In many countries already, solar power can lower costs of electricity for people by allowing the government and utilities companies to keep expensive reserve plants offline.130 Studies show how Germany and other countries have already benefited from renewables’ impact on wholesale spot market prices. Solar kicks in most during the middle of the day, when demand is peaking, and the grid is struggling hardest to meet demand. This is also when the “spot market” is triggered, wherein the prices for energy can shoot up as companies engage in opportunistic bidding, taking advantage of higher demand to charge more. Because solar is usually there when people typically need energy the most, it can drive prices down. In Germany, “solar power lowers the average price at the Power Exchange EPEX by up to ten percent, even at lunch time by up to 40 percent… Price reduction amounts for 2011 are from 520 to 840 million EUR — the equivalent of a price reduction from four to six EUR per MW hour.”131 Indeed, the price of solar energy-generated electricity, calculated by a legitimate levelized cost of energy (LCOE) method, is now cost competitive in a number of countries. A recent study revealed that in many places solar went past grid parity in 2012.132 This reality is not limited to the US or Europe. “Today, solar-powered electricity in Japan is cost-competitive with electricity produced from coal. The solar industry is now subsidy-free.”133 According to a DoE official, in the Philippines it could be “cheaper to generate from solar than from peaking plants. Plants’ peak price can go to 50 pesos per hour.”134
The ‘Merit-order effect’ The ‘merit-order’ effect on WESM prices in the Philippines in 2011 was simulated and the reduction in WESM revenues calculated by a study conducted by the University of Melbourne, Australia in cooperation with the National Energy Renewable Board.”135 The study concluded that up to PHP 3.7 B could have been reduced from the revenues of non-FiT generators by effectively “reducing” WESM prices.”136 Further analyses of industry stakeholders reveal that a net benefit of about PHP 950 Million accrues, in fact, to electricity end users through lower generation charges faced by DU’s sourcing power from the WESM. To sum up, PHP 3.7 B are potentially at stake – a large amount, the impact of which could truly affect consumers.
Determining schedules and System Marginal Price Price (P/MWh Electricity Demand Offers to Sell System Marginal Price
G1
G2
G3
G4
Quantity
Quantity (MW
WESM Price Impact from NEWFiT Supported Renewable Generation in 2010–the “Merit Order” Effect National Renewable Energy Board (Philippines) January 2012, verified by the Melbourne Energy Institute (MEI)–University of Melbourne.
Whereas the WESM’s pricing is driven by the last and highest bid offer that satisfies the demand, the FiT-ALL, given by the formulae below, is based on FiT Eligible RE capacity that actually lowers this WESM clearing price: FiTAll = { (FiT Rate – Market Rate ) * (RE kWh) + (Working capital allowance, Admin fee, Trustee fee) } /National Electricity Sales (kWh) 42
Green is Gold: How Renewable Energy can save us money and generate jobs
Where: FiTRate is the peso per kW h rate approved by the ERC for each technology CRRi,t+1 is the market rate or the price of electricity displaced by FIT generation National Electricity Sales is the Total sales of electricity in the entire country, to all on-gird customers net of own use consumption and system loss137