Renewables increase electricity cost by P4b

by Alena Mae S. Flores – January 19, 2016 at 11:30 pm

from Manila Standard

Power consumers shouldered P4.26 billion in additional cost of electricity last year, after renewable energy plants began dispatching power at preferred rates, but overall rate decreased because of additional supply.

Jonathan de la Viña, Philippine Electricity Market Corp. senior specialist in corporate operations and market development told reporters the additional cost of P0.0598 came in the form of feed-in tariff allowance to pay the eligible renewable energy plants such as biomass, small hydro, solar and wind-powered facilities which produced power from November 2014 to October 2015.

De la Viña, however, said that with the entry of renewable energy, which were given a “priority dispatch,” the average rate in the wholesale electricity spot market, the trading floor of electricity, showed a reduction of P8.29 billion or P0.1165 per kWh.

He said the price reduction at WESM tempered the feed-in tariff payment, thus consumers enjoyed an avoided cost of P4.04 billion or P0.0567 per kWh during the period.

“The reduction on WESM prices of preferential dispatch [P8.29 billion] has offset the additional FIT differential payments [P4.26 billion]. This has resulted in lower overall energy costs,” he said.

Ernesto Pantangco, vice chairman of the National Renewable Energy Board, said the PEMC study showed tangible results that “with the introduction of renewable energy, there is a net benefit to the system.”

The merit order or priority dispatch of renewable energy projects in the WESM displaced the use of more expensive fuels like diesel.

WESM acts as the country’s trading floor of electricity while PEMC operates WESM.

De La Viña said the merit order effect or the entry of the renewable energy plants resulted in lower WESM rates of P1 per kilowatt-hour on the average during the said period.

“On average, costs in the WESM are lower by P691.2 million on a monthly basis or P0.12 per kWh,” he said.

PEMC initiated the study last year to determine the financial impact of the integration of the FIT-qualified resources in the WESM over a one-year period.

The study focused on how much the costs changed at WESM if the FIT-eligible renewable energy plants with combined output of 682.91 megawatts were not present.

“The merit order effect may only be estimated by stimulating spot costs without the FIT-eligible plants,” he said.

The renewable energy plants under the FIT system were 130.81 MW of biomass capacity, 110.90 MW of solar capacity, 426.90 MW of wind capacity and 14.3 MW of run-of river capacity.

De La Vina said the impact of the integration of renewable energy varied per grid.

“The end-user impact is dependent on the spot exposure of the end users. End users pay for the FIT differential based on gross consumption,” he said.

De La Vina said the figures, however, did not imply that buying more from the spot market was cheaper as prices were driven by supply and demand.

For Luzon customers within the franchise area of Manila Electric Co., the impact was a net reduction of P1.47 billion or P0.0486 per kWh as the distributor sourced only a small percentage of its power requirement from WESM.

The financial impact for the Visayas grid was P1.63 billion, equivalent to P0.0472 per kWh while there was no merit order effect impact in Mindanao as it was not yet connected to Luzon and Visayas grids.