Gunkul Engineering Plc is one of Thailand’s top producers and traders of electrical equipment and has expanded into electric power production, mainly from renewable energy, both solar and wind. Chief executive officer Sopacha Dhumrongpiyawut discusses the company’s strategy and outlook.
What is Gunkul’s business model?
Gunkul is a one-stop provider for renewable power plants and electricity systems in Southeast Asia. We are one of the largest medium- to high-voltage electrical equipment manufacturers and suppliers with more than 5,000 product items offering a wide range of EPC (engineering, procurement and construction) services from upstream to downstream such as power plants, transmission line systems, substations and low-voltage lines.
More recently we have begun to invest in renewable energy, specifically solar and wind projects throughout Thailand, with a total installed capacity of 180 megawatts by the end of 2015.
Why did Gunkul decide to expand into the renewable energy business?
Trading and manufacturing is a cyclical business and in the past we experienced volatility with both currencies and raw material prices, which affected profitability. Thus we decided to utilise our experience and knowledge of electricity systems and apply them through partnerships with industry experts to the renewable energy industry in Thailand.
The Thai government has been very proactive in promoting renewable energy and we decided on this expansion into being an owner and EPC provider for such plants because they are attractive long-term investments, minimise our risk as a company, and provide stable income.
Given the multitude of projects available in Thailand we decided it was best to grow with partners such as Electricity Generating Plc (Egco), Chubu Electric Power of Japan, Warehouse Asia Corporation Plc (WHA), Siam Cement Group (SCG) and our partner in Myanmar.
What is the progress on Gunkul’s current projects?
We have three solar power projects: Gunkul Chubu Powergen (GCPG), a 51:49 joint venture between ourselves and Chubu with 31 MW commissioned; G-Power Source (GPS), a 40:60 partnership with Egco with 26 MW commissioned; and NK Solar (NK), in which we own 100% with 1 MW commissioned. In total, we have 58 MW currently commissioned.
We have two wind power projects: Wind Energy Development (WED), a 70:30 joint venture with Impact Energy Asia with current capacity of 60 MW to be commissioned by the fourth quarter of 2015; and Greenovation Power (GNP), which we wholly own, also with 60 MW to be completed by the fourth quarter of 2016.
For solar rooftops, we have been appointed the EPC contractor and O&M (operations and management) service provider for the first solar rooftop joint-venture company. Gunkul holds 25% of WHA Gunkul Green Solar Roof Co (WGG), which completed its first 3.3 MW and officially began commercial operations on May 8. We also have a 50:50 joint venture with SCG and are currently conducting feasibility studies.
In Myanmar, we have completed construction of the first unit of a gas-fired power plant, with 25 MW out of a total of 50 MW, with commercial operations starting in November 2013. However, the set-up and asset transfer process to the joint-venture company in Myanmar is time-consuming and should be completed within the second quarter of 2015. Only then can we begin to book revenue and will do so retroactively.
Finally we have a memorandum of understanding to develop one gigawatt of wind power capacity in three states in Myanmar. We are conducting the feasibility study and hope to begin this project in the next few years.
What are the biggest risks facing your business today?
Currently, political uncertainty is the main risk, as it delays continued development and issuance of new project licences in the renewable energy industry. An example is the Solar Rooftop programme, which called for a total of 800 MW of generating capacity. Last year, licences were issued for 200 MW but this year nothing has been done. We are confident, however, that revenue will increase about 50% compared with last year and we currently have projects in hand to be continually invested in the next three years.
What impact will the Asean Economic Community have on your business?
Gunkul is already operating in Myanmar and is an electrical equipment supplier to Laos, Vietnam, Singapore and Malaysia, and the AEC will only continue to strengthen growth prospects in the region and demand for electricity. Thailand itself currently has a supply of 30,000 MW; however, during peak times the demand reaches 26,000 MW and ideally there should be a 15% buffer. This has led several Thai companies to set up power plants in Laos to sell electricity back to Thailand, and we are looking at developing a mini-hydropower plant in Laos as well.
Where do you see Gunkul five years from now?
Gunkul has expanded from electrical equipment trading and manufacturing to investing and providing full EPC with O&M services in solar plants, solar rooftops and especially wind plants that will begin commercial operations in the next couple of years. This expansion will lead to a change in our profit structure in the near future, with 70% of profits generated from renewable energy and the rest from trading, manufacturing and EPC. We’ll expand into other renewable areas to become a renewable energy company with capacity of 300 MW.
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