Full Report - Towards a Green and Inclusive Power Sector in the Greater Mekong Subregion

TOWARDS A GREEN AND INCLUSIVE POWER SECTOR IN THE GREATER MEKONG SUBREGION Regional Grid Interconnections for Low-Cost, Low-Carbon, and Low-Conflict Energy

February 2024

Disclaimer Intelligent Energy Systems (IES) has prepared this report for the World-Wide Fund for Nature (WWF). The report is supplied in good faith and reflects the consultant’s knowledge, expertise, and experience. The consultant has endeavored to use the best information available at the date of publication and makes no representations or warranties as to the accuracy of the assumptions or estimates on which the forecasts and calculations are based.

The degree of reliance placed upon the projections in this report is a matter for the reader’s commercial judgment. The consultant accepts no responsibility for any loss occasioned by any person acting or refraining from acting because of reliance on this report.

This report is made possible by the generous support of the American people through the United States Agency for International Development (USAID). The contents do not necessarily reflect the views of USAID or the United States government.

Acknowledgement We gratefully acknowledge the contributions of the Energy Innovation Network and other civil society organizations of the Greater Mekong Subregion, and the national, regional and international technical experts who participated in the workshops and contributed to this study. A special thanks to Rafael Senga, Pyae Phyo Aung, May Thida Maung, and Shoon So Oo for their support, guidance, and advice throughout the development of this study.

This study benefited from the financial support of the United States Agency for International Development (USAID) - Regional Development Mission for Asia. The contents have been developed independently and are the sole responsibility of the authors. The contents do not necessarily reflect the views of USAID or the United States Government.

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Foreword

from the Energy Innovation Network* The Greater Mekong Subregion (GMS) of Southeast Asia includes Cambodia, Lao PDR, Myanmar, Thailand, and Viet Nam, as well as two provinces of the People’s Republic of China. Of the five countries, each is at a different stage in its socioeconomic development, yet each has identified the need to increase cross-border electricity trade, with increased integration of renewable energy sources, to achieve their development, energy, and climate targets in the coming decades.

Energy systems and their key power sector components are strategic assets for development.

Unfortunately, they can also pose a significant threat to a nation’s nature and its people. While technical and economic matters are critical in planning energy systems, these must also be balanced with environmental and social values.”

This prospective energy challenge presents an opportunity to collaborate across the region with the common goal of finding pathways that benefit everyone, particularly those at the margin of development and the power grid.

In beginning to meet this challenge, the Energy Innovation Network (EIN) is a network of civil society organizations across the Mekong region committed to working together to find these pathways. Collaborating is a must for success.

When defining new pathways for a sustainable and integrated power sector, the GMS must be guided by three principles: 1. Equal access to electricity across society.

2. Development is just and equitable.

3. Decarbonisation is primary.

In these regards, no one should be excluded from the benefits of electricity and no one should benefit at the expense of others. Power plants that affect communities and nature in violation of these principles. To this end, clean energy sources, such as wind and solar, are favored. Countries in the GMS must refrain from developing high-impact power plants in sensitive areas and rivers.

The EIN has a vision for an energy future with low carbon and inclusive development. We are ready to work closely with policymakers in power development planning and energy policies.

Together, we can make policies more sustainable and inclusive, while safeguarding nature and people. *The Energy Innovation Network is an informal network of civil society organizations active in the energy sector in the Greater Mekong Subregion. The Energy Innovation Network aims to act as a regional coordination and collaboration platform. It facilitates knowledge sharing, monitors the energy sector, and provides collaborative advocacy at regional and national levels for a renewable, clean, green, and inclusive energy sector.

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Executive Summary The power sector and electricity market in the Greater Mekong Subregion (GMS)1 is developing rapidly.

Driven by the fast-growing economies of the subregion, energy demand in the GMS is expected to rise more than threefold, from 486 TWh in 2021 to 1,645 TWh by 2050. Electricity is a key component in national and regional development, as well as in achieving the decarbonization commitments for nationally determined contributions. The way in which the energy sector develops in the GMS will significantly affect energy security and sectoral decarbonization, and determine its impact on nature and people.

This report postulates that a smartly-designed regional power grid for the GMS can facilitate the transition to 100 percent renewable electricity without sacrificing nature, people, or rivers.

Countries in the GMS rely on conventional sources of electricity such as hydropower and fossil fuel power plants. While other regions are taking advantage of plummeting prices for renewable energy and have increased renewable energy targets and deployment, several GMS countries have new fossil fuel plants either under construction or listed in their power development plans (PDP). Because new power plants have lifespans of 30 to 50 years, transitioning out of these high-cost, high-carbon, high-conflict energy systems will be difficult if current plans proceed.

Several GMS countries also have plans to expand hydropower plants. The Mekong River is the world’s most productive freshwater fishery. Its delta is vital for the subregion’s agriculture and economy, as well as for regional food security. Hydropower dams trap large amounts of the sediment that the Mekong carries to the delta, sediment that is necessary to maintain the delta.

Moreover, mainstem hydropower dams act as barriers to the movement of migratory fish and cause major losses to biodiversity. In addition to iconic species such as the Mekong giant catfish and the Ayeyarwady dolphins, the Mekong’s diverse fish fauna supports a massive harvest. The lower basin yields more than two million tons of wild capture fish annually, representing nearly 20 percent of the global freshwater fish harvest. The Mekong harvest is valued at over $11 billion annually and provides the primary source of protein and livelihoods (or both) for tens of millions of people.

The Thanlwin and Ayeyarwady Rivers in Myanmar are also at risk from planned hydropower expansion.

The GMS will benefit greatly from power systems that can provide low-carbon and low-cost electricity without requiring the major trade-offs associated with status-quo hydropower development.

This study models four hypothetical scenarios: the BASE scenario, which follows current energy development plans; the RE scenario which introduces energy efficiency measures and increases renewable energy capacity from solar or wind; the IEXP scenario which introduces an expanded regional grid and increases cross-border trade; and the REIEXP scenario that combines the expanded grid, energy efficiency measures, and increases non-hydro renewable energy sources. The study shows that the REIEXP scenario achieves the best results in terms of electricity cost, carbon emissions, and impacts on nature and people. By 2050, sectoral emissions are reduced from an estimated 470 MT under the BASE scenario to zero in the REIEXP scenario. Environmental and social conflicts also decrease significantly under the REIEXP scenario.

Moreover, given the region’s vast and diverse renewable energy resources, the study shows that REIEXP has the lowest annual levelized cost of energy (LCOE) at $48.75/MWh by 2050. This is considerably lower than the LCOE of the BASE scenario, which would be an estimated $50.74/MWh if current plans are pursued.

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The Greater Mekong Subregion includes Cambodia, Lao PDR, Myanmar, Thailand, Viet Nam, and Yunnan Province and Guangxi Zhuang Autonomous Region of the People’s Republic of China (PRC).

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Following baseline power development trajectories in the GMS, this modeling shows that expanding cross-border interconnector transfer capacity enables a higher deployment of variable renewable energy at a lower overall system cost. Further, against the backdrop of a targeted 100 percent renewable energy in the GMS electricity mix, expanding cross-border transfer capacity yielded significant savings in annual power system costs and investment requirements while optimizing the use of assets, including existing hydropower, exploiting the highest potential of variable renewable energy resources, and establishing substantial volumes of regional energy trading by 2050.

The following are recommendations to address current and future challenges to achieving a low-cost, low-carbon, low-conflict power sector in the GMS: 1

Develop a complementary regional day-ahead power market by building on existing connections, such as the LTMS, then incrementally expanding to new countries and connections.

2

Prioritize the ratification of the GMS regional grid code within the legally binding regulatory framework of respective national grid codes for each GMS member state.

3

Encourage the development of a set of standardized commercial arrangements through the GMS ETTF to support multilateral trade through third-party wheeling, open access arrangements, short-term bilateral trading measures, and a balancing mechanism.

4

Support the GMS ETTF in leading the next official GMS update to the regional transmission masterplan, ensuring that it considers a grid synchronization strategy and a conceptual roadmap for market and network integration.

5

Establish a GMS-wide framework for designing and implementing renewable energy auctions to support the region’s low-cost development of renewable energy.

6

Set regional targets for energy efficiency that support the low-cost development of a 100 percent renewable energy electricity market.

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As part of the GMS ETTF platform, encourage all GMS nations to commit to a complete cessation of building hydropower dams on the mainstem of the Mekong River and to refrain from developing high-impact hydropower resources on ecologically-sensitive rivers such as the Thanlwin and Ayeyarwady.

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Promote changing the role of hydropower in the GMS by exploring modeling and planning exercises that demonstrate how a higher share of variable renewable energy can be integrated while existing hydropower provides flexibility as a backup power source.

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Carry out a study on the potential of pumped hydropower storage that prioritizes highpotential sites in the region with the lowest environmental and social impacts.

10 Support the development of a renewable energy target that consists of a non-hydro, variable renewable energy share of the regional electricity generation mix, coupled with a renewable energy roadmap for the GMS. 11 Develop a series of renewable energy zones for the GMS that optimize the development of regional transmission infrastructure and support greater variable renewable energy trade mechanisms in the region.

Opportunities for inclusive and multistakeholder approaches, with strong civil society participation, should be explored and executed where possible. Given their direct work with communities and the broader society, civil society organizations can provide perspectives that can contribute towards achieving a green and inclusive GMS power sector.

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Contents Disclaimer

2

Acknowledgement

2

Foreword 1

2

3

Table of Acronyms

9

Introduction

10

1.1

Purpose of this report

12

1.2

Analysis process and objectives

12

1.3

Project components

12

1.4

Definition of key concepts

13

1.5

Report structure

13

Electricity Market Analysis in the GMS

14

2.1

Background: Greater Mekong Subregion

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Economies and electricity sectors in GMS countries

21

Regional power trading in the GMS

25

Approaches to developing regional power trade

26

2.2

2.3

2.4

2.1.1 The Mekong and its resources 2.1.2 Cambodia 2.1.3 Lao PDR 2.1.4 Myanmar 2.1.5 Thailand 2.1.6 Viet Nam

2.2.1 Hydropower risks to Mekong River Basin resources 2.2.2 Cambodia 2.2.3 Lao PDR 2.2.4 Myanmar 2.2.5 Thailand 2.2.6 Viet Nam 2.3.1 Motivation for expanding power in the GMS 2.3.2 Benefits of energy markets and power trade 2.3.3 Issues and barriers to electricity market development in the GMS 2.4.1 Bilateral versus multilateral power trade 2.4.2 Energy trading frameworks 2.4.2.1 Over-the-counter trading 2.4.2.2 Spot market 2.4.2.3 Futures market 2.4.2.4 Day-ahead market 2.4.2.5 Intraday market 2.4.3 Ancillary services trading

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16 19 19 20 20 20 21 22 23 23 24 24 25 25 26 26 27 27 27 27 28 28 28

2.5

2.6

3

4

Features of commercial frameworks for market development in the GMS

2.5.1 Establish a wheeling arrangements and a transmission charging scheme 2.5.2 Create a regional transmission system operator or market operator 2.5.2.1 Case Study: European grid and the European Network of Transmission System Operators for Energy 2.5.2.2 Case-Study: Electricity market development in Viet Nam

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29 30 31 33

Institutional and technical enablers for electricity market development in the GMS 35

2.6.1 GMS power trade cooperation 2.6.2 Intergovernmental agreements 2.6.3 ASEAN Plan of Action for Energy Cooperation

35 38 38

2.7

Cross-border grid interconnection challenges in the GMS

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2.8

Summary of electricity market analysis for the GMS

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Modeling Electricity Systems in the GMS

42

3.1

Modeling methodology

44

3.2

Scenario design

45

3.3

Modeling topology

47

3.4

Cross-border trade and Independent power producers in the GMS

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3.5

Existing grid-to-grid interconnections

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3.6

Planned grid-to-grid interconnections and candidate areas

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3.7

Demand forecasts

51

3.8

Capacity of power plants and generators

52

3.9

Generator parameters

55

3.10 Fuel prices

56

3.11 Renewable energy resources

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Technical, Economic, and Social Analysis on Modeling Results for Power Sector Development in the GMS

58

4.1

Installed capacity outlook

60

4.2

Energy generation outlook

61

4.3

Role of renewable energy

62

4.4

Annual system costs of generation

65

4.5

Annual levelized cost of energy generation

66

4.6

Investment requirements

67

4.7

Power system emissions and grid emissions factor

68

4.8

Added regional cross-border transfer capacity

69

4.9

Annual energy traded

72

4.10 Key findings and analysis

78

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Policy Recommendations 5.1

Establish permanent institutional structures and mechanisms for coordinating the development of a regional GMS power grid

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5.2

Ratify and enhance the GMS grid code

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5.3

Standardize commercial arrangements for cross-border power trade in the GMS

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5.4

Support planning for regional transmission development in the GMS

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Prioritize low-cost, low-carbon, and low-conflict energy in the GMS

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Change the role of hydropower in the GMS

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5.5

5.6

5.7

5.8

6

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5.2.1 Key elements from the ENTSO grid code 5.2.2 Draft regional GMS grid code

5.5.1 Supporting low-cost energy in the GMS 5.5.2 Advancing low-consumption energy efficiency 5.5.3 Ensuring low-conflict energy in the GMS

5.6.1 Leveraging flexibility of hydropower to accommodate the integration of variable renewable energy 5.6.2 Pumped storage hydropower in the GMS

83 84

88 89 90

91 92

Country and regional renewable energy targets, roadmaps, and renewable energy zones for commercial development in the GMS 95

5.7.1 Renewable energy targets and roadmaps 5.7.2 Renewable energy zones

95 96

Conclusions and key recommendations

98

Appendix A:

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Additional Modeling Inputs: Existing, Committed, and Planned Cross-Border Interconnections

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References

104

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Table of Acronyms APAEC ADB CAPEX EPF EPM ETS EE EES ENTSO EGP ETTF FOM GMS IGA IPPs IRENA NDC OWE OTC PSH RPCC RPTCC REA RET SDC TYNDP TSO UNFCCC VRE VOM VWEM WGPG WGRI WEO WWF

ASEAN Plan of Action for Energy Cooperation Asian Development Bank Capital Expenditures Electric Power Forum Electricity planning model Emissions trading echeme Energy efficiency Electrical energy storage European Network of Transmission System Operators Expert Group on Power Interconnection and Trade Energy Transition Task Force Fixed Operation and Maintenance cost GreaterMekong Subregion Intergovernmental agreement Independent power producers International Renewable Energy Agency Nationally determined contributions Offshore wind energy Over-the-counter Pumped storage hydro Regional Power Coordination Center Regional Power Trade Coordination Committee Renewable energy auctions Renewable energy targets System Development Committee Ten-Year Network Development Plan Transmission system operator United Nations Framework Convention on Climate Change Variable Renewable Energy Variable Operation and Maintenance cost Viet Nam Wholesale Electricity Market Working Group on Performance and Standards and Grid Code Working Group on Regulatory Issues World Energy Outlook World Wide Fund for Nature

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1 Introduction 10

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1.1 Purpose of this report Based on the analysis conducted, this report postulates that implementing a smartly-designed regional power grid in the Greater Mekong Subregion (GMS), combined with cross-border trade, can facilitate a transition to a 100 percent renewable electricity supply without sacrificing rivers, nature, or people.

1.2 Analysis process and objectives This report reviews the conclusions of a project carried out by WWF with support from the United States Agency for International Development (USAID). The aim of the project was to engage civil society organizations (CSOs) in analyzing approaches to enhance cross-border energy trade and develop an integrated electricity grid for the GMS that could be powered by 100 percent renewable energy. The project provided capacity-building for CSOs on the technical, policy, and planning aspects of the power sector to empower CSOs in their engagement in sectoral reform to protect rivers, nature, and people.

The project was initiated with a kickoff workshop in May 2022 attended by representatives from select external partners and CSOs from all five GMS countries, who subsequently participated in team meetings and a second workshop in March 2023. The approach and methodology were adjusted in response to changes, requests, and clarifications suggested by WWF, USAID, and participating CSOs.

1.3 Project components Figure 1: Summary of four project components

C1

C2

C3

C4

Conduct an analysis of the electricity market, highlighting both the challenges and opportunities for regional grid integration and power trade.

Model various scenarios for energy development over the period 2022-2050, including targets for 100% renewable energy and advanced deployment of regional transfers.

Conduct a technical, economic, and social analysis of the impacts of integrating the regional grid under a scenario of 100% renewable energy by 2050.

Based on the analysis and modeling conducted in previous components, develop policy recommendations and a strategy to support integration of the regional grid and development of renewable energy.

Electric Market Analysis

Electricity Systems Modeling

Technical, Economic, and Social Analysis of Regional Grid

Policy Recommendations and Strategy

Figure 2: Mapscope of the Greater Subregion the Mekong, Ayeyarwady and Thanlwin (Salween) Rivers The project’s of workMekong was defined byhighlighting four components that analyzed (Irrawaddy) pathways for optimizing regional grid interconnections. The first component analyzed the electricity market in the region, highlighting both challenges and opportunities for lifting barriers to trade and supporting the introduction of competitive market elements.

The second component modeled a range of power development trajectories that included the advanced deployment of renewables and cross-border grid transfer capacities. The third component carried out a technical, economic, and social analysis of power system modeling 12

results. The fourth component provided a series of policy recommendations to support electricity market development, expansion of regional grid interconnections, and deployment of renewable energy sources that would capture a 100 percent share of energy generation by 2050. Impacts on technical, economic, social, and environmental indicators were considered and then used to inform recommended policies and strategies to support renewable energy and cross-border integration in the GMS.

1.4 Definition of key concepts Interconnection: A wide-area synchronous grid between two or more electric power systems Cross-border grid-to-grid interconnection: An international interconnection Point-to-grid connection: Cross-border (international) connection from a dedicated generator in one country to a neighboring grid Load-to-grid connection: Cross-border (international) connection from an energy demand/load in one country to a neighboring grid.

Electrical energy storage (EES): Technologies that enable excess electricity to be stored for dispatch on demand, including electrochemical, like batteries; electromechanical, like compressed air storage; thermal storage, such as with molten salt in solar thermal power stations; and pumped storage hydropower (PSH)

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2 Electricity Market Analysis in the GMS 14

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2.1 Background: Greater Mekong Subregion The Greater Mekong Subregion (GMS) is a transnational region of the Mekong River Basin in Southeast Asia. The region is home to more than 300 million people and includes five Southeast Asian countries—Cambodia, Lao PDR, Myanmar, Thailand, Viet Nam—and the Yunnan Province and the Guangxi Zhuang Autonomous Region of the People’s Republic of China (PRC). The region contains irreplaceable natural and cultural riches and is considered one of the world’s most significant biodiversity hotspots. It is an important food provider and the site of many large-scale infrastructure projects with social and economic implications.

The GMS Program is an institutional mechanism—involving both political and operational levels of the member countries—that promotes continuing consultation and dialogue. The institutional arrangements for the GMS Program are pragmatic and flexible, and guided only by a general set of principles. The GMS institutional structure has three levels: • Leaders’ summit • Ministerial conference • Working groups and forums in priority sectors A unit at the Asian Development Bank (ADB) headquarters provides overall secretariat support in coordination with national secretariats in the GMS countries.

The Mekong River is the world’s most productive freshwater fishery, and its delta is vital for regional food security as well as Viet Nam’s agriculture and economy. Both the fisheries and the delta, in addition to riverside communities, risk substantial negative impacts if hydropower development continues along its current trajectory, particularly from dams built on the mainstem of the river. The region will benefit from power systems that can provide low-carbon and low-cost electricity without requiring the trade-offs associated with status-quo hydropower development.

2.1.1 The Mekong and its resources The Mekong River supports the largest wild freshwater fishery in the world and a delta with highly productive agriculture and aquaculture. These globally significant food resources are critical to regional stability and are maintained by the Mekong’s water, the sediment and nutrients it carries, and the floodplains it flows across.

The Mekong is nearly 5,000 kilometers long, making it the twelfth longest river in the world. It winds through six countries, with approximately 70 million people residing in its basin. The river starts as glacial meltwater from the Tibetan plateau and runs through China, Myanmar, Lao PDR, Thailand, and Cambodia before entering the ocean at its delta in Viet Nam. The river’s discharge, ranked eighth in the world, is driven by the seasonal monsoon rains and has one of the greatest variations between high and low flow among large rivers. Historically, the Mekong has carried the tenth largest natural sediment load in the world, depositing 160 megatons per year downstream and maintaining a delta that is an economic powerhouse. The delta supports 18 million people and provides approximately a quarter of Viet Nam’s GDP. Its cropland produces more than half Viet Nam’s staple crops and nearly 90 percent of its rice exports, a significant amount given that Viet Nam is one of the world’s leading rice exporters.1 The Mekong Basin is home to 850 species of fish, second only to the Amazon River Basin—which 1

International Centre for Environmental Management (2010). MRC Strategic Environmental Assessment (SEA) of Hydropower on the Mekong Mainstream: Summar y of the Final Repor t

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is nearly seven times larger than the Mekong. Among the diversity found in the Mekong are the herbivorous Mekong giant catfish, which can weigh as much as 300 kilograms, and the giant stingray that that can weigh twice as much as the giant catfish and cover a four-door car. Beyond fish, the river supports an impressive richness of reptiles, amphibians, birds, and mammals, including the largest and most viable population of freshwater Ayeyarwady dolphins.

The Mekong’s diverse fish fauna supports a massive harvest. The lower basin yields more than 2 million tons of wild capture fish annually, representing nearly 20 percent of the global freshwater fish harvest and valued at over $11 billion. Moreover, fish from the Mekong provide the primary source of protein and livelihood—or both—for tens of millions of people.2 The productivity of both the delta and the lower basin fisheries are driven by the river’s flow regime and hydrological connectivity. The delta was created by thousands of years of the river depositing nutrient-rich sediment as it flowed into the sea, and the delivery of nutrients and sediments to the lower river drives the aquatic food webs that underpin both the productive inland and coastal fisheries.

The Mekong, its delta, and Tonle Sap Lake illustrate how three characteristics of a functioning river fuel food production and diversity: • Flow: The flow of the Mekong includes not only water, but also sediment and nutrients.

• Lateral connectivity between the river and the landscape: This connectivity allows the flow of the Mekong to deposit nutrients and sediment in lakes, across floodplains, and on the delta. Where lateral connectivity exists, fish can leave the river to use highly productive floodplain habitats and then return to the river.

• Longitudinal connectivity: Much of the sediment that builds the delta is derived from mountains thousands of kilometres upstream and must be carried by the river. Similarly, a high number of the Mekong’s fish species—including many of the most important for the fish harvest—require long distance migrations, moving between spawning habitat, often far upstream, and productive habitats where juvenile fish rear and grow, often low in the basin, such as Tonle Sap Lake.

These characteristics can all be dramatically affected by dams; the ongoing expansion of hydropower creates an uncertain future for the diversity and productivity of the Mekong River.

2

Nam, et al. (2015). Lower Mekong fisheries estimated to be wor th around $17 billion a year. Catch and Culture 21.

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Figure 2: Map of the Greater Mekong Subregion highlighting the Mekong, Ayeyarwady (Irrawaddy) and Thanlwin (Salween) Rivers

The GMS has two other rivers that play important roles in the livelihoods of communities and provide ecosystem services. The Thanlwin River, commonly known as the Salween River, is one of the last free-flowing rivers in Asia, stretching approximately 2,400 km. Originating in the Tibetan Plateau, it flows through China, Myanmar, and Thailand before emptying into the Andaman Sea.3 It plays a crucial role in the biodiversity of the region because its basin serves as a habitat for numerous endangered species such as tigers, Asian elephants, river dolphins, and several migratory 3

Gladstone, B. 2019. Indigenous understanding of Salween (Thanlwin) River is key to biodiversity. The Third Pole.

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bird species.4 It is also home to unique ecosystems and habitats, such as the Thanlwin Gorge, which is a key biodiversity hotspot in Southeast Asia. The Thanlwin River is a critical source of livelihood for millions of people in Myanmar, providing fresh water and fish for both consumption and income. The river also has significant cultural and spiritual importance for many ethnic communities living along its banks, including the Akha, Blang, Derung, Hmong, Kachin, Karen, Karenni, Kokang, Lahu, Lisu, Mon, Nu, Palaung (T’arng), Pa’O, Shan, Tibetan, Yao, and Wa.5 The Ayeyarwady River, commonly known as the Irrawaddy, is the largest river in Myanmar and another of the largest free-flowing rivers in Southeast Asia. It runs through the heart of the country from the northern highlands to the Andaman Sea.6 The river supports a unique ecosystem of plants and animals, including the critically endangered Ayeyarwady dolphin and the giant river turtle.

It also supports various fisheries and contributes to the country’s agricultural production, providing irrigation water for rice paddies and other crops. Like the Thanlwin River, the Ayeyarwady River plays an important role in Myanmar’s cultural heritage, serving as a vital transportation and trade route since ancient times, with numerous historical sites and ancient cities located along its banks.

2.1.2 Cambodia Cambodia is mostly a sea-level country, with low, flat plains and some mountainous regions in its southwest and north. The key feature of the country is its central plain, which includes the Mekong River floodplains. In addition, it is home to Tonle Sap Lake, the Bassac River, and important tributaries of the Mekong. The country experiences heavy rainfall for six months of the year. These elements allow the country to rely heavily on hydroelectric power, which currently represents 54 percent of Cambodia’s power generation mix.

Cambodia has some small coal deposits in the eastern region. In collaboration with private companies, the government has explored for natural gas and oil in the Gulf of Thailand and the South China Sea, but they have not been successful.7 Cambodia has a tropical climate, with a daily average solar irradiation of 5kWh/m2, which is much above the global average and presents a high potential for solar power development.8 2.1.3 Lao PDR Lao PDR is a landlocked country with multiple river valleys and mountain ranges in the northeast and northwest. Hydropower is the primary source of electricity in Lao PDR with 4.5 GW out of the total 4.7 GW coming from hydropower and only 0.2 GW from other sources. The country has a tropical climate, with about 200 to 300 sunlight days per year and anywhere between 3.6 to 5.5 kWh/m2 of irradiation per day.9 These factors signal Lao PDR’s high potential for solar power, especially in the southern regions that receive the most sunlight. The central and southern regions also have significant potential to develop an estimated 13 GW from wind energy.10

4

International Rivers. 2020. Salween (Thanlwin) River : Business and Human Rights

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Gladstone, B. (2019, September 24). Indigenous understanding of Salween (Thanlwin) River is key to biodiversity. The Third Pole.

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Worldwide Fund for Nature (WWF). (2018). Ayeyarwady Risks and Oppor tunities Repor t.

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Reuters – Cambodia’s oil expor t ambitions sink with “stolen” tanker standoff

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UNDP – Harnessing the Solar Energy Potential in Cambodia

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DFDL – Lao PDR: Challenges and oppor tunities for solar power development

10 USAID and NREL 2020, Exploring Renewable energy oppor tunities in select southeast Asian countries

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2.1.4 Myanmar Myanmar is the second largest country in Southeast Asia, with a long coastline, four large river basins, and abundant rainfall in the second half of the year. Myanmar has focused on hydropower as the most readily available source of energy. The country has almost 200 large dams and just under 75 percent of its electricity comes from hydropower.11 Myanmar’s climate is tropical in the southern regions and subtropical in the northern regions. The country receives an average irradiation of 4.5 to 5.1 kWh/m2 daily, which is indicative of a rich solar photovoltaic (PV) potential.12 Myanmar currently does not have wind energy installations, but has potential for onshore and offshore wind power along the coastline. The average onshore speed peaks at 17.1 km/h.13 2.1.5 Thailand Thailand has a rich river basin with high mountainous regions and a central plain. It also has high precipitation rates in the second half of the year. However, its primary source of energy is gas rather than hydropower. Thailand is exploring new opportunities to increase the share of renewable energy through its Alternative Energy Development Plan 2015-2036. The country has a tropical climate with high levels of irradiation that peak at around 5.6 to 6.7 kWh/m2 in the months of April and May, mainly in the central and northern parts of the country. This provides a very high solar PV potential for Thailand. Rooftop solar has been introduced and promoted in recent years, resulting in installaions of about 3.4 GW of solar capacity.14 Thailand has some wind farms installed and has optimized these resources. However, relative to its neighbors, Thailand’s wind output is low.

2.1.6 Viet Nam Viet Nam has a diverse topography with a rich river delta, mountainous regions in the north and northwest, and highland plateaus in the center. It has a tropical climate that experiences monsoons with typically heavy rainfall. Viet Nam is reliant on hydropower-based electricity, which currently supplies about 30 percent of the country’s electricity demand.15 However, the country has a very high potential for solar energy as it receives an average of 4 to 5 kWh/m2 of irradiation per day. The Vietnamese government has invested actively in the development of solar energy and Viet Nam now has the largest installed capacity for solar panels in the region.16 The government introduced feed-in-tariff arrangements for rooftop solar installations. These policies paved the way for the large-scale adoption of both utility-scale and distributed solar systems. As of 2022, Viet Nam had just over 10 GW of rooftop PV capacity and an additional 6.5 GW of utility-scale solar PV developed.

Viet Nam has significant wind energy potential, with up to 217 GW of onshore wind and 162 GW of offshore wind. As of 2022, the country had 4,126 MW of wind energy capacity operational. Viet Nam has included offshore wind energy projects in its latest energy development plan, specifically for the special economic zones located off its shores.

11 Myanmar Ministr y of Electricity and Energy – The Role of Hydropower in Myanmar 12 Solar Magazine – Myanmar Solar : Lots of Potential, but a Cloudy Outlook for Solar Energy Development and Growth 13 Weather Spark – Climate and Average Weather Year-Round in Yangon 14 PV Magazine – Thailand introduces FIT scheme for solar, storage 15 ASEAN Briefing – Viet Nam’s Energy Crunch: Coal’s Dominance and the Need for Renewables 16 Viet Nam Briefing – Viet Nam’s Solar Industr y: Bright Prospects for Investors

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2.2 Economies and electricity sectors in GMS countries GMS countries are situated in broader economic and energy cooperation programs such as the Association of Southeast Asian Nations (ASEAN) and the Asia Pacific Economic Cooperation (APEC). The GMS Strategic Framework for 2012–2022 led by the ADB expanded the concept of economic corridor development for the subregion.17 Furthering investments in transport and transit routes, economic corridor development in the subregion includes: • Urban development to widen the corridor space for connecting markets and exploiting agglomeration effects.

• Development of special economic zones and industrial parks at the borders and along corridors as vehicles for private sector investment.

• Development of transport and logistics services to enhance links with trade gateways and help markets function more efficiently.

Harvesting natural resources is economically important in the GMS. However, the subregion has become the site of large-scale construction projects and rapid economic development, including hydropower dams, mining, forestry, and industrial production, raising environmental concerns internationally. Government ministries of the GMS countries are collaborating with influential organizations like the United Nations (UNEP and FAO), WWF, PROFOR, and others on environmental programs and strategy proposals for a sustainable green growth economy.

2.2.1 Hydropower risks to Mekong River Basin resources The economies in the Mekong region are growing rapidly, between six to eight percent per year, and the International Energy Agency (IEA) expects electricity demand to double in the ASEAN region by 2040.18 Hydropower has long been central to the region’s power supply: Thailand began building hydropower in the 1970s and 1980s, followed by Viet Nam in the 1990s, Lao PDR in 2000, and most recently Cambodia. Collectively, the four countries of the Lower Mekong Basin have looked to hydropower as the lowest-cost way to expand capacity and achieve energy security.

China began building dams on the upper Mekong, known locally as the Lancang, in the 1990s and has now built six dams on the mainstem. Dozens of dams have been built on tributaries of the Mekong in the GMS, with dozens more in the planning stages. Although hydropower is considered a renewable and clean energy source, it has significant negative impacts on the environment and society, including destroying or fragmenting surrounding ecosystems, increasing flood risks, and dislocating communities.

While some tributary dams caused notable impacts, deeper analysis of the role and impacts of hydropower increased in 2007 when the first mainstem dam was proposed in northern Lao PDR, the 1,285 MW Xayabury Dam. Lao PDR has since added the Don Sahong Dam on the mainstem, commissioned in 2020, and Luang Prabang, for which construction is just now underway. However, two large dams on the mainstem in Cambodia—Sambor and Stung Treng—were canceled by the Cambodian government.

In addition to other impacts, mainstem dams act as barriers to fish movement and cause major losses for biodiversity and fishery harvests. These dams also trap large amounts of the sediment that the Mekong carries to maintain the delta. Studies show that as of 2015, dam construction deprived the delta of at least half of the historical supply of sediment and that construction of 17 Greater Mekong Subregion – Greater Mekong Subregion Strategic Framework 2012–2022 18 International Energy Agency (2017). Southeast Asia Energy Outlook 2017.

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all the planned dams would lead to a greater than 90 percent depletion. Together with other pressures such as sand mining, scientists forecast that more than half of the delta will be lost to sea level rise by the end of the century. Riverbank and coastal erosion, riverbed incision, land subsidence, and other problems have already emerged in the delta at an alarming rate.19 Thus, while the Mekong River has significant untapped hydropower potential, hydropower development has come at a steep price. Continued energy development along the current path may result in high impacts on riverside communities, as well as the food supply and livelihoods that support these communities.

The report Connected and Flowing, from WWF and The Nature Conservancy, demonstrates that the Mekong region could meet future demand with power systems that were LowCx3, meaning low cost, low carbon, and low conflict for communities and rivers.20 Similarly, studies from the University of California’s Renewable and Appropriate Energy Laboratory (RAEL)21 and Siala22 found that there are options for low carbon and cost-competitive power systems that allow countries to avoid building hydropower dams with large negative impacts. Schmitt showed that planning hydropower dams strategically in a way that seeks to optimize power generation and maintain sediment supply could identify lower impact portfolios for dams.23 The following sections describe the overall economic policies in each of the GMS countries, along with their approach to the electricity sector.

2.2.2 Cambodia Cambodia’s economy has grown significantly since 1993. Textiles and tourism are the two largest industries. Over the past decade, the Royal Government of Cambodia has made remarkable achievements in increasing the electrification rate of its population. In 2007, only 11 percent of villages were connected to the grid. By the end of 2022, the Electricity Authority of Cambodia (EAC) reported that 99.88 percent of villages in Cambodia were within the jurisdiction of a licensed electricity zone, with 98.27 percent of those operating an electricity network connected to the grid, and 1.73 percent in the process of network development.24 Because of these achievements, Cambodia is ranked as one of the fastest-electrifying countries in the world, with an 8 percent annualized increase in per-capita access over the 2010-2018 period.

This is higher than all countries in Africa and Asia-Pacific with lower electricity access rates.25 Cambodia has a high potential for renewable energy, especially solar power, in addition to the hydropower that it has already tapped. The country’s 2021 energy generation was sourced from coal (26 percent), hydro (55 percent), diesel/HFO (4 percent), solar PV (5 percent), biomass (0.5 percent), and power imports (9.5 percent total).26 The electricity market in Cambodia is operated by Electricité du Cambodge (EDC), which is a state-owned, vertically integrated utility. Private investor independent power producers (IPPs) sign long-term power purchase agreements (PPAs) with EDC and are responsible for most generation, 19 Anthony, E. J., Brunier, G., Besset, M., Goichot, M., Dussouillez, P., and Nguyen, V. L. (2015). Linking rapid erosion of the Mekong River delta to human activities. Sci Rep 5, 14745. doi: 10.1038/srep14745.

20 Opperman, J., Har tmann, J., Lambrides, M., Car vallo, J., Chapin, E., Baruch-Mordo, S., et al. (2019). Connected and Flowing: A Renewable Future for Rivers, Climate, and People. Washington, D.C.: WWF and The Nature Conser vancy.

21 Avila et al., 2019 22 Siala et al., 2021 23 Schmitt et al., 2019 24 EAC 2022, ‘Salient features of Power Development in the Kingdom of Cambodia Until December 2022’ 25 World Bank IRENA 2020, SDG7 Tracking Energy Progress 26 EAC 2022 Salient features of Power Development in the kingdom of Cambodia until December 2021

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in addition to power imports from neighboring Viet Nam, Thailand, and Lao PDR. Rural electricity enterprises operate as distribution and retail enterprises, purchasing power from EDC for sale in rural areas.

The EAC is currently working on improving regulations to attract new investment in behind-themeter rooftop solar PV. Retail tariff rates range from $0.18/kWh for residential and industrial / commercial consumers to $0.092/kWh for subsidized low-income households.

2.2.3 Lao PDR Lao PDR has a developing economy that underwent reforms in the late 20th century, including decentralizing the government and increasing involvement from private enterprises. The US government has recognized Lao PDR as one of the fastest growing economies in the world, with Bloomberg predicting a sustained seven percent year-on-year growth prior to the COVID-19 pandemic.27,28 The country is landlocked, but has a high potential for commercial wind development that has attracted interest from foreign developers. The Organization for Economic Cooperation and Development (OECD) has also noted potential for biomass and solar development. The southern parts of the country present the best sites for solar PV projects.29 Almost all the electricity in the country is under the purview of the Électricité du Laos (EDL), the state corporation responsible for generation, transmission, and distribution, including the import and export of electricity.30 EDL has a publicly listed subsidiary, EDL-Gen, that oversees the generation of electricity in the country, and it has investments from private entities from all over Southeast Asia.

In 2020, Lao PDR was the third largest exporter of electricity in the world, exporting to Thailand, Cambodia, Viet Nam, and Malaysia.31 Tariff rates range from $0.085/kWh for commercial consumers to $0.021/kWh for subsidized low-income households. Lao PDR has an existing 100 MW power supply contract with Singapore through the Electricity Generation Authority of Thailand (EGAT).

2.2.4 Myanmar Myanmar’s economy was not strong at the end of the 20th century and beginning of the 21st century. It uses a dual exchange rate to divert funds and revenues, control the local economy, and temporarily subdue inflation. In recent years, most of the foreign investment in the country has come from China and India, in addition to Singapore, South Korea, and Thailand. The last decade saw a significant upswing in the economy owing to the liberalization of the economy, which brought in increased foreign investments.

While Myanmar is well suited for variable renewable energy, about 75 percent of its electricity currently comes from hydropower. The electrification rate of the country is low compared to neighboring countries, with 40 percent of the population lacking access to the grid. This has become worse during recent political events.

The electricity industry is controlled by the Ministry of Electricity and Energy (MOEE). Different departments in the ministry are responsible for the planning and coordination of electric power and the development, regulation, and implementation of the transmission system and national grid.

27 CIA – The World Factbook 28 Bloomberg – Bloomberg Briefs 29 OECD – Lao PDR 30 EDL – About 31 OEC – Electricity in Laos

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The electricity generation assets are owned by the state, with special departments responsible for just the hydropower.32 The private sector is permitted to participate in the generation of electricity but the sale and distribution of electricity is solely in the hands of the government. Tariff rates range from $0.086/kWh for large commercial and industrial consumers to $0.017/kWh for low-income households. Uncertainties caused by the current political situation have created obstacles to the deployment of non-hydro, renewable energy.

2.2.5 Thailand Thailand has one of the strongest economies in the Southeast Asian region, mainly dependent on exports with the industrial and service sectors contributing the largest share of the GDP. About ninety percent of the electricity generation capacity in Thailand is based on conventional thermal gas resources. The country imports oil, natural gas, and coal. Thailand is considered one of the most successful countries in its region when it comes to renewable energy, as it has a well-established solar PV sector that produces over 3 GW and has garnered almost 2 GW through its wind installations, in addition to the hydroelectricity that has already been established. The government has also encouraged rooftop solar installations throughout the country with a good response from the end users.

The Electricity Generating Authority of Thailand (EGAT), a state-owned authority reporting to the Ministry of Energy, has a monopoly over the electricity market and controls the transmission network as well. EGAT is also the largest power producer in the country and increasingly plays a key role in the evolving regional power trade. For instance, EGAT recently facilitated a deal between Lao PDR and Singapore.

Private players have been allowed to engage in power generation, but are required to sell the power to EGAT, which then sells it to two state-owned entities—the Metropolitan Electricity Authority (MEA) and the Provincial Electricity Authority (PEA).33 Thailand also imports electricity from Lao PDR and Malaysia. Retail tariffs in Thailand range from $0.13/kWh for large consumers to $0.0072/kWh for low-consumption households.

2.2.6 Viet Nam Since shifting to an open, market-based economy in the late 20th century, Viet Nam has experienced rapid growth in almost all of its sectors, with a markable rise in small and medium enterprises (SMEs) throughout the country. The country has attracted large amounts from foreign investments and has been an agricultural and manufacturing exporter. Electricity demand in Viet Nam has grown rapidly in the 21st century along with the economy. The primary source of electricity is fossil fuels, with coal providing about 50 percent of the generation. However, the country has a high potential for solar PV, especially in the central and southern regions. It also has potential for onshore and offshore wind projects.

Viet Nam Electricity (EVN) is a state-owned entity that is the largest power producer in the country and that reports directly to the Ministry of Industry and Trade (MOIT). It is also the largest buyer of electricity and holds a monopoly over the transmission and distribution system. However, of late, private investors have been allowed to build, manage, and operate grids (or parts thereof) in Viet Nam as it moves to reduce the state’s control over the electricity sector. Viet Nam has also signed PPAs with Lao PDR for the import of electricity, with about 1.6GW going into operation for the period of 2022 to 2025.34 32 Nor ton Rose Fullbright – Renewable Energy Snapshot: Myanmar 33 Asian Development Bank – Grid-Parity Rooftop Solar Project 34 Viet Nam Plus – Laos boosts electricity expor ts to Viet Nam, Cambodia

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2.3 Regional power trading in the GMS 2.3.1 Motivation for expanding power in the GMS In 2015, parties to the United Nations Framework Convention on Climate Change (UNFCCC) reached a landmark agreement to combat climate change and adapt to its effects. The framework includes enhanced support for developing countries. Parties to the Paris Agreement were invited to submit nationally determined contributions (NDCs) to put forward their best efforts to reduce greenhouse gas (GHG) emissions and adapt to the adverse effects of climate change.

CO2 emissions from fossil fuel use are the main contributor to total GHG emissions and the global energy system accounts for approximately three-fifths of all anthropogenic GHG emissions.

While the Paris Agreement offers hope for our efforts to mitigate climate change, existing policy measures and legal frameworks aiming to implement these commitments fall short of their own ambitions. Recent reports note that the current climate policies of major polluting countries threaten a 3 to 5°C rise in global temperatures by 2100.

Recognition of the effects of climate change, GMS countries’ commitments under the Paris Agreement, and rising environmental movements are all challenging the status quo dominance of coal and hydropower. With the adoption of increasingly competitive variable renewable energy technologies, countries like Lao PDR, whose economy depends heavily on hydroelectricity exports, find themselves no longer competitive. A new approach to energy could power regional development and reduce the need for hydroelectric power in the Lower Mekong over the medium and long term. Some countries in the Mekong Basin are considering these emerging opportunities.35,36 2.3.2 Benefits of energy markets and power trade Power trading refers to purchasing and selling power between parties within the same power grid or network. Various forms of power trading are available today and, depending on the market design, may range from short-term trading to long-term power purchase agreements. Power is traded in different marketplaces, but generally, the power delivery timeframe and the form of the transaction characterize how the marketplaces are defined because power cannot yet be stored in large quantities.

For nearly three-fifths of the world’s population, lack of access to energy is a challenge to economic development and prevents many from emerging from poverty.37 Trade-in electricity can help bring down energy prices, mitigate against power shocks, relieve shortages, facilitate decarbonization, save rivers, and provide incentives for market extension and integration. Essentially, it helps bring about large-scale transformation in several sectors, contributing to economic growth and macrolevel benefits. Additional benefits to setting up cross-border power trading systems between neighboring countries include:38 • Makes importing countries less vulnerable to volatile international energy prices and more able to harness renewable energy.

• Optimizes economies of scale, bringing down the capital costs involved in setting up newer renewable energy plants.

35 Stimson Centre – Mekong Power Shift: Emerging Trends in the GMS power sector 36 Stimson Centre – Briefing: A Call for Strategic, Basin-wide Energy Planning in Laos 37 World Bank – Power Pools: How Cross-border Trade in Electricity can help meet Development Goals 38 Journal of International Affairs (Vol. 3, 2020) – Power Trading in South Asia: Some Aspects of Benefits

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• Leads to more effective use of natural resources and optimizes the energy generation mix.

• Enhances access to cheaper and competitive sources of power.

• Reduces load-shedding blackouts in countries where the growth of power sources cannot keep pace with the growth in demand, thus improving energy security.

• Leads to enhancements in socioeconomic efficiency in various sectors including health, education, and industry.

• Modernizes and expands the power infrastructure and builds institutional capacity in the electricity sector.

• Introduces a new commodity in the export basket of the exporting countries, thus adding a potential new source of income.

• Reduces transborder environmental issues, such as water insecurity, and disasters such as floods.

2.3.3 Issues and barriers to electricity market development in the GMS The significant differences in economic and power sector development in countries of the GMS pose a challenge to making cross-border interconnectivity operational. Further, power companies and utilities must deal with unprecedented volatility in power prices, complex transmission networks, and evolving regulatory requirements.

The GMS countries have an abundant potential for variable renewable energy development that could be integrated into the cross-border grid networks. However, political and diplomatic differences limit cooperation and harmonization among the member countries.

2.4 Approaches to developing regional power trade 2.4.1 Bilateral versus multilateral power trade The bilateral trading model involves generators and buyers (or exporters and importers) signing bilateral contracts for the sale of electricity. Generators can also be buyers, for example, when they do not generate enough power on their own. Though not strictly necessary, intermediaries (brokers) can sometimes facilitate trade between the two parties. The trading parties typically negotiate a set of master terms and conditions that form the basis of trade between them. Once the master agreement has been agreed upon, electricity trading can commence on contracts of a predetermined length.

The contracts specify the amount and price of electricity to be traded and when the trade will take place. At a set time before delivery, the participants disclose their net contract sales and purchases to the system operator. Each generator decides when to dispatch and the system operator manages the imbalances that occur. Since the system operator does not own any generating capabilities to balance the system, imbalances must be paid for either as a market price or a punitive price. Several factors affect the option the market adopts, including the cost of maintaining system security. For instance, the price from the spot market can be used to settle imbalances, or the contract can define penalties for any shortfall imbalances.

Multilateral regional power trade can be categorized across many different dimensions. Limited models may involve relatively small amounts of trading relative to domestic consumption, and 26

could even be unidirectional in nature, while complete models of trade involve the integration of domestic systems in a single common regional market. Some forms of trade occur over longer time scales (such as long-term power purchase agreements) and others occur close to real time (for instance, the intraday or day-ahead time frame). Multilateral power trading can also be considered in terms of how it fits into national system operations. In “primary” models of trade, regional, multilateral power trading is the default mode. In “secondary” models, regional trading takes place as an additional option on top of domestic market or system operation arrangements.

The IEA suggests certain minimum requirements for successful multilateral power trading:39 • Political: Includes broad areas such as intergovernmental agreements, including specific ones such as agreements on common working languages. They also include the vague but critical element of “political will.”

• Technical: Covers harmonized grid codes, harmonized wheeling charge methods, provisions for third-party access to domestic grids, agreements on data and information sharing, and dispute resolution mechanisms.

• Institutional: Includes additional responsibilities for existing institutions, which may require additional capacity building, and the establishment of new institutions that can manage new functions, such as market organization.

2.4.2 Energy trading frameworks In its most basic form, energy trading simply refers to the purchasing and selling of energy between participants in the energy industry. Energy is traded on different types of marketplaces. In general, the delivery timeframe and the form of transactions characterize how the marketplaces are defined. Although the cost of energy storage systems is becoming more competetive, energy trading is conducted as either short-term trades or long-term agreements in which storing the energy is not necessary.

2.4.2.1 Over-the-counter trading In over-the-counter (OTC) trading, power is directly traded between two parties, with prices and trading volume agreed during bilateral negotiations. OTC trading is the most common form of power trading, especially in the conventional power industry. It is less common in the renewables industry.

2.4.2.2 Spot market On the OTC spot market, short-term trades are carried out bilaterally and tend to involve daily and weekly products. Only the two contracting parties know the specifics of the price.

2.4.2.3 Futures market The OTC futures market processes long-term transactions, which includes any deal longer than 24 hours and as long as several years. Electricity traders distinguish between a submarket that includes a physical fulfillment obligation, and a submarket that includes a financial fulfillment obligation.

Forward contracts with a physical settlement obligation are more common. Large-scale power plant operators frequently use long-term OTC futures to hedge against price fluctuations or disruptions such as maintenance work.

39 IEA – Establishing Multilateral Power Trade in ASEAN

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Figure 3: Structure of most energy-only markets40 Figure 3: Structure of most energy-only markets Energy-only market

Over-the-counter trading

Energy exchange

Forward market

Spot contracts

Spot market

Futures

Day-ahead

Options

Intraday

Day-ahead Intraday

Future contracts

Forwards

Options

Figure 4: Simplified schematic of an electrical system with a TSO 2.4.2.4 Day-ahead market

Power for the next day is traded on day-ahead auctions. Usually, power is traded for a Regulator (rules) predetermined time interval, but combinations of time intervals can also be traded as blocks.

Trading deadlines vary between the different day-ahead markets.

2.4.2.5 Intraday market On the intraday market, power is traded in smaller time intervals for the current day. The lead time varies between power exchanges but can be as short as five minutes in certain cases.

Electricity generator

Transmission system operator

Distribution system

Electricity consumer (and prosumer)

2.4.3 Ancillary services trading supplier (money) Ancillary services are services that overseeElectricity the management of power system security, facilitate orderly trading in electricity, and ensure that the quality of electricity supplies are acceptable. These services include a variety of operations beyond generation and transmission that are required to maintain grid stability and generally include active power control or frequency control, as well as reactive power control or voltage control, on various timescales. Traditionally, ancillary services have been provided by large production units such as generators. With the integration of renewable sources, the provision of ancillary services is extended to smaller distributed generation and consumption units.

Because power sources are not being developed at the same pace among the GMS countries, cross-border ancillary service markets can help neighboring countries balance and regulate their grids. Electricity generators with the technical capacity to provide ancillary services can participate 40 Next VPP – What is Power Trading?

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in competitive ancillary services markets across borders. In some cases, ancillary services (such as frequency and inertial response) can be assured through interconnection requirements rather than contractual or market mechanisms.41 The aggregate impact of variable renewable energy on the grid suggests the need for modifications to current procurement mechanisms and ancillary services market designs and rules, and the potential for separate ancillary services markets. Further, understanding the interactions among ancillary services, energy markets, and individual countries’ policies is critical to creating incentives that encourage positive interplay between variable renewable energy and the grid.

2.5 Features of commercial frameworks for market development in the GMS 2.5.1 Establish a wheeling arrangements and a transmission charging scheme Wheeling is the transportation of energy from within an electrical grid to an electrical load outside the grid boundaries. There are two types of wheeling: • Wheel-through: The electrical power generation and the load are both outside the boundaries of the transmission system.

• Wheel-out: The generation resource is inside the boundaries of the transmission system, but the load is outside.

Since the wheeling of electric energy requires use of a transmission system, transmission owners charge a fee, known as a wheeling charge. This is the per megawatt-hour charge that a transmission owner receives for the use of its system to export energy. These charges are part of the agreements or contracts. A possible methodology that seeks to recover payments related to the fixed and variable costs of providing transmission wheeling assets within the GMS trading market is:42 • A contribution to the capital costs of the assets and the recovery of the costs of depreciation.

• The recovery of costs associated with operation and maintenance of the transmission networks.

• The costs of losses occurring on the transmission systems because of wheeling.

• Determine regional transmission assets and asset value.

• Calculate annual revenue requirements for each transmission system operator (TSO) asset.

• Calculate the use of transmission system and associated transmission losses for each regional bilateral trade.

• Calculate wheeling revenue requirements for each TSO for regional bilateral trades.

• Calculate transmission tariff and transmission losses for the purchaser of each regional bilateral trade.

However, significant challenges have been identified in this method, some of which are listed below: • Large gaps between the existing power systems and the regulatory regimes.

41 Greening the Grid – Ancillar y Ser vices 42 ADB – Inter-regional Market Coordination: Greater Mekong Subregion

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• High levels of cooperation and trust needed between authorities in different countries. in order to tackle technically complex issues in cross-border trading systems.

• Understanding of and agreement on sharing benefits among the all parties.

Involving the Regional Power Trade Coordination Committee (RPTCC, explained in Section 2.6) in the trading process would require the RPTCC to: • Publish a list of potential buyers and sellers.

• Publish customized available transfer capacity (ATC) reports.

• Publish wheeling charges and loss factor reports.

• Evaluate the requests for acceptance sent by the sellers and subsequently notify the buyers and sellers, irrespective of the results, and the wheelers if the request is granted.

• Update and circulate customized ATC reports whenever a trade is approved.

However, assigning these tasks to the RPTCC not yet been accepted or implemented by GMS countries.

2.5.2 Create a regional transmission system operator or market operator As the sophistication of the electric grid in a country or a region increases along with increased energy demand and electricity generation, an entity is needed that can be entrusted to transport energy using the available infrastructure. In its simplest form, a transmission system operator (TSO) is the authority that is responsible for transmitting electrical energy using overhead transmission lines or underground cables from the power generators to the consumers or the localized distribution system operators. As part of this role, they are also responsible for developing, maintaining, and operating the high voltage systems within their areas of jurisdiction. Furthermore, the TSOs are also required to carry out the following functions: • Interchange operations: Enacting and monitoring the interchange activities which occur between different balancing areas.

• Balancing operations: Planning and maintaining adequate power generation supplies for expected power demand in a given area and maintaining the reliability of power in that area.

• Transmission operations: Conducting transmission switching and monitoring system line loading and voltage conditions.

• Reliability coordinator: Monitors and ensures the stability and reliability of multiple areas, coordinates tasks with multiple entities, and maintains their reliability.

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Future contracts

Forwards

Options

Figure 4: Simplified schematic of an electrical system with a TSO43 Figure 4: Simplified schematic of an electrical system with a TSO Regulator (rules)

Electricity generator

Transmission system operator

Distribution system

Electricity consumer (and prosumer)

Electricity supplier (money)

A TSO can be state-owned, privately owned, or a joint enterprise between state and private entities. For regional power trade with cross-border transmission of electricity, strict rules and regulations need to be followed to ensure that conflicts do not arise over responsibilities and revenue sharing.

2.5.2.1 Case Study: European grid and the European Network of Transmission System Operators for Energy The European Union (EU) is a functionally mature example of a system where multiple TSOs work in conjunction with each other to maintain the security of the grid and coordinate supply and demand across the continent. The development of a secure, reliable, sustainable, and economically viable electrical grid in the EU that can support the increasing energy demands while also integrating an increasing volume of renewable energy is undertaken by the System Development Committee (SDC), which is supported by the Secretariat team. The SDC consists of 39 TSOs from 35 countries—one from each member or observer country, except Germany, which has four TSOs. The TSOs work together to provide grid access to all the relevant stakeholders in accordance with the non-discriminatory and transparent rules that have been established.44 The SDC has a defined, strategic mission as it works primarily towards the creation of the legally mandated Ten-Year Network Development Plan (TYNDP) and the Outlook Reports. These publications are important for the key stakeholders, including industry players and major investors, to decide on their own strategies for the coming years.

The SDC publishes a TYNDP every two years to provide a roadmap for the development of the pan-European electrical grid over a 10-year outlook. Because grid development is one of the fundamental objectives of the EU, the TYNDP includes scenarios, or visions, of how the European power system might look in the coming decade. Over 200 experts from throughout the EU carry out detailed regional exploration studies and analyses to assess ways to reinforce the grid. The benefits of each project included in the TYNDP are assessed against several indicators ranging from socio-economic welfare to environmental impact.

Initially, cross-border electricity interconnections were developed to maintain the security of supply.

The interconnectors were built to support the continental neighbors in case of supply disruptions, 43 Clean Energy Wire Setup and Challenges of Germany’s power grid 44 European Network of Transmission System Operators (ENTSO) – Members

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thereby ensuring the reliability of the electricity supply. More recently, the TYNDP includes new objectives for the upcoming transmission projects, emissions targets, and integrating electricity from renewable energy sources coupled with decarbonization. The TYNDP, along with the economic and technical studies that go towards its production, reveal valuable information on the future of the European power system. Along with specific project assessments, these results form the basis of the TYNDP package.45 The German electrical grid is considered one of the most advanced and stable grids in the world. It relies on significant renewable energy sources alongside a decreasing number of conventional fossil fuel power plants. Keeping the grid stable when there is a large influx of variable renewable energy sources, as well as coordinating the interaction between the power generation and distribution systems, are the primary tasks of the four TSOs in Germany. The four TSOs are TenneT, 50Hertz, Amprion, and TransnetBW, each responsible for the operation, maintenance, and development of the sections of the grid that come under their purview, as shown in the Figure 5 below.

Germany’s transmission grid is around 35,000 km in length, with a maximum voltage of 220 kV or 380 kV. The transmission system transports electricity over large distances, including exporting power abroad. While the transmission lines predominantly use overhead high voltage alternating current lines (HVAC), the country is looking to invest more in underground high voltage direct current lines (HVDC) by 2025.46 As mentioned earlier, the TSOs regulate the power supply, which includes balancing the fluctuating power from the increasing number of renewable energy power sources with the more controllable conventional power sources like fossil fuels and hydro.

Figure 5: TSOs in Germany and parts of the country for which they are responsible Figure 5: TSOs in Germany and parts of the country for which they are responsible

50Hertz

Amprion

TenneT TransnetBW

45 ENTSO–TYNDP

Figure 6: Viet Nam Electricity Market structure before and after establishment of VWEM 46 Clean Energy Wire – Setup and challenges of Germany’s power grid Vietnam Electricity Market Structure prior to 2016

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Generators

Vietnam Electricity Market Structure from 2016 Generators

The power suppliers pay a grid fee to the TSO for the use of their network and infrastructure, as well as various levies and operational costs. This fee is ultimately borne by the end users who see it reflected in their electricity bills. Since the TSOs hold monopolies over their regions, the federal government puts caps on the grid fees.

As the demands on the electricity grids across the EU (and also the world) are increasing, Germany’s Federal Ministry for Economic Affairs and Climate Action, which oversees the TSOs and their expansion plans, has recognized that all the electrical grids in Europe are facing the following challenges:47 • The share of power generated from variable renewable energy sources is increasing and these fluctuations can affect the stability of the grids.

• A large number of new power generation installations are being connected to the grid—such as rooftop solar installations, small-scale wind farms, battery energy storage systems (BESS) installations—that require electricity to have a bidirectional flow.

• The volume of electricity trade in the EU is increasing and Germany, as a transit country between the Western and Eastern European electricity markets, is likely to encounter significantly more cross-border electricity trading than other countries.

These challenges need to be considered in detail by the countries in the GMS; they will face similar hurdles as the regional energy trade increases and the TSOs in their region start handling increased volumes of electricity imports and exports. While considerable, these challenges are not insurmountable in the GMS given fewer countries are involved, the business case to pursue a green integrated power system is strong, and the current energy mix makes a transition possible.

2.5.2.2 Case-Study: Electricity market development in Viet Nam Viet Nam’s Ministry of Industry and Trade (MOIT) oversees policy development in the energy sector. It is responsible for the review and submission of laws, regulations, master plans, and major investment projects for the Prime Minister’s approval. Such materials generally need review and approval from the Ministry of Planning and Investment (MPI) and the Prime Minister’s office, but MOIT initiates the plans. In 2015, MOIT approved the implementation of the Viet Nam Wholesale Electricity Market (VWEM) with the intent to liberalize the electricity market. Previous to the VWEM, all power generation companies were required to sell their electricity to EVN. EVN then distributed power to the end users through its five subsidiaries and therefore regulated the price of electricity throughout the country, maintaining a monopoly.

The VWEM was established via a four-stage roadmap starting in 2015 that included the following steps:48,49 1. Preparation step (2015): • Developed the proposal for VWEM and submission for approval.

• Finalized the proposal for information and communication infrastructure to support market operation and monitoring and submitted to MOIT for approval.

• Issued guidelines for market participant training and capacity building.

47 Germany’s Federal Ministr y for Economic Affairs and Climate Action – Grids and Infrastructure 48 ADB – Establishing the Wholesale Electricity Market 49 Viet Nam MW – VWEM Implementation Plan

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2. First step: Pilot VWEM and paper market (2016): • Developed paper-based arrangements for VWEM, including vesting contract allocation, market settlement, cross-subsidy, etc.

• Issued VWEM rules and developed other regulations.

• Reformed the electricity sector in accordance with the proposal and roadmap approved by the prime minister.

• Developed an infrastructure system following the proposal approved by MOIT. • Organized basic and advanced training for market participants.

Figure 5: TSOsoutcomes in Germanyof andthe parts of the country for and which they are responsible • Assessed paper-based pilot made necessary revisions.

3. Second step of pilot VWEM (2017-2018) • Tested the arrangements of VWEM in real-time.

• Revised and completed the VWEM rules and relevant regulations.

• Continued sector reform by proposing a roadmap approved by the prime minister.

50Hertz • Transformed the National Load Distribution Center into an independent accounting unit under EVN (2017).

• Developed infrastructure system following the proposal approved by MOIT. Amprion

• Continued basic and advanced training for market participants.

• Assessed the outcomes of the second step of pilot VWEM TenneT and revised VWEM’s arrangements as required.

TransnetBW

4. Final step: Full VWEM launch (2019)

• Figure 6 illustrates the changes resulting in the electricity market as a result of VWEM.50 Figure 6: Viet Nam Electricity Market structure before and after establishment of VWEM Figure 6: Viet Nam Electricity Market structure before and after establishment of VWEM Vietnam Electricity Market Structure prior to 2016

Vietnam Electricity Market Structure from 2016

Generators

Generators

North Region

EVN

South Region

Central Region

Ho Chi Minh

Hanoi

Through Wholesale Market

EVN

Customers (Domestic and Industrial)

North Region

South Region

Central Region

Ho Chi Minh

Hanoi

Customers (Domestic and Industrial) Industrial Customers

50 Beroe, Inc – Viet Nam’s wholesale electricity market

34

Domestic Customers

Specifically, implementation of the VWEM allowed for the following: • Generators with capacities of more than 30MW would be allowed to participate in the wholesale market.

• The subsidiary companies of EVN were required to purchase electricity from the generation companies on the wholesale market.

• Large consumers that exceed demands of 110kV would be able to either procure electricity from the subsidiaries at the wholesale rate or get a direct connection to 220kV substations.

2.6 Institutional and technical enablers for electricity market development in the GMS For power trade among multiple countries with varying governance models to be successful, high levels of commitment, understanding, and cooperation are necessary. In 1992, the ADB supported the establishment of the Greater Mekong Subregion Program in order to promote economic cooperation and support a range of high-priority regional development initiatives; energy was listed as a priority focus.

With guidance from the ADB, GMS countries also established the Economic Cooperation Program in 1992 with the goal of facilitating and enhancing economic relations between the countries in the subregion.

In 1995, the Electric Power Forum (EFP) was created as the first institutional structure for supporting cooperation on electricity development in the subregion.51 Each GMS member country nominated a senior member from their electricity policy and planning ministry and a representative from the national power utility to attend the forum. The EFP met annually to share plans for development, with a key focus on regional power trade and grid interconnection.

As the requirements of the member countries have grown in accordance with their economic development, energy requirements and each country’s perspective on how to meet these requirements have also changed over the years.

2.6.1 GMS power trade cooperation In 1998, the Electric Power Forum established the Expert Group on Power Interconnection and Trade (EGP), a subcommittee tasked with preparing a master plan for interconnection in the region and developing regulatory, legislative, and legal arrangements for implementation. In 2002, the EGP created the Regional Power Trade Coordination Committee (RPTCC) to serve as the institutional structure for advancing regional trade integration in the GMS. Each GMS member county nominated a director-general level representative from their respective energy ministries to sit on the RPTCC. The RPTCC became the institutional helm for supporting a regional electricity market and coordinating the advancement of physical cross-border interconnections in the GMS. It was initially set up with two working groups—a working group on regulatory issues (WGRI) which was responsible for developing technical and commercial guidelines, and a working group on performance, standards, and grid code (WGPG). In 2006, the RPTCC, supported by the World Bank and ADB, outlined a roadmap with four stages for establishing a competitive electricity market in the region.52 51 ADB/GMS 2010, Greater Mekong Subregion Power Trade, and Interconnection – 2 decades of Cooperation 52 Ibid., and ADB/GMS 2021, The Greater Mekong Subregion Economic Cooperation Program Strategic Framework 2030: A response to long-term challenges of the new decade

35

Stage 1:

Initial period with only bilateral exchange through either grid-to-grid or dedicated point-to-grid projects, without synchronization.

Stage 2:

Limited regional multilateral trade, allowing for third-party wheeling and network access, but limited to surplus capacity of existing interconnectors.

Stage 3:

Greater development of interconnectors to facilitate cross-border multilateral trades and third-party private sector access to exchanges.

Stage 4:

Full regional competitive market established, with multibuyer and multiseller markets able to execute trades within and across borders.

In 2012, the RPTCC authorized the establishment of a Regional Power Coordination Centre (RPCC) to promote a synchronized power system and a transparent and competitive electricity market in the region. With the ADB’s support, regional power trade was indentified as one of the core issues for both the regional integration and economic development of the GMS countries.

The RPTCC addressed energy needs and managed the regional power trade by providing policy recommendations and facilitating information exchange about the energy plans and projects within each country. The committee was comprised of officials from the energy departments and ministries, or their equivalents, from all the GMS countries. Agendas varied for the RPTCC annual conferences, but the focus was always on cooperation for the development of the energy and power sector. At the final conference (28th meeting) in 2021, members deliberated over the following topics:53 • Harmonization of the technical performance standards, grid codes, and a regulatory regime.

• Connectivity activities in Asia.

• The status of efforts to transition to renewable energy.

• A review of approaches and successes in EU as they integrate larger percentages of renewable energy.

Each member state also provided key power sector development updates.

Cambodia: • While reviewing its power development plan, the government of Cambodia recognized the importance of compiling data on power supply and consumption. Cambodia requested that their energy trading partners also provide similar data to improve power trade for the future.

• Pledged to provide information about the 500kV transmission line that is being planned from Lao PDR to Cambodia.

• Committed to continue exploring potential for developing robust pockets of wind energy resources.

Lao PDR: • Announced that the recently established transmission company, EDL-T, will manage planning and investment for the 230kV transmission line project.

• Reported progress on the electric vehicle program that is now in its nascent stage.

• Reported that solar in the Lao PDR grid is not more than five percent of the generation mix.

53 GMS – 28th Meeting of the RPTCC

36

• Signed an agreement to export 100 MW of renewable energy to Singapore via Thailand and Malaysia.

Myanmar: • Acknowledged that, based on the NDCs submitted to the UNFCCC, efforts to reduce CO2 emissions that are supposed to be underway in the country are currently hampered by the political situation.

Thailand: • Announced that the share of new power generation from renewable energy is expected to reach 60 percent by 2050 and that one coal plant will be retired in 2033.

• Shared an energy efficiency plan in effect until 2037, with a targeted 30 percent reduction in demand. However, aggressive planning is underway to reach the target earlier.

• Recognized that the target 2000 MW of floating solar under PDP 2018 will not be reached; currently, the pilot project is at 47 MW. • Recognized the potential for OWE projects.

• Announced that BESS installations are underway to help with ancillary services.

• Announced that EGAT is participating in a wheeling agreement to facilitate a trade between Lao PDR and Singapore of 100 MW of renewable energy.

Viet Nam: • Announced that PPAs have been signed with power plants in Lao PDR for a total capacity of almost 2000 MW; the capacity is expected to rise to 3000 MW by 2025 and 5000 MW by 2030. Most of the power is coming from hydropower plants.

• Announced an agreement with Lao PDR for a wind power project.

• Shared the following operational challenges for managing increased renewable energy sources in the grid: • Grid congestion • System inertia • Frequency reserve of the power system • Limitations of renewable forecast • Adapting to output variations All member states agreed that the volume of the power trade needs to be expanded, with an increased contribution of renewable energy in the generation mix. Members also agreed that EU power trade arrangements can be viewed as an example of best practices but that there are differences between the two regions, particularly regarding the maturity of the technologies involved.

At the conclusion of the 28th meeting, the GMS RPTCC was renamed as the GMS Energy Transition Task Force (ETTF).54 In 2022, the 29th and final RPTCC meeting was held. In June 2023, 54 ADB 2022, “Proposed Programmatic Approach and Policy-Based Loans for Subprogram 1, Technical Assistance Grant, and Administration of Loans Grant, and Technical Assistance Grant Kingdom of Cambodia: Energy Transition Sector Development Program.”

37

the first GMS ETTF meeting took place in Manila to discuss regional cooperation on the energy transition and power trade, including the planning and execution of future bilateral or multilateral connections.55 2.6.2 Intergovernmental agreements In addition to cooperating through the RTPCC, GMS member countries signed an intergovernmental agreement (IGA) in 2002, which marked a major milestone towards enabling smoother communication and cooperation among the member countries. The IGA was followed by memorandums of understanding in 2005 and 2008 that encompassed the Regional Power Trade Operational Agreement (RPTOA) and marked a high-level commitment by regional ministers to guide their countries to greater participation in the electricity market.

The main goals of the IGA were: • To promote efficient development of electric power systems to support socio-economic development while protecting the environment.

• To ensure reliable electricity supply while minimizing system costs.

• To integrate cross-border power trade into national policies and plans.

• To harmonize technical standards, cooperation, sharing of information, and open communication.

2.6.3 ASEAN Plan of Action for Energy Cooperation At the regional level, the initial phase of ASEAN’s Plan of Action for Energy Cooperation (APAEC) 2016-2025 sets a target for renewable energy to be 23 percent of the total primary energy supply by 2025.56 The second phase, ratified in 2020, includes a target for a 35 percent share of renewable energy in installed power capacity by 2025.57 The first APAEC program of the second phase establishes an ASEAN power grid for the broader region, of which the GMS is a key subregional power pool.58

2.7 Cross-border grid interconnection challenges in the GMS Although several cross-border interconnections currently exist in the GMS, most are either generator-to-grid or load-to-grid connections.59 An high-voltage (HV) synchronous 230 kV interconnection exists between Viet Nam and Cambodia; other grid-to-grid connections are either medium or low-voltage connections at less than <132 kV. Figure 7 illustrates these crossborder connections. In addition to the transmission lines shown in Figure 7, 22kV and 35kV interconnections run between Lao PDR, Cambodia, and Viet Nam.

55 GMS 2023, “GMS Energy Transition Task Force Meeting.”

56 APAEC 2016, ASEAN Plan of Action for Energy Cooperation PHASE I, 2016-2025 57 APAEC 2020, ASEAN Plan of Action for Energy Cooperation PHASE 2, 2021-2025 58 Ibid.

59 ADB—Harmonizing the GMS Power System to Facilitate Regional Power Trade

38

Figure 7: inExisting transmission lines in GMS countries Figure 5: TSOs Germany cross-border and parts of the country for which they are responsible

60

China

G G L

L Viet Nam

Myanmar

G

Laos

G

G

G G

Thailand

G

G G G

Cambodia

Existing grid-grid interconnection

G

Existing gen-grid connection

L

Existing load-grid connection

Without uniform HV synchronous interconnections, cross-border power trade is challenging.

Furthermore, Lao PDR, Cambodia, and Myanmar do not have a comprehensive grid code, nor have they subscribed to the GMS grid code. Breakdowns will occur when unsynchronized grids are connected because of significant differences in the dynamic performance of the various local grids.

These factors make it risky for Thailand and Viet Nam to connect their grids with the other countries; reduced reliability and possible frequency fluctuations can affect the safety of their grids.

Thailand and Viet Nam have detailed grid codes and fairly enforced compliance. They are the main load centers of the GMS. High capacity and unreliable interconnections also impact the reserve requirements of the importing country. Further arrangements are needed to increase the spinning reserves but this 60 ADB – Harmonizing the GMS Power System to Facilitate Regional Power Trade [https://www.adb.org/sites/default/files/ project-documents/47129/47129-001-tacr-en.pdf]

39

adds to the costs for the importing countries. The implementation of a comprehensive grid code is the first step towards improving the dynamic performance of the local grids in the exporting countries, which will allow regional power trade to expand much faster.

Section 5 of this report discusses the grid code first proposed by the RPTCC, which considered the requirements of each GMS member country. Adopting the grid code and implementing it on an existing grid will not be an easy task, but must be accomplished before the power trade in the region can flourish. Additionally, the dynamic performance of the local grids needs to be improved by setting up the primary (governor control), secondary (automatic gain control), and tertiary (dispatchable/nonspinning) reserves in the power system. This would not only help with the crossborder power trade but also help the national grids by boosting the quality and reliability of the individual power systems, enabling better use of the local generation resources, and lowering the spinning reserve requirements.

Alternatively, because synchronous HV interconnections are not common, asynchronous HV interconnection technology could be explored. Specifically, asynchronous technology could provide a near-term solution for facilitating a direct connection between Viet Nam and Thailand as these two countries are geographically distant and the network would have to pass through Cambodia and Lao PDR. Some of the advantages of HVDC interconnections are as follows: • Flexibility in power transfer.

• Fast control as HVDC can assist in stabilizing frequency.

• Faster implantation of fault clearance.

• Disturbances on one system are not transferred to another connected system.

• HVDC interconnections do not significantly affect the short circuit levels of the two systems.

• Voltage can be regulated better because terminal voltages do not vary based on the loading.

• Added ancillary services can be provided by the HVDC connection.

Despite these advantages over HVAC transmissions, the HVDC interconnectors require more capital investment. The possible technologies for improving HVDC connections are: • Line commutated converter: A well-established technology used many places around the world.

• Voltage sourced converter: A new technology developed for transferring power generated offshore to onshore grids.

2.8 Summary of electricity market analysis for the GMS The countries in the GMS are at various stages of socioeconomic development, but each has identified their need to increase cross-border electricity trade and integrate renewable energy sources. Cross-border trade will move each country towards the energy and climate targets that they have set. However, as the energy demands in each country keep increasing, much groundwork needs to be laid before cross-border trade will flourish.

Lao PDR, positioning itself as the battery of Asia, has the potential to establish a large portion of its economy on the export of variable renewable energy to countries in the GMS, as well as leveraging its existing hydropower during the transition.

40

However, before the electricity trade can be expanded in the region, all countries must come to an understanding of how responsibilities and benefits will be shared. Some member countries will be net exporters of electricity, while others will be net importers. Which country will be responsible for establishing infrastructure required for cross-border trade must also be established.

Establishing the RPTCC and each country’s active participation in its proceedings have been positive steps toward increasing power trade in the region. The RPTCC has also facilitated the exchange of information about the energy sector plans and projects and helped member countries focus on three goals: providing an adequate supply of energy throughout the GMS at fair and affordable prices, encouraging development in the rural regions, and attracting foreign investment. As the RPTCC has now transitioned to the GMS ETTF, advancing regional electricity interconnections will be coupled with the deployment of clean and renewable energy.

The European model can be studied to gain a better understanding of the way energy trading is conducted among countries that have different energy demands and varied sources of power.

However, although all the countries in the EU have their own constitution, the EU also has a joint constitution to which the member countries are signatories, making the implementation of an electricity market and enforcement of any associated rules and regulations much easier.

GMS countries, despite having strong diplomatic relationships with each other, do not subscribe to a common constitution or legally binding legislation. This will create a challenge for the region if it attempts to directly replicate the EU. The draft regional grid code first developed through the RPTCC has not yet been implemented and each country is still conforming to its own standards.

The widespread adoption of the grid code would be another step toward harmonizing the crossborder electricity market.

Numerous development partners, including the ADB, have recognized that the following steps will need to be taken to expand cooperation in the GMS and to deliver sustainable and secure energy:61 • Improve security of the energy supply through cross-border trade.

• Optimize use of available energy resources.

• Enhance access to energy for all sectors and communities by promoting best energy practices throughout the GMS. • Develop more efficient indigenous, low-carbon, and low-impact renewable resources to reduce dependence on imported fossil fuels.

• Promote public-private partnerships and private sector participation for energy development, particularly among small and medium sized enterprises.

61 ADB – GMS Roadmap for Expanded Energy Cooperation

41

3 Modeling Electricity Systems in the GMS 42

43

3.1 Modeling methodology This study used the World Bank’s Electricity Planning Model (EPM) tool to model the development of the electricity sector in the GMS over the 2021-2050 period. EPM is a long-term, multiyear, multizone capacity expansion model with economic dispatch.62 The tool, however, does not take into consideration externalities such as social, environmental, climate, or other costs. While increasingly gaining acceptance, including these parameters in the modeling limits its acceptance among key stakeholders that adhere to conventional approaches to power sector modeling. The objective function of the EPM model is to minimize the sum of discounted, fixed, and variable generation costs for all zones and years, which is subject to the following constraints:63 • Demand equals the sum of generation and unserved energy.

• Available capacity is existing capacity plus new capacity minus retired capacity.

• Generation does not exceed the maximum or minimum output limits of the units.

• Generation is constrained by ramping limits.

• Reserves are committed every hour to compensate for forecasting errors.

• Renewable generation is constrained by wind and solar availability.

• Excess energy can be stored in storage units to be released later or traded between other zones.

• Transmission network topology and transmission line thermal limits.

We developed a profile of 12 representative days and reflective hourly load curves for each country in the GMS throughout the year, capturing both peak and average periods of demand.

Using the EPM to model the benefits of cross-border interconnection expansions follows the same approach as the World Bank in the 2021 study, The Value of Trade and Regional Investments in the Pan-Arab Electricity Market: Integrating Power Systems and Building Economies, which assumes:64 • Market participants are not strategic and behave in a perfectly competitive manner.

• Projected demand is perfectly inelastic.

• Trade among regions is economically efficient, which translates to a single objective minimization of cost for all regions.

• The pricing is efficient and does not provide incentives to market participants to deviate from optimal behaviour.

62 World Bank. 2021. The Value of Trade and Regional Investments in The Pan-Arab Electricity Market: Integrating Power Systems and Building Economies. World Bank, Washington, DC. © World Bank. https://openknowledge.worldbank.org/ handle/10986/36614 License: CC BY 3.0 IGO 63 Ibid.

64 Ibid.

44

3.2 Scenario design To model the impacts of supporting regional grid interconnections in the GMS, we have designed four scenarios to reflect a range of development trajectories with and without advanced deployment of renewables and grid interconnection expansions.

The first scenario is our Baseline scenario, referred to as BASE; this scenario reflects the current power development planning outlooks for each GMS country, considering both existing and planned grid interconnections and subsequently following the same trajectory to 2050. This trajectory is designed to reflect a “business-as-usual” approach and assumes a modest level of new renewable energy plants but no additional cross-border interconnection expansions.

The second scenario is the Grid Interconnection Expansion scenario, IEXP, which considers advanced development of new cross-border transfer expansions between GMS countries in the region on a least-cost basis while maintaining the same baseline levels of renewable energy deployment. The purpose of this scenario is to assess the impacts of expanding the GMS grid interconnection in the absence of a change to renewable energy uptake.

The third scenario, Renewable Energy scenario, RE, implements a 100 percent renewable energy target but maintains the baseline constraint for no new development of cross-border interconnection expansions. The goal of this scenario is to evaluate the impacts of implementing a 100 percent renewable energy target without any additional cross-border transfer capacities.

The fourth scenario, Renewable Energy with Grid Interconnection Expansion, REIEXP combines both an advanced development of cross-border interconnection expansions and an advanced deployment of renewable energy generators. This scenario provides an understanding of the impacts of supporting regional grid interconnections in the GMS against the backdrop of a targeted 100 percent renewable energy share by 2050.

An overarching principle of this modeling approach is to ensure that the development of hydropower in the GMS is minimized and that the development of renewable energy sources, such as wind and solar, proceeds in a way that minimizes negative social or environmental impact.

Table 1 summarizes the design of each scenario.

45

Table 1: Design of four modeling scenario the power system in the GMS

Scenario name

Baseline No Expansion

Grid Interconnection Expansion

Renewable Energy

Renewable Energy with Grid Interconnection Expansion

Model acronym

BASE

IEXP

RE

REIEXP

Role of interconnections

Baseline

Advanced

Baseline

Advanced

Role of renewable energy

Scenario design

Baseline

No additional interconnection expansions. Baseline renewable uptake according to current power development policies in each country.

Baseline

New country-to-country interconnections expand on a least-cost basis (included in optimization). Baseline renewable uptake according to current power development policies in each country.

Advanced

No additional interconnection expansions. Target set to achieve a 100% share of renewable energy in the generation mix for all countries in the GMS.

Advanced

New country-to-country interconnections expand on a leastcost basis (included in optimization).

Target set to achieve a 100% share of renewable energy in the generation mix for all countries in the GMS.

46

3.3 Modeling topology Figure 8 maps an 11-zone modeling topology for the power system in the GMS. Figure 9 maps existing cross-border independent power producers (IPPs) in the GMS. Viet Nam is modeled across three zones: Viet Nam-North (Viet Nam-N), Viet Nam-Central (Viet Nam-C), and Viet Nam-South (Viet Nam-S). Thailand is modeled across two zones: Thailand-North (Thailand-N), and Thailand-Central (Thailand-C). Lao PDR is modeled across three zones: Laos-North (Laos-N), Laos-Central (Laos-C), and Laos-South (Laos-S). Myanmar is modeled across two zones: MyanmarNorth (Myanmar-N) and Myanmar-Central (Myanmar-C), and Cambodia is one zone. The People’s Republic of China (PRC) is included in the figures as one zone.

Figure 8: 8: Power system modeling topology in the Figure Power system modeling topology in GMS the GMS

PRC Myanmar-N Vietnam-N Laos-N

Myanmar-C

Thailand-N

Laos-C

Thailand-C

Laos-S Vietnam-C Cambodia Vietnam-S

Intra-Regional interconnection

Figure 9: Existing cross-border IPPs in the GMS

840 MW

PRC

Myanmar-N Vietnam-N Myanmar-C

3,713 MW

Thailand-N

Laos-N 1,440 MW

Laos-C

Thailand-C

47

562 MW

Laos-S 550 MW

Cambodia

Vietnam-C

Myanmar-N Vietnam-N Myanmar-C

Laos-N

Thailand-N

Laos-C

3.4 Cross-border trade andThailand-C independent power producers Laos-S Vietnam-C in the GMS Cambodia

A total of 7,105 MW of IPP projects are dedicated for cross-border trade in the GMS. Of this Vietnam-S total, 6,265 MW are in Laos-N, Laos-C, and Laos-S, where they are exported to Thailand-N and Viet Nam-C. An additional 840 MW in Myanmar-N is dedicated for export to the PRC. Figure 9 illustrates these connections. See also Table 6 in Appendix A for a list of all existing cross-border IPPs. Intra-Regional interconnection

Figure Existing cross-border in the Figure 9: 9: Existing cross-border IPPsIPPs in the GMSGMS

840 MW

PRC

Myanmar-N Vietnam-N Myanmar-C

3,713 MW

Thailand-N

Laos-N 1,440 MW

Laos-C

Thailand-C 562 MW

Laos-S 550 MW

Vietnam-C

Cambodia Vietnam-S

Intra-Regional interconnection Existing Cross-border IPPS

48

3.5 Existing grid-to-grid interconnections As of 2021, the existing capacity of grid-to-grid interconnections in the GMS is 2,539 MW. Excluding the connections to the PRC leaves a total 1,294 MW, with the largest connections between Thailand-N and Laos-C. Some connections exist between Myanmar-N and Laos-N, Laos-S and Cambodia, Viet Nam-S and Cambodia, as well as with Thailand-C. Thailand-C and Viet Nam-S operate on different frequencies, and therefore must never directly synchronize through Cambodia.

Figure 10 maps existing grid-to-grid interconnections in the GMS. Please see Table 6 in Appendix A for a list of all existing cross-border grid-to-grid interconnections.

Figure Existing grid-to-grid interconnections in GMS the GMS Figure 10:10: Existing grid-to-grid interconnections in the

60 MW

PRC 60 MW

Myanmar-N

1,005 MW

30 MW

Vietnam-N Myanmar-C

Laos-N 784 MW

Thailand-N

Laos-C

Thailand-C

Laos-S Vietnam-C

100 MW

Cambodia

180 MW

Vietnam-S

200 MW

Intra-Regional interconnection Existing Grid to Grid interconnection

Figure 11: Existing, candidate, and planned grid-to-grid interconnections in the GMS

1,000 MW

Myanmar-N

2,000 MW

PRC

60 MW

1,005 MW

2,000 MW 30 MW

60 MW

Vietnam-N Myanmar-C

Laos-N 3,500 MW 2,000 MW

2,000 MW

Thailand-N

2,000 MW 784 MW

Laos-C

2,000 MW

Thailand-C

49

Laos-S

2,650 MW 180 MW

100 MW 2,000 MW

Cambodia 800 MW 2,000 MW

200 MW

Vietnam-C

800 MW

PRC 60 MW

Myanmar-N

1,005 MW

30 MW

Vietnam-N Laos-N

Myanmar-C

784 MW

Thailand-N

Laos-C

3.6 Planned grid-to-grid interconnections and candidate Thailand-C Laos-S areas Vietnam-C 100 MW

Numerous cross-border interconnections are currently under construction or planned. This Cambodia 180 MW study considered a comprehensive list of interconnections, which are mapped in Figure 11 and 200 MW Vietnam-S summarized in Table 7 of Appendix A. For the IEXP and REIEXP scenarios, a costing profile (dollar cost per MW/km) for new candidate expansions was established between each potential crossborder trading zone, reflective of key assumptions for the GMS and including the assumption that 6 Intra-Regional interconnection GW of capacity is allowed to develop in each zone on a least-cost basis.

Existing Grid to Grid interconnection

Figure Existing, candidate, planned grid-to-grid interconnections the GMS Figure 11:11: Existing, candidate, andand planned grid-to-grid interconnections in theinGMS

1,000 MW

Myanmar-N

2,000 MW

PRC

60 MW

1,005 MW

2,000 MW 30 MW

60 MW

Vietnam-N Myanmar-C

Laos-N 3,500 MW 2,000 MW

2,000 MW

Thailand-N

2,000 MW 784 MW

Laos-C

2,000 MW

Thailand-C

Laos-S

2,650 MW 180 MW

100 MW 2,000 MW

Cambodia 800 MW 2,000 MW

Vietnam-C

800 MW

200 MW

Vietnam-S

Intra-Regional interconnection Existing Grid to Grid interconnection Candidate Grid to Grid interconnection

50

3.7 Demand forecasts Figure 12 charts energy demand forecasts in the GMS over the horizon 2021-2050. Demand forecasts for each GMS country are reflective of the latest power development plan projections available. Energy demand in the region is expected to rise from 486 TWh in 2021 to 857 TWh by 2030, 1,281 TWh by 2040, and 1645 TWh by 2050. Viet Nam accounts for the highest share of the growth over the modeling period, comprising a 61 percent share of regional energy demand by 2050.

Figure 13 shows peak demand projections in the GMS by zone over the 2021-2050 modeling period. Viet Nam-N and Viet Nam-C together comprise the highest peak demand in the region, both surpassing Thailand-C by 2025, and reaching a combined 176 GW by 2050. Thailand-C then follows as third reaching 49 GW by 2050.

In the RE and REIEXP scenarios, a scaling energy efficiency target is applied over 2021-2050 to reach a 30 percent reduction in energy demand by 2050. The investment and cost required for these efficiency upgrades in these scenarios are exogenous from this modeling exercise and therefore assumed as sunk investments that are not considered in our costing analysis.

Figure 12: Energy

by GMS countryby (2021-2050) Figure 12: demand Energyforecast demand forecast GMS country (2021-2050)

Figure 13: Peak demand forecast by GMS zone (2021-2050)

51

Peakforecast demand forecast

by GMS zone (2021-2050) FigureFigure 13: Peak13: demand

by GMS zone (2021-2050)

3.8 Capacity of power plants and generators Figure 14 illustrates the total installed capacity for the GMS as of the end of 2021, with 43 GW of combined cycle gas turbine (CCGT) gas, 32 GW of coal, 39 GW of hydropower, 18 GW of solar PV, 4 GW of gas turbines (GT), 2 GW of biomass, and 1 GW of wind energy. Figure 15 charts this capacity by country, and Figure 16 splits it further by zone. The bulk of the coal-generated capacity is located in Viet Nam, whereas the majority of CCGT gas is in Thailand. Hydropower is distributed across all countries, and most solar development has occurred in Viet Nam. Figure 17 charts nonhydro renewable energy by zone.

52

Figure 14: Regional power capacity in GMS (2022) Figure 14: Regional installed power capacity installed in GMS (2022)

18,907

Figure 14: Regional installed power capacity in GMS MW(2022)

34,180

Solar PV

MW Coal

18,907

34,180

MW Solar PV

MW Coal

44,840 MW CCGT

40,273 MW Hydro

44,840 MW CCGT

40,273 MW Hydro

Figure 15: Regional installed power capacity inpower GMScapacity by country (2022) Figure 15: Regional power capacity in GMS Figure 15: Regional installedinstalled in GMS by country (2022)by country (2022)

3,032

3,032

16,608

16,608 7,847

7,847 34,648

34,648 8,486 4,563

4,147

4,147

53

21,709 25,427

7,337

8,486 4,563

21,709

7,337

25,427

Figure 16: Regional installed power capacity in GMS by zone (2022) Figure 16: Regional installed power capacity in GMS by zone (2022)

Figure 16: Regional installed power capacity in GMS by zone (2022)

Figure 17: Non-hydro renewable energy installed power capacity in GMS by zone (2022) Figure 17: Non-hydro renewable energy installed power capacity in GMS by zone (2022)

Figure 17: Non-hydro renewable energy installed power capacity in GMS by zone (2022)

2,968 2,968

Generators in the model are represented at the power plant level for each zone, with over 850 total represented in the GMS. A full list of existing, committed, and candidate generators considered in the modeling is available in the Accommodating Assumptions Book.

54

3.9 Generator parameters Table 2 summarizes technical and economic assumptions for new candidate generators in the GMS. Costs for generic new candidate power plant options are harmonized across all GMS countries.

Table 2: Technical and economic parameters for candidate generators

Type

FO&M Heat rate charge (MMBTU/ ($/MW/ MWh) Yr)

VO&M Charge ($/ MWh)

Max Min Gen Ramp Up (%) (%)

Max Ramp Down (%)

Economic Capex Life ($m’s/ (Years) MW)

CCGT

9.1

29,937

0.46

30%

100%

100%

30

1.0

Gas Turbine

9.7

8,160

6.52

0%

100%

100%

30

0.8

Coal

9.7

41,106

0.12

60%

30%

30%

30

1.5

Biomass

11

48,552

3.06

30%

100%

100%

30

1.5

Hydro

0.0

38,454

0.66

0%

100%

100%

60

2.0

Wind

0.0

42,840

3.57

0%

0%

0%

30

1.5

Solar PV

0.0

15,810

0

0%

0%

0%

25

0.9

BESS

0.0

3,848

0.05

0%

100%

100%

20

0.6

Figure 18 charts capital expense (CAPEX) trajectories that indicate a per cent change relative to a 2020 baseline of 100 percent. These assumptions follow costing projections for each technology from IEA’s World Energy Outlook 2021 net-zero scenarios. Variable renewables and BESS storage drop substantially over the modeling horizon, whereas IEA expects the CAPEX for conventional fossil fuels to remain the same because they are mature technologies.

Figure 18: CAPEX trajectories by technology (2021-2050)

Figure 18: CAPEX trajectories by technology (2021-2050)

55 Figure 19: IEA World Energy Outlook 2022 fuel prices—stated policies for all scenarios

3.10 Fuel prices Figure 19 charts fuel prices used in the modeling; these were derived from the 2022 IEA World Energy Outlook average prices for Japan and China. The stated policies fuel prices were considered for all scenarios.

Figure 19: IEA19: World Outlook 2022Outlook fuel prices—stated policies for all scenarios policies for all scenarios Figure IEAEnergy World Energy 2022 fuel prices—stated

3.11 Renewable energy resources We have collected a wide range of sources on renewable energy data for each country in the GMS, including: • Internal databases permitted for use from recently conducted studies.

• Renewables Ninja and other open-source databases.

This includes renewable energy profiles for solar PV, wind, and hydropower at the plant level.

Please see the RE_POTENTIAL sheet in the Accommodating Assumptions Book in for detailed renewable energy data.

Each country in the GMS has abundant potential for non-hydro renewable energy that can provide the region with an opportunity to reach a 100 percent renewable energy pathway by 2050, with minimal effects on rivers, nature, and people. Based on renewable energy data collected, we have set upper bounds on the total economic potential for solar PV and wind energy that can be developed in each country over the 2021-2050 modeling period. This data is summarized in Table 3.

56

Table 3: Upper bounds modeling of the economic potential for renewable energy by country

Country

Solar PV (MW)

Wind (MW)

Cambodia

60,000

12,000

Laos

55,000

13,000

Viet Nam

250,000

180,000

Thailand

175,000

120,000

Myanmar

110,000

90,000

The National Renewable Energy Laboratoy’s (NREL) report, Exploring Renewable Energy Figure 20: Renewable opportunities select Southeast Asian countriestechnical and Opportunities in Select SEAenergy Countries, provides aingeneral estimate for the potential economic generation bounds for GMS countries, shown in Figure 20.

NREL - Exploring Renewable Energy Opportunities in select SEA Figure 20: Renewable energy opportunities in select Southeast Asian countries65

elect Southeast Asian countries

portunities in select SEA

Figure 21: Installed capacity by scenario in the GMS (2021, 2030, 2040, 2050)

GMS (2021, 2030, 2040, 2050) 65 USAID and NREL 2020, Exploring renewable energy oppor tunities in select Southeast Asian countries

57

4 Technical, Economic, and Social Analysis on Modeling Results for Power Sector Development in the GMS 58

59

Figure 20: Renewable energy opportunities in select Southeast Asian countries

NREL - Exploring Renewable Energy Opportunities in select SEA

4.1 Installed capacity outlook Figure 21 charts the change in installed capacity in the GMS by scenario across 10-year snapshots (2021, 2030, 2040, and 2050). The IEXP scenario, when compared to the BASE, allows for a higher share of renewable energy and battery storage to be deployed in the region, including more than 27 GW of wind energy, while displacing 20 GW of thermal CCGT gas capacity by 2050. When imposing a 100 percent renewable energy target in the RE scenario, the REIEXP scenario reduces the overall development of installed capacity required to meet the target, with 29 GW fewer renewables by 2050. The REIEXP scenario also reduces the need for 9 GW of reserve thermal CCGT generators and optimizes existing and planned system assets to achieve the 100 percent renewable energy target in the region.

Figure 21: Installed capacity by scenario in the GMS (2021, 2030, 2040, 2050)

Figure 21: Installed capacity by scenario in the GMS (2021, 2030, 2040, 2050)

SCEN1 2021

BASE

IEXP 2030

RE

REIEXP

BASE

IEXP

RE 2040

60

REIEXP

BASE

IEXP 2050

RE

REIEXP

4.2 Energy generation outlook Figure 22 charts the change in energy generation for each scenario across 10-year snapshots (2021, 2030, 2040, and 2050). By 2050, the IEXP scenario displaces 68 TWh of thermal emitting sources with renewable energy, allowing for a higher share of variable renewable energy development in the region. Imposing the renewable energy target shows corresponding reductions in overall energy generation required for the REIEXP scenario to meet the 100 percent goal by 2050, relative to the RE scenario. In addition to less need for deploying additional generators and storage capacity, the REIEXP scenario reduces curtailment and surplus energy generation by optimizing the use of renewable energy resources in the region. The REIEXP scenario also changes the role of existing hydropower plants from base load to backup; this reduces the hydropower generation share by 2050.

Figure 22: Energy generation by scenario in the GMS (2021, 2030, 2040, 2050)

Figure 22: Energy generation by scenario in the GMS (2021, 2030, 2040, 2050)

167

SCEN1 2021

BASE

IEXP

RE

REIEXP

BASE

IEXP

2030

RE 2040

61

REIEXP

BASE

IEXP 2050

RE

143

REIEXP

4.3 Role of renewable energy Figures 23 to 26 chart the share and source of energy generation by scenario in the GMS across 10-year snapshots (2021, 2030, 2040, and 2050) while Figure 27 projects renewable energy capacity over the same periods. By 2050, the IEXP scenario unlocks an additional 4 percent share of energy generation from renewables in the region, rising from 49 percent in BASE to 53 percent in IEXP. Both the RE and REIEXP scenarios achieve the 100 percent renewable energy target by 2050.

Figure 23: Regional generation mix—BASE 2021-2050

Figure 23: Regional generation mix—BASE 2021-2050

167

143

Figure 24: Regional generation mix—IEXP 2021-2050

167

62

143

Figure 24: Regional generation mix—IEXP 2021-2050

Figure 24: Regional generation mix—IEXP 2021-2050

167

Figure 25: Regional generation mix—RE 2021-2050

Figure 25: Regional generation mix—RE 2021-2050

Figure 26: Regional generation mix—REIEXP 2021-2050

63

143

Figure 26: Regional generation mix—REIEXP 2021-2050

Figure 26: Regional generation mix—REIEXP 2021-2050

Figure 27: Energy mix by scenario in the (2021, 2030, 2040, 2050)(2021, 2030, 2040, 2050) Figure 27: generation Energy generation mix byGMS scenario in the GMS

SCEN1 2021

BASE

IEXP 2030

RE

REIEXP

BASE

IEXP

RE

REIEXP

2040

BASE

IEXP 2050

Figure 28: Annual generation costs by scenario in the GMS (2021, 2030, 2040, 2050)

64

RE

REIEXP

4.4 Annual system costs of generation Figure 28 charts annual system costs of generation by scenario across 10-year snapshots (2021, 2030, 2040, and 2050). Expanding trade in the IEXP scenario creates a savings of more than $2.1 billion by 2050 in annual system costs of generation relative to the BASE scenario. The additional costs for investments in greater renewable energy (+$1.8 billion), fixed and variable operations and maintenance (+$0.6 and cross-border SCEN1 BASE billion), IEXP RE new REIEXPinvestments BASE IEXP in RE REIEXP BASEtransmission IEXP RE transfer REIEXP capacity 2021 2030 2040 2050 (+$0.34 billion), are more than offset by the reduction in annual fuel costs (-$5.04 billion).

Under the RE scenario, the savings are significantly higher because system resources are optimized.

Moreover, by 2050, the REIEXP scenario reduces annual power system costs by $6.9 billion, relative to the RE scenario. The additional costs for investments in new cross-border transmission transfer capacity (+$0.52 billion) are offset by reductions in annualized CAPEX (-$4 billion), fixed and variable operations and maintenance (-$1.52 billion), fuel costs (-$0.17 billion), and the cost of variable renewable energy curtailment (-$1.45 billion).

Figure 28: Annual generation costs byGMS scenario in the GMS (2021, 2030, 2040, 2050) Figure 28: Annual generation costs by scenario in the (2021, 2030, 2040, 2050)

4.1 2.5 2.7 2.3

SCEN1

BASE

IEXP

RE

2030

REIEXP BASE

IEXP

RE

2040

65

REIEXP BASE

IEXP

RE

2050

REIEXP

4.5 Annual levelized cost of energy generation Figure 29 charts the LCOE generation by scenario in the GMS over the 2021-2050 modeling period. The IEXP scenario slightly reduces the cost of generation throughout the modeling period, reaching a $1.35/MWh reduction in 2050, relative to the BASE scenario. Compared to the RE scenario, the REIEXP yields a more significant reduction of system LCOE, achieving savings of $3.29/MWh .

Figure 29: Annual LCOE generation by scenario (2021-2050)

Figure 29: Annual LCOE generation by scenario (2021-2050)

Figure 30: Cumulative investment requirements by scenario (2021-2050)

66

4.6 Investment requirements Figure 30 charts cumulative investment requirements by scenario over the 2021-2050 modeling period. The IEXP scenario increases cumulative investment requirements by 2050 to $386 billion, up $23.5 billion from the BASE. Under the RE scenario, cumulative investment requirements significantly increase to reach $630 billion by 2050. The REIEXP scenario reduces this requirement by $52 billion to achieve the 100 percent renewable energy target. As seen previously, the higher cumulative investment under the RE and REIEXP scenarios will be more than offset by the significant reduction in annual fuel costs and gains in energy efficiency that result in lower costs to generate electricity.

FigureFigure 30: Cumulative investment investment requirements by scenario (2021-2050) 30: Cumulative requirements by scenario (2021-2050)

67

4.7 Power system emissions and grid emissions factor Figure 31 charts annual emissions by scenario in the GMS over the 2021-2050 modeling period.

The BASE scenario results in the highest annual emissions for the region, reaching up to 475 MT by 2050. The IEXP scenario yields a reduction 16.2 MT. The RE and REIEXP scenarios result in effectively eliminating power system emissions in the region, with residual emissions of 1.1 MT and 0.2 MT, respectively. Figure 32 charts annual grid emissions factor (EF) by scenario in the GMS over the 2021-2050 modeling period. The BASE and IEXP scenarios yield an annual grid EF of 0.28 Figure 31: Annual while emissions by scenario (2021-2050) t-CO2/MWh, both RE and REIEXP achieve a grid EF of 0.00 t-CO2/MWh.

Figure 31: Annual by scenario (2021-2050) Figure 31: Annual emissionsemissions by scenario (2021-2050)

Figure 32: Annual grid emissions factor by scenario Figure 32: Annual grid emissions factorfor by2021-2050 scenario for 2021-2050

Figure 32: Annual grid emissions factor by scenario for 2021-2050

68

4.8 Added regional cross-border transfer capacity Figure 33 shows total cross-border transfer capacity in the BASE and RE scenarios. There are no new cross-border expansions in either scenario, with only existing grid-to-grid interconnections modeled.

Figure Added regional cross-border transfer capacity inBASE the BASE and RE scenarios Figure 33:33: Added regional cross-border transfer capacity in the and RE scenarios

PRC Myanmar-N

0 MW

Vietnam-N Myanmar-C

Laos-N

0 MW

0 MW

0 MW

Thailand-N

0 MW

Laos-C 0 MW

Thailand-C 0 MW

Laos-S Vietnam-C

0 MW

0 MW

Cambodia 0 MW

Vietnam-S

Intra-country interconnection Newly added interconnection

Figure 34: Added GMS cross-border transfer capacity for IEXP scenario, 2030-2050

PRC Myanmar-N

1,010 MW

Vietnam-N Myanmar-C

Laos-N

6,000 MW

2,580 MW

3,960 MW

Thailand-N

0 MW

Laos-C

250 MW

Thailand-C 6,000 MW

Laos-S

3,130 MW 2,280 MW

Cambodia 6,000 MW

Intra-country interconnection Newly added interconnection

69

Vietnam-C

6,000 MW

Vietnam-S

Thailand-C 0 MW

Laos-S Vietnam-C

0 MW

0 MW

Cambodia 0 MW

Vietnam-S

Intra-country interconnection

Figure 34 maps the added cross-border transfer capacity that would be achieved by 2050 in the Newly added interconnection IEXP scenario—up to 37 GW is developed in the region.

Figure 34: Added GMS cross-border transfer capacity for IEXP scenario, 2030-2050 Figure 34: Added GMS cross-border transfer capacity for IEXP scenario, 2030-2050

PRC Myanmar-N

1,010 MW

Vietnam-N Myanmar-C

Laos-N

6,000 MW

2,580 MW

3,960 MW

Thailand-N

0 MW

Laos-C

250 MW

Thailand-C 6,000 MW

Laos-S

3,130 MW 2,280 MW

Cambodia 6,000 MW

Vietnam-C

6,000 MW

Vietnam-S

Intra-country interconnection Newly added interconnection

Figure 35 maps the total added cross-border transfer capacity by 2050 in the REIEXP scenario.

Up to 58 GW is developed in the GMS, with all cross-border zone-to-zone transfer capacity expanding almost up to a full 6 GW on each line, with the exception of Laos-C and Thailand-N. Table 4 summarizes added GMS cross-border transfer capacity under the REIEXP scenario. These cross-border interconnections optimize the use of variable renewable energy resources by zone and are proposed for development in conjunction with identified variable renewable energy zones.

70

Figure 35: Added GMS cross-border transfer capacity REIEXP, 2030-2050 Figure 35: Added GMS cross-border transfer capacity REIEXP, 2030-2050

PRC 6,000 MW

Myanmar-N

Vietnam-N Myanmar-C

Laos-N

6,000 MW

5,170 MW

3,960 MW

Thailand-N

0 MW

Laos-C

4,890 MW

Thailand-C

Laos-S

6,000 MW

6,000 MW

Vietnam-C

6,000 MW

Cambodia 6,000 MW

6,000 MW

Vietnam-S

Intra-country interconnection Newly added interconnection

Figure 41: Annual GWh of energy traded by zone in the GMS - BASE scenario 2050

Table 4: Added GMS cross-border transfer capacity IEXP and REIEXP, 2026-2050

Zone1

Zone2

Cambodia

Laos S

Cambodia

Myanmar-N

Cambodia Cambodia Laos N

0

0

Thailand CLaos-N 0

6,000

6,000

6,000

6,000

6,000

6,000

6,000

6,000

6,000

2,580

5,170

1,010

6,000

0 0

312

Thailand-N Thailand 2,556 N

Laos N

Myanmar N

0

Laos-C

0

Thailand-C

Laos C

Thailand N

Laos S

Viet Nam C

Thailand N

3,130

Vietnam-N

0 Viet Nam N

Laos N

Laos S

REIEXP (MW)

Viet Nam C Viet111Nam S 11

Myanmar-C

IEXP (MW) PRC

506

800

Thailand N40 Myanmar C

586

Intra-country interconnection

71

0

0

Vietnam-C

2,280

6,000

250

4,890

Vietnam-S 3,960

6,000

0

329

Cambodia

Total Transfer capacity added:

0

Laos-S

71

0 0

37,210 MW

58,060 MW

4.9 Annual energy traded Figure 36 charts the total volume of annual cross-border power traded in the GMS by scenario.

The BASE and RE scenarios have minimal volumes of cross-border power traded throughout the modeling period, remaining below 12 TWh. The IEXP scenario results in a significant increase - up to 122 TWh of total annual cross-border energy traded throughout the modeling period. The REIEXP scenario achieves the greatest total volume of cross-border energy traded, reaching up to 356 TWh by 2050. Trade is also well distributed among all countries in the region, as charted below in Figures 37 through 40. Table 5 summarizes total power exchanges by scenario in 2050 .

Figure 36: Total volume of annual cross-border power traded in the GMS by scenario

Figure 36: Total volume of annual cross-border power traded in the GMS by scenario

58

13 7

9

8

4

SCEN1

BASE

2021

IEXP

RE

REIEXP BASE

2030

4

IEXP

RE

REIEXP BASE

2040

IEXP

RE

REIEXP

2050

Figure 37: Annual cross-border import-export trade balances, BASE 2050

Cambodia

Laos

Myanmar 72 2050

Thailand

Vietnam

SCEN1

BASE

2021

IEXP

RE

REIEXP BASE

IEXP

2030

RE

REIEXP BASE

2040

IEXP

RE

REIEXP

2050

Figure 37: Annual cross-border import-export trade balances, BASE 2050

Figure 37: Annual cross-border import-export trade balances, BASE 2050

Cambodia

Laos

Myanmar

Thailand

Vietnam

2050

Figure 38: Annual cross-border import-export trade balances, IEXP 2050

Figure 38: Annual cross-border import-export trade balances, IEXP 2050

Cambodia

Laos

Myanmar 2050

Figure 39: Annual cross-border import-export trade balances, RE 2050

73

Thailand

Vietnam

Cambodia

Laos

Myanmar

Thailand

Vietnam

2050

Figure 39: Annual cross-border import-export Figure 39: Annual cross-border import-export trade balances, REtrade 2050 balances, RE 2050

Cambodia

Laos

Myanmar

Thailand

Vietnam

2050

Figure 40: Annual cross-border import-export trade balances, REIEXP 2050

Figure 40: Annual cross-border import-export trade balances, REIEXP 2050

Cambodia

Laos

Myanmar

Thailand

Vietnam

2050

Figure 42: Current IPP arrangements (left) compared to open access arrangements (right)74

IPP 1

IPP 1 IPP 3 IPP 2 Assets IPP 2

IPP 1 Assets

IPP 1 Asset Country A

National Transmission Network

74

A Wheeling Assets

Country A

Country B B

Country B

Table 5: Annual cross-border import-export trade balances by scenario 2050 (GWh)

Exporting

Importing

BASE

RE

IEXP

REIEXP

Cambodia

Laos-S

329

893

1

24,475

Cambodia

Viet Nam-C

0

0

0

9,089

Cambodia

Viet Nam-S

71

365

2,019

16,839

Cambodia

Thailand-C

506

1,051

14,317

33,683

Laos N

Viet Nam-N

0

0

3,504

27,074

Laos N

Thailand-N

0

0

7,052

10,486

Laos N

Myanmar-N

11

54

1,295

18,365

Laos C

Thailand-N

312

2,951

85

407

Laos S

Cambodia

800

1,795

5,093

34,469

Laos S

Viet Nam-C

0

0

1

7,287

Laos S

Thailand-N

0

0

304

12,708

Viet Nam N

Laos-N

0

0

8,498

6,758

Viet Nam C

Cambodia

0

0

42,746

11,823

Viet Nam C

Laos-S

0

0

3,958

4,509

Viet Nam S

Cambodia

586

1,535

6,408

8,676

Thailand_N

Laos-N

0

0

1,191

18,030

Thailand N

Laos-C

2,556

2,500

853

3,777

Thailand N

Laos-S

0

0

220

24,498

Thailand N

Myanmar-C

0

0

4,346

11,985

Thailand C

Cambodia

40

730

609

13,119

Myanmar N

Laos-N

111

91

2,029

31,597

Myanmar C

Thailand-N

0

0

4,877

26,482

5,324

11,966

109,408

356,137

Total GWh of power traded:

75

Figure 35: Added GMS cross-border transfer capacity REIEXP, 2030-2050

PRC

The energy flow maps in Figures 41 to 44 show cross-border energy flows from each zone MW mapped as a different color. All energy exported6,000from a zone is highlighted by the same zone color.

Myanmar-N Figure 41 maps annual power flows in the 2050 BASE scenario.

Total energy traded remains Vietnam-N minimal at 5,324 GWh, with trade from Laos to Thailand, Cambodia, and Myanmar accounting for Myanmar-C Laos-N 6,000 MW 60 percent of energy flows. By contrast, introducing expansions in the IEXP scenario, as mapped in 5,170 MW 0 MW Figure 42, increases overall annual energy flows in the region by thirtyfold to reach 109,408 GWh Thailand-N 3,960 MW Laos-C by 2050. With additional transfer capacity deployed, cross-border trade becomes well distributed 4,890 MW throughout the region with all countries more Thailand-C significantly involved in the regional energy flows.

Laos-S

6,000 MW Figure 43 maps annual power flows in the 2050 RE scenario.

Total energy traded remains low but Vietnam-C 6,000 MW 6,000 MW 6,000 MW increases almost threefold from the BASE scenario to reach 11,966 GWh. Figure 44 maps annual Cambodia power flows in the 2050 REIEXP scenario. As shown on the map, this scenario includes significant Vietnam-S MW cross-border power flows to and from each zone, with all 6,000 countries involved in exchanges totaling 356,137 GWh by 2050. Laos and Cambodia stand out in cross-border exchanges, relative to system size, because they are located at the center of the GMS and in between larger neighboring Intra-country interconnection countries, Thailand and Viet Nam. Newly added interconnection

Figure Annual GWh of energy traded by zone the GMS—BASE scenario Figure 41:41: Annual GWh of energy traded by zone in theinGMS - BASE scenario 2050 2050

PRC Myanmar-N 111

11

Vietnam-N

Myanmar-C 0

0

0

Laos-N

0

0 0

312

Thailand-N 2,556 0

Laos-C

0

Thailand-C 800 506 40

Cambodia

71

76

0

Vietnam-C

329

586

Intra-country interconnection

0

Laos-S

0 0

Vietnam-S

Figure 42: Annual GWh of energy traded by zone in the GMS—IEXP scenario 2050 Figure 42: Annual GWh of energy traded by zone in the GMS - IEXP scenario 2050 Figure 42: Annual GWh of energy traded by zone in the GMS - IEXP scenario 2050

PRC Myanmar-N Myanmar-N Myanmar-C

1,295

PRC

2,029

Vietnam-N

1,295 2,029

8,498

Laos-N

3,504 Vietnam-N

1,191 0

0

Myanmar-C 0

0

Thailand-N 1,191 220

7,052

8,498

853

3,504 Laos-C

Laos-N 85

7,052

304

Thailand-N 853 85 Thailand-C 220

Laos-C Laos-S

3,958 1

304 5,093

Thailand-C 609

5,093

14,317

1 6,408

Cambodia 2,019

609

Vietnam-C 3,958

1

Laos-S Cambodia

14,317

6,408 2,019

01 42,746

Vietnam-C

0

Vietnam-S 42,746

Vietnam-S

Intra-country interconnection Intra-country interconnection

Figure 43: Annual GWh of energy traded by zone in the GMS - RE scenario 2050

Figure 43: Annual GWh of energy traded by zone in the GMS—RE scenario 2050 Figure 43: Annual GWh of energy traded by zone in the GMS - RE scenario 2050

PRC Myanmar-N Myanmar-N Myanmar-C

54

PRC

91

Vietnam-N

54 91

Laos-N 0

0

0

Myanmar-C

Thailand-N 0

0

0

0

0 0 Vietnam-N

0

0

2,500

0 Laos-C

Laos-N 2,95 0

0

2,95 Thailand-N Laos-C 2,500 Thailand-C 0 Laos-S

0 0

0

Thailand-C 1,051 730 1,051 730

1,795

Laos-S Cambodia 1,795

893 1,535

Cambodia 365 1,535 365

Intra-country interconnection Intra-country interconnection

77

Vietnam-C 0

893

00

Vietnam-C

0 0

Vietnam-S 0

Vietnam-S

Figure 44: Annual GWh of energy traded by zone in the GMS - REIEXP scenario 2050 Figure 44: Annual GWh of energy traded by zone in the GMS—REIEXP scenario 2050

PRC Myanmar-N

8,36 31,597

Vietnam-N Myanmar-C 26,482

Laos-N

6,758 27,074

18,030 10,48

11,985

Thailand-N 24,498

407 3,777

Laos-C

12,708

Thailand-C

Laos-S 34,469

33,683 13,119

24,475

Cambodia 8,767 16,83

4,509 7,287

Vietnam-C 9,089 11,823

Vietnam-S

Intra-country interconnection

4.10 Key findings and analysis Modeling scenarios based on the four trajectories yielded the following key findings for the 20212050 period: In the BASE scenario, which followed the latest expected power development growth trajectories for each country in the region, thermal generators continued to dominate the energy mix.

Renewables were limited to a 49 percent share of the mix by 2050. No additional cross-border interconnections between zones were permitted to develop, aside from those already existing or committed.

The IEXP scenario, which introduced cross-border transfer expansion options to the BASE scenario and allowed new capacity to develop on a least-cost basis, resulted in a 37 GW increase in deployment of renewable energy and battery storage by 2050, while displacing 20 GW of thermal CCGT capacity. This change in system capacity corresponded to 68 TWh of thermal energy displaced by variable renewable energy, increasing the share of renewable energy in the regional generation mix from 4 percent to 53 percent by 2050. Annual system emissions were lowered by 16.2 MT. The IEXP scenario also yielded a slightly lower annual power system cost and LCOE, while only marginally increasing cumulative investment requirements over the period. Up to 37 GW of cross-border transfer capacity was developed.

The RE scenario reverted back to the BASE scenario by once again excluding the option to develop new cross-border interconnection capacity and instead introduced a target to achieve a 100 percent share of renewable energy in the electricity generation mix by 2050. To achieve

78

this, 608 GW of variable renewable energy and 83 GW, or 350 GWh, of accommodating battery storage needed to be developed in the region by 2050. Because this scenario achieves a 100 percent share of renewable energy in the generation mix, annual power system emissions are eliminated by 2050. Because of up front investments needed for solar PV, wind installations, and battery storage, cumulative investments increase by $212 billion from the BASE; however, annual system costs are $71.2 billion, in contrast to $87.3 billion in the BASE scenario, due to reduced fuel costs and energy efficiency.

The REIEXP scenario combined the RE and IEXP scenarios to model the benefits of regional grid integration against the backdrop of a targeted 100 percent renewable energy share by 2050.

As a result, when comparing it to the RE scenario as a baseline, this scenario resulted in a 29 GW reduction in the need for renewable energy power supply. By optimizing the use of system resources, the REIEXP scenario fully achieves the 100 percent target of renewable energy in the electricity generation mix with less generation required and lower rates of curtailment. In turn, the REIEXP scenario yields a substantial $6.9 billion reduction in annual power system costs by 2050, relative to the RE scenario. These savings are attributed to the deployment of an additional 58 GW of new cross-border transfer capacity, which results in 356 TWh of regional energy trade by 2050, mainly from variable renewable energy sources that can be optimally harnessed with the construction of a new dedicated grid infrastructure.

Hence, the modeling showed that expanding cross-border interconnector transfer capacity enables a higher deployment of variable renewable energy at a lower overall system cost. Against the backdrop of a 100 percent renewable energy target in the GMS electricity mix, expanding crossborder transfer capacity yielded significant savings in annual power system costs and investment requirements, while optimizing the use of assets such as existing hydropower, exploiting the highest potential of variable renewable energy resources, and establishing substantial volumes of regional energy trading by 2050.

79

5 Policy Recommendations 80

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Transitioning to a low-cost, low-carbon, low-conflict, 100 percent renewable power system in the GMS, as outlined in the REIEXP scenario, requires harmonization of regional and national power sector policies, structures, technical standards, commercial arrangements, and planning. This section provides a series of recommendations to support the development of the electricity market, expansion of regional grid interconnections, and deployment of non-hydro renewable energy that will allow the subregion to move towards a 100 percent share of renewable energy in the generation mix.

5.1 Develop a complementary regional day-ahead power market by building on existing connections through a stepwise approach The Regional Power Trade Coordinating Committee (RPTCC) was established in 2002 and played a critical role in leading the development of a regional transmission masterplan and in facilitating annual discussions among policymakers. In 2022, the RPTCC transitioned to the GMS Energy Transition Task Force (ETTF) to reflect a shift in approach that recognizes the benefits of crossborder power trade and renewable energy, and prioritizes a just and equitable energy transition.66 Because of the rapid growth of renewable energy sources and their inherent volatility and variability, a short-term, flexible regional market platform presents significant benefits for the GMS regional power market. To date, benefits are limited to bilateral exchanges through cross-border power procurement agreements (PPAs). Recent PPAs give renewable energy options a greater role in the supply mix and support cross-border infrastructure development in the region. However, a day-ahead market is crucial to optimize power purchases for short-term needs, enabling power utilities to complement their long-term bilateral agreements with more adaptable transactions.

Successful international markets adopted a stepwise approach, beginning with a small group of countries such as the LTMS (Lao PDR, Thai, Malaysia and Singapore) and gradually including additional nations over time. This incremental process enables stakeholders to learn and adapt as the market evolves, fostering a collective understanding and adjustment to market dynamics. Under a similar approach, a regional power market in the GMS would extend national markets rather than replace them., allowing regional trade benefits to be balanced with national security. Each country would maintain authority over its power system, targets, and market participants but also benefit from an efficient regional power trade.

In cooperation with civil society stakeholders, power utilities, international finance institutions and regional organizations, national governments can promote and implement a stepwise approach, starting from existing connections, to achieve a low-cost, low-carbon, and low-conflict power sector.

Policy recommendation: Develop a complementary regional day-ahead power market by building on existing connections, such as the LTMS, then incrementally expanding to new countries and connections.

66 ADB 2022, ‘Proposed Programmatic Approach and Policy-Based Loans for Subprogram 1, Technical Assistance Grant, and Administration of Loans Grant, and Technical Assistance Grant Kingdom of Cambodia: Energy Transition Sector Development Program’.

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5.2 Ratify and enhance the GMS grid code A grid code consists of rules and specifications that lay out the foundations of a power system and establish technical and operational requirements. Best practices for a well-designed grid code cover various aspects, including connection codes, operating codes, planning codes, and market codes.

Currently, each country in the GMS has its own national grid code that covers context-specific requirements for managing connections, operations, and planning. However, as part of the RPTCC’s WGPG, a draft GMS regional grid code was tentatively published in 2018, with documents in process for formal approval.

The draft GMS grid code closely followed the approach taken by the European Network of Transmission System Operators (ENTSO), as it provided a model of how a range of power systems with various sizes and characteristics can benefit from integration under a common regional grid code.67 While each GMS country continues to independently develop its own national grid code, some consideration must be made to ensure compatibility with an overarching GMS regional grid code.

5.2.1 Key elements from the ENTSO grid code The EU faced a challenge in developing its grid code because the network is comprised of five synchronous systems of varying sizes. The solution was to set capacity thresholds according to the size of each corresponding system for the connected generator. In practice, this means that a 10 MW wind plant connected to a smaller synchronous system has to meet similar requisites that a wind generator over 75 MW needs to meet in a much larger system.68 Adaptability in grid codes will also be important for the GMS because systems in Thailand and Viet Nam are larger than in Cambodia, Laos, and Myanmar. Standards and requirements should reflect the range of sizes and characteristics of each electricity system in the region.

The EU also faced a challenge of matching technical requirements to the contextual needs of the system. This was overcome by setting minimum standards that are nonexhaustive and then allowing the local or national operator to specify additional requirements.69 The ENTSO grid code also set a combination of both network codes and guidelines to follow, as seen in Figure 45.

Figure 45: EU network code development70

Connection

Operation

Forward Capacity Allocation (FCA)

Demand Connection Code (DCC)

Emergency & Restoration (ER)

Forward Capacity Allocation (FCA)

High voltage direct current connections (HVDCC)

Operation

Electricity balancing

Requirements for generators

No more than 20% of rated capacity

Capacity allocation and congestion management (CACM)

n Network codes n Guidelines 67 ADB GMS 2022, Facilitating Power Trade in the Greater Mekong Subregion: Establishing and Implementing a Regional Grid Code 68 IRENA 2022, Grid Codes for Renewable Powered Systems 69 Ibid.

70 Ibid.

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5.2.2 Draft regional GMS grid code The draft GMS regional grid code has twelve chapters designed to reflect a range of technical, institutional, and market issues, as well as characteristics of the region. Each chapter or subcode includes considerations from member countries that are reflective of key issues in their respective national grid codes. There is a preamble that discusses the intended relationship between the GMS regional grid code and national grid codes, and establishes common definitions and objectives. Key chapters or subcodes of the GMS regional grid code include:71 Governance code: Sets out arrangements for updating the regional grid code, revision processes and rules for stakeholder engagements, oversight, compliance, and dispute management, as well as the role of the ETTF in regional grid code governance.

Connection code: Sets out connection requirements for generators, intra-country and cross-border network connections, and load connections. In effect, it sets minimum standards that must be reached, while the national grid codes can expand with context-specific standards. It defines technical requirements including voltage control and tolerance, fault ride-through capability, protection, system restoration, islanding, and black-start capabilities, among others.

Operations code: Sets out requirements for national operators to be more transparent when publishing data that will encourage power trading. Also includes subcodes for managing power flows both internally and cross-border.

Market code: Includes detail on market operations, capacity allocation, congestion management, and electricity balancing. Also includes provisions for network access for crossborder exchanges.

Additional chapters include provisions on training and upskilling for system operators, as well as a strategic planning document that reviews the latest medium and long-term network development plans for the GMS. Although the GMS regional grid code has received approval from the RPTCC as a published document, it is not yet legally binding and still requires formal ratification in the national legislature by each member country.

Policy recommendation: Prioritize the ratification of the GMS regional grid code within the legally binding regulatory framework of respective national grid codes for each GMS member-state.

5.3 Standardize commercial arrangements for cross-border power trade in the GMS Moving from stage 1 to stage 2 of the GMS RPTCC roadmap will require the development of standardized commercial arrangements for cross-border and multilateral trade. In stage 1, bilateral transactions, or dedicated IPPs, are negotiated on a case-by-case basis. Trade is typically limited to utilities or using excess generation and network to derive additional benefits. Or, in the case of Laos and Thailand, for example, dedicated plants and lines are built to export power with a crossborder IPP negotiated. However, starting with stage 2, the introduction of multilateral trade through third-party wheeling, network access, short-term trading rules, and balancing mechanisms make it essential for a dedicated GMS institution such as the RTPCC (now ETTF) to establish and enforce a set of standardized commercial arrangements for cross-border trade in the region.

71 Summarized and adapted from ADB 2022, Facilitating Power Trade in the Greater Mekong Subregion: Establishing and Implementing a Regional Grid Code

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With support from the ADB, the RPTCC identified four priority areas which should serve as a Cambodia Myanmar Thailand series of standardized commercialLaos arrangements in stage 2: (1) open accessVietnam arrangements; (2) a wheeling charge methodology; (3) short-term2050 bilateral trading measures; and (4) a balancing mechanism72.

74 Figure 46: Current IPP arrangements to open access arrangements (right) Figure 42: Current IPP arrangements (left) compared(left) to opencompared access arrangements (right)

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IPP 1

IPP 1 IPP 3 IPP 2 Assets IPP 2

IPP 1 Assets

IPP 1 Asset

National Transmission Network

Country A

A Wheeling Assets

Country A

Country B B

Country B

Grid Substation

Grid Substation

Open access arrangements: In the context of a power system, open-access arrangements refer to providing access to an electricity network to parties other than the owners or contractors of the network. In the context of the GMS, the beginning point would be allowing other generators to use excess capacity of an existing cross-border transmission line. In stage 1, a point-to-grid generation project limits access to a cross-border network to the dedicated plant. In stage 2, an open access arrangement would allow an additional IPP generator to also connect to the existing cross-border transmission line and use excess capacity when available. Furthermore, an open access arrangement can then allow the national transmission network of the origin nation to connect to the transmission line, effectively establishing a grid-to-grid connection by leveraging the existing network asset.

Wheeling charge methodology: With this methodology, commercial arrangements for the price, terms and conditions are made for using a third-party network to facilitate power trade between two countries. In the context of the GMS, an example would be to execute a trade between Myanmar and Cambodia through Thailand’s network with a wheeling charge applied so that Thailand recovers its costs. Typically, these wheeling payments comprise a combination of network costs to recover capital and depreciation, operation and maintenance, as well as losses that occur in the transaction.

Short-term bilateral trading measures: Establishing a standardized approach to commercial arrangements for short-term trading, allows countries to use spare capacity in a way that is beneficial to all parties. The current GMS approach to trade is done exclusively through long-term PPAs, with a predetermined price and volume. However, a significant amount of short-term trading potential could be realized if the GMS had contractual arrangements allowing available transfer capacity in excess of the PPAs to be traded between neighboring power systems on a short-term basis.

72 ADB/GMS 2020, Harmonizing Power Systems in the Greater Mekong Subregion 73 Ibid.

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Balancing mechanism: This is required to correct imbalances that arise between scheduled cross-border interchanges and actual power flows delivered. Typically, the two types of balancing mechanisms available are in-kind, where corresponding amounts of energy are redelivered, or cash-based, which requires a mechanism to settle the difference in the cost of energy supplied. In terms of the GMS, an in-kind arrangement is most suitable during stage 2 of market development, while a cash-based option can be considered as part of market development in stages 3 and beyond.74 Policy recommendation: Encourage the development of a set of standardized commercial arrangements through the GMS ETTF to support multilateral trade through third-party wheeling, open access arrangements, short-term bilateral trading measures, and a balancing mechanism.

5.4 Support planning for regional transmission development in the GMS In 2002, prior to the establishment of the RPTCC, the EPF (led by the EGP with support from the ADB) completed the Regional Indicative Master Plan on Power Interconnection. This was the first regional transmission plan for the GMS. It identified priority interconnection projects that would be essential for supporting the expansion of power trade in the region by the year 2020.75 In 2010, the RPTCC, with support from the ADB, published the Regional Indicative Master Plan on Power Connection in 2010, which used modeling optimization software to prioritize crossborder transmission expansions in the GMS over the years 2010-2025. This update segmented development around three major subregions: a north-west pole connecting Myanmar to PRC and Thailand, an east-west-northern link to connect Thailand, northern Laos, and northern Viet Nam, and a southern pole to connect Cambodia, southern Laos, and southern and central Viet Nam.76 A range of subsequent studies, supporting analysis, and regional transmission planning efforts have been conducted since 2010. The World Bank led a noteworthy study in 2019, Greater Mekong Subregion Power Market: All Business Cases, Including the Integrated GMS Case,77 that selected 10 priority cross-border transmission planning projects in the GMS over the 2020-2035 period and modeled each individually. Additionally, the study modeled an optimized regional scenario. The study provided a detailed business case that ranked prospective cross-border projects in the GMS in terms of yielded net benefits and set out chronological sequencing for the development of a regional transmission expansion plan.

This study also established the first grid synchronization strategy for the GMS. This was an important missing feature from previous transmission masterplans, where the region-wide grid synchronization was not considered, and planning had segmented development around subregions.

There were four major stages of grid synchronization for the GMS designed as part of this strategy:78 Stage 1 (2022-2024): Synchronizing southern Laos with Cambodia and Viet Nam, as well as northern Laos to Myanmar.

Stage 2 (2025-2027): Synchronizing the eastern GMS, consisting of Viet Nam, eastern Cambodia, and parts of southern and northern Laos, and the western GMS, consisting of 74 ADB/GMS 2020, Harmonizing Power Systems in the Greater Mekong Subregion 75 ADB/GMS 2010, Greater Mekong Subregion Power Trade, and Interconnection – 2 Decades of Cooperation 76 Ibid.

77 World Bank / RPTCC / IES / Ricardo Energy 2019, Greater Mekong Subregion Power Market: All Business Cases, Including the Integrated GMS Case 78 Ibid.

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western Cambodia, Thailand, Myanmar, and the western part of northern Laos. Both the eastern and western GMS are further split into four synchronous regions.

Stage 3 (2028-2030): Full synchronization of an eastern GMS system and a western GMS system.

Stage 4 (2030-2035): Linking the eastern and western GMS systems to establish a fully synchronized power system in the GMS. The study concluded with a conceptual roadmap for GMS regional grid integration, summarized below in Figure 47. It highlighted the importance of coupling a grid-synchronization strategy with a regional transmission development plan in the GMS. For example, although Cambodia’s national grid spans the entire country, it has never been synchronized as a single system. Instead, bidirectional power flow exchanges occur between regionally distinct systems during different times of the day. The 230 kV western system imports power from Thailand, covering Banteay Meanchey, Battambang, and Siem Reap. Cambodia’s southern system, which is the most significant of the systems and includes Phnom Penh, is interconnected to Viet Nam’s network via a 115kV import line in Takeo. Similar arrangements are in place for other GMS countries. An elaborate strategy will be required to synchronize the entire region.

Additionally, the ADB led a study on regional transmission planning and released the report 2020: Harmonizing the Greater Mekong Subregion Power Systems to Facilitate Regional Power Trade. This study built upon previous regional transmission masterplans by optimizing additional candidate transmission projects in the region and carrying out a total of 36 planning scenarios under a range of development conditions and 12 sensitivities.79 The study demonstrated the benefits of regional cross-border power system integration under a wide range of development scenarios. Moreover, the study provided the RPTCC (now ETTF) with an extensive database that will serve as input for future GMS regional transmission development planning exercises. The ADB also provided guidelines for best practice approaches for carrying out regional modeling.

79 ADB 2022, Facilitating Power Trade in the Greater Mekong Subregion: Establishing and Implementing a Regional Grid Code

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Figure 47: World Bank / RPTCC conceptual roadmap for GMS grid integration80

Figure 43: World Bank / RPTCC conceptual roadmap for GMS grid integration81

2022-24

2025-27

HIGH PRIORITY

Laos (S)  Vietnam (C) Laos (N)  Myanmar (N)

Laos (N)  Vietnam (N) Myanmar  PRC Myanmar  Thailand Laos (S)  Vietnam (S)

LOWER PRIORITY

Cambodia  Vietnam (S) Expansion

Cambodia  Vietnam (C) Thailand (C)  Cambodia Expansion

GMS INTERGRATION

Stage 1 Enclaves synchronised to neighbouring grids

Stage 2 Four synchronous regions within the GMS

TECHNICAL WORKS

Technical studies to support 3 interconnections

2028-30

2031+

Expansions Myanmar  Thailand (N) Laos (N)  Vietnam (N)

Expansions Laos (S)  Vietnam (C) Myanmar  Thailand (N) Laos (N)  Myanmar (N) Myanmar  PRC

Expansions Laos (S)  Vietnam (C) Laos (S)  Vietnam (S)

Stage 3 Two synchronous regions within the GMS

Thailand (C)  Cambodia Cambodia  Vietnam (S)

Stage 4 Fully integrated GMS

Have in place the Regional Grid Code to govern MS power system operations and to guide technical studies for cross-border projects Continue to build on experience from progressive interconnection Over this period, the benefits of an integrated MS are realised

The regional transmission planning efforts demonstrate the importance of planning led by the RPTCC (now ETTF) and representative member countries responsible for approval and implementation, as well as the importance of region-wide studies that are complemented by Figure 44: Schematic of a typical PSH configuration—ARENA 2021 conceptual roadmaps and grid synchronization strategies.

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Policy recommendation: Support the ETTF in leading the next official GMS update of the regional transmission masterplan, which considers a grid synchronization strategy and a conceptual roadmap for market and network integration.

5.5 Prioritize low-cost, low-carbon, and low-conflict energy in the GMS The GMS 2030 energy strategy highlights regional support for developing low-cost, low-carbon, and low-conflict energy. The modeling component of this study demonstrated pathways to achieving 100 percent renewable energy in the region that is reflective of these three key principles. The following sections explore policy measures that would support these principles.

5.5.1 Supporting low-cost energy in the GMS The cost of non-hydro, renewable energy has declined over the past decade. For instance, utilityscale solar PV has seen a drop of 85 percent in average LCOE from 2010 to 2020.81 During this same period, the installed capacity of solar PV has increased 21-fold as a result of policy support, financial models, and technological advancements. The average LCOE for onshore wind energy has declined by 56 percent, resulting in a four-fold increase in its capacity over the same period.

Globally, installed renewable energy capacity has grown by over 130 percent in the past decade, 80 World Bank / RPTCC / IES / Ricardo Energy 2019, Greater Mekong Subregion Power Market: All Business Cases, Including the Integrated GMS Case 81 IRENA World Energy transitions outlook. Pg. 42

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while non-renewables have grown just 24 percent.82 Although hydropower remains the largest source of renewable energy in the generation mix, its growth has slowed and it is being largely replaced by non-hydro, variable renewable energy.

In the early years of variable renewable energy deployment, the high cost of developing sites required system operators to offer project developers premium-level feed-in-tariff rates to attract private investments in solar and wind plants. Since then, the remarkable drop in costs has created a shift towards renewable energy auctions (REA) as best international practice for variable renewable energy policy procurement A 2021 study by Bloomberg on “unlocking private climate finance in emerging markets” shows that auction design is a critical determinant of whether REAs can catalyze the development of a country’s renewable energy resources.83 For example, in Brazil, Mexico, and Chile, a welldesigned, competitive REA facilitated the development of 31 GW, 8 GW, and 6 GW of solar PV and wind energy, respectively. Successful auction design includes publishing auction calendars that show a clear and timely bidding schedule, facilitating land licenses, standardizing power purchase agreements (PPAs), improving the bankability of PPAs, indexing PPAs to hard currency, facilitating transmission access, and coordinating common network infrastructure development.

Thailand, Cambodia, and Myanmar have introduced REAs in the GMS already.84 Thailand’s first REA auction was in 2016 for biomass and biogas totaling 46 MW, and a second in 2017 exclusively for hybrid renewable projects, totaling 300 MW. Cambodia’s first REA auctions have been specific to solar PV, awarding 60 MW in 2019 and another 40 MW in 2021. Myanmar has the highest total volume of REA auctions in the GMS so far, with 1.06 GW auctioned in 2020 and an additional 480 MW in 2021. Laos has yet to establish an REA but is now preparing initial documents. Viet Nam has maintained a preference for a feed-in-tariff approach but is exploring REAs. The adoption of a GMS-wide framework for designing and implementing REAs should be considered as a policy mechanism for encouraging greater and lower-cost deployment of renewable energy in the region. There is an abundance of guidance on designing and implementing successful REAs, and a region-wide framework can leverage experiences learned in Cambodia, Myanmar, and Thailand for adoption in Laos and Viet Nam. Moreover, harmonization of experiences between the GMS nations would lead to more successful rounds of REAs. Given the region is on the cusp of deploying a high share of non-hydro renewable energy over the next two decades, a regional framework would enable a holistic approach to designing and implementing REAs. Policy Recommendation: Establish a GMS-wide framework for designing and implementing renewable energy auctions to support low-cost development of renewable energy in the GMS. 5.5.2 Advancing low-consumption energy efficiency Energy efficiency refers to consuming less energy to perform the same energy-related activity with a given energy input. Often known as the “first fuel” of choice, energy efficiency provides the ability to replace or avoid the consumption of actual fuels. There are numerous applications across multiple energy-intensive sectors. Energy conservation, typically bundled within the branch of energy efficiency, is a preferred first option for reducing consumption of energy if possible.

Viet Nam’s energy efficiency efforts started with the National Energy Efficiency Program (VNEEP1) 82 Ibid.

83 Bloomberg 2021 ”Unlocking Private Climate Finance in Emerging Markets: Private Sector Considerations for Policymakers” 84 IRENA 2022, Renewable Energy Auctions in South-East Asia

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which set a target for saving 3.4 percent of national energy consumption over 2006-2010. The 2010 energy efficiency and conservation law defined energy efficiency standards, developed a fiveyear consumption plan, and provided some limited incentives. This was followed by the VNEEP2, increasing the conservation target to 5.65 percent over the 2011-2015 period, and VNEEP3, which was renewed in 2018 to run over 2019-2030 and elevated the target to 8 to 10 percent. Viet Nam also started to implement the National Program on Demand-Side Management in 2018, which included a voluntary demand response program.

Thailand has been implementing the Energy Conservation Promotion Act since 1992 (ENCON Act), which dedicates resources through the ENCON Fund to facilitate financing for energy efficiency measures. The Thailand Energy Efficiency Plan (EEP) aims to implement a goal to reduce energy intensity by 30 percent by 2036, relative to a 2010 baseline. The ENCON Fund has raised around 200 million since its inception and distributes resources directly as a subsidy to consumers, through the Energy Efficiency Revolving Fund (EERF), and an Energy Service Company revolving fund. Thailand’s EERF is one of the most established mechanisms for supporting energy efficiency in the GMS over 6 phases from 2003 to 2019.

Cambodia’s latest National Energy Efficiency Policy (NEEP) 2022 sets out key targets for “transforming energy consumption in Cambodia by adopting energy efficiency, thereby contributing to a strong, vibrant, and competitive economy.” The NEEP aims for Cambodia to achieve an overall reduction of total energy consumption of 19 percent by 2030 (both thermal and electrical) and sets additional sectoral-specific targets.85 In Myanmar, the 2015 National Energy Efficiency and Conservation Policy, Strategy, and Roadmap set targets to achieve a 25 percent reduction in energy consumption over the 2016-2030 period. In 2016, Laos published its National Policy on Energy Efficiency and Conservation which aims to achieve a 10 percent reduction in energy consumption by 2030, relative to a baseline scenario.

Increased energy efficiency efforts from all greater Mekong countries will be needed to ensure an affordable transition to 100 percent renewable power. The RE scenario and REIEXP assume that there will be a deployment of robust energy efficiency in the GMS that leads to a 30 percent decrease in electricity demand. Sensitivity runs for the modeling scenarios showed that without energy efficiency, the costs of developing an RE scenario could be higher than conventional fossilfuel generators.

This will only be achievable through proactive policies from governments such as minimum energy performance standards, building codes, and carbon pricing for industrial firms. One important area will be reducing demand from cooling, which is a high-growth sector in this tropical region. Ensuring high efficiency standards, better urban planning, and better building codes can reduce demand for mechanical air conditioning.

Policy Recommendation: Set GMS-wide targets for energy efficiency in the region to support the lowcost development of a 100 percent renewable energy electricity market.

5.5.3 Ensuring low-conflict energy in the GMS Hydropower has supported electricity development in the GMS over the past two decades.

However, there are numerous issues associated with the damning of the Mekong, Thanlwin, and Ayeyarwady Rivers, among others. Dams can change the region’s natural monsoonal flood and drought cycles, block sediment and nutrient transfer which impacts fish and aquatic life, and require tens of thousands of indigenous populations and local communities to relocate. Many of these 85 Royal Government of Cambodia 2022, National Energy Efficiency Policy (2022-2030).

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impacts result in conflict.86 Advocates have led efforts to prohibit the development of hydropower on the Mekong River and instead promote the development of low-conflict, non-hydro renewable energy. In 2020, the Royal Government of Cambodia announced a ten-year moratorium on new mainstem dams on the Mekong River. This was subsequently formalized in Cambodia’s Power Development Plan 2022-2040, which prohibits hydropower plants on the mainstem of the Mekong.

Policy Recommendation: As part of the ETTF platform, encourage all GMS nations to commit to cease building hydropower dams on the mainstem of the Mekong River as well as committing to refrain from developing high-impact hydropower resources on ecologically sensitive rivers such as the Thanlwin and Ayeyarwady Rivers.

5.6 Change the role of hydropower in the GMS 5.6.1 Leveraging flexibility of hydropower to accommodate the integration of variable renewable energy Flexibility in the context of a power system refers to the ability to manage the variability and uncertainty that variable renewable energy introduces to immediate and long-term timescales, while avoiding excess curtailment and maintaining system reliability and adequacy.87 System flexibility is also used to describe ramping or fast-acting energy supply sources. In the first stages of renewable energy integration, best practice has shown that power system operators can leverage the flexibility offered by existing plants, without requiring additional investments in new infrastructure for those plants.88 An existing hydropower fleet offers a power system with a substantial degree of generator flexibility.

An example of the importance of hydropower flexibility in aiding with variable renewable energy integration is can be seen in the ENTSO, where the massive 32 GW of existing hydropower in Norway is a key resource for system flexibility. Norway has approximately 85 TWh of large hydro-energy storage capacity, which is nearly half of the hydro storage capacity in all of Europe.89 Modeling carried out by the Norwegian Center for Sustainable Energy Studies (CenSES) found that using Norway’s hydro resources promoted a higher degree of variable renewable energy integration in Europe and encouraged higher overall power trade as well as increased use of crossborder interconnectors. It also offered significant grid ancillary service benefits in terms of grid balancing and operational reserves.

CenSES modeling has shown that, by adjusting the role of hydropower, there are opportunities to increase flexibility and optimize the use of variable renewable energy. This includes short-term flexibility for exporting and importing energy on a daily basis, medium-term flexibility for managing weekly and monthly power flows in the European network, and improved seasonal flexibility through increased access to the large storage capacity during changes in supply and demand.90 Norway demonstrates opportunities for changing the role of existing hydropower in the GMS. 86 WWF 2022, Hydropower & Infrastructure in the Greater Mekong 87 IRENA 2018, Power Systems in Transformation 88 Ibid 89 2019 FME CenSES, Norway’s role as a flexibility provider in a renewable Europe 90 2019 FME CenSES, Norway’s role as a flexibility provider in a renewable Europe

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With significant existing hydro storage capacity in Laos, Myanmar, Cambodia, and northern Viet Nam, dedicated modeling studies that integrate variable renewable energy, and regional interconnection planning should be considered. These models should evaluate how the changing role of hydropower could lead to reducing investment in battery storage systems, backup fossil-fuel generators, and other grid-related infrastructure. These studies should consider both generation and transmission flexibility, given the network-related ancillary services that also provide significant benefits. Consideration should also be given to the contractual (PPA) side of changing the role of hydropower in the GMS, creating clauses that can be amended overtime to allow the system operator the ability to mandate a shift towards flexibility, complemented with a compensation mechanism.

Further, in cases where there are no lower impact alternatives to new hydropower capacity, we propose the following guidelines for their development: • Mainstem dams downstream of existing dams absolutely must not be developed under any circumstances, given the precedents and current state of the Mekong River.

• Dams on tributaries currently free of dams, or tributary dams downstream of existing dams, should be discouraged, but could be considered in exceptional cases that are justified by outstanding sustainability performance.

• Mainstem dams upstream of existing dams, must be avoided unless justified by outstanding sustainability performance.

• Tributary dams upstream of existing dams may be considered on a case-by-case basis, based on needs, impact assessments and feasibility studies, and transparent and fair process, notably in compliance with Mekong River Commission’s preliminary design guidance, which has been endorsed by its four member states.

Policy recommendation: Explore changing the role of existing hydropower to allow for greater flexibility in the integration of a higher share of variable renewable energy in the GMS.This can be done through modeling and planning exercises.

5.6.2 Pumped storage hydropower in the GMS Pumped storage hydropower (PSH) is the most mature, proven, and widely-used storage technology in the world, with an estimated 176 GW of installed capacity.91 This technology can be installed as an independent reservoir or through retrofits to existing hydro plants; the reservoirs act as a natural battery. This type of storage is best for providing load-shifting services over a longer duration, usually around five to ten hours. During off-peak hours, water is pumped back into the reservoir using grid electricity. The technology requires reverse turbines to generate electricity through the downstream pressure of flowing water and then uses electricity to pump the water back up.

In general terms, PSH systems consist of two reservoirs at different elevations with a pump and turbine linking them. During periods of surplus of electricity, such as when the sun is shining on a colocated solar PV generator, water is pumped from the lower reservoir to the upper reservoir.

During periods of high electricity demand, such as when people are using heaters, stoves, hot water systems, and lights in the evening, water is gravity-fed from the upper reservoir through the turbine to the lower reservoir to generate required electricity.92 Figure 48 illustrates how PSH operates, 91 IRENA 2017, ‘Energy Storage and Renewables: Costs and markets to 2030’ 92 Breeze 2018

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and how it can link with renewable generation such as solar and wind powered generation.

Figure 48: Schematic of a typical PSH configuration—ARENA 202193

PSH systems can be configured in a wide range of forms. Within this range, PSH facilities are generally built as either closed-loop or open-loop systems. In closed-loop systems, the two reservoirs act as self-contained dams, with neither connected to a river or other naturally flowing water. Because of this, closed-loop PSH systems have fewer environmental impacts than openloop systems, in which at least one reservoir—generally the lower one—is connected to naturally flowing water. An example of an open-loop PSH system is a dam constructed on a river, forming the lower reservoir, with a circular or semicircular reservoir referred to as a turkey’s nest dam, built on a hilltop nearby.94 At least 600,000 reservoir pair sites are available around the world, with a combined storage capacity of 23,000 TWh.95 This breadth of available sites means that sites with significant negative environmental or social impacts can be avoided. One way of minimizing social and environmental impacts is to use brown field sites, such as abandoned mines.96 The Australian National University (ANU) conducted an analysis of global pump hydro storage that found an estimated 27,311 potential pumped storage hydro sites across the GMS, amounting to a total 897 TWh of energy storage.97 Myanmar had the highest potential, with 435 TWh across 13,163 sites, followed by Viet Nam with 203 TWh across 6,233 sites and Laos with 188 TWh across 5,605 sites. Thailand and Cambodia have 63 TWh across 2,120 sites, and 8 TWh across 190 93 World Bank / RPTCC / IES / Ricardo Energy 2019, Greater Mekong Subregion Power Market: All Business Cases, Including the Integrated GMS Case 94 Saulsbur y 2020 95 (RE100 Group 2021) 96 Pittock 2019 97 Australian National University 2022, Policy Brief: Pumped Storage Hydropower for the Mekong Region

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sites, respectively. ANU modeling indicated the GMS has 130 times the pumped storage potential required to facilitate a 100 percent renewable-powered grid in the region.98 Figure 45: Pumped storage vs battery energy storage systems: Benchmark cost projections100

Figure 49: Pumped storage vs battery energy storage systems: Benchmark cost projections99

Figure 46: AEMO renewable energy zones109

While the potential for pumped storage hydro in the GMS is significant, only one site has been developed, the 171 MW Bhumibol pumped storage plant located in Thailand, which was commissioned in 1996. As part of their current power development plan, PDP8, Viet Nam is considering high potential sites including the Bac Ai pumped storage plant. However, from a GMS regional perspective, PSH remains underdeveloped as a storage technology option. Moreover, with the recent and projected decline of the cost of BESS, the region must consider the economic benefits of PSH over BESS. Figure 49 shows benchmark cost assumptions between BESS storage and PSH for the GMS. A break-even point occurs between 2025-2027, where the cost assumptions for 2-hour BESS fall below the lowest end of the costing estimate for 10-hour PSH. Beyond 2030, 4-hour BESS costs are projected to become competitive with moderate (or reference) costs of 10-hour PSH, and, in more general terms, BESS becomes the technology of least-cost at that point. However, given the longer duration of storage availability, PSH will most likely have a role in the decarbonization efforts and for supporting variable renewable energy integration. Due to the reliance on sitespecific geological and hydrological variability, the economic feasibility of PSH in the GMS must be examined in-depth on a site-by-site basis.

Policy recommendation: Carry out an analysis of pumped storage hydropower resources that prioritizes high-potential sites with the least environmental and social impacts.

98 Australian Renewable Energy Agency (ARENA) 2021 99 GMS-specific costing assumptions from 2021 DEA Viet Nam technology catalogue

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5.7 Country and regional renewable energy targets, roadmaps, and renewable energy zones for commercial development in the GMS 5.7.1 Renewable energy targets and roadmaps Renewable energy targets (RET) have served as one of the most fundamental policy leavers for supporting the uptake of renewable energy in a country’s power system. By the end of 2022, over 143 countries had established RETs.100 RETs are designed in reference to a wide range of energy definitions, which determine the scope and feasibility of each target. For example, a high total primary energy supply target requires remarkable rates of renewable energy penetration in the electricity generation sector, in conjunction with widespread electrification efforts across the economy. Conversely, high renewable energy in electricity generation or capacity supply targets requires a focus on electricity generation. Another example is variable renewable energy, which typically involves building the share of variable renewable energy resources in energy generation or power capacity supply.

According to the recently published Power Development Plan (PDP8) in May 2023, Vietnam’s official RET sets target to reach 30.9 to 39.2 percent share of renewable energy sources in total primary energy supply by 2030 and 67.5 to 71.5 percent by 2050.101 The latest official RET for Thailand, based on the Alternative Energy Development Plan (AEDP), is to meet a non-hydro renewable energy target of 18.7 GW of total capacity by 2037 and an additional target for a 37 percent share of renewables in the energy generation mix by 2037.102 Myanmar set a target to reach a 12 percent share of renewable energy in the electricity generation mix by 2025. Lao PDR’s official RET—to meet a 30 percent share of renewable energy in total energy consumption by 2025—was set in 2011. As part of its updated NDCs, Cambodia set a target to have a 25 percent share of renewable energy in the electricity generation mix by 2030.

Moreover, at the regional level, the GMS countries are all part of ASEAN, which has adopted additional region-wide renewable energy targets. The initial phase of the ASEAN Plan of Action for Energy Cooperation (APAEC) 2016-2025 set a renewable energy target of 23 percent by 2025 in total primary energy supply.103 The second phase of APAEC, which was confirmed at the end of 2020, includes a 35 percent share of renewable energy in ASEAN installed power capacity by 2025.104 There is currently no GMS-specific RET. Establishing a sub-regional RET for the GMS encourages a higher degree of cohesiveness at the GMS level that will aid with supporting a 100 percent renewable energy future. An adopted target for the region can begin modestly and develop over time. A specific consideration should be placed for encouraging the deployment of non-hydro renewable energy in the region, which can be designed as an electricity generation mix variable renewable energy based RET. RETs are also coupled and embodied within renewable energy roadmaps. A renewable energy roadmap typically consists of a series of zone and site-level planning and mapping exercises to establish a list of priority areas for development, applying exclusions and isolating key intersections, 100 IRENA 2022 renewable energy targets 101 Viet Nam Updated draft of PDP8 March 2023 102 Bangkok Post 2022, Renewables get a lift in Thailand 103 APAEC 2016, ASEAN Plan of Action for Energy Cooperation PHASE I, 2016-2025 104 APAEC 2020, ASEAN Plan of Action for Energy Cooperation PHASE 2, 2021-2025

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and then institutionalizing resources through policy documents and legislative approvals.

Policy recommendation: Support the development of a renewable energy target (RET) for the GMS that consists of a non-hydro, variable renewable energy-specific target share of the regional electricity generation mix, which is coupled by a GMS renewable energy roadmap.

5.7.2 Renewable energy zones Power development planners and variable renewable energy project developers face a common challenge in the procurement of shared network infrastructure. System planners have employed two solutions in recent years to ensure that common network infrastructure is built: 1) project developers collectively and proportionately share the cost of network infrastructure, or 2) public/private funds pay for common network infrastructure, and the costs are recovered from consumers through network-related charges.105 Best international practice for coordinating network infrastructure development with variable renewable energy resources involves the establishment of designated renewable energy zones (REZ), which entails segmenting high-potential resource areas together in groups and accelerating the development of shared network infrastructure to transmit energy to load centers. One of the benefits of this practice is overcoming the difference in timescales between building variable renewable energy projects and expanding the HV grid.

The Public Utilities Commission of Texas and Electric Reliability Council of Texas first pioneered this concept in 2005, which led to the development of competitive REZs that encouraged development around the most robust wind resources in the state.106 The REZ initiative in Texas led to the development of over 18 GW of variable renewable energy wind generation installations in the state and is a good example of how variable renewable energy mapping and resource modeling can be integrated with power development planning. Because most wind installations in Cambodia are located in areas that do not have available network infrastructure or hosting capacity, dedicated REZs would be useful to coordinate accommodating network infrastructure for development of wind resources.

105 IEA 2018, System Integration of Renewables: an update on Best Practice 106 USAID 2010, Renewable Energy Zones: Delivering Clean Power to Meet Demand

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Figure 50: AEMO renewable energy zones107

Figure 46: AEMO renewable energy zones109

The Australian Energy Market Operator in its 2020 integrated system plan identified 35 planning process. Clusters of sites with robust solar and wind potential are located with viable PSH or BESS sites and co-optimized together against requirements for network augmentation. As a result, the development of REZs in Australia is considered in tandem with network development to ensure timely and adequate infrastructure to accommodate variable renewable energy uptake. REZs have strong potential for encouraging development and commercial investment in high-potential resource areas. No official REZs have been considered for the GMS yet.

Policy recommendation: Develop a series of renewable energy zones (REZ) for the GMS to cooptimize the development of regional transmission infrastructure to support greater power trade of variable renewables in the region.

107 AEMO 2020, Integrated System Plan (ISP) – Renewable Energy Zones

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5.8 Conclusions and key recommendations This report, Towards A Green and Inclusive Power Sector in The Greater Mekong: Regional Grid Interconnection for Low-Cost, Low-Carbon, amd Low-Conflict Energy demonstrates that a smartlydesigned GMS regional power grid and cross-border trade can facilitate the transition to 100 percent renewable electricity without sacrificing the regions precious rivers, nature, or people.

It first provided a background on the GMS, including main rivers, environmental and geological features, natural resources, and a briefing on the economy and electricity sector of Viet Nam, Thailand, Myanmar, Cambodia, and Laos. Following this, an analysis of the was set out that included key motivations and benefits for expanding regional power trading in the GMS. The main approaches to developing regional power trade were outlined, with details on the different mechanisms, frameworks, and products typically involved in electricity markets, and comments on their applicability for the GMS context. We then discuss some institutional and technical enablers, highlight cross-border interconnection challenges, and provide a summary of key considerations for electricity market development in the GMS. In the next component, we modeled four trajectories on the development of electricity generation mixes in the GMS over the 2021-2050 period. The BASE scenario followed the latest expected power development growth trajectories for each country in the region, reflecting the most recent outlooks in Viet Nam, Thailand, Myanmar, Cambodia, and Laos. Under this outlook, thermal generators continue to dominate the energy mix, with renewables limited to a 49 percent share of the mix by 2050. No additional cross-border interconnections between zones were permitted to develop, aside from those already existing or committed.

When allowing for the expansion of new cross-border transfer options in the optimization in the IEXP scenario, modeling results indicated a higher deployment of renewable energy and battery storage, while displacing the need for building thermal capacity. On the other hand, modeling the 100 percent renewable energy target RE scenario, without additional cross-border trade, showed that reaching the target for 100 percent renewable energy by 2050 would require significant investments. Modeling the 100 percent renewable energy target while allowing the system to optimize the development of cross-border trade in the GMS in the REIEXP scenario resulted in the target being met with a reduction in system costs and investment requirements. At the same time, it also optimized the development and flow of variable renewable energy between each GMS country.

As power system modeling results have indicated that the development of cross-border interconnections and renewable energy are mutually beneficial in the GMS, we are providing a series of recommendations to support electricity market development, expansion of regional grid interconnections, and non-hydro renewable energy deployment towards a 100 percent renewable energy share of the energy generation mix in the GMS. These recommendations include: (1)

Develop a complementary regional day-ahead power market by building on existing connections through a stepwise approach: Develop a complementary regional day-ahead power market by building on existing connections, such as the LTMS, then incrementally expanding to new countries and connections.

(2)

Ratify and enhance the regional GMS grid code: Prioritize the ratification of the GMS regional grid code within the legally binding regulatory framework of respective national grid codes for each GMS member state.

(3)

Standardize commercial arrangements for cross-border power trade in the

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GMS: Encourage the development of a set of standardized commercial arrangements through the GMS ETTF to support multilateral trade through third-party wheeling, open access arrangements, short-term bilateral trading measures, and a balancing mechanism.

(4)

Promote regional transmission development planning in the GMS: Support the ETTF in leading the next official GMS update of the regional transmission masterplan which considers a grid synchronization strategy and a conceptual roadmap for market and network integration.

(5)

Support low-cost energy in the GMS: Establish a GMS-wide framework for designing and implementing renewable energy auctions to support low-cost development of renewable energy in the GMS.

(6)

Advance low-consumption energy efficiency: Set GMS-wide targets for energy efficiency in the region to support the low-cost development of a 100 percent renewable energy electricity market.

(7)

Ensure low-conflict energy in the GMS: As part of the GMS ETTF platform, encourage all GMS countries to commit to a complete cessation of building hydropower dams on the mainstem of the Mekong River, in addition to a commitment to refrain from developing high-impact hydropower resources in ecologically-sensitive rivers such as the Thanlwin and Ayeyarwady Rivers.

(8)

Leverage the flexibility of hydropower to accommodate variable renewable energy integration: Explore changing the role of existing hydropower in the GMS through modeling and planning exercises to allow for greater flexibility towards the integration of a higher share of variable renewable energy in the region.

(9)

Evaluate pumped storage hydropower (PSH) potenial in the GMS: Carry out a GMS-wide study on the potential for pumped storage hydropower resources in the region that prioritizes high potential sites with the lowest environmental and social impacts for development in the region.

(10) Set renewable energy targets and establish roadmaps for the GMS: Support the development of a renewable energy target for the GMS that consists of a nonhydro, variable renewable energy target share for the regional electricity generation mix, coupled with a renewable energy roadmap for the region.

(11) Establish renewable energy zones for the GMS: Develop a series of renewable energy zones (REZs) for the GMS to optimize the development of regional transmission infrastructure to support greater power trade of variable renewables in the region.

99

6 Appendix A: Additional Modeling Inputs: Existing, Committed, and Planned Cross-Border Interconnections 100

101

Lao Cai, Viet Nam Ha Giang, Viet Nam Ha Giang, Viet Nam Lao Cai, Viet Nam Mong Cai, Viet Nam Dehong, Yunnan, PRC Dayingjiang, Yunnan, PRC Jingyang, PRC Phnom Penh, Cambodia Roi Et Substation, Thailand Ubon Ratchathani, Thailand Nakhon Phanom, Thailand Udon Thani, Thailand Nan, Thailand Nongkhai (EGAT), Thailand Nongkhai (EGAT), Thailand Bungkan (EGAT), Thailand Nakhon Phanom (EGAT), Thailand Mukdahan (EGAT), Thailand Sirinthon S/S (EGAT), Thailand Thanh My, Viet Nam Pleiku, Viet Nam Meng La, PRC Banteay Meanchey, Cambodia Thailand Thailand Sirindhorn Khamponsalao Bueng Kan Myanmar

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

Guman, PRC Malutang, Yunnan, PRC Maomaotiao, PRC Hekou, PRC Fangcheng (Guangxi), PRC Shweli I HPP, Myanmar Dapein I HPP, Myanmar Menglong, Myanmar Chau Doc, Viet Nam Nam Theun 2 HPP, Lao PDR Houayho HPP, Lao PDR Theun Hinboun HPP, Lao PDR Nam Ngum 2 HPP, Lao PDR Hong Sa TPP, Lao PDR Phontong S/S, (Vientiane), Lao PDR Thanaleng (Vientiane), Lao PDR Pakxan S/S, (Borikhamxay), Lao PDR Thakhek S/S, (Khammoun), Lao PDR Pakbo S/S, (Savannakhet), Lao PDR Bang Yo S/S, (Champassak), Lao PDR Xekaman3 HPP, Lao PDR Xekaman 1 HPP (Hat Xan), Lao PDR Namo (Oudomxai), Lao PDR Aranyaprathet, Thailand Xayaburi, Laos Pakse - Ubon 3 BangYo Ban Hat Pakxan Luangnamtha

Zone2

Existing No Zone1 PRC PRC PRC PRC PRC Myanmar-N Myanmar-N Myanmar-N Viet Nam-S Laos-C Laos-S Laos-C Laos-N Laos-N Laos-C Laos-C Laos-C Laos-C Laos-C Laos-S Laos_Laos-S Laos-N Thailand-C Laos-N Laos-S Laos-S Laos-S Laos-C Laos-N

From Viet Nam-N Viet Nam-N Viet Nam-N Viet Nam-N Viet Nam-N PRC PRC PRC Cambodia Thailand-N Thailand-N Thailand-N Thailand-N Thailand-N Thailand-N Thailand-N Thailand_N Thailand-N Thailand-N Thailand-N Viet Nam-C Viet Nam-C PRC Cambodia Thailand-N Thailand-N Thailand-S Cambodia Thailand-N Myanmar-N

To 220 220 110 110 110 220 500 110 220 500 230 230 500 500 115 115 115 115 115 115 220 220 115 115 500 500 115 115 230

Source: Voltage

102

86 100 344 30

250 300

200 80 36 248 290 60 180

1220 400

200 950 126 434 600 1878

600 240

300 200

WB/RPTC 2019 Capacity

200 1000 120 440 615 1473 160

450 350 110 70 25 600 240

ADB 2020 Capacity G-G G-G G-G G-G G-G IPP IPP G-G G-G IPP IPP IPP IPP IPP G-G G-G G-G G-G G-G IPP IPP IPP G-G G-G IPP IPP G-G G-G G-G G-G

Type

Table 6: List of existing cross-border grid-to-grid and IPPs in the GMS

Denggao, Yunnan, PRC

Denggao, Yunnan, PRC

Stung Treng, Cambodia

Ban Lak, Lao PDR

MK_Xayabuly, Lao PDR

Paklay, Lao PDR

Ton Pheung, Lao PDR

Muang Houn, Lao PDR

Xe Kong 1&2, Lao PDR

Nam Xam 1&3, Lao PDR

Hat Xan, Lao PDR

Luang Prabang, Lao PDR

HPP Nam Mo, Lao PDR

Ban Na, PRC

Ban Hat, Lao PDR

Ton Pheung, Lao PDR

M. Long, Lao PDR

Ton Pheung, Lao PDR

M. Long, Lao PDR

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

16

17

Zone1

Committed and planned

103 Shan State, Myanmar

Tachileik, Myanmar

Shan State, Myanmar

Tachileik, Myanmar

Stung Treng, Cambodia

Na Mo, Lao PDR

Ban Ve, Viet Nam

Nho Quan, Viet Nam

Ple ku, Viet Nam

Viet Nam

Viet Nam

Nan 2, Thailand

Mae Chan, Thailand

Tha Li, Thailand

Loei 2, Thailand

Ubon Ratchathani, Thailand

Tay Ninh, Viet Nam

Kamarnat, Myanmar

Ho Chi Minh, Viet Nam

Zone2

Laos-N

Laos-N

Laos-N

Laos-N

Laos-S

PRC

Laos-N

Laos-N

Laos-S

Laos-C

Laos-S

Laos-N

Laos-N

Laos-N

Laos-N

Laos-C

Cambodia

PRC

PRC

From

Myanmar-C

Myanmar-C

Myanmar-C

Myanmar-C

Cambodia

Laos-N

Viet Nam-N

Viet Nam-N

Viet Nam-C

Viet Nam-C

Viet Nam-C

Thailand-N

Thailand-N

Thailand-N

Thailand-N

Thailand-N

Viet Nam-S

Myanmar-N

Viet Nam-N

To

230

115

230

115

230

500

220

500

500

220

500

500

115

115

500

500

220

500

500

Voltage

280

1000

220

1800

800

1220

1300

207

3000

TBD

Capacity

G-G

G-G

G-G

G-G

G-G

G-G

IPP

G-G

IPP

IPP

IPP

G-G

G-G

G-G

IPP

IPP

G-G

G-G

Type

Table 7: List of committed and planned cross-border grid-to-grid and IPPs in the GMS

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