RE tariff to lower power rates eventually, says First Gen exec

MANILA, Philippines - Tariff incentives for renewable energy projects will eventually bring down power rates as the cost of conventional fuel resumes its upward trend, an energy executive said.

First Gen Corp. vice president for sustainability and energy efficiency Aloysius Santos said overall rates would taper off after a brief period when consumers will pay renewable energy companies qualified for the feed-in-tariff (FIT) a premium for the electricity they produce.

“The more we get renewable energy projects to come in, the cost will come down. Over a long period of time, renewable energy will lower the rates,” Santos said.

The Renewable Energy Act of 2008 mandates the establishment of the FIT, which would be shouldered by consumers in their electricity bills, to guarantee the returns of renewable energy projects over a certain period.

Consumers would be paying an extra line item in their bills called the FIT-Allowance (FIT-All) where renewable energy firms would draw their respective FIT. The tariff would be set by the National Renewable Energy Board (NREB) and then approved by the Energy Regulatory Commission (ERC) before it is implemented.

The incentive aims to spur the development of clean and indigenous energy sources, which were previously disregarded due to the high investment costs and limited markets compared with conventional power plants.

What consumers would be paying for to support these projects is the difference between the avoided cost of power generation from fossil-fired power plants and the FIT to be set by regulators.

As such, when the cost of electricity from coal and diesel plants, for example, rises above the FIT, renewable energy companies would have to refund consumers by a decrease in FIT-All charges.

In addition to this, some renewable energy projects have a digression component to their FIT rates set by regulators, wherein their incentives decrease over time.

Earlier, Philippine Independent Power Producers Association president Ernesto Pantangco said that this serves as a guarantee to consumers that they would not have to keep paying a set rate for green power projects whose prices could eventually decrease as technology evolves.

“The solar price will be decreased on the second year by six percent and the following year by six percent. The other technology has a digression of 0.5 percent beginning on the second year,” he said.