Solar energy for Filipino households: Is it viable?*

[For a more detailed discussion of this topic, please download the full paper. The link is embedded in this post.]

The Philippines, being an archipelagic nation, is considered as among the most threatened countries in the world when it comes to climate change. In fact, according to the Inter-governmental Panel on Climate Change (IPCC), an increase in annual rainfall and rainfall variability in the Philippines since the 1980s are already being observed and these trends are expected to cause the most serious impacts in the future.  It had been ranked as the highest country in the world in terms of vulnerability to cyclone occurence (CCC, 2011). The Philippines will continue to expect an increase in extreme weather events–the most recent is super typhoon Haiyan (Yolanda)–including tropical cyclones and droughts. Natural disasters in the last 20 years had affected 80 million people, making it as a country with one of the highest levels of mortality risk, scoring 8 out of 9 from the UNISDR’s Mortality Risk Index (CFU, 2011). A continuing rise in the sea level is expected and this will significantly impact residents and communities in coastal areas. Climate change is a daily reality in the Philippines and significantly causing challenges and difficulties in agriculture, fisheries, manufacturing, and almost all if not all of the country’s industries.

The idea of low carbon development (LCD) may have began many years ago but several sources say that it was first used or adopted formally during the Rio Convention of the United Nations Framework Convention (UNFCCC) in 1992. This strategy is being taken by both developed and developing countries that aspire to deal with climate change through the adoption of low carbon development pathways, green growth, reduction of dependency on fossil fuels, and thereby, reduction of greenhouse gases (GHGs) (ESMAP, n.d.).

This post looks primarily at LCD particularly the use of clean or renewable energy (RE) as a form of low carbon intervention. RE is considered as a good example because it can contribute to GHG mitigation, is practical, can be done at the household level, and supported by legislation [1] (with the enactment of Republic Act 9513 or the Renewable Energy Law of 2008).

It is about time that Filipinos appreciate RE more deeply, particularly that the cost of electricity here is very expensive. Tiglao (2014) reported that “based on Meralco’s tariffs (using residential rates of 200 kilowatt hours per month consumption) which averaged 24 US cents per kilowatt hour in 2013, the price we way for our electricity, believe it or not, is the fifth highest in the world.” He further elaborated that “if our electricity prices were the criterion for membership, we are in the league of the richest countries in Europe, and our rates are even a bit higher than Japan (Kansai region), 24 US cents, and Singapore, 23 cents.” Indeed, I have made my own comparisons, and our rate here in Quezon City for April 2014 was higher than a friend’s rate in Boston, US!

There is indeed a strong clamor for lower electricity rates and this can be a very effective intervention where people can feel, on the gut level, the benefit of being more responsible ecologically. Forget about the rah rah rah on highfalutin concepts–people don’t really get them nor do they have the time to think about them when they are still agonizing over their latest Meralco bills–let us show practical ways in which people can really go the environmental way and really feel that they are getting something out of it. Making RE more accessible and understood may ultimately lead to wider household-level application. This will address the question, “What is in it for me?”

Certainly, renewable energy–as with climate change and low carbon development–must be demystified. Ownership of decisions begins with knowledge and acceptance. Renewable energy will continue to be just among those misunderstood concepts, away from personal priorities, as long as it is never made familiar and accessible. And this is why I am writing this piece.

This post (and even the full paper where this came from) is not very exhaustive.  What it hopes to do is develop a simple analysis on the viability of the shift to solar energy at the household level in the Philippines (relying on a small set of data) [2], particularly from seven selected households in the NCR). A quick literature review (online sources) reveals that there are estimates done already but most if not all are done by solar panel suppliers and do not give the complete picture (e.g., actual costs that consider interest rates of loans from banks, etc.) Again, this blog is rather short so if you want to read my full paper (draft and unpublished), you may download it by clicking this:  Low Carbon Development at the Household Level_M Velas-Suarin_19 May 2014

Based on the calculations, these seven families may be able to convert to solar power at an investment of roughly PhP 66,200 (roughly about USD 1,512.11) for a household system with a requirement of 87 kWh to PhP 316,800 (about USD 7,236.18) for a household system with a requirement of 409 kWh. Assuming that the conversion will be made possible through bank loans with loan tenor of 10 years, the families in this study will reach the “recovery point” (vis-a-vis their current costs of electricity and cost of investments) beginning from the last quarter of the 7th to the middle of the 11th years.

In simple terms, this means that the families will begin enjoying “free electricity” beginning from the 8th to 11th years and onwards. Assuming that the solar power systems installed have a life span of 25 years [3], the families will be enjoying “free electricity” for 14 to 17 years, worth about PhP 134,400 (about USD 3,069.89) to about PhP 1,076,675 (about USD 24,592.85).

To look at one household more closely, say, “Household Red” (with consumption of 409 kWh/month), its estimated investment cost of PhP 316,800 (PhP 481,793 including interests) can be covered through a bank loan, which may require an average monthly amortization of PhP 4,014.94 only (again, using a 10-year tenor). This is lower than the household’s Meralco bill of roughly PhP 5,277 a month! See the table below for a summary of the calculations for the seven households. (Note that this is Table 12 in the paper.)

These calculations did not consider the possibility of earning rebates by being connected to the grid. They also did not consider the yearly degradation of the solar systems and whether the families will have higher level of consumption in the future. Nevertheless, installing a solar system is still a viable project in terms of reducing family expenditure for electricity and being more ecologically-responsible. At the worst case scenario, they will enjoy “free electricity” for a significant amount of time, say, 12 years.

To reiterate, the process of calculation done for my paper (which I consider for further development, for example, for my graduate course work**) is quite simplistic. Other factors and assumptions must be considered in the future. Factors such as reversal or billing or rebates–which may be considered as savings or income if the household systems are connected to the grid–must be considered. For example, Section 7 of the RE law’s Implementing Rules and Regulations have provisions for a net metering system, a system that allows a generator of electricity to have two-way metering scheme where he will be charged for the electricity he consumes and credited for the energy he produces and eventually contributes to the grid. (See Climate Change and Clean Energy Project in the references for the links to the RE Law and its IRR.)

Over all, the conversion to solar energy at the household level is very viable, even for low-income families. However, the government and the private sector should continue to work together to ensure the system’s affordability and availability of better financing, for example, in the form of low-interest loan packages and subsidized/socialized arrangements for the lower income group. The interest rate used in this brief study is 7.5%, based on a commercial bank’s long-term rate (with collateral). The market should appreciate that households can be motivated to shift to more ecologically-friendly lifestyle if there are enough drivers and incentives. The government and market should adequately provide such mechanisms for wider public engagement and positive action.