Viewpoint: When consumers’ pockets are ‘gouged’ (Solar’s FIT mess)

(First of two parts)

Manipulation is the new world order – well, savagely! It is quite tragic that this appears to be a “gouging game” even in the Philippine renewable energy (RE) sector.

Now, it is difficult to lift the nation’s spirit to opt for “green energy” when an industry is shaken by investment trickery. This then provokes a stark reminder that: There’s no such thing as “clean energy option” when people in charge of policies would play it “dirty” – especially if such would entail profligate financial burden to consumers or would end up as added costs in their electric bills.

To a regrettable extent, this depicts the recent mess in the precipitous regulatory decision to award the feed-in-tariff certificates of compliance (FIT-COCs) of about 17 solar projects that will form part of the P18.451-billion feed-in-tariff allowance (FIT-All) recoveries – inclusive of FIT differential and under-recoveries in years 2015 and 2016 – to be collected from all electricity consumers for the whole year of 2017. Integrating forecast cost recoveries, the estimated payout to RE developers this year will be at humongous P26.150 billion. In the consumers’ electric bills, the pass-on mechanism is through the FIT-All cost component, which is a separate line item.

To be fair, not all 17 solar projects have been muddled with questions or issues in their required completion under the FIT2 race – or the second contracting round for solar projects qualifying for the FIT incentives or the subsidy scheme from consumers’ pockets aligned for emerging RE technologies. Still, a more nuanced picture and the harsh reality had been that: There are projects riddled with tampering allegations and questions on their data of required completion levels – taking reference on the Department of Energy (DOE)-enforced rules on the FIT race. Pragmatically, this is also unfair to the project sponsors and developers that should have been better qualified to be included and be given COEs in the FIT race. And even more bad news? That development may just have sparked off the real “death blow” on to the RE sector’s bid for any third round of FIT incentives.

To say the least, with single “reckless step,” one sweeping question now torments the industry: has the Energy Regulatory Commission (ERC) “walked into a trap” when they were prodded to approve the FIT-COCs of the specified solar projects without waiting for the outcome of an ongoing DOE review of the FIT-endorsed projects?

DOE’S REVIEW OF THE FIT ENDORSEMENTS

The solar FIT 2 race sets off – ideally a fair contest – among project developers into cornering what had been dangled as R8.69 per kilowatt hour (kWh) degressed FIT for the second round of solar farm installations – yet miserably, this seems ending up in a “death match.”

Prior to the approval of the remaining solar-FIT COCs, the DOE carried out a review of the previously issued certificates of endorsement (COEs) by its Renewable Energy Management Bureau (REMB) on the FIT availments of the earlier qualified solar projects. This step was generally premised on the multitudes of complaints lodged by solar developers dislodged in the FIT2 race, but were grumbling about “altered rules and unfair validation schemes” done on some projects.

Energy Secretary Alfonso G. Cusi made upfront public pronouncements on this. In his several interviews with the media, he stated his position in this wise: “the FIT COEs were already submitted when I took office, all of the 500MW (megawatts) have already been endorsed to the ERC. So I had to weigh in: shall I recall them? But I said, that’s already done, and I told the ERC, you can process them already in accordance to what the rules prescribe because that is your function, but if there is a problem, you must revert them to us.”

This was re-stated by the energy secretary in his letter to ERC Chairman Jose Vicente B. Salazar dated October 26, 2016. In that correspondence, Cusi reiterated: “to further improve and streamline the DOE process for future RE developments, I have directed the review of DOE Department Circular No. 2013-05-0009. In the meantime, this review should not delay the ERC’s issuance and approval of the FIT-eligible COC to the qualified RE developers.”

However, the plot thickens when the ERC chairman sent a letter-response to Mr Cusi on November 8, 2016, stipulating the regulatory body’s findings on the state of completion of at least two solar power projects that were granted endorsements for FIT availments by the previous DOE leadership.

“The Commission observes that two (2) of the solar power plants have only reached sixty-five percent and 48-percent of their dependable capacities namely Enfinity Philippines Renewable Resources Inc. and Solar Powered Agri-Rural Communities Corporation (SPARC),” Salazar said. Under the rules, solar projects are required to achieve the required 80-percent electro-mechanical completion before they can justly qualify in the FIT race.

Salazar added these solar farms that have been issued COEs by the DOE seem to have reached commercial operations date (COD) at a later timeframe compared to other projects that also joined the FIT race. Enfinity Renewables has 22.33MW capacity; while the SPARC solar farm in Zambales is of 5.02MW capacity.

The biggest plot twist happened though when the ERC surreptitiously approved in December the FIT-COCs of the 17 COE-backed solar projects, including the two projects with questions that were referred back to the DOE. That major stride had thrown the DOE off-track when it comes to rectifying whatever mistakes there have been in the FIT-endorsed projects – and inevitably for consumers to be spared from paying unjustified subsidies.

SKEWED PROCESS

Manifestly, there were processes skewed along the way – and haplessly, this would screw up Filipino consumers in the next 20 long years.

This was how things turned fuzzy and suspicious. Straight off, with just a stroke of the pen, the newly installed Chairman of the National Renewable Energy Board (NREB) – lawyer Jose M. Layug Jr., instructed the ERC to already process the FIT-COCs of the 17 solar projects in the 500MW-capped FIT2 race.

Layug, in his letter dated December 8, 2016 to ERC Commissioners Geronimo D. Sta Ana, Alfredo J. Non, Gloria Victoria C. Yap-Taruc and Josefina Patricia M. Asirit stated that: “consistent with the data and slides presented during our meeting, I re-affirm that the 17 solar power projects were endorsed to ERC for issuance of the FIT-eligible COCs upon their full compliance with the technical and administrative requirements of DOE Department Circular No. DC2013-05-009, otherwise known as the FIT Eligibility Guidelines.” Salazar, at that time, was on official leave of absence.

That correspondence was later re-affirmed in a speaker phone conversation’ that the NREB Chair had with one of the ERC Commissioners and recorded in the minutes of the Commission meeting of the regulatory body. According to sources from the ERC, Layug was giving the impression that he was just executing an instruction from the energy secretary, but Cusi subsequently made it clear that he had no prior knowledge of the circumstances relating to the controversial approval of the FIT-COCs. Supposing for the sake of argument, the NREB Chair was in fact under Secretary Cusi’s instruction, how come it was so evident that the DOE or Cusi was not in the CC (courtesy copy) of the letter when even the ERC director-in-charge was included in it? Some solid and legally valid explanations are needed.

Any way one looks at it, this move was lopsided and unwarranted because it was never the job of NREB to dip its hands or cannot be a “higher power” to maneuver approval of the FIT endorsements of the DOE. As fleshed out under Republic Act 9513 or the Renewable Energy Law, its functions delve with: recommending to the DOE policies relating to the Renewable Portfolio Standards (RPS); helping set the RE generation capacity limits for off-grid areas; and drawing up the National Renewable Energy Program (NREP) as well as oversee and monitor its implementation.

When asked on this concern, Layug reasoned out that he had taken note of the energy chief’s desire for the FIT-COCs’ immediate approval based on what had been reported in the media and that had been the basis of his action. Oh, emm… it seems not! Point blank, this is not among those that can just be cast as one of Kellyanne Conway’s prankish “alternative facts” – but more of having someone’s hand caught in the cookie jar. To be clear, even in those media interviews, Cusi provided clear qualifiers in case the ERC renders decision and when there are problems in the solar projects with COEs.

Circling back to the REMB validation of the FIT-endorsed projects, the DOE was similarly quizzed on what industry players perceived as “rule changes” in the middle of the game – including findings on three projects (particularly the 2.04MW Lian; 10.26MW Cabanatuan and 5.02MW Palauig solar farms) that had their WESM registrations later than their validated commercial operations date. It is worth noting that the WESM registration must come first because that entails readiness to sell capacity, which is a key requirement prior to reaching state of commercial operations.

Beyond these questionable levels of project completions, there are also quibbles about imposition of added requirements to some projects developers – like the installation of remote terminal units (RTUs) for solar project developers in the Visayas grid while this is not a requirement for Luzon and Mindanao developers. “Soak test” or the test system of ensuring the continuous production capacity of the plants had also been reported to be three days for Visayas developers; but just a shorter one day for Luzon and Mindanao solar project investors; others also questioned the hasty issuances of FIT-COCs for some solar projects, straddling just some days while the rest had to wait for three months; and the nationality requirement of the project sponsors of one solar farm development. (To be continued)