Philippines: Consumers burdened by over-incentivized renewables (Opinion)

Philippines: Consumers burdened by over-incentivized renewables (Opinion)

The push for renewable energy sources is taking on so many shapes and forms,
both on the global and local scene, with some of them highly driven by
international commitments to lessen the use of finite fuels and avert global
warming, and some urged on by passions towards supporting a greener world.

In a world that would be devoid of oil, coal and similar sources of energy
that burn mined resources of Mother Earth, humanity would find solace for
his everyday needs in surprisingly many forms of renewable energies.

There's water (the first renewable resource utilized to generate
electricity) and steam, wind, solar and biomass - all being put to better
use by emerging new technologies that make these sources of energy efficient
and cheaper.

The world is at this transition stage, where governments offer incentives
and perks to lure investors to finance renewable energy technology research
and development, as well as invest in consumer-based power generation
projects that utilize renewable sources of energy.

Being incentives, they need to be calibrated every so often to fit changing
variables in the operating environment. This is just what any government
that has the best interest of the state welfare should do: a fine balancing
act where business operates and profits, while the nation is able to
sustainably grow for future generations.

Is FIT still fit?

This hold true for renewable energy incentives the Philippine government has
been giving to investors who have applied for inclusion in its feed-in
tariff (FIT) scheme, which was crafted for renewable energy developers under
the Renewable Energy Law of 2008.

As a big part of the incentive package, FIT rates can make or break the
program. During the first call for investment proposals earlier this decade,
the guaranteed FIT rate for the first 50 megawatts of projects approved was
P9.68 per kilowatt-hour (kwh) for solar power.

Of the four renewable energy sources listed in the FIT program, solar has
the higher guaranteed rate, and has also the biggest disrupting effect on
the grid since oil-based power generation, which contributes a big chunk of
electricity to the grid, is only at an average of P6.39 per kwh.

Because all FIT-approved projects have priority for grid connection, even if
this generated electricity is more expensive than those from coal or oil, it
is still sold and used by consumers - at a higher price, of course.

This principle has been justified by the fact that the Philippines is
committed to increase its renewable energy resources over the long-term, and
the FIT rates will eventually be lowered as technology R&D improves.

In fact, in the second round of investment calls for 450 MW-worth of solar
projects, the FIT rate was lowered by about a peso to P8.69. Because of the
still generous terms, the investment call was oversubscribed, ending with
some 800 MW of solar projects vying for approval.

Third round jitters

The projects that did not get approval are now asking the government to
reconsider them for the second round rates. They would, after all, need to
apply for incentives under the third round of investment calls, which is
rumored to offer a FIT rate of lower than P8 per kwh.

Clearly, FIT rates for solar is being adjusted to suit current industry
trends. Over the last years, solar energy technology has been improving, and
with this, a drop in the unit cost of solar energy generated. But over the
long term, the guaranteed rates for those that had already received
incentives could become a burden to consumers.

This has been the case for Germany, which has been implementing a similar
FIT scheme since the early 2000s. Today, Germany's vaunted clean energy is
also one of Europe's most expensive, and is correspondingly affecting its
economy.

Considering the cost of using solar energy technology has dropped
significantly, there should be a way of adjusting the FIT granted during the
first and second rounds so consumers may share in the bonanza being enjoyed
by these operators. Let's watch carefully what Germany is going to do about
the expensive clean energy.

Push for solar projects without FIT

For the third round of investment calls, it would perhaps be prudent to slow
down approvals of solar energy investments and wait for better times when
emerging technology will give solar power a generation price almost at
parity with that of oil.

Likewise, consider also reducing the number of guaranteed years. Ensuring
its operations at the currently high FIT rates for 20 years can become
literally murderous for the generations of Filipinos ahead.

Throwing caution to the wind

Similarly for wind energy technology, we should expect downward adjustments
in FIT rates. Modern wind turbines generating electricity have been
sprouting up all over the world, bringing down the unit cost of wind energy.

The current FIT rate of P8.53 per kwh may still be too expensive at this
point, and should promptly be reviewed so the general public is not duly
inconvenienced by unreasonably high power rates, especially in the future.

During the first call for investment proposals for wind energy generation,
all the allocated 500 MW were subscribed. This is now being absorbed by the
grid at P2 more than every kwh of electricity produced by oil-fired
generating plants. While wind energy's share is still a minute fraction of
the total generation mix, it could become a burden in future.

Bad timing

Recently, geothermal energy producers had been asking the government to
include emerging geothermal technology under the FIT scheme. This is just
plain bad timing, given the need to seriously look at lowering electricity
rates for the Philippines to entice more investors in the medium term.

While geothermal power technically comes from water turned into super-heated
steam, and can be classified as green energy, it can have a finite life
cycle, especially if there's over-extraction.

While the cost of generating electricity from geothermal requires massive
capitalization (similar to hydro), recently technology improvements have
decreased its cost during the past two decades, and has made its unit cost
of produced electricity almost at par with coal.

These are indeed exciting times in the energy sector when the world is
trying to wean itself from dependence on finite sources of energy, while
developing new ways of improving current ways of mining renewable energy.

For countries like the Philippines, to keep ahead, it always pays to be
prudent. We can enjoy the sun, the wind and running rivers, but please not
at an exorbitant cost.

--- --- --- --- --- --- --- --- --- --- --- --- --- --- ---

Ref:
http://www.philstar.com:8080/business/2016/09/20/1625388/consumers-burdened-
over-incentivized-renewables

--- --- --- --- --- --- --- --- --- --- --- --- --- --- ---

John Diecker
APT Consulting Group Co., Ltd.

www.aptthailand.com