How FIT affects your electricity bill and your future

How FIT affects your electricity bill and your future

Government agencies, including the Department of Energy (DOE) and the National Transmission Corporation (TransCo), are pushing for more investments in renewable energy (RE). This is in line with the DOE’s plan to shift the Philippines’ total energy mix into what it calls a ⅓ rule: 30 percent coal, 30 percent gas, 30 percent renewable energy, and the rest using other sources (per a Rappler report).

Renewable energy power plants’ appeal and popularity can be stemmed to the advantages they provide – they are environment-friendly and sustainable. Furthermore, experts project that a wider use of RE would pave the way for lower electricity charges, and a “clean energy industry”, as well as more job opportunities.

However, the problem with RE lies on the fact that the capital needed to build RE facilities like solar power plants and wind farms are costlye and the returns are not so attractive. For this reason, the government came up with the FIT or “Feed-in Tariff” system; a subsidy system developed “to encourage renewable energy (RE) developments and investments,” as defined by the National Grid Corporation of the Philippines (NGCP)

Essentially, FIT’s subsidy provides incentives to generation firms to build more RE power facilities.To fund the subsidy, Feed-in Tariff Allowance, or “FIT-All”, is charged to Filipino consumers through their electricity bills. The collection of this started in the first quarter of 2015 and would go on for 20 years..

 

Initially, the feed-in tariff rates and allocations are as follows:

  • ₱8.53/kWh for wind, with an allocation of 200 MW
  • ₱6.63/kWh for biomass, with an allocation of 250 MW
  • ₱9.68/kWh for solar, with an allocation of 50 MW
  • ₱5.90/kWh for run-of-river hydropower, with an allocation of 250 MW

 

The tariff is also “subject to degression,” according to the Energy Regulatory Commission (ERC), after an allowance period: six (6) percent will be deducted for solar power after a year, while 0.5 percent will be subtracted for wind, biomass, and run-of-river hydropower.

When it took effect in bills from January 2015, a FIT-All of ₱0.0406/kWh was collected from electricity users, according to a report by PhilStar.

Looking at the details, FIT sounds like a reasonable initiative. RE is a more eco-friendly solution to the Philippines growing need for more power sources as a developing economy. Ditto for the Duterte administration’s plans to start soon with its mega-infrastructure program, Build, Build, Build (BBB).

In a report by PhilStar, then National Renewable Energy Board (NREB) vice chairman Ernesto Pantangco voiced in a 2016 media briefing that market costs decreased by around 50 percent since the integration of FIT RE plants, according to a study conducted by the Philippine Electricity Market Corporation (PEMC).

The cutback amounted to ₱4.04 Billion or ₱0.0567/kWh, covering the period of November 2014 to October 2015, according to PEMC’s Corporate Operations and Market Development Senior Specialist Jonathan dela Vina. He presented the study at the same briefing, thus showing progress in the government’s hopes to lower energy costs.

 

Downsides to RE

While RE does protect the environment by producing zero emissions, it has some major limitations when it comes to availability and reliability. Obviously, solar power plants would not be able to generate power at night, unlike coal or geothermal plants. As for wind farms, there are also times when the wind stops blowing and power generation will cease.

The only way for these RE facilities to keep providing power would be to store generated power in batteries. The downside is that the batteries used for such a purpose get stressed out by the charging cycles, and can die when these cycles are not managed precisely. The obvious solution is a technological one and Tesla is working on that by having advanced software manage the charging and discharge cycles of batteries.

There are also technological and geographic limitations when it comes to RE facilities. Such facilities can only be installed in the windiest and sunniest spots. Current technology also requires that RE facilities use large tracts of land area. These lands could either be unavailable or better used for agriculture.  Such limitations mean that power generated from RE will not be as much as from coal, gas, or oil.

For critics, FIT is another downside to RE in the Philippines. Industry insiders say that contrary to what was promised, the subsidy scheme will bring higher electricity prices to consumers. In a column by Alex Magno in the Philippine Star, he said that “the net result of RE is to ensure our power costs are high”. He added that such a situation repels investors as they can choose other places, like Indonesia, where energy costs are lower.  

Others say that under FIT, consumers are paying the full amount for electricity they use even if RE plants are not yet producing. According to a special report by The Manila Times on controversies surrounding FIT, “critics charge that the framework as devised by the ERC is a form of risk transfer from producers to consumers; producers are, in effect, guaranteed FIT subsidies through the establishment of a pool of FIT-All funds before producing a single watt of electricity”.

Inquirer’s Conrado R. Banal III wrote in his 2015 article that “whatever low capacity that they would deliver, we still would have to pay them for the full capacity”, also pointing out that the estimated capacity of wind power in electricity generation is only at 25 percent.

Another Manila Times article also pointed out that TransCo, the administering body of the FIT-All, is also“required to make an annual determination of the FIT-All rate”.  This means it is free to raise the FIT-All rate anytime it sees fit; TransCo is also authorized to collect for a backup fund for RE producers’ “working capital requirements”.

According to critics, this not only opens the possibility of the FIT rate getting higher in the future but also raises doubts on whether these “working capital requirements” are being spent for their stated use.

The supposed fund was estimated to amount to around 230 million a month by Atty. Remigio M. Ancheta, who filed a petition against the FIT-All charge.

 

Outlook for RE and FIT

Despite these concerns, the outlook for RE in the Philippines remains optimistic. New technologies and new investments are coming in, which shows the effectiveness of FIT as an incentive.

The DOE, in 2015, increased the capacity for solar power, growing from the initial 50 MW to 500 MW, whilst lowering the cost to 8.68/kWh. In his article, Banal, on another 200 MW addition for wind power approved by the NREB, estimated that “the FIT rate would increase tremendously to 8/kWh, compared to the current 0.04”.

For 2018, TransCo recently proposed to up the FIT-All rate to 0.2932/kWh according to a Philstar news report, following a 2017 collection proposal of 0.2291/kWh which has yet to be approved by the ERC.

Currently, 0.183 is being collected from consumers for FIT.

They are also arranging for a zero-percent-interest loan from World Bank and Asian Infrastructure Investment Bank for a payment backlog to RE producers due to “regulatory lag,” according to TransCo president Melvin Matibag.

Per an Inquirer report, Dutch consultancy Solarplaza ranked the Philippines 5th in the world when it comes to the use of solar energy. Others in the top 5 include Chile, South Africa, Brazil, and Thailand. Solar plaza also ranked the Philippines as number one user of solar energy among Asia’s developing countries.

So far, all indications show that despite the downsides, both RE and FIT are working in synergy as renewables get a greater share in the country’s energy mix. It is unrealistic to say that RE will replace all other energy sources in the decades to come; however, it is still a welcome solution to provide for the Philippines’ power needs and fuel its economic growth.

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