Rising feed in tariff (FIT) due to more wind-solar power

* This is my article in BusinessWorld last January 24, 2017.

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Cheaper electricity and stable energy supply are among the important components to have fast and sustainable economic growth.

On Jan. 17, the Philippine Electricity Market Corp. (PEMC) sent a press release saying that “effective settlement spot prices (ESSPs) in the wholesale electricity spot market (WESM) plunged to P2.28/kWH for the December 2016 billing period which is the lowest since January 2011. ESSPs refer to the average prices paid by wholesale customers for energy purchased from the spot market.” That is good news as various players using fossil fuel sources like coal, natural gas, and oil, are fiercely competing with each other in generating electricity. WESM was created by EPIRA of 2001.

On the same day, the Department of Energy (DoE) posted a “Request for comments on the draft Department Circular entitled ‘Declaring the launch of WESM in Mindanao’ (on Jan. 26, 2016) and providing for transition arrangements.” Another good news because finally, there will be a formal spot market for power producers and electric cooperatives that will guide a competitive and deregulated market, benefitting the consumers.

Last Dec. 23, 2016, the Energy Regulatory Commission (ERC) posted a request for public comments until Dec. 30 regarding the petition of three wind developers — Trans-Asia Renewable Energy Corporation (TAREC), Alternergy Wind One Corporation (AWOC), and Petrowind Energy, Inc. (PWEI) — that their feed in tariff (FiT) or guaranteed price for 20 years of P7.40/kWh be raised to P7.93/kWh, citing various cost escalations. That was bad news because expensive electricity is never a virtue. I sent a letter to ERC Commissioner Salazar arguing that they say No to the petition.

And last Dec. 6, 2016, the ERC published in a newspaper a National Transmission Corp. (TransCo) petition asking for a FiT allowance (FiT-All) of 22.91 centavos/kWh starting January 2017. That’s also bad news because FiT payments by consumers keep rising fast. From an introductory price of only 4 centavos/kWh in 2015, became 12.40 centavos/kWh in 2016, and almost 23 centavos/kWh this year.

Now two factors will raise the FiT-All for 2017 beyond 23 centavos. (1) ERC will not be able to act on this by January or not even February 2017, that means there will be price underrecoveries that must be added to the original requested price. And (2) with low WESM prices the past few months — P3.19/kWh last September, P2.91/kWh last October, P2.54/kWh last November (data from Meralco), and the P2.28/kWh ESSP last December — this means that FiT-All will go up. This allowance is the difference between FiT rates (highest prices are solar of P10+/kWh this year due to price escalation, followed by wind, then biomass, cheapest is run of river hydro) and average WESM prices. Or FiT-ALL = FiT rates — WESM prices

Expensive electricity is the hallmark of renewable energy favoritism anywhere in the world.

Understand that in my previous columns, it was shown that the main beneficiaries of expensive electricity from renewables in the Philippines are not ordinary firms but huge companies: the Lopez group (EDC Burgos wind) and Ayala group (Northern Luzon UPC Caparispisan wind, and Northwind Bangui) who got P8.53/kWh FiT and combined revenues of about P4.3 billion in 2015 alone.

Let us check Germany’s renewables output. The chart below is for the last three months, Oct. 23, 2016 to Jan. 22, 2017.

Last Jan. 8, its total electricity consumption was 57.4 GW and here are the renewables output that day: solar 0.23 GW, onshore wind 1.53 GW, and offshore wind 0.39, or a total output of only 2.15 GW from these three renewables (see chart).

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A total of only 2.1 GW was generated by solar-wind sources or only 3.7% of 57.4 GW power demand. If Germany relied solely on wind-solar, that would have meant massive, large-scale, and catastrophic blackouts. Germany of course was saved by the power plants that it wants to banish someday — fossil fuel sources like coal and natural gas plus nuke power, within Germany and from energy imports from its European neighbors — and which it kept running. So we did not hear or read such massive blackouts in Europe’s biggest economy.

Aside from expensive direct cost of wind and solar in Germany due to FiT, there is additional indirect cost of higher transmission cost. From a news report, “The Energiewende is running up against its limits” last Oct. 21, 2016 (http://energypost.eu/energiewende-running-limits/)

“German transmission system operator Tennet recently announced an 80% increase in its transmission fees because of the high construction costs of new power lines to accommodate renewable energy. A study of the Düsseldorf Institute for Competition Economics found that by 2025 costs of the Energiewende could exceed €25,000 for an average four-person household.”

The Joint Congressional Power Commission should consider introducing a law in the future that will abolish the RE Act of 2008 (RA 9513). Penalizing the energy consumers to further enrich the favored and crony firms in renewable energy is wrong.

Letter to ERC re petition by 3 wind firms for higher FIT

This is my letter to the ERC last month.
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To: re-twg@erc.gov.ph, twg-re@erc.gov.ph

28 December 2016

Hon. Jose Vicente B. Salazar
Chairman
Energy Regulatory Commission
Pasig City

Dear  Chairman Salazar,

In relation to the ERC  invitation for public comments until December 30, 2016 of the petitions by Trans-Asia Renewable Energy Corporation (TAREC), Alternergy Wind One Corporation (AWOC), and Petrowind Energy, Inc. (PWEI) that their FIT rate be raised from P7.40/kWh to P7.93/kWh, may I send the following comments.

Please say NO to their petition. Here are the reasons why.

  1. Expensive electricity is never a virtue. Many of the things we do and use now require electricity and therefore, cheap and stable electricity supply should be the aim of energy producers and generating companies.
  1. Cost and price dynamics – rising or falling, higher or lower than what was assumed and projected – are part of capitalism and entrepreneurship. This includes the realization by the petitioners that their actual EPC cost, switchyards and transformers, transmission interconnection cost, O&M and other related expenses are much larger than what was assumed by the ERC in its earlier ruling.
  1. There is indeed a big difference between the P8.53/kWh received by EDC Burgos (Lopez group),  Northern Luzon UPC Caparispisan (Ayala group) and Northwind Power Bangui (partly Ayala), and the P7.40/kWh received by the petitioners. Then let it be known by the electricity consumers that among the reasons why Philippine electricity prices remain high, why FIT-All keeps rising from 4 centavos/kWh in 2015 to 12.40 in 2016 and up to 23 or even 25 centavos/kWh in 2017, are due to these wind farms  that get high guaranteed and escalating price for 18 more years.
  1. When public backlash against more expensive electricity from wind (and solar) will rise proportionate to the rise in FIT-All in the coming years, the three petitioners will somehow be relegated in the background as public attention will be focused on the Ayala and Lopez expensive wind farms, and the big solar farms with higher FIT rates.

The environmental costs of thousands of trees murdered on the ridges and mountain tops of Nabas, Aklan and Pililia, Rizal as PWEI and AWOC constructed wide roads, flattened ridges and built those huge wind towers in the mountains are actually not included in the supposed “environmental benefits” of those wind power plants.

Capitalism and entrepreneurship is about risks and returns, expansion, break even or bankruptcy. Nothing is guaranteed except constant competition and innovation, to cut costs and produce more per unit of input. Thus, the FIT system of guaranteed price for 20 years is abdication of the spirit of capitalism and entrepreneurship, while embracing statism and forever intervention by the state in pricing and output allocation and rationing.

Ultimately, the RE Act of 2008 contradicts the spirit of EPIRA of 2001 and hence, the former should later be significantly amended if not abolished. EPIRA moved things towards competitive, cheaper electricity prices and stable power supply while the RE Act moves towards the opposite, for more expensive electricity and unstable, intermittent and brownouts-friendly power supply.

I hope you will consider the above points.

Thank you very much.

Sincerely yours,

Bienvenido S. Oplas, Jr.
President, Minimal Government Thinkers
Fellow, SEANET and Stratbase-ADRi
Columnist, BusinessWorld
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Meanwhile, look at these news reports and press releases by their respective companies. Phinma says it is earning good money in TAREC.

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AWOC is expanding. From the current 54 MW will add 72 MW. Also in its website, it posted,
“On October 23, 2009, Alternergy has been awarded with six exclusive Wind Energy Service Contracts by the Department of Energy based on its financial and technical capabilities. One of which is the “Pililla, Rizal” Wind Energy Service Contract which covers an area of 4,515 hectares. The Project is estimated to generate approximately 40 MW capacity.”

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Meanwhile, look at the site of PWEI’s Nabas wind farm in Aklan overlooking Boracay island. Mountain ridges were flattened and all trees and other vegetation there were removed.

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Jarius Bondoc on FIT for renewables

I am reposting the article of Jarius Bondoc in his column in Philippine Startoday. My comments and discussions after his paper.

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Enough is enough. Developers of renewable energy (RE) must stop making us electricity users subsidize their insolvent solar and wind farms. They’re already wheedling P8 billion a year from us. That windfall, called feed-in tariff (FIT) in our monthly bill, enables their clean energy to compete with cheap but dirty coal. Yet precisely because the FIT is free money for them, they feel no compulsion to improve their output and bring down costs. And now they have the gall to ask for even higher subsidies starting next month.

RE inflicts a double whammy on our monthly electricity bill. The FIT subsidy of 12.4 centavos per kilowatt-hour per se swells the bill by two percent. Worse, RE further inflates the cost of generating electricity to almost 50 percent. That’s because the mix of power sources that go into the generation grid is such that 30 percent must come from the inefficient but favored RE plants.

Why is RE inefficient? That’s for the developers to explain. For decades they’ve been enjoying state subsidies worldwide to improve. Yet solar farms are only 23-percent capable of converting and storing sunlight to power. It even costs more electricity to produce one solar panel than the energy it will produce when laid out under the sun. That production process even uses acids and oxides that emit greenhouse gases and create waste, National Geographic reports. Statistics for wind are worse. The mills even directly kill flocks of birds and bats that fly into the rotors, as well as add to noise pollution. As it is now, RE worsens climate change.

To justify their subsidies, RE developers must point to a bogeyman: coal. Hiding their own bad effects on health and environment, they demonize coal as a killer fuel. They want the Philippines to switch to more RE and lessen coal from the present 39 percent of the generation mix. In truth, however, coal has become cleaner than it was three decades ago. Pollution is basically the result of wasteful processes. But coal plants have tremendously improved efficiencies, and this reduced waste and pollution. That is why Europe, where environment laws are strictest, has coal making up 25 percent of the generation mix.

Cases long have been made against subsidies to certain industries. Congress, controlled in the ‘60s-’70s by sugar barons, allocated billions of pesos a year to subsidize the plantations and central mills. Supposedly it was to enable the hacienderos to compete with foreigners, upgrade their facilities, and uplift their farm workers. The result is well documented. The sacada seasonal workers became poorer than ever, the plantation and mill technologies remained backward, while the hacienderos used the subsidies to buy Rolls Royces and Aston Martins.

That is what’s happening today. FIT subsidies of P8 billion a year are now blocked off for the next two to three decades for the new RE oligarchs. Some of them are relatives of the very politicos who imposed the FIT subsidies. Living off us electricity consumers, they will not improve their technologies or raise salaries of their workers or bring down their costs to below that of their hated coal. Why should they, when that would mean erasing the excuse for their FIT subsidies. Meantime, Filipinos remain poor because electricity cost – the highest in Asia – discourages employment-generating investments and ultimate economic development.  We electricity consumers should not let those RE oligarchs buy up all the luxury condos and executive jets at our expense.
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Many good points by Jarius. May I add the following:

1. Feed in tariff (FIT) Allowance for renewables, especially wind and solar, is not P8 B a year, much larger than that. It’s about P11 B in 2015, P20 B this year, and P23 B in 2017.

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Source: Transco petition for FIT-All for 2016, ERC CASE NO. 2015-216 RC, p. 10.

2. On solar inefficiency, its capacity factor can range from only 18% (in PH, WESM data) to 23-25% in developed countries like the US.

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3. On solar panels “production process even uses acids and oxides that emit greenhouse gases and create waste”, more than that, solar farms require zero trees within and near the vicinity. On average, it takes 2 hectares of land to produce 1 MW of installed capacity.

Consider this solar farm in Calatagan, Batangas: 63 MW capacity on 160 hectares of land. Zero tree allowed. The main hindrance to solar power generation is shade — from clouds and tall trees nearby.

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So while many environmentalists say, “Plant trees to save the planet”, the solar environmentalists say “Zero tree to save the planet.”

4. On “electricity cost – the highest in Asia”, more of 2nd highest after Japan. For the ASEAN, here’s one data.

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Source: M. Ravago, R. Fabella, R. Alonzo, R. Danao, and D. Mapa, “FILIPINO 2040 ENERGY: POWER SECURITY AND COMPETITIVENESS”, EPDP paper, October 2016, p.2.

Nonetheless, it is a good paper. Congrats, Jarius.

No FIT for geothermal and other renewables, please

* This is my article in BusinessWorld last September 01, 2016

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Expensive electricity via government price guarantee for 20 years is wrong. Business is about risks and returns, capitalism is about corporate expansion and bankruptcy, so there is no such thing as guaranteed price nor assured profit for many years in a competitive economy. Only politics and cronyism will try to negate the nature of competition and business reward and punishment.

Last Aug. 17, 2016, it was reported here in BusinessWorld that Geothermal technologies sought to be included in FiT program.

“The National Geothermal Association of the Philippines (NGAP) is asking the government to include emerging geothermal technologies in the feed-in-tariff (FiT) program to address the cost and risks encountered by developers,” the report said.

This is wrong. Other renewables should also not aspire for FiT system. Granting FiT for intermittent renewables like wind and solar for 20 years was already wrong because it exposed consumers to high and rising electricity prices and the grid to volatile power fluctuations within minutes, among others.

The association was correct in calling that “On the policy front, NGAP calls for expedited regulatory action and permit approvals, as well as assurance of peace and order in some of the more remote prospects.”

Let there be less government interventions and bureaucracies for businesses.

Another reason why granting FiT to geothermal and other renewables is wrong is because energy technologies keep improving and hence, their costs keep falling. So why give an assured, guaranteed high price for technologies that evolve towards falling price through time?

The numbers below on levelized cost of electricity (LCoE) will support the above statement. LCoE is not a perfect measurement of the overall cost per technology but it is a good dimension of the overall competitiveness of different power generation technologies.

Some definitions here.

  1. Dispatchable energy sources are those that can easily adjust to consumer demand. Non-dispatchable technologies are those that are generally dependent on the weather.
  1. Capacity factor means the ratio of actual electricity output over rated or installed capacity.
  1. CC means combined cycle for natural gas plants.
  1. CCS means carbon capture and storage, it is made mandatory by the US government for all new coal plants and it pushes the capex to high levels, making coal power in the US more costly (see table).

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So in the US, the no. 1 geothermal electricity producer in the planet, the LCoE of geothermal is falling fast, the lowest among all energy sources at only $42.3/MWh by 2022. The Philippines is no. 2 geothermal producer in the planet, next only to the US. Technologies also follow the law of diffusion of molecules, making expensive technologies become cheaper through time.

On another note, I wrote in my column last Aug. 17, 2016, Brownouts, coal power and the electricity market, “can we expect PEMC to be more independent, more candid, in assessing the harm, actual and potential, of more REs in WESM and grid stability?… no. The DoE cannot contradict itself and say that REs are necessary and that REs are dangerous to the customers’ pockets and the stability of the national grid.”

The Philippine Electricity Market Corporation (PEMC) through Atty. Phillip C. Adviento replied last Aug. 23, 2016. They said that PEMC “acts only as the Market Operator responsible for the governance and operations of the WESM. The function of maintaining the security, reliability and integrity of the power grid is lodged with the System Operator. Against this context, it is grossly inaccurate to claim that PEMC is expected to study the impact of influx of RE resources in the grid.”

Good point, I recognize that strict distinction between a market operator (of WESM) and system operator (of the national grid). Still, PEMC has the data, it generates that data, of the intermittency per hour and even per minute, of the overall low capacity factor, of the renewables that enter the WESM.

PEMC added that it is “not a government-controlled corporation.”

However, it IS a private but government-controlled corporation. The Governance Commission for GOCCs (GCG) itself said this at the Senate Committee hearing last Jan. 26, 2016, then chaired by former Senator Serge Osmeña III.

Since the DoE Secretary sits as ex officio Chairman of the PEMC Board, the Secretary determines who among the private players can sit and cannot sit on the board, the Secretary has included government-owned energy corporations on the board even if they have minimal or zero contribution to electricity supply at WESM (NPC and PSALM), also TransCo. That makes PEMC a government-controlled corporation.

Government needs to step back from its intervention in the sector. It should reduce the number of permits that firms need to secure so that they can put up new power plants quickly. The government should also cut or abolish the system of guaranteed price for decades for favored renewables, reduce the taxes and fees imposed on energy companies, and the electricity costs paid by the customers.

Bienvenido S. Oplas, Jr. is the head of Minimal Government Thinkers and a Fellow of SEANET and Stratbase-ADRi.

FIT-All, renewables and election 2016

* This is my article in BusinessWorld yesterday.

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The increase in feed in tariff-allowance (FIT-All) has been approved by the Energy Regulatory Commission (ERC) recently. As a result, Meralco and all other distribution utilities nationwide will be collecting 12.40 centavos per kWh of electricity consumption starting this month. The amount is higher than higher than 4.06 centavos/kWh that was collected in 2015.

Even consumers from Mindanao — an island not connected to the Visayas and Luzon grids — will pay this FIT. If Mindanao consumers are spared of this additional charge, the FIT-All will be much larger in Luzon and the Visayas, which host an increasing number of wind and solar farms. Another FIT hike will be expected next year.

Unlike the previous electricity price hikes that met a big public backlash, such as the price hikes of P4+/kWh in November-December 2013 which should go back to old rates after two or three months, FIT additional collections are not short term but long term and can last 20 to 30 years or more.

The Philippines has the highest electricity prices in the ASEAN and has the second-highest in Asia, next to Japan. This is not good especially if we are serious in attracting more investments that can give more jobs to more Filipinos (see graph).

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There are many factors why this is so, among which are the various taxes, fees, and royalties imposed by the Philippine government on energy sources (like the natural gas royalty from Malampaya gas field in Palawan) and on companies themselves.

In the coming general elections next month, all presidential candidates support more renewables. Sen. Grace Poe even proposed that power distributors should be “compelled” to use renewable energy. Davao Mayor Rodrigo Duterte is explicit in supporting more coal power plants, and administration candidate Mar Roxas supports the use cleaner fossil fuel like natural gas, along with renewables.

Among Senatoriables, it is weird that former DoE Secretary Jericho Petilla would even blame some provisions of the EPIRA law of 2001 for the high cost of electricity in the country, saying that the law prevents the government from putting up new power plants that can help rival private generation companies.

Government-owned National Power Corporation (NPC) used to be the sole power plant owner and operator nationwide. Instead of bringing down the cost of electricity while raising power capacity, NPC has largely succeeded in piling up huge amount of debts, mountains of debts hundreds of billions of pesos, that it could not pay and hence, were ultimately passed on to taxpayers.

Renewable sources such as solar, wind, geothermal, and hydroelectric have the following characteristics that are dissimilar to conventional sources like coal and natural gas. Among these are: (1) zero or near-zero variable operations and maintenance (O&M) cost, but (2) low capacity factor or actual electricity production relative to its rated capacity, except geothermal, (3) high levelized cost of electricity (LCOE) and, (4) generally higher electricity prices if subsidies are not given.

LCOE is a good summary measure of the overall competitiveness of different power generation technologies representing the per kWh cost of building and operating a power plant over an assumed financial life and duty cycle.

Here is the LCOE in the US four years from today. The capacity factor is generally higher compared to those in developing countries like the Philippines (see table).

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When the Renewable Energy (RE) Act of 2008 (RA 9513) was created, a lot of subsidies were put in the law that effectively pampered developers of renewables like solar, wind, and biomass. Among these are the: (1) feed in tariff-allowance (FIT-All), (2) priority and mandatory dispatch into the grid, (3) renewable portfolio standards (RPS) or the minimum share of renewables in power generation, and (4) various fiscal incentives.

The list of those various subsidies and incentives, FIT rates in Germany and the Philippines, are also discussed in my earlier article, “Feed in tariff means more expensive electricity” published by the Albert del Rosario Institute (ADRi) blog, Spark.

A FIT that increases every year — which has already taken place in Germany, UK and other European economies, and now in the Philippines — means rising electricity prices even if generation, transmission, distribution, supply, and various other fees and tax rates remain the same.

So far, it seems that not a single candidate for a national position has openly criticized this setup of ever-rising electricity prices in the country. On the contrary, some candidates even justify expensive electricity so that we can help “save the planet.”

Expensive electricity means more dark streets at night as LGUs, villages, and households save on their monthly electricity bills. When many streets and roads are dark at night, there are more road accidents, more destruction of public and private properties, more crimes, more rapes, injuries, and deaths.

Worse, when some households’ electricity connection is temporarily cut off due to non-payment, people have to use candles for a few hours or days, and candles are among the major causes of fires. These social costs are often avoided or not recognized by the campaigners of expensive, unstable renewables.

Expensive electricity also means less businesses and jobs that can potentially be created here. Energy-intensive companies and manufacturing plants will try to avoid investing in the Philippines — where electricity prices are expensive — since they will put up their factories and big offices in ASEAN countries with lower energy costs, then export to the Philippines at zero tariff. They only rent smaller offices here to facilitate business transactions.

As a developing and emerging economy, we should have cheaper electricity, bigger power capacity and reserves to ensure 24/7 availability of power, even in periods of huge spikes in electricity demand or damaged power facilities due to strong storms or earthquakes.

Bienvenido S. Oplas, Jr. is the head of Minimal Government Thinkers, a Fellow of SEANET and Albert del Rosario Institute.minimalgovernment@gmail.com

Renewables and the illusion of merit order effect

* This is my article in BusinessWorld last March 03, 2016.

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When government intervenes in the pricing of a particular product or service supposedly to protect the consumers from “unwarranted” price hikes, or to pursue some social or environmental goals, the action tends to create more problems than what it intends to solve.

Take the case of government price control of electricity via (a) fixed and guaranteed pricing through feed in tariff (FIT) for solar, wind, biomass, and run of river (ROR) hydro for 20 years, (b) priority or mandatory dispatch of renewables even if cheaper energy is available, and (c) price caps at the Wholesale Electricity Spot Market (WESM).

Items (a) and (b) are in the Renewable Energy (RE) Act of 2008 or RA 9513 while (c) is a recent policy by the Energy Regulatory Commission (ERC).

These three forms of price control are wrong on the following grounds.

  1. Technologies on anything keep evolving and changing for the better, and prices of each product model go down through time. So why guarantee and fix the price of solar, wind, biomass, ROR hydro for the next 20 years? Their respective technologies should be capable of bringing down the cost and attain “grid parity” with the conventional sources, as the proponents and developers of new renewables often argue.

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  1. People want cheap electricity, so when cheap and stable energy sources are available from conventional sources, they should be allowed to come in. But under the “priority dispatch” and “must dispatch” policy under the RE law, the national grid, the distribution utilities, and the electricity consumers are forced to buy the more expensive renewables whenever these are available. In this case, the consumers’ chance to have cheaper electricity is beaten by the political need to subsidize the renewables, for 20 years.
  1. People want stable electricity, one that runs 24/7 and not fluctuating per hour or per minute. To make this happen, there should be 100% redundancy in the grid. Suppose that there is a province with daily need of 150 MW on average. RE developers come in and put up a 250 to 300 MW combined power from solar and wind. There should be at least 200 MW of coal or natural gas or big hydro or geothermal power plant nearby, to provide electricity at night and the wind does not blow because the 250-300 MW from solar-wind can become zero, nada.

Power redundancy means expensive electricity — such as those generated by wind and solar — are forcibly fed into the grid when they are available. Otherwise, the conventionals come in but they must price their output higher to compensate for hours that they were not running. The higher price on those hours that they run will allow them to stay in business. If not, they will go out of business and close shop, and the people will suffer massive brownouts for many hours, daily.

Here is the average capacity factor or the percentage actually running and producing electricity of wind, solar and biomass, six months of 2015.

In May and June, very low output of only 1% was reported for biomass and 6.5% for wind. Biomass peaks in August and September while wind is inconsistent in monthly output, giving 20% when the wind blows strong. Solar has an average capacity factor of 19%. Zero output for 11-12 hours at night, then average of 40% at day time.

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  1. The “merit order effect” (MEO) of renewables at WESM is a bloated interpretation of its supposed downward effect on spot electricity pricing. Merit order is the ordering of power sources into the grid from lowest to highest offer price at WESM. Thus, the cheaper base load plants with extra power will come in first (big hydro, geothermal, coal, natural gas) then the peaking plants that run on diesel. Peaking plants are meant to run on peak hours of electricity demand only, say 2-4 hours a day.

The supposed MEO is the result when must-dispatch renewables are inserted into the merit order, then they marginalize and displace the more expensive diesel plants priced at P8/kWh or more. This changes the market clearing price (MCP) from P8/kWh or more to the spot price of baseload plants like natural gas, say at P4-P5/kWh. As a result, customers enjoy savings as reflected in the lower WESM price in their monthly bills.

Based on computations and estimates of the Philippine Electricity Market Corporation (PEMC), while the FIT incurs an additional cost of P4.2B to customers, the MEO results in savings of P8.3 billion. The net effect is P4.1B savings to customers, that translates into P0.0567 (or 5.67 centavos) per kWh per customer.

However, there are oversights in the computation’s assumptions. Consider the following:

  1. MEO or drop in spot prices will apply only if the customer has spot exposure and not fully contracted via bilateral contracts. If the customer is fully contracted, then it will still pay the FIT and make zero MEO savings.
  1. MEO can also be realized via more and cheaper conventional plants rather than expensive renewables. With conventional plants, there is no need for additional ancillary costs.
  1. There will NOT be an MEO if there is sufficient supply of power from cheaper energy sources, both in long-term bilateral and short-term spot price contracts.

FIT is collected nationwide including customers in Mindanao that are not even connected to the Visayas and Luzon grid. The purported savings from MEO are supposed to benefit Meralco customers but people in Mindanao, tens of millions of them, are not Meralco customers and yet they contribute to paying expensive electricity via FIT payment.

The PEMC, which operates WESM, made the study that justifies the role of renewables, which, in turn, is the priority of the DoE, the agency that heads and controls PEMC. And that makes the PEMC study self-serving.

The National Renewable Energy Board (NREB), the multi-stakeholder advisory body seems to be playing along with PEMC in justifying expensive electricity from mandatory renewables.

Now here come the big questions that I myself do not know the exact answers.

  1. If Mindanao customers were spared of paying FIT as they are not connected to the Visayas and Luzon grids yet, what could have been the FIT rate since 2015? Definitely higher than the P0.0406/kWh collected.
  1. With more FIT-eligible renewables fed into the grid since last year, the cost of FIT allowance will rise this year, by how much? I heard low estimates of P0.10/kWh to medium figures of P0.17, up to P0.25/kWh.

Since there will be a elections this coming May, then there will be no FIT hike, DoE will control it. And the next administration will also postpone the FIT hike as it does not want to be known as having imposed an instant and immediate electricity price hike upon its assumption in power. Postponement of FIT collection to a later date means the FIT rates will have to be higher than if it was collected last January or February 2016. Woe unto the developers of FIT-dependent renewables. The delayed payment they experienced in 2015 will worsen this year.

  1. With prolonged postponement of FIT hike implementation, say by August or September 2016, what would be that FIT rate then?

Expensive electricity is wrong. Electricity is the main reason why we enjoy more modern, more convenient life than before. Government policy to impose and justify expensive electricity via FIT guaranteed pricing for 20 years is wrong. The RE law should in fact be amended and FIT and other subsidies should be abolished.

Bienvenido S. Oplas, Jr. is the head of Minimal Government Thinkers and a Fellow of the Stratbase-Albert del Rosario Institute (ADRi), and the South East Asia Network for Development (SEANET).minimalgovernment@gmail.com

Boo Chanco on the RE law cronyism

* Originally posted on June 02, 2011.

I seldom read newspapers, much less their columnists. I read more a few blogs that I follow everyday, especially science blogs pertaining to climate science, then the facebook updates of my friends, including the news articles that they recommend. Then I read some of those articles or opinions.

The renewable energy (RE) racket “to save the planet” is still on-going. Mind you, they plan to steal from us around P9 billion (roughly US$ 207 million at current P43.3/$ exchange rate) every year for the next 20 years. It’s not a new tax that will go to the government. Rather, it’s an add-on cost that we energy consumers in the Philippines will have to pay extra to the already high electricity prices, to subsidize those expensive solar and wind farms.

Luckily, there are a few local newspaper columnists who have written about the RE racket. Like FEF Fellows Romy Bernardo of BusinessWorld, and Boo Chanco of the Philippine Star.

Last May 27, 2011, Boo Chanco wrote in the Philippine Star:

Renewable energy

Here is something to think about for us electricity consumers, already burdened by one of the highest electricity rates in the world. We are being asked to subsidize the cost of electricity produced by solar, wind and other so-called renewables through the mechanism of the so-called feed in tariff or FIT.

Unless we speak up, we will be forced to shell out some P9 billion every year for FIT for 20 long years… even after technology has made those renewables economically competitive. Of that amount, 50 percent goes to solar and wind, even if they will only account for 20 percent of the RE generated power under the FIT program.

There are those who say we have such a small carbon footprint and because we use significant amounts of geothermal and hydro, our electricity generation mix is already at least 32 percent renewable compared to the US which is under 10 percent. That means the Philippines is already contributing three times as much RE as the US on a country basis.

So why subsidize these fashionable RE technologies now? Why can’t we just wait for the more technologically advanced and financially capable developed countries to shepherd these technologies along until no subsidy will be required? Ironically, these developed countries are cutting back on their RE subsidies lately, notably in Europe.

I understand that even the National Grid will have to shell out substantial capex. It has to cope with all these small power sources going on and off the grid all the time without destabilizing the system. Guess who pays for the National Grid investments?…

Today, Boo wrote again on the RE subsidy racket.

Solar + Wind = Hot Air

… Indeed, solar is still a technology undergoing development. Eventually, it should be commercially viable or competitive with conventional energy. Right now, the only way to make it viable is to subsidize it. It is the same thing with wind. They call that subsidy feed-in-tariff (FiT), a fancy term for the amount they want to add to our electricity bills supposedly to encourage more use of this type of renewable energy.

Some local economists have raised an alarm about going overboard on this FiT in our mindless haste to be seen as fashionably earth loving. The manufacturers of solar and wind energy equipment have successfully lobbied Congress into passing a law that mandates the granting of this subsidy. It also mandates the inclusion of RE into our electricity mix. Because our legislators were only after PR mileage to be seen as being ecologically correct, the law gave no regard to cost implications for our consumers and our industries.

Romy Bernardo, a Ramos era undersecretary of finance, is critical of the P9 billion annual cost of FiT (times 20 years or P180 billion). Of this, 50 per- cent goes to solar and wind, even if they will only account for 20 percent of the RE generated power under the FiT program. “Let’s decide what the public can afford,” Bernardo urges. “It certainly cannot be the P7 to P9 billion PER YEAR over a contract period of 20 years, given the already high cost of power.”

Bernardo is correct. Even the RE developers acknowledge that today’s RE prices are expected to come down. One executive working on the solar initiatives of a local conglomerate told their stockholders meeting just this week that it will take three to five years to reach grid parity based on global studies.

The solar industry is growing so fast, he said, and economies of scale are kicking in. “In the Philippines, projection is by 2015 to 2017, we should reach grid parity.” So why not wait? And why give them subsidy for 20 years when the technology is at grid parity in five? The initial price setting should only be made applicable for the next three or five years. After that, we should review again.

Even if we end up with less RE because we have been too cautious, it would be worse to err on the side of paying too much, locking in the mistake for 20 long years. We already have, in any case, at 34 percent, more RE capacity installed as a percentage of total electricity generated than the US and most European countries. We can afford to wait for the technologies to mature and come down in price.

The Foundation for Economic Freedom (FEF), a public advocacy group espousing market-oriented reform for good governance, has taken the position that “Renewable Energy subsidies must be transparent, limited and technology neutral.” The FEF believes the Feed-in-Tariffs to be issued by the Energy Regulatory Commission (ERC) must provide for an absolute peso cap on the total amount of subsidies that the public will be made to bear, capped both on an annual basis and for the life of the project.

The FEF also wants to make sure that the amount of public subsidy for RE projects should be explicitly disclosed and shown to be commensurate to the social benefit that the public is expected to derive from this program. The outlay should be transparently evaluated based on “value for money” to the public.

The FEF also urged the ERC to consider the ability of the public to shoulder additional levies on a per kWh cost of power. As FEF president Toti Chikiamco puts it, “it’s not only household consumers who will suffer but industry too. It will reduce the competitiveness of Philippine industry, already burdened with one of the highest power rates in the region and a strong peso.”

The FEF economists also think we should buy the cheapest RE available before we buy the more expensive technology. They point out that based on the numbers of the National Renewable Energy Board (NREB), it appears that we can subsidize 11 kwh of hydro for the same amount needed to subsidize 1 kwh of solar. The subsidy equivalent for biomass is 6 kwh for 1 kwh of solar.

Actually, even abroad, the economics of solar and wind are being questioned. In an article on MarketWatch, where I borrowed the headline for this column today, market trader Jim Chanos famed for shorting Enron, argues that wind and solar are “not capable” of real cost-effective ways of meeting energy demands. “Wind and solar are not efficient.”

This is not to say that technologies such as Solar Photo Voltaic have no place in our energy mix at this time. The FEF paper admits solar may be the best, or the only substitute, in some areas, for expensive diesel-fired plants serving off-grid customers.

When solar or wind are used to augment off-grid diesel installations, the avoided costs (or the cost of diesel fuel that would have been used) and the avoided emissions are higher, so the required incremental subsidy is less. And no additional reserves or transmission facilities that add to our power costs are needed. In fact, solar technology is already used in a significant number of rural electrification projects all over the country….