Minigrids

If it does not create a monopoly, House Bill 8179 should be just fine. The bill, introduced by Rep. Arthur Yap, gives Solar Para sa Bayan (SPSB) a franchise to set up solar power generation systems in the underserved communities. Some power producers were alarmed at the possibility it would now enjoy a monopoly over the operation of solar powered electric grids.

If the bill does create a monopoly, then the courts could quickly strike it down as soon as it passes into law. The Constitution is quite explicit on the matter: “No franchise… for the operation of a public utility shall be… exclusive.”

SPSB president Leandro Leviste says the franchise granted his company is “non-exclusive.” That means the electric generation and distribution enterprise is contestable in all areas where it operates. Nothing inhibits any competitor from offering better price and reliability for the electricity it supplies.

SPSB is a new player in the power business. With solar generation facilities manufactured locally, it is able to supply power at a lower cost compared to other conventional power suppliers. Currently, the company supplies Meralco the lowest cost power. At P2.99 per kWh, the power this company sells Meralco is 50 percent below the distribution company’s P6 per kWh all-in cost of generation.

With new battery technology acquired from Tesla, SPSB seeks to establish solar powered “minigrids” to remote communities. With the new technology, they can sell power to the remote communities with significant savings for the consumers. These remote communities currently rely on diesel engines that not only generate at a much higher cost but are also unreliable, often supplying power for only parts of the day.

It is easy to imagine that a combination of solar panels and high-capacity batteries can reliably supply island municipalities and other communities cut off from the grid. The reason this has been tried only now is that solar panels used to be priced prohibitively and high-capacity batteries were not yet technologically feasible. Now both the cost of solar panels and the technological solutions to storage have become affordable.

SPSB is now supplying electricity around the clock to 12 municipalities around the country. The service benefits about 200,000 Filipinos. They expect to serve 500,000 customers by the end of this year. The company prices its electricity competitively, so the distant communities will not be paying significantly more than consumers in the grid.

The most promising aspect of this “minigrid” setup is that it will enable solar power to contest in areas presently served by inefficient local electricity cooperatives. These local distributors often deal with high systems losses since electricity is delivered over long distances. Being natural monopolies (until now), local cooperatives have little incentive to invest more in improving their efficiencies and bringing down power costs.

The surveys of consumers tell us that a very high percentage of electricity consumers want cheaper alternatives to their current power distributors. SPSB, deploying truly new technologies, could be a truly disruptive force in the country’s energy arena.

Haphazard response

When a calamity such as the Itogon landslide happens, our politicians go into a populist frenzy. That creates so much anxiety among investors.

It seems the very stability and certitude of our mining policy is shaken. President Duterte, no less, made sounds that sent chills up the spine of people who have put in billions into our extractive industries.

The landslide at Itogon happened a few kilometers from the old Benguet Corp. mine that was closed down in 1997 after a plunge in global prices for gold made it uneconomical. But small-scale mining operations persisted. They remained viable because they pay no royalties or taxes to government and invest little in managing the social impact of their mining activities.

In the hysteria that follows a tragedy, the distinction between large-scale and small-scale mining operations disappears in the inflamed public discourse that follows. People forget that they are truly two separate activities. One is closely regulated and the other completely unregulated.

We need to look at the mining situation in a more sober way. It is an economic activity that we ought not to abandon. The country has proven mineral reserves equivalent of three times our current GDP. Minerals constitute a significant portion of our exports, helping shore up our balance of trade.

Of our total land area, mining tenements cover only 2.91 percent. Only about 0.096 percent are actually mined. Over the past five years, notwithstanding the instability of our mining policy, the mining companies paid government P168 billion in taxes, fees and royalties.

In addition, 1.5 percent of all the operating costs of large-scale mining companies go to the social development and management programs. About 10 percent of the total project costs go to environmental protection and enhancement programs. A certain percentage of earnings go to the protection of indigenous peoples.

The Mining Act of 1995 is considered among the best regulatory frameworks in the world. It is protective of the environment and the communities inhabiting the areas where mining occurs.

Alas, the strict regulatory framework is applied only to large-scale mining enterprises. Local governments are tasked with enforcing environmental restrictions on small-scale mining activities. What this means is that the truly destructive mining activities happen with hardly any regulation enforced. This is what happened in Itogon.

The Philippines is the third largest producer of gold, the fourth largest producer of copper and the fifth largest producer of nickel. Our mineral endowments should be used to help our economy grow. The mining industry must be allowed to proceed with effective regulation.