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Thailand’s renewable energy sector has been back in the spotlight following the recent allocation of 6.98GW of renewable energy power purchase agreements by state-owned operators Metropolitan Electricity Authority, Provincial Electricity Authority and Electricity Generating Authority of Thailand (power purchasing agreements) and the launch of the utility green tariff (UGT) programme in January 2025.

Under the UGT-1 scheme, businesses will be able to purchase “green” electricity from state-owned hydropower plants already in operation, and a planned UGT-2 scheme will allow businesses to purchase electricity from wind, solar projects or other renewable sources operated either by state-owned generators or private-sector generators.

These developments reflect the Thai government’s ongoing commitment to sustainability and its efforts to achieve its sustainable development goals (SDGs) in line with international agreements, under which Thailand has pledged to reduce greenhouse gas emissions.

For investors, this presents a promising entry point into the Thai renewable energy market. However, navigating this space demands an understanding of a complex legal and regulatory framework. In addition to a review of engineering, procurement and construction (EPC), and operations and maintenance (O&M) contracts and correspondence, M&A transactions in the Thai energy sector involve additional regulatory considerations including licensing, land ownership restrictions and structuring complexities, particularly for foreign investors.

Regulatory framework

M&A transactions in Thailand’s energy sector require careful consideration of merger restrictions administered by the Energy Regulatory Commission (ERC) and foreign ownership restrictions imposed by other regulators, as Thailand does not have a one-stop licensing system that addresses all legal aspects of an electricity generating company. The regulatory framework is summarised below.

The Energy Industry Act (2007) (Energy Act) and the Energy Development and Promotion Act (1992) (EDP Act). Under the Energy Act, a licence from the ERC is required for the production, transmission and distribution of electricity above 1,000 Kilovolt amperes (kVA), as well as for activities involving natural gas. Under the EDP Act, the production of energy from sources with a total capacity exceeding 200kVA requires a regulated energy permit from the Department of Alternative Energy Development and Efficiency.

Power purchase agreements (PPAs). Renewable energy PPAs in Thailand typically range from five to 25 years, depending on the type of renewable energy and the applicable tariff structure. Tariffs may be structured as a flat rate feed-in tariff over the life of the PPA or as a variable rate calculated by adding a fixed premium to the prevailing wholesale electricity price (such as an adder rate). If the PPA has a shorter term, it does not necessarily renew automatically. The target company must comply with the renewal procedures set out in the PPA to renew the agreement. Accordingly, legal due diligence should cover:

1. 1. A review of the PPA to determine whether any conditions have been breached that may affect the ability to renew the PPA; and
   2. An assessment of any change of control provisions, including whether prior consent from the relevant utility authorities in Thailand is required for any change in the ownership or structure of the target company.

The Foreign Business Act (1999) (FBA). The FBA lists several businesses for which the majority of foreign-owned companies must obtain approval – penalties for failing to obtain approval include imprisonment for three years and fines of THB1 million (USD30,110). While the production of electricity is not restricted under the FBA, activities such as trading or on-selling electricity, or providing transmission line services, are likely to be restricted under the FBA.

A Thai company will be classified as “foreign” under the FBA if 50% or more of its shares are held by non-Thai investors, and it will require approval under the FBA to engage in restricted activities, a process which can take between one and six months, or longer.

Land. Renewable energy projects require large areas of land, and projects in Thailand are typically situated on land under the Land Code (Chanote land and NorSor3 land), land administered by the Agricultural Land Reform Office (ALRO land), or land under the supervision of the Royal Forest Department (RFD land).

Each category of land is subject to different regulatory frameworks, and foreign ownership restrictions may apply. As a result, land use rights or land ownership may be affected, or potentially invalidated, by a foreign acquisition, depending on the nature of the land and applicable regulations. Foreign ownership of land under the Land Code is permissible in certain industrial estates, or if approval from the Board of Investment is granted; however, other land types may present challenges for foreign buyers.

M&A structure

The most commonly used structure in renewable energy M&A in Thailand is a share acquisition, rather than an asset acquisition, primarily for transactional efficiency and speed. Renewable energy projects are typically developed through a special purpose vehicle (SPV), and acquisitions are frequently carried out by acquiring shares in the SPV from the holding company.

A key rationale behind the preference for share acquisitions is the continuity of the project’s licences, permits and contracts. Share acquisitions allow these to remain with the SPV, avoiding the need to obtain new approvals or to novate existing project agreements.

In contrast, asset acquisitions often trigger significant tax implications and may require the reissuance or transfer of regulatory permits and the novation of contractual arrangements, resulting in increased complexity and transaction costs.

Merger controls

The Energy Regulatory Commission’s most recent regulation on rules and procedures for mergers and cross-shareholding in the energy business (ERC merger regulation) came into effect on 20 December 2022. This sets out the types of activities that require prior approval from the ERC when a merger or acquisition takes place between two licence holders under the Energy Industry Act (licensees). The M&A activities requiring prior approval under the ERC merger regulation include the following:

1. 1. Merger or amalgamation between licensees where one entity continues to exist and the other is dissolved, or where a new entity is formed;
   2. Acquisition of assets exceeding 25% of another licensee’s assets related to energy business operations;
   3. Share acquisition (including through instruments such as warrants or other securities) resulting in control over another licensee, whether directly or indirectly; and
   4. Acquisition of control over a licensee or its controlling entity when holding less than 25% of the total shares.

Exemptions from the approval requirement are available in certain circumstances, including if the total assets used for energy business operations after the merger or amalgamation do not exceed THB1 billion. Other exemption criteria are prescribed under the ERC merger regulation.

The merger regulations also govern cross-shareholding between licensees, which similarly requires the ERC’s approval.

In addition to the ERC merger regulations, the energy commission has enacted the regulation on rules, procedures and conditions for the transfer of licences to operate energy businesses (ERC transfer regulation). Under this regulation, the original licensee is required to seek prior approval from the ERC before transferring its licence. The key factors considered by ERC in determining whether to approve a licence transfer are as follows:

1. 1. The impact on market monopoly and competition;
   2. The impact on the transferor’s contractual partners and energy consumers; and
   3. The impact on energy security and public welfare.

Change of control

Apart from a change of control provisions at the contractual level, it is important to highlight that in most bidding rounds for power purchasing agreements, the ERC imposes restrictions on changes in the shareholding structure of companies to which a PPA has been awarded.

The original shareholders of a company awarded a PPA are typically required to maintain a minimum shareholding percentage, commonly 50% or 51% of total shares, until a specified period has passed, often three years following the commercial operation date.

Conclusion

The Thailand renewable energy sector’s key issues include licensing, foreign ownership restrictions, land regulations and the ERC approvals for mergers and licence transfers. Thorough legal due diligence and careful structuring are key roles to ensure compliance and maintain project continuity.

SCL NISHIMURA & ASAHI LIMITED
NISHIMURA & ASAHI (BANGKOK)
34th Floor, Athenee Tower, 63 Wireless Road
Lumpini Pathumwan, Bangkok 10330, Thailand
Tel: +66 2 126 9100; +66 2 126 9109
Email: c.osborne@nishimura.com