Renewable energy and climate loans

Posted on February 13, 2011.

A fellow UPSE alumni, a BusinessWorld columnist, former DOF UnderSecretary, Romy Bernardo, wrote in one of his BW columns,Renewable Energy– reality check . He wrote,

The Philippine Renewable Energy Law passed in 2008 has been applauded by environmental groups, renewable energy firms, and official donor institutions keen to play a role in addressing global warming. We who pay taxes and high energy bills need to be a little more wary.

My attention was caught by a news article reporting a billion dollar renewable energy loan program being negotiated between the Asian Development Bank, other official co-financiers, and the Philippine government. The news item said that “most of the $ 1 billion loan will be focused on supporting solar, wind and biomass power projects”. I hope this is inaccurate, and that most of the funding goes to sound components of the program like raising consumer awareness on energy efficiency and regulation for energy efficient equipment and appliances, instead of subsidizing inefficient technologies.

The hard reality is that the technology for these three sources is far from mature as seen in their exceedingly high price: solar costs P 25 per kWh, biomass and wind around P 10. This compares very poorly with the current grid rate of P 4.50 per kWh– anywhere from two to five times true cost now.

So who will carry the high cost of these immature technologies? Answer: Feed In Tariffs (FIT). An add-on, a tax if you will, to the average cost of power in the grid for everybody. The law obliges the power industry participants to source electricity from generation at a guaranteed price applicable for a given period of time but no less than 12 years, supposedly to accelerate the development specifically of emerging RE resources. This cost to the public is on top of the tax gives the Renewable Energy Law provides developers, including income tax holidays for 7 years, duty free importation of renewable energy machinery, equipment, material for 10 years, special realty tax rates, etc.

The FIT provisions seem to have been adopted from laws in developed European countries, meant to subsidize emerging technologies by burying it in the general public’s power bill. The FIT number floating around in discussions for the Philippines is fifteen centavos add on per kwh used by each consumer. This amount may seem small, until one considers that this is an add-on to one of the highest per kWh cost of power in the region, arising from our archipelagic geography, and legacy/stranded costs.

Moreover, this fifteen centavos translates into a P 10 billion ANNUAL subsidy, hardly the best use of money for a country that has huge social and basic infrastructure requirements.

Last January 16, 2011, I wrote in Climate stupidity, part 6

…The climate loans racket is terrible. According to one news report last August, Billion dollar loans for climate change ‘unjust’, data from the Environmental Management Bureau (EMB) showed that Philippine loans for climate adaptation was $586.59 million, plus loans for climate mitigation of $491.64 million, for a total climate loans of $1.078 billion!!

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