Private Solar Rooftop Policy for Factories REF#6370

26 Sep 2023 | Garment & Manufacturing Issue Tackled

Last modified date: 21 Mar 2024

Issue Description

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. 

 

 

Impact on business

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.

Recommendation

  • Introduce new measures for Cambodia’s solar rooftop regime.

We respectfully recommend that the Ministry of Mines and Energy consider the following:

  • Compensation tariffs should be calculated in a simpler, more consistent, and predictable manner. For instance, the rate for solar energy users should be calculated as a percentage of the current grid tariff. A more progressive rate would allow the private sector to make greater use of solar energy installations, encouraging the Cambodian energy transition and helping to meet the growing energy demand;
  • All solar energy users should have inclusive access to “time of use” tariffs;
  • A more favourable tax regime should be introduced for specific and localised areas allowing Power Purchase Agreements (PPAs) with local SEZs and/or large-scale private investments.

This favourable environment would help attract more investments in Cambodia’s garment and wider manufacturing sector. The bills of industrial consumers would become lighter, and in addition, Cambodia could improve its reputation by becoming a “green manufacturing” destination.
A reformed solar policy would create a considerable number of new jobs. New jobs and market opportunities as importers, wholesalers, retailers, shops, mechanics, technicians, installers, and maintenance personnel would bring significant benefits to the entire economy.

Dialogue with

Royal government of Cambodia

Initiative from Eurocham: This recommendation has been added into the 2023 Edition of the White Book (Recommendation No. 37). 

On the 4th of December 2023, the policy on Rooftop solar in Cambodia, as well as the new strategy of the Ministry of Mines and Energy was further illustrated at a briefing event where the new Minister H.E. Keo Rottanak set higher general targets for the Renewable Energy in Cambodia but essentially left the private solar rooftop policy unchanged. (For more information: https://www.eurocham-cambodia.org/post/1505/New-renewable-energy-agenda-revealed-at-Ministry-of-Mines-and-Energy-meeting)

On the 17th of December 2023, the Electricity Authority of Cambodia, publishes two sets of documents referring to the procedures for RTS licence and licencees, setting a 31st December deadline for feedbacks.

On the 27th of December 2023 EuroCham  co-authored, along with TAFTAC and Cambodia Tourism Federation, a letter to the Electricity Authority of Cambodia and the Ministry of Mines and Energy commenting on the new draft regulations on “Installation and use of Rooftop Solar PV in Cambodia” and the draft procedures “For issuing, revising, suspending, revoking or denying generation license for rooftop solar PV installation service in Cambodia”

EuroCham congratulates H.E. Minister Keo Rotanak on the his 7th mandate plan, which stated a 71% share of renewable energy by 2030, among other progressive energy initiatives.

Among its recommendations, the letter suggests removing the ban on financing and restrictions to loans or long- term finance contracts to maximize investments in solar development. It also recommends a simpler mechanism for compensation tariffs, such as a fixed percentage of the grid price to provide better clarity for potential investors.

The letter hopes that Private Rooftop Solar Systems could be added to the Energy Efficiency Strategy ambitions of the new Government of Cambodia, certainly enhancing chances for success of the same, being energy generated at site. Garment factories, Tourism Industry and other manufacturers/service suppliers employ millions of Cambodians. Allowing these firms to benefit from solar power, attractivity and competitiveness of Cambodia’s industry will be greatly increased, generating at the same time tens of thousands of skilled jobs seeding the potential for a modern industry to emerge.

You can find the letter here.

 

On the 17th of January 2024, the Electricity Authority of Cambodia helds a consultation workshop where the feedbacks were discussed. Written reply following up this consultation workshop is expected.

The written reply was sent on the 26th January 2024 – reference 029.24. The Electricity Authority of Cambodia (EAC) has submitted official to response to EuroCham feedback and question on draft ‘Regulations on Installation and Use of Rooftop Solar in PV in Cambodia’, with a following comments:

‘’ 6.4 of Principles for Permitting the Use of Rooftop Solar Power in Cambodia, issued by MME, provides the formula to calculate the Compensation Tariff.  The formula uses General Tariff for the grid supply as applicable to the consumer and the cost of solar generation as applicable to the solar installation as decided by EAC from time to time. The draft regulations provide that EAC shall notify the cost of solar generation for different sizes of rooftop solar installations normally every 6 months on 1 year. The cost of solar generation will vary according to the size (small, medium. large and any subclassification thereof) and location of the solar installation (Phnom Penh, Provincial Capital and Rural Areas); and the General Tariff will vary with the type of consumer. This implies that the Compensation tariff will be different for different cases. The consumer with solar installation will pay to EDC on the units of electricity supplied from the rooftop solar at the compensation tariff rate.

A consumer with solar installation has to pay compensation tariff on solar generation and has to pay the electricity charges on electricity-on-electricity consumption from the grid supply at the applicable tariff including TOU tariff.

The capacity of rooftop solar installations is categorized into small, medium and large size of rooftop installation is to be done by MME. It is a hoped that MME will do it soon.

EAC is now examining the process for calculation of the LCOE and studying cost data furnished by installers of rooftop solar system’’.

You can find the complete version of the letter here.

On the 12th of March 2024, the “Regulation on the Installation and Use of Rooftop Solar PV in Cambodia” was published by the EAC. This regulation is similar to the first draft that was shared with the private sector in December 2023. However, two points have been clarified by the EAC: 

  1. Every solar panel user will likely have a different calculation for the “compensation tariff”.
  2. The “compensation tariff” will be updated every six months. 

You can find the regulation here

National Counterparts

Ministry of Mines and Energy 

Electricity Authority of Cambodia