Thailand's small power producers to remain under pressure despite new energy regulations: UOBKH 

SMALL power producers (SPPs) in Thailand with high exposure to industrial customers may continue to face pressure from high-energy fuel sources, even as the country’s Energy Regulatory Commission (ERC) plans to implement a new system to mitigate rising power tariffs caused by nationwide gas shortages.  

This is because SPPs’ electricity sales to industrial customers are charged at grid tariff with no direct fuel price pass-through, said UOB Kay Hian (UOBKH) in a report on Monday (Apr 18). 

To recap, ERC is considering the implementation of a new Energy Pool Price (EPP) formula from as early as May 2022. This is to encourage Thai power operators to produce more diesel- and fuel-generated electricity at a much cheaper rate than imported spot Liquefied Natural Gas (LNG). 

The formula will only be applied during periods of energy crises, as it is usually cheaper to generate power from gas than from diesel. 

UOBKH believes the EPP will be slightly negative for the Petroleum Authority of Thailand (PTT) due to a higher natural gas for vehicles (NGV) subsidy. 

“PTT previously guided that it would absorb 3.3 billion baht (S$133.3 million) in NGV subsidy for the period of Jan 1 to Jun 15, 2022. With the change in fuel price formula to EPP, we expect PTT’s NGV subsidy amount to be slightly higher than its (previous) guidance,” noted the research house. 

On the other hand, earnings of independent power producers (IPPs) are less likely to be significantly impacted by the change to EPP, according to UOBKH - as fuel price is a pass-through transaction under current power purchase agreements.

The research house is also expecting Thai refiners to benefit from the government’s switch from gas to oil as it foresees this will boost domestic petroleum demand by 15-20 million litres per day to account for 28 per cent of total diesel and fuel oil consumption in Thailand.

“Thai refineries can shift their diesel and fuel oil export volume to sell at domestic power plants instead, and this should boost its gross margin given the normally low margin for the export market. Moreover, Thai refiners can increase their utilisation rate to capture this demand in order to help Thailand reduce energy costs during this period,” it noted. 

Thai Oil is among the brokerage’s top “buy” picks as the oil refinery is seen as a beneficiary of high oil prices and gross refining margin.

Chemical company Indorama Ventures also remains UOBKH's preferred pick in the petrochemical sector on attractive valuations and its “impressive” earnings growth in 2022.