Cambodian garment and manufacturing companies are requesting the government cancel burdensome grid connection capacity charges as well as offer more favorable tariffs for rooftop solar to ensure the sector remains competitive.
Speaking at the Garment CEO dinner hosted by the European Chamber of Commerce, the main recommendations included requesting the government to cancel capacity charges for manufacturing companies and companies operating in special economic zones and offer more favorable tariffs for localized power purchase agreements.
According to a report published by the German development fund, GIZ limited on-or off-grid solar capacity to date, with regulators stating concerns around the proliferation of rooftop solar without adequate controls, grid codes and installation standards.
The capacity charge, or ‘Power Price Rate’, is charged per month on the basis of the contract demand that is agreed with the regulator for customers connecting at higher voltages. In Cambodia, solar is the only technology subject to a capacity charge, with all other technologies charged a simple, one-part, per kWh tariff, the report stated.
Ensuring Cambodia’s manufacturing sector remains competitive
A representative of the chamber’s Garment and Manufacturing Committee commented that rooftop solar is essential to attract new, more modern suppliers and to grow production in Cambodia.
“This is a competitive issue, and my job is to make Cambodia more competitive as a production hub for different products. At some point, if we cannot compete with other manufacturing hubs, we will have to leave. In every other country, it is easier than here,” they added.
Cambodia’s garment and manufacturing sector is currently undergoing a transformation focusing on developing sustainability for its workforce as well as its carbon footprint. To read more about the transformation click here.
Secretary of State at the Ministry of Mines and Energy His Excellency Sok Khavan responded saying the ministry is wholly invested and committed to renewable energy as reflected in the current domestic energy mix, which is over 52% renewables.
He added, that a balance must be struck between moving towards sustainable energy in the future and ensuring supply to meet energy demand growth, and providing affordable and reliable energy.
“Concerning grid connection capacity charges for rooftop solar, the relevant regulation has already been established so we will have to implement it. I acknowledged the clear message from the factories’ owners on the importance of solar rooftops to their sustainable business plan and ultimately their continued growth in Cambodia,” Sok Khavan.
“Given the fast-changing solar technology and market there are valid arguments from both sides regarding the costs incurred as well as value created from solar rooftop connection to the grid. I support continued discussion to find common understanding and a mutually beneficial outcome for the benefit of all consumers,” he added.
Rising costs and demand for energy in Cambodia
Coal, gas, and oil prices continue to rise as a result of logistical hurdles and geopolitical pressure. Currently, solar energy is estimated to cost 2.67 cents/kWh while coal-fired energy costs 7.7 cents/kWh.
It’s estimated that energy demand will more than triple by 2040 in Cambodia and several factors favor a switch to solar energy. China, South Korea, and Japan have refused to finance future coal projects, while at the same time, international investors are trending towards renewable energy in response to the global demand for sustainability.
Concerning incentives for solar power, Sok Khavan said current regimes and market forces are already favorable adding solar has grown from around 10 MW in 2019 to almost 400 MW in 2022, representing almost a 4000% growth for the past 3 years.
“We see remarkable growth in renewable energy and solar and this has all come about not because we are incentivizing it but because the cost of solar has come down so dramatically that it makes economic sense now for the government to facilitate investment,” he said
“I think the question should be how we become as green as possible while ensuring that we have enough power supply at an affordable price,” he added.
Greening of Cambodia’s economy in all sectors
The Cambodian government has committed to becoming the first ASEAN nation to submit its Long-Term Strategy for Carbon Neutrality (LTS4CN) to the United Nations finding an economic impact of 449,000 additional jobs and an additional 2.8% of annual GDP growth by 2050 if the Kingdom can be carbon neutral.
According to estimates in the report, by 2050, the private sector is projected is forecast to invest nearly $1.4 billion each year, mostly in energy, transportation, and forestry sectors, with some significant investment in the industrial sector. To read more about Cambodia’s commitment to carbon neutrality click here.
EuroCham Chairman Tassilo Brinzer commented that for EuroCham and members, the greening of Cambodia’s economy in any sector is hugely important as it makes businesses more competitive, more modern, and more resilient.
“Be it high-quality travel and eco-tourism; manufacturing in modern, sustainable high-tech production facilities; construction with energy-efficient technologies and designs that modernize the face of our cities; transportation using sustainable technologies; or services that repurpose waste. All of these offer enormous, progressive growth opportunities as the Kingdom competes with fast-modernizing neighbors,” Brinzer said.
“The garment industry, in particular, remains hugely important and in this sense has a great opportunity to expand better. We are at GMAC’s side as it prepares the sector for the future and to move up in global supply chains. Asian, European, American, and Japanese markets with modern middle classes continue to demand more sustainable products. For Cambodia, this is an opportunity for better business, better jobs, new investment, and growth,” Brinzer added.