Energy Econ 22: FEF on FIT for Solar Power Plants

A good statement and warning from the FEF on guaranteed rate for solar energy producers. The average generation charge by various power generation companies (from coal, natural gas, geothermal, hydro, oil-based, some renewables) collected by Meralco is about P5.70/kWh (+/- 10 to 20 centavos). The solar producers are given guaranteed rate of P9.68/kWh, or about P4 more expensive than existing rates. We already have a high electricity cost in Asia, the FIT for solar, wind and other renewables will make it even more expensive.

Solar power, wind, biomass are cool, I am not against them per se. I am against the subsidy via FIT that is granted to producers of those renewables. That Renewable Energy Act of 2008 (RA 9513) is a huge energy robbery scheme engineered or inspired by various climate alarmist groups like the UN, WWF and Greenpeace, that will victimize Philippine-based energy consumers.
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PRESS RELEASE

Foundation for Economic Freedom Opposes the Increase in Solar Installation Capacity Under the Feed-in-Tariff (FIT) Subsidy

         We, the Foundation for Economic Freedom, firmly oppose the plan of the Department of Energy (DOE) to increase the installation target for solar energy from 50 Megawatts to 500 Megawatts (MW) under the Feed-in-Tariff Subsidy of PHP 9.80 per KWh on the pretext that the country has to build energy reserves in the summer months of 2015 and 2016.

        We believe the DOE’s decision is illogical, arbitrary, and represents an unjust burden on Filipino electricity consumers.  It is illogical because while the perceived “emergency” is only during the summer months of 2015 and 2016, the decision will burden Filipino electricity consumers with additional power charges amounting to PHP 12 billion annually for the next 20 years, or a grand total of PHP 240 Billion pesos.  This gigantic burden is on top of the already approved subsidy for the existing installation targets for renewable energy that is conservatively estimated at PHP 8 billion pesos annually for the next 20 years.

        Solar energy developers will enjoy a Feed-in-Tariff (“FIT”) rate of PHP 9.68/kWh for the 500 MW when the Wholesale Electricity Spot Market (WESM) rate is at least half of that.  The difference between the WESM rate and the FIT rate will be shouldered by the Filipino consumers.

         We estimate that the total additional bill for Filipino consumers to be at least PHP 0.32/kW hour if the additional subsidies for the expanded solar installation capacity is taken into account.

         Under the existing rules of the Feed-in-Tariff system, the renewable energy developers, including the solar energy producers, will enjoy a guaranteed rate of return of 16% per annum for the next 20 years.  The FIT rates are fixed for 20 years, irrespective of advances in technology and reductions in cost of capital equipment.

         These developers will enjoy a greater amount of abnormal profits because the FIT rates calculated by the Energy Regulatory Commission two years ago may be too high given the drops in interest rates and the cost of capital equipment.

        The burden on Filipino consumers goes beyond the Feed-in-Tariff subsidy to Renewable Energy developers.  Solar is an intermittent power source:  it doesn’t generate power at night or when the sun is covered by clouds.  It has an efficiency rating of only 16 to 20%, which means that most of the time the equipment lies idle.  Because of its intermittent nature, the grid has to build additional reserves.  These additional energy reserves are added costs that will be passed on to the consumers.

             The additional electricity costs will further lessen the competitiveness of Filipino manufacturers and cause job losses.

    It is absurd that manufacturers and consumers have to bear  this additional onerous burden for the next 20 years to address a perceived problem that will last for a mere two months in 2015 and 2016 considering alternative solutions are possible and less expensive.  The plan of the Department of Energy will only fatten the profits of solar energy developers and their foreign equipment suppliers at the expense of Filipino consumers who must bear the additional unjust burden, which is effectively a tax, for the next 20 years.

    We, the Foundation for Economic Freedom, are not against renewable energy per se, but against the obscene prices that must be borne by the Filipino consumers due to the exorbitant Feed-in-Tariff rates and duration (20 years) given to renewable energy developers.

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See also:

Energy Econ 18: Brown outs in Metro Manila?, April 16, 2014 

Energy Econ 19: Wind Power, Feed in Tariff and Electricity Subsidy, April 23, 2014

Energy Econ 20: On Slashing the Max Power Generation Charge, May 05, 2014

Energy Econ 21: Joint Statement on EPIRA Implementation, May 27, 2014

Economic Liberalization via Charter Change, the FEF Statement

Investments and job creation is not a crime that must be restricted by governments. The Philippine Constitution, ratified in 1987 or 27 years ago, is nice except that it explicitly limits or bars foreigners from owning certain assets and businesses in the country. Some sectors are limited to either 40 percent maximum equity ownership by foreign investors, some are outright off-limits to foreign investors.

I believe that the PH constitution needs to be revised and amended. In addition, I wish to see a Constitution that is 10 pages max. Very few details, mostly motherhood statements. All details -- like the minimum age for a candidate to run for Congressman/woman, for Senator, for President; what sectors to be reserved only for Filipinos, etc. -- should be done via legislation. That way, there is no need to clamor for frequent changes in the charter. People can lobby for new legislation or amend an old law without affecting the entire constitution.

Below is one statement calling for charter change.
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FEF Statement of Support to the move of Speaker Belmonte to amend the economic provisions of the PH Constitution

CHACHA NOW!

STATEMENT BY THE FOUNDATION FOR ECONOMIC FREEDOM

February 3. 2014

 We, the Foundation for Economic Freedom, support the move by Speaker Feliciano Belmonte Jr. to amend the economic provisions of the Constitution to include the phrase “unless provided by law” to the foreign ownership restrictions in the Constitution in public utilities, land, mass media and advertising, educational institutions, and development  of natural resources.

We believe that vesting on Congress, rather than the Constitution, the power to determine the restrictions in foreign ownership will send a strong signal to foreign investors that the government will level the playing field by opening up the economy as conditions permit.

We believe that opening up the economy to foreign investors is necessary to increase  Foreign Direct Investments (FDI) in the country, which remain one of the lowest in the ASEAN.

Poverty and hunger levels have remained unchanged despite the country’s 7.2% economic growth.  To attain “inclusive growth,” the country must boost investments by liberalizing foreign ownership  rules in order to generate employment and reduce poverty.

The country also risks being left out of the Trans-Pacific Partnership (TPP), an economic grouping of nations intended to boost trade and investments among member countries, if it does not amend the restrictive provisions in the Constitution and give foreign investors equal treatment as local investors.

Opening up the economy to more foreign investors, especially in strategic industries where foreigners are presently prohibited from owning a majority, will help improve competition, increase consumer welfare, lower prices, raise productivity, and generate technology transfer.

While the Constitutional amendment will not immediately liberalize the economy, it will provide an evolutionary path to making the necessary changes as needed.  The Belmonte proposal represents a practical political solution that provides the “key” to opening up the economy.

We urge President Aquino to reconsider his stand about not amending the Constitution and allow Congress to pass the Belmonte bill in time for a national referendum in 2016.  The millions of poor and unemployed are looking up to his government to live up to his promise of inclusive growth.

Energy rationing 6: FEF on the RE racket

The Foundation for Economic Freedom (FEF) has produced a new statement, Manifesto Against Increases in Power Rates to Subsidize Solar and Wind Energy Producers and to Guarantee their Superprofits. Portions of it below. Click to get a larger image.

I am not exactly a fan of the FEF, but on certain issues, I support their campaigns. Like this one, to expose the racket and legalized robbery in the Renewable Energy (RE) law, where we, ordinary energy consumers in the Philippines, will be forced to pay even higher electricity rates to the already high rates, to subsidize the RE power plants of the new energy cronies.

Towards the closing paragraphs of the statement, the FEF says,

We believe that the subsidy in the form of Feed-in-Tariff rates should NOT be given to existing power producers as this will mean a tremendous windfall for them. These producers are already enjoying tax and duty free incentives and will not add to the nation's power supply.

I think it's already late for the FEF and the public to complain about the Feed-in-Tariff (FIT) system. It's already in the law. The strong RE lobby, led then by the World Wide Fund (WWF), Greenpeace and other climate alarmist groups, made sure that the new energy cronies will get such incentive in order to help "save the planet." Those lobbyists for RE cronyism will insist that the law should be implemented.

But if public pressure to set aside the FIT provision will be strong as it will mean even more expensive electricity rates, perhaps the RE producers and cronies will be ashamed to push for it. It's a good fight worth pursuing.

Once people fall for climate alarmism and the various racket and rent-seeking provisions, regulations and taxation that the alarmists and governments want, they're trapped. It just happened that a number of the FEF Fellows and members are part of the climate alarmism movement.

Meanwhile, here's another article from Boo Chanco today. This should be a continuation to Energy rationing 5: Boo Chanco on the RE racket

Renewable energy

Beyond the subsidy called Feed-in Tariff, there are other things that ought to be looked at before we agree to allow them to put additional burdens on our power users. For instance, it is not clear, the position paper of the Foundation for Economic Freedom (FEF) observes, what is it exactly that the envisioned FIT program is supposed to buy us?

“Is it to lower our carbon emissions in order to help arrest global warming? Our carbon footprint is a rounding error vs. the large and more industrialized countries, and our RE component, at 30 to 40 percent of installed capacity, is already five times the global average.”

Romy Bernardo who spearheaded the paper’s drafting illustrates: The subsidy cost for solar per kWh is over P12. (calculated as the FIT rate of P17.95 less avoided cost of P4.50/kwh or the cost of buying at the current grid cost). One can lower consumption of power by giving away new efficient light bulbs that produce 60 watts of brightness at 15 watts use of power. Based on the calculation, by an ADB expert, the cost of doing this translates to $0.025 per kWh saved, roughly ten centavos/kWh saved. The numbers are striking-- P12 solar vs. P0.10 for energy efficient light bulbs.

In short, just give free light bulbs and you can do more than 100 times the benefit in terms of reducing carbon footprint for the same peso spent from public purse. A slightly clever solar operator selling at FiT rates can put solar panels under a light bulb, run even when there is no sunlight (like even night time) to get paid for power at P 17.95 per kWh, and only incur cost of P4.50 per kWh to buy power from the grid for the light bulbs.

Finally, am reposting here portions of a new article by Dr. Steve McIntyre of Climate Audit.
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IPCC WG3 and the Greenpeace Karaoke

June 14, 2011

On May 9, 2011, the IPCC announced:

Close to 80 percent of the world‘s energy supply could be met by renewables by mid-century if backed by the right enabling public policies a new report shows.

In accompanying interviews, IPCC officials said that the obstacles were not scientific or technological, but merely a matter of political will.

Little of the increase was due to ‘traditional’ renewables (hydro and ‘traditional’ biomass, mostly dung), but to solar, wind and non-traditional biomass.

I, for one, was keenly interested in how IPCC got to its potential 80%. Unfortunately, in keeping with execrable IPCC practices, the supporting documents for the Renewables Study were not made available at the time of the original announcement. (Only the Summary for Policy-makers was made available at the time.) This showed one worrying aspect of the announcement. The report was based on 164 ‘scenarios’ and the ‘up to 80%” scenario in the lead sentence of their press release was not representative of their scenarios, but the absolute top end. This sort of press release is not permitted in mining promotions and it remains a mystery to me why it is tolerated in academic press releases or press releases by international institutions....

The basis for this claim is a Greenpeace scenario. The Lead Author of the IPCC assessment of the Greenpeace scenario was the same Greenpeace employee who had prepared the Greenpeace scenarios, the introduction to which was written by IPCC chair Pachauri.

The public and policy-makers are starving for independent and authoritative analysis of precisely how much weight can be placed on renewables in the energy future. It expects more from IPCC WG3 than a karaoke version of Greenpeace scenario.

It is totally unacceptable that IPCC should have had a Greenpeace employee as a Lead Author of the critical Chapter 10, that the Greenpeace employee, as an IPCC Lead Author, should (like Michael Mann and Keith Briffa in comparable situations) have been responsible for assessing his own work and that, with such inadequate and non-independent ‘due diligence’, IPCC should have featured the Greenpeace scenario in its press release on renewables.

Everyone in IPCC WG3 should be terminated and, if the institution is to continue, it should be re-structured from scratch.
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The Greenpeace (and World Wildlife Fund) racket in renewable energy is getting more obvious. The distinction or dividing line between environmental activists and UN climate bureaucrats has also been erased in this case, as a Greenpeace activist has become a lead author of an IPCC Working Group (WG) 3.

The ultimate goal of this continued energy rationing in favor of RE power plants is simple: to get as much tax money and energy subsidies from governments and hapless energy consumers. Such scheme will make their RE farms cute, profitable and "sustainable".------

Related articles:
Energy rationing 1: Energy loans and climate alarmism, February 13, 2011
Energy rationing 2: The Renewable Energy (RE) law, February 18, 2011
Energy rationing 3: Restricting poor countries' access to cheap energy, April 01, 2011
Energy rationing 4: Anti-coal, anti-nuke hysteria, April 14, 2011

Climate stupidity 10: The Sun and GCRs don't affect climate?
Earth Hour lunacy, Part 3

Energy rationing 5: Boo Chanco on the RE racket

I seldom read newspapers, much less their columnists. I read more a few blogs that I follow everyday, especially science blogs pertaining to climate science, then the facebook updates of my friends, including the news articles that they recommend. Then I read some of those articles or opinions.

The renewable energy (RE) racket "to save the planet" is still on-going. Mind you, they plan to steal from us around P9 billion (roughly US$ 207 million at current P43.3/$ exchange rate) every year for the next 20 years. It's not a new tax that will go to the government. Rather, it's an add-on cost that we energy consumers in the Philippines will have to pay extra to the already high electricity prices, to subsidize those expensive solar and wind farms.

Luckily, there are a few local newspaper columnists who have written about the RE racket. Like FEF Fellows Romy Bernardo of BusinessWorld, and Boo Chanco of the Philippine Star.

Last May 27, 2011, Boo Chanco wrote in the Philippine Star:

Renewable energy

Here is something to think about for us electricity consumers, already burdened by one of the highest electricity rates in the world. We are being asked to subsidize the cost of electricity produced by solar, wind and other so-called renewables through the mechanism of the so-called feed in tariff or FIT.

Unless we speak up, we will be forced to shell out some P9 billion every year for FIT for 20 long years… even after technology has made those renewables economically competitive. Of that amount, 50 percent goes to solar and wind, even if they will only account for 20 percent of the RE generated power under the FIT program.

There are those who say we have such a small carbon footprint and because we use significant amounts of geothermal and hydro, our electricity generation mix is already at least 32 percent renewable compared to the US which is under 10 percent. That means the Philippines is already contributing three times as much RE as the US on a country basis.

So why subsidize these fashionable RE technologies now? Why can’t we just wait for the more technologically advanced and financially capable developed countries to shepherd these technologies along until no subsidy will be required? Ironically, these developed countries are cutting back on their RE subsidies lately, notably in Europe.

I understand that even the National Grid will have to shell out substantial capex. It has to cope with all these small power sources going on and off the grid all the time without destabilizing the system. Guess who pays for the National Grid investments?

Hopefully our policy makers will put our interests, the already heavily burdened Filipino electricity consumers, ahead of the salesmen trying to make a fast buck by selling these technologies to us at this time. The ERC should carefully crunch the numbers and carefully explain everything before forcing us to pay up for something we don’t really need now....

Today, Boo wrote again on the RE racket.

Solar + Wind = Hot Air

... Indeed, solar is still a technology undergoing development. Eventually, it should be commercially viable or competitive with conventional energy. Right now, the only way to make it viable is to subsidize it. It is the same thing with wind. They call that subsidy feed-in-tariff (FiT), a fancy term for the amount they want to add to our electricity bills supposedly to encourage more use of this type of renewable energy.

Some local economists have raised an alarm about going overboard on this FiT in our mindless haste to be seen as fashionably earth loving. The manufacturers of solar and wind energy equipment have successfully lobbied Congress into passing a law that mandates the granting of this subsidy. It also mandates the inclusion of RE into our electricity mix. Because our legislators were only after PR mileage to be seen as being ecologically correct, the law gave no regard to cost implications for our consumers and our industries.

Romy Bernardo, a Ramos era undersecretary of finance, is critical of the P9 billion annual cost of FiT (times 20 years or P180 billion). Of this, 50 per- cent goes to solar and wind, even if they will only account for 20 percent of the RE generated power under the FiT program. “Let’s decide what the public can afford,” Bernardo urges. “It certainly cannot be the P7 to P9 billion PER YEAR over a contract period of 20 years, given the already high cost of power.”

Bernardo is correct. Even the RE developers acknowledge that today’s RE prices are expected to come down. One executive working on the solar initiatives of a local conglomerate told their stockholders meeting just this week that it will take three to five years to reach grid parity based on global studies.

The solar industry is growing so fast, he said, and economies of scale are kicking in. “In the Philippines, projection is by 2015 to 2017, we should reach grid parity.” So why not wait? And why give them subsidy for 20 years when the technology is at grid parity in five? The initial price setting should only be made applicable for the next three or five years. After that, we should review again.

Even if we end up with less RE because we have been too cautious, it would be worse to err on the side of paying too much, locking in the mistake for 20 long years. We already have, in any case, at 34 percent, more RE capacity installed as a percentage of total electricity generated than the US and most European countries. We can afford to wait for the technologies to mature and come down in price.

The Foundation for Economic Freedom (FEF), a public advocacy group espousing market-oriented reform for good governance, has taken the position that “Renewable Energy subsidies must be transparent, limited and technology neutral.” The FEF believes the Feed-in-Tariffs to be issued by the Energy Regulatory Commission (ERC) must provide for an absolute peso cap on the total amount of subsidies that the public will be made to bear, capped both on an annual basis and for the life of the project.

The FEF also wants to make sure that the amount of public subsidy for RE projects should be explicitly disclosed and shown to be commensurate to the social benefit that the public is expected to derive from this program. The outlay should be transparently evaluated based on “value for money” to the public.

The FEF also urged the ERC to consider the ability of the public to shoulder additional levies on a per kWh cost of power. As FEF president Toti Chikiamco puts it, “it’s not only household consumers who will suffer but industry too. It will reduce the competitiveness of Philippine industry, already burdened with one of the highest power rates in the region and a strong peso.”

The FEF economists also think we should buy the cheapest RE available before we buy the more expensive technology. They point out that based on the numbers of the National Renewable Energy Board (NREB), it appears that we can subsidize 11 kwh of hydro for the same amount needed to subsidize 1 kwh of solar. The subsidy equivalent for biomass is 6 kwh for 1 kwh of solar.
Actually, even abroad, the economics of solar and wind are being questioned. In an article on MarketWatch, where I borrowed the headline for this column today, market trader Jim Chanos famed for shorting Enron, argues that wind and solar are “not capable” of real cost-effective ways of meeting energy demands. “Wind and solar are not efficient.”

This is not to say that technologies such as Solar Photo Voltaic have no place in our energy mix at this time. The FEF paper admits solar may be the best, or the only substitute, in some areas, for expensive diesel-fired plants serving off-grid customers.

When solar or wind are used to augment off-grid diesel installations, the avoided costs (or the cost of diesel fuel that would have been used) and the avoided emissions are higher, so the required incremental subsidy is less. And no additional reserves or transmission facilities that add to our power costs are needed. In fact, solar technology is already used in a significant number of rural electrification projects all over the country....

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See also, Energy rationing 2: The Renewable Energy (RE) law