The Solar Para Sa Bayan Mini-Grid Franchise is a Trojan Horse (Part 2)
David Celestra Tan, MSK
10 October 2018
Important Unanswered Questions On A Mini-Grid Franchise for SPSBC
In this our internet age many brick and mortar industries have been disrupted by “game changing” and “out of the box” innovations using the web’s digital platform and millennials like to say we should not fight progress. Amazon disrupted the book selling and retail sectors, Uber and Grab disrupted the taxi business, Air BnB is threatening the hotel and travel industry, and etc. SPSBC’s attempt at securing a franchise for a nationwide mini-grid is similarly an “out of the box game changer” in the power industry. Not the technology itself but the system of mini-grids instead of centralized on-grid and SPSBC’s ability to pull off such a broad franchise.
It is not that simple in the delivery of public services like electricity and water that are entwined in the lives of our people. Unlike bookstores, toy stores, and hotels, if the supply of electricity and water are interrupted or goes to hell, the public expects the government to step-in.These public utilities are so vital that there is a long-held principle that franchise holders or providers of these services need to be assured of economic viability and a fair 12% return on their investment. This is also the reason a lot of their operating costs are pass on charges to consumers. We allow these arrangements so they can reduce their business risks for which In return they should be able to charge the consumers Least cost. Well, in theory at least. (That’s why Meralco’s 25% annual profit on distribution operations and on-going attempts to make similar money on the generation are repugnant. But that’s another story for another day).
We are not yet saying a proposed franchise for SPSBC is bad for the electric consumers. We are saying we better make sure it is not. And is an over reaching franchise really necessary? There is a lot more to it than cleaner and cheaper energy anda lot of important questions that need to be answered. We cannot allow interruption in public services. It will take more than two congressional hearings…..a lot more than two.
So let us go to the “steak”
1.Technical Compatibility and Integration of Mini-Grids with the rest of the power grid and fair burden
SPSBC’s Mini-grid concept and scope are adequate for isolated areas where the residents have never had electricity. When equipment and lines break down, the population will be more forgiving. But it is a different story when you use that concept in currently served urban areas that clearly SPSBC is aiming to penetrate. Those will not tolerate long brownouts and heavy energy users would require better quality and seamless power.
Solar systems disrupt more than the price of electricity. When their output is interrupted in the course of the day like when clouds pass over, the voltage drop need to be instantaneously replaced by other energy source and in the current grid, NGCP the systems operator need to buy ready reserve capacity or ancillary services to cover the grid weakness of Solar. Those additional services are expensive andpassed on to the electric consumers in addition to the FIT subsidies.
Further, power engineers are concerned that solar does not really produce enough electric force or KVAR that if they are made to be “self regulating” they have to buy additional equipment that will make the whole package not that cheap. We don’t know if Tesla’s Powerwall addresses this issue. (by the way, it is one thing to buy Tesla’s Powerwall battery packs for demo projects but another to buy them in volumes because Tesla’s battery production capacity is prioritized for their electric car production).
It is an unfair burden to consumers who are already paying for the FIT subsidies for these no-frills solar energy. If the solar industry wants to play, and that includes SPSBC, they must provide, just like the rest of the power generating technologies, grid compatible systems that regulate their own voltage fluctuations and maintain their grid synchronization. At their own costs, not extra to the consumers.
2. Regulatory and Market compatibility
Our deregulated and unbundled electricity supply landscape has many added supply and cost mechanisms like the retail competition open access or RCOA, qualified third party or QTP, and the “must purchase” status of renewable energies under the RE Law of 2008. Mini-grids will be an added dimension. How will this layer and layer of market mechanisms be regulated for order and reasonable costs. The ERC has not even sorted out the mechanisms and implementation of those power delivery programs intended to reduce costs to consumers. I don’t know that they are ready to deal with the regulatory challenges of mini-grids specially in the main grid of urban areas.
3. How much will SPSBC’s “least cost” promise really be?
This is a major uncertainty.
HB 8179 only provides under Section 5 that “grantee shall be authorized to charge rates equal to or lower than the average ERC-approved distribution retail supply rate for the previous year of the distribution utility with the capacity closest to the grantees mini-grid systems.”
While this “retail rate” section is mentioning the “ERC-approved rate” to apparently imply legitimacy to the rate, SPSB is eschewing rate regulation of the ERC as claimed by industry groups Solar and Storage Battery Alliance.
This means SPSB can charge equal or lower than existing retail rates and “lower” can be “isang-kusing”. And there is more! The comparison is with a “distribution utility with the capacity closest to the grantees mini-grid systems”. By deftly adding the word “capacity”, the comparison is not with the DU closest to the grantees mini-grid system but one with capacity closest to it. My interpretation is it means even if SPSBC is setting up a say 2mw mini-grid system in Davao City, the rate he will charge will not be equal or lower than Davao Lights retail rate but that of a 2mw distribution utility with same 2mw capacity closest to it which could be a remote coop somewhere in Mindanao and that rate could be P13 per kwh! It seems SPSB determines what is “least cost”. (In Binangonan, this rate making rights is called “anak ng dios” na presyo. Para ding Meralco’s negotiated generation rate with its own Meralco PowerGen. Hayy)
HB 8179 entrusts so much of retail rate and the provision of services on the ability and integrity of SPSBC to deliver on such grand promise, “least cost”, 24 hour service, and all. With due respect to Mr. Leviste (and to Senator Legarda) the recent behavior and claims of Solar Phils leave us unconvinced to take Mr. Leviste’s word for it yet. And we will tell you why po.
Part of SPSB’s key claims is their low rate of P2.99 per kwh that was supposedly offered to Meralco. While it is true that they disclose that it is “without batteries”, it was subsequently discovered that the P2.99 per kwh is only for the first year and for the succeeding years there will be rate increases. When the ERC approved it but disapproved the yearly increases, Mr. Leviste reportedly declined the approval. Over the life of the contract the ERC said it is going to be P3.40 per kwh.
To MSK what is Worse is it is supposed to be an 85mw contract as offered by the original proponent Citicore. But the minimum energy committed to be delivered per contract of 51 million kwh is equivalent to only 60mw based on an average 5 hour a day delivery of sunlight.So in that price challenge, Solar Phils only beat the price but did not truly beat the Citicore scope of supply which was a true 85mw. (This could not have been done without Meralco’s knowledge which brings the question, did Meralco properly compare the offers of Citicore and Solar Phils on apples to apples basis?)
Consumers would have been happy knowing it is P3.40 per kwh because that’s already a big drop from Solar’s previous contract with Meralco of P5.35 per kwh. So why make consumers believe it is P2.99? Why tell us it is 85mw and in truth it is only 60mw equivalent? There is an integrity and trust issue here. (see our article on when P2.99 is not 2.99).
While we wish that SPSBC can really deliver meaningful“least cost” in the implied P2.99 per kwh range, the numbers do not add up. To those of us who understand utility economics, if we add the base price of solar of say P3.40 per kwh plus the cost of batteries, 33% or P1.12, cost of diesel generated power for 14 hours to complete the promised 24hours, P14 per kwh, plus the cost of the distribution systems and maintenance and collection expenses, SPSB’s blended cost of service is probably in the P8 to P8.50 per kwh range. If they charge “one kusing” lower than Meralco’s P10.50 per kwh, SPSB will still make a ton of money. But the rate is not anywhere near P2.99 per kwh propaganda. (we are just using rule of thumb numbers in power).
We are concerned that the young Leviste in his zealousness to secure the franchise he wants maybe borrowing from the Meralco public hoodwinking playbook and that is not good…..for him and SPSBC and Solar Phils.
4. SPSBC Track Record
The claimed track record of providing mini-grid systems to 12 towns also needs more detail.
Were these done under existing laws like QTP? Sitio electrification? What rate is being charged? Was it approved by the ERC? Is it really a stable 24 hour service? Under what license do they have to collect money from the public?
Were these projects done only for demo purposes? Mr. Leviste admits they are losing money on the $1.5 million investment per town. The question is will this business model be sustainable to be entrusted with such a broad franchise?
From news reports, SPSB is secretive of about four of those claimed 12 towns. (yes towns not sitios).
Is SPSBC using the off-grid and isolated areas for promo purposes so he can get his broad franchise where the bigger cities will give him the payback? Is the business model sustainable? The mini-grid franchise seems a Trojan Horse. And MVP smelled it 10 kilometers away!
Can we get more detail and sufficient record of reliability over time?
5. The media SPIN of Non-Exclusivity and “Others can Apply for a Similar Franchise”
Hmm so nice and gratuitous of them to think of the other players who the SPSBC implies can easily get a similar franchise. This is one of the key “sizzle”strategies of the SPSBC lobby campaign. But is itreally non-exclusive? Maybe not in words and legal definition but in reality it is an exclusive and a monopoly practically. And is it really easy to get a similar Congressional franchise?
SPSBC is using the mini-grid franchise as both apower market “sword and armor”. Senator Legarda’s son is a smart and driven kid. Let us hope he doesn’t cross over to cunning.
The mini-grid franchise, if they get away with it,arms SPSBC a sharp market sword to slice and pierce through the armor of the entrenched traditional utilities like Meralco and Aboitiz. At the same time it will give it a formidable armor to protect SPSBC from the competition from minor Renewable and mini-grid players where, we estimate, millions of potential entrepreneurs are getting involved.
These renewable industry groups are correct in claiming that whereas now they can offer solar systems in the open market under current rules, the HB8179 is practically obstructing them by requiring a legislative franchise. Isn’t this unfair restraint of trade?
The reported recent attempts of Lean Leviste to rally the minor Solar players to join him in applying for solar mini-grid franchises in Congress. “The more of us are committed to work together on constructive solutions, the faster we can bring cheap, clean, reliable electricity to every Filipino” he is quoted to have said. The move is being pursued under an organization called Solar Energy Association of the Philippines (SEAP) which SPSBC described as “the country’s largest solar industry association composed of members of Solar Power Philippines”. Sila din pala yun.
SEAP said “We believe Solar Para Sa Bayan’s franchise paves the way for others to secure the same. The solar industry has long needed a solution like this, and now one company is proving it is possible. Our members are coming together to apply for their own franchises”.
MSK does not see the need for congressional franchising for these mini-grids as aspired for by SPSBC. It will do more bad than good. It will tip the playing field and put many current players at a disadvantage.
How many of these guys can afford and have the lobbying power to get a franchise from congress and the senate?
Good Luck! The Leviste-Legarda group knows it and the industry players know it. Cunning gambit and seems to be Trojan Horse No. 2.
6. Impact on Electric Consumers in Metro-Manila, Cebu, and Davao
What happens if SPSBC is given a legislative franchise that allows them to set-up mini-grids anywhere they want to as they are applying? Remember that the off-grid areas appear to be just promo areas. The holy grail is the main service areas where ironically Meralco and the Aboitiz group because of their rate abuses and determined effort to corner also the power generation supply have high rates and easy for SPSBC to “lower rates”.
Well, if Meralco and Veco’s power demand is reduced because of the proliferation of SPSBC mini-grids, these DU’s would have some stranded 20-year PSA’s contracted. Under current rules, all those guaranteed but unused or over-contracted power will become part of Meralco’s monthly purchase power cost which then is divided by a fewer amount of kwh energy. The resulting generating charge per kwh would be much higher effectively making the consumers pay for the cost consequence of reduced customers due to mini-grid franchises.
Not that Meralco and Aboitiz will care because the generators with payment guarantees are also their own.
HB8179 does not provide for mitigation of damage to consumers.
7. Legality of an unregulated mini-grid franchise
What we have here is a proposed congressional franchise that effectively grants an electricity service provider to charge rates without ERC regulation. They are only using “ERC approved” rates in nearby distribution utilities as reference. The power industry’s law of the land, The EPIRA Law or R.A. 9136, clearly provide that the distribution and retailing of electricity are regulated sectors. My question is does the House Committee on Legislative Franchises have the power to grant franchises that are above the law? In this case the EPIRA Law?
SPSBC argues that mini-grids are not contemplated in the EPIRA law. Even if we grant that the EPIRA law did not mention the words mini-grid, (and the highfalutin “distributable power technologies”) it is still a form of distributing electricity and a form of retailing electricity.
If we take out the need for the incumbent DU to waive a service area under the current QTP rules, this mini-grid service is already covered by the EPIRA’s Qualified Third Party provisions. Just a little tweaking.
8. Our main point is there are so many aspects that need to be assessed in a mini-grid franchise as applied for by SPSBC that fast-breaking its approval borders on the reckless, something elected government officials have duties not to do.
On mini-grids, let us walk before we run.
Next: A more sensible and “inclusive” mini-grid option
(to be continued)
MatuwidnaSingilsaKuryente Consumer Alliance Inc.
david.mskorg@yahoo.com.ph
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