The Energy Ministry's Energy Business Department is raising the proportion of biodiesel blended with high-speed diesel by one percentage point to 7%, known as B7, to help absorb excess domestic crude palm oil (CPO) supply.
Director-general Witoon Kulchroenwirat said bumping the blend to B7 would absorb an extra 8,000 tonnes of CPO a month for a total of 84,000 tonnes.
The new B7 will be available at petrol stations from next Monday.
Prior to B7 production, 4 million litres of CPO a day were used to make pure biodiesel or methyl ester.
Mr Witoon said domestic CPO production had surpassed demand by 380,000 tonnes as of May 31 at a time when the global CPO price had dropped due to excessive seasonal supply in Indonesia and Malaysia.
The move to raise the proportion of CPO blended with diesel came following a request by the National Palm Oil Board, which asked the Energy Business Department to seek ways of absorbing the excess CPO supply.
In the long term, energy policymakers plan to increase the proportion of CPO to 10-20%.
The plan has been in trial testing nationwide since last year in a bid to help cut oil imports eventually.
However, Thailand's palm growing area remains limited.
The Electricity Generating Authority of Thailand (Egat) is making a one-time purchase of 730 tonnes of surplus CPO, about 750,000 litres, for use as an alternative fuel in power generation.
Wiwat Sirikiatkul, director of the southern power plant project in Krabi province, said Egat opened bidding for a CPO supplier early this month.
Krabi-based oil-palm crusher Srisawai Palm Oil Co won the bidding and is set to deliver the first lot of CPO on Saturday.
"We expect to purchase up to 15,000 tonnes for power generation eventually," Mr Wiwat said.
"However, that will depend on the market price. No higher than 26 baht a litre would be all right."
Last year, Egat conducted a trial test of a blend of 10% CPO and 90% bunker oil at the Krabi power plant and found no harm to the generators.
Egat has built a 50-million-baht storage unit at the power plant capable of holding 1.5 million litres of CPO for when the global price declines.