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Decision,+ERC+Case+No +2014-048+RC
Decision,+ERC+Case+No +2014-048+RC
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IN THE MATTER
OF THE
APPLICATION FOR APPROVAL
OF THE POWER PURCHASE
AGREEMENT
FOR
THE
SUPPLY
OF ,POWER
TO
SOUTH
COTABATO
I
ELECTRIC COOPERATIVE INC.
(SOCOTECO I), WITH PRAYER
FOR
PROVISIONAL
AUTHORITY
ERC CASE NO. 2014-048 RC
SOUTH
COTABATO
I
ELECTRIC COOPERATIVE INC.
(SOCOTECO I) and nv vogt
PHILIPPINES SOLAR ENERGY
ONE, INC. (SE1),
Applicants.
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DECISION
. B fore the Commission for resolution is the application filed on
April
8, 2014, by South Cotabato I Electric Cooperative, Inc.
(SOCOTECO I) and nv vogt Philippines Solar Energy One, Inc.
(SE1), for approval of their Power Purchase Agreement (PPA) for the
supply of power to SOCOTECO I, with prayer for the issuance of a
provisional authority.
In the said application, SOCOTECO I and SE1 alleged, among
others, the following:
1.
',.
,t-
SOCOTECO
I is a non-stock
non-profit
electric
cooperative duly established and existing under and by
virtue of the, Laws of the Republic of the Philippines,
particularly under the provisions of Presidential Decree
No. 269 (PO 269), as amended. It is registered with the
National Electrification Administration (NEA);
"~l
3.
4.
5.
The Mindanao Grid for the past several years has been
experiencing a serious power deficit in its power supply
which has affected the economic development in the
region. The existing generating capacity in the Mindanao
Grid is currently insufficient to meet demand, especially
during the day peak period (e.g. gam to 10pm);
6.
7.
9.
10.
13.
14.
15.
16.
17.
of the
PPA
as amended
are
In the Amended
in the Amended
Termination
Default
Event of
also
Project Capacity
Deemed Generation
Term of Agreement
Schedule II
TARIFF
1.
Tariff
PhP/kWh
Year 1
9.79
Year 6
9.54
Year 2
9.74
Year 7
9.49
Year 3
9.69
Year 8
9.44
Year 4
9.64
9.39
Year 5
9.59
Year 9
Year
10
9.34
PhP/kWh
Year
11
Year
12
Year
13
Year
14
Year
15
9.29
9.24
9.19
9.14
9.09
* (FXB/FXR)
The simulation will show that the entry of SE1 will provide
cheaper power to SOCOTECO lover the term of the
PPA.
Rate Impact Computation
Year 1
4.5615
4.5295
0.0320
Year 2
4.9921
Year 3
6.1340
Year 4
8.1330
NVOGT-
85,781,540
8,762,159
PSALM
521,413,035
177,596,380
TMI
124,681,705
12,352,157
Ma alad
188,798,652
3,123,174
Total
920,674,931
201,833,871
4.5295
0.0320
NVOGT
84,481,377
8,673,653
PSALM
487,996,066
166,239,194
TMI
150,310,641
16,135,584
Ma alad
284,782,887
10,785,989
Total
1,007,570,971
201,834,421
4.5615
4.9921
5.0127
NVOGT
83,618,879
8,629,399
PSALM
396,064,528
136,399,106
TMI
204,157,195
24,084,588
Ma alad
549,096,191
31,887,204
Total
1,232,936,793
201,000,298
6.1803
NVOGT
82,760,807
8,585,146
PSALM
257,333,100
87,600,000
TMI
278,369,154
35,040,000
Ma alad
1,002,586,276
68,091,178
Total
1,621,049,338
199,316,324
6.1340
8.1330
8.2099
20.
21.
Schedule
A
A.1
Information provided
Power Purchase Agreement between SOCOTECO I and nv
Vogt Philippines Solar Energy One, Inc. (SE1) and the
Amendment Agreement between SOCOTECO I and SE1
Executive Summary/Rate Impact Analysis
Sources of Funds/Financial Plans;
DebUEquity Ratio;
A.2
8
8.1
8.1.a
B.1.b
8.2
8.2.a
Constitutive Documents
nv voqt PHILIPPINES SOLAR ENERGY ONE, INC. (SE1)
Latest Articles of Incorporation and 8y-Laws
Securities and Exchange Commission (SEC) Certificate of
Registration and latest Certificate of Amendment
SOCOTECO-I
Certificate of Franchise
C.1
Other Information
SOCOTECO-I
Distribution Development Plan (2013-2016)
- Customer Load Profile
-
C.2
C.3
C.4
22.
DISCUSSION
1.
Insufficiency
The Mindanao Grid for the past several years has been
experiencing serious power deficit in its power supply which has
affected the economic development
in the region. The existing
generating capacity in the Mindanao Grid is currently insufficient to
meet demand, especially during the peak period (Le., 9am to
10pm).
The situation is further worsened during summer since there is
a substantial reduction in the supply from the hydro-electric power
plants that primarily supply the Mindanao Grid due to the resultant
lower water levels. Notably, more than half of the power supplied to
the Mindanao Grid comes from hydro-electric power sources.
In fact, for the year 2014, it is expected that the summer
months will be especially dry, thus, further exacerbating the
deficiency in the power supply.
The Power Sector Assets and Liabilities Management
Corporation (PSALM) supply the bulk of the power supply
requirements in the Mindanao Grid. PSALM has an existing Contract
for the Supply of Electrical Energy (CSEE) with SOCOTECO-I which
is set to expire in December 2016. The CSEE already reflects
PSALM's reduction of its committed available power supply to
SOCOTECO-I by around 370/0 of its current maximum demand
requirements of 34 MW. This reduction by PSALM has left
Procurement
Process Conducted
by SOCOTECO I
SOCOTECO
were the
Type of Plant
Installed Capacity
6MW
Contracted Capacity
5MW
Term of PPA
Project
Output
Expected
4.2
Article
2.1.1
Purchase
of
Power.
Commencing
on
Commercial Operations Date, SE1 shall sell and deliver, and
SOCOTECO I shall purchase and receive, the Contracted Capacity at
the Delivery Point at the Tariff, subject to and in accordance with the
terms and conditions set forth in this Agreement. SOCOTECO I shall
be liable to pay Tariff for the Power Supplied irrespective of whether
or not SOCOTECO I is able to evacuate the Power Supplied from the
Delivery Point to its destination of use.
Article 2.3 Deemed Generation. Without prejudice to the
SOCOTECO I's obligation under Article 2.1.1, if due to unavailability
of the Grid Interconnection Facilities, the Facility is unable to
evacuate the power generated by the Facility from the Delivery Point
to SOCOTECO I, the Facility shall be deemed to have been operating
during the power non-evacuation
period and SE1 shall bill
SOCOTECO I for the power that would have been supplied during
such period. To determine the power deemed generated and
supplied, the average generation of the last 7 (seven) days on which
the Facility operated at its full capacity and supplied power to
SOCOTECO I shall be utilized. This Article 2.3 shall not be applicable
if the reason for the failure to evacuate power is due to a Force
Majeure Event, or due to scheduled preventive maintenance of up to
a maximum cumulative permitted time of 80 hours per year during
daytime hours of 7am to 7pm of the Grid Interconnection Facilities.
Article 2.4 Seller Generation Guaranty. The SE1 guarantees
a minimum average annual Performance Ratio (PR) as mentioned in
Schedule III of the PPA. Performance Ratio would be measured as
per the provisions of IEC 61724 (Photovoltaic system performance
monitoring guidelines for measurement, data exchange and analysis).
In case the Project energy generation (as metered) falls below
the Minimum Energy Generation Guaranty, caused by the SE1 's
gross negligence, willful misconduct or malicious intent, SE1 shall be
liable to recompense the SOCOTECO I for the differential between
Contracted
Capacity and the volume of power actually delivered,
multiplied by the difference between the Tariff and the price of the
replacement energy.
Proposed Tariff
PhP/kWh
PhP/kWh
9.79
Year
Year 6
Year 2
9.74
Year 3
PhP/kWh
9.54
Year
Year 11
Year 7
9.49
Year 12
9.24
9.69
Year 8
9.44
Year 13
9.19
Year 4
9.64
Year 9
9.39
Year 14
9.14
Year 5
9.59
Year 10
9.34
Year 15
9.09
(16) to twenty
9.29
(20) shall be
The Tariff in PhP for any given Billing Period shall be computed
as follows, rounded to the nearest centavo:
Tariff= NPT * 15% + (NPT * 85%) * (FXB/FXR)
In the event that this Agreement is extended for the Five
Year Extension, the NPT applicable for the Five Year Extension, i.e.,
years
twenty
one (21) to
twenty
five(25),
shall
be
PhP7.50/kWh.
Evaluation
Post 15th year, the debt would be repaid and the cost savings
will be passed to the customers with a lower tariff;
SE1 estimated that 85% of the total capital cost will be in US$
denomination;
The initial tariff estimation was based on the USD to PhP rate at
the time of the PPA negotiation whereas the actual cost will be
incurred during the construction stage which happens only post
permitting (including ERC approval);
evaluation of
Project Cost
USD
10,375,000
181,818
207,500
996,000
113,636
145,455
786,959
12,806,368
USD/kW
1,660
29
33
159
18
23
126
2,049
% to Total Cost
81.01 %
1.42%
1.62%
7.78%
0.89%
1.14%
6.15%
100.0%
Transmission
Line
Explanation/J ustification
Cost refers to the EPC cost which comprises
81.01% of the total project cost. Applicants
alleged that such cost was based on the EPC
contract entered into by and between SE1 and
Juwi Renewable Energies Private Limited.
Cost of 7km transmission line to be installed by
SE1 from Surallah (solar power project site) to
the 13.2kV SOCOTECO I's Dajay Substation.
The 7 km line cost is $25.9k/km; comparable to
the approved FIT for solar plant equivalent to
$23k/km.
Contingency
Import VAT
Land
Financing costs
DST is
Commitment fee
Legal Fee
To verify the
whether the same
solar power plant,
cost to the capital
technology.
Benchmarking of the
Commission in determining
supply contract involving
valuation is not possible at
constructed.
Particulars
SE1's proposed
ro.ect cost
Commission's approved
for solar lant
12,806.37
24,060.00
6,250
10,000
2,049/kW
2,406/kW
capcost.pdf
http://www.nrel.gov/docs/fy130sti/60207.pdf
SE1, during the assessment of the location for the solar plant,
adopted a three-pronged approach.
a. A detailed analysis using internal proprietary methodology
and models;
b. A third party yield analysis done by the Institute for Energy
(IE), Leipzig, Germany; and
c. Assessment from one of the shortlisted EPC providers.
3
4
www.sldcguLcom/EnergyAccount/energy
sldcguj.comiRealTimeData/GujSolar.asp
account new.asp
Operating
Assumptions
The Philippines location has a solar irradiation of about 220W/m2, which is above the average
180 W/m2 solar irradiance based on the reported 2010 Mean Annual Solar Irradiance.
www.3tier.com
European countries particularly Germany and Italy has a solar irradiance of about 180 W/m2
based on the reported 2010 Mean Annual Solar Irradiance
www.3tier.com.
SE.;.1proposed
O&M and G&A
309,699.01*
6,250
Commission's
approved
O&M and G&A
559,708.26**
10,000
The SE1 solar project assumes that 15% of the capital will be
sourced locally and 85% will be sourced outside of the country. This
is based on the currency denomination of the capital cost input.
Furthermore, it is presumed that 70% of the capital needed to put up
the project will come from debt and 30% from equity.
For the local component of the debt, SE1 expected a 7.4%
interest rate based on the indicative offer from the DBP. Said loan is
payable within 14 years from the end of grace period (1 year from
Commercial Operation Date). On the other hand, SE1 entered into a
US Dollar bridge financing which shall cover the financing beyond the
construction period until an appropriate bank financing is secured.
The bridge financing shall be payable at a 10% interest rate in US
Dollars.
=
=
Beta =
MRP
(www.stern.nyu.edu/-adamodar/pc/datasets/ctryprem.xls).
SE.1's Computation
Debt Element:
Pre-tax Cost of Debt
Post Tax Cost of Debt
Weight of Debt
Equity Element:
Cost of equity
Weight of Equity
Post.tax WACC
Pre.tax WACC
7.37%
70.0%
5.16%
7.37%
6.63%
70.0%
4.64%
16.61%
30.0%
4.98%
10.14%
11.27%
16.44%
30.0%
4.93%
9.57%
10.64%
Tax Assumptions
Economic
are
consistent
with
the
Assumptions
Tariff Determination
SE1 proposal
Commission's
Calculation
6.25
6.25
2,049
2,049
Capacity Factor
16.3%
22%
20
25
49.55
49.55
DCF =12.61%
CAPM = 16.61%
16.44%
Levelized Tariff
(PhP/kWh)
8.95
7.33
9.79
7.50
Parameters
Installed Capacity, MW
PhP/kWh
PhP/kWh
7.50
Year
Year 6
Year 2
7.45
Year 3
tariff as
PhP/kWh
7.25
Year
Year 11
Year 7
7.20
Year 12
6.95
7.40
Year 8
7.15
Year 13
6.90
Year 4
7.35
Year 9
7.10
Year 14
6.85
Year 5
7.30
Year 10
7.05
Year 15
6.80
7.00
The NPT for years sixteen (16) to twenty (20) shall be fixed at
PhP6.80/kWh.
The above tariff scheme is consistent with the pricing scheme
as provided in the PPA wherein a PhPO.05/kWh annual decrease in
NPT was recognized. However, if the above scheme was converted
to a levelized tariff, the rate to be charged to SOCOTECO I shall be
at PhP7.33/kWh.
For the 85% foreign currency adjustment on the nominal tariff
proposed by SE1, the Commission modifies the same and instead
adopt the adjustment formula provided under the FIT Rules.
At any rate, the Commission shall require the submission of
actual cost of the power plant including cost of operations and the
rates approved herein shall be adjusted, if warranted.
6.
Rate Impact
I kWh)
Ave Gen Rate without
(PhP I kWh)
Rate Impact (PhP/kWh)
NVOGT
Year 1
Year 2
4.5615
Year 3
Year 4
4.9921
6.1340
8.1330
4.5295
5.0127
6.1803
8.2099
0.0320
(0.0206)
(0.0463)
(0.0769)
b.
SO ORDERED.
Pasig City, November 17, 2014.
(7~
;1, (~
ENAIDA G. CRUZ-DUCUT
Chairperson ,..,v
Ot.
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4toR1A VICTORIA~)(AP-TARUC
A.
ALFREDO~
Commissioner
Commissioner
/ JOSEFINA P~.
MAGPALE-ASIRIT
~61~~~sioner
2.
Commonwealth Avenue,
Quezon City 1121
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