True Significance for Consumers of Meralco and Solar Philippines P2.99 Solar Deal

David Celestra Tan, MSK
27 April 2018

Did upstart solar entrepreneur Leandro Leviste of Solar Philippines just totally disrupted the once so ebullient in itself multi-billion solar industry with its audacious P2.99 solar rate for 85 megawatts of solar for Meralco?

The Philippine solar industry of mostly foreign companies with well connected local facilitators was having a field day with their successful lobbying for a feed-in tariff of P9.68 per kwh in the first round (50mw) and P8.68 in the second round (500mw) of FIT rates. We estimate the annual cost to consumers of at least P5.5 billion per year or a mind boggling P110 billion over the 20 year life of the government FIT commitments for solar alone.

Many of the old guards in the solar industry led by its chief FIT lobbyist Ms. Techie Capellan of the Solar Alliance must be wondering if the young Leviste, son of Senator Loren Legarda, is suffering from misguided juvenile exuberance when he went for the 85mw of grid solar at 2.999 per kwh to beat the original proponent’s then already eye-brow raising P3.50 per kwh. More so that only a few months earlier Leviste and his Solar Philippines just signed a P5.35 per kwh solar rate for 50mw also with Meralco.

In fairness to the young Lean Leviste, his P2.999 or US$0.058 per kwh is within the realm of the $0.03 to $0.05 per kwh rate of large solar projects in the Middle East and Latin America. So P2.9999 is theoretically achievable despite reports that those Middle East projects were provided with very special state sponsored project financing by the rich petro-dollars of those countries.

It is also possible that Leviste is taking a page from the Jeff Bezos Amazon playbook of “build scale even if you lose money now, conquer market position, and make money later”.

At the ERC Hearing on the proposed contract and rate last April 16, 2018, your consumer advocacy group, MatuwidnaSingilsaKuryente Consumer Alliance Inc. (MSK) endorsed the speedy regulatory approval of the 85mw P2.9999 per kwh project. We must have surprised both Meralco and the lawyers of Solar Philippines Tarlac who were obviously expecting an adversarial intervention from MSK.

Actually we have serious concerns on the loose ends of the contract but we endorsed it anyway because a P2.9999 per kwh solar rate is positively disruptive for the consumers. We want to see if young Leviste can really deliver grid connected solar at that rate.

For the record, we are concerned that the contract negotiated by Meralco with Solar Philippines does not specify at least a minimum quantity of energy that will be delivered by the 85mw project. Definitive delivery of energy we thought is essential if the consumers are to truly benefit from the P2.999 rate. With no Energy, the P2.9999 does not benefit consumers. The expert witness presented by Meralco was also evasive when asked which hours of the day the Solar project will deliver energy to Meralco consumers. Instead he said solar facilities normally deliver energy from 6am to 6pm. The smart looking guy must have hated whoever coached him into being vague, evasive, and smart alecky.

To think that Meralco and Solar in their published application for ERC approval claimed a net savings to consumers of P0.0033 per kwh from approximately 50 million kwh a year of energy delivery. So why is this, or a range of minimum to maximum delivery, not in the contract? Is it because Meralco as a utility is so used to negotiating supply contracts with only its sister companies that it cannot negotiate a truly iron-clad contract with a non-sister company (for now).

We estimate that an 85mw solar array can deliver at just 4 hours a day (12 noon to 4pm) 275 days a year (after a generous provision of 90 days a year of rainy and overcast days of downtime), a minimum of 93.5 million kwh a year.

The true significance however of the transaction goes beyond the landmark P2.9999 per kwh solar rate.

The transaction that was done through a rare competitive selection process or CSP by Meralco, with all its imperfection as a swiss or price challenge, resulted to a mind boggling savings to consumers of P2.35 per kwh (P5.35 minus 2.9999).

The 85mw P2.9999 per kwh solar contract is very significant for the consumers and country in that it settles once and for all the debate with Meralco that

1. Subjecting its power supply contracts to competitive selection process or bidding will bring significant savings to the pass on generation charge to consumers. In this case its achieved least cost power is 44% lower than its previous P5.35 per kwh solar rate. If those 4,005mw of coal and natural gas base load contracts negotiated by Meralco with its sister company, MeralcoPowerGen were subjected to CSP, consumers will be happy with a 10 to 20% savings. That’s about P0.30 to P0.60 per kwh or a total of P14 billion a year in savings to Meralco captive consumers or P280 billion over the 20 year lives of the 3,551 mw coal midnight contracts.

2. The 85mw solar procurement also settled the debate on whether competition among non-affiliated companies result to genuine competition and genuine savings to the consumers. As of now, the participants in those solar CSP were not affiliated with Meralco or the MVP group. Solar Philippines, Power Source, Citicore, and Equus of Singapore.

At the end of MSK’s day in the ERC court on April 16, 2018, we filed a petition to the ERC, requesting that the approval must include a prohibition from Meralco or any of its affiliates to buy into Solar Philippines or First Bulacan/Power Source.

Going back to the P2.9999 rate, if Solar Philippines eventually does not deliver any energy to Meralco, we the consumers benefit nothing from the supposed P2.9999 rate.

Let us hope this will be a truly significant project for the consumers. We wish you luck Mr. Leviste.Meralco consumers would be looking for the P2.99 solar with a delivery of at least 90 million kwh a year.

MatuwidnaSingilsaKuryente Consumer Alliance Inc.
matuwid.org
david.mskorg@yahoo.com