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Republic of the Philippines


. San Miguel Avenue, Pasig City


NO. 10, SERIES OF 2012, A ,

ERC CASE NO. 2014-004 RM

)(- ----------------------- )(


Before the Commission for resolution is the matter pertaining to

the review of the Feed-in Tariff (FIT) rate for solar energy generation,
as necessitated by the new installation target of 500 MW for Solar set
by the Department of Energy (DOE).

In view of the letter dated May 23, 2014 of the National

Renewable Energy Board (NREB) endorsing to the Commission the
Certification dated April 30, 2014 issued by the DOE, which revised
the solar energy installation target under the FIT System from 50 MW
to 500 MW, the Commission initiated the instant rule-making
proceedings, seeking the review and possible amendment of its
Resolution No. 10, series of 2012, entitled "A Resolution Approving
the Feed-in Tariff (FIT) Rates."

In a Notice posted at the Commission's website on June 4,

2014, the Commission invited all interested stakeholders to submit
their respectivecornments and inputs on the proposed amendments
to Resolution No. 10, series of 2012.

On various dates,' the following parties submitted their

respective comments:
ERC CASE NO. 2014-004 RM
DECISION/March 27, 2015
Page 2 of 25

1. Manila Electric Company (MERALCO);

2. Mindanao Energy Systems, Inc. (MINERGY);
3. Philippine Electricity Market Corporation (PEMC);
4. RASLAG Corp.;
5. San Carlos Solar Energy, Inc. (SaCasol); and
6. Mr. Troy Colmenares (Concerned Citizen).

Subsequently, NREB, in its letter dated June 13, 2014,

submitted to the Commission its proposed new solar FIT, using
updated market information for the solar energy power plants,
equivalent to PhP9.1 O/kWh, effective after March 15, 2015.

Meantime, on July 17, 2014, the Nagkaisa, represented by Mr.

Edsil Bacalso, filed its comment.

On August 4, 2014, the Commission issued a Notice of

Proposed Rule-Making in ERC Case No. 2014-004 RM setting
NREB's proposed FIT for solar energy of PhP9.10/kWh to a public
hearing on September 2, 2014. On the same date, the Commission
furnished the DOE with copies of the comments received from the

During the September 2, 2014 public hearing, the following

stakeholders submitted their respective comments and thus, were
considered as Parties in the instant case:

1. Astroenergy Development Mindanao, Inc. (Astroenergy);

2. Enfinity Philippines Renewable Resources, Inc.;
5. Nagkaisa;
6. PEMC;
7. Philippine Solar Power Alliance, Inc. (PSPA);
8. RASLAG Corp.;
9. SaCasol; and
10. Mr. Colmenares.

In the said public hearing, the Commission took note of all the
comments of the stakeholders, including that of the Foundation for
Economic Freedom (FEF), represented by Mr. Ernest Leung. FEF
manifested that the new FIT for solar energy should be lower
ERC CASE NO. 2014-004 RM
DECISION/March 27, 2015
Page 3 of 25

because of the significant improvements in the borrowing rates in the


On January 20, 2015, the Commission issued an Order setting

the case for public hearing on January 28, 2015. In the same Order,
the Commission directed Mr. Gerry Magbanua, who presented the
details of NREB's proposed FIT for solar energy of PhP9.10/kWh
during the September 2, 2014 public hearing, to appear during the
next scheduled hearing for cross-examination by the Parties. NREB
was, likewise, directed to present other witnesses and/or evidence in
support of its proposed FIT for solar energy of PhP9.1 O/kWh, if it so
desires, during the said hearing. The DOE was also enjoined to send
a representative at the said hearing to address the questions that
may be raised therein with respect to the Certification dated April 30,
2014 it issued on the new Solar FIT Installation Target.

During the January 28, 2015 public hearing, NREB, DOE,

PEMC, MERALCO, SaCasol, Visayan Electric Company, Inc.
(VECO), NV VOGT Philippine Solar Energy One, Inc., Astroenergy,
Mott Macdonald, RASLAG Corp., PSPA, SOLEQ, Energy
Development Corporation (EDC) and Atty. Ranulfo Ocampo

At the said hearing, NREB presented its witness, Mr.

Magbanua, a member of its Technical Working Group, and testified
on NREB's proposed FIT for solar energy of PhP9.1 O/kWh, including
the key assumptions used by the Commission to arrive at the
approved PhP9.68/kWh FIT for Solar and those that have changed
as a result of recent events. Thereafter, the Commission, PSPA,
VECO, Astroenergy and Kirahon Solar propounded c1arificatory
questions thereon. After Mr. Magbanua's testimony, PSPA requested
that it be allowed to make a presentation on the 22% net capacity
factor, which is one of the assumptions used by the Commission to
arrive at the approved PhP9.68/kWh Solar FIT.

Subsequently, Mr. Philip Napier Moore of Mott Macdonald, an

international engineering consulting firm, presented its study and
findings on the range of capacity factors that can be expected of solar
plants at various locations in the country. Thereafter, the
Commission, NREB, Mr. Alquin Chan, MERALCO, SOLEQ, SaCasol,
VECO, NV VOGT Philippines, EDC, PEMC and Atty. Ocampo
propounded c1arificatory questions thereon. After Mr. Moore's
testimony and before the hearing was terminated, PSPA was directed
to furnish all the Parties with copies of Mr. Moore's presentation.
ERC CASE NO. 2014-004 RM
DECISION/March 27, 2015
Page 4 of 25

NREB, as well as the other Parties, were also given ten (10) days
from said date of hearing within which to submit additional
documents, data, study, report in support of their respective positions
pertaining to the appropriate new Solar FIT.


NREB Updated Market Information

NREB submitted the following updated market information1 for

consideration of the Commission in the determination of the new
solar FIT applicable:

a) Equipment Procurement and Construction (EPC),

inclusive of balance of plant (EPC) prices range from
US$1.7 Million/MW to US$2.0 Million/MW;

b) Local interest rate and US$ interest rate are 8% and

6.5%, respectively, compared to the interest rates of 10%
and 8% for the approved solar FIT; and

c) The Peso-Dollar exchange rate is PhP44.00:US$1

compared to PhP43.00:US$1.

NREB asserted that, except the above-mentioned parameters,

all other assumptions from the existing approved FIT remain
substantially the same. Applying all the foregoing updated
information to the FIT Financial Model will result in a PhP9.1000/kWh
FIT, a rate which is incidentally equal to the PhP9.6800/kWh current
FIT, degressed by six percent (60/0).

NREB supports the following FITs for solar installation of up to

500 MW:

1 As of May 2014
ERC CASE NO. 2014-004 RM
DECISION/March 27, 2015
Page 5 of 25

Applicable FIT
Solar PV Projects

Completed as of March 15, 2015 9.6800 (approved FIT)

Completed from March 16, 2015 to

9.1000 (degressed FIT)
March 15, 2016

Solar FIT Parameters

With the current data available to the Commission and the

updated information submitted by NREB, the Commission deemed it
necessary to set a new Solar FIT, taking into consideration the
following modified key assumptions:

Original Parameters for

Parameters Parameters for the New Solar
PhP9.68/kWh FIT
Total Project Cost (US$Mn/KW) US$2,406/kW US$1,958/kW
EPC Cost, Transportation to the
US$1,954/kW US$1,586/kW
Project Site and Balance of Plant
Net Capacity Factor 22.0% 18.5%
Switchyard and Transformers $907,020 $762,070
Transmission Interconnection
$23,256/km $30,444/km
Equity IRR 16.44% 13.870/0
Local Inflation Rate 4.0% 3.28%
Base Peso to US$ Exchange
PhP47.8125:US$1 PhP44.40:US$1
Forward Peso to US$ Exchange
PhP43.00:US$1 PhP44.00:US$1
Base Local CPI 160.00 138.91
ERC CASE NO. 2014-004 RM
DECISION/March 27, 2015
Page 6 of 25

Net Capacity Factor - 18.5%

It may be recalled that NREB originally proposed2 a 16%

capacity factor, which was based on PSPA's recommendation for a
1,396 kWh/kWp Annual Specific Energy Yield (ASEY) and in
consideration of the following:

1. It approximates average net capacity factor of PV plants

in some parts of the world, which ranges from eleven
percent (11%) to twenty-four percent (24%); and

2. It is higher than the historical capacity factor of Cagayan

Electric Power and Light Company, Inc.'s (CEPALCO) 1
MW PV Plant from 2005 to 2009, which is reported to
have an average capacity factor of 14.06% during the five
(5)-year period.

The Commission, after referring to available data and

independent reports of reputable Renewable Energy authorities,
adopted a 22% capacity factor3 based on the following

1. The 16.77% reported average net capacity factors of

CEPALCO's 1 MW PV Plant for 2010 and 2011 are
actually higher than the 16% proposed capacity factor 4;

2. New PV installations are expected to be more efficient

compared to the 2004 CEPALCO PV Plant5 due to the
continuing technological innovation and manufacturing
process improvements in the PV technology;

2 ERC Case No. 2011-006 RM, entitled "In the Matter of the Petition to Initiate Rule-Making for
the Adoption of the Feed-In Tariff for Electricity Generated from Biomass, Ocean, Run-of-River
Hydropower, Solar and Wind Energy Resources"

3 ERC Case No. 2011-006 RM, Decision dated July 27, 2012

4 Generation Company Management Report (GCMR) for 2010 and 2011 submitted by CEPALCO
as part of its annual reportorial requirements under the terms and conditions of its Certificate of
Compliance (COC)

5 1 MW CEPALCO PV Plant which commenced commercial operations on September 26, 2004

ERC CASE NO. 2014-004 RM
DECISION/March 27, 2015
Page 7 of 25

3. National Renewable Energy Laboratory (NREL)6 reported

that the capacity factors for PV crystalline technologies in
2011 range from 20% to 24%; and

4. Comparative analysis of the insolation7 levels of Asia-

Pacific as well as European countries based on the NASA
- Surface Meteorology and Solar Energy Data Set
expressed in kilowatt-hours per square meter per day
(kWh/m2/day) disclosed that Philippines has a relatively
high insolation level compared to European countries8
upon which the sixteen percent (16%) proposed capacity
factor was benchmarked.

The twenty-two percent (22%) capacity factor adopted by the

Commission in the determination of the existing Solar FIT of
PhP9.6800/kWh represents the middle range of the capacity factors
for PV crystalline technologies based on NREL's 2011 Report. The
said higher level was justified by the assumption that the continued
improvements in the performance of PV technology resulting from
better cell efficiencies and lower electrical conversion losses will
further improve the level of Capacity Factors of the new PV

During the January 28, 2015 public hearing, the PSPA

presented before the Commission the result of the Mott MacDonald
study, entitled "Independent Solar Energy Yield Assessment, select
Philippine PV Plant Sites". PSPA submitted that, based on the
independent expert analysis on the Philippine data, the appropriate
net capacity factor of a Philippine Solar PV Plant should be 18.5% on
the average, to wit:

6 NREL is the national laboratory of the United States Department of Energy (USDOE), Office of
Energy Efficiency and Renewable Energy.

7 Insolation is a measure of solar radiation energy received on a given surface area in a given
time. It is commonly expressed as average irradiance in watts per square meter (W/m2) or
kilowatt-hours per square meter per day (kWh/m2/day).

8 Germany, Italy and Spain

ERC CASE NO. 2014-004 RM
DECISION/March 27, 2015
Page 8 of 25

Annual Average
Energy Average
Average Initial DCCF,
Areas Yield ACCF,
Irradiance PR (%) Years 1-
(MWhNear) Years 1-20
(kWh/m2) 20
Year 1

Luzon 1*-Santiago City, 15.4% 17.8%

1,799.3 79.9% 1,433

Luzon 2** - Bayambang, 20.4%

2,066.5 79.3% 1,634 17.6%

Visayas 1** - Iloilo, Panay 1,899.2 79.1% 1,498 16.1% 18.7%

Visayas 2** - Jaro, Leyte 1,655.5 79.6% 1,314 14.1% 16.4%

Mindanao 1* - EI Salvador
1,991.8 79.0% 1,569 16.9% 19.5%
City, Misamis Oriental

Mindanao 2** - Kidapawan

1,862.1 79.5% 1,476 15.9% 18.4%
City, Cotabato

Average 16.0% 18.5%

*PAG-ASA Station

**Candidate PV Plant location

The Commission finds merit in adopting the result of the

independent study as this was based on specific historical data on
the Philippine grounds. The averaging of the actual data from a
location with high irradiation, mid-range irradiation and low irradiation
levels in Luzon, Visayas and Mindanao Islands objectively reflects \a
level of capacity factor appropriate for the Philippine setting.
ERC CASE NO. 2014-004 RM
DECISION/March 27, 2015
Page 9 of 25

To validate further the reasonableness of the 18.50/0 capacity

factor, the Commission referred to the reported capacity factor of
Solar PV Plants during 2014 by the International Renewable Energy
Agency (IRENA),9 to wit:

'SCAlE SOlAR' PflOTOVOlTAIC Afo,'O OJ4SKOir: Vltrro PROJEC1S,201 0 ANO 2014

Total !instaUed costs 'Capacity t:actor

2014 USDjl<W
u ,
:s I
g @ I
!at; "C.:E :
0.c::. ~'.:::! 1
8000 (flo. ~o

0.5 n I


6000 03 ~ 1
, 004 .1
I 1
I ,I
I .1



0.3 1

" ~i -'-' 0.2 I

4000 1


u- 0.2 I

2000 ~lll_~
u 0.1 IlJ


o I 0.0 0.0
201'0 2014'I 20102014 2014 2014

Sourcg; fRENA RenG'>\'Dl:lIe Cost Dr.i:l00s9.

Gleaned from the foregoing table, the 18.50/0capacity factor is

slightly higher compared to the reported capacity factor of Solar PV
Plants by the IRENA during 2014. Thus, the Commission deems it
appropriate to adopt the 18.50/0capacity factor based on the study of
Mott Mcdonald Independent Solar Energy Yield Assessment on
selected PV Plants in the Philippines.

9 IRENA Report, entitled "Renewable Power Generation Cost in 2014" published in January 2015
ERC CASE NO. 2014-004 RM
DECISION/March 27, 2015
Page 10 of 25

EPC Cost - US$1,586/kW

NREB submitted that the current Equipment Procurement and

Construction (EPC), inclusive of balance of plant (EPC) prices,
ranges from US$1.7 Million/MW to US$2.0 Million/MW. It proposed
that the Solar FIT be recalculated using an assumed updated EPC
Price of US$1,906 Million/kW. To validate this, the Commission
referred to the actual downward trend in the prices of Solar PV
modules as reported by IRENA in its Report published in January
2015, entitled "Renewable Power Generation Cost in 2014".

According to the IRENA Report, Solar PV modules' high

learning rates 10 and rapid deployment11 resulted in PV module prices
declining by around 75% between the end of 2009 and the end of
2014. In 2010, the cost of Solar PV modules declined by between
13%) and 29% depending on the market and manufacturing country
source of the modules. In 2011, price declines accelerated and
reductions of 39% to 490/0 occurred. In 2012, module price declines
slowed down somewhat to between 15% and 29% and in 2013, price
declines were between 12% and 18%, although exchange rate
fluctuations and trade dispute results saw the price of Chinese-made
modules actually rising by around 70/0 over the year. In 2014, the
downward trend was restored to a range between 7% for thin film
modules and 220/0for German-manufactured modules.

From the said report, the reduction In PV module prices is

summarized in the table below:

PV Module Price Reduction

Year Range
Minimum Maximum
2012 15% 29%
2013 12% 180/0
2014 7% 22%

1018% to 22%

11 Around 40% growth in cumulative installed capacity in each of 2012 and 2013
ERC CASE NO. 2014-004 RM
DECISION/March 27, 2015
Page 11 of 25

It will be recalled that the approved PhP9.6800/kWh Solar FIT

was based on a US$1,953.84/kW updated EPC cost as of June
2012, which accounts for just about 9% reduction from the reported
December 2011 Solarbuzz price level. For purposes of updating the
EPC Cost up to 2014 level, the Commission used the
US$1 ,953.84/kW Cost as the December 2012 level.

In order to determine the updated level of the PV module

prices, the Commission considered the upper bound of the reported
PV module prices percentage decline during 2013 and 2014.
Following the adopted PSPA methodology in applying the effect of
the downward trend in the prices of PV Modules to the 2012 EPC
Cost level, the Commission arrived at an effective reduction in the PV
Module Price equal to 10% and 8% during 2013 and 2014,
respectively, to wit:

Percentage Decrease in Module Share of

0/0 Effective
Price Module to Decrease
PV Incidental Total EPC in EPC
Total Cost Cost
Modules Cost

2013 18% 30/0 21 % 48% 10%

2014 22% 30/0 25% 39% 100/0

Applying the Commission-computed effective percentage

decrease during 2013 and 2014 to the US$1,953.84/kW 2012 price
level resulted in an updated EPC Cost of US$1,586/kW and a total
plant installed cost of US$1,958/kW. A comparison between the
Commission and NREB's computation of the EPC Cost and Total
Plant Installed Cost is shown in the table below:
ERC CASE NO. 2014-004 RM
DECISION/March 27, 2015
Page 12 of 25

Particulars NREB ERC Difference

EPC Cost US$1,906/kW US$1,586/kW US$320/kW

Total Plant US$1,958/kW US$385/kW

Installed Cost

To validate the reasonableness of the computed cost levels, the

Commission referred to the estimated global average 12 installed costs
for utility-scale of Solar PV Systems as reported by IRENA, to wit:

OF OOUNmvA~AGs.2009 TO .2014

. -'"" ...- ..

____~_~ ...
__ . "_ 1

o 1 I I 1 I :1

2009 2010 20ll 2012 2013 2014

Souroe: IRENA Renew<!b~ Cost Databe,~ and PhotJ),' ConsUltIng, 2014.

12 IRENA Report, entitled "Renewable Power Generation Cost in 2014" published in January 2015
ERC CASE NO. 2014-004 RM
DECISION/March 27, 2015
Page 13 of 25

Gleaned from the foregoing graph, the Commission-computed

total plant installed cost of US$1,958/kW approximates the reported
estimated global average installed costs for utility-scale Solar PV
Systems. This is also found to be within the range of the capital costs
of Ground-Mounted Solar PV Plants according to the REN21
Report,13 entitled "Renewables 2014 Global Status Report".
According to the REN21 Global Status Report, the typical global PV
Plant installed cost ranges from US$1,200/kW to US$1,950/kW.
REN21 also reported that the average PV Plant Installed Cost in the
United States is US$2,000/kW, US$1, 71O/kW in China,
US$1,450/kW in Germany and US$1 ,51O/kW in India, to wit:



Bio-power from solid Plant size: 1-.200 MW 800-4,500 4-20

biomass (including Comerslon efficiency: 25-35% Co-fire: 2,0,0-80,0 Co-fire: 4.,0-1.2
co-fidngand organic Capaci:yfDctOr: 50-90%
Bio-power from Planlsize: 1-40 MW 2,050-5,500 6-24
gasification Conversion efficiency:3Q-40%
Cap=i:yfactor: 40-80%
Blo-;powerfram Plant sire: 1-20 MW Biogas" 50,0-6.500 8logas: 6-19
anaerobic digestion Conversion efficiency: 25-40% landfill eas: 1,90,0-2 ..200 Lanolin gas: 4-6.5
Capacity factor: 50-90%
Geotherma'i power Plant size.: 1-100 flfM/ Condensing flash: 1.900-3800 Condensing flash: 5':'13
Capacily factor: 60-90% Binary: 2.250-5,50,0 Binary: 7-14
Hydropower: PlantsizEl: 1 MW-18.000+ MW Projects >300 MW: 1.000-2.250 Pr$cts >2,0 MW: 2-12
Grid-based Piant .:Ype: resel'Voir, run-of-ri'ler Projects 20-300 MVoi:750-2,500 Projects <20 MW: 3--'23
Capacity factor:30-GO% Projects <20 MW: 750-4.,000
Hydropowe~ Plant size: 0.1-1..000 kW 1.175-6.000 5-4,0
Off-grid/rural PlanltyP9: run-of-river,
hydrokinetic:, diurnal storage ~ ~ ~ .
Ocean power: Plant size <1 to >250 MW 5,290-5.870 21-28
Tidal range. capacitY factor: 23-29%
SolarPV: Peak capacity: Resldential costS: 2.200 23-114 (OECO)
Roof~op 3-5 kW (residential); (Germany); 3.500-7,000 (United 28-55 (non.OECO)
100 WI (commercial); States); 4,260 (Japan); 2.350 16-38 (Europe)
500kW (industrial) (China); 3.380 (Ausirolia};
Capaclty factor: 10-25% Uixed,tiltl 2,400-3,00,0 (Ita1y.l
Commercial costs: 3.800 (United
SolarPV: Peak capacity: 2.5--'250 MW 1,200-1.950 (typical global);Ds 32-38 (OECo)
Ground-rtlO\Jnled Capacity facto:: 10-25% (fixed tilt) much as 3.800 including Japan. 9-40 (non-OECO)
trtif'rty-scale Conversion efficiency: 10-30% .Averages: 2.000 (United States); 14-34 (Europe)
(high end is CPV) 1,710 (China); 1,450 (Germany);
1,510 (India)
Concentrating solar Types: parabolic trough, tower. dish Trough, no storage: Trough and Fresnel:
thermal power (CSPJ Ptant size: 50 ..250 MW (trough); 4,000-7,300 (OECO); 19-38 (no storage);
1 2,0-2,50 MW (tower); 3,100-4.050 (non-OECOl 17..37 (6 hours storageJ
110-100 MW (Fresnel) Trough. 6 hours storage: Tavver:
Capacity factor: 7.1,0,0...9.800 12.5-16.4 (United States;
I 20-4.0% (no storage); Tower: 5.600 (United States, high end of range is with
35-'75% (with storage) without storage) 9,000 (United storage)
Wind: Turbine size: 1.5-3.5MN 925-1,470 (China and ;India) 4-16(000)
Onshore Capacity factor: 25-40% 1.500-1.950 (elsewhere) 4-16,(non-OCO)
W,ind: Turbine size: 1.5-7.5 MW 4.500-5,500 ]5-23
Offshore Capacity!actor, 35-45%
Wind: Turbine size; Up to 100 k\'I' Average 6,040 (United Stntes); 15--'20 (United States)
Small-scale. 1,900 (China)

13 REN21 convenes international multi-stakeholder leadership to enable a rapid global transition

to renewable energy. It promotes appropriate policies that increase the wise use of
renewable energy in developing and developed economies. Open to a wide variety of
dedicated stakeholders, it connects governments, international institutions, non-governmental
organizations, industry associations, and other partnerships and initiatives. REN21 leverages
their successes and strengthens their influence for the rapid expansion of renew~ble energy
ERC CASE NO. 2014-004 RM
DECISION/March 27, 2015
Page 14 of 25

EPC Cost Allocation between PV Module and Balance of System


In updating the EPC Cost to 2014 level, the Commission

applied the reported percentage price reductions in the module prices
during 2012, 2013 and 2014 that resulted in the following updated
percentage allocation between the PV module component and the
BOS component to the Total PV System Cost:

Component 2013 2014

PV Module 48% 390/0
Balance of System 52% 61%)
Total 100% 100%

The updated percentage allocation between the PV Module and

BOS components to the Total PV System remains to be reasonable
since the Green Tech Media (GTM) even reported in November 2012
that the BOS already accounts to about 68% of the total PV system
COSt.14This allocation is, likewise, comparable to the latest reported
data on the allocation of PV Module and PV 80S percentage share in
the total PV System Cost, to wit:

14 http://www .greenteeh med ia.eom/articles/read/Solar -Bala nee-of -System-Aeeou nts- for -58-of -PV-
ERC CASE NO. 2014-004 RM
DECISION/March 27, 2015
Page 15 of 25

U.S. large CommerGial end Utility Installed Cost (S/Wdc)
~ .$5100
$ Ss.oo
.~ .
$0.00 .. N
1Ii11ii111 JMIl



- - -- - - - - - - - - -- - - -- -- -

~ Source: ModlAe prie1ngand 2007.2014 BOS

._AllOt I -~ tom GiM Re&earCll, Pro,2007 60S .lBN

Transmission Interconnection Cost - US$30,444.32/km

The Commission updated the transmission interconnection cost

to US$ 30,444.32 per kilometer 13.2 kV line cost from the previous
amount of US$23,526.00 used in the Commission's Decision dated
July 27,2012 in ERC Case No. 2011-006 MC. This is consistent with
the National Electrification Administration's (NEA) current per
kilometer cost estimate for a similar three phase 13.2 kV line project.

Switchyard and Transformer Cost - US$762,069.00

The Commission adopted a US$762,069.00 Switchyard and

Transformer Cost, which is equal to NEA's CY 2015 benchmark cost
for a complete 15 MVA Substation, as shown below:
ERC CASE NO. 2014-004 RM
DECISION/March 27, 2015
Page 16 of 25

In PhP In US$15

15 MVA, Power Transformer, Off-

13,500,000.00 304,054.05
Load, 67/13.2 kV
Substation Steel Structures ~OO,OOO.OO 18,018.02
69 kV Protection and Metering
5,040,000.00 113,513.51
15 kV Protection Equipment 6,455,000.00 145,382.88

69 kV/15 kV Metering, Control

2,470,000.00 55,630.63
and Protection Panel
Service Station Distribution
93,854.00 2,113.83
15 kV Power Cable and
527,000.00 11,869.37
Termination Kit
Civil and Other Electrical Works 4,950,000.00 111,486.49

Total 33,835,854.00 762,068.78

Equity Internal Rate of Return (IRR) - 13.87%

NREB did not propose to change the 16.44% Cost of Equity

earlier adopted in the setting .of the current Solar FIT. In the
computation of this 16.44% Cost of Equity, the Commission used the
following parameters and the Capital Asset Pricing Model (CAPM)
Formula, to wit:

= rf + Setae x MRP

15 at PhP44.40/US$
ERC CASE NO. 2014-004 RM
DECISION/March 27, 2015
Page 17 of 25


re = nominal cost of equity

rf = risk free rate for the Philippines

Setae = equity beta for benchmark generation


MRP = Market Risk Premium (MRP)

Particulars Values
Market Risk Premium 10.13%
Multiply by Relevered beta 1.03
Equals 10.43
Plus Risk Free Rate 6.010/0
Cost of Equity 16.44%

However, since the 16.44% Cost of Equity was derived based

on 2011 data, the Commission deems it appropriate to recalculate the
Cost of Equity using the latest parameters/estimates to reflect a fair
price for the investment.

To update the Cost of Equity level, the Commission referred to

the independent measure of Philippines' Country Risk premium,
(CRP), which is provided by Professor Aswath Damodaran of New
York University, Stern. From the data published in January 2015, he
estimates the Philippines to have a CRP of 2.860/0 and Total Risk
Premium of 8.600/0based on a default spread of 190 basis points and
a country rating by Moodys of Saa2. The Total Risk Premium of
8.600/0is equal to the estimated Default Spread plus the historical risk
premium for a mature equity market (estimated from historical US
data). Thus, the Commission adopted an MRP of 8.60%.
ERC CASE NO. 2014-004 RM
DECISION/March 27, 2015
Page 18 of 25

From the 6.01 % risk free rate (rf), the Commission used an
updated risk free rate (rf) of 5.270/0,which was bench marked on the
daily average of Philippine Dealing System Treasury Fixing (PDST -F)
rates for the CY 2014 as published by Philippine Dealing Exchange
Rate (PDEx) in its official website (

2014 POST -F (%)

January 5.3593
February 5.5389
March 5.3774
April 5.3887
May 5.2350
June 5.1903
July 5.2702
August 5.3604
September 5.3643
October 4.8929
November 5.1243
December 5.1609
Average 5.2719

The Commission adopted the beta of 1.0, which was based on

the unlevered and re-Ievered betas of listed comparable companies
sourced from Bloomberg.

Using the current input parameters and the CAPM Formula, the
Commission derived an adjusted Cost of Equity of 13.87%, to wit:

Particulars Values
Market Risk Premium 8.600/0
Multiply by Relevered beta 1.0
Equals 8.60%
Plus Risk Free Rate 5.27%
Cost of Eq uity 13.87%
ERC CASE NO. 2014-004 RM
DECISION/March 27, 2015
Page 19 of 25

The foregoing considered, the Commission adopted the

13.87% adjusted Equity IRR to arrive at a 9.2% pre-tax WACC.

The resulting 9.2% WACC is reasonable as the same is even

higher than the 7.5% WACC16 assumed for GECD and China in the
calculation of the levelized cost of electricity of a Solar PV Plant as
shown in the figure below:


[-- --: ---_ ----it -----~~~I~o-~Ic~e.

OECDandCh:na Restof the world

Wind power 25

Solar PV 25

'CSP 25
7.5% 10%
Hydropower 30

iBlomassfor power 20

Geothermal 25

Forward Peso to US$ Exchange Rate - PhP44.00/US$

NREB proposed to adjust the approved PhP43.00 to US$

forward exchange rate to an updated level of PhP44.00. The
Commission finds the proposed level reasonable since it is within the
range of the Government17 forecasted exchange rate of PhP42.00-
PhP45.00 for 2015.

16 IRENA report entitled "Renewable Power Generation Cost in 2014" published in January 2015

17 Development Budget Coordination Committee (DBCC), 2015 Budget Briefer, Congressional

Policy and Budget Research Department
ERC CASE NO. 2014-004 RM
DECISION/March 27, 2015
Page 20 of 25

The proposed PhP44.00 forward Peso to US$ Exchange Rate

is, likewise, lower than the Philippine Peso exchange rate projections
by independent international experts, which is PhP45.5 by December
2015 and PhP45.6 by March 2016, to wit:

Curr:ency Forecast

lrastprice For.eeasts

~G-l.-o.-u~s-O-o'-II-aT'----' ------~
__ ._~ .J __ "-'-' __ '




L_ .._-"_____




Japanc se yen USOJPY120.8 1<1~ 123 128 130
BrW!oi1PoundGBPUSD 1.'50 :1.:52 1.45 1.3G :1.32
:S\'Jh,sF,mnc. USDet"" O:9g 3..,04 :1.08 1.:12 1.:12
.AustnlUan Donal' ALJDUSO 0.71 0.7.5 0,,73 0.71 0.70 ,0.70
NeWZealand NZDUSO 0.74 0..74 0.71 0.68 0.G7 0.G6
canadian IDollla!"

[~A.Sia __
__ .__..
1.25 1.21 1....29
.. _._... .-~~. _ ..... _.'
.._..._. __
Chlne.S\!! lRenmlnibl USDCNY 6.2G ,6.29 ,6,28 6.24
14ongKong llSDt1t{O 7.76 7.79 7.79 7 ..78
ItldoncsianRupiah 'USO:IDR 1.297G 1l3,1.4S 13.182 .13,:142
Indian Rupee U,SDl:/ltR G2 '[;4.6 ,G5.0 64.9
Ko:reanWon USDKIRW 10gS.S'! 1c,144 "1,1.49 1.,147
Malaysian Ringgit USOMY"R3.!GS 3.G9 :LG9 3.67
Phmp;pinePeso USDP""P 44.09 '-'5 . 4 45.5 45.6
Singapore Do'll:u' USDSGO :LElS 1.39 1..'10
Thai Baht USI>TI'IS :!l2.5S 33.4 33-S
Talw3.n OoUl'lr USOnNO 31.44 32.4 32.S
(MEuropc ~-._-
__-_.-._-_-_.-. -;
Russian Rub'le:! USORUiB 69 ..2 70.1 69.S
:SouthAfriean~and USOZAP. 12.04 11..81 lL92 12.04 12.?-2 .2.1.6
t~ lat:~~_~ __ ~ ._._. -:=1 L __ ~_. __,..,_,. N. __ . _ _

Brazflian Real USOBRI. 3,06 3.10 ::LOS 3.0'1

USOMXN 15.50 15.0 1'\.9 14.8 14.5

Base Peso to US$ Exchange Rate - PhP44.40/US$

Considering that the cost estimates were updated up to 2014

level, the Commission, for consistency, used a base Peso Exchange
Rate of PhP44.40/US$, which is equal to the average exchange rate
during 2014.
ERC CASE NO. 2014-004 RM
DECISION/March 27, 2015
Page 21 of 25

Local Inflation Rate - 3.28%

The Commission modified the assumed local inflation from the

originally approved 4% to 3.28%. The 3.280/0inflation rate is the
average increase in inflation for the past three (3) years covering the
years 2012 to 2014. The 3.28% is consistent with the recent
pronouncements of the Bangko Sentral ng Pilipinas (SSP) 18 that the
country is expecting to maintain a three percent (3%) :t 1.0
percentage point inflation target for 2015-2016. The 3.28%, likewise,
falls within the range of the Government's forecasted inflation for
2015 and 2016, which is 2%- 4%.19

Base Local CPI - PhP138.91

Considering that the cost estimates were updated up to 2014

level, the Commission, for consistency, used a base local CPI of
PhP138.91, which is equal to the average CPI during 2014.

New Solar FIT

Applying all the foregoing assumptions, the Commission

derived a Solar FIT of PhP8.6900/kWh:

Existing Solar
Particulars New Solar FIT Difference

Solar FIT PhP9.6800/kWh PhP8.6900/kWh PhPO.9900/kWh

18 SSP 4th Quarter Inflation Report

19 NEDA, Philippine Medium Term Development Plan 2011-2016

ERC CASE NO. 2014-004 RM
DECISION/March 27, 2015
Page 22 of 25

This FIT is comparable with the typical global Levelized Cost of

Electricity (LCGE) for Solar PV plants as reported by IRENA and
REN21, to wit:


US DjkWh

Stomass HYdt(JSOlar CSP Wind WinG
Photovoltaic offSnor<i!' ,onsnore

1'3 """tid'" Elll1lt tJ O';>~ I'''...

:t--tcn::n Amarklti iii SlMlttl "'mt1<feZ} !!:""Ol>~
ERC CASE NO. 2014-004 RM
DECISION/March 27, 2015
Page 23 of 25


1 USD I kW LCOE - U.S. cents / kWh


Bi().power from solid PliJntsl7.e: 1-200 M1N 800-4,500 4-20

biomass (incfud Ing Conve:s!onlff~efICY: 25-3~ Co. fire: 200-800 Co.(;re:4.o-12
co.firing 371doraan!c cepatl1yfaclof: 50-90%
Bi().'power rrom Plarll slxe: i-IIO "'~w .2,050-5,500 6-24
g<lsiflcatlon Convers.~n eF.:cil!ne)f: 3(1-40%
Cep3c!ly{actor: 40..;80%
Bi().power :from Pl"nl slle: 1-20 ""'Ii' 'Biog3S: 500-6,500 Blogas:6-19
3:laerllblc digestion CDIlVelsion e:rrdency: 25-40% landllllgzs: 1,900-2,200 l.andfal p,as:4-6.5
Cl!patl.l'yfaclor; 50-90%
" 'Geolhe~mal power , Plantsize: i-IOO MW Condensfngl1ash: 1,900-3800 CondensmgCzsl'.: 5-13
Capaellyfaclor: 60-90% Binary: 2,250-5,500 Binary: 7-14

Hydropower: PlJnl slle: 1 MW-18,000+ MW Projecls >300IlfN: 1,000--2,250 Projecls >20 MW; 2-12
Grid. b::sed Plant type: reservol; run-of. river Projects 20-300 MW: 7S0-2.500 Projecls <20 MW: 3-23
Capat:llyfaclor: 30.-60% Projects <20 MW: 750-4,000
Hydropower: Plant slle: 0.1-1,000 WI i,175-6,OOO 5-40
Off-gTid/Mel Plantlype: run.of.river,
I1Ydroldnellc. dillfnalsloragl!
,ocean pOIver: : Plant size: <110>250 MW 5,290-5,870 2i-28
rKlalrange Capacilyfaclor. 23-29%.-
:SolarPV: Peak c",pacf.l': R~1cler:UJl costs: 2,200 2i-44 (OECD)
Roollop 3-5 ~N (residenlla\); (Germany); 3,500-7,000 (United 28-55 (non.OECDI
100 kW (commerct;;l); 51alO5);4,260 (Japan), 2,150 j6-38 <Europei
500 kIN (industria I) (China); .3,380 (A:Jslra:lal;
CapaClly factor: 10-25% (Exed 11m 2,400-3,000 (llaly)
CommerclalO:lsls: 3,BO()(Uniled
Slates); 2,900-3,800 (Japan)
SolarPV: Peak c;:pacity: 2.5-250 MW i,200-1.950Hyplccl11lobalJ; as 12-38 (OECOl
Groond-mounled CapaCilyfactor: JD-25%(flxecl Ull mOOt'!as 3,800 lnctucling Japan. 9-40 (non.OECD)
1l1~;:Y.scale COI1Vl!l'&:on ~x::etlCy: 10--30% Averages: 2,OOO(Un,ledSla:esl; 14-34 (Europe)
(higl'.end Is C r:\Il i,710 (01:nill; 1,450 (Gt:ma!l'jl:
i,510 ftndia)

ERC Global Solar PV LCOE (PhP/kWh)*

(PhP/kWh) IRENA20 REN21

8.6900 7.5480 5.3280 to 16.8720

*at 44.40 Peso to US$ Exchange Rate

Effectivity of the New Solar FIT of PhP8.6900/kWh

So as not to impair vested or acquired rights under ERC

Resolution No. 10, Series of 2012, the New Solar FIT of
PhP8.6900/kWh shall apply prospectively. It shall be effective
immediately after the publication of the Resolution adopting the
same. To align the same with the DOE's Certification dated April 30,
2014, the New Solar FIT shall be valid until March 15, 2016. For the

20 Asia Solar PV LeOE (PhP/kWh)

ERC CASE NO. 2014-004 RM
DECISION/March 27, 2015
Page 24 of 25

Solar Plants that have been commissioned prior to its effectivity, as

indicated in the Certificate of Endorsement issued in their favor, the
original Solar FIT of PhP9.68/kWh shall apply.

WHEREFORE, the foregoing premises considered, the

Commission hereby sets the New Solar FIT at PhP8.6900/kWh.


Pasig City, March 27, 2015.

~ Chairperson

O... :7if,.~(L,
n tv-'
Commissioner Commissioner


Co ioner

ERC CASE NO. 2014-004 RM
DECISION/March 27,2015
Page 25 of 25

Copy Furnished:

1. Department of Energy (DOE)

2. National Renewable Energy Board (NREB)



5. SaCasol


7. EDC


9. Astroenergy

10. NV VOGT Philippines

11. RASLAG Corp.


13. All parties in this case