Yellow Pad

Over the past four decades, solar photovoltaic (PV) prices have been dropping by an average of 9% per year. As a result, rooftop solar is the cheapest daytime source of electricity today in many countries.

In the Philippines, the levelized cost of electricity (LCOE) from solar rooftops has gone below six pesos per kilowatt-hour, cheaper than any electric utility in the country.

While commercial systems have a solar conversion efficiency of around 20%, efficiencies in research labs already exceed 45%. As these research results are commercialized, we can expect prices to continue dropping in the coming years.

Thus, we face the happy prospect of even cheaper solar electricity in the future.

The entry of solar (and wind) plants in the electricity mix results in three distinct types of power plants:

• Variable plants (solar, wind) have no fuel costs. They produce additional kW-hours at no additional cost (zero marginal cost). For this reason, in mixed grids, their output is dispatched first. The country’s Renewable Energy Act recognizes this, thus, giving them priority in dispatch. However, these plants’ output varies with the weather. Thus, variables need the next type to take up the slack during cloudy or windless days.

• Flexible plants (batteries, hydro, biomass, gas turbines) take up this slack. They can be started up or shut down each day, or as needed. Operators can ramp their output up or down. The Department of Energy (DoE) calls them peaking or mid-range. Peaking plants operate only a few hours each day, during peak hours. Mid-range plants operate longer hours but still shut down daily, during periods of lowest demand. Except for hydro, flexibles tend to cost more to operate.

• Baseload plants (coal, nuclear) must run twenty-four hours a day, seven days a week. Shutting them down frequently makes them very inefficient and raises their costs unacceptably. Like the variables, baseloads also need flexible plants on standby but for a different reason — since baseloads must run 24/7, they are only good for loads that are also 24/7. This is called the base (i.e., minimum) load. As soon as demand exceeds the minimum, flexible plants have to come online to take up the slack. As long as they run 24/7, baseload plants have low average costs. For this reason, they got dispatched first in the past. Today, zero-marginal cost plants get higher priority.

In a nut shell, cost determines dispatch priority: zero-marginal cost variables come first; low average cost baseloads come next. Flexibles take up the slack during cloudy or windless days, at night when the demand exceeds the baseload, and when no cheaper solar, wind, or baseload outputs can be dispatched.

Solar Capacity @ 10%, 30%, 50% of peak

Electricity consumption follows a general, predictable, 24-hour pattern with two peaks — a daytime peak around 1-2 pm, and a nighttime peak around 7-9 pm. In highly urbanized areas during weekdays, the daytime peak is higher than the nighttime peak. Otherwise, the nighttime peak is higher. Either way, the baseload usually occurs around 3-4 am. The top curve in Figure 1 shows this pattern. The highest solar output coincides roughly with the daytime peak.

Grid operators must dispatch power plant outputs so that supply equals demand at all times, while keeping costs as low as possible.

Consider the first scenario (Figure 1). As solar share (orange) rises from zero to 10%, it is displacing flexible plants (green). Since solar is cheaper, this is also pulling electricity prices down. The 70% capacity share of baseloads (gray, blue) is unaffected.

In the second scenario (Figure 2, 30% solar), something significant has happened. The midday solar output is so high that the residual demand (total demand minus solar output) is now lowest at midday. The baseload has shifted from early morning to midday. Also, the baseload is now slightly lower, from 70% to around 63%. Solar is now displacing baseload plants too.

In the third scenario, with solar at 50% of peak demand, baseload share shrinks further to 43%.

As the solar share in the mix rises, flexible plants are affected first and their role diminishes.

But as the solar share increases from 20% to 25%, baseload plants are affected next. At 50% solar, baseload share shrinks to 43%. At 70% solar, baseload requirement will only be 23%. At 90% solar, we will need only a few baseloads.

With the baseload share shrinking, the nighttime demand baseloads used to cover must then be met by flexibles. Beyond 25% solar, the role of flexible plants increases steadily. (Email for the full 0-100% simulation.)

Why is this trend so important?

First, because it is inevitable.

As solar prices drop, solar growth will become increasingly market-driven. People will simply decide to solarize their rooftops.

Second, because the DoE remains inexplicably blind to this trend.

DoE’s Philippine Energy Plan (PEP) 2016-2040 still assumes 70% baseload share until 2040.

Assuming 50% solar by 2040, for instance, means a baseload share in the capacity mix of 43%, not 70%, by 2040. DoE’s flawed assumption overestimates the country’s baseload requirement by 63% (70 divided by 43, minus 1), creating a huge bloat in its baseload plans.

DoE’s PEP 2016-2040 includes three more serious flaws, further raising the baseload bloat to more than 100%.

This baseload bloat will lead to stranded assets in the future because those recently constructed coal and nuclear plants will be unable to sell half of their output. The fossil industry, as in the past, will surely try to pass on the cost of these stranded assets to the consumer.

Why buy expensive, dirty electricity from the grid when we can produce cheap, clean electricity from our rooftops?

The next piece will explain the DoE plan’s three other flaws.


Roberto Verzola studied electrical engineering and economics in UP. The German foundation Friedrich Ebert Stiftung published in 2017 his book Crossing Over: The Energy Transition to Renewable Electricity (second edition, PDF is online). He is currently president of the non-profit Center for Renewable Energy and Sustainable Technology (CREST).