A power plant on every roof

MANILA, Philippines–This 21-year-old entrepreneur dreams of converting every roof deck in the Philippines into a power plant, banking on improvements in solar technology to help deal with the country’s looming power supply shortfall.

Leandro Leviste, founder and president of Solar Philippines— the country’s first all-in-one solar financing, design, construction and maintenance company—took one big step forward last Saturday with the launch of the 700-kilowatt Central Mall Biñan rooftop solar system, Southeast Asia’s largest own-use power project so far.

The project is pioneering in many ways. It is the first solar installation financed by a local bank, Bank of the Philippine Islands (BPI), the first offered at a rate competitive with fossil fuel and the first solar-powered shopping mall in the country.

Furthermore, Solar Philippines has also bagged deals to construct solar systems in other shopping malls, including SM North Edsa, Robinsons Palawan and CityMall Roxas.

Leviste’s company expects to complete at least seven more solar projects for shopping malls by end-2014.

“I come from a family of environmentalists but for me, this is more about addressing one of the country’s greatest economic challenges—the high cost of electricity,” said Leviste, a son of Sen. Loren Legarda, a known advocate of climate change awareness.

“I also believe that only by making a solution commercially viable can it reach meaningful scale in mitigating climate change. Solar is a technology that’s long been tried and tested, but which has not reached wide adoption because no company had packaged this in a way marketable to consumers—zero up-front, as an operating and not a capital expense,” Levite said in reply to an Inquirer query.

Below Meralco rates

Leviste’s Solar Philippines financed, designed and constructed the entire system at no up-front cost to Central Mall Biñan. Under a power purchase agreement, solar electricity is supplied directly to the mall at below rates charged by Manila Electric Co. (Meralco), which guarantees savings from Day One—a first for renewable energy in the country.

Spanning over 7,000 square meters, Central Mall Biñan’s rooftop solar-power system is made up of 2,514 solar panels and equipment from premium German brands. It can cover 30 percent of the mall’s energy needs, in turn reducing the electricity bill by millions of pesos a year.

The roof-deck system can produce enough energy to power 1,000 homes and its expected operation in more than three decades will offset over 20,000 tons (18,143.7 metric tons) of carbon dioxide, equivalent to the planting of 100,000 trees.

Cost-competitive

“The days of having to choose between business and the environment are over,” Leviste said. “Solar has gained the reputation of being expensive, not because of the technology but because previous applications were too small to benefit economies of scale. By building the country’s largest solar rooftop projects, we have become the first local company to make solar cost-competitive with fossil fuel.”

“Solar technology is already tried and tested. The problem has been the business model and this is the first company to get it right,” said Energy Secretary Jericho Petilla, who graced Saturday’s roof-deck inauguration in Biñan City, Laguna province. “I commend Solar Philippines for bravely pioneering this zero up-front scheme, which is an obvious choice for customers.”

By next summer, the Department of Energy (DOE) plans to cap air-conditioning temperature in shopping malls to 25 degrees Celsius to conserve peak power. However, Petilla noted that “solar-powered malls would be exempt from this policy.”

Power supply shortfall

Warning of a supply shortfall of 500 megawatts in 2015, the DOE has increased its solar installation target from 50 MW to 500 MW, noting that a solar plant’s fast construction time makes it a natural solution to the looming power crisis.

This is a plan that doesn’t sit well with some economists, who fear that Filipino electricity consumers will be burdened with additional power charges under the feed-in-tariff subsidy.

For his part, Leviste believes that everyone can be part of the solution. “All commercial and industrial building owners can help curb the power shortage by converting their rooftops into solar power plants.”

Road to entrepreneurship

It all started a year and a half ago, when Leviste read about how a US company called

SolarCity pioneered the model of fully financing solar rooftop installations at zero up-front cost, supplying electricity at below utility rates.

“Despite the Philippines having the highest electricity rates in Asia and the decreasing cost of solar panels, no company had been able to replicate that model in the Philippines. So I dropped everything to pursue the opportunity. Once I started, I realized other things that made this the perfect niche for a start-up: huge potential, a low barrier to entry and entirely untapped because the model was very different from what traditional power companies were used to,” said Leviste.

Yale study on hold

Leviste was about to finish his senior year at Yale University, where he was majoring in political science with the hope of becoming a lawyer, when he heeded the call of entrepreneurship.

“I tried to juggle this and my studies for a semester but then realized the importance of focus. So school is now on indefinite hold,” he said.

The young businessman has since then assembled a 35-person team with over 100 years of combined experience in the solar energy, construction and power industries.

Solar Philippines is now completing over 50 MW of solar power projects by the first quarter of 2015. “In the range of experiences of our solar engineers, I’d like to think we’ve built a monopoly over solar expertise in the Philippines,” he said.

In the first few months, Leviste ran Solar Philippines from his bedroom, learning as much as he could from people in the industry here and abroad while sinking his teeth on a pilot project.

“Building a company has definitely been more difficult than building a project. It was a series of tiny victories, with lots of embarrassing moments and lots of firsts, but [it] ultimately came together in the end,” he said.

“I think that in this generation, the power to make a difference really is in the hands of entrepreneurs, not policymakers, and that the pace of innovation from Silicon Valley will open many opportunities for those who seek it. I grew up expecting to enter politics but realized that in the 21st century, it’s entrepreneurs who are changing the world,” he said.

 

Zero up-front cost model

Solar Philippines’ mission is to make solar energy cheaper than coal and affordable for every home and business in the country.

“The reason we’ve been able to build the largest projects in the country is that we’re the first and only company to get prices low enough to produce a compelling return on investment; and in a self-reinforcing cycle, those large projects allow us to reach ever lower costs. Moreover, we’re the only local company that both finances and installs solar plants, meaning we pass on the savings of full-integration to the end-user,” Leviste said.

He noted that Solar Philippines was a long-term oriented company that believed in building partnerships with key customers and, as a result, would happily accept slim margins for large volume.

Leviste does not see solar power in competition with any other energy source because of its potential for distributed generation.

“Even if others might be able to reach a lower generation cost, on top of that would be the transmission, distribution, other charges, resulting in an end-user cost nearly twice as high. This is in comparison to solar, which can bypass that entire value-chain by generating power on-site. You can’t build a coal, gas or hydro plant, or even a windmill on the roof of any mall. But you can mount solar panels!” he said.

Break-even point

For enterprises using solar power to augment electricity needs, the estimated break-even point depends on the franchise area. Meralco has a high electricity cost and a “demand-based” component. Thus, the bill for commercial and industrial customers is based on their highest kilowatt-demand at any point in the month.

“Given that most customers still have peak load in the late afternoon or evening, the distribution and transmission portion of your bill—nearly 20 percent—remains intact. But, bottom line, you should expect six- to seven-year payback, or a 15-percent annual return, for a system that’s warrantied for 25 years. So the numbers look great! The challenge remains in surmounting the high initial capital investment and this is why we’ve introduced zero up-front financing to the local market,” he said.

Huge market

Edgar Sia II, cofounder and chair of DoubleDragon Properties Corp., which plans to build a large chain of community malls across the country under the “CityMall” brand, has affirmed the use of solar power as part of his group’s road map.

“We are working with a few solar power groups because all the upcoming 100 CityMalls around the country [by 2020] will have both solar power and rainwater collection systems as part of our long-term planning and outlook,” Sia said in a text message.

“Solar power makes sense for mall developments because malls have underutilized big-roof footprint and also because malls consume daytime power simultaneously with the sunshine.”

CityMall in Roxas City will have 650 KW of solar power generation capacity, covering about half its requirements. The SM North Edsa roof-deck project is estimated to generate 1.5 MW, covering less than 10 percent of its requirements, while Robinsons Palawan is estimated to generate 1.2 MW.

More SM malls are expected to resort to solar power. The SM group, led by the family of tycoon Henry Sy, is not a stranger to solar power generation. In mid-2013, SM City Xiamen launched a 1.1-MW rooftop solar power project, the first of its kind in Xiamen, involving the installation of 3,740 solar panels.

JoAnn Eala, BPI vice president and head of sustainable energy finance and specialized lending, shares optimism on solar power projects, especially among commercial and industrial users.

“More and more mall and large-rooftop owners realize that they need not fall victim to the power crisis and impact of climate change that have been disrupting business operations. In six to eight months, solar rooftops can provide or augment the power they need. Funding is not a problem, as banks, like BPI, have financing programs that also provide free technical advice.”

For Leviste, the potential for solar power is as big as the entire Philippine electricity market. “There’s more than enough rooftop space to meet the entire country’s energy requirements and it makes financial sense to go solar in nearly every electricity franchise in the country,” he said.

Consumer education

“Provided that the numbers now work, the remaining bottlenecks are the willingness of banks and consumer education. No doubt this is a long process that will take several decades to transition to renewable energy and distributed generation, but our company is here for the long haul,” he added.

Given the market’s potential, Leviste said it was not a question of gaining market share but of coping with demand. Apart from Central Mall Biñan, SM North Edsa, Robinsons Palawan and CityMall Roxas, his company is in talks with a number of other large industrial and commercial chains.

Residential customers

In the long run, Leviste sees solar power becoming affordable, even to ordinary households. “Electricity rates are 50-percent higher for residential than commercial consumers and while there’s a high initial investment, you’ll be generating a return on investment of over 20 percent a year, he said.

“The challenge remains in achieving economies of scale and the advantage of our doing the largest projects in the country is that we can pass our cost-savings from economies of scale onto residential consumers,” he added.

Vision

His vision is for Solar Philippines to become the first distributed generation utility in Asia by making solar energy accessible and affordable to every home and business.

His is the same vision as that of SolarCity, founded by Elon Musk—also the founder of Tesla Motors, the world’s first successful electric car company— who believes in a future where every building will be powered by solar energy on its rooftop, replacing the electricity grid we know today.

“It’s an exciting vision and something I see happening in my lifetime. To put things in perspective, in the early ’90s, cell phones displaced fixed-line telephones a lot faster than people had expected,” Leviste said.

“One thing for sure is that by the number of massive projects completed by next summer, consumers will never look at solar the same way again.”

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