Solar and the Democratization of Energy

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Tuesday, May 13, 2014

Much credit is due to the Department of Energy for looking to expand the solar allocation under the Feed In Tariff to 500 MW instead of 50MW. In doing so, they are turning decidedly to an emerging technology that could elegantly serve as the answer to the problems now plaguing the power situation in the Philippines.

With supply and demand for electricity at parity, marginal market prices are naturally at risk. The country has been focused on trying to assign blame for price spikes when the WESM is merely doing what a market does—responding to supply/demand imbalances with price adjustments. Indeed, demand may be underestimated, given the country’s GDP growth rate and attendant industrialization, its growing population and the price elasticity of electricity demand.

Solar photovoltaic electricity is now ready for prime time in the Philippines. There are unique places in the world, such as the Atacama desert of Chile, where solar electricity is estimated to cost as low as $0.12 US per kWh or 5.34 pesos (source: Deutsche Bank). While unique weather and geographic conditions enable such pricing, in the Philippines, given the generous presence of sunlight (a term in solar speak known as irradiance), average prices of 15 US cents per kWh (or about 6.7 pesos in today’s rates) should be attainable. And it is the average price that counts—because almost the entire cost of this generation source is incurred up front rather than tied to the vicissitudes of any fossil fuel market. Importantly, solar PV electricity generation is most productive when the sun shines brightest—just those times when those loudly droning air conditioning motors place their highest demand on the grid. Solar supplies the most power just when the market is most vulnerable to needing expensive dispatchable power. It helps when help is needed most.


But the holy grail of solar has nothing to do with its cost and its compatibility with peak electricity demand. The greatest promise of solar is that it is the only scalable energy technology that is market ready today. That is, it can be deployed in small batches as well as in multi megawatt scale. Nor does it need to pass through the transmission and distribution infrastructure in order to generate electricity. Remote areas can have electricity at reasonable prices.

It is this small-scale deployment that promises, if properly cultivated, to serve as a boon to the growth of small businesses and thus potentially alter the landscape of wealth distribution. Small-scale integrators, solar operation and maintenance providers, engineers and construction teams—these are all livelihoods that could thrive around the arrival of this new energy technology. It stands not just to democratize the supply of power (and circumvent the need for transmission and distribution services) but act as a wealth creation engine—not as a redistribution of wealth, but the creation of it.

While this could happen as a matter of market course, it wouldn’t hurt if the local governments follow through with this commitment to solar by guiding the development of the ancillary industries, ensure an industry structure that is democratic and distributed rather than dominated by a handful of players. It is, in fact, the nascency of these supporting industries that is the biggest impediment to the deployment of solar in the Philippines at this time. While module prices have fallen worldwide, the balance of system, installation and engineering costs in the Philippines have not benefited from the same learning curve as other jurisdictions where the industry was incubated by government subsidy. Initial costs in the Philippines, therefore, may not be as attractive as the 6.7 pesos cited earlier as technically viable—not initially (today they are closer to 9 pesos).

This move by Energy Secretary Petilla is a step in the right direction…one giant, bold, and promising step. Cebu should embrace this technology as a path to competitive advantage and nurture the development of supporting industries along with it.


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