Government and Taxes: ra 9513

Showing posts with label ra 9513. Show all posts

Saturday, November 12, 2016

BWorld 90, Who should set the energy mix, government or consumers?

* This is my article in BusinessWorld last November 02, 2016.

This question seems to have a “default” answer: the government and it is time to revisit the premise of government being the central planning body that sets the Philippines’ energy mix.

The Energy Policy Development Program (EPDP) composed of mostly UP School of Economics (UPSE) faculty members as fellows and researchers produced their most recent paper, “Filipino 2040 Energy: Power Security and Competitiveness.” The 52-page long paper projects two scenarios for the Philippines until 2040, the strong/fast growth and slow/mediocre growth, and the projected energy demand and prices based on four policy options. Here are the projected cost of electricity by 2040 based on current technology and two Sensitivity Analysis (SA) that project the cost of variable renewable energy (VRE) on two scenarios. (see Table 1)

The numbers for policy #4 under the three scenarios above do not account yet for these two costs: (a) intermittency cost of VREs (possibility of frequent brownouts) and (b) grid integration cost of VREs (will require additional investment by NGCP). The EPDP paper noted these two costs:

“For example, a 16 GW wind turbine in Scotland requires a grid investment of £4 billion... In Britain, a 34% share of renewables in their generation and transmission imposes a likely cost of £6.8 billion a year, or an extra 38% increase.”

This EPDP paper was presented by lead author, Dr. Majah Ravago during the Stratbase-Albert del Rosario (ADRi) and Foundation for Economic Freedom (FEF) forum on “Affordable Electricity: a Requisite for Competitiveness” held at Oakwood in Mandaluyong City last Oct. 26.

As one of the two reactors during the event, I expressed my disagreement with some of the numbers presented, as indicated on the table.

Even under current technology, the price gap between policy #2 (the current energy mix) and policy #4 (being pushed under RA 9513 or Renewable Energy Act of 2008) by 2040 will be small.

In Germany’s experience of feed in tariff (FiT) for instance, the price and subsidies did not flatten or decrease, they only kept rising, endlessly. From €0.20 cents/kWh in 2000 to €0.42 by 2003, €0.88 by 2006, €1.31 by 2009, €3.53 by 2011, €5.28 by 2013, €6.24 by 2014, €6.35 this year and projected to further rise to €7.1 by 2017. A whooping 35.5x increase after 17 years.

I also mentioned the case of massive, state-wide blackout in South Australia last Sept. 28.

Some areas lost power for five hours, others ten while others for one week or more.

While Australia is 69% dependent on coal, especially the state of Victoria, the state of South Australia is heavily dependent on wind power. When the wind does not blow, wind turbines’ output is zero. When the wind blows too much like the big storm that day, many wind operators shut down and lock their wind turbines to prevent damage, and wind output was also zero, triggering a series of power trips that resulted in state-wide blackouts.

Below are actual electricity production and not just installed electric power capacity for selected economies in Asia Pacific in 2012.

The ADB’s Key Indicators 2016 report has yet to be released as of this writing. Note the wide disparity in energy mix in favor of coal for many of them (see Table 2). Those that are more dependent on natural gas are Thailand, Malaysia and Singapore (84.3%).

Note that all those countries that are more coal dependent than the Philippines have lower electricity prices than us except Australia because of the latter’s high grid or transmission charges, more than twice that of the Philippines.

Thus, if more coal reliance would result in cheaper, more stable, electricity supplies, why should the Philippine government -- through the Department of Energy (DoE), Energy Regulatory Commission, and even Congress -- impose regulations that will force us to have less coal power and instead, have more intermittent, unstable, expensive renewables?

So, who should set the optimal and consumers-oriented energy mix, the state or the public? The government or the consumers?

The obvious answer is the consumers; residential, commercial, agricultural, industrial consumers. They are the ones who will ultimately pay the monthly electricity bill, the ones who will suffer if brownouts become frequent.

Policy option #2 of EPDP should be pursued by the government. The DoE and Congress should step back and respect the consumers’ right to cheaper and stable electricity.

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Saturday, July 09, 2016

BWorld 70, Wind power firms corner billions of FIT money

* This is my article in BusinessWorld last Wednesday.

From an introductory price hike of 4.06 centavos/kWh of Feed In Tariff Allowance (FiT-All) in 2014, this subsidy scheme of guaranteed price for 20 years became 12.40 centavos/kWh in 2016. As more renewable energy power plants are added to the country, the cost of FiT-All will keep rising and it is safe to assume that this FiT-All might further rise to 20 centavos or more by 2017. And even consumers in Mindanao who are not participants of the Wholesale Electricity Spot Market (WESM) are paying for this.

Such is the abuse received by consumers nationwide via expensive electricity from subsidies to renewable energy (RE) companies. Last month, I wrote to the National Transmission Corporation (TransCo), a government corporation in charge of administering the FiT-All, and asked who among the RE developers received how much.

TransCo sent me a statement of cash flow, Receipts minus Disbursements = Fund Balance, and Fund Payable as of end-2015. I thanked them for the reply but that was not the information that I needed, so I called up the officer and asked why the list of who received how much was not sent. She said that they cannot release it to the public, implying confidentiality of the information. I wish that President Duterte will release that new Executive Order on Freedom of Information (FoI) very soon. The Department of Budget and Management (DBM) releases yearly data on how much government agencies received from taxpayers so why can’t TransCo release data on how much RE developers received from electricity consumers nationwide?

Last month, the Department of Energy (DoE) posted on its Web site the “List of Renewable Energy (RE) Plants with Certificate of Endorsement (CoE) to Energy Regulatory Commission (ERC) for Feed-in Tariff (FiT) Eligibility” as of June 20, 2016. My first question as to which RE companies received FiT has been answered. There are some RE developers who did not receive FiT.

By virtue of their enormity (MW capacity) compared to other RE developers, these companies are the potential main beneficiaries of expensive electricity policy provided by the RE Act of 2008 (RA 9513):

1. Burgos Wind Power Project (Phases 1 and 2) by EDC/Lopez group, 150 MW at P8.53/kWh

2. Caparispisan Wind Power Project by North Luzon RE Corp./Ayala group, 81 MW at P8.53/kWh

3. San Lorenzo Wind Power Project by Trans-Asia RE Corp./PHINMA group, 54 MW at P7.40/kWh

4. Pililla Wind Power Project by Alternergy Wind One Corp./Vince Perez, 54 MW at P7.40/kWh

5. Nabas Wind Power Project by PetroWind Energy, Inc., 36 MW at P7.40/kWh

6. Bangui Bay Wind Power Project Phase 3 by Northwind Power Development Corp./partly Ayala, 19 MW at P8.53/kWh

7. Cavite EcoZone Solar Power Project by Majestics Energy Corp., 41.3 MW at P9.68/kWh.

I only need to find out the answer to my second question: how much did other RE companies receive each? I went to the Energy Regulatory Commission (ERC) Web site and saw ERC Case No. 2015-216RC, the TransCo petition for FiT-All for 2016. The important factors and ingredients were there, so I began making my own estimates.

The FiT rates and installed capacity in MW for all RE developers already given by the DOE, I used the following factors and assumptions to construct a table of estimates.

a. Capacity factor -- derived using TransCo filings with ERC which are per technology basis.

b. Generation (MWh) -- derived from the capacity factor.

c. FiT Revenue -- FiT rate multiplied by the generation.

d. FiT Cost Recovery Revenue (FCRR) -- the amount that the RE firm got from WESM or the distribution utility (DU). This is derived using the average WESM rate per TransCo application to ERC. This amount may not be that accurate since the time of dispatch will not result to the average price.

e. FiT Differential (the basis of FiT-All) = FiT Revenue minus FCRR. For some power sources like wind plants, the calculated FiT Differential here may be under estimated since wind usually blows during off-peak hours period, and WESM prices are then below the average rate (see table).

Now these are just estimates and there could be some corrections or mistakes in the last four columns on the right, even in the capacity factor. The capacity factor is not constant or flat the whole year, some months and days are more windy than others, and some months and days are more cloudy than others and hence, affect the output of solar PV.

I wish to be corrected by TransCo if those numbers are wrong, perhaps they should release the correct numbers. Is it true that the Lopez and Ayala groups cornered nearly P5 billion from FiT in 2015 alone? The other companies like Trans-Asia/PHINMA, Alternergy, Hedcor/Aboitiz, they also enjoyed perks by several hundred millions of pesos each because of the unjust system of high, guaranteed price system under FiT.

On a related note, it is good that Mindanao does not have any of those expensive and pampered solar and wind plants that are primarily responsible for more expensive electricity in the country. Mindanao has more hydro, big hydro with no FiT and run of river hydro with small FiT of P5.90/kWh. Recently, Mindanao added more coal plants, which is the right thing to do. Stable, dispatchable, non-intermittent and cheaper coal power, that is what Mindanao and the rest of the country should have if we are to sustain fast growth. The move by the new DENR Secretary for anti-mining policy will adversely affect coal mining and coal power development in the country. This policy move should be checked and discontinued.

Bienvenido S. Oplas, Jr. is a Fellow of SEANET and Stratbase-ADRi, and head of Minimal Government Thinkers.

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Sunday, June 26, 2016

BWorld 66, Renewable portfolio standard and electricity prices

* This is my article in BusinessWorld last June 21, 2016.

The key to cheaper prices and/or good services is more competition among more players, more voluntary exchange, and not more price coercion by regulators. If buyers do not like the price of seller A, they can opt out and go to sellers B, C, and so on. Seller A is then pressured to lower his price to compete with other sellers.

The key to expensive prices and/or lousy services is more government regulation and curtailing voluntary exchange. Buyers are forced to buy from expensive sellers and opting out is not allowed. This happens in government-created monopolies like tricycle routes, electric cooperatives, or government-favored sectors like producers of new renewables like solar and wind power.

The Department of Energy (DoE) along with the United States Agency for International Development (USAID) conducted a public consultation last June 16 at Shangri-La at the Fort, Bonifacio Global City about the proposed or draft Department Circular (DC) on the Renewable Portfolio Standard (RPS). The activity was hurriedly organized and was not posted on the DoE’s Web site.

But I heard about it from a friend and then I wrote to DoE’s Mario Marasigan and asked if I could attend it and he said yes. Thank you Sir Mario.

Here is a quick backgrounder of the subject.

1. Under the Renewable Energy (RE) Act of 2008 (RA 9513), RPS is defined as a “policy that requires electricity suppliers to source an agreed portion of their energy supply from eligible RE resources.”

2. Under the Implementing Rules and Regulations (IRR), Section 4, RPS, “...Annual minimum incremental percentage of electricity sold by each RPS-mandated electricity industry participant which is required to be sourced from eligible RE Resources and which shall, in no case, be less than one percent (1%) of its annual energy demand over the next ten (10) years.”

3. Under the draft DC discussed by the DoE last June 16, Section 8. “The minimum annual increment in the RPS level shall be initially set at 2.15% to be applied to the actual total supply portfolio of the Mandated Participant in each grid for the previous year.”

4. Under the Annex table, RPS Calculation, also prepared by the DoE that day, the cumulative RE capacity that will be needed from 2016 to 2030 is a glaring 30,862 MW (30.86 GW) or an average of 2.06 GW/year increase for RE alone (see Table 1).

During the open forum, I asked about many consumers’ concern about expensive electricity. What would be the implication in pricing of the proposed RPS, if they impose a 1.5% annual marginal increment (AMI)? How about at 1.75% or at 2.15% (their proposed rate)? And if they target 30% renewables in the energy mix by 2030, or 32% or 35% (their proposed target), what would be the impact on electricity prices?

The feed in tariff (FIT) without RPS was already four centavos per kilowatt-hour (kWh) last year, 12 centavos per kWh this year, so with FIT + RPS next year, will it become 20 centavos? 25 centavos?

DoE officials answered that no study on price implications has been worked out yet and that it can come out later as the current focus is the mechanisms on how RPS will be implemented, including penalties for violators or non-implementers of RPS.

So it is a weird circular because both the DoE and the National Renewable Energy Board (NREB), the multi-stakeholder body that recommends policy options for the DoE, are pushing for a policy where they admittedly do not have a clear idea on the cost of implementation to energy consumers.

One thing that can be favorable for RPS though is that distribution utilities (DUs) will have more options from among renewable technologies -- biomass, waste to energy, geothermal, run of river hydro, impounded hydro, wind, solar, ocean, hybrid systems, others -- and choose those that are least cost.

The above RPS and RE targets by 2030 are not practical and not viable because the Philippines is still way below many of its neighbors in power generation and we need to grow fast to sustain the economic momentum of recent years and create more businesses, more jobs to more people.

People who push for higher renewables in the national energy mix want to push out coal power as much or as soon as possible. This is a day-dream and illusionary goal because of the big role that coal power contributes to many industrialized and emerging Asian economies. From 2000 to 2015, Indonesia, Malaysia and Vietnam ramped up their coal power capacity from 375% to 609%. The Philippines’ 11.4 gigawatt (GW) coal capacity in 2015 was only one-half that of Vietnam’s 22 GW, only one-third that of Taiwan’s and nearly one-eighth of South Korea’s.

For Table 2, definition of the following terms:

a. 1 terawatt (TW) = 1,000 gigawatt (GW) = 1,000,000 megawatt (MW)

b. MTOE = Million tons of oil equivalent

c. 1 MTOE = produces about 4.4 terawatt-hour (TWh) of electricity in a modern power station.

The share of wind and solar in total electricity production in the Philippines is small, only about 0.8% of the total in 2015, despite their installed power share of around 2.5%-3% of total installed capacity. The explanation for this is the low capacity factor of these new renewables.

Some people insist that there is already “grid parity” by the new renewables with coal and natural gas, that “solar is cheaper than coal” now. If this is true, then why are they asking for another round of energy coercion through high RPS, on top of existing coercions on FIT (guaranteed price for 20 years) + priority dispatch to the grid + fiscal incentives?

A developing country like the Philippines should be given more leeway in building up cheaper and stable energy sources.

Energy poverty and expensive electricity result in lack of jobs because energy-intensive industries and companies would avoid the Philippines and go to energy-stable and competitively-priced economies like Malaysia, Indonesia, Vietnam and Thailand.

The DoE should either implement the minimum 1% of AMI in RPS, or further delay RPS implementation until the price implications are studied and the consumers are not further burdened with higher prices and unstable electricity supply.

Bienvenido S. Oplas, Jr. is a Fellow of SEANET and Stratbase-ADRi, and heads a free market think tank, Minimal Government Thinkers.

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Saturday, April 09, 2016

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

Wednesday, March 30, 2016

Sensational libertarians and solar power in the Visayas

I dislike irresponsible, sensational, alarmism journalism. And this article exactly belongs to that category, and it's from The Libertarian, sus ginoo. "Blackouts across the Philippines", when? what month and day?

http://thelibertarianrepublic.com/solar-power-caused-blackouts-across-the-philippines-and-its-going-to-get-worse/

The article said,

“Solar power is wrecking the electrical grid in the Philippines, and the blackouts are only going to get worse, according to reports by power grid operators published Monday.

Data from the National Grid Corporation of the Philippines (NGCP) showed that solar power has caused ‘stress’ on the power grid, leading to brownouts and blackouts. The data show that solar power is frying the grid by producing either too much, or too little electricity, triggering failures and blackouts in the Visayas island group of the Philippines.”

"wrecking the electrical grid in the Philippines, and the blackouts are only going to get worse", wrong on two counts.

1. Only the Visayas grid, not the entire country.

2. Actual blackouts due to solar power in Negros I think has not happened yet. It may trigger but not caused yet.

That lousy article from The Libertarian was based from another lousy article from Renewable Energy which says,

"In Visayas,... too much solar on the grid may lead to blackouts during the election period, which begins today, March 28, and lasts until May 7."

Wrong on 3 counts.

1. It's not the whole Visayas and its 3 regions, but only in Negros island, where there are lots of solar farms.

2. Campaign period, not election period. The former is 90 days for national candidates, 45 days for local candidates. Election is only 1 day, not 90 or 45 days.

3. Official campaign period for locals started March 25, not 28. But the candidates did not go full blast on the 25th as it fell on a Holy Week and did not want to be accused of being epal.

Another source of that lousy article from The Libertarian is the Manila Bulletin, but the MB news item was careful and precise in the title "could trigger blackouts" and not "caused blackouts." http://www.mb.com.ph/solar-overcapacity-could-trigger-visayas-blackouts/

Irresponsible, alarmist articles from libertarian camp is one way to lose credibility. I told some Filipino libertarian friends not to be gullible and irresponsible as the people and groups that we criticize.

The RE law (RA 9513) was enacted in 2008, Gloria Arroyo's time. The feed in tariff (FIT) was granted only in mid-2012, and was finally implemented in 2015. There is not a single administration to blame as ALL admins -- before, during and after the current Aquino admin -- will be singing halleluiah to "more expensive and unstable electricity via renewables please."

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Saturday, November 14, 2015

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;

(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

Saturday, 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

Saturday, March 14, 2015

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;

(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.

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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

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