Mindanao power development, reality vs illusion

* This is my column in BusinessWorld last Monday, June 11.

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From 2006 to 2013, the Mindanao grid had only 1,900 to 2,000 MW of installed power capacity, mostly sourced from hydropower facilities that provide higher output during the rainy season but declines during the summer.

As a result, power shortages lasting several hours a day are experienced during dry spells.

In 2014, the supply situation improved.

Total installed power capacity increased to 2,211, rising once more to 2,414 MW in 2015.

Starting 2016, the situation improved further with capacity reaching 3,162 MW and later rising to 3,559 MW in 2017, with the help mostly of coal power plants. The last two years showed significant power surpluses that competing power plants were bidding as low as P2.50/kWh in generation cost.

As of end-2017, coal power constituted 39% of installed capacity but actual electricity production was 53% of total because of coal’s reliability and higher capacity factor. Oil-based plants constituted 26% of installed capacity but actual electricity output was only 7% because they were peaking plants and were seldom used.

The committed projects (financing, construction stage) and indicative projects (planning and proposal stage) are shown below.

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The Department of Energy (DoE) projects that from 2016 to 2040, the Mindanao grid will need additional capacity of 10,200 MW (6,300 baseload, 3,200 mid-merit, 700 peaking).

Early this month, a paper was presented at the UP School of Economics (UPSE), entitled “Cost-Effectiveness of Maximum Renewable Energy Penetration in the Mindanao Power Grid” by Dr. Sven Teske of the Institute for Sustainable Futures (ISF), University of Technology, Sydney. The event was sponsored by the Institute for Climate and Sustainable Cities (ICSC) and Mindanao Development Authority.

I was not there so I asked for a copy from UPSE, nothing came and perhaps ICSC did not give them a copy either. A friend of a friend sent me a paper by Dr. Teske last year which could be the basis of his presentation.

The IFS and Dr. Teske made a weird scenario of Mindanao capacity 6x that of DoE scenario. Their scenario is based on heavy renewable energy plus storage (RE+S) and RE plus dispatch (RE+D) and the following assumptions: (1) coal, oil and diesel plants phased out by 2050, (2) of the 3,200 mid-merit target by 2040, half to come from gas plants, half from hydro and biomass, (3) significant increase in solar and wind, (4) increase in storage especially battery (2,491 MW in 2050), and (5) interconnection with neighboring islands.

The weird ISF paper as propagated by the ICSC is obviously a product of the solar-wind lobby, partly by the gas lobby too. Compare what the industry players would actually invest, 410 MW of solar-wind indicative projects, vs what ISF-ICSC lobby of 37,496 MW or 91.5x larger, which is hallucination and illusion.

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Electricity consumers in Mindanao and elsewhere simply want two things: stable electricity available 24/7 no brownout even for a minute, and cheap or competitive.

Solar and wind are not cheap.

If they are, we should have abolished by now the feed-in-tariff (FIT) scheme or guaranteed high price for 20 years, then the planned mandatory or obligatory renewable portfolio standards (RPS).

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Positive and negative disruptions in the electricity market

* This is my article in BusinessWorld last Monday, May 28, 2018.

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Last week, May 22, a BusinessWorld report said “DoE forecast for peak power demand exceeded on May 17” referring to 10,688 MW peak demand in the Luzon grid on May 17 reported by the National Grid Corp. of the Philippines (NGCP) vs peak demand in 2017 of 10,054 MW.

The increase of 634 MW or 6.3% increase can be considered as positive disruption. Demand for electricity to power various economic activities by households and corporations including those with 24/7 operations remains high and they approximate GDP growth.

Reports of more renewable investments and installations, wind-solar especially, are not “disruptors” because in 2017 or nine years after the enactment of RE law of 2008, solar-wind contribution to total electricity generation in the Philippines constituted only a measly and near-negligible two percent (2%).

Reports also of more battery storage for intermittent wind-solar can neither be considered as a “disruptor” because those batteries do not produce electricity. If it is cloudy or raining then there is no extra solar power to store; if the wind does not blow then there is no extra wind power to store.

During the BusinessWorld Economic Forum 2018 last May 18 at Grand Hyatt BGC, among the speakers were Kristine Romano of McKinsey & Company, and Luis Miguel Aboitiz of Aboitiz Power Corporation. Ms. Romano partly mentioned that innovations in the energy sector is among the big disruptors in the world today. Mr. Aboitiz skirted discussing his sector and mentioned more about the challenges and opportunities of endless innovation and disruption in many sectors.

And we go back to renewables touted as disruptor to “save the planet” (save from what, rains and floods?) and there is one belief or myth that continues to persist — that the cost of wind-solar technology is declining quickly so the cost to generate electricity from them will decline too.

Intermittent or variable renewable energy sources (VREs) are given feed in tariff (FIT) or guaranteed price subsidies for 20 years, among many other perks, by the RE law of 2008 (RA 9513). What happened to this scheme?

First, the FIT rates given to RE developers keep rising yearly, despite the touted decline in the cost of wind-solar, and second, the estimated revenues per kWh is are highest for wind-solar and lowest for run of river (RoR) hydro (see table).

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Bangui Wind 1 and 2, built in 2005 then August 2008 or before the enactment of RE law in 2008, a bit anomalous, were also given special FIT rates: P6.63/kWh in 2015; P7.05 in 2016; P7.26 in 2017; and P7.53 in 2018.

Then also last week, May 21, the ERC has granted the rise in FIT-Allowance (FIT-All) in our monthly electricity bill from 18.30 centavos/kWh to 25.32 centavos /kWh starting June 2018 billing. This is to cover under-recoveries in 2017 alone.

And that explains the negative disruption in the Philippines electricity market. Energy coming from “free” solar and wind and “declining” technology cost actually result in even more expensive electricity.

This higher FIT-All rate includes only under-recoveries until 2017. Under-recoveries this year not included yet, so a higher rate of probably 33 centavos/kWh can be expected in late 2018.

The environmental and RE lobbyists succeeded in making cheaper coal become more expensive via higher coal tax of P50/ton in 2018, P100/ton in 2019, and P150/ton in 2020 under the TRAIN law. Taxes for oil used by power plants also went up as well and expanded VAT application to transmission charges.

Expensive electricity is wrong.

Adding more intermittent, brownout-friendly, and expensive VREs like wind-solar is wrong. Adding battery storage will reduce the intermittency but will definitely raise the cost to consumers further.

Government should take the side of consumers who desire cheaper, stable electricity. Government should stop its double standards in energy taxation, slapping higher excise tax for reliable oil and coal plants but exempting from excise tax the unreliable, unstable, intermittent VREs especially wind-solar.

Energy mix and wishful thinking

* This is my column in BusinessWorld last April 16, 2018.

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“You must be ready to give up even the most attractive ideas when experiment shows them to be wrong.” — Alessandro Volta (1745-1827, Italian scientist who invented one of the first electric batteries known as a voltaic pile)

This quote should be remembered by people who keep on insisting the urban legend that we can banish coal power in our lives soon, that wind, solar, and other intermittent renewables can provide 100% of our electricity needs. That is far out.

Despite the Renewable Energy (RE) law of 2008, despite the generous subsidy to RE companies via feed-in-tariff (FiT) — which provides subsidies for REs for 20 years — wind and solar can provide only 2% of the country’s energy needs as of 2017. Coal, for its part, provided one-half of our total national electricity needs (see table).

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These numbers show that as of 2017, (a) coal installed capacity was only 36% of total but its actual power generation was almost 50% of total; (b) oil-based plants constituted 17% of installed capacity but generated only 4% of total because these oil plants are used mainly as peaking plants or they run only during peak demand hours to prevent blackouts.

Among renewables, geothermal and hydro provide the bulk of power generation. Solar-wind have nearly 6% of installed capacity but contributed only 2% of power generation.

And this brings us to four recent energy reports in BusinessWorld last week.

  1. PHL announces large-scale renewable projects (April 12).
  1. DoE studying shift in energy mix to 50% baseload (April 11).
  1. DoE may step in as licensing body for retail power suppliers (April 12).
  1. Boracay closure to raise Aklan power rates, legislators say (April 12).

Report #1 is about the Board of Investments (BoI)-approved eight solar projects worth P86B ($1.7B) to be rolled out from October. The largest is the Iba-Palauig 2 Solar Project, 140 MW worth P19B. Second largest are two projects in Cavite, 392 MW valued at P17.3B. That is a lot of money that asserts that solar can be a reliable source for the Philippines.

Report #2 is about the DoE studying a change in its previous energy mix policy of 70-20-10 for baseload (power plants running 24/7), mid-merit, and peaking plants respectively, to a new policy of 50-40-10 for baseload, flexible, and peaking plants respectively.

DoE projects that from 2018-2025, a total of 8,618 MW new capacity will be added to the country’s power grid, 6,325 MW of which will come from coal plants.

Report #3 is about the DoE studying the legality of being the issuer of licenses for retail electricity suppliers (RES), a function by the Energy Regulatory Commission (ERC) governing the implementation of retail competition and open access (RCOA).

RCOA is among the beautiful provisions of the EPIRA law of 2001 because it allows electricity consumers the option to choose their own power suppliers. But RCOA was issued an indefinite temporary restraining order (TRO) by the Supreme Court on Feb. 21, 2017.

Consumers can set their own conditions from their RES. Thus, some consumers can demand that they be supplied 100% only from renewables even if the price is higher. The Green Energy Option (GEO) of RE law of 2008 encourages this. Meanwhile, some consumers can demand that they be supplied 100% only from cheap and stable sources.

Report #4 is about Aklan Electric Cooperative (AKELCO) seeking to recoup losses of about P17-M a month associated with the closure of Boracay for six months. It has a power purchase agreement (PPA) with four power generators for 42 MW and they are required to pay for them whether the power is used or not. So AKELCO will increase its rates by P1.62/kWh to the rest of Aklan electricity consumers.

Report #1 does not heed the advice of Alessandro Volta and actual data on Philippines power generation and hence, run the risk of bad investments in the future.

Report #2 and new policy will convert some of those new coal plants to become mid-merit instead of baseload. This policy reversal might sour future investments in reliable coal power.

Report #3 is positive, affirming consumers’ rights to choose their own energy mix. The DoE should ultimately shy away from announcing its preferred energy mix.

Report #4 shows that the arbitrary closure of Boracay is bad not only for businesses in the island but also for businesses and households in the entire Aklan province.

Government, both Malacañang and DoE, should learn more to respect consumer freedom.

Solar insecurity, energy stability and affordability

* This is my column in BusinessWorld on February 26, 2018.

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“When PV Solar rely on up to 67% of revenues from subsidies, the state becomes a counter-party that is critical to sustaining the firm’s financial viability. Vagaries of politics imply constantly changing priorities, making for a fickle advocate.”

— Ricardo Barcelona,

author of Energy Investment: An Adaptive Approach to Profiting from Uncertainties (2017).

This is a lesson and reality that will be hard to appreciate for solar energy advocates and developers, that without politics, without forcing and coercing energy consumers to subsidize, directly or indirectly, solar, wind, and other renewables, their advocacy is a losing proposition.

Last Thursday, Feb. 22, I attended the Energy Policy Development Program (EPDP) lecture at the UP School of Economics (UPSE), my alma mater. The speaker was Mr. Leandro Leviste, president of Solar Philippines and his presentation was “Cheap Electricity for a First World Philippines: The 24/7 Solar-Storage Revolution.”

Mr. Leviste boldly declared in his presentation that “Solar is now the least cost for all peaking, mid-merit and baseload requirements, and will thus comprise the vast majority of additional power generation capacity from hereon in the Philippines.”

This is simply not true. If solar is indeed “least cost,” solar developers should have stopped asking for rising feed-in-tariff (FiT) or guaranteed high price for 20 years under the Renewable Energy (RE) law of 2008.

FIT rates for solar batch 1 (2015 entrants) were P9.68/kWh in 2015, P9.91 in 2016 and P10.26 in 2017. For solar batch 2 (2016 entrants), P8.69/kWh in 2016 and P8.89 in 2017. Solar and wind developers are feasting on billions of pesos of additional, expensive electricity slam-dunked on hapless consumers on top of the 11-12 different charges in their monthly electricity bill.

During the open forum, I asked Mr. Leviste two questions:

(1) Will you support the abolition of RE law of 2008 since your presentation shows plenty of improvements and cost reduction for solar, meaning they can survive without FiT, RPS, other subsidies and mandates?

(2) You advocate large-scale solar development in the Philippines, therefore you advocate large-scale deforestation of the country? You showed a big picture of your solar farm in Batangas, zero tree there, anti-green. Solar hates shades – from clouds and trees.

His response to #1 was Yes, we can abolish the RE law but we should also abolish the EPIRA law of 2001, the pass-through cost provisions. To question #2, he said that there are trees outside the solar farm and there are moves to plant crops under the solar panels.

Meaning his answer to #1 is No. On #2, precisely that trees are allowed only outside the solar farm because solar hates shades from trees. While many environmentalists including Sen. Loren Legarda repeatedly say “Plant trees to save the planet,” solar developers like Leandro Leviste are implicitly saying “remove and kill all trees (in solar farms) to save the planet.” The irony of green environmentalism.

The call for “green, environmentally-sustainable energy” is repeatedly echoed in the Philippines and other countries. And many of these advocates are unaware that in the annual report, “World Energy Trilemma Index” by the World Energy Council (WEC), the Philippines is #1 out of 125 countries for several years now in environmental sustainability.

WEC is a UN-accredited global energy body composed of 3,000+ organizations from 90+ countries (governments, private and state corporations, academe, etc) NGOs, other energy stakeholders). The Trilemma index is composed of three factors, briefly defined as:

Energy security: effective energy supply from domestic and external sources, reliability of infrastructure and ability of energy providers to meet current and future demand.

Energy equity: accessibility and affordability of energy supply across the population.

Environmental stability: achievement of energy efficiencies and development of energy supply from renewable and other low-carbon sources (see table).

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(The indicators represent economies as follows, from left to right: Singapore, Japan, Hong Kong, South Korea, Malaysia, Thailand, Indonesia, China, Vietnam, and India)

The Philippines is #1 out of 125 countries covered in Environmental Sustainability. There is high reliance on conventional renewables like big hydro and geothermal, plus newly added variable renewables. There is no need to aspire for rank #0.5 worldwide

Ranking 95th, we are low in energy equity because of our expensive electricity, which is 3rd highest in Asia, next to Japan and Hong Kong.

We place 63rd in energy security — in the middle — and we still need to add big conventional plants like coal to give us 24/7 stable, dispatchable energy to meet demand.

To conclude, these words from Ric Barcelona resonate:

 

“When subsidies are set as the costs differences, the ‘correct’ level is indeterminate. As power prices increase, renewables need lesser subsidies but nevertheless continue to collect. When this happens, consumers would coax regulators to claw back the subsidies because renewables are raking it in at consumers’ expense.”

On Tesla gigafactory, WEF + Tesla fake news and video

Last December, a WEF video about the Tesla gigafactory in Nevada producing battery cells and e-cars was circulating in social media.

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This portion particularly caught my attention because it cannot be true, it is fake news — “It’s entirely powered by renewable energy.” If the wind does not blow, or the Sun does not shine (at night or in rainy/cloudy days), there will be massive blackout in that gigafactory.

The source of that video is the WEF in this article dated 23 August 2017.

People resort to public disinformation and deception just to advance their commercial interests and ecological-political ideology of more government intervention, government favoritism and cronyism of RE while penalizing cheap, stable, dispatchable energy sources like coal, natgas, geothermal, etc. Lousy.

Energy favoritism under TRAIN

* This is my column in BusinessWorld last December 19, 2017.

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The recently approved tax reform for acceleration and inclusion (TRAIN) by the Congressional Bicameral Committee exhibits a number of favoritism for some energy products and players while penalizing others. In particular, among the three fossil fuels, only petroleum products and coal received tax hike while natural gas was not mentioned and hence, not taxed.

In the VAT base expansion, expensive, unstable and intermittent renewable energy (RE) like wind-solar is again exempted (see table).

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Here are the possible implications:

  1. Since petroleum products are a public good, many goods and services will experience price hikes. Not only fares for jeepneys, buses, taxi, boats, and airplanes but also for agricultural products because most farmers now no longer use carabaos in tilling their farms, they use tractors, big and small; more farmers now also do not use human labor for harvesting rice, they use harvest + threshing combiner machines. Fishermen hardly use manual paddle boats, they use motorboats. Traders no longer use animals in transporting cargo, they use trucks.
  1. Since coal power contributes 48% of total electricity production nationwide (2016 data) despite having only 34% of total installed power capacity, electricity prices will further go up, slowly but surely. Most apologists of raising coal taxes cite the “minimal impact” on households consuming 200 kWh/month. This may be true but those households work in factories, malls and hotels, schools and universities, hospitals and residential condos, airports and seaports. These establishments consume hundreds or thousands of MWh per month, not kWh of electricity. The additional cost will be passed on to the consumers.
  1. Natural gas is also fossil fuel but it was never slapped with excise taxes. The Malampaya gas royalty is a tax on exploitation of a natural resource, the same way that the price of our imported petroleum and coal already include royalties. There is favoritism in exempting natural gas from excise tax. And there are some connections between some legislators and a known economist who pushed for high coal tax but silent on natural gas tax, with a big energy company whose main product is natural gas power generation.
  1. Exempting RE from VAT but retaining VAT for fossil fuels. These REs are enjoying favoritism three times. First, this exemption from a high 12% VAT. Second, they are given guaranteed high prices for 20 years via feed-in-tariff (FiT). Third, they are given priority or mandatory dispatch to the grid even if they are expensive. For instance, FiT for solar1 is P10+/kWh, FiT for wind1 is P9+/kWh, average coal price is P4/kWh, can go down to P1.50/kWh on off-demand hours like midnight.

Oplas-121917-768x402Soon, REs will be given a fourth privilege via the renewable portfolio standards (RPS), or minimum percentage of REs that electric cooperatives (ECs) and private distribution utilities (DUs) must purchase and distribute to households. REs then can price their electricity output high because these ECs and DUs have no choice, they will be penalized if they will not buy those expensive and intermittent REs.

Meanwhile, the DoF is often quoted as saying that “two million richest Filipino families consume 50% of oil products in the country.” This is one of the reasons why they pushed for high tax hike for oil products.

I have been intrigued by that repeated statement since last year and I am wondering what papers or studies justify this?

There are about 25 million Filipino families now. The DoF refers to the richest 2 million families, so the other 23 million middle class and poorer class Filipinos consume the other 50% of oil products.

The DoF is saying then that anytime in EDSA, NLEx, SLEx, roads in Visayas and Mindanao, etc. on average, about 50% of the cars, buses and trucks there transport the two million rich families and their goods? And that about half of domestic flights and the inter-island boat rides transport the richest two million families? This is absurd.

I think the DoF displayed dishonesty and deception in making that claim to further justify the high oil tax hikes. If such DoF claim has indeed objective basis, I am willing to apologize for this remark. For now, that statement is not backed up by solid numbers and hence, deceptive and opportunist.

Ric Barcelona on energy investment and subsidies

I am reposting an article by a friend, Ricardo “Ric” Barcelona, published in the Inquirer last November 27, 2017. I attended the book launching of Ric’s book, “Energy Investment: An Adaptive Approach to Profiting from Uncertainties” last November 22, 2017 at Shangrila Hotel Makati. Good work and congrats again, Ric.
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Why do subsidies often fail?

In writing my new book, I came face to face with three energy investment paradoxes. All trace their roots to generous subsidies.

Counter-intuitively, generous subsidies did not result in wide scale deployment of renewables, more so with solar as subsidies’ poster kid.

Innovation is the second paradox. Advocates argue that as increasing renewables capacity is installed, their costs would fall.

Ironically, when subsidies are too generous, the costs decline more slowly than in markets without subsidies.

The third paradox blasted the notion that growth and profitability go hand in hand.

With solar installation’s “frenzied” growth, albeit from a low base, I struggled to find beneficiaries of this boom that profited financially, much less achieving value-creating returns.

Perhaps, not surprisingly, we come across contradictory reports on renewables’ progress from the business press.

One sunny morning in 2013, leading journalists herald the dawn of renewables’ new era. Solar is sold at a price lower than coal, so the headline says. As analysts scramble to validate their financial models, most could only scratch their heads and were at a loss for answers. The next batch of headlines came to their rescue. Investors and advocates of “competitive” solar power were up in arms. The cause? Governments in Europe cut renewables’ subsidies drastically. Within weeks, “high growth” solar companies filed for bankruptcies, with wind struggling to make ends meet while barely remaining afloat albeit financially moribund.

In The Atlantic’s November 2015 issue, which I quoted William Gates, Microsoft’s founder, provided an answer as to where the problem lies.

By succinctly arguing how costs comparisons become a disservice to the environmental cause, Gates observed: “Photovoltaic solar is not economical. Its intermittency is a major problem. When environmental enthusiasts point to photovoltaic solar as having a similar cost to hydrocarbons, what they mean is that at noon in Arizona that may be the case. However, solar does not come at night. So the fact that at one moment you reach parity, so what? Distinguishing a real solution from a false one is actually very complicated”.

Economics of subsidies

The economic cost of energy equates to their life cycle cost of energy. This is a simple addition of the recovery of its normalized fixed assets costs, variable operating expenses, and fuel costs. Embedded within the fixed costs are its implied return on assets and a depreciation expense, while variable and fuel costs are inflation adjusted, with fuel prices accounting for most of the volatilities. Renewables tend to have stable costs.

Philippine coal-fired power’s economic costs would be about P7.29/kWh, while PV Solar would be about P9.09/kWh. Financial costs based on acquisition prices would be about P3.00/kWh to P4.50/kWh. This compares with PV Solar’s feed-in tariff (FiT) of P8.50/kWh. With PV Solar equipment costs having fallen sharply, its economic cost is below the feed-in tariffs. While the learning curves effects favor PV Solar’s improved costs competitiveness, fuel and power prices from coal-fired and gas-fired power fell from peak of P8.00/kWh to its present levels of P2.00 to P3.00/kWh. The FiT subsidies actually widened to P5.50 to P6.50/kWh, or up to two thirds of revenues.

The lessons are stark. When subsidies are set as the costs differences, the “correct” level is indeterminate. As power prices increase, renewables need lesser subsidies but nevertheless continue to collect. When this happens, consumers would coax regulators to claw back the subsidies because renewables are raking it in at consumers’ expense.

Paradox One: Generous subsidies do not result in wide scale renewables deployment. Highly dependent on subsidies, changing government priorities that cut subsidies turn secure revenues, into the very source of uncertainty that bankrupt the venture.

Innovation paradox

Learning curves suggest that with each doubling of renewables’ capacity, its costs would decline by about 20 percent. Enthusiasts present this as evidence that success is a fait accompli.

PV Solar exceeded what the theory prescribes. The learning curves, however, could stall or even reverse its decline. For example, US wind turbines costs declined from about $4,500/kW in 1997 to $1,200/kW in 2001. When subsidies were made more generous in 2004, the rush to build wind farms clogged the production lines that saw wind turbine prices spiked to $2,400/kW in 2010 before settling at $1,500/kW in 2015.

Rapid declines in renewables’ costs impact producers’ revenues, where exponential volume expansion is subdued by accelerated price declines. In effect, innovations that lead to rapid costs decline may be curtailed when subsidies buffer the need for aggressive costs competition.

Project proponents act as mechanisms to channel subsidies from the state to producers. A quick mental calculation would convince proponents that the cost of postponing investments has its value.

If it becomes certain that tomorrow’s equipment costs would be substantially lower, and the technological cycle is shortened significantly, the cost of waiting in terms of foregone revenues could be lower than the equipment costs savings.

This is where PV Solar’s fate is sealed. Unlike hydro or geothermal power’s utilization rate of up to 95 percent, PV Solar at best is 22 percent. The foregone revenues are a fifth of those lost from alternative technologies. Worse, after five years of operation, PV Solar’s utilization rates could fall to 12 percent to 15 percent. This comparison makes developers more inclined to wait rather than to rush in to invest—unless of course the subsidies are generous.

What happened to the early movers—an advantage that strategy would suggest they reap the benefits for being decisive? Ironically, as future equipment costs fall farther, the early movers are stuck with obsolescing assets that are stranded as they lose competitiveness. Worse, their valor and decisiveness to be the first to invest leaves them to do the heavy lifting to lower costs that ultimately benefit the latecomers to profit from their labor.

Paradox Two: Subsidies blunt the need to accelerate costs reduction. Waiting to invest could prove lucrative where the latecomers profit from “early movers” follies.

High growth, expanding losses

Simple arithmetic tells us that for as long as revenues falls lag the rate of costs reductions, firms could expand cash operating margins. Solar equipment and panel producers are trapped in vicious cycles.

To remain competitive, they continually innovate that costs money while reducing costs (and prices). Competitors push the technology frontier that renders obsolete any incumbents’ offerings. As competition intensifies, rising costs and falling revenues or market shares could only lead to bankruptcies.

Within the PV Solar waiting game, in bypassing one generation of technology, and wait the more cost effective innovation, the shorter waiting period could prove lucrative for developers. However, for PV Solar producers, the waiting game could only exacerbate the pressure on operating margins.

Paradox Three: Accelerated volume expansion and rapidly declining prices erode cash operating margins, where the firm loses more the more it grows.

In my academic sojourn, what was presented as simple and readily understood formulation for calculating the “correct” subsidies turns out to be nuanced and complex. Under dynamic markets, where energy prices vary daily, fixing the subsidies becomes an indeterminate exercise. There are many possible answers for a given time that does not hold true once the prices change.

When PV Solar rely on up to 67 percent of revenues from subsidies, the state becomes a counter-party that is critical to sustaining the firm’s financial viability.

Vagaries of politics imply constantly changing priorities, making for a fickle advocate.

Contrary to popular belief, subsidies are far from a source of secure income. As governments renege, subsidies (or its loss) become a major credit risk.

My short prescription: Treat renewables, coal and gas as one supply portfolio. Their different costs structures provide physical hedges against rising energy prices, potentially increasing portfolio returns.

We may take William “Bill” Gates’ advice to heart: “Distinguishing a real solution from a false one is actually very complicated.” Understanding how business work, and applying the same rigor to renewables and our energy supply portfolios may just lead us to offering a real solution to meeting our future energy needs.