Renewable energy development still not a priority

MANILA, Philippines — The Renewable Energy (RE) Act of 2008 has spurred the development of more cleaner energy resources, but not as much as it had hoped to do.

The law is pushing the country to achieve energy self-reliance and reduce dependence on fossil fuels through the shift to cleaner and indigenous forms of energy.

Harnessing renewable energy will eventually minimize the country’s exposure to price fluctuations in the international markets as these do not need fuel to supply electricity to end-users.

But a decade after the law was passed, several measures have not yet been fully implemented and this has slowed the pace of renewable energy developments.

“There has been a slowdown after the FIT (feed-in tariff) as expected,” said Eric Francia,  president and CEO of AC Energy Inc., the power business of the Ayala Group.

The RE Law has set the establishment of the FIT regime, which gives a set of incentives—such as a guaranteed fixed rate, priority dispatch—given to RE developers to develop and operate wind, solar, ocean, run-of-river hydropower, and biomass energy plants for 20 years.

While the rates were only issued in 2012, the interest in harnessing RE, particularly solar and wind, have grown exponentially.

In fact, project take-up swelled in terms of capacity leading to two rounds of FIT for solar and wind. There is an installed capacity of 393.9 megawatts (MW) for wind and 525.95 MW for solar.

“The RE Law enabled the RE sector through the FIT mechanism. There are now several industry participants with significant experience and capabilities in the various RE technologies. The country can now take advantage of declining costs and increasing efficiencies in renewables,” Francia said.

Because of this, the Duterte administration decided not to expand the FIT scheme into another round since this adds burden to consumers.

Payment to RE developers are sourced from the FIT-Allowance (FIT-All) Fund, which is charged to consumers reflected as a separate bill component under the “FIT-All rate.”

The fund is managed by the National Transmission Corp. (TransCo), which has filed applications to raise the FIT-All rate for 2018.

From just four centavos per kilowatt-hour (kwh) in 2015, the current FIT-All rate charged to consumers is 25.63 centavos per kwh.

Consumer advocacy group Laban Konsyumer Inc. (LKI) president and former trade and industry undersecretary Victor Dimagiba said this only increases the cost burden to consumers.

The same was not the case, however, for run-of-river hydropower and biomass, which are encountering challenges in securing permits and in feedstock, respectively.

Lopez-led First Gen Corp., a major power player in the country, has emphasized its hydropower developments because of the lack of FIT for long-term.

“It’s a very important resource of the country and yet it is unclear as to whether or not we would be given FIT for a long term investment,” said First Gen president and COO Giles Puno.

 The Department of Energy (DOE) has only extended the FIT for the two technologies for only two years to meet the prescribed allocation of 250 MW each. This only gives developers who have ongoing construction to qualify for the FIT perks.

Latest available data from the DOE Renewable Energy Management Bureau showed a total of 28.6976 MW had been taken up by existing run-of-river hydro projects, while 144.80 MW had been consumed completed biomass plants as of the end of 2016.

Companies are also pushing for more incentives—or at least the retention of incentives—for the development of geothermal projects in the country.

The Philippines used to be the second largest geothermal developer in the world, next to US, but has now been overtaken by Indonesia.

From 1,932 MW in 2003, installed capacity of geothermal even declined to 1,916 MW in 2017.

“Since the 1980s, we’re already second place then last year we were overtaken by Indonesia. That’s more than 30 years,” National Geothermal Association of the Philippines (NGAP) president and Energy Development Corp. assistant vice president Noel Salonga said.

NGAP, the umbrella group for geothermal developers in the country, is calling for the exemption of the RE Law from the coverage of the second package of the Tax Reform for Acceleration and Inclusion (TRAIN) Act.

It said TRAIN 2 would further decrease the competitiveness of the Philippines in attracting investors in geothermal energy due to the current proposal to apply a single menu of incentives that may not be responsive to the needs of the industry. 

Among the incentives proposed under TRAIN 2 include income tax holiday applicable only for the first five years of commercial operations and for a period not exceeding three years; corporate income tax (CIT) rate of 15 percent based on net taxable income; duty-free importation on raw materials and capital equipment in the first five years; removal of the VAT incentives and special realty tax rates; and repeal of the net operating loss carry-over, accelerated depreciation, tax exemption on carbon credits, tax credit on domestic capital equipment and cash incentives for missionary electrification. 

Basic Energy Corp. (BEC) president and COO Oscar de Venecia Jr. said geothermal has a large role to play in the country especially in providing massive power supply.

De Venecia said some support from government to developer geothermal resources “would be nice,” since development is capital-intensive especially in the exploration part.

While the country has faced headwinds in the development of RE, the RE Law has somehow accelerated the exploration of indigenous resources, Sen. Sherwin Gatchalian said.

Citing data gathered by the Senate committee on energy  which he chairs, Gatchalian said installed capacity of wind, solar, and biomass rose over the past decade.

In order to speed up the development of RE resources, the country has to fully implement the RE Law.

“The first step is for DOE to fully implement the RE Law since the Renewable Portfolio Standard (RPS), Renewable Energy Market (REM), Green Energy Option (GEO), and Renewable Energy Trust Fund have not yet been implemented. Furthermore, DOE should formally issue its policy on the FIT for the remaining undersubscribed capacity for run-of-river and biomass,” Gatchalian said.

RPS requires distribution utilities to source a portion of their power supply from eligible renewable energy producers.

REM is a market for the trading of renewable energy certificates (RECs) under the RPS and green energy option program (GEOP) which allows end-users to choose renewable energy resources for their energy requirements.

Green Energy Option (GEO) empowers end-users to choose renewable energy resources for their energy requirements.

The law also calls for the creation of the RE Trust Fund, which will be used mostly for research, development, demonstration, and promotion of RE.

Sources of the fund include proceeds from the emission fees collected from all generating facilities consistent with Republic Act No.  8749 or the Philippine Clean Air Act.

This also includes 1.5 percent of the net annual income of the PCSO; 1.5 percent of the net annual income of the Pagcor; 1.5 percent of the net annual dividends remitted to the National Treasury of the Philippine National Oil Co. and its subsidiaries; and 1.5 percent of the proceeds of the government share collected from the development and use of indigenous non-RE resources.

It can also come from contributions, grants and donations net of tax, any revenue generated from the utilization of the RETF and proceeds from fines and penalties imposed under the RE Law.

DOE Undersecretary Felix William Fuentebella said the agency has so far issued RPS for on-grid and off-grid rules.

The Philippines has miserably failed in meeting its goal of doubling the installed capacity of RE 10 years after the law was enacted, Sen. Loren Legarda said.

DOE data showed installed capacity of RE was at 4,799 MW in 2002 and only grew by 47 percent to 7,079 MW as of end-2017.

She said the country continues to be  heavily dependent  on coal-fired power and imported coal.