(Below is an edited version of a speech of Mr. Leandro L. Leviste, President of Solar Philippines, which he delivered during the BusinessWorld Economic Forum held on Tuesday, July 12 at Shangri-La at the Fort.)
It’s a great honor to speak in front of such a distinguished group of power industry executives, about the power industry’s best kept secret — it will grow the industry by five times, lower power rates, clean the environment, create a million jobs, and present the biggest investment opportunity of the 21st century. Today, we will attempt the humble task of changing the power industry forever, and convince every power company to change its course. And the big secret is this: That solar with batteries are already cheap enough to displace all gas and diesel, and can supply the majority of our energy, with the balance in coexistence with coal.
While coal is in decline around the world, solar has beaten coal in head-to-head competition, without subsidies, in every sunny country where there’ve recently been competitive biddings, including the US, India, Dubai, Mexico, Chile, and Peru.
And according to Deutsche Bank, no country is better suited for solar cheaper than coal than the Philippines, because of having one of the world’s highest power rates and high solar irradiation.
The question is, why do some call for subsidies when we say it’s cheaper than fossil fuel? Subsidies succeeded in jump-starting the industry, and the FiT [Feed-in-Tariff] has at least brought us to where we are today. Now the market has matured, we’ve cut the cost of solar by nearly 50%, and we hope to work with various off-takers to show RE (renewable energy) no longer needs subsidies.
This is because:
• First, panel costs have decreased 90% over the past 10 years, now comprising just 40% of system costs, with land and interconnection taking an increasingly larger share.
• Second, the local market has only now achieved economies of scale. In 2013, our country only had only 4 MW (megawatt) of solar; this year, we’ll have 1000. Imagine if we had 50 MW coal plants?
• Third, is vertical integration. Without subsidies, only projects that do not rely on middlemen, agents, and sub-contractors can survive. For our part, we’re the only local company that does all development and construction in-house, and recently announced our planned solar factory, operational by end of the year.
• Fourth, because the FIT had companies build fast to meet a deadline, projects didn’t use the best technology; now companies can take time to optimize design and installation.
• Fifth, the overarching reason, is that subsidies do not incentivize companies to build solar efficiently; and now, without subsidies, necessity is the mother of invention.
The global electric vehicle industry has reduced battery costs by 90% over the past decade. Batteries are now so cheap that solar can now supply all peaking, mid-merit, and baseload requirements of the country.
The only thing skeptics can argue, is this will not come true, an argument very easy to rebut. I’d like to take this opportunity to announce that we will soon begin construction on the world’s largest unsubsidized, battery-equipped, baseload-capable solar farm, in Concepcion, Tarlac, that will change the power industry of the Philippines forever.
I’ll caveat this by noting there’s a limit to how much we can have even solar batteries.
First, because interconnection in the Philippines is somewhat limited, and land is even more so.
Second, because you don’t want to size solar to supply all power on a rainy day — because then you’d have too much on a sunny day. So the difference between a rainy and a sunny day will be a buffer, where all other generation comes in. Hydro perfectly fits this need for rainy day power, and even coal deserves a place unless wind becomes economic. We can therefore peg the future energy mix at 60% solar, with 40% for the remaining power plants to fight over.
If I were a power company investing in coal then, what should I do?
• First, any attempts to prevent disruption will fail, just like taxi companies trying to stop Uber.
• Rather, power companies should heed the lessons of telcos and join in the disruption.
• If you’re going to do solar, the only way to compete is to do Development, Land Acquisition, Engineering, Procurement, Construction, and Panel Manufacturing all in-house, or work with the only company in the market that does.
• Moreover, I would convince as many of the other coal projects as possible not to push through, so that I would fit into that 40% of non-solar generation.
• I would remove as many contracts from gas, oil, and diesel as possible, so the limited solar given the limited land can supply the country’s entire peaking and mid-merit requirement instead of baseload. If not, then those same solar farms will instead have to compete with coal.
• And if I were a transmission or distribution company, I would make interconnection as easy as possible, even more than for coal, because if not, I’d be encouraging solar to connect past transmission as embedded generation, or past distribution as directly-connected generation.
Coal companies have the best intentions for wanting cheap, reliable power for our people, and the RE industry hasn’t previously shown that solar can provide that.
Nonetheless, most of the country’s conglomerates have already taken steps in the right direction, like the Lopez Group, which declared it will never do coal; SM and JG Summit, with the world’s largest solar malls; Aboitiz, Ayala, and EEI, with some of the country’s largest solar farms; and Meralco, which has announced plans to venture into solar. Many companies say, the day RE becomes cheaper, we can move away from fossil fuel — now, that day has come!
Coal is no longer the cheapest energy. But some of it can still survive as part of the non-solar buffer. And solar is a far better investment than coal, for three reasons.
• First, it is disruption-proof; free of environmental risks; priority dispatch; and not dependent on subsidies. To think the entire country, years from now, will tolerate expensive, dirty power, simply due to contracts signed in 2016, is a dubious assumption. And once contracts expire, there’s no chance a single one will be renewed, as the market will flood with low-cost solar.
• Second, solar has no moving parts; no fuel; practically no operating requirement; and for these reasons is one of the most sought after assets by investors, private equity and insurance funds looking for cash flows as predictable as the sun.
• Third, for every 1-MW coal over 90% capacity factor, you have 5-MW solar with batteries at 18-20% capacity factor. This ends up costing less per kWh because we don’t have to buy coal from Indonesia, while the investment opportunity and potential for the industry is 5 times greater.
Thus, we have an opportunity to lower electricity rates, clean the environment, create a million jobs, and unlock the greatest opportunity the power industry has ever seen — and everyone wins. How can any power company, or anyone who loves this country, not want this?
I’ll end by bringing us back to the topic of disruption, which in the 21st century is greater than ever. 2016 is both the most exciting and frightening year to be in the power industry, depending on what side of history you are on, and hopefully, once we build our baseload capable solar farm, power companies will no longer try and resist change, and everyone will know what side of history to take.