New ERC Chairman is an Upgrade. He Deserves a Chance

by David Celestra Tan, MSK

Weeks before he was officially appointed by President Pnoy as ERC Chairman to replace ex-Pampanga Congresswoman Zenaida C. Ducut, lawyer Jose Vicente Salazar was already being questioned for his lack of energy industry knowledge and therefore will be needing a “long learning curve”. He allegedly worked as a consultant for the Aboitiz group. It was implied also that he was involved in some kind of irregularity at the Department of Justice.

Well, allow us to express our take on how this appointment could affect the power industry and the consumers, especially those in the Meralco area.

From news accounts, the new ERC Chairman has an electrical engineering degree from UP and a lawyer. He also has a Masters Degree in Public Administration from Harvard University. More important to MSK, It appears he is not a politician for a change.

Wow. What an upgrade from the previous appointees. For that matter the current composition of the ERC Commission as a whole is an upgrade from the class of 2002 to 2014 of PGMA appointees. Nothing personal, but the consumers did terribly under those commissioners as they gave in to most of what Meralco wanted to change in our rate making methodologies. Somehow the three politician Chairs of ERC under PGMA appeared to have mindsets that did not translate to “consumer first” regulation and the “public interest” mandate of the ERC.

On top of his educational credentials, the new ERC Chair apparently had served on the board of PSALM and represented the DOJ on energy related tasks. We expect he is also a Meralco consumer, probably an important real life experience needed by him to have the right perspective. We mean this guy is not clueless as being implied by early detractors and should not need to struggle through a “long learning curve” in the critical issues facing the ERC, the RCOA and RES rules included.

Part of that is the solid group of Commissioners that is already in place.

It is political season and it is no longer in vogue to heap praises on President PNoy but credit must be given where it is due. In our book one of the best things President Pnoy quietly had done was putting in better people at the ERC. The appointment of Commissioners Non and Taruc, which ironically went unnoticed by the media, was a stroke of genius, a great patriotic step towards infusing a regulatory soul into an agency that had lost its way, and a big testimony of this President’s commitment for going “matuwid” in governance. The subsequent appointment of ex DOE undersecretary Josefina Magpale-Asirit was similarly an upgrade in industry knowledge. She brought in energy policy making perspective into the ERC.

“Long Learning Curve”

We doubt that “long learning curve” will be a problem. ERC Chair Salazar is not exactly clueless. And the concept of knowing energy and having a “short learning curve” is overrated. We mean, former ERC Chair Ducut had a term of seven (7) years. Granting that she spent two years “learning” the power sector, we can assume that she can already be considered knowledgeable in power deregulation in the last five (5) years until her recent retirement. But how did the consumers do in those last five years? Dismally. There was no initiative to correct the anti-consumer regulatory rules put in by her two predecessors since 2002. It was perpetuation. Remember the Meralco rate infamy of 2013 when the Ducut ERC approved in one sitting the application of Meralco to pass on to the consumers an 80% jump in generation rates? We mean under Ducut, ERC’s conscience was not even bothered enough to take pause and ask “wait a minute, isn’t a P4.15 per kwh increase in one month too big a burden to the consumers?”

On the issue of RCOA and RES, we heard Commissioner Non is currently leading the initiative to rewrite the rules to create more competition and avoid conflict of interests that work against the consumers. It is in good hands and the ERC should be allowed to stay the course.

What new ERC Chair Salazar needs to do a good job at ERC is to have his heart in the right place. To sincerely and faithfully pursue “fair and reasonable” rates, to recognize that the promotion of true competition in the power sector is what will bring down rates, to see that opening the generation market is key to assuring continued investments for long term power supply, to balance the right of power sector investors to a fair return without sacrificing the consumers. Chair Salazar has to discern all decisions at hand from the prism of public interest. “It is only through the heart that one can see rightly” as the Little Prince said. If he is faithful to these ideals he will not be swayed, he will not be enticed, and he will not be lost.

The ERC bureaucracy also has professionals who are competent and committed to promote public interest. They just need to be led along the matuwid path towards the genuine pursuit of ERC’s regulatory mandate for fair and reasonable rates and the needed creation of a truly competitive industry environment.

ERC as “Quasi Judicial” body

One important thing ERC Chair Salazar should bring to the ERC is a fresh look at things. At the way things are done. We need new approaches.

One area that can use some rethinking and better enlightenment is how it handles its “quasi judicial” powers. The GMA ERC’s got caught too much in their “judicial” power. They operated as a court of justice, only hearing arguments and making decisions based on evidence presented. The Energy Regulatory Commission should be a provider (or enabler) of strategic energy policy decisions by sending the right “rate making methodologies” to support those goals. It is too reactive and apparently lacked its own competitive power road map. In the process it made itself susceptible to the enticements of the vested interests and hence easily got distracted. Napariwara ang Bayan. The steadfast initiatives of the team of Commissioners Non, Taruc, and Asirit to promote true competition is a new dawn in the agency long felt to be apathetic to consumer interest (although you hear them use the term in vain).

The ERC can also rethink and streamline its own regulatory coverage. Why is it necessary for it to approve rate reductions as an example? If Chair Salazar can adjust this judiciary attitude, the consumers can see much better regulatory rules that better safeguard them, an ERC that applies its regulatory power and resources on things that need regulating.

As pointed out by former Energy Secretary Carlos Jericho Petilla, Commissioner Asirit suffers from the perception that she is a niece of the powerful Rene Almendras who is a known Aboitiz man. Newly appointed Commissioner Geronimo Sta. Ana of Cebu is also reportedly a former Aboitiz executive just like Sec. Almendras. And new ERC Chair Salazar had reportedly served as a consultant of the Aboitiz group.

Unfortunately the Aboitiz group is currently appealing a finding that it manipulated the spot market and is being penalized by P200 million by the ERC. We understand the matter is already with the higher courts. We agree that this is not an ideal situation. But is the glass half empty or half full? How can anyone have deep knowledge of the energy sector, especially power, without having been involved with any of the players in some capacity? Professionals do have rights to practice their professions. What they cannot have is conflict of interest that cannot be shed, like being a family member.

The MSK as an advocacy group in the Meralco area still see the new PNoy ERC as a significant upgrade for the consumers. We will trade anytime an ERC that is unabashedly captured by Meralco that serves 62% of the country for a new ERC that is captured (granting) by the Aboitiz group that serves only 14%.

Let us give new ERC Chairman Jose Vicente Salaz+ar a chance to show that he can put the interest of the Filipino nation first and work for the ERC’s mandate to protect the public interest. It should not take him long to find his heart for the consumers.

The electricity consumers are counting on you Chairman Salazar. Please don’t let them down.

Matuwid na Singil sa Kuryente Consumer Alliance Inc.

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Solar Power’s Role in the Energy Mix and in Power Cost Reduction

by David Celestra Tan

Consumers are bombarded by publicity touting the cost advantages of solar and the government is similarly bombarded by lobbying from industry groups for more subsidies for solar. It is easy for consumers to get confused on whether solar power is good for consumers and for the country.

We will try to make sense for our consumers on the Solar and what realistically can be expected from it.

Understanding Solar

Solar is one of the Renewable Energies being encouraged and given generous fiscal incentives by the Renewable Energy law of December 2008. Capital goods are duty and VAT free and proponents are exempt 100% from income taxes for the first seven (7) years and only 10% after that.

It produces energy from sunlight through solar panels. Typically they produce power in varying degrees depending on the amount of sunlight and cloud cover. Normally this is from 10am to 5pm. In terms of energy, it produces 20% load factor only.

From the generators standpoint, solar systems have the benefit of faster installation time (6 to 8 months compared to 10 to 12 months for diesel plants and a minimum 24 months for coal power plants. The operation and maintenance costs is much lower because it has infinitely less moving parts than the other fossil-based generating facilities. These on top of the fiscal incentives.

There are two kinds of solar. Roof-top solar and the utility scale or grid-connected solar.

The economic and environmental benefits of roof-top solar is unquestionable. Mainly because in roof-top your avoided cost is retail or commercial rate of the local utility, especially in the Meralco area that has the highest distribution rate in the country. If you are paying P11.50 per kwh and you can get a roof-top solar system that produces at P8.50 per kwh, that’s a 26% reduction in your electric bill.

Net Metering Scheme

This is made possible by the net metering regulation established by the Energy Regulation Commission, one of the most enlightened pro-consumer and facilitative Resolutions set by the regulatory agency since its creation in 2001.

Under net metering rules, you can draw power from the grid or Meralco for your use. However, during the hours that your roof-top solar is generating electricity, you will be consuming electricity from the own solar system or delivering the excess back to the distribution grid. If you draw more power from Meralco than you produced, you may Meralco for the net difference at the Meralco distribution rate.

However if your solar panels produced more energy than you need and you exported to Meralco, the excess power will be paid for at the average generation rate. The limit is 100kw which is big enough for normal restaurants and most mansions.

This actually is not a bad deal because it assures you that at least there is a value to your excess energy and you have the privilege of drawing energy from Meralco’s distribution grid when you need power which is the hours of 6pm to 10am when your roof-top solar is not producing or producing little.

Roof-top systems are good for schools, hospitals, government offices, and businesses that have a lot of roof.

Some people claim a payback period of 5 years if they buy their own systems. If you go through a systems installer/financier, you probably save on electricity by 10 to 15%.

Caution however in choosing who will be your solar power provider. The industry is so new there is a mix of players ranging from the really good ones to the faster talkers. Just be careful and checkout credentials and track record.

Utility Scale or Grid Connected Solar

The current darling of the investment community is the utility scale solar with proposed systems ranging from 20 to 200mw. It takes about 1.2 hectare of land for each megawatt of solar array. Of course most of these proponents have been racing with each other for the Feed-In tariff which started at 9.68 per kwh and now down to 8.68 per kwh.

Secretary Petilla’s Department of Energy was constrained to adopt a first come first serve approach for availment of the Feed-In tariff because a previous Energy Secretary quietly issued 400 licenses for RE projects, most of them speculators. It became a horse race method to separate the men from the boys.

In this large systems, you sell your power to the main power grid.

The main lobbyist for the solar investors is the Philippine Solar Alliance. It is the group that fought hard for a subsidized rate of P19.68 per kwh! Why? Because Germany and Spain agreed to subsidize solar at that level. Had it passed, Filipino consumers would be subsidizing solar investors to the tune of P14.00 per kwh. Can you imagine? I would like to gold-plate everything in my house but I settle with chrome finish because gold is too expensive. Anyway for electricity, electron is electron.

The solar lobby group managed to convince the DOE to increase the installation target for solar from 50mw to 500mw (That’s roughly P3.0 billion a year in subsidies that will be passed on to the electric consumers). And they are asking for more because there are about 2,000mw of proposed solar projects and they threaten the country with the pull out of investors. Well, the Philippines needs the right kind of investors, those who will contribute something positive to the country and not stick the consumers with 20 years of overpriced power.

We are in luck though because the prices of solar panels have dropped dramatically by 65 to 75% in the last 3 years. Solar energy is a good example of market competition at work. Some utility scale solar promoters are floating rates of 6.80 per kwh although most are aiming still for 7.50 per kwh. And who do we owe this good fortune? Whether you like it or not, credit goes to the manufacturing prowess of Mainland China. Germany may have been the technology leader in solar as the pioneer but it is China that brought down the manufacturing cost, which in turn is the reason the solar industry is so viable now. Western countries however still make the more efficient and reliable inverter component of the system.

One thing unusual about large scale solar projects is why their investors are proceeding with construction even if they are not sure of getting P8.68 FIT rate. Our suspicion is because they can get by with an unsubsidized rate of P6.50 per kwh if that is what is necessary.

Solar and RE law

Solar’s right to being comes from its “must be purchased” rights under the Renewable Energy law of 2008. That is one of the hidden costs of solar. The base-load power that it will displace will nonetheless still be paid for the distribution utility and passed on to its consumers. Most people are presuming that RE has priority dispatch over fossil fuel and the latter will have to sacrifice and give way. The RE laws granting of “must be purchased” rights for renewable energy did not mean the utility has a right to violate its contracts with other power generators especially fossil.

Storage Technology on the Horizon

The common knock on solar is it’s intermittence. Cloud cover passes by and the output drops significantly. It can also generate power only when the sun is up and it is usually 10 to 5 pm, with the highest output the four hours in between. It is important for consumers to understand that solar alone cannot serve our 24 hour power needs. We still fossil fuel plants that can deliver power on demand.

Of course we need power 24 hours a day. So there has to be a system of storing power that solar produces during the daytime so that they can be used at nighttime. Fuel cells and storage batteries like the ones used in your car are very expensive but are also increasingly becoming economical.

This means if you want to extend your solar energy service by five (5) hours, you will need to double the size of your installed system and have the battery that will last five hours. We have a suspicion that China’s knack for manufacturing will save the day for extended solar through cheaper storage lithium batteries. That and possibly Eon Musk and his mega battery factory project in Nevada.

Hidden Costs of Solar

Government policy makers and the consumers however must realize that there are hidden costs to solar systems. First, as we said, is the payment for displayed base-load power supply contracts. This will result to higher average price of generation that will be passed on to the consumers. This is a result of the minimum off-take payments guaranteed to the fossil-based generators or its tricky-dick variation called load-factor based pricing that is very common in the Visayas and Mindanao.

The other hidden cost of power is the transmission connection charges of the large solar power systems which normally would be so far away from the grid. NGCP just loves to “classify” those transmission facilities as “transmission assets” which enables them to include it in their “asset base”, upon which their allowed maximum allowable revenue is computed. More transmission charges to consumers. If these practice keep up transmission charges will be the fastest rising item on our monthly electric bill.

Solar power just like other Renewable Energy must be subjected to bidding and not be “allocated”

One thing perplexing is why the Department of Energy is insisting on handing out (or allocating) the feed-in tariff even at the reduced P8.68 per kwh. The time of subsidizing solar energy to encourage there development is over. There are so many interested players now. Let them compete for the privilege. Set P8.68 as the top price and do a reverse auction on 400mw of solar power with government option for an additional 400mw if rates have achieved grid parity. For all we know the market will say there is really no more need to subsidize power.

Summary

In summary, roof-top solar is competitive and here to stay. The finance community must reach its level of comfort with the risk profile of solar. They might consider that solar arrays can be transferred at reasonable cost to another more credit worthy roof owners.

There should also be no limit in solar as long as they achieve grid parity and the DU consider the solar output of five hours in the middle of the day when designing their power supply agreements.

If utility scale solar achieves grid parity, they can play good roles in reducing average power costs and cleaner energy which must increasingly become an essential part of our energy mix.