited use of renewable energy sources. In 2022, an estimated more than 40% of Cambodia’s electricity generation came from coal-fired power plants, with hydropower accounting for the majority of the remaining share. Solar and wind power are still in the early stages of development, with only a small percentage of the country’s electricity coming from these sources.

According to the World Economic Forum’s recently-published Energy Transition Index, which measures countries’ efforts in transitioning to more sustainable energy sources, Cambodia ranks 85th, behind other ASEAN countries such as Vietnam (43rd) and Indonesia (55th).

Moreover, Cambodia’s energy demand is expected to triple in the coming years, with or without an energy efficiency plan in place. Appropriate incentives for renewable energy and more favourable legislation—including lower tax rates—for industrial solar panels could easily meet this growing demand for electricity in the country. A growth in the country’s renewable energy share can significantly reduce power generation costs for EdC, while also reducing energy costs for consumers, private individuals, and factories alike.

Finally, the EU – the largest export market for Cambodia’s garment sector, accounting for around 40% of exports – is implementing new, tougher due diligence requirements to ensure its supply chains comply with sustainability requirements. These requirements include, for instance, that outsourced factories in countries like Cambodia are relying on certain minimum levels of electricity produced through renewable energy sources. In Cambodia’s current state of low adoption of renewable energy, these new due diligence requirements risk making it more difficult for Cambodian garment factories to comply with EU standards, which could lead to losing access to the EU market.

Previous regulations on solar panel users were problematic for factories and the private sector in general due to an extremely high “capacity charge” calculation that heavily penalised users of solar energy and deprived them of the possibility to access special tariffs at night (so-called “time of use”).

Recently, the “Principles for permitting the use of rooftop solar power in Cambodia” were issued by the Ministry of Mines and Energy with some welcome changes (such as removing the 50% Cap and quota system). However, the way of calculating a compensation tariff is complicated, and the implementation and monitoring of compensation tariffs would not be ideal. This compensation tariff method could leave little space for most companies to invest in green energy while saving over the grid tariff, potentially stalling most of the private solar projects in the country. The “time of use” is still not allowed for rooftop solar system users, somewhat confusingly.

As envisaged by Cambodia’s national Garment Footwear and Textile strategy, it is essential for factories to reduce costs and energy consumption to remain competitive, whereas automation and robotics might play an increasingly bigger role. Major brands sourcing from Cambodia require significant portions of green energy in their supply chains. These requirements are fulfilled in countries like Vietnam or China where the use of solar photovoltaic is encouraged.

Cambodia’s economic graduation to a middle-income status country ultimately relies on the diversification of its industries and sectors, moving away from labour-intensive activities such as garment manufacturing. At the same time, most non-labour-intensive industries are inevitably energy-intensive and machine-driven, such as electronics, automotive, or heavy industry. All these industries need cheaper electricity to thrive, and investment in these sectors in Cambodia will depend on the availability of such type of energy. In the long term, the success of Cambodia’s export diversification strategy relies on the greening of its supply chains. A successful, progressive solar panel policy would play a big role in such a scenario.

Mid 2023 customs added 10% special tax to almost all battery types excluding laptop batteries. A step backward for renewable energy and electric vehicles.