Ever increasing burden of FiT

I am reposting this article today in BusinessWorld by a friend, Paco Pangalangan of Stratbase-ADRi.

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Just the other day, the Energy Regulatory Commission (ERC) announced the approval yet again of an increase in Feed-in-Tariff (FiT) rates to be collected from consumers.

Starting next month, the National Transmission Corp. (TransCo), which manages the FiT fund, will begin collecting an additional P0.0590 per kilowatt-hour in FiT rates, bringing the rate up to P0.1830 per kWh. The announced rate increase was conveniently tucked behind the news that Meralco customers would be seeing a reduction of 75 centavos per kWh as part of the distribution utility’s nearly P7-billion refund for over-recoveries. While this may cushion the blow of the increase in collections, the refund will last but three months, while the FiT rates will pretty much stay.

FiT, if you recall, was the centerpiece of the Renewable Energy (RE) Act when it was passed in 2008 (Republic Act 9513). The law, which aimed to accelerate RE development in the country, sought to incentivize RE developers by providing them with a guaranteed power rate for the electricity they produced, a long-term contract and priority connection to the grid. To fund the incentive, beginning in 2012 and until today, every electricity consumer pays a uniform FiT rate which is factored into the computation of your monthly power bill.

The allure of the guaranteed power rate over several years had developers scrambling to qualify for FiT when the first round of certifications were handed out. After two rounds, the Department of Energy (DoE) had already exceeded the target allocations for both solar and wind, and as an effect of the increased number of RE providers that were owed incentives, consumers have seen what some say are “very fast adjustments” in the FiT rates charged to them. Currently, consumers pay P0.1240 per kWh, up from just P.0406 in 2015. By the time the rate increase is introduced next month, however, the FiT rate would have increased by over 300% in under three years.

Despite the DoE exceeding the initial allocations for RE developers, and not to mention the impact of FiT rates on the monthly power bill of consumers, developers, particularly the solar developers that missed out on previous rounds, are clamoring for a third round of FiT.

Thankfully, upon taking the helm of the DoE last year, Sec. Alfonso Cusi quickly thumbed down the possibility of third round, saying that it would only add burden to consumers already paying high electricity rates.

Currently, the Philippines already has among the most expensive electricity prices, ranking third in the region, fourth in Asia Pacific and 16th worldwide. Aside from the high cost of electricity, the thinning reserves and lack of competition in the generation side of the industry remain challenges for the sector.

There is a clear need to create competition in the industry and bolster generation to meet the growing demands of our economy, but surely there must be a way to attract more investments into the power generation sector without having to dole out fiscal incentives that, in the long run, are lopsided against the consumer.

Why not revisit discussions in DoE, the Philippine Senate and House of Representatives to fast track the permitting and licensing of power projects by declaring them projects of national significance. Currently, the process of securing permits and licenses from the various national agencies and local government units remains drawn out, an issue for power developers for the longest time. All this red tape not only prolong the building of much needed power plants, the cumbersome process also wards off prospective investors as well.

Under the proposal of Sen. Sherwin Gatchalian, the chairman of the committee on Energy, power projects of national significance will be given priority by compelling permit-giving government agencies to work within a specific timeframe. Furthermore, a one-stop shop for energy-related projects to cut redundancy in filing documentary requirements could also be created. A policy such as this could also become the subject of an Executive Order from Malacañang; after all, fighting red tape is also a priority of the current administration. But whether done through EO or legislation, the policy should avoid passing the burden on to consumers by creating new incentives.

This policy may not immediately translate into the development of RE as envisioned in Republic Act 9513, but with RE technology continuing to become more and more affordable, it could soon displace traditional sources as baseload generators. When this happens, consumers should be able to benefit from these developments in technology. With FiT rates this won’t happen since they will continue to pay the fixed tariff dictated by the FiT mechanism while RE developers get to hoard its benefits.

This early, the ERC, as the industry regulator, should champion the rights of consumers, review the implementation of FiT, and disallow any proposed FiT rate increase. This stand against FiT and the burden it causes on consumers can further be supported by the DoE by formally rejecting a third FiT round and by supporting Congress in crafting a policy that can spur investment on the generation side.

Francisco Paco Pangalangan Secretary-General of CitizenWatch and an Energy Fellow with the Stratbase ADR Institute.

Who should set the energy mix, government or consumers?

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

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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)

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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%).

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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

Wind power firms corner billions of FIT money

* This is my article in BusinessWorld last Wednesday.

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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
  1. Caparispisan Wind Power Project by North Luzon RE Corp./Ayala group, 81 MW at P8.53/kWh
  1. San Lorenzo Wind Power Project by Trans-Asia RE Corp./PHINMA group, 54 MW at P7.40/kWh
  1. Pililla Wind Power Project by Alternergy Wind One Corp./Vince Perez, 54 MW at P7.40/kWh
  1. Nabas Wind Power Project by PetroWind Energy, Inc., 36 MW at P7.40/kWh
  1. Bangui Bay Wind Power Project Phase 3 by Northwind Power Development Corp./partly Ayala, 19 MW at P8.53/kWh
  1. 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).

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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.

Comments to DOE draft Department Circular on RPS

The DOE asked for public comments to its proposed draft Department Circular after the public consultation last June 16.

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Source: http://www.doe.gov.ph/news-events/events/announcements/2995-draft-department-circular-providing-rules-and-guidelines-governing-the-establishment-of-the-renewable-portfolio-standard-rps

Below is my letter to the NREB Secretariat and Dir., also Assistant Secretary Mario  Marasigan.
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To: techsec.nreb@gmail.com

June 21, 2016

Dear ASec Mario,

My column today in BusinessWorld is about the RPS and the public consultation last week,

http://www.bworldonline.com/content.php?section=Opinion&title=renewable-portfolio-standard-and-electricity-price-uncertainty&id=129284

Please consider that as my position  paper on the subject. Take note in particular Table 2.

PH total electricity generation in 2015 = 82.6 TWh. Of which from wind = 0.6 TWh, from solar = 0.1 TWh. So small despite FIT + priority dispatch + fiscal subsidies.

In contrast: Vietnam electricity generation in 2015 = 164.6 TWh (2x that of PH’s). Of which from wind + solar = 0.2 TWh only.

Indonesia’s = 234 TWh (nearly 3x that of PH’s), of which from wind + solar = less than 0.1 TWh.

Malaysia’s = 147.4 TWh (nearly 2x that of PH’s), of which from wind + solar = 0.1 TWh only.

Our neighbors have huge existing power capacity, something that we should aspire for many years from now, and they are not gung-ho on new renewables like wind and solar. The numbers on price implication to electricity consumers should be prioritized.

My article’s conclusion,

“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.”

Thank you.

Nonoy Oplas
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Meanwhile, see this table (original table is annual data from 1990-2015, I cropped it)

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Source: http://www.doe.gov.ph/doe_files/pdf/02_Energy_Statistics/power_statistics_2015_summary.pdf

New RE’s share in total installed capacity rose from 0.9% (153/17,325 MW) in 2013 to 4.3% (813/18,765 MW) in 2015.

But new RE’s actual contribution to electricity generation nationwide was only 0.4% (279/75,266 GWh) in 2013 and 1.5% (1,254/82,413 GWh) in 2015. Low capacity factor of new REs (about 20% average for solar, wind and biomass) is the  main reason for this. Old REs like geothermal and hydro have higher capacity factor, about 75%.

Again, new REs give us more expensive electricity and less stable, less reliable energy source. That is why government-imposed subsidies to new REs from the  pockets of electricity consumers nationwide should have short timetable, not 20 years, not even 10 years. After all, the proponents, advocates and campaigners of new REs often argue that their energy sources have “already attained grid parity” with coal and nat gas.

If that is true, then the more that subsidies, fiscal incentives, mandatory dispatch and related provisions (like this soon RPS or  mandatory use of renewables by __% of distribution utilities’ (DUs) total electricity supply to their clients and customers.) should end soon.

Renewable portfolio standard and electricity prices

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

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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.”
  1. 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.”
  1. 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.”
  1. 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).

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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:

  1. 1 terawatt (TW) = 1,000 gigawatt (GW) = 1,000,000 megawatt (MW)
  1. MTOE = Million tons of oil equivalent
  1. 1 MTOE = produces about 4.4 terawatt-hour (TWh) of electricity in a modern power station.

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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.

Feed in tariff means more expensive electricity

01* This is my article inSPARK 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.

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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

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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.

Feed in tariff means expensive electricity

* This is my article in BusinessWorld yesterday, November 13.

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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)

2Of 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)

3From 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;

(c) fixed tariff to be paid to renewables producers for 20 years; and

(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).