Saturday, March 14, 2015

Energy 34: Feed in Tariff Implementation in the Philippines

* This is my guest article in No Tricks Zone yesterday.

The Philippines enacted the Renewable Energy (RE) Act of 2008 (Republic Act 9513) that contains various subsidies to  renewables like feed-in-tariff (FIT).  

While it was signed into law in December 2008, FIT was not implemented until July 2012 because many sectors including manufacturing opposed higher price on already expensive Philippine electricity rates.  But the World Wildlife Fund (WWF), Greenpeace and other environmental groups in the country lobbied hard to implement the FIT and the Energy Regulatory Commission (ERC) was pressured to grant their lobbying, but at a lower rate as requested by the National Renewable Energy Board (NREB).

Figure 1. Proposed vs approved FIT in  the Philippines, Pesos per kWh
(Rates approved in mid-July 2012)

Prior to July 2012, there were not many renewable plants that were put up because of the uncertainty  when the FIT will be granted and implemented . After July 2012, there was certainty and more renewables were put up.

The ERC started public hearings regarding how much would be added to the monthly bill of electricity consumers in the Philippines when FIT is reflected. In August 2014, the National Transmission Corporation (Transco), the FIT administrator according to  the law, said that the forecast annual payout for renewable energy companies  based on the FIT petition would be P8.5 billion ($192.3 million) for 2015 and P10.25 billion ($231.9 million) for 2016. Wow! (Source: Philippine Star)

Last February, Manila Electric Cooperative (Meralco) and  all other electric  cooperatives and  distribution utilities in  the Philippines started collecting the introductory FIT of PHP 0.04 per kWh. If this rate is retained throughout the year, projected collection by Transco that it will distribute to the renewable firms would be PHP2.7 billion.  If the 12 percent VAT is included, this will be a P3.02 billion (US$ 68.3 million, at prevailing P44.2/$ exchange rate) leakage from the pockets of electricity consumers nationwide.

FIT rate will be adjusted and rising through time as more renewables are added to  the country’s power generation mix.

Rising  FIT has happened and  continues to  happen  in Germany, which probably has one of the world’s most elaborate renewables subsidy schemes. The FIT keeps rising as more renewables, wind and solar especially, are added yearly to the energy mix and electricity distributors are forced to buy them even when cheaper electricity from coal, natural gas, nuclear and hydro are available.

Figure 2. FIT in Germany, in Euro cents per kWh

So electricity prices in Germany keep rising. This will happen to the Philippines too, no thanks to RA 9513, the renewables cronyism law.

Figure 3. Cost paid by households in Germany, Euro cents per kWh

Source: BDEW: Germany’s Electricity Price More Than Doubles…Electrocuting Consumers And Markets, 7 December 2014.

What makes FIT a formula  for ever-rising price  of electricity?  
As contained in Section 7 of RA 9513, FIT forces the following:

(a) Priority connections to the grid for electricity generated from emerging renewables such as wind, solar, ocean, run-of-river hydropower and biomass power plants,

(b) priority purchase and transmission of, and payment for, such electricity by the grid system operators;

(c) fixed tariff to be paid to renewables producers  for 20 years; and

(d) compliance with the renewable portfolio standard (RPS).

The RPS as contained in Section 6 of the law, is the minimum percentage of generation from eligible renewable energy resources to be set by the NREB.

So combining FIT and  RPS, this  means that even if cheaper power from say Quezon coal or Sual coal,  Magat or Pantabangan hydro, Sta. Rita or Ilijan natural gas are available especially during non-peak hours, but wind power from Ilocos are available, Meralco and the various provincial electric cooperatives in Luzon grid are forced to buy from the expensive wind power plants.

While many environmental activists were among the groups that opposed electricity price hikes in the past, it is sure they will rein in their noise and militance now that their beloved renewables will be among the major  contributors to rising electricity prices in the country.  Double talk can happen anytime.

Recently, the Department of Energy (DOE) announced 14 RE projects with combined capacity of 304 MW which have been endorsed as qualified for the FIT program. The  DOE has issued certificates of endorsement (CoE) to five biomass, three small hydro, two solar and four wind power  projects.

This means that those power capacity will be dispatched to the grid at a fixed rate over a period of 20 years.

The installations for RE power totaled 750 MW:  run-of-river hydro and biomass projects at 250 MW each, wind power at 200 MW, and solar power at 50 MW, but may soon be raised to 500 MW.

Aside from  FIT and RPS, RA 9513 gives many other subsidies or relaxation of regulations and taxation to the renewable producers, privileges that are denied  to producers of conventional but cheaper power sources. These privileges include: (a) Income tax holiday for 7 years; (b) duty-free importation of RE machinery, equipment and materials within the first 10 years; (c) special realty tax rates; (d) net operating loss carry over (NOLCO) to be carried for the next 7 years; (e) 10% corporate tax rate (not 30%),; (f) tax exemption of carbon  credits; and (g) tax credit on domestic capital equipment and services.

This author is not against renewable sources per se. They are fine, along with geothermal, big hydro, coal and natural gas. What is objectionable is the cronyism and favoritism granted to the renewables  which results in an: ever rising electricity prices in the country. The case of Germany is already a guide for us. The same pattern is happening too in Spain and UK.

Government intervention and cronyism in energy policy is wrong and  counter-productive. Governments should get out of electricity pricing and stop forcing grid operators and electricity distributors to buy from renewables even if their rates are expensive. RA 9513 needs major amendments to remove the FIT and RPS schemes.

See also:
Energy Econ 15: Electricity Angsts, Presentation at UP Diliman, March 08, 2014 
Energy Econ 26: Dealing with Power Deficit in 2015, September 19, 2014

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