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Cambodia’s Green Energy Initiatives: A Path to Attract EU Investments

by Surya Narayan
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In a report titled ‘Cambodia’s Attractiveness for EU Foreign Direct Investments (FDI),’ jointly produced by the European Union (EU) and the German Federal Ministry for Economic Cooperation and Development (BMZ), it is emphasized that Cambodia’s progress in adopting renewable energy could significantly enhance its appeal to EU-based companies seeking investment opportunities. The report derives insights from surveys conducted among investors in the region, soliciting their perspectives on what improvements Cambodia should make to attract more foreign direct investments, particularly from the EU.

In the realm of electricity production, Cambodia stands out as a greener option compared to its ASEAN counterparts. A report from December 2023 by Enerdata highlights that approximately 80 percent of energy production in the ASEAN region relies on coal, gas, and oil. In contrast, Cambodia’s electricity generation portrays a more sustainable picture, with 45 percent of it stemming from hydroelectric power and 5 percent from solar energy, while the remainder is derived from fossil fuels and heavy oils.

However, the report underscores that Cambodia, despite its natural wealth and potential for clean energy generation, still has significant progress to make to fully capitalize on this advantage. It identifies the absence of a clear development and utilization plan for renewable energy as a key challenge, particularly concerning hydroelectric dams. Additionally, investors express concerns about the lack of a regulatory framework for renewable energy and the substantial upfront costs associated with establishing renewable energy projects. Access to affordable financing also remains a hurdle for businesses in Cambodia.

One critical concern raised by surveyed investors pertains to the assurance of clean energy provision through certifications, a matter of particular interest to EU-based companies with Environmental, Social, and Governance (ESG) goals. European companies are increasingly focusing on ESG goals, as proof of achieving these goals has become a prerequisite for availing tax incentives, as noted in a recent paper by PriceWaterCoopers (PwC) on tax strategy.

The report also acknowledges the significant improvement in electricity access in Cambodia over the years, with access expanding from just 6.6 percent of the population in 2000 to 97.5 percent in 2021. It highlights government initiatives like the Power Development Master Plan 2022-2040 and the National Energy Efficiency Policy (NEEP), which aim to ensure stable power supply with consistent rates. Given that a substantial portion of Cambodia’s electricity is domestically produced, the NEEP may help mitigate the impact of global energy price volatility.

Although electricity prices in Cambodia remain higher than in neighboring countries like Vietnam and Laos, a 22 percent reduction between 2015 and 2020 has made electricity more affordable for businesses and startups. Investors expressed a heightened interest in Cambodia if it could reduce its dependence on imported electricity and fossil fuels, as reliance on global electricity prices and insufficient national grid coverage in rural areas remain concerns.

While Cambodia has made strides in achieving a more stable energy grid with fewer power disruptions, the cost of energy remains a contentious issue. High energy costs can deter potential investors, although the relative stability of the energy supply compared to some neighboring countries is recognized as an advantage.

Despite these challenges, Cambodia’s energy landscape offers both opportunities and obstacles. The remarkable increase in electrification over the past decade demonstrates the government’s commitment to meet growing energy demand, making Cambodia an increasingly attractive destination for foreign investments, particularly from EU-based companies looking to align with green energy initiatives and ESG goals.

Source: Khmer Times

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