Wednesday, August 17, 2011

Untimely to impose subsidy for solar

DEMAND AND SUPPLY By Boo Chanco (The Philippine Star) Updated August 12, 2011 12:00 AM

The folks with commercial interests selling imported solar and wind hardware thought getting their subsidy would be like stealing candy from a child after they hoodwinked our clueless legislators into quickly passing a Renewable Energy Law. But people are belatedly asking a lot of good questions.

These vendors are now getting a little nervous in their attempt to fast track the imposition of a subsidy for them to be paid for by the over burdened Filipino power consumers. They are even attacking Energy Secretary Rene Almendras because they see him as being too cautious in embracing their subsidy called Feed-in Tariff or FIT.

They have launched a full blast propaganda blitz. Reporters have been taken to junkets here and abroad to hear the gospel of renewable energy and be convinced. They have hired more than one PR agency to do battle. One of them sent a letter to my editor contesting my assertion in my column last Monday about the imposition of FIT.

They asserted in the letter that the FIT is not burdensome on the consumer… not as bad anyway, as the planned imposition of universal charges (Napocor stranded costs) on power rates by the Power Sector Assets and Liabilities Management Corp. (PSALM). Here are portions of that letter:

“PSALM wants to charge consumers 39 centavos/kwh to pay for its stranded debts incurred during the past administrations. On a mere 100kwh/month consumption by the poorest household in Tondo, that’s an monthly increase of P39 on his electricity bill.

“The feed-in tariff (FIT) rates will help develop renewable energy (RE) technologies which will replace expensive bunker oil power generation. The installation of a 100 MW solar plant does not need fuel and will impact on the consumer an increase of only 2.37 centavos/kwh. If the homeowner’s average consumption is 100 kwh per month, his electricity bill will only increase by P2.37 a month due to the installation of the 100 MW Solar Plant.”

The letter inadvertently proves the point that the FIT is untimely. Our electricity bill is about to balloon as PSALM starts collecting substantial and unavoidable universal charges and Meralco can pretty much charge what they want under the current so called Performance Based Rate scheme (the metrics on efficiency and frequency of dropped service are all under Meralco’s control). Putting another imposition called the FIT on top of all those on the back of consumers doesn’t look good.

The letter also made spurious claims, first about how RE or renewable energy technologies “will remove the burden of high electricity costs off consumers when small businesses and individual households are allowed to produce their own electricity.” The second is about how FIT “will provide an investment that goes towards achieving energy security and economic growth.”

Those two claims are simply over promising benefits RE technologies other than run of river hydro and biomass can deliver any time soon that can be considered significant. As for the numbers cited, respected economist Philip Medalla, the Chair of the Foundation for Economic Freedom (FEF) and recent appointee to the Monetary Board had debunked that line of argument a long time ago.

Here is what Dr. Medalla said about FIT, which really is more of a tax: “These people try to make the taxes look small by diving it into 65B kilowatts. And everything looks small when divided by 65 billion. Do not look at it on a 10kw/hour basis. Look at it in terms of absolute pesos. And let me tell you what you can do with P8 billion... You could subsidize two more LRT lines. This will reduce traffic and the impact on carbon emissions will be greater and the impact on the people will be better. So what I’m saying is be careful when you ‘waste’ P8 billion.

“Solar and wind are expensive. With that being the case, I would rather have biomass because solar and wind will be largely imported. With all other things equal, I would just want to get the source that’s cheapest and buy nothing that costs twice as much as conventional power. You have to listen to the arguments. Why is something expensive preferred? If the argument is employment, solar and wind loses. They employ the least.”

It isn’t just me or my friends at the FEF. Sen. Sergio Osmeña III also believes it is not the right time to develop the use of on-grid solar energy in the country as proposed by the National Renewable Energy Board (NREB) because of the high cost that would be passed on to the consumers. Serge is one senator who diligently studies issues and crunches numbers himself.

As chairman of the Senate committee on energy and co-chair of the Joint Congressional Power Commission (JCPC), Osmeña said that the feed-in-tariff (FIT) system to promote renewable energy should be implemented with caution, especially for solar energy.

“The DOE should exercise extreme caution in the implementation of the FIT system considering that it imposes additional costs on the consumers particularly in the early years. Solar energy, if introduced in haste, will be an unnecessary burden on the consumer over a period of 20 years,” Osmeña warned.

Osmeña said the board’s proposal to allocate 100 megawatts (MW) to solar energy at P17.95 per kilowatt-hour (kwh) under the FIT would not be viable at this time when costs of solar panels are still too high. He noted that the FIT for other renewable energy sourceswill be lower at P6.15/kwh for mini-hydro, P7/kwh for biomass energy, and P10.37/kwh for wind power. Ocean energy will have a tariff of P17.95/kwh just like solar but only 10 MW is allocated for it because it is an experimental technology.

While the solar advocates are fighting for their commercial interests, the FEF is a loose grouping of economists and wanna-be economists like myself who are spending personal time and resources to wake up the public and our officials on the implications of this seemingly earth-friendly imposition. And when I asked them why they are bothering to do this, I was told that they believe economists also have their version of the Hippocratic Oath: Do no harm. Romy Bernardo, who used to be a Finance usec under FVR explains that “harnessing the collective sharp  minds of FEF and its credibility, we can actually try to stop this one and make a difference – possibly save as much as P8 billion every year for 20 years.”

Bernardo pointed out that “economics is about the allocation of limited resources, in this case, the CONSUMERS’ MONEY, over competing needs and wants. The benefits from achieving those objectives must be weighted against other competing uses for those funds. In the JCPC hearing, our colleagues mentioned many programs which have potentially better value for our consumers at lower cost.”

Citing the case of solar, Bernardo bewailed what he calls often misleading representations to the public. “They have to understand that a solar plant built now will get 17.95/kWh plus forex and cpi adjustments for the next 20 years, the degression does not apply to them, only to plants built later. Some people might get the mistaken notion that these contracts have a declining rate, not true.”

It is noteworthy that China, the largest producer of solar panels today, does not have a FIT scheme for solar. Dr. Medalla also observed that if we must burden our consumers and industry with a FIT tax, it should be used to help the more efficient RE technologies – run of river hydro and biomass, which is not only cheaper (on a per kWh, half the cost of solar, one third required subsidy), but also creates employment and provides incomes for our rural poor communities, instead of foreign solar and wind hardware manufacturers.

As for our obligations to Mother Earth, it should be emphasized that because our country’s contribution to carbon emissions is only less than one percent, unlike the rich, developed countries, we have no moral or legal obligation to slow downglobal warmingFurthermore, the share of renewables in our energy mix is already 32 percent, much more than the 10 percent in the US and other countries.

Anything else you hear on this RE debate that requires us to pull out our wallets and buy something from mostly foreign companies selling solar or wind technologies are sheer propaganda. Their emotional pitch about saving the earth should be tempered by sheer economic facts and numbers specially for a poor country such as ours.

Matter of size

This was sent by Jose Villaescusa.

Chinese: Sir, we got huge order from USA for 12-inch condoms. I think it is meant to embarrass us!

 Chinese Boss: No problem...just complete the order and mark them size “SMALL”!

Boo Chanco’s e-mail address is He is also on Twitter @boochanco

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