Cambodia's 900-megawatt electricity generation project, set to become the country's largest operational power plant by 2027, is expected to play a significant role in its energy future.
However, this is a risky proposition for the country, as it relies on imported LNG, which has struggled to maintain energy security and affordability due to global market disruptions and skyrocketing costs. The Economic Research Institute for ASEAN and East Asia (ERIA) advocates for liquefied natural gas (LNG) to play a major role in Cambodia's energy future.
Careful strategic foresight
Cambodia's foray into LNG markets will require careful strategic foresight and planning to reduce energy costs, improve reliability, and support economic growth. However, numerous questions remain regarding costs and procurement, the role of LNG-fired electricity in the country's power mix, and the use of potentially cheaper alternatives. Without clear answers, Cambodia's economy could find itself exposed to the large costs and volatility of global LNG markets.
Risks due to volatile prices
New buyers like Cambodia typically acquire LNG from spot markets or through multi-year contracts, which establish volumes and pricing methods across the contract’s term. Both of these acquisition options entail risks for energy security and cost. Buying from the spot market means Cambodia could import shipments whenever needed rather than committing to set contracts. This can be risky during periods of volatile prices. Contracts alleviate these concerns by setting a pricing formula, typically tied to a percentage of the global oil price, which reduces price volatility, narrowing the cost range of LNG cargo deliveries. However, contracts also stipulate rigid “take-or-pay” terms, meaning Cambodia must either “take” the LNG or “pay” a penalty if the LNG is unneeded. Since LNG’s role in the Cambodian energy system is still uncertain, the country could find itself paying significant penalties.
Knock-on effects on electricity prices
Importing expensive LNG into the Cambodian power mix will have knock-on effects on electricity prices, hindering the government’s efforts to reduce these rates. At current spot market prices, LNG-fired electricity could cost more than five times that of recent solar projects in the country, or about double the rate of current coal and hydro contracts. For example, IEEFA estimates that LNG-fired electricity could cost USD 0.17 per kilowatt-hour at current LNG prices. Meanwhile, Cambodia has attracted solar projects that produce electricity priced at USD 0.026 per kilowatt-hour.
Properly assessment
LNG fuel prices would likely have to fall below USD 4.8/MMBtu to compete with coal and renewables. However, global prices have rarely fallen this low. Most producers require a selling price of USD 8/MMBtu or more to service debt and earn a return – and LNG prices are unlikely to fall to competitive levels for the Cambodian power sector.
Other Asian countries, such as Vietnam and the Philippines, are grappling with the impact of uncompetitive LNG imports upon their electricity rates, slowing down LNG-to-power development and putting higher pressure on end-user tariffs.
With Cambodian consumers already paying among the highest rates for power in Asia, the role of LNG plants in the power mix remains uncertain.
To achieve its energy objectives, Cambodia needs to properly assess whether a baseload LNG-to-power project is necessary. The current impetus for LNG development appears to be driven by concerns that wind and solar resources do not provide uninterrupted, dispatchable power. However, with wind projects only starting to materialize and solar making up a mere 5% of Cambodia’s power mix, there is ample opportunity for both wind and solar to expand without jeopardizing grid operations.
Source : Dialogue Earth
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