Transitioning to a mix of distributed solar, wind and other renewable energy resources suits island nations, such as the Philippines, hand in glove. Doing so now not only makes sound economic and financial sense, it would yield deep, long-lasting social and environmental benefits that economic models just don’t account for, solar and renewable energy advocates and proponents say. A lot in the way of political and regulatory obstacles and barriers need to be overcome for genuine, consistent progress to be made, however.
At Philippine peso (PhP) 2.50–5.30 (USD0.05–0.10) per kilowatt-hour (kWh) excluding financing costs, rooftop solar can deliver lower-cost energy than conventional coal-fired power plants and unlock as much as PhP1.5 trillion (US$2.8 billion) in new investment by 2030, according to a 2019 study from the Institute for Energy Economics and Financial Analysis (IEEFA). Larger scale commercial-industrial and utility-scale solar power plants can produce electricity even more cheaply.
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Solar costs lower than coal, fossil-fuel generation without subsidies
Electricity costs in the Philippines are the highest among the Association of Southeast Asian Nations’ (ASEAN) 10 member countries at around 10 PhP/kWh (USD0.20/kWh). Much of that has to do with longstanding government fossil-fuel industry subsidies that transfer the fuel, currency and other socioeconomic and environmental risks and burdens of electricity generation, transmission and distribution from utilities and large independent power producers that have the ability to manage them to everyday Filipinos, many of whom live at marginal, subsistence levels, IEEFA highlights in a March 2019 research report.
Sharply falling costs and improving performance of digitally networked solar, wind power and battery energy storage pose challenges to the status quo, but they are making believers of even the largest Filipino utilities and corporations, as well as politicians. Manila Electric Company (Meralco) in March of this year received the country’s lowest wind electricity generation bid ever on a new 150-megawatt (MW) project in the Rizal province, for PhP3.50 (USD0.068)/kWh, for example.
Solar costs have been declining sharply, as well. Meralco has contracted to buy electrical energy produced by a 50-megawatt (MW) solar power plant for PhP2.99 (USD0.058) per kWh.
Coal-fired power generation, by comparison, costs upwards of PhP3.80–5.50 (USD0.074–0.11) per kWh, and the true cost of imported diesel-fired power ranges from PhP15–PhP28 per kWh, according to IEEFA.
The publicly released, contracted cost of coal and natural gas power generation is inaccurate and misrepresented as being significantly lower than it actually is due to the legally permitted ability of power producers to pass hidden costs on to consumers, IEEFA Energy Finance Analyst Sara Jane Ahmed
explained in an interview.
Regulators and the DOE (Department of Energy) assumed the growth and electrification agenda requires, and is premised on, cheap coal. That’s clearly not happening. Coal is extremely expensive
“The government is in a position to change the longstanding status quo, which disproportionately puts fuel-price and foreign-exchange risk on consumers, while utilities and power generators remain insulated from market changes,” Ahmed wrote in IEEFA’s Unlocking Rooftop Solar in the Philippines. “As a result, power suppliers have no incentive to transition away from coal and diesel or to hedge against price-change and currency risks.”
Philippines falling far short in terms of realizing its solar, renewable energy potential
Philippine President Rodrigo Duterte and predecessors have set some ambitious national and international renewable energy, greenhouse gas (GHG) emissions reduction and sustainable development goals, including achieving universal electrification by 2022. An estimated 11.7% of Filipino households, as many as 2.78 million, lacked access to electricity as of 2018, according to the Philippines’ Department of Energy (DOE).
In 2008, the Philippines government passed a renewable energy law with goals of doubling renewable power capacity by 2030 and reducing the nation’s dependence on coal-fired power in order to achieve energy independence, enhance energy access, reliability and resilience, lower energy costs, boost all islands’ economies and improve lives, livelihoods and the environment.
Installed renewable energy capacity on average increased a mere 3%, or 157 megawatts (MW) per year, for the 11-year period 2005–2016, from 5,226 MW to 6,958 MW , however, Philippines Senator Loren Legarda pointed out at a renewable energy symposium in July 2018.
Meanwhile, the Philippines’ coal imports increased an average of 12.8% annually from 1989–2015. The combined capacity of coal-fired power plants nationwide surged higher, rising 87% from 3,967 MW in 2005 to 7,419 MW in 2016, Legarda continued. Another 10,423 MW worth of coal-fired power generation capacity was in the development pipeline at the time, locking in environmental degradation and rising greenhouse gas emissions (GHG) for decades to come.
“The low uptake of renewables is surprising given that solar, wind, run-of-river hydro, geothermal and biogas are viable domestic generation options. This is especially true when paired with storage for ancillary services such as frequency regulation providing both enhanced and firm frequency responses, spinning reserves and voltage support. These can be combined to create the type of cost-effective and secure energy system that an island nation like the Philippines needs,” IEEFA’s Ahmed wrote in The Philippine Energy Transition: Building a Robust Power Market to Attract Investment, Reduce Prices, Improve Efficiency and Reliability.
Table 1: True Cost of Diesel and Subsidy (Snapshot)9
| NPC SPUG Area | Plant/Power Barge | True Cost of Diesel (PhP per kWh) | Existing Subsidized Approved Generation Rate (SAGR) (PhP per kWh) | Difference (PhP per kWh) paid for by Subsidies from Consumers | Operating Hours |
|---|---|---|---|---|---|
| Masbate | Burias Mini Grid | 103.09 | 5.12 | 97.97 | 8 |
| Masbate | Masbate Pres Mini Grid | 165.52 | 5.12 | 160.40 | 6-8 |
| Romblon | Sibuyan DPP | 25.56 | 5.64 | 19.92 | 24 |
| Bantayan | Doong DPP | 30.46 | 6.26 | 24.20 | 24 |
| Tawi-Tawi | Tandubanak DPP | 25.53 | 5.12 | 20.41 | 12 |
| Other Visayas | Panay Mini Grid | 127.37 | 5.64 | 121.73 | 8 |
| Other Visayas | Almagro DPP, Western Samar |
38.28 | 5.64 | 32.64 | 8 |
| Other Visayas | San Vicente DPP, Northern Samar |
44.09 | 5.64 | 38.45 | 16 |
| Other Mindanao | Sacol DPP, Zamboanga |
36.71 | 4.80 | 31.91 | 16 |
| Other Mindanao | Hikdop DPP, Surigao del Norte | 32.81 | 4.80 | 28.01 | 16 |
Data source: [Report] Philippine Energy Transition: Building a Robust Power Market to Attract Investment, Reduce Prices, Improve Efficiency and Reliability
In short, Filipinos and the environment are paying the price and subsidizing incumbent utilities and large private corporations that own, operate and continue to invest in new coal, natural gas, diesel and other and fossil fuel-fired power generation, critics say.
This coal-dependent strategy creates stranded assets, and consequently, stranded costs that our consumers will ultimately have to bear…The most intriguing aspect of [the] RE (Renewable Energy) Law implementation in our country is arguably the absence of a clear and strong political commitment to develop and stimulate a healthy market for renewable energy development.
Handing over new markets to a politically connected, family-owned solar corporation
Another example of political, government capture by powerful, family-owned corporations emerged recently when Pres. Duterte signed a new bill into law. The law grants Solar Para sa Bayan, a company run by the son of a former senior senator, now congressional representative and Duterte ally, a non-exclusive, 25-year franchise to develop distributed clean energy systems in unviable, under- and unserved areas spanning 15 provinces.
Solar Para sa Bayan’s sponsors in the legislature had to make concessions and amend the original bill to satisfy opponents and assure its passage. The government issued a statement upon Pres. Duterte signing the bill into law highlighting certain of its aspects intended to assuage public concerns and those of all the other solar project developers active in the Philippines’ nascent distributed solar and microgrid market.
Solar Para sa Bayan’s franchise does not alter or affect the Philippines Dept. of Energy’s (DOE) responsibility to promote private sector participation in “the electrification of remote, unviable, unserved and underserved areas,” for instance, according to one local news report.
Furthermore, the government highlights that “other qualified third parties will be able to continue to participate in any competitive selection to operate in these areas as determined by DOE, in accordance with some provisions of the Act, even without a similar franchise from Congress.”
Non-exclusive though it is, Solar Para sa Bayan’s franchise stifles market competition and innovation in the Philippines’ nascent distributed solar-storage and microgrid market , one that encompasses some 4.5 million-plus households, around 15 million people, across the Philippines. And it may well drive foreign distributed solar and solar-storage microgrid developers out of the Philippines, WEnergy Global founder and CEO Atem Ramsundersingh
told Solar Magazine.
Foreign solar microgrid developers introduced the concept and were the first to roll out community solar-storage microgrid systems in the Philippines, Ramsundersingh pointed out, planting the seeds of a trend that has continued growing and has become a key facet of the government’s goal to electrify all Filipino households by 2022. WEnergy Global began working closely with a community and local electricity cooperative on the island of Paluan to develop a community solar-storage microgrid some seven years ago, Ramsundersingh told Solar Magazine.
Earlier in July, before Solar Para sa Bayan was granted its franchise, a bill was introduced in the Philippines Senate that aims to accelerate rural electrification by allowing solar and other renewable energy project developers to develop projects in off-grid areas without having to obtain waivers from electric cooperatives that hold franchises to deliver electricity services to communities in these areas. The bill would also impose sanctions on authorities that delay permit and license processing.
The government has stated that total electrification in unserved areas cannot be done by traditional grid extension alone and that non-traditional means—such as microgrid systems—are needed. The problem of energy access is also a concern even in ‘electrified’ areas with limited electricity service, or what we call underserved areas.
Duterte reinforced his commitment to reduce the Philippines dependence on coal-fired power generation in his annual address to Congress in July by directing the DOE to fast track implementation of two renewable energy policies. The first is a Renewable Portfolio Standard (RPS) that will require power distribution utilities to source a minimum proportion of energy from renewable energy resources. Dubbed the Green Energy Option, the second gives consumers the right to demand the energy they buy comes from renewable energy sources.
Energy Secretary Alfonso Cusi explained that a Green Energy Rate will be established for 2 gigawatts (GW) of renewable energy capacity. He didn’t specify a time frame.
Cusi emphasized that the Green Energy Rate will not be a feed-in-tariff or other form of government subsidy. He also emphasized the achieving national energy security requires a diversity of fuels and that liquefied natural gas and coal-fired power plants will continue to be considered fuels that bridge the way towards a renewable energy transition.
Off-grid, commercial-industrial solar-storage opportunity abounds
The market for utility-scale solar in the Philippines has become increasingly difficult due to market regulatory changes and in terms of price competition that only the largest, highest capitalized developers, such as utilities and other large corporations that have independent power producer subsidiaries, can compete. A huge opportunity exists in the nascent market for smaller-scale, distributed solar and microgrid systems , however, Ramsundersingh said in an interview.
As a nation, the Philippines, like Indonesia, is scattered over a vast expanse of ocean. Roughly 4.5 million to 4.6 million households, 15 million people, don’t have access to electricity. That makes the Philippines an ideal country for decentralized solar microgrids and presents a huge opportunity.
There are some 119 electric cooperatives charged with providing reliable, affordable electricity 24×7 in the Philippines, Ramsundersingh pointed out. “That just isn’t happening…The are many dedicated, intelligent and well-trained engineers and others working in electric cooperatives, but they just don’t have the capacity,” he said.
Ramsundersingh and WEnergy Global see lots in the way of latent, untapped energy demand, along with sustainable development potential, in developing solar-storage microgrids to serve these off-grid and poorly served areas. “That’s where the big opportunity is: electrifying 4.6 million households with solar, and that’s not counting small commercial and industrial (C&I) businesses—in tourism, agriculture, fisheries, etc.—that could use that clean energy to improve and grow their businesses,” Ramsundersingh said.
Image: WEnergy Global
Aggressively deployment of solar-storage microgrids would also go a long way towards improving human and environmental health and quality of life, as well as helping the Philippines achieve its national and international renewable energy, greenhouse gas (GHG) emissions reduction and climate change goals. Not doing so, on the other hand, would come at a great cost, Ramsundersingh continued. “Connecting households is one thing, but along with that is the economic development opportunity, not only from the commercial, but from a climate perspective,” he said.
“This is a tremendous reason for us to be there. Imagine if all those households and businesses were energized with diesel or another polluting, fossil fuel energy resource. “We believe [a transition to low-carbon energy] is viable and can be carried out in an equitable way,” Ramsundersingh said.
Ramsundersingh believes that Filipinos at the local levels will rally and continue to support greater competition and a more open energy market centered on the use of local solar and other renewable energy resources. He pointed out that a variety of agencies involved in approving off-grid, distributed energy project proposals have the authority to impose additional conditions on developers and awards. “There are lots of good people in the Philippines that do want to promote innovation and attract international capital and technology transfer…Local communities and government councils will ultimately decide on who they want on their islands and to energize their communities,” he said.
Furthermore, the political tide may turn again. “Two, three or four years down the road political leadership could change, a new government come into power and Solar Para sa Bayan may have a tough life. The law could be reversed and they would be back to square one—a market based on competition and local and international cooperation for the benefit of rural communities instead of a lazy monopolist without any pressure from competition.”
WEnergy Global has a project pipeline totaling some 20 off-grid, solar-storage microgrids and has been planning to invest over USD100 million in the Philippines to develop them over the next three years, according to Ramsundersingh. “If life becomes too tough, there are other places we are investing in, Myanmar and Indonesia, for example, but we believe innovation and market-based competition will win out. Filipinos are very commonsense people,” he said.
Ramsundersingh and WEnergy also see a large new business opportunity emerging for C&I solar in the Philippines. Project internal rates of return can run between 14–16% over 20–25-year production terms, which is attractive, he said.
“The C&I sector is growing. C&I business leaders in the Philippines aren’t as skeptical when it comes to considering and investing in solar energy as they are in other ASEAN countries,” Ramsundersingh said. “They can see the cost advantage, and the value of increased reliability. WEnergy Global is focusing on that. We’re preparing a facility to accelerate the installation of C&I solar rooftops. That business is picking up, and I think we’ll see opportunities to establish joint ventures with Filipino companies.”
Looking ahead towards Filipinos’ energy future
Looking to the future, Ahmed said she is “quite optimistic about what could happen, assuming the energy regulatory acts in public’s best interests, especially reforming fixed-price procurement so that there’s no [costs] pass-through of fuel or foreign currency risks. The actual landed price at the end of the day should be the price originally contracted for,” she said.
“Moving forward should not be monopolistic,” Ahmed commented in light of Solar Para sa Bayan being granted a non-exclusive franchise.
It should be transparent and competitive. Transparency and competition should be at the forefront so consumers and industry are delivered lower electricity prices. All future power generation should be procured through auctions that take into account resource efficiency by being technology-specific and location-specific, in coordination with the transmission operator.
Ahmed pointed out that government energy authorities are developing a reverse auction framework “that should allow for price transparency and competition on the basis of least cost and resource efficiency. We should see greater price stability and more secure pricing for consumers in the industry as a result,” she added.
Assuming this proceeds, “there will likely be a lag,” Ahmed continued. “We’re already seeing that the coal power plant pipeline has effectively stalled because prices will not guarantee capital recovery.” Furthermore, fossil fuel power producers “will finally have to absorb the fuel and currency risks rather than passing them on to consumers and industry. I think we’ll see a greater understanding of renewables versus fossil fuels and that renewables don’t require subsidies. I think we’ll see a larger commitment to renewables from 2020 onward as a result,” Ahmed concluded.
