Is PEMC’s claimed P8.29 Billion Market Benefit of RE Valid?

David Celestra Tan, MSK

24 January 2016

In the face of the heavy subsidies being charged to the electric consumers for Renewable Energy power, PEMC released a study by Jonathan de la Vina, its market specialist showing that the infusion of 682mw of RE power to the WESM resulted in a market price reduction of P8.29 billion for the year and hence there is a net benefit to the consumers of P4.23 billion after deducting a FIT charge of P4.06 billion.

If we follow the logic of this claim, the country must pursue RE power in an unlimited manner because of this mind-boggling financial benefit. And understandably the supposed government supported National Renewable Energy Board that acts as promoter of RE bristled at the findings.

We have concerns on these claims and have written Mr. de la Vina for more information on the methodologies used in his market study.

1. The P8.29 billion claimed market price reduction is based on a P1 per kwh reduction. We wonder how they came up with this nice rounded number value. They claim that RE replaced expensive diesel plants from the market. We are trying to reconcile that with the fact that Solar produces energy in the afternoon and diesel normally runs in the evening for peaking. The avoided cost presumption may not be valid.

2. Newspaper reports say PEMC compared the market price of WESM with the 682mw of supply from RE and without the 682mw. Since the 682mw RE supply were present in the market, we wonder what methodology they had to estimate what would the market price be if a 682mw supply is taken out. Of course, if you reduce supply in the spot market, the price will go up.

3. This leads us to the next question. Was the claimed P1 per kwh market price reduction due to the fact that it is RE or just the fact that there is an additional supply of 682mw of power? In other words, the market price would have been reduced anyway if that 682mw of additional supply came from cheaper coal or natural gas at P4.25 per kwh and or diesel at P7.50 per kwh instead of the P8 per kwh average price of RE.

We are for the promotion of clean energy but it must be the right technologies and solar and wind which are heavily subsidized must be within reasonable limits. Biomass and mini-hydro and even geothermal, are grid competitive. Solar and wind should not be lumped together with them as a program. We are concerned that Mr. de la Vina’s numbers could justify the unlimited pursuit of P8 per kwh solar and wind, the subsidizing of which is a rich-country solution that the Filipinos cannot afford, especially with our overpriced power.

The Philippines only contribute 0.35% of global warming. Why should we make Filipinos pay for the climate change damage cause by the First World countries that cause 65% of it? These rich countries are welcome to use the Philippines to host these solar and wind energy if we have the natural energy resources for those RE, but it must be done in such a way that there is no heavy burden on Filipino consumers. Just doesn’t make sense.

We are quoting our letter to PEMC below.

MATUWID NA SINGIL SA KURYENTE CONSUMER ALLIANCE INC.

Unit 327, Eagle Court Condominium, Matalino Road,
Brgy. Central, Diliman, Quezon City

www: matuwid.org/ landline: (02) 436-79-43

25 January 2016

Mr. Jonathan De La Vina

Philippine Electricity Market Corporation (PEMC)

9th Floor, Ortigas Avenue Robinsons PCI Equitable Tower,
Ortigas Center 1605

Dear Mr. De La Vina,

We request for details to understand the methodologies used in your study of the RE Impact on the WESM prices and your widely reported conclusion that the RE projects reduced the price of WESM by P8.29 billion and therefore resulted in a net savings to consumers of P4.25 billion after deducting the FIT subsidy of P4.04 billion.

1. From the press reports, this was based on the contribution of RE to the supply in Luzon and Visayan Grid of 682.91mw, consisting of 130.81mw of biomass, 110.9mw of solar, 426.90 mw of wind, and 14.3mw of run of river mini-hydro.

2. We understand that the reduction in the WESM price as a result of these additional RE power is calculated in your study to be P1.00 per kwh. We request for information on how the P1.00 per kwh reduction was arrived at. From the reports it was implied that your study ran the model of WESM prices without the 682.91 mw RE and with RE. The difference we assume was the P1.00 per kwh.

3. We request for information on the methodology of the comparison of the two that led to the conclusion that the difference was P1.00 per kwh.

4. Since 537.8mw of the 682.91 mw RE or about 79% are of the intermittent type (solar and wind), how was the cost of ancillary and reserve services factored in the study? Further, let us note that the diesel plants in Luzon, Bauang and Navotas are already contracted with capacity fees by Meralco for peaking and reserve and charged to the consumers. If they are displaced by Solar and Wind, Meralco consumers still pay. How was this factored in the net economic benefit of RE to the consumers?

a) Solar tends to produce power only for 5 to 6 hours from 11am to 5pm which on average are non-peak hours. Did your WESM data show that the expensive bunker c plants are also normally dispatched during these same hours to make the displacement basis of the study viable?

Our sense is these expensive diesel plants are more dispatched during the peak hours of 6 to 10PM night time when actually the Solar is not producing electricity. We are wondering about the validity of valuing the impact of RE to the consumers by using diesel power as the avoided cost.

b) How about the energy injection pattern of Wind? Were they directly related to the timing of the infusion of diesel power in the market? How do we account for the cost of having those diesel plants ready to support the supply intermittence of Wind and Solar?

5. Did the market price study compare the WESM price impact if those 682.91mw of increased WESM supply from RE which has a FIT cost of P8.00 per kwh, is instead supplied by new coal or natural gas power plants at P4.50 per kwh or even by more diesel plants that can deliver power on call and whose current generating cost is P7.50 per kwh due to the lower cost of bunker. In other words, did the claimed reduction in WESM price because it is RE or it is just additional supply?

6. Did you run a financial model on the price difference of WESM when the RE capacity goes up to 30% or 4,000mw of the installed capacity of the country as targeted by the DOE?

Our organization is not against RE but we are concerned that an uncontrolled pursuit of the heavily subsidized solar and wind is a rich-country solution that the Filipino consumers cannot afford.

Your findings will potentially impact the policy direction of th

e country towards RE and its role in future power development.

We hope for your generosity in sharing the data with the consumers.

Very truly yours,

DAVID C. TAN

Co-Convenor, Matuwid na Singil sa Kuryente Consumer Alliance Inc. (MSK)

CC: Hon. Senator Loren Legarda, Environment and Climate Change

Hon. Secretary Zenaida Monsada, DOE

Hon. Atty. Jose Vicente Salazar, Chair, ERC

Hon. Jose Alejandro, Chair, Power Committee PCCI

Hon. Melinda Ocampo, President, PEMC

Hon. Carlos Jericho Petilla, Former DOE Secretary