ERC approves feed-in tariff rates

Manila, Philippines - Renewable energy projects seeking to take advantage of guaranteed returns are now one step closer to implementation.

This as the Energy Regulatory Commission (ERC) approved yesterday the final rates for the feed-in tariff (FIT) mechanism, albeit lower compared with proposals last year.

Industry leaders welcomed the release of the FIT rates, which bring closer to reality the P106.85 billion worth of renewable energy projects planned under the scheme.

Specifically, approved FIT that shall apply to green power generation projects are P5.90 per kilowatt-hour (kwh) for those sourced from run-of-river hydropower, P6.63 per kwh for biomass, P8.53 per kwh for wind and P9.68 per kwh for solar.

The rates are lower compared with the P6.15 per kwh for run-of-river, P7 per kwh for biomass, P10.37 per kwh and P17.95 per kwh for solar under the proposals in May 2011.

The FIT scheme, whose implementation is already delayed by almost three years, guarantees investments of renewable energy firms through fixed rates that would be shouldered by consumers over 20 years.

“The ERC also adopted a lower equity internal rate of return of 16.44 percent in calculating for the FITs, except for biomass, which was allowed a higher EIRR of 17 percent to account for fuel risks,” the regulator said.

This is below the 16 to 17 percent proposed return on investments for run-of-river, solar and wind, and 18.5 percent for biomass announced earlier.

“The ERC’s lowered FITs will definitely cushion the impact of implementing the FIT incentive mechanism under the Renewable Energy Act on the electricity rates,” said ERC executive director Francis Saturnino Juan.

Juan added that it is still “sufficient enough to attract new investments in renewable energy. This is a win-win for all.”

The previous FIT was estimated to add roughly P0.12 per kwh to consumers’ electricity bills.

Specifically, FIT for wind and solar were substantially lower given cheaper plant construction costs on the back of a downward market trend.

Last year, the Department of Energy (DOE) approved a 760-megawatt (MW) installation target for renewable energy projects that will qualify for FIT.

It is composed of 250 MW each for hydroelectricity and biomass, 200 MW for wind power, 50 MW for solar energy and 10 MW for ocean technology.

The ERC said the approved FIT will be subject to review and readjustment after the three-year initial FIT implementation or when the installation targets for each technology are already met.

But the ERC deferred fixing the FIT for ocean thermal projects, earlier pegged at P17.65 per kwh, pending more studies and data gathering.

The ERC’s decision came after a series of public hearings that ended last March.

The ERC said it accepted the methodology of the National Renewable Energy Board in fixing the FIT.

It takes into account “the cost of   constructing and operating the representative plants for each RE technology, the generation output or capacity factors of these plants and the reasonable return on investment to be allowed the developers of these plants,” the ERC said.

Industry groups and the Department of Energy (DOE) welcomed the release of FIT rates but noted that an economy of scale is needed to make projects more viable amid lower tariff.

“We welcome the approval of FIT and while it is lower than originally set, we believe the approved rate is still workable and would not affect our investment decision,” said Fernando Martinez, chairman and CEO of Eastern Petroleum Corp. that will invest $70 million for a biomass project in Agusan del Norte.

The DOE, for its part, said it appreciates the release of the FIT.

“We are fully aware of the tedious task and the challenges of the Commission in ensuring a balanced view to be able to serve the needs of all stakeholders regarding the said rates,” the DOE said.

However, PhilNewEnergy Inc. project director Gabino Ramon Mejia said the rates are “very challenging most especially to the smaller players.”

A higher allocation might make the FIT scheme work, said Mejia. PhilNewEnergy, joint venture between Ayala Corp. and Mitsubishi Corp., will build the P7-billion Darong solar power project in Sta. Cruz, Davao del Sur.

“We are very thankful to the ERC for finally releasing the FIT,” Philippine Solar Power Alliance founder Tetchi Capellan said in a phone interview.

“We will only know if the FIT will attract investments within the next 365 days,” Capellan said, adding that companies will have to study the viability of sacrificing profit margins for small projects like five-MW solar plants.

Some industry players have yet to identify the effect of lower FIT to their planned projects.

“We have to study what are the considerations of the ERC in arriving at this FIT for solar then we can assess if it will be financially feasible to construct and operate,” said Netherlands-based SunConnex that plans to invest more than $100 million for solar power projects in the Philippines.

“We still have to meet and reassess the situation,” said Edgar Morada, president of Japanese-Filipino joint venture Eco-Merge Philippines Inc. that plans to put up $150 million worth of solar projects in the next three years.

Juan said companies can file a motion to amend the FIT resolution adopting the rates. The resolution will be released by the ERC.

To date, the Philippines sources 35 percent its total power requirements from renewable energy sources.