Feed-in tariff scheme in the Philippines: An Overview

Feed-in tariff scheme in the Philippines An Overview

Renewable energy now plays a major part in the country’s power circuit. With the rise of its production and use among growing markets in remote islands and business districts in metro areas, the government has adopted the Feed-in Tariffs (FITs) policy, a scheme primarily used to attract private entities to invest in the energy sector to deploy additional power supply through renewable sources.

The FITs framework is contained in the Philippine Renewable Energy (RE) Act of 2008, which after much delay and a well-documented opposition from various sectors, was finally enacted as constitutional in July 2012. Under this, power players are expected to source RE-derived electricity at a guaranteed fixed price.

FIT contracts usually last from ten to 25 years. In the Philippines, participating developers of RE projects are assured fixed payments from each type of renewable energy source for 20 years.

 

RE in the Philippines

According to the Department of Energy’s (DOE) 2009-2030 Power Development Plan, the Philippines’ energy consumption will reach an estimated 149,067 gigawatt-hours (GWh) by 2030. In 2018 alone, demand growth is expected to arrive at 86,809 GWh, a rather alarming rate in comparison with 55,417 GWh back in 2008.

Peak demands have also been projected for the years specified, where consumption will climb up to 14,311 GWh by next year and will rise even higher to 24,534 GWh by 2030, almost a triple of 2008’s 9,226 GWh.

Unfortunately, the country’s power industry has found itself in a supply crisis as demand projections for the next few years has become increasingly overwhelming. To ensure adequate power capacity to meet these challenges, over 17,000 MW of new electricity should be put in place, in which installation of renewable energy is seen as a favorable solution.

The formation of the National Renewable Energy Board (NREB), which is contained in the National Renewable Energy Program (NREP) in Republic Act 9513 or An Act Promoting the Development, Utilization and Commercial Renewable Energy Sources and for Other Purposes, helped kickstart the development of the FIT rate and the RE “Installation Targets” of private sector players as approved by the Energy Regulatory Commission (ERC).

The implementation of the FIT program, as well as the overall administration of the FIT-All Fund, is tasked to the National Transmission Corporation (Trans Co).

Photo credit: Philippine Solar Power Alliance

“A Comprehensive Briefing on the Solar Feed-in Tariff System in the Philippines”

Solar is among the RE sources being commercialized as of late. While the current FIT policy is similar to those in other countries, FIT allocation in the Philippines has the simplest format that caters to a “Solar Race.”

According to the Philippine Solar Power Alliance (PSPA), there were more than 1,045-MW worth of Solar Energy Service Contract (SESC) applications filed with the DOE, of which an indicative total of 1,012.21-MW or 97 percent have been granted in 2013 alone.

Observe that the FIT Installation Targets for solar in 2012 were still at 50-MW. The number of solar investors, with or without pending SESCs for FIT inclusion, have prompted NREB to announce an additional 450-MW, which totals to 500-MW of solar installation, in April 2014 (“FIT Phase 2”) to accommodate the immense response of industry players as well as to address the mass power deficiency during the summer in 2015.

Solar FIT-2 was expected to end by March 2016. However, due to the number of controversies surrounding this round of FIT, the ERC decreased its approved FIT rate from P9.68 per kWh to P8.68 per kWh. The DOE has also opposed major solar players’ cries for a third round.

 

Consumers

Every customer will shoulder their respective FIT charges. The fixed rate is P0.04057 per kWh that would go on top of their electricity bills; the final price is P8.09057 per kWh if the FIT for solar is included, UPecon said.

With FIT and priority dispatch, there is an additional P1.70057 increase in the electricity rates in exchange to lower consumption from 75,266-GWh (without FIT) to 68,255-GWh (with FIT).

Consumer surplus will also decrease for consumers from P687 billion (without FIT) to P565 billion (with FIT) while the surplus for producers will rise to P182 billion (with FIT) to P118 billion (without FIT).

 

Consequences of FIT

While this system can save time and money in years to come, the current economic condition and lack of power sources in the country prove otherwise; the FIT scheme can backfire if inconsistencies, such as cronyism and intervention in the government, persist.

“Policies and measures, therefore, that further raise our already expensive electricity should be avoided,” said Minimal Government Thinkers Chairman Bienvenido S. Oplas, Jr., who emphasized that implementations like the FIT formula is the gateway to further electricity price hike.

“Unfortunately, the reverse is happening, as certain business sectors and the Department of Energy (DOE) expand those policies that contribute to more expensive electricity,” he continued.

Oplas added that the FIT policy contained in RA 9513 is a recipe for more unnecessary expenses that victimize customers. As written in Section 7 of RA 9513, FIT gives power through the following:

  1. Priority connections to the grid for electricity generated from emerging renewables such as wind, solar, ocean, run-of-river hydropower, and biomass power plants;
  2. Priority purchase and transmission of, and payment for, such electricity by the grid system operators;
  3. Fixed tariff to be paid to renewables producers for 20 years; and
  4. Compliance with the renewable portfolio standard (RPS), which is contained in Section 6 of the bill, mandating the minimum percentage of generation from eligible renewable energy resources as set by the NREB.
(via BusinessWorld Opinion “My Cup of Liberty” by Bienvenido S. Oplas, Jr.)

Of the four new renewables, Oplas said, solar energy is the “most problematic”, to which the DOE in 2015 extended the solar FIT from 50-MW to 500-MW, basically adding 450-MW more in exchange for a lower FIT price (from P9.68 to P8.68 per kWh).

In the same year, the Philippine Solar Power Alliance also asked the Energy Department for another allocation expansion from 500-MW to a whopping 2,000-MW, projecting a much higher FIT rate at P0.13 per kWh added to the total FIT.

“This will make expensive electricity a bigger problem in the future. The FIT allowance has been collected since February [2015] at P0.0406 per kWh. There are projections that this will rise to P0.13 per kWh or more by 2016,” Oplas said.

Furthermore, Oplas assessed that certain privileges are in order as allowed by the law, in which are received by many subsidies or relaxation of regulations and taxation to renewable players. Such policies cater to favoritism and discrimination that is being experienced by producers of conventional and cheaper power producers.

 

These 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 carryover 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.
(via BusinessWorld Opinion “My Cup of Liberty” by Bienvenido S. Oplas, Jr.)

Aside from the Philippines, the FIT scheme has also shown slow, disastrous consequences in other countries. In Germany, from which FITs originated and the country with one of the world’s elaborate renewables subsidy schemes, FIT subsidy is a major cost contributor to its high priced electricity, ranking the country as second with the most expensive electricity in Europe next to Denmark.

“The feed in act 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,” Oplas said.

With the demand for electricity growing, the government should achieve a balanced mix of energy source which would not only benefit the environment but also curb rising electricity costs. Failure to do so would mean higher electricity rates for power consumers.

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