In December, the temperature in London is set to drop to 7°C with only three hours of sunshine a day.
Bangkok, in contrast, will have an average temperature of 26°C, with nine hours of sunshine a day.
I suppose this helps to explain the snarling queues of British and Europeans at the immigration counters of Suvarnabhumi Airport.
They are not alone.
North Asian tourists – particularly Chinese – are lining up with them. I fault them not. A few years ago, I travelled in a taxi from downtown Beijing to the airport with hardly any visibility due to smog, snow and darkness.
The good weather is pulling everyone towards Thailand. It’s also had a healthy influence on the agricultural sector.
But beyond these two sectors, is there a way to make money from the sunny weather?
I believe so.
For the past couple of years, Thailand has been developing a multi-billion dollar infrastructure-spending programme to allow it to bring its railway and road system into the 21st century, tap the Mekong region and access China and India. There is also a huge demand to build factories, hospitals, schools, offices and houses – all energy dependent.
Given the long-term energy demand and the ever-present sunny weather, this could be a great opportunity to harness the potential of solar power.
Thailand needs a new energy source
In late October, the Thai prime minister, Prayuth Chan-ocha, chaired the National Energy Policy Council which endorsed a new programme to beef up renewable energy – with a particular focus on solar energy.
The tilt towards solar power is due to the dependence on natural gas, (liquefied natural gas, LNG). 65% of the country’s electricity is generated via natural gas, of which 14% comes from neighbouring Myanmar, and the other 4.5% from other international markets.
What’s more, the demand is set to accelerate over the next decade. And that will have to be imported, due to dwindling domestic reserves. By 2023, one-third to two-thirds of natural gas demand will have to be met by imported LNG.
Thailand needs to switch to an alternative – and quickly.
Why solar energy is the best option
The problem is that alternatives are hard to find. Thailand has a strong and vocal environmental lobby, making it tough to rely on coal-fired or nuclear power.
Renewable energy sources look the most promising – specifically, solar power.
Thailand already has more solar power and biomass power capacity than every other Southeast Asian country combined.
The sharp fall in the price of solar panels and input costs will also help push people towards solar power. The price of solar panel prices has dropped from an average of $5/W in 2010 to $0.5/W – equivalent to a 90% cost saving.
Meanwhile, the Thai government provides subsidies to companies investing in solar energy.
It is hoped that that the private solar rooftop segment will take off over the next few years. Consultants estimate that the payback period is currently around six to eight years.
A major catalyst for growth would be a metering system that would allow sales of unused power to the grid.
So what’s the best way to invest?
Here are five companies that look promising
A handful of Thai solar-related companies offer direct exposure:
Gunkul Engineering PCL is a power generation and engineering company that supplies hardware and accessory products used in electrical power transmission and distribution systems.
Energy Absolute PCL engages in the research, development, and production of biodiesel products in Thailand.
Demco PCL designs and builds electrical transmission lines, substations and low-voltage systems; installs underground cables; builds telecommunications towers; manufactures low-voltage hardware and equipment; and distributes power transformers and other electrical products.
SPCG PCL is an alternative energy company that is developing solar farms in the north-eastern region of Thailand.
CK Power Ltd develops and generates power in Thailand.
All of these stocks have done fantastically well, and are trading at high double-digit price/earnings multiples. This raises the question of whether there is any further potential upside.
The quick answer is “probably”.
Three reasons to be excited
Most investors haven’t spotted these stocks yet
These stocks have scarcity value and enjoy – in broker jargon – ‘price discovery’. This means that a lot of investors are yet to learn/understand fully what they are up to.
The companies could expand
These stocks have a domestic record which can be successfully applied internationally. Already, some of them are eyeing expansion to Japan, Saudi Arabia and neighbouring countries in Southeast Asia.
The companies could draw attention from a new investor class
There is also potential to transfer operating assets into more tax-generous structures. This will help to attract attention from a new class of investors (large institutions with long-term liabilities, such as pension and insurance funds) and higher fair value.
I’ll be watching this theme closely.