Truth and Dangers of PEMC’s P8.29 Billion Benefit of RE to Consumers
March 15, 2016
PEMC announced in late January to the hapless electric consumers that the Renewable Energy suppliers that are enjoying Feed-In Tariff subsidies have actually saved consumers P8.29 billion for one year from the wholesale electricity market and that it resulted to a net savings of P4.0 billion after deducting the approximately P4.29 billion RE subsidy that are already being charged to the consumers.
If we follow the logic of the announcement the government policy makers must support the implementation of more and more wind and solar projects because they save billions to consumers.
MSK could not believe it because they were talking about solar power that cost the consumers P8.68 to 9.68 per kwh and wind that is subsidized at P8.53 per kwh. The incredible report was released by a certain Jonathan dela Vina, a research specialist at the PEMC that manages the WESM. While wishing to bear out the good news, MSK requested PEMC for clarification on the validity of the claims, the methodology that they used and the accuracy and truthfulness of the claimed benefit.
Is PEMC doing its own hoodwinking of the consumers just like Meralco?
MSK received a clarification from Mr. Robinson Descanso, Vice-President for Corporate Planning and Communications of PEMC. We are posting his full response.
1. Was the claimed P8.29 billion reduction of WESM price due to the fact that the additional supply of 682.91mw was from Renewable Energy or would the reduction also resulted if the 682.91 mw additional supply came from cheaper and non-subsidized power such as coal, natural1 gas, or other sources?
PEMC’s answer:
“The market price study did not compare if those 682.9 MW of increased WESM supply were from new coal, natural gas power plants or diesel plants. Although those conventional plants may be said to be cheaper than developing renewable energy, the accelerated development of renewable energy resources in the country through special programs such as the FIT system is a thrust of the government. The integration of FIT-qualified resources, however, also has cost benefits to the system, more specially on WESM prices, as has been experienced in other jurisdictions. The objective of PEMC’s paper is to estimate the benefit on WESM prices based on historical data”.
MSK’s concern is giving P8 per kwh RE power the full credit for the reduction when in fact the same reduction could have been achieved if the additional 682.9mw came from cheaper sources at P4.50 per kwh.
2. Did they consider the ancillary services cost for Wind and Solar which comprised 537.9mw or 79% of the 682.9mw supplied?
Mr. Descanso’s response said:
“we wish to note that no additional cost for ancillary services were assumed in the paper. This assumption is brought about by the fact that the system operator (NGCP) did not file with the ERC for any additional reserve requirements to specifically address intermittency of RE; hence, the assumption is that the current ancillary service supply is sufficient considering the current penetration level of RE in the grid. On the other hand, we do not discount the possibility that the system operator may require additional reserves in the future.”
In other words the claimed net benefit of P4.00 billion to consumers after the subsidy of P4.29 billion is not really accurate because as they admitted the cost of ancillary services to support the intermittent RE have not been considered.
In Meralco’s recent rate increased they disclosed that about P0.08 per kwh of NGCP additional charges were made due to additional ancillary services bought by NGCP. And we assume a big part of those was to support the RE intermittence in the Luzon Grid. If Meralco sells 30 billion kwh a year of power, the P0.08 per kwh translates to P2.4 billion a year, a big bite out of the claimed market savings from RE.
3. PEMC’s P8.29 billion market reduction is based on a value of P1.00 per kwh. How did they determine this?
“the simulation indicates that the diesel plant was required to serve the demand of the system without the FIT-qualified resources, which resulted to a MCP of P / kWh in this example. The conclusion for this example then is that the presence of the FIT-qualified resources resulted to a P 4 / kWh decrease in the spot price for the specific interval.”
In their graphs the price of diesel energy was P8.50 kwh which became the MCP or market clearing price. If we had additional supply from P4.00 per kwh natural gas, the expensive diesel at P8.50 per kwh would not have been the Basis for the market clearing price. Then the valuation of RE energy would not have been exaggerated.
It is very dangerous when government agencies including PEMC would announce tremendous benefits that could mislead the public and the government policy makers on energy regarding the benefits of Renewable Energy. Once again, we caution about lumping the expensive and highly subsidized and system disruptive RE like solar and wind with grid competitive RE such as biomass and mini-hydro.
Let us hope some people at PEMC are not participating in yet another hoodwinking of the electric consumers into thinking that the P8.68 per kwh solar and wind must be implemented in unlimited basis of up to 3,500 mw when they are highly subsidized already by the consumers.
There are some facts about the energy output of wind and solar that we should note however based on the response of Mr. Descanso. And should be noted by the ERC when evaluating the economics and returns of Wind for P8.53 per kwh price.
1. Solar generation
“solar power plants generate the bulk of their energy from 8AM to 4PM according to WESM data. As a result, the dispatch of diesel plants during those hours were lessened. Based on your simulation, the production from diesel plants were reduced by an average of 22% during the same timeframe (i.e., 8AM to 4 PM) due to the integration of all FIT-qualified resources in the WESM.”
We were told its only from 11 to 5 with low load factors and high needed tariff.
2. Wind generation
“wind power plants generate the bulk of their energy from 12PM to 9 PM according to WESM data. Unlike solar power plants however, wind power plants may still generate around 80% of its peak generation outside those hours.”
Were this energy output and load factors consistent with the claims of the wind developers to the ERC and DOE when they justified the P8.68 per kwh FIT?
We ask PEMC President Mel de Ocampo to look into these misleading releases and half-truths that dangerously lead to wrong policy directions.
The PEMC report was curiously serving the interest of the solar and wind lobbyists who have been wanting an expanded solar and wind program at those subsidy levels that run P4.00 per kwh.
Consumers should nonetheless welcome the development of clean energy in the country. However these RE providers must be willing to provide the service cost effectively and not be spoiled by such high rates. They must be willing to deserve the business through CSP as announced by the DOE.
A blessed Holy week to everybody.
Matuwid na Singil sa Kuryente Consumer Alliance Inc.
