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.

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TransCo and the big beneficiaries of feed in tariff

* This is my article in BusinessWorld last July 20, 2016.

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The Philippines’ expensive electricity prices in Asia — second only to Japan — was highlighted once again in a paper by The Lantau Group (TLG) during the Asia Clean Energy Forum (ACEF) 2016 at the ADB last June.

Metro Manila’s residential electricity prices were even higher than those in Amsterdam, Hong Kong, and Singapore, twice than those of Hanoi and Beijing, and about three times than those of Taipei and Kuala Lumpur (see chart).

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This will have negative consequences for the Philippines’ bid for industrialization. Many energy-intensive sectors and big foreign companies will put up their manufacturing plants in Vietnam, Thailand, Indonesia or Malaysia, where they enjoy cheaper and stable electricity there, then export these products to the Philippines at zero tariff because of the ASEAN Economic Community (AEC). So instead of attracting more manufacturing and higher-paying industrial jobs here, our neighboring countries will snap up those jobs instead.

The quick lesson from this reality is that we should find ways to further bring down the costs of electricity here. Identify those charges, costs, bureaucratic delays, taxes and royalties that contribute to our expensive electricity, and significantly shrink or abolish them.

Unfortunately, we are not moving towards that direction.

Instead we go the opposite, by creating new measures, new indirect taxes that contribute to even more expensive electricity via the feed in tariff (FiT) scheme for renewable energy (RE) companies, among others.

The FiT scheme as designed is very anomalous for three reasons, among others: (1) guaranteed price for 20 years, (2) initial price will be adjusted upwards yearly indexed to inflation, and (3) even consumers in Mindanao, who are not connected to the Visayas and Luzon grids, do not have Wholesale Electricity Spot Market (WESM), and suffer from frequent blackouts due to insufficient power supply for, pay for FiT.

Here are the adjusted FiT rates for 2016 and the corresponding FiT payments that electricity consumers must pay to RE companies via Transco. Wind 1 and 2 and Solar 1 and 2 refer to two tiers of FiT-eligible RE firms, the second tier is given lower rate in exchange for expanding the FiT-eligible new capacity addition (see Table 1).

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Last July 6, 2016, this column attempted to quantify how much the big RE companies have cornered the FiT revenues. The next day after it was published, I wrote to the National Transmission Corporation (Transco), a government corporation in charge of administering the FiT-All, and asked: (1) if my estimates of (a) P2.63 B for EDC Burgos, (b) P1.92 B for Caparispisan, (c) P0.73 B for San Lorenzo Trans Asia, etc. are correct; (2) if my estimate of P12.2 billion total FiT revenue for 2015 is correct; and (3) what are the correct numbers if those estimates are wrong.

I mentioned in my letter/e-mail that President Duterte will soon issue an EO for FoI since these are public funds collected from electricity consumers nationwide and administered by a public entity, Transco and hence, the numbers should be made public too.

Transco replied one week after and said the following:

  1. My estimates of (a) P2.63 B for EDC Burgos, (b) P1.92 B for Caparispisan, (c) P0.73 B for San Lorenzo Trans Asia, etc. are “roughly higher by 10% of what has been billed to Transco by these 3 companies in 2015.”
  1. My estimates of P12.2 B FiT-All for 2015 alone “are higher than the 2016 FiT-All Application levels of Transco on the basis of the following:
  1. There are RE plants in the Application that have not billed Transco in 2015. Although their generation may be in 2015, these plants have not gotten the final eligibility for FiT in 2015 (processing on going). Thus, they will bill Transco only upon completion of all necessary approvals;
  1. Transco also implements one month current-one month backlog billing consistent with the REPA (Renewable Energy Payment Agreement). Thus, there are plants that have gotten their FiT eligibility much later than their Commercial Operation Date (start date for FiT eligibility) and have not become current in terms of billing by the end of the December 2015 billing period;
  1. Transco estimate of FiT Revenue for 2014-2015 is about P10 B. it added that although the year has passed, it has yet to accrue all amounts pertaining to 2014-2015 since the concerned REs have yet to receive their final eligibility documents/are yet to bill Transco; and
  1. What has been actually billed to the FiT-All Fund for 2014-2015 energy generation is only around P8 billion.

Thank you Transco for the reply, which allows me to construct new estimates of FiT revenues per company (see Table 2).

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The 12.40 centavos/kWh FiT rate granted by ERC in February this year will soon be revised upwards because it was just a provisional order.

Forcing electricity consumers to pay more expensive electricity from new renewables is wrong. Consumer choice is compromised or killed. If people really believe that the new renewables’ costs are indeed falling and attaining grid parity with coal and natural gas, then they should support the abolition of RE law of 2008 or RA 9513. This way, RE developers can sell electricity to willing customers without any guilt or embarrassment.

Bienvenido S. Oplas, Jr. is a Fellow of SEANET and Stratbase-ADRi, and head of Minimal Government Thinkers.

What companies receive FIT and by how much?

FIT1May 19, 2016.

This is the subject of my letter to the National Transmission Corporation (TransCo) last Monday. TransCo is a government corporation that owns all the transmission assets of the government. Among its five key responsibilities is to administer the Feed-in-Tariff Allowance (FIT-All) Fund for renewable energy (RE) generators. Its website clearly and proudly discusses the FIT system and why it is “good” for electricity consumers because of its “merit order effect”.

I wrote to their customerservice@transco.ph early morning of May 16, 2016:

Dear Sir/Madam,

I would like to request for data on (a) list of RE companies that have received FIT, 2015-2016, (b) how much each company received, (c) total FIT payment, (d) related data that you may want to share.

I will use the data for a research paper that I am writing for our think tank, Minimal Government Thinkers, which I hope to send you and the DOE a copy, and a short version for my column in BusinessWorld. I assume these are public data as the money collected is taken from electricity consumers nationwide.

Thank you very much and I hope to  hear from you.

Sincerely,

Bienvenido “Nonoy” Oplas, Jr.
President, Minimal Government Thinkers, Inc.
Fellow, South East Asia Network for Development
Fellow, Stratbase-Albert del Rosario Institute (ADRi)
Columnist, BusinessWorld, My Cup of Liberty

I did not get any reply. I followed it up with another email  yesterday morning,

Hi,

I would like to ask if you can share this data with me.
Thank you very much.

Sincerely,

Bienvenido Oplas, Jr.

Still no reply. Ahh, this must be among their “top secret” data perhaps? One problem with the absence of a Freedom of Information (FOI) law or Exec. Order is that certain government offices can only collect-charge-bill-fine us ordinary people and when we ask where the money went to, they can only give one standard reply, the Sound of silence.

FIT2Anyway, I saw this report in Business Mirror the other day, among the numbers reported there:

“FiT subscriptions for RE resources have significantly increased to 806.82 megawatts (mW) from 646.65 mW installations since the start of 2016. The following are the FiT subscriptions to date: Biomass has 11 power plants with a total capacity of 94.25 mW; hydro has four accounting for 26.6 mW; wind has six accounting for 393.9 mW.

Meanwhile, as of March 15, 2016, the DOE issued Certificates of Endorsement for FiT Eligibility (COE-FiT) to 11 solar-power plants accounting for 292.07 mW to the Energy Regulatory Commission (ERC). More solar-power projects may be issued COE-FiT at the completion of the ongoing validation and assessment of the submissions received by the DOE in relation to the March 15 deadline for the expanded FiT for solar-power projects.”

So, as of March 15, 2016, DOE issued COE-FiT for the following installations:

* Wind with six power plants, 393.9 MW,
* Solar with 11 plants, 292.07 MW,
* Biomass with 11 plants, 94.25 MW,
* Hydro with four plants, 26.6 MW,
Total  806.82 MW.

I just want to know who are those 6 wind plants, 11 solar plants, etc. and how much did they get from the 4.06 centavos/kWh that we consumers paid to them from February 2015 to March 2016. The FIT has been raised to 12.40 centavos/kWh starting April 2016.

Expensive electricity is lousy. Making it even more expensive with extra charges like FIT-All is lousier. And when we ask who are these companies that receive the extra charges, the answer is a Sound of silence.

Hi TransCo, I still hope to receive a reply from you. I hope to write another paper about you soon, whether you give a reply (and some data) or not. You will receive this blog post via email, fb, twitter, etc. Three of your Board Members are Cabinet Secretaries — DOF, DOE, DENR. They all have twitter accounts. Thank you.

May 21, 2016.

Today, I received a reply from Transco, they sent me two tables, the FIT-All cash flow and fund payables as of end-December 2015. They also gave me the name of the person I should talk to, the office local tel. no.

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Thank you Transco. I still need the list of companies that received and about to receive the FIT-All. I will call next week.