Alternatives to Feed-in Tariffs

Solar panels are sprouting all over Germany and Spain as a result of feed-in tariff programs by their governments. When governments face the need to develop their solar energy, the question comes up if they should consider feed-in tariffs.  Feed-in tariffs is a policy of governments to pay grass-roots producers of solar electricity higher fees (than traditional electricity rates) for the electricity that they generate. This policy has been extremely successful in Spain and Germany, to the point that so many people are putting up solar panels, and have become a major drain on their governments’ budgets.

The Philippines has very recently instituted a system of Feed in Tariffs for Renewable Energy. I think it will not only not work, it will end up raising the price of electricity to consumers, and be an unacceptable burden to the national budget.

I think that a feed-in tariffs policy may have been a good idea in the past; but that we should now use other strategies for promoting solar power. Feed-in tariffs are potentially a big drain to national budgets; but the main reason for not using them now is that the price of solar panels have dropped sharply in recent years, to the point where the price for generating solar electricity is almost the same as ‘grey’ electricity in some times and places. This means that price is no longer the main obstacle to people shifting to solar. Government programs to promote solar energy should address these obstacles directly.

Solar Bank
The biggest obstacle that keeps households or businesses from installing solar panels is the need for a large expense up front. It is similar to having a mobile phone where you pay for 15-20 years worth of service at one time. The mobile phone industry would not have taken off if this was the case. There needs to be a way to ‘cut up’ the expense of solar power to convenient monthly portions.

The government should put up a ‘Solar Bank’ which would pay for the panels, and to which the buyer could make monthly payments. The bank could charge the household for electricity produced, at slightly below the prevailing price of  ‘grey’ electricity(and at a very low interest), until they are fully paid (which should be between 15 and 20 years (solar panels are expected to last at least 25 years) . Included in this contract should also be insurance coverage, so that people will not continue paying if the panels get destroyed or damaged.

Net Metering
Another measure would be to require electricity providers to offer net metering for a modest one-time fee. Net metering is when a user is allowed to sell (excess) electricity to the grid at the same price that he pays for getting electricity.  This is favorable for those who produce electricity themselves,  from solar, wind, biomass etc. Another advantage is that net metering also reduces the need for batteries, which are a significant part of the expense of solar systems.

In Europe, net metering arrangements mean that a household can ‘sell’ excess electricity to the grid, for the same price, but only as long as it does not exceed the household’s monthly consumption. Beyond that, the electricity provider will only pay the ‘generating cost price’ (i.e. excluding transport and taxes )

Business Incentives
Businesses should be stimulated to adopt solar energy.  In a previous blog, I pointed out that, for commercial and industrial users in Metro Manila, the cost of Meralco electricity is sometimes higher than the cost of solar electricity (Solar Cheaper than Meralco in April). This is especially so during the dry season, when cheap hydro-electric power is less abundant. But businessmen consider not only the cost of solar energy; they also have other concerns, which need to be addressed.

Reliability. Solar electricity depends on the presence of the sun; so the panels don’t produce energy at night and only a little during cloudy days. Companies should be able to combine grid and solar electricity to get a very reliable energy supply. And for this, they would need heavy-duty batteries. I propose that the government subsidize the batteries for solar installations of businesses. Perhaps a subsidy from 25% to 50% of the cost of the batteries would be appropriate.

Resale Value. The government could take measures to develop the secondary market for solar panels. This would stimulate businesses to buy and install solar panels. Some businesses may then opt to install second-hand panels that are cheaper. A secondary market would also stimulate businesses to upgrade their panels when technological improvements improve panel efficiency.

One measure to help stimulate the secondary market is to allow panels to be subject to accelerated depreciation. When the panels’ book value reaches zero, businesses may decide to sell them for a tidy profit, and then buy new panels.

Maintenance. Companies may be unwilling to install solar panels because of perceived maintenance costs and hassle. The government should provide them with technical support, and even training programs for building administrators or maintenance staff, to teach them how to maintain the panels properly.

Of course, businesses should also be able to avail of the loans/insurance from the Solar Bank, as well as benefit from net metering.

EVs Are Good for the Environment

I came across a comment in FB where the writer said that EVs are not really good for the environment. He said that we are in effect generating energy at a distance, and that could not be good, since there are inefficiencies in energy transport. Then, he said that EVs only transfer the source of pollution from gasoline to coal, and the latter is worse.

Well, I disagree with these positions, and here’s why:

Generation at a Distance
True, there is energy lost while transporting electricity from the power plant to your home or car, but we should also look at the energy savings we get from not having the energy source at every home or car. It is like the case where each home will have a diesel generator. This is not efficient, even though the transport cost for the electricity will be zero. Why? Because, for one, fuel needs to be brought to each and every house (and that costs energy). And also, the generator will be one which will produce electricity for your peak capacity; meaning that when you use less electricity, your generator will be running below its capacity, and will be quite inefficient.

With a car, it gets even worse. The car has to carry itself, and when the motor is set for your maximum power needs, it will be quite heavy. And this means that more power will be needed to carry both the rest of the car plus the engine. A hybrid or an electric vehicle has a much lighter engine. Even a hybrid will be lighter than an ordinary car because its engine is smaller – it will be built to provide the average power needed.  The battery will provide the necessary boost to power at times, but the rest of the time, the battery will be loading up, and the car will run using a lot less power. And since the engine of a hybrid will continue running at a steady speed, it will be quite efficient – any extra electricity produced will simply be stored. And using the engine always at its most efficient means that there will be less soot output due to unburned gasoline.

And then, there is the regenerative braking which only hybrids and EVs have. When you brake, using a normal car, the kinetic energy is merely turned to heat. When braking with a hybrid or EV, the kinetic energy is stored as electricity, which you could use later.

From Gasoline to Coal?
With regards to the accusation that we will be mainly using electricity from coal to run EVs, well he has more of a point. But the objection here is that this is quite a static way of looking at things.

The first wave of EV owners will not overload electricity systems, they will merely “level it out”. They will mostly recharge their cars at night, when the rest of the grid doesn’t use too much electricity; thus, they will not cause the electricity utility to build new capacity just yet. However, as time goes on and there are more EVs, then daytime electricity will be used more often, with people recharging at work or while shopping. This will be the time when extra generating capacity will be needed. But then, the question will be: what will be the source for this new electricity? Well, chances are it will not be coal. It will most likely be something like a natural gas or fuel oil plant, which are faster to set up, and with less delays due to environmental hassles.

Grid electricity is a combination from all kinds of sources: from solar and wind, to hydro, nuclear, geothermal, natural gas, fuel oil, and then coal. The question is not whether an individual EV will use up more coal or alternative energy.  But rather if the coming of EVs in general will lead to more coal plants or to more wind, solar, hydro or geothermal plants. I think the latter will be true.

And then there’s the battery which EVs use are also used for solar installations. It’s the same technology. This means that as EVs get manufactured in scale, the price of batteries will go down, and that lower price will affect both the price of cars and the price of solar power. Thus, EVs will indirectly cause the price of solar electricity to go down. And of course, lower prices for solar power will mean that more people will install solar panels.

And there is also the matter of having a smart grid. By smart grid, I mean having software and regulators that optimize the flow of electricity, that is capable of delaying some uses when there are peaks, that is capable of storing excess capacity when needed.  An economy with many EVs will really need a smart grid to cope with the varying loads caused by the charging of autos. The same smart grid will also be needed to handle alternative energy – where the variability will not only be on the use of electricity, but also on its generation. This is the same technology, which I suspect will be put in place first to handle EVs, but which will serve both EVs and alternative energy management.

EVs in use in Europe can be set to only use “clean energy”.  Here, consumers have a choice of electricity suppliers. I expect that buyers of EVs will also choose to tap electricity that is “green”, for their household use. Since most EVs will probably be charged at home (at the beginning, at least), this means that most EVs will be running on green electricity also from the beginning. Of course, in the US or in developing countries, you may not have the chance to choose for green electricity. But perhaps this is something that your electricity net should also do.

EVs will promote and stimulate the growth of alternative energy. We won’t see this right away, or in such a dramatic way, but it will happen. Look from it from another way: how else will society shift from “dirty” gasoline to alternatives, except through EVs? It will happen, and that is going to be good for the environment.

Solar Cheaper than Meralco in April

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.