[PHOTO AT LEFT - RENEWABLE ENERGY CONFERENCE: President Aquino keynotes the Renewable Energy Conference and Expo Manila 2010 held at a hotel in Makati on December 2, 2010. The President vowed to intensify the development and use of renewable sources of energy, such as hydro, solar, and wind power in his determined bid to solve the country’s “increasingly unreliable” power supply.]

MANILA, DECEMBER 3, 2010 (BULLETIN) SPECIAL REPORT-First of two parts By MYRNA M. VELASCO December 2, 2010, 7:31pm....

‘Fantasyland’ is hardly ever – or should never be – the track to be taken when dealing with serious policy issues such as energy security.

But in the Philippines, we have seen some policies dawdle at implementation for array of reasons – a classic case is the Renewable Energy Act. When processes turn lethargic in the policy front, the media often turns into a ‘grievance committee’ for prospective developers who bemoans unwarranted delays in moving their projects into fruition. Their issues and complaints are varied, that these can in fact pass for another collection of the ‘Arabian Nights’ or ‘One Thousand and One Nights’ mythology, minus the entertainment value as the concerns are more problematic than amusing. It’s interesting to see then who finally gets serious with their planned investments and who heads out the exit door.

The country’s RE policy was passed into law in December 2008 and its implementing guidelines came six months after. While it stirred excitement among project developers, the industry is now getting frustrated to see that the anticipated flow of massive investment dollars stalled either due to lack of clarity in policies or slow action on some underpinning rules – such as the feed-in-tariff (FiT) scheme and the installation of targets that shall define the renewable portfolio standards or RPS.

The Department of Energy (DoE) brandished about the 205 contracts (33 existing RE projects; 169 pre-development and 9 development contracts) it signed with the RE developers. The department estimates that for the prospective new developments alone, total capital flow may reach P87 billion (approximately $2.0 billion) and will likely translate into capacity addition of 5,355 megawatts. Pencil-pushing made by the DoE forecasts that the country’s RE capacity will double in the next 10 years to total installed capacity of 10,835MW from roughly 5,500MW at present.

Yet at the rate things are going, a question is raised: Will the RE Law reap tangible benefits of massive investments or will it disappoint?

Looking to the future

With the policy having mustered approval at the twilight years of the past administration, the new Aquino government took its own ‘sweet time’ reviewing the country’s energy policy – and looks at options how it can “fit RE in the solution front” taking into consideration the current state of the country’s power supply.

“It is important that these (205) contracts translate to additional clean energy capacities and benefits for the country at large,” that far Energy Secretary Rene D. Almendras realizes.

Yet while the energy chief has his heart right in giving solutions to the country’s energy needs as they are anticipated, he is also cautious and wants to establish more determined logic about the integration of RE in the power mix. The cost-benefit equation must further be assessed, he said, such as how regulatory command can push the policy forward without much economic pain to the consumers who will end up paying the massive subsidies on the propounded shift to ‘clean energy’ options. “In the short term, RE will not be significant but 5 years onward especially when costs come down, it will be much, much more significant,” the energy chief averred.

The Renewable Energy Conference this December 2 and 3, patently themed: “From Policy to Action: Generating Impacts in 2010 and Beyond” was aligned as the venue for discussion of the pressing issues relative to the enforcement of policies in RE development. “Regulatory hurdles, technical barriers and financing challenges, are a sampling of the topics to be discussed,” the energy department said.

There are also issues that the department would want to validate – such as the magnitude of RE resources that can scale up to commercial development, noting some concerns raised by prospective developers (primarily those with wind pre-development contracts) that the data on wind mapping being presented to them are not as reliable as they portend to be.

Mr. Almendras has no doubt though that RE will become part of the country’s long-term policy that will propel us into attaining energy security. But he enthused that the sustainability question, especially when the subsidy fades, must also be comprehensively addressed. In the short haul, he intimated that RE will be a ‘tailor-fit solution’ into providing electricity access to off-grid or far-flung areas.

“Promoting and mainstreaming renewable energy is an integral part of the country’s energy reform agenda, together with other energy options. RE development would enable local communities to take stock of their own resources and develop those to their benefit,” the energy chief said.

‘Attractive’ or ‘politically-toxic’ option?

With the intensifying debate on climate change in the backdrop, renewable energy increasingly earned the ‘attractive stamp’ or ‘industry darling tag’ in the trifecta of energy options. As it currently appears sexy to policymakers, it promises to eclipse, if not unseat, fossil-fuel based technologies in the mix. But there could be another story unfolding because even the traditional power producers (i.e. coal plants) are also finding ways to burn their fuel on a relatively cleaner slate to reduce emissions.

For RE to gain foothold in the market, there is a flip-side to it: that its success may need to come from a thousand fronts – and chiefly by breaking into the wallets of millions of Filipino consumers.

The traditional RE resources, such as geothermal and impounding hydro, are not much of a concern as their rates are already within grid parity levels. But roughly speaking, the integration of the emerging technologies, such as wind, solar biomass or the yet-to-be-exploited ocean thermal energy conversion (OTEC) technology, may trigger politically toxic rise in electricity rates if regulators and policymakers won’t be careful or prudent in packaging the ‘price support mechanism’ (i.e. FiT Allowance) for these types of projects.

In the Philippines and elsewhere, the appeal coming from project developers is for consumers to embrace the ‘clean energy shift’ as a way of showing greater care for the environment – hinging on science claims that the threat of global warming is real. The climate externalities, experts said, cannot be genuinely resolved if the energy sector which is a major contributor of carbon dioxide and other toxic gases emissions will not “clean its acts.”

Further, RE’s integration into the grid cannot also make electricity systems rest easy, especially for intermittent resources because of their untested reliability. Without smart grids or better-designed power systems, the intermittent nature of RE may trigger massive power outages when the system cannot seamlessly switch power to where it is needed when such technologies trigger upsets in the transmission highway. The National Grid Corporation of the Philippines (NGCP) admitted that it has yet to invest massively to prepare for bigger scale integration of RE technologies into its system.

Consumers are certainly willing to contribute their share in preserving Mother Earth, but how can one understand that when no one is willing to explain what does the RE policy entails to the ratepayers?

Feed-in-tariff: Blunt price support?

The National Renewable Energy Board (NREB), the duly-constituted body under the RE Law to package the subsidy scheme for RE developments, is scheduled to file the feed-in-tariff allowance (FiT All) that will be reflected as separate cost component in the electricity bills.

To critics, the FiT system is viewed as a ‘blunt price support’ out to spoil investors but could be punishing to consumers. Whatever the final numbers would be, it is perceived that the ‘FiT All’ bears ‘costly inelegance’ to the consumers’ pockets – because in real terms, that will be an add-on or increase in the overall rates they will be paying for. As prescribed by the FiT framework issued by the Energy Regulatory Commission, it will be a burden they will harbor in their bills for the next 20 years.

The FiT system designed for the Philippines will work in such a way that RE developers will be compensated with specific tariff (depending on their respective technology deployments) upon feeding their generated capacity into the grid. System operator NGCP is the appointed settlement agent for the FiT and its transaction with RE developers will be bound by the proposed Renewable Energy Payment Agreement (REPA). Best guesses suggest that the FiT may pull up electricity bills by P0.30 to P0.50 per kWh or even higher depending on how the regulator will finally calibrate NREB’s application.

To be fair, the FiT system (interchangeably called the cash-back payment scheme for RE developments) already gained traction in various RE markets worldwide as a “powerful and efficient mechanism” at encouraging RE investments. Germany, which logged exceptional success rate in solar development, has been the first country to implement the FiT sanctioned by its Renewable Energy Sources Act of 2000. Many other countries, around 60 of them, have followed Germany’s trailblazing FiT enforcement – notably the other European countries, Australia, Brazil, China, South Korea, South Africa, the United States, Taiwan, Mongolia, Israel and even Iran. Across Southeast Asia, the policy also gained momentum initially in Thailand; Malaysia this 2011; and hopefully, the Philippines next.

For many countries which enforced the FiT policy, they have set specific quotas on which project developers can be qualified for subsidy availments as well as caps on installed capacities per technology. Unlike proposed ‘best case studies’ or ‘hypothetical assumption of targets’ being considered as anchor for initial FiT implementation in the Philippines, other markets assessed from day one the seriousness of investors by requiring them to submit documents on the readiness of their projects (i.e. project profile to include siting plan; technical specifications and schematic diagram of projects; work plan, possible source of financing, fuel source agreement when applicable; as well as requirement for government approvals, among others) – and only then they can be allowed for FiT availments.

Others have also enforced the policy on a ‘carrot-and-stick approach’ that RE developers are imposed availability rates for their generated capacity; and failure on compliance will be a ground for termination of their FiT availments.

On the degression rate structure, various RE markets also set specific percentage across technologies, generally at a range of 0.5 to 10-percent depending on assessed duration on when a specific technology would reach ‘grid parity’ or the time when a particular renewable installation would become equal to or cheaper than the technology being displaced in the mix.

“The feed-in-tariffs are subject to review and readjustment by the ERC in cases, such as when the installation targets are already achieved or when they are not achieved within the period targeted, or when there are significant changes to the costs or when more accurate cost data become available,” ERC Executive Director Francis Saturnino Juan has explained.

The landscape changes in the power industry will also re-adjust schemes in FiT collections. It was prescribed by the regulator that upon the start of open access and retail competition, “the FiT shall be included among the charges to be imposed and collected, also as a separate item, by the retail electricity suppliers from their respective customers.” (To be continued)

Chief News Editor: Sol Jose Vanzi

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