Cambodia - in Depth Study On Electricity Cost and Supplies 2015

Cambodia – In Depth Study on
Electricity Cost and Supplies
March 2015
FINAL REPORT
Prepared by:
William Derbyshire, Economic Consulting Associates
Managed & Supported by:

Setha Hong, Lead Consultant G-PSF Project
Financial Supported

Contents

Contents
Contents ............................................................................................................................................. 1
Abbreviations and acronyms ...................................................................................................... 3
Executive Summary ........................................................................................................................ 4
Introduction 4
Cambodia’s power sector 4
Cambodia’s electricity prices 5
Costs 6
Tariffs 9
Consumption 10
Recommended policy actions 11
1. Introduction ........................................................................................................................... 14
1.1 Background 14
1.2 Guide to the report 14
Part I -‐ Context ............................................................................................................................... 16
2. Cambodia’s power sector ................................................................................................... 17
2.1 Major institutions 17
2.2 Electricity demand 19
2.3 Generation and power purchases 24
2.4 Transmission 29
2.5 Sub-‐transmission and distribution 31
3. Cambodia’s electricity prices ........................................................................................... 32
3.1 Significance of electricity costs 32
3.2 Industrial electricity tariffs in Cambodia 33
3.3 Competitiveness of Cambodia’s electricity prices 35
3.4 Comparison of supply costs 37
Part II -‐ Analysis ............................................................................................................................ 40
4. Costs .......................................................................................................................................... 41
4.1 EDC’s costs 41
4.2 International comparisons 50
4.3 Conclusions and recommendations 63
5. Tariffs ....................................................................................................................................... 66

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Contents

5.1 Principles of tariff design 66

5.2 Cambodia’s tariff structure 67
5.3 Are tariffs cost-‐reflective? 69
5.4 Time-‐of-‐Use tariff 70
6. Consumption .......................................................................................................................... 73
6.1 Energy efficiency 73
6.2 Self-‐generation 75
Part III -‐ Recommendations ...................................................................................................... 82
7. Recommended policy actions ........................................................................................... 83
7.1 Short-‐term (within one year) 83
7.2 Medium-‐term (one to three years) 83
7.3 Long-‐term (over three years) 84
ANNEXES .......................................................................................................................................... 85
A1 List of persons met ............................................................................................................... 86

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Abbreviations and acronyms

Abbreviations and acronyms
ADB Asian Development Bank

BOT Build-‐Operate-‐Transfer
CCC Cambodia Chamber of Commerce
CNEE National Policy, Strategy and Action Plan for Energy Efficiency in Cambodia
CPTL Cambodia Power Transmission Lines Co Ltd
EAC Electricity Authority of Cambodia
ECA Economic Consulting Associates
EDC Electricité du Cambodge
ERC Energy Regulatory Commission [Philippines]
ESCO Energy Services Company
EVN Electricity of Vietnam
FIT Feed-‐in-‐Tariff
G-‐PSF Government – Private Sector Forum
HV High Voltage (115 kV and 230 kV)
IPP Independent Power Producer
IRR Internal Rate of Return
LV Low Voltage (12 kV and below)
MEF Ministry of Economy and Finance
MFI Multilateral Financing Institution
MME Ministry of Mines and Energy
MOC Ministry of Commerce
MV Medium Voltage (22 kV / 35 kV)
NPT National Power Transmission Corporation [Vietnam]
PBR Performance-‐Based Regulation
PEA Provincial Electricity Authority [Thailand]
PPA Power Purchase Agreement
RHG Rice Husk Gasifier
ROE Return on Equity
TDSP Trade Development Support Program
TOR Terms of Reference
TOU Time-‐of-‐Use

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Executive Summary

Executive Summary
Introduction
This report has been prepared for the Cambodia Chamber of Commerce (CCC)
under the assignment:
In-Depth Study on Electricity Cost and Supplies (TDSP/2012/081/02/1)
The assignment is being funded through the Department of International

Cooperation of the Ministry of Commerce under the Trade Development Support
Program (TDSP) managed by the World Bank.
The purposes of the assignment are to:
❏ Assess the causes of the high prices of electricity supply for larger
industrial and commercial customers in Cambodia.
❏ Develop evidence-based recommendations on policy and regulatory

reforms which can contribute to reducing these high prices.
The analysis in this report draws on publicly-available documents and interviews

conducted in Cambodia with representatives of government, the utility and major
electricity customers.
Cambodia’s power sector
Electricity demand
Cambodia’s power sector is small by regional (and international) standards but

demand has been growing extremely rapidly. Between 2003 and 2014, the annual
growth in electricity sales averaged almost 20% with total sales increasing by over
seven times. The number of customers has grown only slightly more slowly, by 17%
annually or by six times over the same period. Cambodia’s national power
development master plan is currently being updated. While this is not yet public, we
are advised that the master plan envisages continued annual growth rates of 15-20%
to 2020. This implies electricity sales reaching 10,000-13,000 GWh in 2020.
This rapid increase is driven by the expansion of electricity supplies nation-wide.

From electrification rates of just 6.5% of communes (‘khums’) and 5% of households
in 2003, coverage is estimated to have reached 85% of communes and 60% of
households by 2014.
Although there are over 300 licensed distributors of electricity in Cambodia, sales are
dominated by the state-owned utility, EDC. In 2013, EDC was responsible for

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Executive Summary

directly supplying over 500,000 customers with sales of 2,824 GWh (40% and 80% of
the national totals, respectively).
Electricity supply
Up until 2007, supply was almost entirely from oil-fired generation which
represented over 85% of output. With the commissioning of the inter-connectors to
Thailand in 2007 and to Vietnam in 2009, imports replaced much of this domestic
generation, reaching almost two-thirds of supply by 2011. From 2013 onwards, with
the growth of hydro and coal generation in Cambodia, imports in turn have been
scaled back and replaced with these new sources. In 2014, half of generation was
from domestic hydro and coal plants and this is expected to increase to over two-
thirds in 2015, with the share of oil-fired generation reduced to just 5% of the total.
Peak demand on the national grid is substantially below available generating

capacity and contracted imports, indicating a large surplus of generating capacity.
The surplus over peak demand is likely to be temporary if demand growth forecasts
are realised. However, Cambodia also has and is likely to continue to have
mismatches between supply and demand at different times of the year and day.
Until 2007, Cambodia’s transmission network was essentially limited to a ring line
around Phnom Penh. Since then, transmission grids have developed in the north-
west and south and these have now been inter-connected creatiing a national gird.
The grid is now being further inter-connected and expanded. As with generation,
Cambodia has relied heavily on private investors to develop transmission lines on a
BOT basis with EDC contracting to use these lines.
Cambodia’s electricity prices
Cambodia’s electricity tariffs rose rapidly in 2005 following the introduction of the
floating tariff, peaked in 2008 when world oil prices also peaked and then declined
and rose again with oil price. From 2012 onwards, tariffs have reduced with the
growing share of imports, hydro and coal supplies replacing oil-fired generation and
this decline is projected to continue to 2020 under the approved five-year plan.
Despite, this, Cambodia’s tariffs remain high as shown by the comparison below,
calculated assuming a ‘typical’ garment factory as the customer. It is evident that,
even following the recent reductions, Cambodia’s tariff for larger industrial
customers remains above that of both regional comparators and other countries with
similar reliance on garment exports.

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Executive Summary

Figure 1 MV industrial tariffs compared
Source: ECA calculations using data from national electricity regulatory and utilities. The tariff for Cambodia
is that applicable for 2015 for MV customers located in Phnom Penh and Kandal. The tariff for the Philippines
is that applicable for customers served by Meralco using the February 2015 generation charge.
Costs
We show below a comparative breakdown of the cost components of EDC’s retail

tariff against those of these three utilities. It is readily apparent that Cambodia’s
costs of are high relative to those of Vietnam and Thailand but equivalent or lower
than those in the Philippines.

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Executive Summary

Figure 2 Comparative breakdown of retail tariffs
Source: ECA calculations from EDC and EAC data (Cambodia, 2014), EVN data (Vietnam, 2013), EGAT and
PEA data (Thailand, 2013) and Meralco data (Philippines, February 2015). For EDC, the breakdown is of the
tariff for small industrial customers connected to the LV network. For EVN and PEA, the breakdown of the
average retail tariff is shown. For Meralco, the breakdown is of the tariff for small industrial customers
connected to the LV network (General Service A category) with a consumption of 400 kWh monthly. Levies to
fund cross-subsidies are only explicitly identified in the Philippines.
Generation and power purchase costs
At present Cambodia has a surplus of generation during wet months and at night-
time. As a large part of generation and power purchase costs are fixed relative to
output, due to minimum guaranteed quantities included in Power Purchase
Agreements (PPAs) with IPPs, this raises the unit cost relative to countries with
lower capacity margins. Our estimates are that utilising all capacity at its expected
level would allow a reduction in costs in 2015 of around 3.4 USc/kWh for LV
customers (slightly less for higher voltage customers) or 15-20%. EDC is currently
trying to negotiate for the export of surplus generation to Vietnam but it is proving
difficult to agree the terms. It is also possible to relieve this problem to some extent
by encouraging shifting of electricity consumption to night-time hours.
A further contributing factor to costs is the import duties and VAT applied to
electricity imports into Cambodia. We estimate that these are equivalent to
approximately US$ 25 million or 0.5 USc for every kWh sold.

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Executive Summary

Transmission costs
The higher transmission costs can, at least partially, be attributed to a combination of

economies of scale in these activities and to the lower volumes and levels of
utilisation of EDC’s transmission network relative to that in the comparator
countries which will result in higher unit costs, even if the absolute level of costs is
the same. The heavy reliance on BOTs to develop new transmission lines may also be
driving up costs relative to networks financed by state-owned utilities in Thailand
and Vietnam. However, it is difficult to assess the impacts of this given that we lack
the data to break out the costs of these lines from those lines owned by EDC.
Distribution costs
There may be scope for EDC to achieve efficiency gains in electricity distribution. As
an example of the potential magnitude of such efficiency improvements, reducing
the gap between EDC’s distribution costs and those of PEA by half would allow a
reduction in tariffs of around 1 USc/kWh. One of the most obvious drivers of higher
distribution costs appears to be the lower levels of sales and customers per employee
in Cambodia relative to that of the comparator countries. However, the impacts of
this lower labour productivity should not be exaggerated and is partly offset by the
lower salaries in Cambodia.
It may also be that the current distribution margins simply no longer reflect
distribution costs, given they have not been revised for 10 years
System losses
Overall, we conclude that EDC is not performing particularly well or badly relative
to its peers as regards the level of system losses. However, there remains scope for
improvement. While EDC did manage to reduce losses significantly up to 2010, the
level seems to have remained fairly constant since then. As an indication of the
potential impacts on tariffs of reducing system losses, a reduction of two percentage
points from 2013 levels, closing half of the gap between EDC’s losses and those of
EGAT/PEA, would reduce generation and power purchase costs by up to US$ 16
million in generation costs, equivalent to around 0.30 USc/kWh. However, this
might be offset by the current structure of PPAs which mean that lower levels of
purchases translate into largely unchanged total costs.
Financing
EDC’s gearing (debt to equity ratio) is relatively low for a utility investing heavily to
meet rapid growth in demand. Its return on equity (ROE) is also high by the
standard of comparators—reflecting this low gearing and its reliance on operating
profits to fund new investments.

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Executive Summary

There appears to be scope for reducing the costs of financing network investments
by making greater use of borrowing by EDC, particularly from multilateral and
bilateral institutions given the lower rates offered, and by setting, for the purposes of
determining regulated tariffs, an allowed return on equity closer to that of regulated
electricity network utilities elsewhere. Our estimate is that increasing gearing from
48% to 60% and reducing EDC’s return on equity from 26% to 10% would reduce
EDC’s costs by the equivalent of 1.7 USc/kWh or around 10% of the tariff. We do
recognise that EDC is seeking such finance but has been reluctant to turn to some
potential lenders, such as the World Bank, due to poor part experience over the time
required for processing loans. It will also require approval from MEF where entering
into new external loans.
Tariffs
In the absence of a comprehensive study of the costs of supply to different customer

categories, it is difficult to determine whether existing tariffs are cost-reflective. Our
expectation would generally be that industrial customers would have lower tariffs
than domestic customers given their greater level of sales and flatter load or demand
profiles. However, we recognise the validity of EAC’s argument that industrial
customers consume more at times of system peak and so should pay a higher share
of the system’s fixed costs and that Cambodia’s current tariff structure is in line with
that of its neighbours in Thailand and Vietnam.
We do recommend that EAC commission a study of the costs of supply to different

customer categories and that the results are made publicly available. This would
provide a basis for the proper assessment of the cost-reflectivity of tariffs and
whether the current structure should be adjusted.
We also note that the current TOU tariff does not appear adequate to encourage
switching of consumption times and that the differences between peak and off-peak
periods is lower than that in Thailand and Vietnam. We recommend that the
difference between TOU tariffs for peak and off-peak periods is increased to better
reflect cost differences between periods and to make switching cost-effective. This
should benefit industrial customers in the short-term by reducing their costs and in
the longer-term by helping address the problem of excess capacity in night-time
hours. However, current labour law restriction pose a significant barrier to switching
to night-time working and these may need to be reviewed if such a policy is to be
fully successful. For most labour-intensive industries, the savings in electricity costs
from moving consumption to off-peak periods are unlikely, in our estimation, to
outweigh the increased labour costs in most cases even with a much greater
differential between peak and off-peak tariffs.

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Executive Summary

Consumption
There are two main routes by which industrial customers can themselves act to
reduce their electricity costs.. The first is improving the energy efficiency of their
operations, reducing electricity consumption. The second is to substitute for grid
electricity supplies by self-generation.
Energy efficiency
There have been numerous assessments of the potential for improving energy
efficiency in Cambodian industry. However, the impacts to date seem to have been
limited. This seems to be due to a combination of lack of awareness of the
opportunities and reluctance to invest in energy-saving measures. This reluctance
has been attributed to constraints on total borrowing by enterprises and an
unwillingness to use up scarce credit from commercial institutions on investments
with lengthy and uncertain pay-backs.
Case studies of garment factories conducted under the GEF-UNIDO Industrial

Energy Efficiency Cambodia project suggest that savings in electricity costs of 6-8%
are achievable with relatively low up-front investments, equivalent to reducing
electricity tariffs by around 1-1.5 USc/kWh.
The draft National Policy, Strategy and Action Plan on Energy Efficiency in Cambodia
(CNEE) contains an action plan for promoting energy efficiency in industry
including:
❏ Institution of a system of mandatory collection of data on energy

consumption from major industrial users.
❏ Raising awareness of good energy management practices in industrial

enterprises (following the ISO 50001 standard).
❏ Establishing standards on energy efficiency and management in industrial

enterprises and encouraging voluntary compliance with these.
❏ Funding energy audits for small and medium enterprises, training of

technicians and energy auditors.
❏ Providing loans for energy efficiency-improving investments as a catalyst

for the development of a supporting financial sector.
MME is undertaking limited initiatives to promote industrial energy efficiency,

including in some of these areas, but these efforts should be strengthened and
enhanced.
In the longer-term, it will be critical if energy efficiency potential is to be fully

realised, to address the difficulties faced by enterprises in borrowing to fund energy
efficiency investments. The draft national strategy recognises this need but lacks

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Executive Summary

detailed actions. We recommend that Cambodia investigate the potential for

creating a revolving energy efficiency fund, along the lines of Thailand’s well-
established and successful model.
Self-generation using renewable sources
Self-generation using rice husks and other agricultural residues is attractive for
agricultural processing industries when compared to diesel generation. However, it
is less so when compared to current grid electricity tariffs. The costs of self-supply
from co-generation plants using rice husks for fuel is closer to grid-parity costs but
still unlikely to be viable if output is only used for internal purposes. Other
technologies appear unlikely to be competitive with grid supplies for larger
industrial customers given their higher costs and, in the case of solar panels,
intermittent supply. However, these may still be economically attractive for smaller
customers, particularly the use of solar panels for off-grid supplies where the costs of
alternative diesel generation is higher and where intermittency and limited night-
time supplies are less of a concern.
Most processing industries operate at relatively low load factors, which means that
the average or unit costs of self-generation are high and may make otherwise
promising technologies uncompetitive with grid electricity supply. Higher load
factors and additional revenues can be achieved if surplus generation can be sold to
the grid. However, in doing so, a balance must be struck between the benefits to the
selling enterprise and the additional costs and risks that may be imposed on the
purchasing utility.
Self-generation could be made more attractive if EDC were to expand its current
programme of purchases by introducing a standard tariff, based on its avoided costs,
and accompanying PPA for purchases of surplus energy from industrial enterprises
with their own electricity generation. By linking the price paid to EDC’s avoided
costs, the net impact on EDC’s costs and tariffs should be zero ensuring fairness to
both parties. In future, if the government adopts a policy of promoting renewable
energy sources, a higher price in excess of avoided costs might be offered.
Recommended policy actions
Short-term (within one year)
Ministry of Economy and Finance
❏ Consider exempting electricity imports from duties and VAT
Ministry of Mines and Energy
❏ Approve the National Energy Efficiency Strategy

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Executive Summary

❏ Speed-up implementation of the identified short-term actions in the

strategy to improve data and raise awareness of industrial energy
efficiency
Electricity Authority of Cambodia
❏ Publish the assessment of EDC’s costs used to determine approved tariffs
❏ Increase the difference between TOU tariffs for peak and off-peak periods
to better reflect cost differences and practice elsewhere in the region
(however, this may need to be accompanied by changes to labour
legislation regarding night-time working if it is to be effective in changing
consumption patterns)
Medium-term (one to three years)
❏ Investigate the potential for creating a revolving energy efficiency fund to

help industry fund investments
❏ Undertake a full analysis of EDC’s transmission and distribution costs

relative to the current allowances
❏ Conduct a study of the costs of supply to different customer categories
Electricitè du Cambodge
❏ Move to a greater reliance on debt financing of new investments making

use of the concessional rates available from multilateral and bilateral
financing institutions and EXIM banks
❏ Introduce a standard tariff, based on its avoided costs, and accompanying

PPA for purchases of surplus energy from industrial enterprises with
their own electricity generation.
Long-term (over three years)
❏ Actively encourage the expansion of cross-border power trading in the

Greater Mekong Sub-Region and, in particular, the development of
shorter-term trading arrangements
❏ Implement an energy efficiency revolving fund, if prior assessment

considers this feasible

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Executive Summary

❏ Revise tariff structures to match the costs of supply for different customer
categories, as necessary
❏ Consider providing incentives for EDC to improve efficiency and reduce

system losses through the application of performance-based regulation

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Introduction

1. Introduction
1.1 Background
This Progress Report is submitted by Mr William Derbyshire of Economic Consulting

Associates Limited (ECA) to the Cambodia Chamber of Commerce (CCC). The report has
been prepared under the assignment:
In-‐Depth Study on Electricity Cost and Supplies

(TDSP/2012/081/02/1)
The assignment is being funded through the Department of International Cooperation of
the Ministry of Commerce under the Trade Development Support Program (TDSP)
managed by the World Bank.
The purposes of the assignment are to:
❏ Assess the causes of the high prices of electricity supply for larger industrial
and commercial customers in Cambodia.
❏ Develop evidence-‐based recommendations on policy and regulatory reforms

which can contribute to reducing these high prices.
These recommendations will be an input to the discussions to be held at the

forthcoming Government – Private Sector Forum (G–PSF) on how to improve the
commercial environment in Cambodia.
1.2 Guide to the report
This report has been organised into the following parts:
Part I – Context
In this part, we provide context for the analysis and recommendations in the
remainder of the report. This part contains two sections:
❏ Section 2, which provides an overview of the power sector in

Cambodia.
❏ Section 3, which compares the prices of electricity supply for larger

customers in Cambodia with regional benchmarks.

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Introduction

Part II – Analysis
In this part, we analyse the potential causes of the high costs of electricity supplies
in Cambodia. These potential causes can be grouped into three areas, each of
which we consider in a separate section:
❏ Section 4, which looks at the level of electricity supply costs in

Cambodia and how these might be reduced.
❏ Section 0, which looks at how these costs are converted into the actual
tariffs paid by customers and the extent to which these reflect the costs
of supply to different customer categories.
❏ Section 6, which looks at the efficiency of electricity use by customers
and the extent of the contribution that individual customers can make
themselves to reducing their electricity costs.
Part III – Recommendations
In this concluding part, we summarise our recommendations on actions to address
high electricity costs in Cambodia. These are organised by timing and lead
institution.
The analysis in this report draws on publicly-‐available documents and interviews

conducted in Cambodia with representatives of government, the utility and major
electricity customers. A list of interviewees is provided in Annex A1. We would like to
take this opportunity to thank all those who gave their time to meet.

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Part I -‐ Context

Part I - Context

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2. Cambodia’s power sector
In this section we describe Cambodia’s power sector with a focus on recent

developments in the supply mix and in the level of regional and national integration
which can be expected to impact on costs.
We first describe the main institutions in the power sector. We then look at the growth
in demand, then at the supply mix (both generation in Cambodia and imports), then at
the transmission grid and finally at sub-‐transmission and distribution.
Box 1 Overview of the electricity industry
The electricity industry can be broadly divided into four functions: (i) generation of electricity;
(ii) long-‐distance transmission of electricity using high-‐voltage lines from generators to
distribution networks; (iii) local distribution of electricity to final users through medium and
low-‐voltage lines; and (iv) the financial activities of buying electricity from generators and
selling it to customers, or the retail supply of electricity.
In Cambodia, distribution and retail supply are combined within entities and, therefore, in this
report we refer to distribution alone. However, Cambodia does add a further tier to this
functional split, which is that of sub-‐transmission. This can be defined as the onward
transmission of electricity using medium-‐voltage lines from high-‐voltage transmission networks
to multiple low-‐voltage local distribution networks in rural areas.
The definitions of high, medium and low-‐voltage differ from country to country. In Cambodia,
high-‐voltage (HV) is used to refer to the 115 kV and 230 kV voltage levels, medium-‐voltage
(MV) to the 35 kV and 22 kV voltage levels and low-‐voltage (LV) to voltage levels of less than
22 kV. Most customers will be supplied at LV although some large customers may be supplied
directly from the MV network.
2.1 Major institutions
The primary policy-‐making and planning entity for the electricity industry is the
Ministry of Mines and Energy (MME). The responsibilities of MME include:
❏ Preparing policies, strategies, rules and regulations for the energy sector.
❏ Preparing and implementing energy sector development plans.
❏ Promoting energy conservation.
❏ Setting technical, safety and environmental standards.
❏ Maintaining and analysing data on the supply and demand balance for
electricity and on Cambodia’s energy resources.

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❏ Preparing and implementing national policies related to hydropower

development.
❏ Selecting locations for hydropower projects and identifying priority projects.
The Electricity Authority of Cambodia (EAC) was established under Cambodia’s

Electricity Law, promulgated on 2 February 2001. It is an autonomous agency with its
own budget funded from licence fees. The EAC comprises a three-‐member commission
supported by a secretariat. Its responsibilities include:
❏ Licensing electricity enterprises.
❏ Reviewing costs and approving tariffs of licensed enterprises.
❏ Resolving disputes between licensees and between customers and licensees.
❏ Monitoring and enforcing compliance by licensees with technical and

performance standards.
Electricité du Cambodge
Electricité du Cambodge (EDC) is the state-‐owned electricity supplier with

responsibility for the generation, purchase, transmission and distribution of electricity
throughout the country. It was originally established in 1958, re-‐established in 1979 as
part of the then-‐Ministry of Energy and made responsible for electricity supply in
Phnom Penh. Supplies in other provincial cities were the responsibility of provincial
authorities through their departments of industry. In 1996, EDC was reformed as an
autonomous state-‐owned limited liability company with responsibility for electricity
supply nation-‐wide, absorbing the existing provincial suppliers.
EDC is jointly-‐owned by MME and the Ministry of Economy and Finance (MEF). Its
Chairman is the Undersecretary of State for MME and the Board of Directors also
includes representatives of MEF, the Council of Ministers, the Ministry of Justice, EDC’s
employees and CCC as well as EDC’s Managing Director. The Managing Director is a
delegate of the Royal Government with responsibility for managing EDC and is the
equivalent of a Secretary of State within the government hierarchy.
Other licensees
EDC is the only entity licensed to conduct activities across the full electricity supply
chain including generation, transmission, sub-‐transmission and distribution. However,
financial and physical constraints mean that Cambodia has always been heavily
dependent on private third parties to generate electricity and sell this to EDC
(independent power producers, IPPs) and to distribute electricity, particularly in rural
areas. These third party providers were formalised following the creation of EAC which
licensed them and brought them under regulatory control. In more recent years, private

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entities have also entered into transmission and sub-‐transmission (although only EAC is
permitted to operate the national transmission system).
EDC is largely responsible for power purchase, transmission and sub-‐transmission and
distribution in Phnom Penh and major provincial towns. Rural distribution is largely
undertaken by private licensees. Private distribution licensees without their own
generating facilities purchase bulk electricity supplies from EDC’s sub-‐transmission
network, other private licensees and from cross-‐border MV imports from Thailand and
Vietnam for retail to final customers.
The number of licensees as at end-‐2013 is shown below. We also provide below an

indication of the relative scale of the different groups of licensees.
Table 1 Electricity licensees, 2013

Licence type Valid at Smallest licensee Largest licensee
end of
2013
Consolidated – generation, 1 3,339,818,430 kWh sales
distribution and national (EDC) 520,378 customers
transmission licence
74,190 kW capacity
9,386 km lines
Generation licence 17 70 kW capacity 338,000 kW capacity
Special purpose transmission licence 7 29,154,579 kWh sales 4,120,170 kWh sales
(sub-‐transmission) 13 km lines 107 km lines
Consolidated – special purpose 7 4,989,681 kWh sales 89,548,660 kWh sales
transmission and distribution licence 4,600 customers 3,952 customers
Distribution licence 98 12,077 kWh sales 62,425,507 kWh sales
120 customers 8,475 customers
Retail licence 3 1,447,705 kWh sales
4,338 customers
Consolidated – generation and 204 9,802 kWh sales 36,903,868 kWh
distribution licence 25 customers 7,528 customers
Total 339
Source: EAC
2.2 Electricity demand
Cambodia’s electricity demand is low by regional standards
Cambodia’s power sector is small by regional (and international) standards. Total

electricity sales in 2014 are estimated at 4,312 GWh or around 1/25th of those in
Vietnam and 1/40th of those in Thailand. The average electricity consumption per capita
was just 280 kWh annually compared to 1,285 kWh in Vietnam and 2,400 kWh in

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Thailand. The differences in average sales per customer are less, but these are still 75%
higher in Vietnam and 150% higher in Thailand than in Cambodia.
Figure 3 Cambodia’s electricity demand compared

Source: EAC / MME (Cambodia, 2014 data), EGAT / MEA / PEA (Thailand, 2013 data), EVN (Vietnam, 2013
data)
Demand is growing very rapidly at up to 20% annually
Electricity demand has been growing extremely rapidly. Between 2003 and 2014, the
annual growth in electricity sales averaged almost 20% with total sales increasing by
over seven times. The number of customers has grown only slightly more slowly, by
17% annually or by six times over the same period.
Cambodia’s national power development master plan is currently being updated with a
draft under review by MME at the time of this report. While this is not yet public, we are
advised that the master plan envisages continued annual growth rates of 15-‐20% to
2020. This implies electricity sales reaching 10,000-‐13,000 GWh in 2020.

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Figure 4 Electricity sales and customer numbers, 2003-‐14

Source: EAC / MME
Demand growth is driven by the expansion of electrification
As the close relationship between the growth in demand and customer numbers
suggests, this rapid increase is driven by the expansion of electricity supplies nation-‐
wide rather than by growth in demand among existing customers. From electrification
rates of just 6.5% of communes (‘khums’) and 5% of households in 2003, coverage is
estimated to have reached 85% of communes and 60% of households by 2014.
Expansion of electrification accelerated from 2009 onwards with the introduction of
large-‐scale imports from Vietnam and the building-‐out of the rural sub-‐transmission
grid. The remaining unelectrified areas are concentrated in the more sparsely populated
north-‐east provinces and in the mountainous areas to the south-‐west and north of
Cambodia where grid extension is less economic and increased reliance must be placed
on off-‐grid solutions.
This take-‐off in electrification after many years of being among the least-‐electrified
countries in the world is an impressive achievement and one on which all concerned are
to be congratulated. While much remains to be done, it means that Cambodia’s
challenge is becoming less about expanding electricity supply to unserved consumers
and more and more about efficiently meeting demand from existing customers.

March 2015


Figure 5 Commune and household electrification rates, 2003-‐14

Source: EAC / MME
Figure 6 Electrification coverage, 2014

Source: EAC. Shaded areas are those for which a licence for electricity distribution has been issued. Red lines
show the extent of the sub-‐transmission network

March 2015


Electricitè du Cambodge is the dominant electricity supplier
Although there are over 300 licensed distributors of electricity in Cambodia, sales are
dominated by the state-‐owned utility, EDC. In 2013, EDC was responsible for directly
supplying over 500,000 customers with sales of 2,824 GWh (40% and 80% of the
national totals, respectively). It also on sold a further 515 GWh to other electricity
distributors connected to its electricity network. Most larger customers are located on
EDC’s network (its average sales per customer are almost six times those of other
licensees).
While EDC supplies electricity in eleven isolated provincial towns, the vast majority of
its customers and sales are located on the emergent national grid. As described in more
detail later in this section, this currently covers Phnom Penh and Kandal, the southern
and north-‐western provinces and the west side of the Tonle Sap.
The rapid expansion of Cambodia’s electricity grid has seen a large decline in the
relative importance of isolated mini-‐grid systems, which were the main sources of rural
electricity supplies until very recently. These mini-‐grids use small diesel generators,
many of which are old and inefficient, and are typified by high costs and poor quality of
supply. In 2003, there were 69 such mini-‐grids out of 77 holders of distribution licences
with sales of 8 GWh (1% of total sales) supplying 26,000 customers (11% of total
customers)1. By 2013, the number of isolated licensees had fallen to 67, out of a total of
310 licensees authorised to distribute electricity. While sales in isolated systems had
risen to 14 GWh and the numbers of customers to 43,500, this represented just 0.3% of
total sales and 3% of total customers.

1 Source: EAC. The number of isolated mini-grids in 2003 is assumed equal to the number of
consolidated generation and distribution licensees and their sales and customer numbers equal to
those reported for rural areas. Isolated mini-grids are separately identified in 2013 data. These figures
exclude the various licensees located in border areas and importing power from Thailand and
Vietnam at medium voltage.

March 2015


Figure 7 Split of sales and customers, 2013
Split of sales Split of customers

Source: EAC
2.3 Generation and power purchases
Supply is increasingly coming from new hydro and coal capacity
Until recently, Cambodia’s power sector comprised a set of local grid systems grouped
around Phnom Penh and major provincial cities with scattered isolated mini-‐grids
serving border and some rural areas. The larger systems were dependent on oil-‐fired
generation (both fuel oil and diesel power plants). This situation is now rapidly
changing.
The devastation of the 1970s and 1980s left the power sector extremely weak in terms
of physical and financial resources. With economic recovery starting in the 1990s, a
decision was taken to rely heavily on private investment in new generating capacity in
the form of Independent Power Producers (IPPs) developed on a Build-‐Operate-‐
Transfer (BOT) basis given these constraints. Initially these IPPs comprised smaller oil-‐
fired plants which could be rapidly deployed at relatively low up-‐front costs. More
recently, much larger hydro and coal-‐fired power plants have been developed—mainly
with Chinese financing. The major power plants (installed capacity greater than 100
MW) in operation and under construction are listed below. We understand that no
further new large power plants are planned or required until 2020, according to the
draft master plan now under preparation, given the high capacity margin now being
seen (as discussed below).

March 2015


Table 2 Major power plants in Cambodia

Name Type Capacity (MW) Lead developer Status
Kamchay Hydro 194 Sinohydro Corporation Operational
Stung Atay Hydro 120 China Datang Operational
Corporation
Lower Stung Russei Chrum Hydro 338 China Huadian Operational
Corporation
Cambodia Energy Limited Coal 120 Leader Universal Operational
(licensed) Holdings (Malaysia)
Stung Tatay Hydro 246 China National Heavy Testing

Machinery Corporation
China International Investment Coal 120 CIIG (Cambodia) and Testing
Development Group Erdos Hongjun (China)
China International Investment Coal 135 CIIG (Cambodia) and Planned for
Development Group Erdos Hongjun (China) 2017
Lower Se San 2 Hydro 400 (200 for China Huaneng Planned for
export?) Corporation 2017/18
Stung Cheay Areng Hydro 108 Sinohydro Corporation Suspended?
Source: EAC and ECA research. Major power plants are defined as those with installed capacity of 100 MW or
greater.
The industry has also pursued a policy of developing HV inter-‐connectors with Thailand
and Vietnam to allow the import of electricity to displace high-‐cost domestic oil-‐fired
generation. The first inter-‐connector at 115 kV with a capacity of 95 MW (subsequently
raised to 135 MW) linking Thailand to north-‐west Cambodia was commissioned in
2007. The second, at 230 kV with a capacity of up to 200 MW, linking Vietnam to Phnom
Penh was commissioned in 2009 although operating at reduced capacity initially.
The changing generation mix over time, given these developments, is shown below. Up
until 2007, supply was almost entirely from oil-‐fired generation which represented over
85% of output. With the commissioning of the inter-‐connectors to Thailand in 2007 and
to Vietnam in 2009, imports replaced much of this domestic generation, reaching almost
two-‐thirds of supply by 2011. From 2013 onwards, with the growth of hydro and coal
generation in Cambodia, imports in turn have been scaled back and replaced with these
new sources. In 2014, half of generation was from domestic hydro and coal plants and
this is expected to increase to over two-‐thirds in 2015, with the share of oil-‐fired
generation reduced to just 5% of the total.
An implication of this change is that much existing commentary on Cambodia’s high

electricity costs, which have attributed this to its reliance on oil-‐fired generation, is now
outdated. The rapid changes in generation mix mean that, as we discuss in the following
sections, the challenge is much more about how to manage seasonality of hydro power
generation and temporary surpluses of generation capacity.

March 2015


Figure 8 Generation and power purchases by fuel, 2003-‐15

Source: ECA calculations from MME / EAC data
Figure 9 Share by fuel of generation and power purchases, 2003-‐15

Source: ECA calculations from MME / EAC data

March 2015


Electricity is almost entirely sourced from IPPs and imports
Electricity generation in Cambodia is almost entirely from IPPs. In 2013, EDC, despite
being the dominant supplier to final customers, represented less than 3% of generation
and only around 1% if imports are included. These shares are likely to have fallen still
further given the additional IPP capacity commissioning in 2014 and 2015.
Purchases from IPPs are under long-‐term power purchase agreements (PPAs). The
PPAs for new hydro power plants are reported to range from 33 to 45 years in length
and for new coal power plants to be 33 years in length.
We understand that the PPAs for coal and hydro power plants developed on a BOT basis
include minimum quantity requirements—under which EDC must pay for a minimum
quantity of energy whether or not this is actually required to meet demand. This creates
a guaranteed revenue stream for the generator to enable it to recover its fixed costs
(debt service and operating and maintenance costs) which do not vary with output. It
also enables thermal power plants to commit to a guaranteed minimum volume of fuel
delivery for which they must pay irrespective of whether the fuel is used or not.
For example, it has been reported that under the PPA for the coal plant developed by
Leader Universal Holdings EDC must purchase the equivalent of 86% of total potential
output in each year, whether or not this is actually required2.
Figure 10 Split of generation and power purchases, 2013

Source: EAC
There are now problems of excess generation
The most recent date for which we have information on national peak electricity
demand is 2012, when demand peaked at 575 MW in a year when total energy supplied

2 JF Apex Securities Bhd (23 September 2009) Leader Universal Holdings Bhd: Cambodia 100 MW Power
Project PPA and IA Signed.
(http://www.leaderuniversal.com/pdf/AnalystCoverage/Apex20090923.pdf)

March 2015


was 3,527 GWh, implying a system load factor of 70%3. Assuming this load factor
remains unchanged, this would imply a system peak demand in 2014 of 795 MW. We
have been advised that actual peak demand on the national grid in 2014 was somewhat
lower than this, at around 740 MW. In either case, this is substantially below available
generating capacity, reported at 1,359 MW in 2014 including contracted imports,
indicating a large surplus of generating capacity.
With forecast annual demand growth of 15-‐20%, peak demand by 2020 is projected to
be between 1,800 and 2,400 MW. By this date, assuming all planned capacity identified
in is added, total installed generating capacity and contracted imports in Cambodia
would reach 2,368 MW. The implication is that the surplus over peak demand is likely to
be temporary if demand growth forecasts are realised.
As well as having a temporary surplus of generating capacity compared to peak

demand, Cambodia also has and is likely to continue to have mismatches between
supply and demand at different times of the year and day. Hydro power output is
generally seasonal—being greatest in the wet season when water inflows are highest.
When reservoirs are full during this period it will become necessary to either generate
or, if demand is not sufficient to absorb this output, to ‘spill’ water (release water
without generating electricity). EDC is currently negotiating with Electricity of Vietnam
(EVN) for exports of hydro output during the wet season when this is in surplus.
However, Vietnam’s own electricity generation also follows a seasonal pattern due to
the large share of hydro output and, hence, the value that EVN places on additional
supply during the wet season is low.
Cambodia also has particular problems at night-‐time. During an example day in January
2015 shown to us, night-‐time demand on the national grid dropped to 320 MW
compared to morning and afternoon peaks of 700 MW. The same pattern (although at
lower levels of demand) can be seen in the daily load profiles for earlier years that are
publicly available.
Coal-‐fired power plants are very inflexible and typically cannot reduce output much
without shutting-‐down. Given that the process of shutting-‐down and restarting a coal
plant can take two or more days, this is generally to be avoided. It is also not possible to
completely reduce imports over the HV inter-‐connectors to zero. As a result, Cambodian
demand at night is almost entirely met from the existing coal unit of 120 MW and
reduced imports. With the commissioning of new coal power plants, night-‐time
generation may well exceed demand unless imports can be further reduced or night-‐
time demand raised.

3 Source: EDC. Peak demand represents the maximum demand to be met at a single point in time (in
this case, in one year). Energy sales represent the total demand supplied across the year. The load
factor is the ratio of energy sales to peak demand if sustained for all 8,760 hours in the year (ie, load
factor = energy sales / (peak demand * 8760 hours)). A higher load factor is generally better as it implies a
flatter demand profile and, therefore, less need to retain generating and network capacity which will
only be needed for a few peak hours in each year.

March 2015


Figure 11 Average daily load profile (Phnom Penh grid), 2007-‐12

Source: EDC
2.4 Transmission
Cambodia has begun to establish a national transmission grid
Until 2007, Cambodia’s transmission network was essentially limited to a ring line
around Phnom Penh and a connecting line to an existing hydro power plant. In that
year, the commissioning of the inter-‐connector from Thailand saw the start of a north-‐
western transmission grid. The southern grid began with the inter-‐connector between
Vietnam and Phnom Penh and its extension to Sihanoukville. The two grids have now
been connected along the west side of Tonle Sap with another line connecting to the
large new hydro plants in Cambodia’s west, creating a national transmission grid for the
first time. Further expansions are under construction or planned to create a second link
along the east side of Tonle Sap and to extend the transmission grid to Cambodia’s
north-‐eastern provinces. This extension, in turn, is expected to lead to rapid demand
growth in these areas underpinning the demand forecasts in the updated master plan.

March 2015


Figure 12 Growth of HV transmission grid, 2003-‐14

Source: EAC
Figure 13 Cambodia’s transmission network, 2014

Source: EAC. Hollow red lines indicate operational 230 kV and 115 kV lines. Solid red lines indicate lines that
are either under construction or planned to 2020.

March 2015


A large part of the grid is owned by private developers
As with generation, Cambodia has relied heavily on private investors to develop

transmission lines on a BOT basis with EDC contracting to use these lines. As of 2013,
EDC owned 581 km of HV lines or 45% of the transmission network with the remainder
being owned by a number of private developers. Of these, the most significant are
Cambodia Power Grid Co Ltd (with 294 km or 23% of the total length), which owns the
line linking the north-‐western and southern grids along the west side of Tonle Sap, and
Cambodia Power Transmission Lines Co Ltd (CPTL, with 185 km of lines or 14% of the
total length), which owns the inter-‐connector with Thailand supplying north-‐west
Cambodia.
Multi-‐lateral financing institutions (MFIs) such as the Asian Development Bank (ADB)
and World Bank for transmission lines and bilateral donors, such as KfW of Germany,
have been active in financing transmission projects in the past. Indeed, ADB was one of
the lenders to Cambodia Transmission Lines Co Ltd for the first HV inter-‐connector, the
World Bank provided a loan to EDC to finance the second with Vietnam and KfW
financed part of the southern transmission grid. However, concerns have been
expressed over the time taken to comply with the environmental and social safeguards
and procurement processes required by these institutions.
2.5 Sub-transmission and distribution
Rural sub-transmission and distribution is also characterised by large-scale

private participation
Cambodia’s grid electrification strategy envisages that, ultimately, each provincial town
will be served by a HV sub-‐station drawing power from the national transmission grid.
This will be transported to rural communities using a network of MV sub-‐transmission
lines connected to the transmission sub-‐station and following major roads. Distribution
within rural communities will be the responsibility of private licensees who will buy
bulk power supplies from EDC and retail it to final customers.
While the national grid is still under development, the build-‐out of the sub-‐transmission
network is already well-‐advanced. As can be seen from Figure 6, above, the network
now covers almost all of the more densely-‐populated areas of Cambodia.
A large part of the sub-‐transmission network has been developed by private investors
for reasons of EDC’s limited financial capacity and to increase the speed of expansion. As
of 2013, private sub-‐transmission licensees owned 2,050 km of MV lines, mostly in
Kandal, Kampong Cham, Kampong Chhnang and Kampong Thom provinces. This
compares to EDC’s total MV line length of 5,940 km (which includes distribution and
well as sub-‐transmission lines). There are also incentives built into bulk power tariffs
for private licensees to construct their own MV connections to the sub-‐transmission
network rather than waiting for EDC to do so.

March 2015


3. Cambodia’s electricity prices
In this section, we review how the level of Cambodia’s electricity prices compares
internationally. This report is focused on the costs of electricity supply to larger
industrial customers in Cambodia. The discussion of electricity prices in this section and
elsewhere in this report, therefore, focuses on these customers and prices to other
customer categories are only considered inasmuch as they impact on industrial tariffs
(eg, through the tariff structure, as discussed in Section 0). As these larger customers
are generally located in areas supplied directly by EDC, we have also focused on the
tariffs applied by EDC for sales from the national grid.
3.1 Significance of electricity costs
During the course of this study, we have met with representatives of garment
manufacturers, larger rice-‐mills and a steel maker. Key points from these interviews of
relevance to this study are:
❏ Garment manufacturing: Electricity costs are a relatively small part (~4-‐

5%) of total costs for garment manufacturers4. However, they form a much
larger part of controllable costs (~50% of costs are associated with imports
of textiles and fabrics and ~30% with labour). Given that garment
manufacturers operate on very small margins, a reduction in electricity costs
can deliver a large gain to the industry. The impact on footwear
manufacturers, which is a rapidly-‐growing part of the sector, would be even
more pronounced as electricity is a higher proportion of costs for these
firms. Based on information provided to us, we estimate that current
electricity costs are around US$ 0.02 per garment5.
❏ Rice-‐milling and processing: Electricity costs are very significant as a share

of total costs for rice-‐millers and packagers. A 2012 survey estimates that for
rice mills using electricity, its costs are around US$ 20 per tonne of milled
rice representing around 4% of the milled rice price and 75% of milling

4 This is slightly lower than the figures reported by a 2009 survey conducted by the International
Finance Corporation (IFC). That survey estimated that energy costs on average represent around
16.7% of total production costs and electricity represented 53% of energy costs, or 9% of total costs.
However, there was a very wide range around these averages. Source: BDLink Cambodia, November
2009, Energy Performance in the Cambodia Garment Sector: A Benchmarking Survey, Report for IFC
(http://betterwork.com/cambodia/wp-content/uploads/2013/05/Energy-Performance-in-the-
Cambdia-Garment-Sector.pdf).
5 This would represent around 2% of the factory gate price and 1.5% of the landed cost in the USA
according to a 2009 study of comparative garment costs. The same study estimates that fabric costs
represent 55% of the landed cost of Cambodian exports in the USA and labour costs 4% of the landed
cost. Source: Nathan Associates, September 2009, Cost Competitiveness of Pakistan’s Textiles and Apparel
Industry, Report for USAID
(https://egateg.usaid.gov/sites/default/files/Cost%20Competitiveness%20of%20Pakistan%E2%80%
99s%20Textiles%20and%20Apparel%20Industry.pdf)

March 2015


costs6. Further electricity is required for processing and packaging milled

rice for sale.
❏ Steel manufacture: Electricity costs represent around one-‐third of total

costs of steel manufacturing 7 . The high electricity tariffs (currently 19
USc/kWh) are a major constraint on competitiveness of domestic industry
relative to imports.
What these interviews illustrate is the importance of reducing electricity costs for
industry if Cambodia’s targets for economic growth are to be achieved.
3.2 Industrial electricity tariffs in Cambodia
The current electricity tariffs for industrial and commercial customers located in Phnom
Penh, Kandal and Kampong Speu provincial town and served by EDC are shown below.
Different tariffs apply in other provincial towns but, in general, are at similar levels.
Tariffs are expressed as the sum of the bulk power cost (generation or purchase plus
transmission) to EDC and an allowance for EDC’s distribution costs. This structure
results from the adoption, between 2005 and 2013, of a ‘floating’ tariff under which the
tariff was reset each month based on EDC’s actual power purchase costs plus the
allowed distribution margin. In 2014, this reverted to a ‘fixed’ tariff under which tariffs
are set annually using EDC’s projected costs of power purchase in response to
complaints about the volatility of tariff levels and consequent difficulties in budgeting
by customers.

6 Source: SNV, 20 August 2012, Waste to Energy for the Rice Milling Sector in Cambodia: Baseline Study,
Report for the EU (http://www.snvworld.org/download/publications/baseline_report-
in_line_indicators_v2_final_with_snv_template.pdf). This is supported by the Government’s Policy
Document on Promotion of Paddy Rice and Export of Milled Rice, which reports the cost of electricity
for milling as being US$ 23 representing 4% of the milled rice price
(http://www.foodsecurity.gov.kh/sites/default/files/Rice-Policy-Eng.pdf).
7 Based on the information provided to us on electricity bills, tariffs and annual production of steel,
the specific electricity consumption would be around 1,000 kWh per tonne of crude steel. This
appears high by international standards—a modern Electric Arc Furnace using scrap metal would
consume around 300-350 kWh per tonne of crude steel. The differences may represent inefficient use
of electricity or may be due to the small scale of production, the use of older equipment and the
inclusion of electricity costs associated with other parts of the production process.

March 2015


Table 3 Industrial electricity tariffs (Phnom Penh, Kandal and Kampong Speu),
2015
Customer category Bulk power cost Distribution Tariff
(USc/kWh) margin (USc/kWh)
(USc/kWh)
Small commercial and industrial 15.70 3.60 19.30
(connected to public network at 0.22 kV / 0.38
kV)
Medium commercial and industrial 15.70 2.80 18.50
(connected to substation by LV feeder,
monthly consumption >20,000 kWh)
Large commercial and industrial 15.70 2.40 18.10
(connected to substation by MV / LV feeder,
monthly consumption >50,000 kWh)
MV-‐connected commercial and industrial 15.70 2.00 17.70
(connected to MV network, monthly
consumption >80,000 kWh)
Source: EAC
With the reduction in the share of oil-‐fired generation in total costs and, consequently,
the exposure of EDC to changes in world oil prices, EAC has approved a five-‐year tariff
plan to 2020. This provides for staged reductions in tariffs over the period in line with
expected falls in the costs of electricity supply as well as the introduction of a new
subsidised tariff for smaller rural customers (with monthly consumption of less than 10
kWh—a subsidised rate already applies for urban customers with monthly
consumption of less than 50 kWh). The plan is indicative rather than binding in nature
and can be adjusted if EDC’s costs change.
The path of tariffs for customers connected at the MV level is shown below (tariffs for
other customer groups follow the same profile). Tariffs rose rapidly in 2005 following
the introduction of the floating tariff, peaked in 2008 when world oil prices also peaked
and then declined and rose again with oil price. From 2012 onwards, tariffs have
reduced with the growing share of imports, hydro and coal supplies replacing oil-‐fired
generation and this decline is projected to continue to 2020 under the approved five-‐
year plan.

March 2015


Figure 14 MV industrial tariffs, 2003-‐20

Source: EAC decisions. The tariff for 2005-‐13, when a floating rate applied, is the unweighted average of the
monthly tariff.
3.3 Competitiveness of Cambodia’s electricity prices
Selection of comparator countries
We have compared Cambodia’s current electricity prices to those in countries that we
consider to have similar environments to Cambodia and those which might be
considered direct competitors to Cambodia in the field of garments manufacture—the
dominant export industry in Cambodia8.
Within the category of neighbouring countries, we have included Lao PDR, Myanmar,
the Philippines, Thailand and Vietnam. Within the category of other emerging
economies which are garment-‐dependent, we have included Bangladesh, Lesotho and
Sri Lanka. A summary of the macro-‐economic position of these comparator countries
relative to Cambodia is provided in Table 4, below.

8 In 2012, garments manufacture represented 30% of GDP and 70% of exports (source: IMF).

March 2015


Table 4 Summary of comparator countries

Country Population GDP per capita Garment exports
millions US$ US$ million % GDP
Cambodia 14.9 1,028 5,095 32.5%

Bangladesh 154.7 1,033 23,501 14.5%
Lao PDR 6.6 1,594 -‐-‐ -‐-‐
Lesotho 1.9 1,190 418 18.4%
Malaysia 29.5 10,457 4,586 1.5%
Myanmar 50.5 1,113 438 0.8%
Philippines 97.5 2,790 1,558 0.6%
Sri Lanka 20.7 3,204 4,511 6.8%
Thailand 67.9 5,676 4,100 1.1%
Vietnam 88.8 1,901 17,230 10.1%
Source: IMF (population and GDP), WTO (garment exports)
Definition of a ‘typical’ customer
Tariff structures can be very different across countries. Depending on the country,
tariffs may include:
❏ Energy charges: for each unit (kWh9) consumed. These may vary by time of
day or year and by the voltage level of connection.
❏ Peak or maximum demand charges: for peak power (kW) drawn from the
system or, in some cases, for the demand drawn at the time of system peak.
These will typically vary by the voltage level of connection.
❏ Contracted demand charges: for the contracted capacity of the customer’s
connection (in kW or kVA). This will differ from the actual demand drawn.
❏ Power factor charges: charged where the customer’s power factor fails to
meet the minimum requirements established by the supplying utility.
❏ Customer service or fixed or standing charges: recovering the direct costs
of managing the customer’s account such as metering and billing.
Other charges may also be applied.

9 Energy is measured in kWh, which is the product of ‘real’ power, measured in kW, and time (1 kW
supplied for 1 hour is equal to 1 kWh). Real or usable power in alternating current (AC) systems,
which is expressed in kW, differs from ‘apparent’ power, which is expressed in kVA and represents
the maximum capacity that can be supplied. The difference is due to the nature of AC supply under
which watts (W) and volts (V) can follow different cycles and peak at different points. The
relationship between the two is given by the power factor which measures the difference in the peaks
of the two cycles (1 kVA multiplied by the power factor is equal to 1 kW). It is generally desirable to
have the power factor as close to one as possible.

March 2015


A simple comparison of energy charges across countries is, therefore potentially very
misleading. Instead, it is necessary to construct a small set of ‘typical’ customers with an
assumed consumption volume, load or demand profile and voltage level of connection
which can then be used to estimate a total bill by applying the approved tariff for that
customer type. The total bill can then be divided by assumed consumption to obtain an
average tariff or supply cost, expressed as a cost per kWh.
For these calculations, we have defined a ‘typical’ garments factory as follows, using
data from a detailed energy audit of a Cambodian manufacturer.
Table 5 ‘Typical’ garment factory electricity use

Item Units Value
Production (t-‐shirts) millions / year 20.256
Employees 5,000
Electricity consumption kWh / month 408,750
Working hours 06.15 – 22.15 16
(two shifts)
Peak power consumption kW 900
Power factor 0.9
Source: ECA based on data from Energy Conservation Center of Japan
(https://www.eccj.or.jp/cooperation/2-‐1-‐1/2005-‐2006/10.pdf). Peak power consumption is calculated from
electricity consumption assuming 340 working days per year.
3.4 Comparison of supply costs
Using our typical garment factory, we have calculated average tariffs or costs of supply
for larger industrial customers across our comparator countries. These are shown in
Figure 15, below.

March 2015


Figure 15 MV industrial tariffs compared

Source: ECA calculations using data from national electricity regulatory and utilities. The tariff for
Cambodia is that applicable for 2015 for MV customers located in Phnom Penh and Kandal. The tariff for the
Philippines is that applicable for customers served by Meralco using the February 2015 generation charge.
It is evident that, even following recent reductions, Cambodia’s tariff for larger
industrial customers remains above that of both regional comparators and other
countries with similar reliance on garment exports in their economy. The average cost
of electricity supply in Cambodia is one-‐quarter higher than that in Thailand, one-‐third
higher than that in Vietnam and Malaysia and almost double that in Sri Lanka and
Bangladesh. This will continue to leave Cambodia at a competitive disadvantage unless
these costs can be reduced.
We have also calculated relative tariffs for our ‘typical’ larger industrial customer, a
small industrial customer receiving supply directly from the LV network and a domestic
customer. Our assumed small industrial customer is based on a small food processor in
Phnom Penh, which produces soy sauce, soya milk and fish sauce. This customer has a
monthly consumption of 830 kWh and a maximum demand of 8 kW.
This comparison is provided for a smaller number of countries in the same region as
Cambodia. It shows that Cambodia’s tariffs across all categories are higher than those in
Thailand and Vietnam, although less than those in the Philippines for LV customers.

March 2015


Figure 16 Relative tariffs compared

Average tariff

Source: ECA calculations from EAC (Cambodia, 2015), MEA (Thailand, 2015), EVN (Vietnam, 2015) and
Meralco (Philippines, February 2015) published tariffs.
We now turn to reviewing why costs in Cambodia are so high and the potential to
reduce these.

March 2015

Part II -‐ Analysis

Part II - Analysis

March 2015

Costs

4. Costs
In this section, we review the composition of EDC’s costs and compare these with those
of a number of a number of regional utilities. Based on this, we draw conclusions on the
potential to reduce the costs of electricity supply by EDC and the policies required to
achieve this.
We initially estimate the costs of generation and power purchases, transmission and
distribution to EDC. We then look at the impacts of system losses and EDC’s financing
mix on these costs. This is followed by international comparisons and finally our
conclusions and policy recommendations.
4.1 EDC’s costs
Generation and power purchases
EDC’s costs of generation and power purchase are not separately identified in the tariff
decisions published by EAC. However, from these decisions it is possible to identify the
estimated combined cost of generation and transmission for industrial customers on the
Phnom Penh and Kandal grids (the ‘bulk power cost’) as the tariff for these customers is
expressed as the sum of this bulk power cost plus a charge for use of EDC’s distribution
network10.
We show below the bulk power cost included in tariffs. In 2003 and 2004 and again
from 2014, the cost is the projected average cost for the year. From 2005 until 2013,
when a ‘floating’ tariff applied, it is the average of the actual monthly costs reported as
being paid by EDC. As can be seen, the bulk power cost peaked in 2008 when oil prices
reached their historic maximum and has declined by around 20% since then to an
estimated cost of 15.7 USc/ kWh for 2015.

10 This charge was established at 2.0 USc/kWh for MV-connected customers in 2005 following the
introduction of a floating tariff and has remained unchanged since then.

March 2015

Costs

Figure 17 Bulk power supply costs, 2003-‐15

Source: EAC
We have compared this bulk power cost with our own estimates of the average cost to
EDC of power purchases and its own generation in 2011, 2012 and 2013. This is
calculated as the costs of power and fuel purchases, import duties and depreciation of
generation assets11 in each year, as reported in EDC’s audited financial statements,
divided by the total volumes of electricity purchased and generated by EDC. This will
slightly understate the costs of generation and purchases as it does not allow for the
impacts of electrical losses in the transmission system, but these can be assumed to be
small (the majority of losses are incurred in the distribution system).
These estimates suggest that the average cost of generation and power purchases by
EDC in these years is around 14 USc/kWh with the resulting implied cost of
transmission being around 3-‐3.5 USc/kWh.

11 Assumed to equal depreciation of ‘plant and equipment’.

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Figure 18 Breakdown of bulk power costs, 2011-‐13

Source: ECA calculations from EDC audited financial statements
We have also estimated the average generation cost to EDC in 2014 and 2015. We note
that public data is limited on generation costs. EAC ceased to publish the average costs
of power purchases from individual generation licensees in 2007 and of imports in
2010. Only limited and inconsistent information on the charges applicable under more
recent PPAs is available from media reports and analyses by external parties. For our
estimates, we have used information from EDC’s audited financial statements on the
costs in 2013 of power purchases by source12. The resulting estimates for 2014 and
2015 power purchase costs are shown below.

12 A copy of these statements was provided to us by EDC. The most recent statements available on
EDC’s website are for 2012, included in the Annual Report for that year. These omit the notes to the
statements which contain the detailed information needed for analysis of EDC’s costs and financial
position.

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Table 6 Estimated average cost of EDC generation and purchases, 2014-‐15
Type Average cost 2014 2015
(USc/kWh) GWh US$ million GWh US$ million
(estimated) (forecast)
Vietnam HV imports 9.89 1,372 135.8 1,039 102.8
Thailand HV imports 13.81 580 80.1 533 73.7
Hydro 7.48 1,760 131.6 2,307 172.5
Coal 7.76 754 58.5 1,816 140.9
Oil / other 28.01 407 113.9 277 77.7
Total 4,873 519.9 5,972 567.5
Weighted average cost (USc/kWh) 10.67 9.50
Source: ECA calculations from EDC and EAC data. Import duties of 7% and VAT of 10% are applied to the
cost of HV imports.
These estimates suggest that the expansion of coal and hydro generation should have
led to average generation and power purchase costs falling to around 10 USc/kWh from
2014 onwards. However, the approved industrial and commercial tariffs for 2014-‐15
appear to use an estimated generation cost of 12-‐13 USc/kWh.
From discussions with industry representatives, we understand that this higher cost in
part reflects the high level of installed capacity relative to peak demand and the
minimum quantity provisions in existing PPAs, as described in the preceding Section
2.3, which lead to EDC paying for capacity and energy not required to meet current
demand. This then drives up the average costs.
As a simple example of this, total purchases from oil-‐fired and other generation in 2013
were 754 GWh, at a total cost of US$ 211 million or an average of 28 USc/kWh. In 2014,
total purchases from these generators fell to 407 GWh. However, costs will have fallen
less than proportionally as much of these costs will relate to fixed costs or capacity
charges under PPAs that do not vary with actual output. In the extreme, where total
costs are unchanged, the average cost of purchases from these generators would have
risen to 52 USc/kWh offsetting the benefits of reducing the share of oil-‐fired generation
in total supplies.
Transmission
As described above, we estimate the average cost of transmission in Cambodia at 3-‐3.5
USc/kWh, representing the difference between the bulk power cost included in tariffs
and the actual average costs of generation and power purchases of EDC in the period
from 2011 to 2013. This cost has been falling over the period but three years is too
short a time to draw conclusions as to whether this is likely to be a sustained reduction.
We are not able, from the available data, to estimate what proportion of this cost can be
attributed to EDC’s own networks and what proportion to payments to BOT project
owners.

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Sub-transmission and distribution
The costs of EDC’s sub-‐transmission and distribution network can also be estimated
from the approved tariffs for industrial customers. These allow a margin of 2.0
USc/kWh for customer connected directly to EDC’s MV network, implying that this is
the average cost of the MV distribution network. For the smallest customers, the
applicable margin is 3.6 USc/kWh, implying that the average cost of the LV distribution
network is 1.6 USc/kWh. We note that the margin allowed for MV customers has
remained unchanged since 2005 and for LV customers since 2006, implying either that
the costs of distribution have not changed in 10 years or that these margins no longer
reflect costs. In the absence of a detailed cost breakdown for EDC, we are not able to
determine which of these is the case.
System losses
System losses represent the difference between energy generated and purchased and
that ultimately supplied to customers. They comprise both technical losses, which arise
from the electrical properties of transmission and distribution networks and
commercial losses which represent errors in metering and billing and the theft of
electricity. System losses must be compensated by increased supply and, therefore,
come at a cost. However, it is also not realistic nor economic to reduce them to zero—
even the best-‐run electricity systems will have losses of 3-‐4%.
Technical losses will generally be higher where networks operate at lower voltages, at
lower load factors, over longer distances and use older equipment. The level of technical
losses is estimated from modelling of the electricity system and commercial losses are
then estimated as the difference between total losses and these estimated technical
losses.
The level of system losses on EDC’s networks are shown below. These are calculated as
the difference between total energy purchased and generated and that sold, whether to
final customers or to other licensees for resale. No breakdown appears to be available
between estimated technical and commercial losses. Losses have declined over time,
falling to just under 10% from 2010 onwards when the inter-‐connector to Vietnam
commissioned and remaining at this level subsequently (the figure for 2012 appears to
be a statistical error).

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Figure 19 EDC system losses, 2003-‐13

Source: ECA calculations from EAC data. The 2012 value appears to be a statistical error
Alongside losses in the transmission and distribution of electricity, there are also losses
arising from the failure to collect payments for billed energy. These result in lower than
expected cash inflows which must be compensated for by either increasing tariffs to
paying customers or by reducing expenditures and ultimately service quality. EDC’s
collection efficiency appears very good—in 2011, allowances for bad debts represented
just 0.39% of annual revenues from electricity sales and this had fallen to 0.27% by
2013.
Financing
EDC finances its own investments from a mix of external borrowing and internal cash
generation from operations. A summary breakdown of investing and financing activities
from 2011 to 2013 is provided below. As can be seen, internal cash generation
represents around 60% of financing in each year.

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Table 7 Financing of EDC’s investing activities, 2011-‐13

KHR billions 2011 2012 2013
Repayments of borrowings 3.0 69.6 79.1
Purchases of property, plant and equipment 68.9 140.1 217.6
financed by
Proceeds from borrowings 22.9 74.3 124.4
Other 7.1 2.4 0.3
Cash flows from operations 42.0 133.1 172.0
share in total financing 58% 63% 58%
Source: EDC audited financial statements. The ‘other’ category represents net government grants and
proceeds from the sale of fixed assets.
EDC’s outstanding long-‐term debt takes the form of borrowing from the World Bank
(10% of long-‐term debt as of December 2013), ADB (27%), KfW (8%), MEF (16%),
China EXIM Bank (35%) and India’s EXIM Bank (3%)13. External loans are onlent
through MEF at interest rates from 2% up to 6.5% (most loans carry an interest rate of
2% or 4%) and for a term of 12 to 30 years (most loans are for a term of 15 years).
We show below basic financial statistics on EDC for 2011 to 2013. These are the level of
gearing (debt to equity ratio), the return on assets which can be compared to the cost of
financing and the return on equity which provides an indication of the overall
profitability of EDC. It is apparent that EDC is generating very high rates of return and
profits—consistent with a heavy reliance on internal financing of investments.
Table 8 EDC’s financial position, 2011-‐13

KHR billions 2011 2012 2013
Borrowings (including current portion) 761.4 1,103.8 1,369.8
Equity 989.7 1,192.2 1,495.5
Debt:Equity ratio 43% 48% 48%
(debt / debt+equity)
Non-‐current assets 1,428.1 1,847.2 2,170.5
Operating profit 233.2 291.6 400.6
Return on assets 16.3% 15.8% 18.5%
(operating profit / non-‐current assets)
Profit before tax 192.4 257.7 387.1
Return on equity 19.4% 21.6% 25.9%
(profit before tax / equity)
Source: ECA calculations from EDC audited financial statements

13 Loans from the World Bank, ADB and KfW are for distribution network rehabilitation during the
1990s and construction of HV transmission lines and rural MV sub-transmission lines from 2000
onwards. The loan from MEF is for rural sub-transmission lines constructed between 2011 and 2014.
Loans from China EXIM Bank are for rural sub-transmission lines and a new HV transmission line.
The loan from India EXIM Bank is for a new HV transmission line.

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As previously noted, historically, EDC has reduced its up-‐front financing requirements
by a heavy reliance on BOT projects. There is little available information on which to
estimate the costs of financing through BOTs relative to that of EDC directly financing its
own investments. The various BOT contracts have been directly negotiated rather than
competitively tendered, and there is little public information on the assumed costs and
financing arrangements applied in these negotiations or any means of verifying that
these are, indeed, least-‐cost.
It is possible to make a very limited estimate of the relative cost of financing of BOT
projects. The ADB provided a loan to CPTL to help finance the construction of the inter-‐
connector to Thailand and the transmission line serving north-‐west Cambodia. In its
due diligence documentation, ADB calculated that the internal rate of return (IRR) for
the project is 15.3%14. Based on the documentation, of the total project cost, 75% was to
be financed by loans. Assuming an average debt financing cost of 10% which appears to
be that applied in the documentation, this would imply a return on equity of around
30%. By comparison, funding the line from EDC’s own resources at a return on equity of
20% and from borrowing from multilateral institutions at 4%, as EDC is eligible to do,
would have implied a financing cost of 8% or half that of the estimated actual cost. For
this particular project, the implied savings from using public rather than BOT financing
would have been around US$ 1.6 million annually, equivalent to a saving of 2 USc/kWh
on forecast 2015 import volumes of 74 GWh15.
However, against this needs to be set the benefits of the likely greater speed of
development of the project on a private sector basis and, therefore, the more rapid
access to lower-‐cost imported electricity provided to customers. We provide below the
timelines to operation of two major cross-‐border transmission lines in Cambodia for
which information is publicly available. The first is the 230 kV inter-‐connection between
Vietnam and the Phnom Penh grid which was funded by a World Bank loan. Project
preparation began in 1999, the World Bank loan became effective in 2005 and the line
became operational in 2009. The second is the 115 kV inter-‐connector between
Thailand the Cambodia’s north-‐west region which was initially financed using
temporary loans and developers’ equity and subsequently partly refinanced with an
Asian Development Bank (ADB) loan. The original co-‐operation agreement was signed
in 2000, the specific agreements for investment in the line in 2005 and the line became
operational at the end of 2008.
This comparison should neither be taken as conclusive nor as any criticism of the
entities involved. In particular, it should be noted that the World Bank and ADB are
required, as lenders of public funds, to ensure proper compliance with environmental,
social and procurement safeguards which adds inevitable complexity and time to
approvals processes. It should also be noted that the World Bank project was far more
extensive than a transmission line alone, including large rural electrification
components, and these would further impact on processing and approvals
requirements. Nevertheless, the comparison does indicate the potential differences in

14 ADB, June 2007, Proposed Loan: CPTL, Power Transmission Project (Cambodia): Report and
Recommendations of the President (http://www.adb.org/projects/documents/cptl-power-
transmission-project-rrp)
15 Calculated as the difference in annuitised costs assuming a 30-year project life and initial
investment cost of US$ 25 million.

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speed of response which have led EDC to favour BOTs and similar financing in recent
years, although at significantly higher financial costs.
In discussions with the World Bank and ADB, we understand that both institutions are
seeking to streamline approvals processes. For the period covered by the current
Country Partnership Strategy16, ADB does not propose to commit concessional funds to
the energy sector although it will provide loans through its private sector ‘window’ if
requested. The World Bank is currently discussing with government its future
programme of support and areas of activity and this may provide an opportunity to
involve itself in the energy sector.
Box 2 Example timelines for electricity transmission projects in Cambodia
Vietnam – Phnom Penh 230 kV inter-‐connector

World Bank: Rural Electrification and Transmission Project17
September 1999: Agreement for financial assistance for project preparation
October 2002: Project Information Document issued (outline design)
November 2003: Project Appraisal Document issued (detailed design)
December 2003: World Bank Board approval
March 2005: Loan effectiveness
June 2009: Transmission line operational
Thailand – Battambang and Siem Reap 115 kV inter-‐connector

Asian Development Bank – CPTL Power Transmission Project18
February 2000: Cambodia – Thailand power sector cooperation agreement
July 2002: EGAT – EDC power purchase agreements signed
April 2005: A.S.K. Co Ltd – EDC BOT and power transmission agreements signed (rights
transferred from EGAT)
July 2005: BOT contract and PTA novated from A.S.K. Co Ltd to CPTL
January 2006: ADB permanent financing requested
March 2006: Construction started (with temporary financing)
June 2007: ADB Board approval
December 2007: Commercial operations date

16 ADB (November 2014), Cambodia: Country Partnership Strategy, 2014-18
(http://www.adb.org/sites/default/files/institutional-document/150147/cps-cam-2014-2018.pdf)
17 Information obtained from project-related documents published on the World Bank’s website
(http://www.worldbank.org/projects/P064844/rural-electrification-transmission-project?lang=en)
18 Information obtained from project-related documents published on the ADB’s website
(http://www.adb.org/projects/40914-014/documents)

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July 2008: Loan effectiveness
July 2009: Loan closing
4.2 International comparisons
In this section, we present a comparison of EDC’s costs with three international

comparators: EVN; the Provincial Electricity Authority (PEA), the distribution utility
serving Thailand outside the greater Bangkok area; and Meralco, the distribution utility
serving greater Manila. These utilities have been selected as also supplying emerging
markets within the South-‐East Asian region and being ones for which cost data is
publicly available and verifiable. It should be noted that, of these utilities, only EVN
faces a similar challenge to that of EDC in meeting rapid growth in demand. In the last
10 years, EVN’s electricity sales have grown at 12.7% annually while PEA’s have grown
at 4.8% and Meralco’s at 3.6%.
These comparisons are for the costs of supply at low voltage, including all distribution
costs. They also use a mix of sources and definitions depending on which is most readily
available. As such, they are not directly comparable to the MV tariffs shown in Figure 15,
earlier in this report.
Cambodia’s costs are significantly higher than those in Thailand and Vietnam,
although lower than those in the Philippines
We show below a comparative breakdown of the cost components of EDC’s retail tariff
against those of these three utilities. While the data used is inevitably inconsistent
across the different entities, it is possible to draw a number of conclusions. It is readily
apparent that:
❏ Cambodia’s costs of generation and power purchase are high relative to

those of Vietnam and Thailand but equivalent to those in the Philippines.
❏ The costs of transmission in Cambodia are higher than those in all three
comparators.
❏ The costs of distribution in Cambodia are also high relative to Thailand and
Vietnam but less than in the Philippines.

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Figure 20 Comparative breakdown of retail tariffs

Source: ECA calculations from EDC and EAC data (Cambodia, 2014), EVN data (Vietnam, 2013), EGAT and
PEA data (Thailand, 2013) and Meralco data (Philippines, February 2015). For EDC, the breakdown is of the
tariff for small industrial customers connected to the LV network. For EVN and PEA, the breakdown of the
average retail tariff is shown. For Meralco, the breakdown is of the tariff for small industrial customers
connected to the LV network (General Service A category) with a consumption of 400 kWh monthly. Levies to
fund cross-‐subsidies are only explicitly identified in the Philippines.
The key driver of higher generation costs in Cambodia appears to be the low
level of demand relative to capacity
Generation and power purchase costs will ultimately depend on the mix of supply in
each country. In this regard, Cambodia is now well-‐placed given the recent expansion of
hydro and coal capacity which would generally be expected to be lower-‐cost than gas
and oil-‐fired capacity. Its generation mix and those of the comparator countries is
shown below. On the basis of domestic generation alone, Thailand in particular would
be expected to have much higher costs than Cambodia given its reliance on natural gas
in its fuel mix.

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Figure 21 Generation mixes compared

Source: MME/EAC (Cambodia, 2015), EVN (Vietnam, 2013), EPPO (Thailand, 2014) and DOE (Philippines,
2013).
However, there are a number of factors that are likely to drive up Cambodia’s
generation costs relative to those of comparator countries.
As we have discussed above, at present Cambodia has a surplus of generation during

wet months and at night-‐time. As a large part of generation and power purchase costs
are fixed relative to output, this raises the unit cost relative to countries with lower
capacity margins. Low levels of demand also force Cambodia to build smaller-‐sized
plants which will tend to have higher average costs (Cambodia is currently building 120
MW and 135 MW coal plants whereas Vietnam is using unit sizes of 600 MW).
EDC is currently trying to negotiate for the export of surplus generation to Vietnam but
it is proving difficult to agree the terms. It is also possible to relieve this problem to
some extent by encouraging shifting of electricity consumption to night-‐time hours.
Based on our estimates of generation costs in Table 6, utilising all capacity at its
expected level would allow a reduction in costs in 2015 of around 3.4 USc/kWh for LV
customers (slightly less for higher voltage customers) or 15-‐20% 19.
A further contributing factor will be the import duties and VAT applied to electricity
imports into Cambodia. We estimate that the cost of these is equivalent to

19 Our calculations of potential cost reductions assume an LV industrial tariff of 19.30 USc/kWh, as
approved for 2015.

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approximately US$ 25 million or 0.5 USc for every kWh sold. Removing them would
allow a reduction in LV tariffs of around 2.5%.
There are also factors outside the control of Cambodia’s government which will partly
explain the cost differences seen. Cambodia is rapidly developing new capacity to meet
demand growth. In other countries, much of the generating capacity is older and either
already depreciated or was built at costs below the current equivalent which will
reduce their costs relative to Cambodia. We also note that Vietnam has historically
subsidised electricity generation which will further reduce its relative costs. Most
notably, the state-‐owned Vietnam Coal and Minerals Corporation has supplied coal to
the electricity industry at prices around two-‐thirds of world market levels.
However, the impact of these other factors on costs in Cambodia relative to those of
other countries should not be exaggerated. Cambodia is not unique in much of its
capacity being relatively recent—around half of Vietnam’s generating capacity was
added in the last five years compared to around 60% (including contracted imports) in
Cambodia. The impacts of subsidies in Vietnam on relative cost levels are also declining
as world coal prices fall and Vietnamese production becomes unable to meet demand,
necessitating imports.
Higher transmission costs also appear to be primarily due to lower levels of

demand
The higher transmission costs can, at least partially, be attributed to a combination of

economies of scale in these activities and to the lower volumes and levels of utilisation
of EDC’s transmission network relative to that in the comparator countries which will
result in higher unit costs, even if the absolute level of costs is the same. This is
illustrated below.

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Figure 22 Levels of utilisation of transmission lines compared

Source: ECA calculations from EDC and EAC data (Cambodia, 2013), EVN data (Vietnam, 2013) and EGAT
data (Thailand, 2013). Data is not available for the Philippines.
The heavy reliance on BOTs to develop new transmission lines may also be driving up
costs relative to networks financed by state-‐owned utilities in Thailand and Vietnam.
However, it is difficult to assess the impacts of this given that we lack the data to break
out the costs of these lines from those lines owned by EDC.
There are also country-‐specific factors which may impact on the comparisons. In
Vietnam, regulated transmission charges are considered by many to be set at a level
below the full costs of the transmission company which means that the low charge
shown may not fully reflect the actual costs20. In Thailand, the transmission function is
integrated with those of generation and power purchases. Therefore, the low costs
shown might partly be due to decisions on the allocation of shared costs between
generation and transmission activities.
Overall, we expect average transmission costs to fall as utilisation of the network grows
but cannot readily estimate the impacts given the lack of data on EDC’s own
transmission costs and those of its contracts with transmission BOTs.
Higher distribution costs in Cambodia are less easy to explain
While the relative size of EDC’s distribution business is much smaller than that of the
comparators, the level of utilisation of its distribution network would appear to be

20 For example, the approved charge allows for a return of only 1% on equity.

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higher than that for Thailand and Vietnam. Therefore, this alone would not explain the
higher costs seen in Cambodia21.
Figure 23 Levels of utilisation of distribution lines compared

Source: ECA calculations from EDC and EAC data (Cambodia, 2014), EVN data (Vietnam, 2013), PEA data
(Thailand, 2013) and Meralco data (Philippines, 2013).
This does suggest that, if low utilisation is not driving up costs, then there may be scope
for EDC to achieve efficiency gains in electricity distribution. As an example of the
potential magnitude of such efficiency improvements, reducing the gap between EDC’s
distribution costs and those of PEA by half would allow a reduction in tariffs of around 1
USc/kWh.
One of the most obvious drivers of higher distribution costs appears to be the lower
levels of sales and customers per employee in Cambodia relative to comparator
countries. However, the impacts of this lower labour productivity is offset by the lower
salaries in Cambodia. The costs of salaries and other employee benefits were equivalent
to 0.75 USc/kWh in 2013 or 4% of EDC’s revenues. A halving of these costs would,
therefore, only deliver a reduction in tariffs of around 0.4 USc/kWh or 2% for LV
customers.
It may also be that the current margins simply no longer reflect distribution costs, given
they have not been revised for 10 years. A detailed cost analysis would help assess
whether this is the case.

21 It is noticeable that Meralco has both the highest cost and the greatest level of network utilisation,
indicating that this is not the only explanation of relative costs.

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Figure 24 Employee productivity compared

Sales per employee

Customers per employee

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Costs

Source: ECA calculations from EDC and EAC data (Cambodia, 2014), PEA data (Thailand, 2013) and Meralco
data (Philippines, 2013) and reported values from AF Mercados (Vietnam, 2012). Data for Vietnam is for
Power Corporations (distribution companies) only.
System losses
A comparison of system losses is provided below. EDC’s system losses are similar to
those of EVN but significantly above those of Thailand and the Philippines. The figures
for the Philippines are not directly comparable to those for the other countries as they
only relate to distribution losses and do not include losses on the transmission system.
If these were included, the level for system losses would be likely to be comparable to
those in Cambodia and Vietnam.
Figure 25 System losses compared

Source: Source: ECA calculations from EDC and EAC data (Cambodia, 2014), EVN data (Vietnam, 2013),
EGAT and PEA data (Thailand, 2013) and Meralco data (Philippines, February 2015). For Meralco, only
distribution system losses are shown.
EDC’s network has historically operated at lower voltages than those of the comparator
utilities shown here, all of which include significant lengths of HV lines which should
reduce losses. Against this, much of EDC’s network is relatively new or was relatively
recently rehabilitated which should reduce EDC’s own losses.
Overall, we conclude that EDC is not performing particularly well or badly relative to its
peers as regards the level of system losses. However, there remains scope for
improvement. While EDC did manage to reduce losses significantly up to 2010, the level
seems to have remained fairly constant since then. By contrast, even in a relatively

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mature network with older equipment, Meralco, for example, has continued to achieve
large improvements over time.
It is worth noting that Meralco is unique among these utilities in operating under a
performance-‐based regulation (PBR) regime which includes incentives to reduce
system losses. The Energy Regulatory Commission (ERC) sets an allowed cap on system
losses which is used to calculate the amount of the associated costs that can be
recovered from tariffs22. Meralco bears the additional cost if actual losses exceed this
cap and retains the savings if it reduces losses below the cap. The effectiveness of this
mechanism in encouraging improvements in system losses can be seen below.
Figure 26 Meralco’s system losses and regulated cap, 2003-‐13

Source: Meralco
As an indication of the potential impacts on tariffs of reducing system losses, a

reduction of two percentage points from 2013 levels, closing half of the gap between
EDC’s losses and those of EGAT/PEA, would reduce generation and power purchases
required to meet demand in 2015 by around 130 GWh23. This could allow savings of up
to US$ 16 million in generation costs, equivalent to around 0.30 USc/kWh or 2% of
tariffs. However, these benefits might be partly offset by the current structure of power
purchase costs which mean that lower levels of purchases due to reduced system losses
translate into largely unchanged total costs and higher average costs—as is the case at
present where demand for electricity does not fully utilise all contracted generating
capacity.

22 The current cap is set at 8.5% for all private distribution utilities which primarily serve urban areas
and 12% for electric cooperatives which serve most smaller urban and rural areas.
23 This assumes all reductions in system losses result in a reduction in the generation required to meet
an unchanged level of demand. In practice, some part of these losses, if commercial in nature, would
be likely to be converted into increased metered sales of electricity (eg, by correcting metering errors
or charging for electricity that was previously stolen). This will increase billed sales but not reduce
generation requirements.

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Financing
EDC is heavily reliant on BOTs for financing of new generation and transmission
investment and more so than comparator countries. In 2015, new coal and hydro BOT
projects are expected to represent around 70% of energy supplied. In Vietnam, by
contrast, purchases from BOTs and other non-‐EVN generators represent around 55% of
total supplies and in Thailand around 60% of supplies (including from BOT projects
located in Lao PDR)24. Cambodia is unique in the region, as far as we are aware, in using
BOTs to fund transmission projects.
This decision to rely heavily on BOT financing of major new projects will tend to raise
costs relative to the alternative of EDC financing investments using its own funds and
borrowing from multilateral and bilateral financing institutions. However, these lower
costs need to be offset against the likely longer development time required for projects
funded directly by EDC given the requirements of multilateral institutions. It is also the
case that funding from multilateral institutions may well not be available for new coal
and hydro projects in any event—these are seen as very controversial and difficult to
support by the World Bank and ADB in particular. But these institutions are willing to
lend for transmission and distribution investments if opportunities are available, as has
been evident in Cambodia in the past and currently in Vietnam.
We show the composition of financing of debt service and new investments for each,
below. For Vietnam, for better comparability with EDC, we show the financing mix used
by the transmission utility, the National Power Transmission Corporation (NPT) as
much of EVN’s financing activities are related to generation assets which EDC does not
directly finance itself. EDC’s financing mix appears closer to that of the more mature
utilities in Thailand and the Philippines despite its need for rapid expansion which, we
would expect, would tend to be financed more from debt to be repaid from future
increased sales rather than funding from current customers. This is the case for NPT in
Vietnam.

24 The majority of power generation in the Philippines is now privatised including that belonging to
the former state-owned generating utility. However, this is not on a BOT basis but rather through the
sale of existing assets.

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Figure 27 Financing of investments compared

Source: ECA calculations from audited financial statements for EDC (Cambodia, 2013), NPT (Vietnam, 2013),
PEA (Thailand, 2013) and Meralco (Philippines, 2013)
Looking at financing statistics, EDC’s gearing (debt to equity ratio) is higher than that
for both PEA and Meralco. However, as noted above, these are both relatively mature
utilities. EDC’s gearing is much lower than that of NPT which is more comparable given
that it is also investing heavily to meet rapid growth in demand. What is also noticeable
is that EDC’s return on equity (ROE) is much higher than that of PEA and NPT. Although
it is below that of Meralco, these figures are not directly comparable as the return for
Meralco includes both profits on its regulated network business and on its unregulated
power generation business (which has no equivalent in EDC).

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Figure 28 Gearing and returns compared

Source: ECA calculations from audited financial statements for EDC (Cambodia, 2013), NPT (Vietnam, 2013),
PEA (Thailand, 2013) and Meralco (Philippines, 2013)
It is worth considering the returns earned by regulated electricity networks in other

countries, which are around 6% to 8% in real (excluding inflation) terms or 8.5% to
10.5% in nominal terms (including inflation) for Cambodia25.

25 The year-on-year change in the Consumer Price Index for Phnom Penh in November 2014 (the most
recent date for which data is available) was 2.36%. Source: National Bank of Cambodia

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Table 9 Regulatory decisions on return on equity for electricity companies
Country: Activity Approved ROE Source
nominal / real
USA: Electricity distribution 10.02% / 8.44% Concentric Energy Advisors, 8
(average, 2013) May 2014, Authorized Return on
Equity: Volume II
Canada: Electricity distribution 8.32% / 7.29%
(average, 2013)
Canada: Electricity transmission 8.39% / 7.36%
(average, 2013)
Germany: Electricity transmission 9.05% / 6.39% BNetzA decision
(new installations, 2011)
Australia: Electricity distribution 8.69% / 5.94% Australian Energy Regulator,
(Aurora Energy, 2012) April 2012, Final Distribution
Determination: Aurora Energy Pty
Ltd, 2012-‐13 to 2016-‐17
Philippines: Electricity 17.09% / 8.43% Energy Regulatory Commission, 9
transmission (ERC mid-‐point estimate, 2009) September 2009, Regulatory Reset
for NGCP: Position Paper
Singapore: Electricity generation 9.08% / 6.39% Energy Market Authority, 22
(Vesting contract price September 2014, Review of
parameter, 2015-‐16) Vesting Contract Price Parameters:
Final Determination Paper
Source: As noted. Adjustments to real values are made using the inflation estimate defined by the regulatory
agency in their decision or, where not available, the annual average change in CPI for the relevant year
It does appear that there is scope for reducing the costs of financing network
investments by making greater use of borrowing by EDC, particularly from multilateral
and bilateral institutions given the lower rates offered, and by setting, for the purposes
of determining regulated tariffs, an allowed return on equity closer to that of regulated
electricity network utilities elsewhere. Our estimate is that increasing gearing from
48% to 60% and reducing EDC’s return on equity from 26% to 10% would reduce EDC’s
costs by the equivalent of 1.7 USc/kWh or around 10% of the tariff.
We do recognise that EDC is seeking such finance but has been reluctant to turn to some
potential lenders, such as the World Bank, due to poor part experience over the time
required for processing loans. It will also require approval from MEF where entering
into new external loans.

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Costs

4.3 Conclusions and recommendations
In this section, we have reviewed the components of EDC’s costs and compared these to
regional utilities. We conclude that:
❏ Oil-‐fired generation, which historically drove Cambodia’s high electricity

costs, has by now been almost entirely displaced by imports and domestic
hydro and coal-‐fired generation. The use of hydro and coal generation is
expected to continue to increase, now displacing imports and further
reducing costs.
❏ However, these reductions are not fully realised in tariffs at present, in large
part due to the excess capacity relative to demand at certain times of the
year and day and, due to restrictive PPAs, the need to continue to pay for this
capacity even when not required. Our estimates are that increasing
utilisation could reduce generation costs by around 3 USc/kWh.
❏ EDC’s estimated transmission costs are noticeably higher than those for
regional comparators. This may be due to low levels of utilisation and, hence,
higher average costs. But the reliance on BOTs to finance many lines may
also be driving up costs—our own estimates are that the associated higher
financing costs may represent a higher charge of up to 2 USc/kWh relative to
EDC-‐financed transmission lines.
❏ EDC’s distribution margins are also higher than those for regional
comparators. This cannot be explained by lower levels of utilisation of
distribution networks in Cambodia. It may represent inefficiencies in EDC’s
operations (for example, labour productivity appears much lower than in
comparators). It may also be due to margins moving out of line with actual
costs, given they have not been adjusted for 10 years. In either case, there
appears to be scope for reductions in the margin included in tariffs.
❏ EDC has reduced system losses over time. However, these now appear to
have stagnated. Further reductions should be possible, although the benefits
will be limited so long as reductions in demand do not lead to corresponding
reductions in generation costs.
❏ EDC relies heavily on its own cash flows from operations to fund
investments. Increasing the share of debt in the financing mix should allow it
to reduce financing costs. EDC’s return on equity is also high relative to
similar entities internationally. We estimates that reducing the return on
equity used to calculated tariffs and raising gearing could deliver cost
reductions equivalent to around 1.5 USc/kWh.
❏ A general comment is that detailed information on EDC’s costs and how

these relate to approved tariffs is lacking. EAC and EDC publish
comprehensive physical data on sales, output, capacities, line lengths and so
forth but little financial data. This makes it hard to assess how well current

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Costs

tariffs reflect costs, the relative efficiency of EDC and the extent to which cost
reductions are feasible.
Our recommendations follow from these conclusions. They are that:
❏ EAC should publish in full its assessment of EDC’s costs used to

determine tariffs, to allow a better understanding by stakeholders of the
relationship between tariffs and costs and to help assess EDC’s relative
efficiency and scope for cost reductions.
❏ An immediate reduction in costs could be achieved by exempting

electricity imports from duties and VAT. Previous analyses has also
identified this as a means of rapidly lowering electricity costs. However, the
falling share of imports in the supply mix means that the impacts are also
declining. Our estimate is that such an exemption would lower costs in 2015
by around 0.5 USc/kWh.
❏ EDC should continue to pursue an agreement with Vietnam allowing

exports of surplus generation in the wet season and at night-‐time. In the
longer term, Cambodia should actively encourage the expansion of
cross-‐border power trading in the Greater Mekong Sub-‐Region, under
the institutional arrangements already in place 26 , and in particular the
development of shorter-‐term trading arrangements. This will provide a
means for Cambodia to better balance supply and demand on its electricity
system.
❏ Future power planning needs to recognise the trade-‐offs between cost
and flexibility. The further development of large-‐scale hydropower projects
should, in particular, be constrained unless these have the capability to
reliably generate in dry seasons and to limit output in wet seasons. The use
of smaller coal-‐fired units or ones with greater operating flexibility should be
considered.
❏ A fuller analysis of EDC’s transmission and distribution costs should be
undertaken relative to the current allowances included in tariffs and the
two brought into alignment.
❏ Consideration should be given to providing incentives for EDC to improve
efficiency and reduce system losses through the application of
performance-‐based regulation, along the lines of the system loss cap
applied to Meralco, for example. This might start by targeting system losses
and, if successful, be expanded to other cost components. This does assume
that EDC’s management and employees are motivated to respond to the
profit incentives inherent in such regulatory methodologies.
❏ EDC should move to a greater reliance on debt financing of new

investments making use of the concessional rates available from
multilateral and bilateral financing institutions and EXIM banks. The use of

26 See http://www.adb.org/publications/series/proceedings-meetings-gms-regional-power-trade-
coordination-committee-rptcc for a description of the current status of regional institutions.

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Costs

BOTs to fund network investments should be avoided given the higher

financing costs these impose.
❏ In approving tariffs, EAC should allow EDC to earn a return on equity

consistent with international and regional comparators. This would be
around 10% in comparison to the current levels of 25%.

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Tariffs

5. Tariffs
In this section, we look at how the costs of electricity supply are converted into tariffs.
Our focus is on whether the existing tariff structure is cost-‐reflective and, if not, what
would be the impacts of changes in the structure on the prices paid by industrial
customers. We also look at the recently introduced Time-‐of-‐Use (TOU) tariff and its
potential benefits to industrial customers.
5.1 Principles of tariff design
The general principle is that tariffs should reflect the costs of supply to different
customer categories. Deviations from this principle in the form of subsidies may be
necessary to achieve social objectives (such as lowering electricity prices for poorer
households) but these should be kept limited in nature, be clearly defined and be
funded in the least distortionary manner possible. Deviations may also be necessary to
reflect externalities not captured in existing costs of supply, such as the use of a carbon
tax to reflect the costs imposed by greenhouse gas emissions, but this goes beyond the
scope of the current report.
Simplifying, there are three main determinants of the share of costs to be allocated to
any individual customer:
❏ The voltage level of supply. Supply at lower voltages requires the use of
more network assets and incurs higher levels of system losses (which
increase as voltage reduces). Therefore, other things being equal, a customer
supplied at a lower voltage level should face a higher tariff.
❏ The concidence of timing between the peak demand of the customer and
system peak demand. An electricity system (generating capacity and
networks) is sized to meet peak demand on the system as a whole. During
off-‐peak periods, much of this capacity is not needed to meet system
demand. Therefore, the costs of constructing and maintaining this capacity
should be allocated to those customers contributing the most to system peak
demand—which drives the need for it.
❏ The size of the customer. The costs of metering, billing and other customer-‐
related services do not increase in line with sales but instead are largely
fixed. Therefore, customers with lower levels of sales should generally
expect to face higher unit charges (in kWh) for these services.
We illustrate the relationship between timing of demand and costs below, in stylised
form.

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Tariffs

Figure 29 The cost-‐demand relationship illustrated

Source: ECA
Tariffs will also be affected by the level of direct and cross-‐subsidies in the system. We
define direct subsidies as those funded from external sources, such as the government
budget. These will lower tariffs relative to costs for those customers receiving the
subsidy but not affect the tariffs of others. At present, there are no direct subsidies for
electricity customers in Cambodia. Cross-‐subsidies are those funded within the
electricity industry. These will raise tariffs above costs for those customers funding the
subsidy and reduce them for those receiving it.
5.2 Cambodia’s tariff structure
We compare below the relative tariffs in Cambodia for large and small industrial and
residential customers located in Phnom Penh. As can be seen the LV industrial tariff is
around 9% higher than that for large MV industrial customers and the middle block for
domestic (household) customers. We understand that this middle block is broadly in
line with the assumed average cost of supply to domestic customers. The lower block is
set 15% below this and the upper block 15% above to provide a small cross-‐subsidy to
smaller domestic customers (assumed to correlate to low-‐income households).
According to EAC, there is no cross-‐subsidy from industrial to domestic customers (a
point we discuss further below).

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Tariffs

Figure 30 Relative EDC tariffs, 2015

Source: EAC. Tariffs shown are for Phnom Penh
We show below similar calculations for the Philippines, Thailand and Vietnam. As can
be seen, Cambodia’s tariff structure is similar to that in Thailand and Vietnam. Indeed,
domestic tariffs are closer to industrial tariffs in Cambodia than in both these countries,
implying less use of cross-‐subsidies from industrial to domestic customers in Cambodia
than in Vietnam and Thailand (consistent with EAC’s statements on cross-‐subsidy
arrangements). The difference between LV and MV industrial tariffs is also similar in
each of these three countries.
The Philippines shows very different relationships between tariffs. The charges to LV
customers are much higher than those for MV customers. It is not clear whether this is
due to different relationships between the costs of supply at different voltage levels in
the Philippines and elsewhere or different regulatory perspectives on the desirable
relationships between MV and LV tariffs and costs of supply.

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Tariffs

Figure 31 Tariff structures compared

Source: ECA calculations from EAC (Cambodia, 2015), MEA (Thailand, 2015), EVN (Vietnam, 2015) and
Meralco (Philippines, February 2015) published tariffs.
5.3 Are tariffs cost-reflective?
According to EAC, there has been no study to date of the relative costs of supply to
different customer categories. Therefore, it is difficult to say whether the current tariff
structure is cost-‐reflective or not. Comparisons with other countries can help but, as we
show above, are not conclusive given that these countries may themselves have tariff
structures that are not cost-‐reflective and potentially very different cost structures.
We do note that domestic tariffs in Cambodia are below those of LV industrial

customers. We might expect the relationship to be reversed given the higher levels of
consumption of the latter group. EAC have explained that they consider the current
relationship to be cost-‐reflective as most of the consumption by industrial customers is
during the working day when the system peak load occurs (see Figure 11). Therefore,
industrial customers can be considered to contribute more to system peak than
domestic customers, who are assumed to largely use electricity in the evenings. Based
on this, EAC considers industrial customers should pay a higher tariff reflecting their
greater contribution to the fixed costs associated with providing capacity to meet the
system peak. However, we understand that this assessment is largely based on
anecdotal evidence rather than any systematic collection and analysis of data. It should
be noted that the same relationship between LV industrial and domestic tariffs holds in
the other countries included in the comparison above.

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Tariffs

Overall, in the absence of a cost-‐of-‐service study which determines the ‘true’ cost of
supply to different customer categories, it is difficult to draw conclusions on the cost-‐
reflectivity of current tariffs. The available evidence suggests that the current tariff
relationships are in line with those in the region and can be justified by reference to the
profile and timing of consumption by different customer types, but reliable data to
support this is missing.
5.4 Time-of-Use tariff
EAC introduced in 2014 a TOU tariff for industrial, commercial and agricultural users.
This applies a lower tariff than the standard tariff for consumption in off-‐peak hours
(21:00 to 07:00) and a higher tariff for consumption in peak hours (07:00 to 21:00). The
tariff is intended to provide an incentive for larger users in particular to shift electricity
use to night-‐time when Cambodia currently faces a problem of excess consumption
while reducing consumption at peak times and, therefore, the need to retain expensive
capacity to meet demand at these times. The differential between peak and off-‐peak
differs slightly by customer category but is around 4 USc/kWh or 20%.
From our interviews, it appears that take-‐up of the TOU tariff has been very low with
only one customer (a cement factory) reported to have seriously considered switching.
This is attributed to the difficulties in introducing three-‐shift working (ie, night-‐time
working) in Cambodia. Labour laws require that employers provide accommodation or
transport for night-‐time workers. General practice is to pay night-‐time work at 200% of
the day-‐time rate. From our interviews, these additional labour costs are considered to
more than offset any savings in electricity costs from switching to night-‐time working.
EAC have advised that the current differential between peak and off-‐peak periods was
determined based on judgement as to what value would be sufficient to encourage
switching to off-‐peak hours without lowering tariffs to levels that would be
unsustainable. The current difference appears, from the limited information available to
us, to be less than the expected difference in EDC’s costs. Indeed, if there is excess
supply at night, then the cost of meeting additional demand at this time would be close
to zero (as, otherwise, generators will need to either be shut down incurring costs or, if
hydro power plants, to spill water). It is also lower than the differences seen in Thailand
(of 4.6 USc/kWh or 35%) and Vietnam (11.2 USc/kWh or 67%).
We provide below an indicative estimate of what a cost-‐reflective TOU tariff for

Cambodia might look like. The difference between day and night-‐time tariffs is around
16 USc/kWh or 65%, comparable to that in Vietnam. However, even with this much
larger difference between consumption times, the savings from shifting consumption to
off-‐peak periods are unlikely to be sufficient to outweigh the increased labour costs.
For our example large garment factory (see Section 3.2), we estimate that under a TOU
tariff of this type, the savings from shifting the majority of output to off-‐peak periods
would be around 20% or US$ 16,000 monthly (compared to around 8% or US$ 5,000
under the current TOU tariff). However, with an assumed 5,000 employees, this is
equivalent to US$ 3 per employee per month or just 2% of the current minimum wage
of US$ 128 per month for garment workers. These savings are clearly insufficient to

March 2015

Tariffs

offset the additional labour costs incurred under current Cambodian law and practices
for night-‐time working. Assuming a 100% mark-‐up for night-‐time working, we estimate
these additional labour costs would come to at least US$ 420,000 monthly given that
two-‐thirds of working time would now take place at night.
While the actual savings on electricity costs and how these relate to increased labour
costs will differ from firm to firm and industry to industry, we expect that this result
will hold more generally. The evidence, therefore, suggests that a larger differential
between peak and off-‐peak periods can be supported. However, under current labour
legislation in Cambodia, this is unlikely to make switching production to off-‐peak
periods financially attractive for labour-‐intensive industrial customers such as garment
manufacturers.
Box 3 Estimating TOU tariffs for Cambodia

We have carried out a simplified calculation of the relative costs of supply in peak and off-‐peak
periods in Cambodia as a basis for estimating what a more cost-‐reflective TOU tariff structure
might look like.
We assume that, in off-‐peak (night-‐time) hours, the marginal generator will in future be a coal-‐
fired plant. The marginal cost of this generation in these hours is the fuel cost, as there is excess
supply and, therefore, no capacity constraints. We estimate this fuel cost as being 3.30
USc/kWh, assuming Australian coal imports with a FOB price of 60.6 US$/tonne (the average
for March 201527), a transport cost of 20 US$/tonne and a coal plant thermal efficiency of 35%.
To this we add transmission and distribution costs of 5.15 USc/kWh (for supply to an MV-‐
connected industrial customer) to obtain an off-‐peak cost of supply of 8.45 USc/kWh.
The additional capacity and other costs to be recovered during peak (day-‐time) hours are
calculated as the average MV industrial tariff (of 17.70 USc/kWh) less the assumed off-‐peak cost
of supply, adjusted upwards as these additional costs are only recovered over 14 peak hours
(from 07h00 to 21h00) instead of a 24-‐hour period. This adjusted additional cost is then added
to the off-‐peak cost of supply to give the estimated cost of supply in peak hours, which is 24.31
USc/kWh.
Our example large customer has an assumed demand of 900 kW and an assumed monthly
consumption of 408,750 kWh. At the current average MV tariff of 17.70 USc/kWh, the monthly
electricity bill is, therefore, US$ 72,349. If the same customer is assumed to switch to off-‐peak
working and that off-‐peak hours represent 10 hours of each day in the month, then our example
customer will consume 270,000 kWh during off-‐peak hours, at a tariff of 8.45 USc/kWh, and the
remaining 138,750 kWh during peak hours, at a tariff of 21.95 USc/kWh. The resulting monthly
electricity bill under TOU tariffs would be US$ 53,272.
In the absence of a comprehensive study of the costs of supply to different customer

categories, it is difficult to determine whether existing tariffs are cost-‐reflective. Our

27 World Bank, Commodities Price Data, 3 April 2015. The heat content is assumed to be 6,000
kcal/kg. (http://siteresources.worldbank.org/INTPROSPECTS/Resources/334934-
1111002388669/829392-1420582283771/Pnk_0415.pdf)

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Tariffs

expectation would generally be that industrial customers would have lower tariffs than
domestic customers given their greater level of sales and flatter load or demand
profiles. However, we also recognise the validity of EAC’s argument that industrial
customers consume more at times of system peak and so should pay a higher share of
the system’s fixed costs and that Cambodia’s current tariff structure is in line with that
of its neighbours in Thailand and Vietnam.
We do recommend that EAC commission a study of the costs of supply to different
customer categories and that the results are made publicly available. This would
provide a basis for the proper assessment of the cost-‐reflectivity of tariffs and whether
the current structure should be adjusted.
We also note that the current TOU tariff does not appear adequate to encourage
switching of consumption times and that the differences between peak and off-‐peak
periods is lower than that in Thailand and Vietnam. We recommend that the
difference between TOU tariffs for peak and off-‐peak periods is increased to better
reflect cost differences between periods and to make switching cost-‐effective. This can
benefit industrial customers in the short-‐term by reducing their costs and in the longer-‐
term by helping address the problem of excess capacity in night-‐time hours. However,
its effectiveness for labour-‐intensive industries will remain limited without
increased flexibility under Cambodian labour law as regards night-‐time working.
Currently, the savings in electricity costs are unlikely, in our estimation, to outweigh the
increased labour costs in most cases.

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Consumption

6. Consumption
In this final analytical section, we look at how industrial customers can themselves act
to reduce their electricity costs. There are two main routes by which they can do so. The
first is improving the energy efficiency of their operations, reducing electricity
consumption. The second is to substitute for grid electricity supplies by self-‐generation.
6.1 Energy efficiency
Energy efficiency potential and practice in industry
There have been numerous assessments of the potential for improving energy efficiency
in Cambodian industry. However, the impacts to date seem to have been limited. This
seems to be due to a combination of lack of awareness of the opportunities (only one of
our interviewees, for example, had had an energy audit conducted and was not familiar
with the results) and reluctance to invest in energy-‐saving measures. This reluctance
has been attributed to constraints on total borrowing by enterprises and an
unwillingness to use up scarce credit from commercial institutions on investments with
lengthy and uncertain pay-‐backs compared to investments to, for example, increase
capacity.
UNIDO in collaboration with MME and the National Cleaner Production Office –
Cambodia, has been implementing the Industrial Energy Efficiency Cambodia project
since 2011. This has conducted a number of rapid energy audits which have been used
to identify and support demonstration energy efficiency projects within industrial
enterprises 28 . While the audits generally focused on smaller enterprises, they did
include two garment factories (Sky High (Cambodia) Co Ltd and Dignity Knitter Ltd)
which provide an example of the savings offered by improved energy efficiency.
For Sky High, the energy audit estimated that electricity costs could be reduced by: the
substitution of grid supplies and on-‐site diesel generation by self-‐generation using a mix
of biogas and diesel oil; the replacement of fluorescent lamps with LEDs; and the
installation of solar panels to generate electricity for lighting. However, only the
replacement of fluorescent lamps has been implemented at an investment cost of US$
74,000 with annual savings estimated at US$ 50,000 (representing around 6% of total
electricity costs).
In Dignity Knitter, total potential savings in energy costs were estimated at US$ 468,000
(including US$ 355,000 in electricity costs or 25% of existing electricity costs) but only
US$ 126,500 has been realised (US$ 113,000 in electricity costs or 8%), requiring
investments of US$ 115,000. The greatest savings would come from the installation of
co-‐generation facilities replacing grid electricity supplies but the up-‐front costs of this
appear to have been a deterrent.

28 Summaries of the audits and demonstration projects are available at: http://www.cambodian-
cpc.org/ccpp/index.php/en/publication/2013-04-18-08-58-51

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Consumption

Although, in both these case studies, only a part of the identified energy efficiency
measures were implemented, the impacts are still very significant. The savings in
electricity costs achieved of 6-‐8% with relatively low up-‐front investments are
equivalent to reducing electricity tariffs by around 1-‐1.5 USc/kWh..
While only two examples, these case studies also support the views expressed that
enterprises are reluctant to invest in energy efficiency measures that have a large up-‐
front cost due to difficulties in obtaining credit. Therefore, many opportunities to
reduce electricity costs may not be realised.
National Energy Efficiency Strategy
A draft National Policy, Strategy and Action Plan on Energy Efficiency in Cambodia
(CNEE) was issued in May 201329. The preparation of the CNEE was supported by
consultants under European Union funding. It sets an overall goal of reducing national
energy demand by 20% by 2035 compared to business as usual projections. Of this,
around 25% of the savings would come from reduced electricity consumption (the
majority would come from reduced biomass consumption).
Among key industrial sub-‐sectors, the CNEE estimates that energy consumption by rice
mills can be reduced by 35% on average through the substitution of fossil fuels by rice
husk gasifiers (RHGs) and by 20% to 35% in the garment industry through the use of
more efficient wood boilers, sewing machines and thermal insulation. The CNEE’s action
plan for promoting energy efficiency in industry includes the following:
❏ Institution of a system of mandatory collection of data on energy

consumption from major industrial users by MME, which can be used to
establish benchmarks and targets.
❏ Raising awareness of good energy management practices in industrial

enterprises (following the ISO 50001 standard).
❏ Substituting biomass gasifiers and bio digesters for thermal and electrical
energy use.
❏ Establishing standards on energy efficiency and management in industrial

enterprises and encouraging voluntary compliance with these and,
potentially, mandatory compliance for larger users.
❏ Creating tax and other incentives for import and domestic manufacture of
energy efficient equipment.
❏ Funding energy audits for small and medium enterprises, training of

technicians and energy auditors and, in the longer-‐term, creating a

29 EUEI PDF and Integration, 24 May 2013, National Policy, Strategy and Action Plan on Energy Efficiency
in Cambodia: Draft (http://www.euei-
pdf.org/sites/default/files/files/field_pblctn_file/EUEI%20PDF_Cambodia_Energy%20Efficiency_
May2013_EN.pdf)

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Consumption

favourable framework for the development of Energy Service Companies

(ESCOs)30.
❏ Providing loans for energy efficiency-‐improving investments as a catalyst for

the development of a supporting financial sector.
We understand from MME that the draft CNEE is still under review and revision prior to
being submitted to the Council of Ministers for approval. In the meantime, MME is
undertaking limited initiatives to promote industrial energy efficiency, including in
some of these areas, but these efforts should be strengthened and enhanced.
A general comment is that the draft CNEE is much more specific about short-‐term
actions such as improving data collection than longer-‐term but more wide-‐reaching
actions such as developing a supporting financial sector willing to lend money to finance
energy efficiency investments with repayment linked to the resulting savings. It is not
clear, therefore, to what extent it will address the barriers that experience to date has
identified, which appear to be related to financing constraints, even if implemented in
full.
6.2 Self-generation
Competitiveness of self-generation using renewable sources
The other means for industrial electricity users to reduce their costs is to substitute self-‐
generation for grid electricity supply. Many industrial customers already have oil and
diesel-‐fired generators although these often seem to be for security of supply in the case
of interruptions rather than for reducing costs.
The most promising self-‐generation options would appear to be the use of agricultural
residues (such as rice husks) in gasifiers or in co-‐generation (combined heat and
power) boilers which offer much higher efficiency than conventional boilers.
Other self-‐generation options seem unlikely to offer reductions in costs for larger
industrial customers. The decline in grid generation costs and electricity tariffs means
that self-‐generation with diesel or fuel oil is now more expensive than grid supply31. The
use of solar panels by industrial customers is more costly than grid supply (on a
levelised cost or USc/kWh basis), requires very sizeable up-‐front investments and
raises problems with intermittency of supply due to cloud cover and at night. However,
solar power remains an attractive option for many smaller users, particularly for off-‐
grid consumers, where the alternative supply source is diesel generation or car

30 ESCOs are companies which will identify energy efficiency-improving investments, arrange
financing for these and be repaid from the savings achieved from the investments relative to a pre-
determined baseline level of energy consumption.
31 A 500 kW diesel generator operating at full load consumes around 135 litres per hour. Assuming a
diesel price of 1 US$/litre, this would give a cost of electricity of 27 USc/kWh before taking account
of capital and non-fuel operating costs. Lower load factors and smaller capacities would use
proportionally more fuel with higher generation costs.
(http://www.dieselserviceandsupply.com/Diesel_Fuel_Consumption.aspx)

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Consumption

batteries with very high costs and where issues of intermittency of supply and limited
supply in night-‐time hours matter far less.
This is likely to limit self-‐generation as an option for reducing electricity costs to

agricultural processing industries such as rice mills which have ready access to
agricultural residues. In future, there may be potential for the development of biomass
grown as a cash crop for use in self-‐generation.
A major challenge for any enterprise generating its own electricity is how to manage
mismatches between output and their own consumption. Doing so generally requires
the ability to sell surplus generation to the electricity grid. EDC already purchases from
three such generators with installed capacities from 10 MW to 20 MW (one using rice
husks and two bagasse). However, the tariff paid is only 7 USc/kWh and a PPA has to be
individually negotiated in each case. The basis for this tariff and how it relates to the
cost savings to EDC of purchasing from industrial enterprises is not clear.
As with energy efficiency, there have been a large number of projects promoting self-‐
generation by industrial enterprises. In particular, the use of RHGs has been
encouraged. A 2012 survey recorded around 30% of rice mills as using RHGs, although
these appear to be smaller mills substituting for diesel self-‐generation rather than for
grid electricity supplies32. The estimated savings from use of RHGs with duel fuel (diesel
and gas) generators were equivalent to around US$ 5 per tonne of milled rice relative to
diesel generation alone. The average RHG capacity was 410 kW and the average output
of mills included in the survey was 3,925 tonnes of milled rice annually33.
The survey also identified the main barrier to installation of RHGs as being a lack of
investment capital (as loans are generally not available specifically to fund RHGs) but
also noted problems in their operation including gas leakages and managing the tar
residues. One of our interviewees, who owns a larger rice mill, confirmed these
concerns. They have installed a RHG but do not use it due to the environmental impacts.
A recent field survey identified the same environmental concerns and noted that
gasification is becoming less economically attractive and may not be competitive with
grid electricity34. This is supported by available evidence on costs of supply from
gasification—for example, a 2009 study estimated the average costs of supply from a 50
kW system operating for 2,190 hours annually at 37 USc/kWh excluding fuel costs. The
average costs will be lower for larger systems and with higher load factors but are still
unlikely to compete with grid supply available at prices of less than 20 USc/kWh35.

32 SNV, 20 August 2012, Waste to Energy for the Rice Milling Sector in Cambodia: Baseline Study, Report
for the EU (http://www.snvworld.org/download/publications/baseline_report-
in_line_indicators_v2_final_with_snv_template.pdf).
33 Averages of 2.27 tonnes per hour, 8.28 hours of operation per day, 21.6 days per month and 9.67
months per year.

34 Minh Ha-uong and Hong Nam Nguyen, 21 January 2015, Rice Husk Gasification for Electricity
Generation in Cambodia in December 2014: Research Report (https://hal-enpc.archives-ouvertes.fr/hal-

01107615/document)
35 FACT Foundation, 2009, Biomass Gasification for Village Electrification: Case Study (http://fact-
foundation.com/sites/default/files/library/documents/21._biomass_gasification_for_village_electri
fication.pdf)

March 2015

Consumption

For larger mills, the use of cogeneration using rice husks becomes feasible. Cambodia’s
rice mills are relatively small by global standards but larger mills are now being
established. The 14 largest mills in Cambodia have an average milling capacity of 14.25
tonnes of paddy rice per hour, or approximately 20,000 tonnes of milled rice annually36.
We provide below an estimate of the costs of co-‐generation of electricity using data

from Thailand. To illustrate the benefits of the sale of surplus energy to the grid, we
show the levelised cost with and without sales of surplus energy using the current tariff
offered by EDC. These estimates assume no value is attached to rice husks—in practice,
growing demand for their use in electricity generation means that they are now
acquiring a market value. What these estimates suggest is that self-‐generation without
the option for selling excess energy to the grid is either not viable or only marginally
viable for most rice mills given their limited hours of operation. However, with sales of
surplus energy to the grid, the effective cost is very attractive in comparison to grid
electricity supply.
Table 10 Estimated costs of co-‐generation from rice husks

Unit Value
Costs
Investment cost US$/kW 2,457
Annualised investment cost (10% discount rate, 15-‐year life) US$/kW/year 323
O&M costs US$/kW/year 61
Total cost US$/kW/year 384

Hours utilised for rice milling 1,760
Average cost before grid electricity sales USc/kWh 21.85

Revenues from grid electricity sales
Grid sales price USc/kWh 7.00
Hours utilised for grid sales (70% load factor) 4,372
Annual income from grid sales US$/kW/year 306

Net cost after grid sales US$/kW/year 78
Average cost after grid sales USc/kWh 4.46
Source: ECA calculations. Investment cost estimated as average for six biomass-‐based co-‐generation plants
in Thailand as reported by Excellent Energy International Co Ltd37. Operating and maintenance cost as

36 Source: General Directorate of Agriculture (Department of Rice Crop), 18-22 March 2013, Overview:
Rice Production in Cambodia (http://www.agribenchmark.org/fileadmin/Dateiablage/B-Cash-
Crop/Projects/Rice-Initiative/Presentations-WS-130319/country_presentation_KH_130319.pdf).
Both existing (as at 2009) and new mills are included. Conversion to annual output assumes 1.5
tonnes of paddy rice converts to 1 tonne of milled rice, eight hours operating per day and 22 days per
month.
37 Excellent Energy International Co Ltd, 5 June 2013, “Making Energy Investment Projects Work by
Cogeneration Technology with ESCO”, Renewable Energy Asia 2013

(http://www.iei.or.th/media/www/file/165/19082071371352886.pdf)

March 2015

Consumption

reported in a study for a proposed rice husk-‐fired co-‐generation plant by King Mongkut’s University of
Technology Thonburi38. Utilisation for rice milling assumes 8 hours operation per day, 22 days per month
and 10 months per year.
Sale of surplus electricity
EDC has an existing programme of encouraging purchases of surplus electricity

generated by industrial customers and has signed a number of contracts. However,
these are individually negotiated on a case-‐by-‐case basis which increases the time taken
and creates uncertainty for industrial customers over what prices they will receive.
Requiring utilities to purchase surplus electricity from enterprises generating their own
supply does, of course, impose costs and risks on the utility. These must be recognised
and provision made to ensure that either the utility’s total costs do not increase or that,
where they do, it is able to recover these additional costs.
For these reasons, we consider the adoption of a standard Power Purchase Agreement,
including a standard price for electricity purchases, is desirable. This will make the
process of agreeing a contract more rapid, transparent and certain. The price should
reflect the benefits to EDC so that it is ‘fair’ to both parties.
There are three main approaches to setting the price for purchases of surplus
electricity:
❏ Avoided cost tariff. The price is set equal to the cost savings (the ‘avoided
costs’) of the purchasing utility. This will be the savings in fuel costs and
system losses plus an allowance for savings from reduced need to invest in
expanding generation and network capacity. More sophisticated systems will
offer different prices depending on the season and time period and whether
the supply of energy is ‘firm’(guaranteed) or not. Under current conditions,
the avoided costs of EDC are likely to be low, except in peak hours in the dry
season when oil-‐fired generation might be required to meet demand, due to
the current excess supply in many hours which means little saving to EDC
from purchasing more power. An avoided cost tariff has been introduced in
Vietnam for purchases from small hydro power plants but has been criticised
as leading to tariffs that are too low for many generators to be financially
viable.
❏ Adder payment. An adder represents a mark-‐up on the cost of bulk power to
the purchasing utility. Depending on how the cost of bulk power is defined,
this can be seen as a variant on an avoided cost tariff under which an
additional premium is paid to the supplier as an incentive. This model can
support higher-‐cost generators while sharing the risk between generators
and the purchasing utility that the prices paid move away from the costs of
alternative supplies. An adder of this type was the pricing arrangement used
for Thailand’s highly successful programme to promote the development of

38 Prachuab Peerapong and Bundit Limmeechokchai, July 2009, “Thermodynamic and Economic
Analysis of 1.4 MWe Rice-Husk Fired Cogeneration in Thailand”, Journal of Renewable Energy, Vol 4,
No. 2 (http://www.sert.nu.ac.th/IIRE/V4N2(4).pdf)

March 2015

Consumption

small and very small power producers selling to the state utility among
industrial enterprises.
❏ Feed-‐in-‐tariff (FIT). A fixed price is paid based on the costs of the generator
rather than the costs saved by the purchasing utility. This provides strong
incentives to generators (provided prices are high enough) but places
significant risk on the purchasing utility that prices paid will exceed its cost
savings from the displacement of alternative supplies. Vietnam has
introduced this pricing arrangement for purchases from wind generators but
the price offered appears to have been set too low to allow generators to
recover their costs and, therefore, has not succeeded in promoting
investment. Thailand is moving to a FIT for purchases from renewable
energy sources in response to concerns that the incentives under the current
adder arrangement are too high and promoting excessive and financially
unsustainable expansion of renewables capacity.
The costs of purchases at prices above avoided costs (which should be self-‐financing
from the resulting cost savings) can either be recovered by ‘bundling’ them into the
costs of power purchases recovered from customers or through an explicit levy. The
former approach is adopted in Thailand and Vietnam while the latter is used in the
Philippines (where the renewable energy levy represents around 3-‐5% of tariffs).
The use of adders and FITs which pay a premium above the utility’s cost savings is
common as a means of encouraging the development of renewable energy sources—
whose costs are generally above those of conventional generation. Cambodia at present
has a commitment to support the collective ASEAN target of renewables representing
15% of installed capacity by 201539 and is also promoting the use of renewable energy
for off-‐grid rural electrification but, otherwise, has no specific targets or policies to
develop renewable energy sources.
Without such policies and targets, it is difficult to argue for premium payments for
purchases from renewable energy sources. Whether Cambodia should be actively
promoting the expansion of grid-‐connected renewable energy generation (other than
large hydro power projects) is a wider question and one that is outside the scope of this
study.
Improving energy efficiency has significant potential to reduce the costs of electricity
supplies for industrial customers in Cambodia. In the case studies reviewed, even with
only a small part of identified efficiency investments being undertaken, savings in costs
of 6% to 8% were readily achieved.
Cambodia’s draft national energy efficiency strategy contains a set of measures to

further promote energy efficiency among industrial enterprises (and other energy-‐using

39 The definition of ‘renewables’ follows that of the World Energy Council which includes modern
biomass, hydro power (of all sizes), geothermal, wind, solar and marine energy. Using this definition,
the share of renewables in Cambodia’s installed capacity is expected to reach 56% in 2015.

March 2015

Consumption

sectors). The draft action plan that forms part of the strategy has a number of
immediate actions such as instituting a process of data collection on energy use by
industry, awareness-‐raising of energy efficiency opportunities and the development of
energy management standards can be implemented rapidly and at low cost. We
recommend that the short-‐term low-‐cost actions to improve data and raise
awareness of industrial energy efficiency identified in the draft national strategy
are implemented now, without waiting for the approval of the full strategy.
In the longer-‐term, it will be critical if energy efficiency potential is to be fully realised,
to address the difficulties faced by enterprises in borrowing to fund energy efficiency
investments. The draft national strategy recognises this need but lacks detailed actions.
We recommend that Cambodia investigate the potential for creating a revolving
energy efficiency fund, along the lines of Thailand’s well-‐established and successful
model, as a means of catalysing commercial lending for energy efficiency. However, we
recognise that steps towards introducing such a fund, given the associated institutional
and financial commitments, must wait for approval of the national energy efficiency
strategy. Therefore, we also recommend that the draft strategy is approved as soon
as possible to provide a basis for further development of energy efficiency
opportunities.
Self-‐generation using rice husks and other agricultural residues is attractive for
agricultural processing industries when compared to diesel generation. However, it is
less so when compared to current grid electricity tariffs. The costs of self-‐supply from
co-‐generation plants using rice husks for fuel is closer to grid-‐parity costs but still
unlikely to be viable if output is only used for internal purposes. Other technologies
appear unlikely to be competitive with grid supplies given their higher costs and, in the
case of solar panels, intermittent supply.
Most processing industries operate at relatively low load factors, which means that the
average or unit costs of self-generation are high and may make otherwise promising
technologies uncompetitive with grid electricity supply. Higher load factors and additional
revenues can be achieved if surplus generation can be sold to the grid. However, in doing
so, a balance must be struck between the benefits to the selling enterprise and the additional
costs and risks that may be imposed on the purchasing utility.
We recommend that EDC introduce a standard tariff, based on its avoided costs,
and accompanying PPA for purchases of surplus energy from industrial
enterprises with their own electricity generation. This will help make self-‐
generation more attractive and, thereby, allow customers to reduce their costs. By
linking the price paid to EDC’s avoided costs, the net impact on EDC’s costs and tariffs
should be zero. In future, if the government adopts a policy of promoting renewable
energy sources, a higher price in excess of avoided costs might be offered.
Box 4 Thailand's Energy Efficiency Revolving Fund
Objectives:
To facilitate investment in energy efficiency (EE) by helping commercial banks to develop
appraisal procedures and provide low interest rate loans for EE projects.
Energy Efficiency Goals:

March 2015

Consumption

No minimum level of energy saving is required. The Royal Government of Thailand has a stated
objective to reduce energy intensity by 25% between 2005 and 2025.
Sectors Targeted:
For industrial projects, criteria include improvement of combustion efficiency of fuels,
prevention of energy loss, recycling of energy wastes, reduction of power peak demand, use of
EE equipment, etc.
For buildings, criteria include reduction of heat from sunlight, room temperature at appropriate
level, use of quality material, effi cient use of lighting, use of control systems, etc.
Barriers Addressed:
Access to funding at competitive rates for upfront costs of EE projects.
Capacity-‐building for commercial banks as they are incentivized to finance EE projects at
attractive financing rates and are encouraged to develop EE business lines to gain access to
ENCON funding.
Financing Mechanism:
Funds from the ENCON Fund are provided as programme loans to commercial banks through
EERF at zero interest for amounts of THB 100–400 million (US$ 3.2 million-‐ 12.7 million). Banks
on-‐lend this financing and are allowed to charge interest up to 4% to cover their costs and risks.
Once a project is identifi ed (by the owner, an ESCO or other service provider), it is submitted to
EERF through a bank which conducts an appraisal / financial analysis prior to submission. If
successful, the project is then submitted to the Department of Alternative Energy Development
and Efficiency (DEDE) by the bank with a repayment plan. Once implemented, the borrower
repays the loan principal and interest to the bank, which repays the principal to the ENCON
Fund. The owner provides regular reports to DEDE on energy saving achievement. EERF loans
may be used to cover costs of purchase and installation of equipment, design, import taxes and
duty, etc. as defi ned in the ENCON Act.
(The ENCON Fund was established under the Energy Conservation Promotion Act 1992
(ENCON) and is financed from a tax on all petroleum products sold in Thailand. It is used to
support energy conservation and renewable energy policies)
Source: Adapted from Institute for Industrial Productivity Fact Sheet (http://www.iipnetwork.org/IIP-‐
FinanceFactsheet-‐3-‐EERF.pdf)

March 2015

Part III -‐ Recommendations

Part III - Recommendations

March 2015


7. Recommended policy actions
In this concluding section, we summarise the recommendations from the preceding

part. We have organised these by timing and the responsible lead entity.
7.1 Short-term (within one year)
Ministry of Economy and Finance
❏ Consider exempting electricity imports from duties and VAT
❏ Approve the National Energy Efficiency Strategy
❏ Speed-‐up implementation of the identified short-‐term actions in the strategy

to improve data and raise awareness of industrial energy efficiency
❏ Publish the assessment of EDC’s costs used to determine approved tariffs
❏ Increase the difference between TOU tariffs for peak and off-‐peak periods to
better reflect cost differences and practice elsewhere in the region (however,
this may need to be accompanied by changes to labour legislation regarding
night-‐time working if it is to be effective in changing consumption patterns)
7.2 Medium-term (one to three years)
❏ Investigate the potential for creating a revolving energy efficiency fund to

help industry fund investments
❏ Undertake a full analysis of EDC’s transmission and distribution costs

relative to the current allowances
❏ Conduct a study of the costs of supply to different customer categories
Electricitè du Cambodge
❏ Move to a greater reliance on debt financing of new investments making use

of the concessional rates available from multilateral and bilateral financing
institutions and EXIM banks

March 2015


❏ Introduce a standard tariff, based on its avoided costs, and accompanying

PPA for purchases of surplus energy from industrial enterprises with their
own electricity generation.
7.3 Long-term (over three years)
❏ Actively encourage the expansion of cross-‐border power trading in the

Greater Mekong Sub-‐Region and, in particular, the development of shorter-‐
term trading arrangements
❏ Implement an energy efficiency revolving fund, if prior assessment considers
this feasible
❏ Revise tariff structures to match the costs of supply for different customer
categories, as necessary
❏ Consider providing incentives for EDC to improve efficiency and reduce

system losses through the application of performance-‐based regulation.

March 2015

ANNEXES

ANNEXES

March 2015

ANNEXES

A1 List of persons met
Cambodia Chamber of Commerce
Setha Hong
Lead Consultant, Support to G-‐PSF Project
(hsetha@gmail.com / 012 819 367)
Yun Sovanna
Development and Cooperation
(ysovanna@gmail.com / 012 667 222 / 086 557 777)
Sotha Sothan
Information Executive, CCC
(sothan.ccc@gmail.com / +855 81 30 32 33)
HE Ith Praing
Secretary of State
(ipraing@gmail.com / 023 219 574)
HE Tun Lean
Undersecretary of State (Energy)
(tunlean@gmail.com / 011 82 51 35)
Victor Jona
Director-‐General, General Department of Energy
(jvictor.mime@gmail.com / 012 918 401)
Teng Sokhomal
Director Tariffs and Licensee Monitoring
Badri Rekhani
International Advisor
(bprekhani@yahoo.com)
Cambodia In-‐Depth Study on Electricity Cost and Supplies Page 86 of 89
FINAL Report -‐ March 2015

ANNEXES

Electricite du Cambodge
Chun Piseth
Executive Director, Corporate Planning and Projects
(chun.piseth@gmail.com / 012 92 92 17)
Siky Ra
Deputy Director, Corporate Planning and Projects
(rs_kiry@hotmail.com)
Lida Van
Deputy Director, Finance
(lida_vann@yahoo.com)
World Bank
Bun Veasna
Energy Expert
(vbun@worldbank.org)
UNIDO
Sok Narin
Head of UNIDO Operations, Cambodia
(n.sok@unido.org / 012 757 327)
Chheng Ngov-‐Veng
National Project Coordinator, Access to Clean Energy for Productive Uses in
Cambodia
(n.chheng@unido.org / 096 496 0206)
Garment Manufacturers’ Association of Cambodia
Mr Robert Hwang
GMAC Exco Member / CEO, In Kyung Cambodia Co Ltd
(roberthwang32310@gmail.com / +855 12 900 323)

ANNEXES

Loran Group PLC
Oknha Lim Buheng

President and CEO
(info@lorangroup.com / 012 790 168)
Lim Kim Khung

QA Manager
(qamanager@lorangroup.com / 078 990 999)
Ti-E Steel Corporation
Oknha Loch Sareth

Chairman
(lochsareth55@gmail.com / 012 768 666)
Chai Wei Thong

Vice-‐General Manager
(ti-‐esteel_corp@yahoo.com, tigaroda_cam@hotmail.com / 016 833 933)

Cambodia - in Depth Study On Electricity Cost and Supplies 2015

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5.1 Principles of tariff design 66

Abbreviations and acronyms

ADB Asian Development Bank

In-Depth Study on Electricity Cost and Supplies (TDSP/2012/081/02/1)

The assignment is being funded through the Department of International

The purposes of the assignment are to:

❏ Develop evidence-based recommendations on policy and regulatory

The analysis in this report draws on publicly-available documents and interviews

Cambodia’s power sector

Cambodia’s power sector is small by regional (and international) standards but

This rapid increase is driven by the expansion of electricity supplies nation-wide.

Peak demand on the national grid is substantially below available generating

Cambodia’s electricity prices

Figure 1 MV industrial tariffs compared

We show below a comparative breakdown of the cost components of EDC’s retail

Figure 2 Comparative breakdown of retail tariffs

Generation and power purchase costs

The higher transmission costs can, at least partially, be attributed to a combination of

In the absence of a comprehensive study of the costs of supply to different customer

We do recommend that EAC commission a study of the costs of supply to different

Case studies of garment factories conducted under the GEF-UNIDO Industrial

❏ Institution of a system of mandatory collection of data on energy

❏ Raising awareness of good energy management practices in industrial

❏ Establishing standards on energy efficiency and management in industrial

❏ Funding energy audits for small and medium enterprises, training of

❏ Providing loans for energy efficiency-improving investments as a catalyst

MME is undertaking limited initiatives to promote industrial energy efficiency,

In the longer-term, it will be critical if energy efficiency potential is to be fully

detailed actions. We recommend that Cambodia investigate the potential for

Self-generation using renewable sources

Recommended policy actions

Short-term (within one year)

Ministry of Economy and Finance

❏ Consider exempting electricity imports from duties and VAT

Ministry of Mines and Energy

❏ Approve the National Energy Efficiency Strategy

❏ Speed-up implementation of the identified short-term actions in the

Electricity Authority of Cambodia

❏ Publish the assessment of EDC’s costs used to determine approved tariffs

Medium-term (one to three years)

Ministry of Mines and Energy

❏ Investigate the potential for creating a revolving energy efficiency fund to

Electricity Authority of Cambodia

❏ Undertake a full analysis of EDC’s transmission and distribution costs

❏ Conduct a study of the costs of supply to different customer categories

❏ Move to a greater reliance on debt financing of new investments making

❏ Introduce a standard tariff, based on its avoided costs, and accompanying

Long-term (over three years)

Ministry of Mines and Energy

❏ Actively encourage the expansion of cross-border power trading in the

❏ Implement an energy efficiency revolving fund, if prior assessment

Electricity Authority of Cambodia

❏ Consider providing incentives for EDC to improve efficiency and reduce

This Progress Report is submitted by Mr William Derbyshire of Economic Consulting

In-­‐Depth Study on Electricity Cost and Supplies

The purposes of the assignment are to:

❏ Develop evidence-­‐based recommendations on policy and regulatory reforms

These recommendations will be an input to the discussions to be held at the

1.2 Guide to the report

This report has been organised into the following parts:

❏ Section 2, which provides an overview of the power sector in

❏ Section 3, which compares the prices of electricity supply for larger

In-‐Depth Study on Electricity Cost and Supplies

❏ Develop evidence-‐based recommendations on policy and regulatory reforms

The analysis in this report draws on publicly-‐available documents and interviews

Electricité du Cambodge (EDC) is the state-‐owned electricity supplier with

The number of licensees as at end-‐2013 is shown below. We also provide below an

Figure 4 Electricity sales and customer numbers, 2003-‐14

Figure 5 Commune and household electrification rates, 2003-‐14

Figure 8 Generation and power purchases by fuel, 2003-‐15

Figure 12 Growth of HV transmission grid, 2003-‐14

❏ Garment manufacturing: Electricity costs are a relatively small part (~4-‐

❏ Rice-‐milling and processing: Electricity costs are very significant as a share

❏ Steel manufacture: Electricity costs represent around one-‐third of total

Figure 14 MV industrial tariffs, 2003-‐20