1. Identifiers
Project Number: / 502486
Project Name: / Philippines - CEPALCO Distributed Generation PV Power Plant
Duration: / 2 years
Implementing Agency: / World Bank
Executing Agency: / International Finance Corporation (IFC)
Requesting Country: / Philippines
Eligibility: / Ratified the UNFCCC on August 2, 1994
GEF Focal Area: / Climate Change
GEF Programming Framework: / Operational Program #7
2. Summary:
Solar Photovoltaic (PV) technology is a cost-effective generating source of electricity that is in the process of establishing itself in off-grid markets around the world. However, on-grid applications so far have been limited to a few installations in developed countries, even though PV offers various advantages as distributed generating sources. The two reasons for this lag are the high costs of PV compared to thermal alternatives and the need for additional energy storage because of the interruptible and variable nature of solar energy. To demonstrate PV’s effectiveness in addressing distribution system capacity issues, a 1 MW distributed generation PV power plant is proposed to be built and integrated into the 80 MW distribution network of the Cagayan de Oro Power & Light Company (CEPALCO), a private utility operation on the island of Mindanao in the Philippines. The PV system will be operated in conjunction with an existing 7 MW hydroelectric plant with dynamic load control, thereby enabling the joint PV/hydro resource to reduce both distribution level and system level demand, effectively providing “firm” generating capacity. The PV plant will also assist in postponing the need for additional substation installations in the CEPALCO distribution system for a period of up to three years. The project will thus reduce the need of CEPALCO to purchase additional quantities of thermal plant-based power, thereby reducing its emissions of greenhouse gases. However, more importantly, it is expected that this plant will provide the first, full-scale demonstration of the environmental and, ultimately, also economic benefits of the conjunctive use of hydro and PV-based power, as well as the first significant use of grid-connected PV in a developing country. If, as is expected, the large-scale introduction of this technology helps in substantially reducing PV systems’ costs, widespread applications worldwide are likely to result. There exist some 360,000 MW of potentially suitable hydro plants in high-solar insolation regions of developing countries that could benefit from such conjunctive operations with additional PV power plants.
3. Costs and Financing (Million US$):
GEF: / $4.025 million (includes PDF Block A grant)Co-financing: / $3.0-4.0 million
Total Project Costs: / $7.0 - $8.0 million
4. Associated Financing (Million US$): / $21 million IFC capital financing facility for CEPALCO
5. Operational Focal Point Endorsement: / Ramon Paje, Undersecretary, DENR
6. IA Contact: / Dana R. Younger, IFC/GEF Coordinator, Tel.(202) 473-4779; Fax (202) 974-4349, e-mail:
1
Background and Context
1. Photovoltaic (PV) technologies, based on the direct conversion of sunlight into electrical energy, provide a potentially unlimited source of electrical energy, because the earth’s yearly energy input from the sun amounts to more than 10,000 times current world consumption of primary energy. Solar insolation in most of the developing countries of the world varies from 2,000 to over 2,500 kWh/m2 per year. Today’s PV systems are capable of converting between 7 to 15 percent of this amount into electricity and, with further development, are expected to convert between 15 to 25 percent. This means that less than one tenth percent of the available land area in these regions would be needed to supply all of their current primary energy needs.
2. So far, however, the supply of energy from PV, compared to total energy consumption is minuscule. Counting total shipments between 1982 and 1997, the total installed world PV capacity, at the end of 1997, has been estimated to amount to about 744 MWp, producing, perhaps, around 1.4 TWh of electricity per year. By comparison, in 1996 the total world production of electricity amounted to 13,720 TWh (4,942 TWh in non-OECD countries), or almost 10,000 times more.
3. So far, PV has been shown to be the least-cost option for supplying electricity for high value uses in off-grid locations. In on-grid applications, a number of niche markets have been identified in industrialized countries. Most of them are related to the firming up of peak-load power demands on extended feeder lines that have reached the limit of their transmission capacity. In these cases, PV facilities located next to the load can reduce the need for distribution network reinforcement. A number of these so-called “distributed generation” applications have been made in the US, Europe and Japan. Other applications of distributed generation have been the various “thousand” or “million” roof programs, most of which are ongoing (particularly in Japan and Germany). However, all of them are heavily subsidized, or depend in part on “green power” tariff surcharges levied against consumers (as in a program being undertaken in Sacramento, California). Few, if any projects of these types of PV installations have been undertaken in the developing world.
4. The two major reasons for the low penetration of PV in network applications are costs and the need for additional back-up systems because of the interruptible nature of solar energy supplies. The current average cost of a mid-sized PV installation per installed kWp is $6,900, exclusive of storage or back-up costs[1]. This compares to between $400 to $2,000 for alternative, conventional generation sources (thermal or hydro). In terms of average lifetime costs, delivered per kWh costs from conventional sources amount to between $0.05 and $0.14, while those from PV range between $0.30 to $0.38 in high insolation areas (2000 to 2500 kWh/m2/year). In addition, solar energy is available only during (sunny) daylight periods, and in variable amounts. If short-term storage has to be added to the PV system to meet system peakload demand, the cost for PV increases to between $0.42 to $0.55 per kWh[2].
5. Recent projections indicate that PV systems costs may fall within the next few years to around $3,000/kWp or less. This would reduce per kWh costs in high insolation areas to between $0.15 to $0.18, excluding[3] supplemental storage. This would bring PV within striking distance of the $0.14 to $0.25 costs for delivered, flat to spiky peak power supplies, as cited by Anderson (1998). Throughout the developing world, there are a significant number of countries or regions, which face peakload power costs at that level. Many of them also have substantial, already developed hydroelectric resources with substantial storage capabilities, but insufficient water inflows to operate at maximum capacity at all times. For these systems, conjunctive operations with added PV generating facilities could firm up the energy supplies from both sources, thereby effectively converting low-value, interruptible PV generation into firm, high-value peakload power, without the need for additional backup facilities (see figure 1). The potential market is very large, consisting of several hundreds of thousands of megawatts of already installed hydro capacity.
6. For the Philippines, the development of indigenous and, in particular, renewable energy resources has the highest priority for the Government of the Philippines. In 1996, some 56% of the country’s power production depended on imported oil or coal. At the end of 1997, total installed capacity was about 14,000 MW. According to the National Power Corporation (NAPOCOR), the country’s state-owned generating company, by 2005 an additional 12,978 MW will be required, with another 79,160 MW to be added between then and 2025. Of this generation mix, some 3,947 MW are expected to be supplied from renewable energy sources, plus 5,115 MW from geothermal and 4,732 MW from hydro. Currently, somewhat over 3,000 MW of hydroelectric plants are in operation. On Mindanao alone, the installed hydro capacity is 984.7 MW. Almost all of the existing hydro plants are water constrained, which makes them suitable candidates for conjunctive operations with PV generating plants.
7. To promote the development of renewable energy resources, the Government has established the New and Renewable Energy Program (NREP) which is being implemented by the Department of Energy (DOE) through its Non-Conventional Energy Division. It aims to accelerate the promotion and commercialization of new and renewable energy systems. As part of these efforts, a major objective is: “to develop economically viable new and renewable energy systems to levels of technical maturity at which these can be commercially competitive with conventional energy.” The promotion and development of integrated network PV generating facilities would be part of this mandate.
Rationale and Objectives
8. The International Finance Corporation (IFC), the private sector affiliate of the World Bank Group, proposes to utilize GEF funds to partially finance the installation of a 1 MWp PV-based power plant, to be integrated with the power distribution network of the investor-owned Cagayan Electric Power and Light Company Inc. (CEPALCO) on the island of Mindanao. The objective of the proposed project is to demonstrate the technical, operational and, ultimately, economic feasibility of utilizing PV based solar energy for supplementing and firming up the productive capacity of existing hydro projects, initially in the Philippines, but also as a model which can be replicated elsewhere in the developing world. In the Philippines alone there exist several thousand MW of hydro capacity that likely could be utilized in such conjunctive operations. This would eliminate the need for the additional installation of thermal power generation facilities (mainly diesel and oil-fired gas turbines) with their attendant emissions of greenhouse gases (GHGs) and various local pollutants (sulphur dioxides, nitrogen oxides, particulates and noise).
9. The project would fall under the GEF’s Operational Program No.7, which, in paragraph 7.7. (a) places particular emphasis on the development of “Photovoltaics for grid-connected bulk power and distributed power (grid reinforcement and loss reduction) applications.”
10. The project would be the first sizable distributed PV network installation in a developing country. It would demonstrate the technical and operational feasibility of integrating operations utilizing the installed PV capacity, which is a non-firm, interruptible energy resource, with the limited stream flow of an existing hydroelectric project in such a way that the combined output of both facilities would be converted into high value, firm peakload power, to displace GHG-emitting thermal generation facilities. In addition, the project would reduce transmission and distribution losses by being installed within the low-voltage power distribution network. This would also delay expansion investments by CEPALCO in distribution plant and equipment.
11. A second major objective of the project would be to demonstrate the potential for bringing about large-scale utilization of PV generation in network applications throughout the developing world through replication of this project’s approach (see Annex IV). Assuming the availability of a suitably designed GEF-funded program, it is expected that an increase in the overall market for PV systems by several magnitudes could be achieved, which when compared to the present, would provide the necessary base for reducing the currently still high costs of PV systems to levels that would make grid-connected PV increasingly competitive with other power generating sources.
Project Activities, Components and Expected Results
12. The project would consist of the installation of approximately 1 MWp of PV generating plant in the power distribution network of CEPALCO in the central business district of Cagayan de Oro in Mindanao. The system would be operated in conjunction with an existing 7 MW hydroelectric plant[4] with dynamic load control, thereby enabling the joint PV/hydro resource to reduce both distribution-level and system-level demand, effectively providing “firm” generating capacity (see Figure 1). In the absence of the PV plant, the hydroplant would operate at between 3 MW to 7 MW capacity depending on available water flow.
Figure 1. Conjunctive use of the PV and hydroelectric resources
13. Privatization of the government-owned NAPOCOR and restructuring of the transmission system provides opportunities for distributed generation, such as the PV/hydro plant concept. CEPALCO and other distribution utilities will be forced to purchase their own power from private power producers, and power generated from the distributed PV/hydro plant would displace high-cost marginal power supplied by small (50 MW to 100 MW) diesel power plants.
14. Transmission constraints will force developers to build smaller, more expensive power plants near load centers, which will make various alternatives more attractive in the foreseeable future. Furthermore, the PV plant would be connected directly to the distribution system, enabling CEPALCO to avoid additional capital charges for transmission capacity and ancillary services.
15. Non-economic benefits of distributed PV include: (i) increased independence from foreign oil supplies; (ii) protection against volatile fuel price swings; (iii) mitigation of risk in distribution capacity planning in an uncertain economic climate; (iv) firming up of voltage levels and frequency stabilization; (v) enhanced air quality from reduced NOx, SOx, and particulate emissions; and (vi) reduction in GHG emissions. Only the last of these is of direct interest to the GEF.
Distributed Generation
16. A screening exercise identified the most promising location within CEPALCO’s service territory to develop a PV plant. The Central (13.8 kV) distribution planning area, in and around the central commercial district of Cagayan de Oro city, was selected due to:
· Marginal Distribution Capacity Costs. The area had the highest cost outlook to provide for local distribution capacity upgrades, including three new substations planned between 2000 and 2010.
· Load Growth Rates. The area had the slowest load growth, such that the incremental capacity addition offered by the PV plant would be able to support load growth (and defer substation construction) for at least three years.
· Load Shapes. The area had a good match between daily load profiles and the pattern of solar radiation intensity (see figure 2).
17. As in the case of power distribution, the PV plant output does not directly coincide with system-level load. Unlike the case of power distribution, however, it is not possible to optimize the load/solar matching through judicious site selection. The peakloading for the total CEPALCO system, aggregated in Figure 2 for the period October 19-23, 1998, is shown to last for a period of about 10 hours (about 10:00 AM to about 8:00 PM).
Figure 2. CEPALCO Aggregate System-Level Load