Solar Cheaper than Meralco in April
Posted by butalidnl on 29 May 2010
Don’t look now: with the astronomisch prices for electricity in the Philippines, solar became cheaper than electricity for commercial or industrial applications (in comparison with Meralco rates) in April. This is what is called “grid parity”, when solar costs the same as electricity from the grid. In May, the Meralco prices dipped a bit, making it cheaper again for commercial applications. So far, Meralco prices are still cheaper than solar for residential applications; but the difference there is also closing.
Let us go into this a bit more.
We’ll use a measure for Solar Energy Prices in the US to come up with the cost of solar power in $cents/KwH. The index is based on a monthly survey of US solar energy installation companies, with an assumption of 5.5 hours of average sunlight, a US location, and 5% interest over 20 years. The price for solar for Residential includes batteries; but the price for solar for Commercial and Industrial do not include batteries (and are thus grid connected).
The index is a good indicator for solar installation prices in the Philippines. The cost of the solar equipment may be a bit higher in the Philippines, but at the same time we have more sunlight than the US and the cost of labor is lower. So all in all, US prices would either be the same or a bit higher than that of the Philippines.
Using the index, and computing for a Php 45: $1 exchange rate, the figures for April are:
- Residential: Php15.68/KwH
- Commercial: Php 11.16/KwH (for 50+ KWs)
- Industrial: Php 8.70/KwH (for 500 + KWs)
Let us compare to this with the prices for electricity from Meralco:
- February: Php 10.20/KwH
- April: Php 13.28/KwH
Meralco says that their prices for May will go down to the level of February.
From this, we could see that Solar for Industrial uses is cheaper than Meralco power even in February. And, that Solar for Commercial use is cheaper than Meralco power in April, but not in February. But since these prices are for grid connected electricity (thus, no batteries), the companies that decide to install solar will continue to receive electricity from the grid.
The trend is clear, though. The cost of solar installations keep falling, from month to month; while Meralco prices keep rising, though not in a continuous straight line. The difference between the two, even for Residential consumers, will surely close as the months go on.
So there is good news that comes out of the bad news over the high cost of electricity in Manila. The electricity price is so high that it has reached grid parity for solar. But what does this mean? Well, not much immediately. Companies will not go out immediately on the basis of this, and buy solar panels. Why not? First of all, they are not sure if the high prices of April will be repeated. Perhaps the government will do something to lower prices. Or something like that. Then, there is also that installing solar panels cost so much money up front. It is as if you buy 20 years worth of telephone load all at once – not too many people will do that. And the third reason is that most companies will not have enough roof space for all the solar panels that they would need to cover their needs. So, most companies will opt to wait. But for companies who are more daring, solar energy will not really cost them more than grid electricity, so they could actually shift without suffering increased costs.
But the prices are getting more and more in favor of those who will install solar panels. If the government would like to help things along, it does not need to implement feed-in tariffs like other countries. What it would need to do would be to : first, offer a partial rebate on the cost of installing solar panels. The partial rebate could be as low as 20% of the cost of installing solar panels – and with this, even Commercial applications will be cheaper than grid electricity.
And, the government can also help to provide loans for alternative energy projects. One way of doing this will be by requiring banks to have a minimum portion of their loan portfolio (say, 5%) for alternative energy projects.
These steps will surely encourage some companies to install solar panels, and perhaps help the country go through its “shortages” of electricity, especially during the dry season.