76150



CASE STUDY 22: THAILAND – BIOMASS GENERATION AND COOPERATION

 Barriers              High technical risks

 Instrument            Commercial risk guarantees

 Application           GEF funds used to reimbursed project companies with up to 50% risk guarantee fees
                       as contingent financing

 Amount                GEF US$6.8 million


PROJECT BACKGROUND AND OBJECTIVES                         INSTRUMENTS USED
In 1999-2000, electric power generation in Thailand was   The financier of the project requested that the parent
dominated by fossil fuel, accounting for more than 80%    company of project companies provide a guarantee
of total electricity supply. The Removal of Barriers to   covering the risks related to biomass fuels and the
Biomass Power Generation and Cogeneration in              overall risks including credit, currency, and technology
Thailand (RBBPGC) aims to reduce GHG emission by          risks. The GEF funds were used to reimburse the project
accelerating the growth of biomass co-generation and      companies with up to 50% of the risk guarantee fees as
power generation technologies to replace fossil fuel      contingent financing.
consumption. The project is supported by GEF funds
                                                          INSTITUTIONAL ARRANGEMENTS
implemented through the UNDP, with Energy for
Environment Foundation as the executing agency.           The parent company provides guarantee on fuel price
                                                          risks to the project company for a guarantee fee. GEF
The barriers to biomass power generation was identified
                                                          fund was then paid to the project companies semi-
as lack of knowledge and skills in developing biomass
                                                          annually on provision of the invoice and receipt from
power generation projects, limited regulatory
                                                          the project companies for the guarantee fee. (See chart
framework to encourage biomass projects, lack of
                                                          below)
appropriate financing mechanisms, and uncertainty and
lack of knowledge regarding the biomass technologies.

Therefore, to address the lack of appropriate financing
mechanism and to reduce technical risks associated with
new biomass technology, the project includes a
commercial risk guarantee component to facilitate the
implementation of two pilot biomass power plants, the
Gulf Yala Green and Roi-Et Green.




1 | R E F I N e www.worldbank.org/energy/refine
                    Parent Company                                                GEC


  Guarantee                      $X
   on Fuel                     Guarantee                                                $ 4M
  Price Risk                   Premium

                                              $ X/2                                              $ 2M
                    Project Company                         GEF                   GYG                   GEF
                                              50%
                                         reimbursement
                                          on receipt for
                                            premium
                                            payment




OUTCOMES
The risk guarantee model has served the purpose of
attracting project finance for the pilot project.

The overall project has facilitated/influenced the
installation of 398 MW of electricity capacity that
generates over 358 GWh of electricity annual from
biomass power plants.




Further reading
GEF, Thailand - Removal of Barriers to Biomass Power Generation and Co-generation – click here




2 | R E F I N e www.worldbank.org/energy/refine