You are using an outdated browser and your browsing experience will not be optimal. Please update to the latest version of Microsoft Edge, Google Chrome or Mozilla Firefox. Install Microsoft Edge

July 7, 2023

Cambodia Issues Environmental Code and Guidelines Benefiting Rooftop Solar Projects

Subscribe to Updates

Cambodia has the potential to be one of the top countries in the world for generating renewable energy through solar, based on the average amount of sunlight hours available per day and the consistent sunshine throughout the year.

The Cambodian government has recognized this potential and has made major updates to its energy policies in recent years. Solar power is now taking over a much larger portion of the total energy mix in Cambodia, especially as a number of utility-scale solar power plants have come online in recent years.

The long-term Power Development Master Plan 2022–2040 sets out the long-term energy policy for Cambodia and requires a bigger role for renewables. The use of solar power will play a key role in this aim to increase the role of renewables, with the plan foreseeing almost 30% of all national power generated through solar technologies by 2040.

Two of the latest legislative and regulatory steps by the government are the Ministry of Mines and Energy’s guidelines for rooftop solar systems, and most recently the long-awaited Environment and Natural Resources Code, which was enacted on June 29, 2023.

Rooftop Solar Projects

Many companies, from small startups to multinationals, are exploring the potential for rooftop solar in Cambodia. However, despite the favorable natural factors, the regulatory framework was not always clear or friendly to rooftop solar, hampering investment.

This started slowly changing with the adoption of the first solar energy regulation in 2018, which provided the country’s first official guidance on both solar power plants and rooftop solar. It provided some much-needed clarity, but the 2018 solar energy regulation—and especially the subsequent electricity tariff schemes—often kept rooftop projects from being financially viable.

Many players in the industry voiced their doubts about the regulations and tariffs, focusing especially on the capacity charge—a monthly electricity charge based on the total capacity of the rooftop solar project, not on consumption. Another point of contention was capacity restrictions, which limit projects in scale and therefore in profitability.

The restrictions and the capacity charge made rooftop solar much less competitive when compared to other energy sources. In many cases, rooftop solar would make the price of electricity even more expensive than purchasing it from the national grid without having rooftop solar. These factors put a serious damper on investment into rooftop solar in Cambodia.

The 2023 Solar Guidelines and the Environmental Code

Noticing the lack of investment in rooftop solar, Cambodia’s Ministry of Mines and Energy recently issued new guidelines (the “2023 Solar Guidelines”) in a bid to change this.

The 2023 Solar Guidelines (formally the “Principles for Permitting the Use of Rooftop Solar Power in Cambodia”) are the result of a study by an interinstitutional committee formed specifically for this purpose, working in close cooperation with the United Nations Development Programme.

In addition to the 2023 Solar Guidelines, the government has included references to solar, rooftop solar, and renewable energy in the Environment and Natural Resources Code (the “Environmental Code”), which was adopted on June 29, 2023.

The Environmental Code was years in the making, and after going through various drafting stages the adopted version consists of 865 articles addressing a range of topics, including environmental impact assessments, environmental management and conservation, energy management, waste and pollution management, disaster risk reduction management, and many others. The section on renewable energy specifically addresses the management of rooftop solar systems, tax incentives, and other important issues.

Some of the solar and rooftop solar provisions from the 2023 Solar Guidelines and the Environmental Code are discussed below.

Feeding Excess Power into the National Grid

The 2023 Solar Guidelines, in contrast to the 2018 Solar Regulations, allow for approved rooftop solar projects to feed excess power into the national grid.

This may help companies with their offset goals and commitments to reduce their carbon footprint, and is therefore a favorable and much-needed development. Feeding-in is subject to an approval quota, permitting, and a technical assessment by authorities prior to approval.

No feed-in tariff or net-metering has yet been set, so although feed-in approval may be granted, there is not yet a clear financial benefit to feeding excess power into the national grid.

However, this is very likely to change in the near future, as the Environmental Code provides that the relevant government authorities must establish a pilot project for a preferential tariff system for renewable energy. The system must include a fixed rate for the purchase of power coming from solar or other renewables, and a cost reduction mechanism.

This wording will likely lead to a feed-in tariff, and possibly a net-metering approach, to ensure that excess power fed into the grid leads to either fixed financial compensation or a reduction in electricity costs through net metering.

It appears the 2023 Solar Guidelines are laying the groundwork for this pilot project proscribed for in the Environmental Code, so related developments on this are expected soon.

Compensation Tariff for Variable Energy from Rooftop Solar

Removing the much-debated capacity charge, the 2023 Solar Guidelines require the tariff regulator to set a new tariff for rooftop solar based on a prescribed formula. The new tariff must be based on actual consumption of electricity, not on the total capacity of the project.

Regardless of the formula and numbers that the regulator will use to calculate the new tariff, consumers with rooftop solar will not have to pay a higher rate when compared to the general tariff applicable to users without solar, as per the 2023 Solar Guidelines.

Initial responses by the local solar industry welcomed the removal of the capacity charge and the introduction of the tariff limit for solar. However, businesses are hesitant about whether the new tariff scheme will spur immediate investment in rooftop solar, as the hard numbers for the new tariff have not been issued.

The formula for the “Compensation Tariff for Variable Energy from Rooftop Solar” provided under the 2023 Solar Guidelines is designed to be fair to “all parties”—including existing utility companies and investments that are impacted by solar and thus require compensation. As stated above, the 2023 Solar Guidelines have not set the tariff price; they merely set a formula following guidelines and principles. The actual tariff is for the regulator to determine, and to do so it will include calculations on the leveled cost of electricity (LCOE) and grid loss to compensate parties that may be impacted by solar.

Potential Tax Incentives

The Environmental Code provides that “all materials used for the installation of renewable technologies” are to be given tax incentives.

Although the article does not further clarify the specifics of such incentives, the clear obligation to provide a tax incentive should be warmly welcomed by businesses. We expect the tax regulator to further clarify these tax incentives in the near future.

A Bright Future

The 2023 Solar Guidelines provide the solar industry and government institutions with principles and guidelines related to rooftop solar. We expect that these principles and guidelines will eventually lead to clear rights and obligations as they are implemented through legislation and official policy in the coming years. The basis for incentivizing and promoting solar is clearly provided under the 2023 Solar Guidelines.

The Environmental Code sets clear rights and obligations, applying both directly to citizens, companies, and to government institutions that have to implement and honor them. Addressing solar in such a major piece of legislation marks a great step forward for the country. Providing clear and direct obligations for government institutions to promote and incentivize renewables such as solar will surely have a positive effect on industry and the environment.

Related Professionals

Industries

Energy

Location

RELATED INSIGHTS​ 

August 2, 2022
The Ministry of Energy is preparing to open a bidding round for the right to explore and produce petroleum in three offshore exploration blocks in the Gulf of Thailand: Exploration Block Nos. G1/65, G2/65, and G3/65. Announced in April 2022 with an eye toward national energy sustainability and security, this is the first opportunity for exploration of new offshore areas in 15 years. The total area of the three exploration blocks is 35,164.01 square kilometers, and operations in the exploration blocks will be subject to the terms and conditions of the required production sharing contract (PSC). Under the PSC, the Thai government is entitled to receive royalty payments against profits, any applicable cost recovery, and profit petroleum. The government also has the authority to monitor the petroleum operations in collaboration with the successful bidder. On July 27, 2022, the Department of Mineral Fuels (DMF) held a conference for prospective investors in order to clarify general information regarding the petroleum bidding round. Currently, interested investors can request the right to enter the bidding-round data room located at the DMF by emailing [email protected] by September 2, 2022. To participate in the bidding round, interested investors must submit an application together with required documents to the DMF during the period of September 5–16, 2022. For further information on the bidding round, or on any aspect of energy law in Thailand, please contact Tilleke & Gibbins at [email protected] or +66 2056 5555.
Read More
February 28, 2022
On February 9, 2022, the Director-General of the Department of Mineral Fuels (DMF) stated that the DMF is planning to request that the Deputy Prime Minister and the Minister of Energy sign an invitation to open bids for Petroleum Exploration and Production Licenses in the Gulf of Thailand for the first time in 15 years. The DMF’s Chief Department expects that this auction, which will cover three offshore areas, could increase Thailand’s petroleum reserves, and it could lead to the possible discovery of new sources of petroleum for Thailand, which would boost the country’s energy resources, and reduce losses from energy imports. The plots in the Gulf of Thailand that will be auctioned in the 24th bid round are as follows: Plot No. G1/65 with a total area of 8,487 square kilometers. This area is divided into 2 sub-areas: Area A totaling 8,298.49 square kilometers, and Area B totaling 188.71 square kilometers; Plot G2/65 with a total area of 15,030 square kilometers; and Plot No. G3/65 with a total area of 11,646.67 square kilometers. This area is divided into 2 sub-areas: Area A totaling 11,028.22 square kilometers, and Area B totaling 618.45 square kilometers. Generally, Thailand initiates its concession and production sharing contract process with the announcement of an exploration area or a plot in the Government Gazette. Thereafter, the DMF Committee will consider and announce the invitation, so that private sector firms can submit their applications to receive respective rights. The DMF’s sub-committee will consider the applications by: checking the qualifications stipulated under Section 24 of the Petroleum Act; assessing the suitability of the exploration project; and determining the benefits which are offered by the applicant. After considering the requests, the DMF’s sub-committee will consider the petroleum laws and regulations, before submitting the matter to the Petroleum Committee—under
Read More
February 22, 2022
The many new and unique challenges in recent years—from epidemics, to travel restrictions, to supply chain disruptions and energy-related reactions to all of the above, we have all had to adjust to a new status quo. The energy industry has felt these impacts acutely, and as the industry seeks to meet the current challenges and move forward toward a more sustainable future, it is helpful to take stock of where things stand and where they might be headed in the coming years. In the midst of this uncertainty, Energy Law in Southeast Asia by the Tilleke & Gibbins Energy Industry Team seeks to provide clarity on the legal and regulatory environment surrounding energy industry activities. Each chapter of Energy Law in Southeast Asia takes the reader through the essential information surrounding energy and environmental regulations in general and the specific laws and practices for the major areas of energy projects—both in terms of the current energy mix and the sources taking on a larger role as we transition toward a lower-carbon future. These chapter subsections are: Regulatory Structure Oil and Gas Coal Solar Wind Hydropower Biomass and Biogas Environmental Regulations In providing this legal overview of major areas across the spectrum of energy projects in Southeast Asia, we have sought to create a resource for all involved in the energy industry, regardless of their specific area of interest or the different obstacles or challenges they seek to resolve. Energy Law in Southeast Asia is written by specialists on Tilleke & Gibbins’ Energy Industry Team, who together have over 200 years of accumulated energy experience. Spread throughout Tilleke & Gibbins’ offices in Southeast Asia, they function both as an integrated regional team to advise multinational enterprises on their regional energy project portfolios, and as experts for investors and companies looking
Read More
January 27, 2022
The Energy Generating Authority of Thailand (EGAT) has launched a pilot project to study the energy consumption and the economic, social, and environmental impact of electric motorcycle taxis, as well as the behavior of drivers and passengers. The project, which was launched on December 27, 2021, as part of EGAT’s Carbon Neutrality Policy, will continue for a year, after which EGAT will consider the data and decide whether electric motorcycle taxis should be introduced nationwide. EGAT is also currently encouraging the use of electric bikes within their own organization, and they initially expect this to help reduce annual carbon dioxide emissions by 37 tons and prevent the release of about 838,000 milligrams of dust per year. EGAT expects additional significant reductions from electric motorcycle taxi pilot projects in multiple locations. A study conducted in Kenya in 2015 by that country’s energy regulator found that sub-150cc motorcycles emit approximately 46.5 grams of carbon dioxide per kilometer, and these emissions increase proportionally in accordance with engine size. According to Thailand’s Office of Industrial Economics, citing data collected by the Federation of Thai Industries Automotive Industry Group, a total of 1,516,096 motorcycles were sold in Thailand in 2020—a surprisingly robust figure in light of the impact of the COVID-19 pandemic. Assuming that public motorcycles travel an average of 15,000 kilometers per year, each motorcycle is therefore producing approximately 0.7 tons of carbon dioxide per year. If Thailand is able to change 50% of its yearly sales of standard motorcycle to electric motorcycles, annual carbon dioxide emissions could decrease by approximately 530,000 tons. Furthermore, since 28.8% of carbon dioxide emissions in Thailand are generated from the transport sector, the transition to electric mobility vehicles looks to be one of the most promising solutions for lowering carbon dioxide emissions in the country. Considering developments
Read More