Energy 62, Feed in tariff means more expensive electricity

* This is my article in SPARK by ADRi last April  06, 2016
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The Philippines has the unhealthy label of having the “second or third most expensive electricity prices in Asia” next to Japan and Singapore. This is not a good news for energy-intensive industries like manufacturing and hotels where electricity demand can be running 24/7.

With ASEAN economic integration, many big energy-intensive industries will be put up in cheaper-electricity countries like Vietnam, Thailand, Malaysia, Indonesia and Cambodia, then export to the Philippines at zero tariff. That means potential job creation that fails to materialize here.

It is important then that all succeeding government energy policies should be geared towards reducing the prices of electricity. Unfortunately, we are doing the opposite with the implementation of the feed in  tariff (FIT), priority dispatch, and  renewable portfolio standards (RPS) under the Renewable Energy law of 2008 (RA 9513).

FIT means guaranteed fixed price for solar, wind, biomass and run-of-river hydro for 20 years. FIT for solar and wind in particular are 2x current average prices of conventional energy sources. Priority dispatch means even if cheaper conventional energy is available, expensive renewables will be prioritized in the grid. And RPS is the minimum percentage of generation that should come from eligible RE resources.

Let us briefly review the  case of Germany – #1 in solar installation  in the planet, #3 in wind after the  US and China, and perhaps having the most gallant policies  in FIT, other subsidies, and priority dispatch of renewables in the industrialized world.

Figure 1. Electricity prices in selected rich countries, 2015.

Source: Gilbert Kreijger, Stefan Theil, Allison Williams,  “How to Kill an Industry”, Handelblatt, 24 March 2016, https://global.handelsblatt.com/edition/396/ressort/companies-markets/article/how-to-kill-an-industry

So Germany has the most expensive residential electricity tariff and second most expensive in industrial tariff next to Japan. The authors further made these observations:

* Ordinary consumers saw their electricity bills double since the introduction in 2000 of RE; total cost has risen from €0.9 billion in 2000 to €23.7 billion last year and will likely hit €25.5 billion this year.

* Some 350,000 German households have had their power cut off, up 13 percent from 2011. Shocking inefficiency with RE producing €25 billion in electricity-bill surcharges this year will only be worth €3.6 billion on the market.

* Green-power surcharge on electricity bills already cost consumers €188 billion since it was first introduced in 2000 – or €4,700 for each of the country’s 40 million households. The nuclear shutdown will cost another €149 billion by 2035, according to a Stuttgart University study.

How expensive is FIT in Germany that they are among the factors why a number of that country’s top manufacturing and energy-intensive firms like Siemens and BASF are moving or have already moved their production facilities abroad?

Figure 2. FIT rates in Germany, lessons for the Philippines

Source for Germany: No Tricks Zone, Germany’s Electricity Price More Than Doubles…Electrocuting Consumers And Markets, December 07, 2014.

In 2003 in Germany, FIT constituted only 2.4% of the electricity price. By 2011, it ballooned to 14% and further up to 21.4% by 2014. In the Philippines, there is a huge % increase in the FIT-Allowance (or FIT-ALL) from 2015 to 2016, tripling FIT-ALL rates in just one year.

The RE law or RA 9513 was enacted in December 2008 but FIT was only granted in July 20012 mainly due to public opposition to more expensive electricity, and was finally implemented in February 2015. Starting this April 2016, the FIT-ALL will rise to 12.40 centavos/kWh. Households that consume up to 200 kWh a month will pay an extra P24.80. Households that consume up to 300 kWh a month will pay an extra P37.20/month.

Aside from FIT, priority dispatch and RPS, the RE law gives many other subsidies or relaxation of taxation to renewable producers, privileges that are denied to producers of conventional but cheaper power sources. Among these additional sweetheart deals contained in Section 7 of RA 9513 are: income tax holiday for 7 years, duty-free importation of RE machinery, equipment and materials within the first 10 years, special realty tax rates, net operating loss carry over (NOLCO) for the next 7 years, 10% corporate tax rate (not 30%), and tax exemption of carbon credits.

Renewables are good and useful because they help expand power capacity in the country. But the FIT, other subsidies and privileges given to them are not, they contribute to more expensive electricity prices and grid-destabilizing power supply that go up or down within minutes.

If cheaper electricity, more stable power supply, and more investments and job creation are to be the priority for the Philippines, we should allow market pricing of energy sources and in the grid dispatch. The expanded MW allocation for solar, from the original 50 MW to 500 MW, should be recalled. There are pressure and lobbying to further raise solar allocation to 2,000 MW to be eligible to FIT.

Compromise measures would look like these: (1) revert the FIT-eligible solar allocation from 500 MW back to 50 MW, or down to 250 MW but retain priority dispatch for solar at market rates for up to 1,000 MW. (2) revert the FIT-eligible wind allocation from 400 MW back to the original 20 MW, but retain priority dispatch for wind at market rates up to 1,000 MW.

Biomass and run-of-river hydro do not create much problem now compared to solar and wind. So the existing FIT-eligible allocation of 250 MW for both can be retained. Additional pressures to expand this capacity should be resisted too.

  

Bienvenido S. Oplas, Jr. is a Fellow of the Albert del Rosario Institute, a BusinessWorld columnist, and President of Minimal Government Thinkers. minimalgovernment@gmail.com.

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See also:
Energy 59, Cheap oil and the OFWs, March 07, 2016
Energy 60, PH solar companies, PagIBIG loan for solar, March 12, 2016 
Energy 61, EPDP lecture on PH power projections by 2040, April01, 2016

BWorld 25, Feed in tariff means expensive electricity, November 14, 2015 

BWorld 47, Renewable energy and the illusion of merit order effect, March 06, 2016 

BWorld 51, WESM as market-oriented, PEMC as bureaucracy-oriented, March 25, 2016 

Sensational libertarians and solar power in the Visayas, March 30, 2016

BWorld 25, Feed in tariff means expensive electricity

* This is my article in BusinessWorld yesterday, November 13.

Expensive electricity and unstable power supply are two big concerns for many sectors and businesses in the Philippines. These problems have adverse economic and social impact for the people.

Electricity-intensive sectors like hotels, malls and manufacturing are forced to raise the prices of their products and services. Many local government units cut on the use of street lights. When many streets are dark at night, there are more crimes and road accidents that happen, and it is the poor who are likely to be victimized. It is them who walk on dark streets, where thieves, rapists, and murderers hide.

Policies and measures therefore, that further raise our already expensive electricity should be avoided. Unfortunately, the reverse is happening, as certain business sectors and the Department of Energy (DoE) expand those policies that contribute to more expensive electricity. Like the feed-in tariff (FIT) under the Renewable Energy Act of 2008 (Republic Act No. 9513; RA).

After delaying the implementation of FIT from 2009 to 2011, the Energy Regulatory Commission was pressured to grant the renewables lobby in July 2012, but at a lower rate as requested by the National Renewable Energy Board (NREB). (See Table 1)

Of the four new renewables (the “old renewables” are geothermal and big hydro), solar is the most problematic. From the original 50-megawatt (MW) allocation, it was raised by former DoE Secretary Carlos Petilla to 500 MW, in exchange for lower FIT for the next 450 MW.

Then the Philippine Solar Power Alliance, the main solar lobbying group, sent a letter to the DoE last June asking to expand the solar FIT allocation from an already expanded 500 MW to 2,000 MW -- a 1,500-MW hike in the allocation.

This will make expensive electricity a bigger problem in the future. The FIT allowance has been collected since February at P0.0406/kWh. There are projections that this will rise to P0.13/kWh or more by 2016.

FIT has gone up and continues to go up in Germany, Denmark, Spain, United Kingdom, and other European countries.

Germany has one of the world’s most elaborate renewables subsidy schemes. The feed in act (similar to our FIT) has been rising as more renewables, wind and solar especially, were 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. (See Table 2)

From a negligible 2.4% of total electricity price in 2003 up to 21.4% in 2014, the FIT is now a major cost contributor to expensive electricity in Germany which is now second highest in Europe, trailing Denmark.

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.

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.

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 seven 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 to be carried for the next seven 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 writer 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 ever rising electricity prices in the country. The case of Germany is already a guide for us.

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.

Bienvenido S. Oplas, Jr. heads the free market think tank, Minimal Government Thinkers, Inc., and a Fellow of the South East Asia Network for Development (SEANET).

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See also:

BWorld 21, More internet use means lesser corruption?, October 31, 2015 

BWorld 22, WESM, PEMC and search for competitive electricity prices, November 05, 2015 
BWorld 23, ASEAN trade bureaucracies and Doing Business 2016 Report, November 07, 2015 
BWorld 24, Traffic and Newton's 3 laws of motion, November 12, 2015

Energy Econ 37, More on Wind Power in Germany, June 07 2015 

Energy Econ 38, Solar Power in Germany and in Cadiz City, Negros Occidental, June 15, 2015 

Energy Econ 39, the UPSE-Ayala forum on the PH power sector, July 25, 2015

Energy 47, Low capacity factor of wind, solar and biomass plants, November 04, 2015

Energy Econ 40, DOE Circular No. DC2015-06-0008

The Department of Energy (DOE) issued Circular No. DC2015-06-0008, Mandating All Distribution Utilities to undergo CSP) in securing PSA, dated June 11, 2015 and signed by resigned DOE Sec. Carlos Jericho "Icot" Petilla.

So all Distribution Utilities (DUs) in the country would now have to go through competitive bidding in securing their power supply contracts, abandon the old and existing bilateral supply contracts. A third person/party shall also be appointed by the DOE/ERC, and NEA to facilitate the bidding process.

I think it  is a reaction to (a) complaints of "sweetheart deals" between some DUs and electric coops like Meralco, and some power generation companies. and (b) DUs which have their own power generating plants too, making the other gencos that are not affiliated or controlled by the DUs at a disadvantage. Say Meralco  or Batangas Electric Coop or Cagayan Electric Coop also own a big power plant/s. That DU will naturally prioritize getting power from its own genco even if the price is higher than the other independent power producers (IPPs).. And that means higher electricity prices for the pubic but greater revenues/profit for the DU + genco partner.

Here is an example, I took from the DOE website. I am not sure if Isabela Power Corp. is also owned or affiliated with Isabela Electric Cooperative.

Thus, the DOE attempts to protect the public from further high electricity prices. But the DUs can also reason out that RA 9513 or the RE Act of 2008 also forces them to buy from more expensive renewables with guaranteed prices via feed in tariff (FIT). So why would the DOE now prevent them from prioritizing buying from their partner or DU-owned power plant/s?

That is why I do not support the RE act and the mandatory, forcible dispatch by the NGCP of power from new renewables like wind and solar because it sets a precedent, forcing DUs to buy from expensive power sources.

Although these suspicions have some valid grounds, the main problem of course is the geographical monopoly power of DUs and electric coops. Electricity distribution is among the "public utilities" that the PH Constitution says should be in  the hands of majority or fully Filipino hands and capital. By virtue of their being geographical monopolies via the Constitution  and Congressional franchise law, abuse of power can happen anytime. Hence, another reason why the PH constitution  should be amended to break this type of monopolies. Government should get  out creating monopolies regardless of bleeding heart arguments.

Meanwhile, the Energy Policy and Development Program (EPDP) will hold this forum on Friday, August 7.  

The speakers will be DOE OIC Secretary Zenaida Y. Monsada, Prof. Raul V. Fabella and Prof. Ruperto P. Alonzo of the UP School of Economics (UPSE).  OIC Secretary Monsada will talk about the above Circular while  Profs.  Fabella and Alonzo will discuss broad elements of a market-based policy on power supply contracting by DUs.  Then a panel of reactors from the private sector.

It is a by-invite forum only, not posted in the EPDP website. I will attend.

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See also: 

Energy Econ 36, The Visayas grid and coal power plant in Negros, May 31, 2015 

Energy Econ 37, More on Wind Power in Germany, June 07 2015 

Energy Econ 38, Solar Power in Germany and in Cadiz City, Negros Occidental, June 15, 2015 

Energy Econ 39, the UPSE-Ayala forum on the PH power sector, July 25, 2015

Energy Econ 39, the UPSE-Ayala forum on the PH power sector

Last Thursday, July 23, I attended this forum held at the Ayala Museum, Makati. Main speaker was Atty. Raphael Perpetuo "Popo" M. Lotilla, former DOE Secretary and Chairman, Center for the Advancement of Trade Integration and Facilitation (CATIF). Discussants and reactors were (1) Mr. Vicente S. Perez, Jr., former DOE Secretary, President of ALTERNERGY and Chairman of WWF-Philippines, (2) Mr. John Eric T. Francia, President & CEO of Ayala Corp. (AC) Energy Holdings, Inc., and (3) Dr. Peter Lee U,Dean, School of Economics, University of Asia and the Pacific (UAP).

This photo from the UPSE website; from left: Perez, Lotilla, Francia, Lee U.

Popo talked about the various provisions of the Electric Power Industry Reform Act (EPIRA) law of 2001, in particular the Retail Competition and Open Access (RCOA), the Energy Regulatory Commission (ERC), Wholesale Electricity Spot Market (WESM), etc.

It was a full-packed room, as usual. Many participants are from the energy sector, public and private. Mr. Jaime Zobel de Ayala (JAZA) was there, also ERC Chairman Atty. Juan, people from San Miguel Power, Aboitiz Power, Meralco, etc. Many faculty members of UPSE were there too. And former PM Cesar Virata,

During the open forum, I spoke, I said that I agree with the speakers that EPIRA does not need amendment or abolition. It's the renewables cronyism law, Renewable Energy (RE) Act of 2008 that needs amendment or abolition.

Vince Perez and  others in the audience I think raised their eyebrows and wondered, so I repeated it's renewables cronyism. In particular, the feed in tariff (FIT) and renewable portfolio standards (RPS) provisions. FIT is guaranteed minimum price for 20 years. In classic and orig capitalism, there is no such thing as "guaranteed" price and profit. Prices rise and fall due to dynamics in supply and demand. If there are lots of power plants running at the same time relative to power demand, the price shd go down. By how much, well down to P0.50/kWh perhaps during midnight or long holidays.

RPS is mandatory use by the national grid through NGCP. Thus, if good wind comes in at midnight, wind power produce more power at P8+/kWh (FIT priice) but coal can also provide power at P0.50 or P1/kWh that same time, NGCP is arm-twisted, coerced by the law to take the more expensive wind power and reject cheaper power from coal on that hour/s.

That is hypocrisy. We should have cheap electricity because we already have the 2nd or 3rd most expensive electricity in Asia. Yet RE law mandates more expensive electricity on top of already high prices.

Then I specifically asked Vince about my opinion  that he has conflict of interest in the sector. He is the Chairman of WWF-PH that explicitly lobbied for FIT/expensive electricity implementation, and his companies benefit from those FIT and RPS. RE law was enacted in December 2008 but FIT was implemented only by mid-2012 because many sectors and energy consumers opposed even more expensive electricity.

Two more questions from the floor, one about nuke power. Then Popo replied to the two questions. Vince replied to  my question that he has no conflict of interest because RE law was enacted when he was no longer the DOE Secretary.

I did not make a follow up question because there were many other hands raised to ask questions or make comments. Vince simply did not answer my question and my point above I think, remains valid.

Meanwhile, the reasons why I agree with the speakers that EPIRA does not need not amendment now, or even abolition, among others:

1. It allowed privatization of losing, low capacity National Power Corp. (NPC) power plants, especially hydro.

2. This drastically reduced NPC losses and public debt, before something like P100B or P150B a year, NPC has near-zero capacity to pay those ever-rising debt, it can only add and exacerbate it. Who will pay those huge NPC debts? You, me and our children through taxes and more taxes.

3. It allowed more players, more competition in the power generation sector. Before, there was only NPC, Lopezes and some Aboitiz power. Now there are San Miguel, Trans Asia, KEPCO, SN Power, GN Power, AES, AC, Salcon, GBPC, and about dozen-plus others, aside from the Lopez and Aboitiz companies.

4. It allowed retail competition and open access (RCOA). If you have a 1 MW power plant, say a small hydro in Montalban or Marikina, and some villages in Marikina or UP-Ateneo area want to buy your power output, you can bypass Meralco, bypass NGCP, etc. You pay fewer fees (no transmission fee, no distribution fee, no universal charges too, I think).

5. Compare Mindanao hydro, ALL are still under the government/NPC, and they have frequent "Earth Hours" there. In Luzon, almost all hydro plants were privatized, government made money from privatization proceeds which helped reduce the public debt, while improving the capacity factor of those plants. Ex. Magat hydro in Isabela, 360 MW. Under NPC, it would be VERY lucky if it can produce 300 or even 250 MW. When Magat was bought by a Norwegian power company in partnership with Aboitiz power, its capacity went up to 100%, full 360 MW. The Norwegians are perhaps #1 in the planet when it comes to hydro power tech. Later, Magat's capacity even improved to 380 MW.

Private power plants, if they run too low against their capacity, will be losing money, something they cannot afford. On the other hand, losing power plants under NPC was not so much a concern of NPC officials and employees, they were assured of funding (their salaries, travels, trainings, etc.) from the budget, yearly.

  

After the forum, meals. From left: Prof. Ruperto "Ruping" Alonzo, retired UPSE faculty and former NEDA Dep. Dir. General, me, Popo Lotilla (a former dormmate at Narra dorm, UP Diliman in the 80s), Simplicio Endaya, a fellow UPSE alumni, and Dr. Epictetus "Lingling" Patalinghug, Prof. at UP Coll. of Business Administration, trustee of ADR Institute.

Ninong Ruping and Lingling are my former professors in UP, and among my wedding sponsors. :-)

I also talked briefly to Eric Francia. I think I told him that the Ayala Corp. (AC) should not ask for energy subsidies. He replied that they have a diversified energy sources of power generation.

The main reason why AC should NOT ask for subsidies (Eric, Romy B., feel free to  forward this to Mr. JAZA :-)) is that AC is a net energy consumer, not energy producer. Its core business is real estate, those expensive and glittering malls, residential and office condo, sprawling expensive subdivisions, etc. Thus, it should lobby for cheaper electricity, not expensive power. When it develops renewables like wind and power and get subsidies, it is contributing to more expensive electricity. The Ayalas (unlike the other big Spanish families and hacienderos) were able to build their huge business empire because of innovation, not because of political cronyism. So why would it ask for renewables cronyism and favoritism now?

They can develop renewables like putting up solar roof on their malls like what SM North Edsa has done, mainly to augment their power needs, or part of their CSR publicity, WITHOUT asking for subsidies. I heard that they lobbied for retroactive FIT for an old wind farm they bought but was built before RE law (RA 9513) was enacted in 2008. Will check how true is this story.

Ok, that "subsidize renewables to save the planet" and "man-made" warming/climate change drama. Here's the chart again of planet Earth's long-term climate history.

The campaigners and lobbyists of "more expensive electricity to save the planet" are of course dishonest. The UN, Al Gore, WWF, Greenpeace, Oxfam, etc. They make huge money by fooling the public, and they get more donations from the public, more tax money from governments.

It is simply wrong and dishonest to say that:

1. There is only "man-made" warming/CC, no or little "nature-made" warming/CC;
2. There is only global warming, no global cooling that can happen after GW;
3. There is only "unprecedented" warming, no Medieval warm period (MWP), Roman warm period (RWP), other warm periods in the past while there was not a single SUV or coal power plant;
4. Less rain or more rain, less flood or  more flood, less storms or more storms, less snow or more snow, less dogs and more dogs, they are all proof of "man-made" CC.

So ALL those alibi and drama for expensive electricity via subsidies to wind and solar "to save the planet" have no justification.

Trivia: I knew that the forum would be on July 23, but I thought it was at 1:30pm, so I went to the office that day in polo shirt, jeans/maong and rubber shoes. When I checked again the event around 9:20am, it said the program would start at 9:30am! No time to go home to change dress and shoes, I went there in the most casual, informal attire. I arrived when Popo was already speaking, just stood at the back.  Later I sat in the front chairs, beside NEDA Dir. Gen. and my former teacher in UPSE, Dr. Arsenio M. Balisacan.

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See also: 

Energy 35: Coal Power Plant in Cadiz City, Negros Occidental, April 14, 2015

Energy Econ 36, The Visayas grid and coal power plant in Negros, May 31, 2015 

Energy Econ 37, More on Wind Power in Germany, June 07 2015 

Energy Econ 38, Solar Power in Germany and in Cadiz City, Negros Occidental, June 15, 2015

Market Reforms in the 2016 Elections

A friend and  fellow UPSE alumni, Gary, posted in our SE alumni ygroups, a crowd-sourcing of reform agenda for the next President in 2016. He asked us to suggest top three economic initiatives that we believe would be real game-changers for the country. They could be new reforms, or reversals of current policies. Can be outrageous as long as they're not just motherhood and apple pie statements (like "build more infrastructure"). Also explain the world view behind them and practical action agenda to make them happen.

Gary started with his own three:

i. Amend the Constitution to allow totally unrestricted foreign economic participation (investment and labor).

ii. Abrogate land reform and redirect the buy-out funds elsewhere in agriculture.

iii. Abolish the minimum wage (or at least allow people to opt out).

The underlying worldview: The PH now enjoys good macro and fiscal fundamentals thanks only to four reasons: OFW's, BPO, EVAT reform, and a conservative BSP. The problem is, all that liquidity does not automatically translate into productivity gains, which by any economic theory is the only way to enlarge the economic pie instead of just endlessly redistributing it. My suggestions help us get there.

Action agendas: On (i) Charter change in any of its possible forms. On (ii) and (iii), legislative initiatives backed by a lot of media campaigning and political lobbying. And, hopefully, adoption into a campaign platform and/or governance agenda.

I support Gary’s 3 proposals. Have LESS government restrictions and prohibitions, it should NOT restrict (1) foreign investments and  competition, (2) big land ownership, especially corporate farming, and (3) free contract between employers and employees.

Investment (and trade) protectionism, endless and no timetable agrarian reform, endless government-imposed minimum wage -- all are social engineering by lovers of big and intrusive government.

Below are my top 3 reform agenda:

1. Cut income tax, personal  and corporate, max 15% or 18%. Indonesia’s President Jokowi has joined tax competition in  Asia, they cut their income tax from about 25% to 17% (Singapore level).

2. Unilateral trade liberalization, both goods and services. In rice trading in particular, remove NFA marketing and trading function, regulatory function only. Privatize its huge and many warehouses, trucks, etc., proceeds to be used to reduce its huge public debt.

3. Abrogate or significantly amend the Renewable Energy (RE) Act of 2008 (RA 9513), the renewables cronyism law. Extortionist provisions like the feed in tariff (FIT) and renewable portfolio standards (RPS) should be removed. The PH has the 2nd or 3rd most expensive electricity prices in Asia, the RE law will make  it even more expensive.

Example of how stupid that law is: Say midnight of any day, coal power plant will offer power at only P0.50/kWh or even less for a few MW, then wind power comes also with FIT or guaranteed minimum of P8+/kWh. The national grid (NGCP) is forced, coerced and arm-twisted by the law to dispatch power from expensive wind and turn  down the cheap power offered by a coal plant. Wind and solar power are cronies (solar FIT is P9+/kWh).

Some LGUs have dark  streets because electricity is expensive. And we know what often happens when streets are dark -- more vehicular accidents, more crimes, more death and injuries to people. These are real dangers to people’s lives and their properties, more real dangers than that far out “man-made” climate change of more rain and less rain, more flood and  less flood, more storms and less storms, more dogs  and less dogs.

About Makati, here are some of my observations:

1. High local taxes and fees. I saw a business permit of a start up, small office in  Makati.  Above photo is barangay permit + business plate, P1,600 + P300, total P1,900, barangay alone. Lower photo, Makati City Hall’s permits and fees, P23,785.

Not included are BIR, SSS, SEC, other. fees. Also not included are rumored extortion by some  LGU officials if one does not know enough high officials inside. The business has not started yet and the taxes and fees are already high. Then when the enterprise starts operating, there are monthly payments to the BIR, SSS, PhilHealth, PagIBIG.

2. Lots of Nos and Prohibitions. Which are signs of a lover of BIG government. Vans that bring ordinary office workers from their houses to Ayala avenue are being apprehended left and right. These people have no cars, or may have cars but are tired to drive in heavy traffic. The alternative is 3-4 rides from house to makati, one way, meaning 6-8 rides a day. If one wears corporate attire, or carrying a laptop or important documents, then ride a tricycle, then jeepney or bus, then squeeze in another bus or MRT, then  take another jeepney ride. Repeat the ordeal going home. The aircon vans ("colorum" daw) are market solutions to the hassles of driving in heavy traffic, or  taking 6-8 rides a day. Yet many of these vans are prohibited and are flagged down, harassed and penalized.  

3. Many lousy welfarist programs advertised in Ayala pedestrian underpasses -- free movies daily, free vitamins, supplements, monthly, etc. for  senior citizens,  Rich or poor can  avail of these welfarist programs.

Compare #1 and #3, over-taxing people and entrepreneurs even if they have other personal and household needs, part of the money to be used for movies and free vitamins even if the senior citizens are economically well-off.

Energy 34: Feed in Tariff Implementation in the Philippines

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

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

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.

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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

Energy Econ 31: Coal, Renewables and Possible Blackouts in Germany, December 08, 2014 

Energy 32: Is the PH Power Supply Ready for the AEC?, January 17, 2015 

Energy 33: Renewables Cronyism, Germany and UK Cases, January 26, 2015

Energy 33: Renewables Cronyism, Germany and UK Cases

Last Thursday afternoon, I gave two lectures in one class in Ateneo handled by my friend, Joey Sescon. The first is about renewables cronyism, the second about cheap oil. There were many questions and reactions on the first paper, so I presented it again in another class, also handled by Joey.

Before presenting the paper, I mentioned that I just came from Nepal. And at this month of the year, brownouts in certain parts of Kathmandu is up to 18 hours a day. The country relies heavily on hydro power and when the ice are still up  there in  the  mountains, not yet melted because it is winter, then  the  capacity of hydro power plants is very limited.

My six points outline:

1. Global energy mix

2. Generation cost, Electricity prices

3. Germany Case

4. UK Case

5. No climate basis for renewables cronyism

6. Conclusions

So despite decades of favoritism and subsidies to renewables by many governments especially in Europe, the share to total energy mix and electricity generation remains very small until this decade.

Just one major explanation: wind and solar are simply costly. Their energy density is low, their reliability and stability is low because they are intermittent. When the  wind  does not blow, when  the Sun does not show up, electricity output is zero, even on days and hours that people want electricity.

When I went to south Sweden in 2003, I landed at Copenhagen airport in Denmark, then travelled by train to Malmo, then Lund. Before the plane landed, I saw many windmills on the sea in Denmark, the offshore windmills. They looked cute.

Europe being a very modern continent, and Germany and UK being highly industrialized countries, and  yet there are stories  and reports of “EU risks blackout”, a “dark continent”, and “impossible green  dream”.

In developed Asia like Hong Kong (electricity, 71% from coal, 29% from natural gas, zero from renewables; Singapore 78% from natural gas and 18% from oil, very small from renewables (as of 2011, from ADB’’s Key Indicators 2014) ); S. Korea and  Japan, the words “blackout” or brownout” or “dark continent” are never heard. They have huge, stable and reliable energy supply, at cheap  prices, their energy policies have not been hijacked by green  socialism yet.

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

Energy Econ 10: Climate Alarmism and FIT for Renewables

* This is my article today in thelobbyist.biz.
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One tool used by the campaigners of “man-made” or anthropogenic global warming (AGW) and its cousin anthropogenic climate change (ACC), is to produce various climate models that show only one thing – an ever-rising global temperature for the planet until 2100 and beyond. Thus, to prevent or limit that from happening, global energy consumption from fossil fuels that contribute to rising carbon dioxide (CO2) level in the atmosphere should be drastically regulated, if not controlled.

How truthful and valid are those UN IPCC climate models’ guesses and projections, that have become basis of many environmental and energy policies in many countries?

Well, the short answer is that they are largely invalid and highly exaggerated, when compared to actual data of the planet’s temperature. For instance, the models projected an average of about 1.0 C warmer than usual for 2013. But as of end-May 2013, we were only 0.07 C warmer than usual, and it is a  declining trend.

Figure 1. Temperature projections vs. actual, 1979-2013

Source: Dr. Roy Spencer, EPIC FAIL: 73 Climate Models vs. Observations for Tropical Tropospheric Temperature, June 4^th 2013

After many governments have poured lots of taxpayers' and energy consumers' money to wind and solar power around the world for many years and decades, these renewables have contributed only 0.5 percent and 0.06 percent respectively, to global energy consumption.

Figure 2. World energy consumption by source, 2010

Source: Total world energy consumption by source 2010, from REN21 Renewables 2012 Global Status Report.
Reposted in WUWT, A LOL ! press release on renewable energy from wishful thinkers at the University of Delaware, December 10, 2012

Why is this so?  Table below provides an explicit answer – the cheapest energy sources are natural gas, followed by geothermal, hydro, conventional coal, nuclear, and biomass. The renewables like offshore wind and solar PV and solar thermal remain as immature technologies that are very costly, and yet are imposed to the people via additional charges to electricity consumers.

Figure 3. Estimated levelized cost of new generation resources, US, plants entering service in 2018

(2011 $/megawatthour)

Source: http://www.eia.gov/forecasts/aeo/electricity_generation.cfm

In the Philippines, the Renewable Energy (RE) Act of 2008 (RA 9513) has imposed electricity cost-raising provisions like the feed in tariff (FIT) and renewable portfolio standards (RPS).  FIT is additional charge to energy consumers and given to RE power suppliers, a form of indirect tax. RPS is a system requiring electricity distributors to source a certain minimum of their energy supply to come from eligible RE resources.

Below is the rate of more expensive electricity for Filipino energy consumers. Although rate approved by the ERC is lower than those proposed by the National Renewable Energy Board (NREB), another bureaucracy created under RA 9513, these rates will still slam energy consumers in the country.

Figure 4. FIT for renewables, Philippines, Pesos per kilowatt hour

	NREB Proposed	ERC Approved
Hydro, run of river	6.15	5.90
Biomass	7.00	6.63
Wind	10.37	8.53
Solar	17.95	9.68

Source: Energy Regulatory Commission (ERC), rates approved July 27, 2012

Climate change is true. Climate changes from warming to cooling to warming to cooling, in endless, natural cycles. Global warming was true, it did happen during the Roman period, Medieval Warm Period (MWP), last century's warming, see again Figure 3 above. Global cooling is also true, it did happen like during the Little Ice Age (LIA) during the Maundeer Minimum and Dalton Minimum, and is happening now.

The terms "climate denier" and “global warming denier” are idiotic statements. Climate change is true, warming is over, it is now global cooling. But some people do not want to recognize cooling, only warming. They do not want to recognize "nature made" CC, only "man-made" CC.

So if CC is natural and will happen anyway with or without humans, with or without SUVs or bicycles, what is the point of the various “fight CC” bureaucracies, programs and global meetings created by many governments and the UN?

What governments should do is to recognize the cooling phase of the planet and thus, prepare for more heavy rains, more debilitating floods and soil erosion. Once they recognize this, then the most immediate action is to undertake large-scale dredging of sewerage system, creeks, rivers and lakes. This will take huge amount of public money, but it is a more useful public spending than creating more climate bureaucracies and sending many climate officials to many and frequent global climate junkets.

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See also:
Energy Econ 6: Intolerance in Anti-Coal Hysteria, Cadiz Coal Project, September 17, 2012.
Energy Econ 7: Renewables, FIT, RPS and Climate, September 24, 2012 
Energy Econ 8: More Intolerance by the Anti-Coal Camp, September 27, 2012 
Energy Econ 9: Blowin in the Wind Folly, April 17, 2013