Importance of solar

Fuel oil prices are unstable, and that is a fact.

This is the reason why Republic Act 9513 or the Renewable Energy Act of 2008 came into being. It is the police of the State to accelerate the development of renewable energy resources to reduce the country’s dependence on fossil fuels, and to promote the efficient and cost-effective commercial application of renewable energy by providing fiscal and non-fiscal incentives.

To accelerate the development of emerging renewable energy resources, the law provided for a feed-in tariff (FIT) system for electricity produced from wind, solar, ocean, run-of-river hydropower, and biomass.

The growth of renewable energies, specifically solar, has been spectacular. The Philippine Solar Power Alliance revealed that based on Board of Investments data, renewable energy projects contributed to the three percent rise in total investments in 2015. About P366.7 billion were injected into the economy last year at the start of the solar FIT, of which P246.32 billion or 67 percent came from renewables, a large chunk from solar.

PSPA said that close to 50 companies were awarded solar service contracts in order to develop projects in a span of less than 24 months. Total combined capacity of solar service contracts reached almost three gigawatts in 2015 and at present, holders of these service contracts were issued certificates of commerciality with a combined capacity totaling no less than 750 megawatts.

A independent study conducted by international energy expert consultancy firm The Lantau Group pointed the need for solar, as oil prices are projected to rise from $60 per barrel in 2018 to $100/bbl in 2020.

Lantau also recommended 2GW additional solar capacity in Luzon and Visayas by 2018, adding that solar energy yields significant fuel cost savings of about eight percent.

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As already mentioned, the Renewable Energy Act mandated the formulation of the FIT program, which provides among other things for a fixed tariff to be paid for electricity produced from wind, solar, biomass, ocean, and run-of-river hydropower. These FIT payments are recovered from end-consumers via the FIT charge that appears in our electricity bills.

The incentives are granted on a first-come-first served basis. Among the incentives enjoyed are priority dispatch in the Wholesale Electricity Spot Market (WESM) and a fixed rate of P8.69 per kwh.

Once the installation target is met, no new FITs will be given for that period. Plants outside the FIT scheme have to sell their output at market prices.

During the first contracting round of FIT, the DOE increased the installation target allocation of solar energy from 50 megawatts in 2013 to 108 MW in 2014 in recognition of the investments and contribution of solar companies in the energy mix.

For the second contracting round whose deadline ended last March 15, the quota for FIT eligibility for the solar power sector is 400 megawatts. This brings the total to around 500 MW to date.

But as I have mentioned in previous pieces, the way the FIT system works, these power plants have to build first before they can apply for incentives, something that was not in the Renewable Energy Act but something that former Energy Secretary Jericho Petilla just concocted.

And so ever since the FIT system was implemented, about 798.2 MW of solar capacity was built, of which 100 MW were given incentives under the first round. With 400 MW eligible under the second round, this would probably leave around 298 MW “stranded” and without incentives.

So one may be tempted to ask: why did the industry overbuild?

Again, the problem is this first build policy. Only the NREB knew how much capacity was being built, but the private sector was kept in the dark.

On March 16, 2016, PSPA through its legal counsel wrote NREB chairman Pete Maniego expressing its surprise and disappointment with the lack of consultation by the board regarding the implementation of the program.

The group mentioned that the solar industry sent a delegation and participated in the planning exercise organized by the NREB and that early, the private sector already hinted about the problems the industry might face as the March 15 deadline draws near, in particular the anticipated oversubscription. But no dialogue was called.

Another letter was send to the Energy Regulatory Commission asking for ERC’s intervention to help solar companies have clarity on their situation. PSPA president Tetchi Capellan said their members are in limbo and confused as to how the solar FIT will be allocated, and are jittery knowing their investments may be placed at risk given the uncertainty.

Following the March 16 letter, Maniego was quoted as saying that he did not want to meet with PSPA, which included the country’s biggest solar power companies, because the letter was strongly-worded and that he deserved better than that.

Since then, Maniego has refused to meet with the solar industry, leading some observers to speculate whether the NREB had another agenda, like favoring other renewable energy sources.

Maniego should know better than be petty and onion-skinned.

As a result, it was only after the March 15 deadline that the industry learned that there was an overcapacity of 250MW that would probably not be entitled to incentives, something that could have been avoided had the NREB been transparent.

What PSPA wants is for the entire 798.2MW of installed solar capacity to be entitled to FIT, which includes the 250MW excess capacity.

The group asked the DOE for prudence in disqualifying completed solar projects, given the billions of pesos that these companies have invested.

After all, where did the DOE get the 500MW capacity figure that should be entitled to FIT incentives? It is an arbitrary amount that has no basis in fact and in law. The 500MW quota is installed capacity which is wrong. It should be based on capacity utilized.

We should also consider the fact that 750MW of installed solar capacity does not mean 750MW of actual utilized capacity since what is utilized is probably only 80%.

Government should also consider that the Negros grid output is being curtailed by NGCP to prevent overloading of the Negros-Cebu and Panay Negros submarine cables which were not designed to handle that much output. NGCP was forced to undertake these measures to prevent the grid from being destroyed.

Even the first build policy of DOE for FIT entitlement should be reviewed. Other countries base their allocation on approved contracts, something that we should look into.

The FIT program should not be based on a “take or pay” policy which means they are allocated based on installed capacity regardless of how much the power project actually produces. Producers should be paid only for what they produce.

It is about time that the DOE and the NREB iron out all these kinks with the private sector. This first build, take or pay policy as well as the arbitrary FIT quotas need to be reviewed if we are to truly promote and develop renewable energy resources in this country.

DOE and NREB should also start coming up with long-term realistic renewable energy installation targets, instead of arbitrary numbers like 50MW in 2013, 108MW in 2014 that were plucked out of thin air.

Lantau noted in its study that the solar industry in the Philippine is uniquely placed to capitalize on power market fundamentals and the macroeconomic context, given that the outlook for power consumption remains strong, that power prices are set to recover by the early 2020s, that the unit cost of solar is projected to go down vis-à-vis a recovery in fuel prices that creates potential to attract significant new solar capacity.

Lantau also recommends, assuming high fuel prices and decreasing solar costs, that about 2 gigawatts of new solar capacity to be built every year and bringing residual capacity additions forward.

Not So Hidden Agenda

 

SKAL BIZ MEETING.  The SKAL International Makati Events, Exhibition and Business meeting was held recently at the Glasshouse, New World Makati Hotel (NWMH), where members and guests raised issues affecting the tourism to further promote the growth of the industry, the upcoming SKAL Asia Congress in Singapore this July, and the 26^th Tourism Personality Awards on August 24, 2016. Shown in photo are SKAL president Robert Lim Joseph (2nd from right) with (from left) Erhan Balaban, Turkish Airlines country manager; Jaime Bautista, Philippine Airlines president and SKAL vice-president; and FaridSchoucair, NWMH general manager and SKAL director. The cocktail dinner was hosted by the hotel and Ralph’s Wines and Spirits was attended by tourism managers and executives from resorts, hotels, airlines and allied industry.

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