Power policy

Laos likes to pitch itself as the “battery of Asia”, eager to capitalize on its abundant hydroelectric resources and small population to export energy to its larger, fast-growing neighbors. Accordingly, it has focused its attention on building large hydro power plants that, in many cases, send power directly across its borders to Thailand or Vietnam.

The government is targeting a 30% share for non-hydro renewable consumption in the power mix by 2025. EDL-Gen Solar Power Company was established in 2015 with the aim of building 100 megawatts (MW) of solar in Laos. A 40MW solar tender is expected to be announced in 2021 in partnership with the U.S. Agency for International Development (USAID).

Power prices and costs

Power prices in Laos are relatively low, due to the abundance of low-cost hydroelectricity. The government sets electricity tariffs and subsidizes industry, residential consumers, agriculture, and small and medium enterprises with rates below the cost of service. Banks and hotels, on the other hand, have to pay significantly higher tariffs, which can make onsite solar competitive for a small segment despite the absence of net metering or other incentives.

Rates remained stable through 2018-2019. In March 2020, the government approved a proposal to gradually increase the electricity rate from 2020 to 2025. However, from April 2020 to February 2021, a subsidy policy was instated for those that use between 151 and 461 kilowatt-hours (kWh) per month, due to the pandemic. The subsidy was suspended from March 2021 causing prices to rise in the local currency, the Lao kip. However, rates in U.S. dollars have decreased by 1% on average for residential, commercial and industrial customers due to the devaluation of the Lao kip.

Power market

The domestic power market in Laos has a single-buyer structure, with Electricite du Laos (EDL) being the sole buyer and retailer, as well as the grid operator. Power generation was partially liberalized in 2010, when EDL spun off its large hydro assets under EDL-Gen, in which it owns around a 75% stake. Independent power producers are also active in the market. They have been responsible for roughly 90% of capacity additions since 2015.

The pace of capacity additions picked up rapidly from 2013 onwards, due to external demands. Thailand’s state-owned Electricity Generating Authority of Thailand (EGAT) financed, contracted, and now dispatches power from several new large hydro projects and a 2 gigawatt (GW) coal plant. External demands will keep driving new capacity additions, as Laos is planning to double its transmission capacity with neighbors Thailand, Vietnam, Malaysia, Cambodia, and Myanmar over the next few years.

Doing business and barriers

Power demand in Laos has surged as it has extended its electric grid to the countryside. Peak load doubled between 2010-2018, reaching a high in 2019 and slightly dropping in 2020. Overall generation (much of which is exported) quadrupled over the same time frame.

Laos aims to reach 98% household electrification by 2025. It is well on its way, according to official statistics, with 94% electrification in 2018, compared to only 15% in 1995. Concerns remain, however, on the quality of the power supply to rural areas, and many speculate that the true electrification rate remains around 70-80%. Off-grid systems are an option for the remaining households, but the remoteness of these homes means that income-generating opportunities – and therefore the ability to pay for solar home systems – remain limited. Most solar home systems to date have effectively been financed through grants.

The power market in Laos is oversupplied with carbon-free hydroelectricity, leaving little incentive for the government or local companies to invest in non-hydro clean energy technologies. The bulk of recent power sector investment – in large hydroelectric facilities and a single coal-fired plant – has been financed by Thailand and Vietnam for their own consumption. Only one 10MW solar project has been built to date in Laos, by local company EDL-Gen, but with significant support from international partners. China, Thailand, Japan and Vietnam are dominant players in the market. There is little to no domestic concessional financing available, and few banks in the country have the capacity to finance power projects.

A dam collapse in 2018 temporarily put under-construction hydro plants on hold while the government investigated the incident. Work resumed in September 2018. An estimated 1GW of hydropower is under development as of 2021, and no priority has been given to other renewables technologies, such as solar.

Meanwhile, offtaker risk remains a significant obstacle to new projects of all types. Projects with EDL as the offtaker are not considered bankable due to the utility’s financial difficulties. Projects for the Thai market have been more successful because EGAT, Thailand’s utility, is considered a credit-worthy offtaker. However, as EGAT’s supply has slowly caught up with electricity demand, its interest in projects in Laos has leveled off. This means many new projects will likely have EDL or Vietnam’s utility, EVN, as offtaker, which will make financing more difficult.

EV market

Laos’s NDC states a target for electric vehicles (EVs) to comprise 30% of its national two-wheeler and passenger car fleet by 2030, while also having biofuels meet 10% of transportation fuel demand. However, both goals are conditional upon receiving financial support from developed nations, totaling $730 million.

EV policy

The government has yet to implement any substantive policy support in this sector and the EV market remains at an early stage.

Buildings market

In order to lower emissions from the energy sector, Laos’s NDC includes a target to introduce 50,000 energy efficient cooking stoves by the end of decade. This will abate 50 kilotons of CO2 equivalent (ktCO2e) on average each year between 2020 and 2030.

The NDC also states that if Laos were to receive international financial assistance, it could aim to improve its energy efficiency and reduce final energy consumption by 10% from 2020-2030 compared to a business-as-usual scenario. In quantitative terms, this target represents a 280ktCO2e decrease in emissions each year between 2020 and 2030.

Buildings policy

The government has yet to implement any substantive policy support in this sector and the low-carbon heat market remains at an early stage.