More push for renewable energy

Generous incentives – fiscal and non-fiscal – await companies that would want to invest in renewable energy development under the Renewable Energy Law passed last year. This is so in consideration of the high investment requirement needed in putting up a renewable energy project.

Had this not been done, there would have been little chance for the law to double energy production from renewable sources within the next 10 years. The definition of renewable, for purposes of this law and differentiated from biofuels, is an energy source from natural resources – such geothermal, water, wind, ocean and solar – which are naturally replenished.

Among the incentives listed are a seven-year income tax holiday, exemption from VAT and duty-free importation of equipment and machinery, reduction of corporate income tax after the expiry of the income tax holiday to 10 percent of net income, as well as a zero percent VAT rate for the sale of power from renewable energy.

Other incentives include duty-free importation of equipment, tax credit on domestic capital equipment and services, special realty tax rates, net operating loss carry-over, accelerated depreciation, and exemption from the universal charge and wheeling charges.

The energy department says it hopes to attract about $10 billion in new investments after the law’s implementing rules and regulations (IRR) was approved in May this year. An additional 4,500 MW of energy from renewable sources are needed to be put on stream within a ten-year period.

Discrepancies

Lately however, several business groups – particularly foreign investors – were complaining about foreign equity participation in the generation of wind, solar and ocean energy being limited by the IRR to 40 percent, when there was no mention of this in the actual law.

They pointed out that, even with the generous fiscal and other incentives offered by the law, the ownership limitation would dampen any interest since huge funding sources needed for renewable energy projects are not easy to tap.

Currently, most of the projects being reviewed by the energy department for renewable energy are to be undertaken by local groups but with foreign partners, an indication of the massive investments required to build and operate such projects.

Local sources, including the P50-billion fund set up by the Development Bank of the Philippines, would not be enough. Based on estimates, a renewable energy project may need an investment of about $1-$2 million per MW, or $1,000-$2,000 per kilowatthour.

Teething pains

With such amounts, the return on investment is vulnerable to a number of risks and operational problems, as had been experienced by the Northwind Power Development Corp.’s Bangui Bay Wind Power Project in Ilocos Norte.

Built at a cost of $55 million in 2003 to produce 33 megawatts of electricity, the Bangui project, dubbed as the biggest wind farm in Asia to date, reportedly generates an average of only three to four megawatts due to the unpredictability of wind strength and availability.

This had affected the financial viability of the project, and had the Danish government not waived interest charges on the loan utilized to build the facility, Northwind would have been unable to repay maturing obligations.

Mini-hydro and solar projects have their own problems too. Small hydro-electric projects with less than 10 megawatt capacity are dependent on the weather and water sources, and are thus usually run at below capacity. This too has a negative impact on income and repayment schedules.

Solar energy continues to be an expensive source of renewable energy because of the high cost of solar panels and photovoltaic cells, and the operating system that is needed to convert the generated energy to electric power. Often, this results in abnormally high rates.

Tried and tested

So far, renewable energy sources with tested commercial viabilities are the big hydro-electric power plants and the geothermal power plants. Specific to geothermal or steam energy, private sector participation is strong, which could be held accountable for its success as a business operation.

The Philippines is the world’s second largest user of geothermal energy for power generation, and this renewable energy source accounts for about 20 percent of the country’s total electricity requirements.

Geothermal energy power plants are built by foreign companies under a Build-Operate-Transfer scheme, and have exclusive incentives under Presidential Decree 1442 otherwise known as the ‘Act to Promote the Exploration and Development of Geothermal Resources.’

Massive hydro-electric power projects of the last century, many of them built with low-interest soft loans to the government, provide the country with the lowest cost per kilowatthour, and have proven to be reliable sources of renewable energy, contributing as much as 50 percent of the country’s energy needs.

Green value

From a study published by the University of the Philippines, the country could save as much as $2.9 billion annually with the development of renewable energy sources. This figure could go higher as the cost of crude oil increases.

The study also puts the country’s resource potential for geothermal energy at 4,531 MW, hydro at 13,097 MW, solar at 5.0-5.1 khw/m2/day, wind at 76,600 MW, and ocean at 170,000 MW.

Clearly, there is value that could be derived from encouraging the development of more renewable energy sources, not just in insulating our economy from the growing uncertainties of basing energy on finite sources, but also from the environmental standpoint.

I have great faith that technology will advance more quickly in this century to allow mankind to extract energy from renewable sources at a more efficient and cleaner way.

Visit www.CollegiateChampionsLeague.net

Check out the above official website of Philippine Collegiate Champions League (PCCL) and find out how the different collegiate teams nationwide are doing as they pursue the journey towards the 2009 Philippine Collegiate Championship games.

In Metro Manila, eight teams already secured slots in the “Sweet 16” Finals, namely, Ateneo de Manila Blue Eagles, FEU Tamaraws, UE Warriors, UST Golden Tigers from UAAP and from NCAA, the San Sebastian College-Recoletos Stags, San Beda Red Lions, JRU Heavy Bombers and the Letran Knights.

One seat in the “Sweet 16” Finals is reserved for the CESAFI (Cebu) champion and seven more seats are up for grabs in the forthcoming regional and zonal qualifying games scheduled in October and November.

Should you wish to share any insights, write me at Link Edge, 25th Floor, 139 Corporate Center, Valero Street, Salcedo Village, 1227 Makati City. Or e-mail me at [email protected]. For a compilation of previous articles, visit www.BizlinksPhilippines.net.