The dawn of distributed energy


“We cannot always justify our opposition to more solar rooftop by saying the grid cannot take it. Sometime in the future, we have [to] modernize the grid!” – Senator Sherwin Gatchalian


Battle lines were drawn during the first public consultation for Senate Bill 1719 (otherwise known as the Solar Adoption Act) on November 19. Senator Grace Poe, author of SB 1719, and Senate Energy Committee Chair Senator Sherwin Gatchalian have recently held a Senate hearing and sought to correct some operational flaws of the 2008 RE Act, namely the removal of the 100 kWp for solar installation per meter, review of buyback rates to be at parity with retail electricity rates, ease of financing, and expedited permitting for solar projects.

Senator Gatchalian made his powerful statement to reluctant regulators who were intent on carrying on with their old ways and presenting problems – rather than solutions – for energy security and rooftop solar. While others played victims to forces that keep our country chained to the past, Senator Gatchalian and Senator Poe are clearly leading the Philippines towards a brighter and more sustainable future.

The whole energy industry of the Philippines shows us a classic model of gargantuan utility scale power plants in remote provinces pushing gigawatts of energy through hundreds of kilometers of high voltage transmission lines, stepped down to the substations of distribution utilities, and finally distributed to usable voltages and sold to consumers. This is the classic centralized energy model. This model calls for massive power plants to get economies of scale, as billions are spent on transmission and distribution assets to get from Point A to consumer at Point B (that can be a thousand kilometers away), woefully inefficient as 9% or more of it is gone into thin air and explained as “systems loss”.

That is exactly how my father’s generation generated, transmitted, distributed, and sold energy: big, clunky, smoky and complex. However, things are changing, in the same way that the internet replaced the fax machine. There is a paradigm shift on how energy can be sourced, sold and traded, and this is called Distributed Energy Resource, or DER. This is a disruption on the old way of doing things, and it is an economic and inevitable fact that regulators, distribution utilities, and consumers have to understand – in order to embrace the future.

Distributed Generation or Distributed Energy Resource (DER) is when the classic form of centralized generation gets modernized by hundreds of thousands of small generating plants that are all synchronized to the national grid. These distributed “generation” plants are almost always SOLAR: universally accessible, locatable and affordable. It only needs a boring unshaded roof to generate electricity and in the tropical Philippines, it performs very well. It can cost as little as an iPhone to a massive MW multimillion-dollar investment, depending if the owner is a factory worker or a factory owner. Solar rooftops are going to be the future, and even utilities themselves are playing solar installer nowadays.

Renewable Energy or RE is the fastest growing energy resource, outstripping nuclear and coal. Globally, solar and wind are the main source for capacity additions and countries not known for sunny weather have adopted and perfected these trends. The early adopters are Germany, Japan, EU and now the non-subsidized players are countries similar to ours such as Vietnam, India, and Indonesia that are benefiting from below grid prices, because of the pathway that the industrialized nations paved a decade ago from policy changes.

In all those countries, massive growth of renewable energy resulted in declining hard currency conversion for importing oil and coal, borne from strong government policy, long term vision, incentives for green initiatives and penalties levied for carbon pollution.

It is a surprise to many that the Philippines was the first ASEAN country to implement Net Metering under RA 9513 or the Renewable Energy Law of 2008. Net Metering allows the most economic way for an end user to install solar panels without the need of batteries, and sell or export the surplus generation to the grid and get credits to offset evening consumption. However, at its 5th year of implementation, notable roadblocks were encountered from regulators, utilities, LGUs and lack of financing options. SB 1719 hopes to correct it, and modernize the Philippine grid to a new energy economy.

Only 1 percent of 1 percent of generation is sourced from Net Metered homes and businesses with solar panels, coal generation mix is actually increasing versus renewables despite Solar is proving to be a viable price leader in the energy mix.  Surprisingly, regulators that represent consumer interests and traditional power producers are already stating that more adaptation of renewable energy may disrupt the stability of the grid. Power producers are declaring it will threaten their long-term profitability models.  Their arguments were in contrast to the cries of bill/tax paying end users who are complaining about paying the highest ASEAN electricity rates, anachronistic 100kWp capacity limitations on industrial users, and excessive red tape in getting permits for simple home installations.

In their hesitation to propel the nation towards change, regulators gave the overly safe argument that the grid was not prepared for an influx of RE generation, or removing arbitrary installation caps on power intensive users such as malls, auto dealerships or government buildings who clearly demonstrated a need to put in more than 100kWp than what the current net metering rules call for but denied by clearly outdated regulation. There is already the natural limitation that a business would not install more solar than what it can consume or limited by its connected load. Regulators seem to have forgotten that surplus of energy is not a problem in the Philippines with its growing economy, but lack of its supply is threatening national energy security and a drain on its dollar reserves. Last summer’s yellow alert power shortages during sunny hours almost caused cascading grid-wide outages.

SB 1719 calls for a true 1:1 valuation of exported solar to the grid. The current pricing scheme of the utilities buying surplus solar energy at point of distribution at less than its intended half value is a mathematical perversion of Net metering as defined in RA 9153. The Senate bill seeks to specifically call out any ambiguity on pricing methodology and keep it consistent to practices in other worldwide jurisdictions.

There is resistance to change; big power producers are crying foul that rooftop solar would result in a revenue drop from reduced demand. Regulators are cautioning that the unbridled adaptation of solar rooftops would crash the grid with oversupply. The arguments are contrary to the Philippine experience as it faces constant threat of constriction of energy supplies and pricing is subject to the wild market forces of supply and demand dynamics of WESM spot market. The surest way to drop prices is to flood the market with plenty of supply, especially peak daytime hours.  The concept of a perpetual captive market was a hard idea to break. Regulators were strumming unfounded fears that too many solar rooftops would be a burden to the grid, oblivious to the fact that modern solar equipment are the same ones used in advanced countries, hence having grid voltage and Hz tolerances well within the limits of Philippine distribution code, automatically regulating itself within fractions of a second, and decoupling if voltages are going to high.

Creating future-oriented policies are the path to modernization. Lower energy prices are borne from indigenous and abundant supply of energy. Any meaningful change is going to be a challenge to all players in the energy sector. Regulators would have to walk the fine line between consumer and power producers as this line will be blurred with DER.  Grid managers will have to study weather patterns as this will gradually influence the dynamics of energy when rooftop solar energy is more than a token 1 percent of 1 percent.

SB1719 is a step forward towards a sustainable Philippines. Ordinary Filipinos and the private consumer sector will now be part of the energy generation mix. Solar power system installation investments will be rewarded. Bank financing gates will be opened. The nation is moving out of the dark ages, stepping into the sun, and walking towards the dawn of distributed energy.