PV Talk: Nv vogt’s Deepak Verma on the Philippines’ coming ‘solar wave’

Why has nv vogt picked the Philippines market to focus on now?

Nv vogt was established to look at Asian markets, to work on solar in emerging markets because we felt that they would present good opportunities. The first two markets we looked at were the Philippines and India.

Why the Philippines? Well if you look at the Philippines it is about 7,000 islands. There is no nationalised grid; they have regional grids in various areas and so they have a real problem. If there is a large coal plant, for example, in one part of the country, they can’t get that power across to the rest of the country. [The Philippines] need to have generation that is somewhat localised, it cannot be entirely centralised.

Most of its base comes from coal and thermal, and peak comes from diesel – solar is very competitive with diesel, even today. What we started doing some years ago was approaching the electrical distribution companies, and saying: “Listen, if you set up solar you will be saving off diesel and it will save you money from day one.” The Philippines is a little bit unique because of the fragmented grid, and the heavy reliance on diesel and the combination of those two things makes solar very attractive.

How have you have managed to make the 6.25MW merchant project viable in the Philippines without subsidies?

If you run the maths on the next 20 years or so, with solar instead of diesel– the numbers are pretty big on what you could save, so that is a pretty compelling argument. However, the Philippines does not have any experience with solar, so it has taken a very long time to get to this point and hopefully now things will move a little more quickly with the other potential customers we are talking to.

So what happens when you approach electrical distribution companies and introduce them to solar?

By now many are reasonably well educated on solar, but when we first started people didn’t really understand solar. The approach we took was rather than say, “Hey, we do solar. We can do 10, 20MW, whatever you want”, what we said was, “Lets understand your operation, your generation your distribution and your peak loading and hourly loads, how do they change over the year, and what is the pricing of various sources of power that you get, and oh by the way, if you put in so much of solar, this is how the picture would change, would that be good or bad for you?”

The main barrier starting in the Philippines seems like it was awareness and education, rather than price and technology?

That is part of it. You will have seen that in market after market, you cannot influence the solar wave; the solar wave comes when it comes. You can influence on a margin, but at some point the market, when there is enough energy, builds up to a point and then things start happening. I think we started working in the Philippines well before any such solar wave, but it is starting now, so we are well positioned for it.

It is one thing to get people ready, and another to get them comfortable enough to sign PPAs and in the Philippines that takes a long time, it takes a long time for customers to build that confidence. Even after our first PPA was signed the permitting process has taken a substantial amount of time. But we have also learned a lot through that process, and will get better as we go forward.

The solar project that you are building at the moment, is that replacing existing diesel generation or to meet future energy demand?

Both. When it goes up, it will offset consumption. But the utility is also planning for growth. If they didn’t sign up with [solar], they would have to acquire more diesel [generation] in any case. Also the hydro power that they have [particularily in the southern Philippines] is now decreasing in terms of output year on year. There are issues that are reducing the base of hydro power that they had. Overall in the Philippines, the problems are particularly bad in terms of not having enough power.

So, there is an opportunity to make up future demand, replace diesel generation and boost hydro power, all at once?

Yes, right now, amongst Asian markets, the case is most compelling in the Philippines, and solar is the only real answer in the short term, so we put a lot of effort into it.

Can you explain the subsidies more and how your project levels out financially without them? Other projects in the Philippines such as the SaCaSol plant are being developed to access the feed-in tariff. Why did you choose not to go down this route?

There are a couple of things going on in the Philippines, first our project is a bilateral PPA, it is with an electrical distribution company, but it does qualify for tax benefits, so we will take full advantage of those. There is also the national feed-in tariff.

At some point it will be a really good [tariff] programme, but right now there are some pieces that still need to come together. The biggest challenge in the programme is that while there is the tariff and a certain number of megawatts allocated, first 50MW and now 500MW, the actual mechanism that will collect the money, to put into a fund to pay for the tariff, has not been set up yet.

The second part of the challenge is the way the Philippines has done the tariff: the first projects to get commissioned, are the projects that get the tariff, so it is like a race. You don’t get projects funded through debt during construction, you have to build them all on equity, and then hope you get within the first 50-500MW. It will take a little bit of time before that process is sorted out; there is a certain amount of exposure on [the SaCaSol] project, in terms of whether or not you will get paid. On our side it’s just a straight bilateral PPA: we built for the utility and the utility pays us.

So you mitigated the tariff risk?

Correct. We would love to bet on it, it’s a good tariff! But we don’t want to build all our projects on equity without knowing if we will get the tariff.

What other projects does nv vogt have in the pipeline?

We have several other projects in the pipeline, some advanced, some still in the early and middle stage. We hope to have one or two more in the fairly near term. It’s a competitive situation so I don’t want to mention any names. But the deal with Armstrong for US$29 million is to fund the first several projects that we have. Nv vogt shared its plan with Armstrong and they were pretty happy to see where we are – but in the Philippines things take time.

Will other projects be utility scale or smaller and decentralised to fit with the regional grids?

There are over 100 regional distribution companies in the country and then there is a national grid backbone that ties parts of the country together, so there is one in the north, one in the middle and one in the south. We are talking to several utilities and the regional distribution companies, for projects that are between 5-25MW, in different parts of the country.

So what are the next announcements when we can expect from you?

[Laughs] I don’t know how much you will put on record! I don’t want to be too presumptuous!

To find out more on the Philippines’ solar market, please see the feature in Solar Business Focus, here.