Cheapest power source: Solar rooftop

THE SUMMER activity described above belongs to a category of measures called “demand-side management.”

Given the continuing growth of the Philippine economy, we also need measures on the supply side to meet the country’s growing demand for electricity.

In an interview in August 2014, Energy Secretary Carlos Jericho Petilla said: “The cost of electricity from a coal plant can run up to P5.50 per kilowatt-hour (kWh), plus P6.50 for distribution and transmission, which amounts to P12.00. If you install solar panels on your rooftop, you will spend only P9.00 per kWh for generation and no cost for distribution or transmission. This already saves you up to P3 per kWh.”

Insight
Still, a lot of people do not realize the full implication of Petilla’s insight. It means that last year, in around 60 percent of Philippine utilities and electric cooperatives, where the retail price of electricity was more than P9/kWh, rooftop solar was already the cheapest source of electricity in daytime. (See Figure 2.) People should read that previous sentence again and again, for the message to sink in.

Trends
The trends are even better because solar panels and their associated inverters are becoming cheaper. This is due to better learning curves and economies of scale—the same reason why prices of computers, cell phones and other electronic gadgets are dropping year after year.

While the cost of PV (photovoltaic) systems has been dropping, electricity rates have risen steadily over the years. Once they are equal, solar electricity reaches what is called “grid parity.”

In Metro Manila, solar electricity reached grid parity sometime in 2013. By 2014, as Petilla observed, solar rooftop electricity was cheaper by P3/kWh than the retail price of electricity in the metropolis.

Prices decreasing

Over the past 10 years, the local cost of PV systems has been dropping by 9.4 percent per year. Solar panels that sold for P48 per watt-peak in 2014 sell for P39 today, a price drop of 19 percent. A similar steady downward trend in solar panel prices can be seen at the global level.

Solar panel prices have been steadily decreasing since the 1970s. (See Figure 3.)

In the coming years, electricity from solar rooftops will be cheaper still than it is today. Once solar costs go below P6/kWh—and this will happen in the next few years—solar rooftops will then be the cheapest source of electricity throughout the Philippines, without exception. This development is not only a game changer but will also be a deal-breaker.

Technology lock-in
Let us look at the implication of this trend: That a decade or so from now, nonrenewable and highly pollutive sources like coal, oil and nuclear will be much more expensive than solar electricity.

It means that if we build such plants today, we will be locked in to a nonrenewable, highly pollutive and expensive generating plant for the next 30 to 40 years. If they become too expensive to operate compared with their solar and wind counterparts, they will probably have to be scrapped years before their projected lifetime. This will then invalidate all the financial projections that led to the decision to build these plants.

Big electricity consumers who buy their supply through long-term supply contracts have to review solar prices a decade or two from now to determine whether such supply contracts still make sense. The government must review all coal plants now in the pipeline and consider the possibility of canceling some of these future white elephants.

Technology lock-in is a major deal-breaker for coal and nuclear plants that are now in the pipeline.

Cheap but unaffordable?

There are two major missing pieces, however, before solar rooftops can attain full takeoff.

Although solar is now increasingly the cheapest source of electricity, it remains unaffordable. This is because of the specific nature of solar economics: Most of the expenses in operating a solar rooftop are incurred in the beginning of the project, instead of being spread out over the years in terms of fuel and operating costs.

Like solar, it is cheaper to own a house than to rent an apartment. But only if you can afford to buy a house and lot in the first place. The missing piece is financing.

Pag-Ibig loan
The solutions have started to come. Pag-Ibig Fund (Home Development Mutual Fund) will now lend up to P130,000 for a solar PV installation but only for new houses. It should expand this financing window to cover existing houses, and should also raise the loan ceiling.

Why only Pag-Ibig? Development Bank of the Philippines, Land Bank of the Philippines, Social Security System and Government Service Insurance System should also get into the act.

At least one company, Solar Philippines, will now set up solar panels on commercial premises requiring not the full payment of the up-front costs but a power purchase agreement (PPA) from the commercial owners based on a per kWh price that is lower than the utility’s.

PPA as collateral
The solar company then uses this PPA as collateral to borrow from a bank. As Petilla himself noted “this is the first company to get [the business model] right.”

Unfortunately, the company does big malls only. A residential owner cannot get a similar deal, but has to pay for the up-front costs of a PV system as usual.

This is a business opportunity for other companies to exploit. The solar market for residential and small commercial buildings is just waiting for the right financing to come.

Net metering

The policy that led to the explosion of the solar rooftop market in the United States is called net metering. It is now required in 44 US states and implemented voluntarily by utilities in four more states.

This approach is very simple but the debate surrounding it has become quite complicated. The bone of contention is the price of the surplus that the solar rooftop owner exports to the grid. The US practice is to price the solar surplus at the same retail price that utilities charge their customers.

Utilities want to roll back this practice, now entrenched in US law and regulatory rules, and set the price at the average generation price. But in many other countries, taking into account the hidden costs of coal-, oil- and nuclear-based electricity, they assign a higher-than-retail value to solar electricity and other renewables.

ERC interim decision
The Energy Regulatory Commission (ERC) chose to set the Philippine net metering price at the average generation price, which of course has made solaristas unhappy. This is an interim decision that will be reviewed in the future, according to ERC Executive Director Francis Juan.

The worst barrier to small-scale solar rooftops today is the use of unidirectional electric meters, whose dials move forward, whether one is buying from or exporting one’s solar surplus to the grid.

Thus, solar rooftop owners with an occasional surplus on cloudless days will end up being charged rather than getting credits for their surplus, a truly bizarre situation that needs to be corrected as soon as possible.

In the Philippines, although the solar revolution is just around the corner, some badly needed policies need to be in place before ordinary consumers can take advantage of cheap solar electricity. Roberto Verzola