NINE years since the Renewable Energy (RE) Act of 2008 was passed into law, consumers and RE developers have reaped the benefits of the law, according to state officials.
However, it can’t be denied that there is a pressing need to further improve certain aspects of the law to further boost investor confidence and, at the same time, assure consumers that their payment for subsidies is worth it.
“Actually, there were positives, but there were also certainly lots of room for improvement,” said Jose Layug Jr., chairman of the National Renewable Energy Board (NREB), in an interview.
The NREB is the advisory body tasked by the law to recommend policies, rules and standards to govern the implementation of the law, which granted fiscal and non-fiscal incentives to RE projects.
“Definitely, we saw new power plants coming in. These additional capacities helped augment the country’s power supply,” added Layug, referring to new power facilities powered by renewable energy sources such as solar, wind, biomass and run-of-river (ROR) hydro.
Based on data provided by the Department of Energy (DOE), RE accounts for 26 percent of the country’s power-generation mix.
Of FiTs and meters
SEN. Sherwin Gatchalian, chairman of the Senate Committee on Energy, called on concerned stakeholders to fully enforce the RE law. Gatchalian, in particular, emphasized the following major policies: feed-in tariff (FiT) system, Renewable Portfolio Standards (RPS), Green Energy Option and Net Metering scheme. Of these, only FiT and net metering have been implemented.
The country’s FiT system guarantees compensation for RE producers through a long-term fixed price over a 20-year spread, a subsidy that is shouldered by power consumers.
The RPS, to note, is a market-based policy that requires distribution utilities and other industry participants to source a portion of their power supply from eligible RE resources.
Net metering allows households to sell back excess electricity generated by their RE systems and use them as credits to lower their electricity bill.
The Green Energy Option is a mechanism to empower end users to choose RE in meeting their energy requirements.
“My assessment of the RE law is that we are the first one in Southeast Asia that enacted a comprehensive RE law, and that’s good,” Gatchalian said. “However, of the nine key provisions of the law, only one-and-a-half is only being implemented, which are the FiT and net metering scheme. The seven-and-a-half have yet to be implemented, though majority of which will be implemented this year, like the RPS.”
Consumer benefits
FOR consumers, Layug noted the more expensive bunker fuel was displaced with a cheaper overall rate of RE.
“So, to a large extent, RE has helped in terms of minimizing the cost to consumers, but of course it’s an annual determination. It was high oil price in 2014 and 2015,” Layug said. “Now, oil prices are low so it’s an annual determination.”
Layug added, however, that overall, “with technology cost of RE going down, it certainly will yield more benefit to the consumers.”
Take for instance, solar.
Solar Philippines President Leandro Leviste said solar-power costs have fallen mainly on account of the decrease in the cost of solar panels, low interest rates, high levels of sunlight and advances in technology, among others.
“We must send a strong message to everyone in the power industry that the time of low-cost solar has arrived, and the era of fossil fuel is near its end,” Leviste said.
Fossil fuel includes coal, which averages P4 per kilowatt-hour (kWh); gas, P6/kWh; and diesel, at P8/kWh.
“The debate is over… given solar is cheaper, and we’re building projects to prove it,” Leviste said.
In an interview, DOE Undersecretary Felix William Fuentebella said the promotion of RE and reduction of electricity rates are both central to the Electric Power Industry Reform Act (Epira) of 2001. The Renewable Energy Act of 2008 also supports the empowerment of consumers to choose renewable energy in meeting their energy requirements.
“For the consumers, it enhances the power of choice to choose between conventional and RE,” he said. “Nagkakaroon tayo ng [We were able to have an] alternative.”
Solar-power providers, meanwhile, said huge savings are being realized by their industrial and commercial clients.
“Definitely they are able to save on electricity bills. Wilcon told us that it was able to save up to 50 percent in electricity bills when they started using our solar panels,” GreenHeat Corp. Director Glenn Tong said.
Challenges
ON the part of RE developers, the law provides incentives in order to encourage participation in the development of RE sources. These incentives are provided under the FiT system, in which RE developers are offered a fixed rate per kWh for electricity generated by their projects over a period of 20 years.
The RE developers’ entitlement is taken from a FiT Allowance (FiT-ALL) billed to all on-grid electricity consumers. In short, consumers are the ones who shoulder the FiT rate through the FiT Allowance, which appears as a separate line item in power distributors’ bills.
The distribution utilities (DUs) or retail electricity suppliers (RES) are responsible in collecting this charge. Afterward, the collections will be remitted to the FiT Allowance fund that is being administered by the National Transmission Corp. (TransCo), which then applies rate adjustments on a yearly basis.
The Energy Regulatory Commission (ERC)-approved FiT rates are as follows: P9.68 per kWh and P8.69 per kWh under the FiT-Solar 1 and 2; P8.53 per kWh and P7.4 per kWh under the FiT-Wind 1 and 2; P6.63 per kWh for biomass; and P5.9 per kWh for ROR hydro.
The ERC earlier issued a “degressed” FiT rate of P5.8705 per kWh and P6.5969 per kWh for January to December 2017 hydro and biomass plants, respectively, with commercial operations within the year.
Based on latest data provided by the ERC, a total of 47 RE projects are eligible under the FiT system.
As of May 2017, these 47 RE projects have an installed capacity of 1,122.15 megawatts (MW).
The 47 RE projects make up seven wind projects (426.9 MW), 24 solar (525.95 MW), 11 biomass (135.15 MW), and five run-of-river hydro (ROR Hydro) (34.6 MW).
“Indeed, RE developers who were declared eligible for FiT rates are now enjoying the benefits of getting paid under the FiT system, albeit delayed,” Layug said.
He, however, pointed out that there are challenges being encountered by RE developers. These include roadblocks in permitting process and delay of payments to RE developers. On top of these, some RE projects are either on hold or under review because of unclear policy directions.
“Definitely from a government perspective, we need to be more efficient in granting permits and licenses, and there should be more coordination among government agencies,” Layug explained. “It is also the best way to lower cost of development of RE projects, which translates to cheaper electricity prices.”
The NREB, he emphasized, will be more proactive in providing guidance and coordination among involved agencies to fast-track the processing of regulatory approvals.
‘Consequential costs’
THE delay in the approval of TransCo’s 2016 FiT-ALL application filed before the ERC has resulted in P6.6-billion backlog payments owed by the government to RE developers for the year 2016.
TransCo had filed its 2016 FiT-All application in 2015.
Gatchalian said the government owes RE developers P6.6 billion. The amount includes P230 million in interest payments.
The senator points to “these unwarranted delays in the ERC approval” as the reasons why TransCo has not been able to pay RE developers.
“And because of these delays, we have to pay consequential costs,” he said. “I hate to say it, but because of the delays of ERC, we will be paying P230 million in interest payments.”
The lawmaker said during a recent hearing of the Joint Congressional Power Commission (JCPC) the country will fail to attract serious investors “if we don’t fulfill our contractual obligations.”
“And FIT-All is one of them,” Gatchalian said.
A week after the hearing, the ERC released an order. The regulators approved a FiT-ALL rate of 18.3 centavos per kWh for 2016. The amount is 5.09 centavos per kWh higher than the provisionally approved rate of 12.4 centavos per kWh.
The FiT-All increase will be reflected in consumers’ June bills.
Even before the ERC issued a decision on TransCo’s 2016 FiT-All application, the state-run firm has applied for another increase in the FiT-All rate for 2017, this time asking to further hike the rate to 22 centavos per kWh.
ERC Commissioner Josefina Patricia Magpale-Asirit assured the JCPC that a resolution on FiT-All 2017 rate application would be issued soon.
“Barring intervention from oppositors, a resolution on the 2017 FiT-All rate decision could be out in September this year,” she said.
Unclear policy
LOPEZ-led First Gen Corp.’s hydro power projects are under review mainly due to the government’s unclear policy direction on incentives.
“Our hydro platform pipeline of projects is currently being reviewed given the policy stance of the government of not providing FiT incentives,” First Gen President Francis Giles Puno said.
The ERC, in its March 2017 order, issued the degressed FiT rates to cover January to December 2017 for ROR hydro plants from P5.9 to P5.8705 per kWh and biomass plant from P6.63 to P6.5969 per kWh.
According to the ERC, there are only five hydro plants with FiT-eligible COC (certificate of compliance) as of May this year. Of the 250-MW installation target for ROR hydro, only 34.6 MW was subscribed, leaving 215.4 MW of unsubscribed capacity.
“If anything we feel that renewable energy sources like hydro, with its lengthy development and construction phase, will in fact require assurance of a market,” Puno said.
First Gen was looking to expanding its greenfield operations in Mindanao by developing three ROR hydroelectric power plants with a combined generation capacity of 95 MW, namely: the 32-MW Bubunawan and 33-MW Tagaloan plants in Bukidnon and the 30-MW Puyo in Agusan del Norte.
“But the pronouncement of DOE is unclear to us because hydro FiT is not fully taken up,” Puno said. “So the whole idea was to be able to construct the hydroelectric plants that we have been developing and for it to be allocated the unutilized portion of the FiT allocations.”
And because there is a chunk of unutilized capacity in the first round of FiT for hydro power, Puno said the government must realize that hydro-power development is actually a very long gestation, given the fact that hydro-power prospects are located in remote areas.
“Hydro takes long, and you have to assure investors that there will be a market for that electricity. In order for us to go ahead, we have to be assured that there is a market,” Puno said. “And so, until that clarification is there, then we’re slowing down what should be an accelerated development, but once it’s clear then we will proceed because we have also acquired quite a number of new concessions.”
Additional round
IF the DOE chief would have his way, there will be no additional round of FiT.
“What I’m saying is it’s already too much because FiT, it runs up to 20 years and it’s overburdening our consumers,” Cusi said. “We want to bring down our electricity rates, but how can we bring them down if we keep on giving FiT?”
Another round of FiT is being sought by RE developers, particularly by solar players that have not qualified in the second round of solar FiT equivalent to 390 MW, which is in excess of the 500-MW FiT installation.
Cusi clarified that his agency is not against providing incentives to RE developers, rather it should be through other means.
“I’ve already talked with the Climate Change Commission and some international organizations so our people will not be burdened.”
Gatchalian, for his part, urged the DOE to officially proclaim that it is not inclined to grant incentives in the form of FiT.
“What’s important here is certainty, attracting investors…. It cannot be a verbal policy. It has to be a written policy,” Gatchalian said. “We have contractual agreements with the proponents and [they have] contractual agreements with their funders and, in the overall scale of things, we’re attracting investors.”
“If we cannot fulfill one contractual agreement in the power sector, how can we attract in other sectors?” Gatchalian asked.
Unburdening consumers
IN response to Gatchalian’s musing, Cusi said that there is no need to issue a formal declaration on this.
There are power firms that will pursue RE projects sans the FIT. These include San Miguel Corp. and Alsons Power, among others.
“It’s about time we found a balance between promoting clean energy and securing the country’s energy needs without making consumers bear the cost of a punishing subsidy for years in favor of RE producers,” SMC President Ramon Ang said. “We have a responsibility as a major power producer to do our share in pushing for a sustainable clean-energy economy, but it has to be done in the most efficient way possible for the consumers.”
Alsons Consolidated Resources Inc. Chairman and President Tomas Alcantara said the demand for solar power has drastically brought down the production cost.
“I think as far as solar is concerned the cost of production has gone a long way,” Alcantara said. “The cost of photovoltaics [has] really been cut as much as 50 percent to 60 percent. So people who started with solar, they were forced to buy equipment at very high cost, and this is where FiT goes.”
However, according to Alcantara, “right now with FiT becoming a thing of the past, then technology has to address the issue of capital cost.”
The NREB said last year that it was looking at other mechanism to replace FiT. These include RPS, grants from multilateral agencies, or setting up a fund.
“The FiT Allowance and FiT rates are there to push RE. It’s there as a preliminary mechanism to encourage investments in RE. I think we have done that. We have been successful at that. Moving forward, I think we need to look at other mechanisms,” Layug said.
Unburdening consumers
MEANWHILE, Laban Konsyumer Inc. (LKI) President and former DTI Undersecretary Victor Dimagiba said FiT payment should be sourced from DOE’s budget.
“The intention of the law is good, but the impact to consumers should be thoroughly reviewed,” Dimagiba said in an interview. “We recently wrote the DOE secretary on this.”
He said in his letter that the newly approved FiT-All will unduly burden the consumers.
“The ERC approval adds another burden on already overburdened consumers,” Dimagiba said, adding such is the basis for their recommendation.
“Government, through the DOE, as lead agency mandated to implement the provisions of the RE Act, can still continue to demonstrate its support to RE by looking into other areas,” Dimagiba said adding, “considering means other than increasing the FiT-All every year for the balance of the 20-year period.”
He also urged the DOE to consider other modes of FiT payment, “that may include, but not limited to, say, an itemized budget item in the General Appropriations Law.”
“For the balance of the 20 years, we proposed to the DOE to consider other options.”
Dimagiba cited three options: for DOE to source from its own budget, to amend the RE law to specify that the FiT mechanism should not be passed on to consumers, and for the country to tap international funds or grants.
Push for RE
DESPITE the challenges, the DOE continues to push for RE development to diversify the country’s power sources.
In fact, the DOE envisions to add at least 20,000 MW of RE capacities by 2040 to sustain economic gains and continuously elevate the quality of life in the country.
To achieve this, the agencies concerned must be aggressive in carrying out their respective goals toward building RE capacities.
“There is a need to identify and analyze key challenges to further guide our stakeholders in our policies, regulatory and institutional framework,” Cusi said.
As an initial step, the agency gathered renewable-energy stakeholders from both the public and private sectors to launch the Renewables Readiness Assessment (RRA) for the country.
The RRA is a collaboration among the DOE, the International Renewable Energy Agency (Irena) and other renewable-energy stakeholders.
Cusi said he considers the RRA as “vital” in the government’s vision toward attaining 20,000 MW of RE capacities by 2040.
He added that formulating RRA involves research, interviews, focus-group discussions and several multistakeholder consultations.
The goal, Cusi said, is to provide a comprehensive and detailed analysis of the country’s RE profile in order to recommend measures to deal with the pertinent issues in the industry.
Cusi said the Philippine RRA will also contribute to a database of the status of renewables readiness across member countries of Irena.
“The DOE is committed to provide a level playing field among RE developers to assure the country of its indigenous and sustainable energy for the consuming public,” Cusi said.
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