Surrogate Pricing for Water: The Case of Micro Hydro-Electricity Cooperatives in Northern Thailand

Like most developing countries, Thailand has insufficient basic infrastructure such as roads, highways, and energy supply. Trying to overcome these deficiencies is the first step in the development process, and Thailand's National Economic and Social Development Plans, especially the First and the Second Plans, did just that. Electricity, one of the most crucial factors of modern industrial production as well as a means of improved general livelihood, is one of the basic infrastructures for which Thailand has achieved substantial success to meet rising demand. Thailand was able to supply nearly 95 percent of the country with electricity in 1996. Other areas, consisting largely of remote, mostly mountainous areas, are yet to receive access to the national grid. In the big picture, 85 percent of the electricity supply is derived from imported energy, the majority (44%) of which comes from natural gas. This situation implies a high dependency on imports, as the domestic supply of natural gas is on the verge of full exploitation (EGAT 1994: 14). Ensuring a stable future supply of electricity requires secure energy input, and the Thai-Myanmar natural gas deal is one example of such efforts. Supply management at the height of environmental awareness is not easy - as has been repeatedly proven by public protests against major dam construction. Successful management implies full coverage of the service areas with reliable energy, and a change in the composition of energy sources to sustain Thailand's high growth rates of GNP and sustainable development. Thailand has done quite well for the first one. For the latter, other alternative sources of energy include renewable energy such as geothermal energy, which supplies 95 percent of the total alternative energy in Thailand (EGAT 1994: 27). There are also solar energy, mini and micro hydros, and biomass energy which are often identified as attractive energy sources for environmental reasons (e.g., in the context of climate change). While solar energy appears to be an attractive option, due to the high number of sunny days in the country, its high cost2 prevents it from being competitive to hydro energy, if water is available at the same site. The latter appears attractive, especially the mini and the micro scales, because it is renewable and environmentally benign. Many countries have recognized the potential of small-scale hydropower. In late 1996, Indonesia, for example, decided to spend over one billion US dollars on mini-hydro projects with World Bank support. Over 90 percent of electricity produced in Norway come from hydropower. In contrast, only five percent of the total electricity production in Thailand is hydro-based. This is due mainly to the limited availability of sites for major dams as well as the public rejection of any new construction of large-scale hydropower facilities. Mini- and micro-hydro projects do not face these problems, making them very attractive. However, scale itself limits the service areas, and thus the per unit cost is often higher than the conventional national grid.