Utilities update as of 9 Sep 2024

We are positive about the second round of renewable bidding for 3,668MW, expected in Oct-Nov 2024. We expect GULF, GPSC, and BGRIM to win some solar and wind projects with reasonable EIRR of 10-12%. This is good for the Thai utilities sector for the medium to long-term as local projects carry lower risks, fair return and allow closer monitoring than overseas projects. Our sector pick is GULF, with a solid 2H24 profit and less impact from the rise in LNG prices. We maintain Neutral on GPSC and BGRIM. For trading, we expect GPSC to perform well in the short-term as it may win more in this second.

Catalyst: 2nd round of renewable bids. The Energy Regulatory Commission (ERC) has said it is holding a second round of bids for feed-in tariff (FiT) purchases of renewable energy, of a total 3,668 MW. This includes solar power, wind energy, industrial waste and biogas, as per the resolution of the Energy Policy Committee (EPC) on July 31, 2024. The ERC board has been discussing various regulations and held a public hearing on August 14-20. The purchasing guidelines are expected to be released between October and November 2024. The EPC resolution will prioritize bidders in the first round that met the criteria but were not selected. Purchase volume for wind power is capped at 600MW and ground-mounted solar power at 1,580MW for a total of 2,180MW. Bidders in this group will be those that met the initial criteria but scores were lower and were thus not selected in the first round. The ERC will invite these to confirm their readiness to participate in this second round. It will open the remaining 1,488MW for general bidding.

Implications for the Thai Utilities sector. The second round of renewable energy bidding is expected to benefit the Thai utilities sector in the medium to long term. The new plan focuses on power capacity additions within Thailand, where risks are generally lower, returns fair and closer monitoring than overseas projects. In the first phase of renewable bidding of 5.2GW in 2023, GULF was awarded projects under a Feed-in Tariff (FiT) scheme and signed Power Purchase Agreements (PPAs) to develop 2.4GW: 870MW in solar farms, 1,526MW in solar farms with battery energy storage systems (BESS), and 20MW in industrial waste-to-energy projects in Thailand. GUNKUL was awarded 832.4MWe: 568.8MW solar, 83.6MW solar + BESS, and 180MW wind and BGRIM got 161.3MWe: 145.3MWe solar and 16MWe wind. The new rule that allows first dibs to bidders not selected in the first round benefits GPSC. We expect the second round of FiT purchase to be similar to the first round in 2023, with a fixed FiT at Bt2.17/kWh for solar farms and Bt3.10/kWh for wind power plants. We estimate investment cost at Bt25mn per MW for solar farm projects and Bt60mn per MW for wind farm projects. This gives an estimated equity internal rate of return (EIRR) for solar projects of 10% with 9.5% for wind farm projects. At the same time, each company has variable factors such as cost of debt, operational cost management and procurement/supplies related to building a power plant, that will affect the EIRR of each project.

Top picks. We maintain our 3-month tactical rating on GULF as Outperform, reflecting its potential to win some projects in both renewable energy round two and PDP 2024, which is expected to be finalized by the end of this year. GULF's earnings are expected to be strong in 2H24 upon a full quarter recognition of revenue from new GPD and HKP projects as well as the planned COD of its solar, solar + battery energy storage system (BESS) and solar rooftop projects adding 605MW in 2H24. GPSC and BGRIM stay Neutral, although we expect their 2H24 project may be hurt by higher HoH gas cost: pool gas price rose 4.1% MoM to Bt321.844/mmBTU in July 2024 from Bt309.0391/mmBTU in June 2024. However, there is negative sentiment surrounding the potential for higher gas costs in 3Q24 due to the current high LNG price. However, as a trading idea, we expect GPSC to perform well in the short-term as we expect it to get the most in the second round.

Key risks: Higher than expected gas cost. Key ESG risks are the environmental impact from its exposure to fossil fuels, energy management, high greenhouse gas emission, and nearby community impact.

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