House wants DOE, ERC to study impact of RE on electricity rates

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THE think tank of the House of Representatives has recently asked the Department of Energy (DOE) and Energy Regulatory Commission (ERC) to address the short-term negative impact of renewable-energy (RE) projects on the electricity prices in the country.

Ricardo Mira of the lower chamber’s Congressional Policy and Budget Research Department (CPBRD) said a total of 15 RE projects were put up in 2014, while 12 more were added in 2015.

“One of the biggest challenges of renewable energy is its potential to make power more expensive in its initial stage due to the feed-in-tariff [FiT],” Mira told the BusinessMirror. “There must be the way to look at FiT and how this could be adjusted in the future, so that the tariff setting for RE would be less burdensome on the part of the consumers.”

The FiT system was set by the DOE and the ERC to give assurance to eligible RE developers that they will earn and recover their investments over a period of time.

On June 27, 2012, the ERC approved the initial FiT rates, which would apply to generation from RE sources, particularly run-of-river hydro, biomass, wind and solar. Currently, there is no FiT rate approved for ocean technology as further study and more data analysis are still required.

The FiT rate—also known as FiT Allowance (FiT-ALL)—will be divided  and borne by all electricity consumers at P0.04 per kilowatt hour.  According to the Renewable Energy Management Bureau, there are about 25 RE projects considered as FiT eligible as of August 2015.

The FiT, however, is set to decline by 0.5 percent two years after its effectivity.

Meanwhile, in his CPBRD notes, Mira said the biggest hurdle in fully integrating RE sources in the power system is how RE could impact prevailing electricity prices, saying the country is already known for having one of the most expensive power rates in the world.

The FiT system could further worsen the plight of electricity consumers, Mira said.

“The FiT, which is passed on to consumers, guarantees the profits of RE developers for 20 years, while the law is only mandating the FiT to be applicable at least for 12 years…20 years is quite long enough. It’ll give RE developers so much guarantee on their profits at the expense of the consumers,” he added.

“It can be gleaned that the FiT system is devoid of competition because of the priority dispatch and off-take treatment in favor of RE. This should be viewed as a double-edged sword, because essentially, while RE could potentially reduce electricity rates in the long-term—assuming grid-parity rate is reached —the immediate and short-term impact of integrating RE into the power system is, no doubt, higher electricity rates,” Mira said.

Earlier, Party-list Rep. Angelo Palmones of Alyansa ng mga Grupong Haligi ng Agham at Teknolohiya para sa Mamamayan (Agham) questioned the plan of the National Transmission Corp. (TransCo) to increase FiT-All charge from P0.04 to P0.12.

“With this [increase], consumers will again suffer the burden of additional cost to the already high-power rate,” he said.

“We heard that TransCo will collect from electric co-ops [cooperatives] and private-power distributors an increase of up to P0.12, from the previous P0.04 per kilowatt hour [starting next month], and this will be nationwide. Why will consumers shoulder the incentives for RE developers?” Palmones asked.

There is already an ongoing petition by the TransCo to increase FiT-All charge from P0.04 centavos to P0.12 centavos. The adjusted FiT-All application is meant to replenish the working capital of TransCo as FiT administrator, so it can pay RE developers on time.

 

Other challenges

MIRA also said, despite the abundance of RE supply in the country, there has not been a robust increase in RE projects, following the passage of the RE law in 2008.

He added that fossil fuels remain the preferred fuel source and the government’s recent approval of several coal-fired power plants seems to contradict its policy to promote RE development in the country.

The government has recently issued Environmental Compliance Certificates (ECCs) to 21 new coal-power plants, while the latest Power Outlook of the DOE showed there are 19 committed coal-power projects with a total installed capacity of 3,877 megawatts (MW) expected to come online between 2015 and 2020.

However, these new contracts could tie up the country to coal power for years and significantly boost coal share in the power-generation mix, he said.

“While the DOE claimed it is technology-neutral in terms of its energy policy, it also stressed the need for coal to ensure stability in the country’s power supply. Because of its abundance and the relatively cheaper fuel cost, coal-power plants are often used to cover for baseload capacity,” Mira added.

The DOE said the transition toward a greater share of RE in power generation has to be gradual.

Also, Mira said many RE developers find it difficult to obtain financing from local banks, given their reluctance to lend in a relatively untested market, particularly small RE players.

“This problem is even exacerbated by the DOE’s ‘first-to-build, first-to-FiT’ policy, which grants FiT to RE developers on a ‘first-come, first-serve’ basis,” he said.

Under the policy, Mira said, “RE investors are required to accomplish at least 80-percent electromechanical completion of their power plants—which means that a big portion of the RE plant’s physical construction is already completed—before the DOE issues them a certificate of endorsement to the ERC for FiT approval. Hence, RE investors face the risk of being denied of their FiT applications despite infusing huge amount of investments.”

But the DOE clarified that the first-to-build, first-to-FiT policy serves as an incentive to rapid movers in RE development.

With this first-to-build, first-to-FiT policy, Mira said the Philippines differs from FiT policies in other Asian countries, as FiT approval in the country takes place after project construction and commissioning.

“The DOE may want to revisit this FiT policy and evaluate its costs and benefits consistent with the national RE goals,” he added.

Meanwhile, Mira calls for the DOE and the ERC to improve their regulatory and management functions, especially with respect to the whole process of developing RE in the country.

“The DOE is involved in the planning, monitoring, evaluation and approval of RE projects, including the implementation of regulatory standards. The ERC is involved in the approval of FiT rates and FiT-All, including future adjustments. Thus, the DOE and the ERC have the power to help mitigate the short-term negative impact of RE in terms of higher electricity prices in the country, which could be bane for investments, jobs and economic growth, in general,” he said.

Apart from effective management, Mira added that the DOE should also help improve the overall business climate for power developers given the country’s dire need for additional capacity, especially in the long term.

“This could be achieved, for instance, by streamlining the bureaucratic processes and approvals of power-development projects, strengthening the implementation of performance standards in ancillary energy sector services, such as transmission and distribution, as well as by honoring contracts with the private proponents,” he said.

Former Sen. Juan Miguel Zubiri, author of the renewable energy law of 2008, said these challenges should be addressed immediately for the smooth implementation of the law.

The RE law seeks to lessen national dependence on electricity generated from imported and highly pollutive fuel oil and coal.

In a separate statement, Zubiri said a growing number of private enterprises are now self-generating their supply of electricity using the stored energy from farm waste.

“We already have 16 large corporations—mostly integrated sugar producers and intensive hog growers—that have put up biomass power plants with a combined installed capacity of 166.18 MW for their own use,” Zubiri said.

“These businesses are not only realizing substantial electricity cost-savings; they are also providing additional income to small planters and creating new farm jobs,” he added.

By self-generating their power needs, Zubiri said the 16 firms are also freeing up grid-supplied electricity for other industrial, commercial and residential consumers.

He said the RE law fast-tracked the development of the country’s “green” energy resources and is now driving jobs growth in the countryside.

Citing the Renewable Energy Management Bureau, Zubiri said more than 2.9 million jobs—mostly in construction and engineering services—have been created by the boom in biomass, wind, solar, geothermal and hydropower projects.