Policy Brief: Economic Impact of Solar
24 Oct 2022
by UNDP Cambodia
A latest research from UNDP provides interesting insights into the economics of Solar PV in Cambodia. Please have a read!
Executive Summary:

Cambodia is at cross-roads on many fronts starting with its graduation from least developed country (LDC) status and facing post-pandemic rapid economic recovery. The country drafted its new Power Development Plan (2021 – 2040) to respond to the anticipated power demand. This plan was based on the principles of affordability of electricity supply by embracing least cost generation mix and reliability with adequate generation and transmission to serve the demand.

As ASEAN countries are looking for energy security through greater use of domestic energy resources, a few countries such as Cambodia are increasing external sources including import of electricity from neighbouring countries.

Some of the decisions made in recent years indicate Cambodia is embracing renewables in its energy mix, but the question is - to what extent? No new hydro projects on the mainstream Mekong River and no new coal power plants except those already signed. Reduced dependence of Cambodia on coal will certainly lead to economic gains and improve energy security. It is also going to contribute towards its climate goals, which is a twin benefit. Most of the coal power plants that were approved after the 2019 power shortages have not yet started. The government could work out a plan even to shift investments from coal towards renewables and avoid externality cost and potential stranded assets.

Cambodia has a high potential of untapped solar energy. This policy brief provides a case study for Cambodia, how solar could satisfy future load growth with reliable and affordable electricity without compromising on the resilience, reliability and affordability of electricity supply. This brief evaluates the economic impacts of adding higher levels of Solar PV into Cambodia's generation supply mix, considering its characteristics relative to existing and planned technologies. It presents an economic modelling that accounts for an extensive range of factors, such as power systems integration, macro-economic growth impact, contributions towards energy security and optimization of existing assets, environmental externalities, and social impact, including affordability, job creation and income distribution. In summary:
  • Modelling shows that Solar PV will yield significant economic benefits for Cambodia over conventional (Thermal and Hydropower) generation technologies.
  • Five scenarios for the development of Cambodia's power system from 2020-2040 were modelled. They replaced some conventional plants with a higher uptake of Solar PV.
  • Adding Solar PV instead of conventional plants incrementally reduced the overall cost of generating electricity, lowered associated externality costs from the power system, and stimulated economy-wide GDP growth.
  • In the ambitious Solar scenario of 30%, replacing some Coal, Gas & Hydro with 9,702 MW of Solar PV backed by 2,500 MW of Battery Energy Storage System yielded $2.04 billion in savings by 2040, lowering the overall cost of generating electricity in Cambodia.
  • Modelling shows that Cambodia incurs significant externality costs from its power system, and the ambitious Solar scenario yielded the most reductions to this cost, saving Cambodia up to $5.07 Billion from 2020-2040.
  • Even in a realistic scenario of 14% solar PV generation share, Cambodia could still save $ 250 million of total power system cost with externality cost reduction of $1.5 billion. This translates to a cumulative GDP gain of 0.82% over 20 years or 0.04% annually.
  • Due to higher investment requirements and reductions to imported energy, the ambitious scenario induced an additional 3.4% of GDP growth in Cambodia over the 2020-2040 modelling period.
  • Other key results from the ambitious Solar scenario include (2020-2040):
    • Increases in cumulative investments in the power system by 30%;
    • a reduction in the cost of primary energy imports by 43%, instead utilizing Cambodia's indigenous Solar resources;
    • reducing cumulative power system emissions by 117 Megatonnes (Mt) of CO2, increasing the share of Clean Energy generation by 17%, and;
    • overall net gains of 167% in power sector job creation.
  • Cambodia's robust Solar PV resources remain largely untapped and can be rapidly developed with significant economic benefits.