Commentary: Feed-in tariffs and the pandemic

Both the Social Security System and Philippine Health Insurance Corporation are reconsidering their plans to increase premium contribution rates this year. However, while the SSS and PhilHealth will be putting off their rate hikes, Filipinos may still see expenses go up this year due to the Energy Regulatory Commission's (ERC) approval of a higher feed-in tariff (FIT) rates.

When SSS and PhilHealth announced their planned increases, the policies drew widespread criticism from Filipinos who continue to face economic hardship due to the COVID-19 pandemic its subsequent economic consequences. 

Despite the glimmer of hope presented by the prospect of a widely available vaccine, lockdowns persist across the nation, causing widespread economic stagnation. As this health and economic crisis rages, many Filipinos continue to lose their jobs, face sharp drops in income and struggle to make ends meet.

In this regard, turning to the numbers is an informative recourse. According to a recent Social Weather Stations survey on self-rated poverty, 48% or almost half of all Filipino families rated themselves as “poor.” Furthermore, the poll also showed that an additional 36% of Filipinos consider themselves "borderline poor."

Returning to the subject of increased premium contribution rates, the criticism from their constituents was enough to prompt policymakers to step in. President Rodrigo Duterte directed his Cabinet to defer the PhilHealth hike, and legislation has been filed that allows the president to suspend both PhilHealth and SSS rate hikes in the event of national emergencies.

On the other hand, however, it seems that the increased FIT rates will be pushing through. Unless the industry regulator reconsiders the hike and steps in to prevent it, consumers across the country can expect a higher electricity bill in January.

First and foremost, however, it is important to understand what feed-in tariffs are and why they affect the Philippine economy and the wellbeing of Filipinos. FIT is a mechanism designed to attract and accelerate investment in renewable energy, or RE, technologies by offering renewable energy producers long-term contracts. 

In these contracts, producers are paid fixed (and often above-market) rates to purchase their renewable energy. In the context of the Philippines, these contracts last for a minimum of 20 years.

Renewable energy technology such as wind, solar, biomass and hydropower usually has higher initial capital costs than traditional sources such as coal. Hence, the feed-in tariff mechanism is generally seen as an important mechanism for incentivizing investors to develop the RE sector.

It is important to understand, however, that all these incentives come with a cost—they are ultimately shouldered by consumers. As a result, FIT rates make up a portion of the more or less 5.7% in "other fees" found in our electric utility bills. 

The latest round of increases, that were petition for by RE players, now increases the FIT charge to P0.0983 per kilowatt-hour (kWh) from the current rate of P P0.0495 per kWh. That does not sound like much, but it equates to almost double the past rate. 

To put things into perspective, consumer advocacy group CitizenWatch Philippines shared that the adjusted FIT charge will cause an increase of at least P20 in the bills of consumers under the 200-kWh consumption threshold. 

Furthermore, the rates paid to RE developers are not stagnant. They are periodically increasing and given the 20-year duration of these contracts, the main concern is that these costs will add up while non-FIT RE rates trend down. 

With RE technology getting cheaper, groups such as the Foundation for Economic Freedom argue that it might be better for the public to wait until RE technology drops to parity with conventional sources, which are more efficient. Instead, the group proposes to rehabilitate and improve existing hydro and geothermal sources.

Alternatively, it may also be good to look at how other countries implement their feed-in tariffs to directly benefit consumers. In the United Kingdom, for instance, these incentives, instead of being offered to large RE developers, are offered to homeowners. Households that are able to generate RE from solar panels on their roofs, for instance, are able to send their excess power to the grid for a fee. 

The interconnection of the environment and the economy has never been more apparent. Hence, transitioning to more sustainable ways of operating clearly makes environmental sense, since less emissions would be pumped out into the atmosphere. 

At the same time, adopting sustainable technology also creates more high-value green jobs which is good for the economy. It is for this reason that so many countries have adopted FIT rate policy mechanisms.

That said, the timing of these latest increases is just not right at this time. The Philippine economy is one of the worst-hit in the world by the COVID-19 lockdowns. 

In fact, according to Moody's Analytics, the Philippines will be the last to recover in Asia. The reconsideration of their rate hikes by Philhealth and the SSS is an acknowledgement of the difficult economic situation that many Filipino families are in today. 

Perhaps the ERC should also re-consider its decision to increase the fees and taxes, such as the FIT rates, that are shouldered by consumers.

Many Filipino families have had to tighten their belts by relying on the deferred payment schemes offered by utility companies to keep up with bills. Ultimately, the FIT should significantly protect the environment under an economically sustainable business model that balances the interests of consumers against the profits of RE generators.
 

Paco Pangalangan is the executive director of think tank Stratbase ADR Institute.