Current FIT and FIT-All Rules Seems UN-FIT for Consumers

By David Celestra Tan
12 October 2014

Last October 1 I attended a Solar Summit at the SMX Convention Center that was organized by the Philippine Solar Power Alliance.

An ERC official explained the current Feed In Tariff program for Renewable Energy technologies covering solar, wind, mini-hydro, and biomass. ERC had previously approved guaranteed Feed-In Tariffs (FIT) of php 9.68 per kwh for solar, 8.53 for wind, 5.90 for mini-hydro, 6.63 for biomass. FIT is what the government (more like the consumers) are guaranteeing the renewable energy producers to be paid for their output. ERC had been trying to determine rules for the FIT-ALL which in turn is the amount that will be passed on to the consumers. They have designated the Transco as the collection agent or administrator of the Fit-All fund.

Transco had apparently applied for the FIT-ALL rate of about 0.045 per kwh that will be charged the national electricity consumers as their share in encouraging clean energy as mandated in the Renewable Energy Act of 2008, or RA 9513. The proposed FIT-ALL rate has been determined by estimating the total guaranteed payments to the registered RE generators and an estimated “cost recovery revenue”, resulting to a net differential. That differential Transco estimated to be 0.045 per kwh which will be passed on to the electricity consumers as part of the Universal Charge.

Now here is where it gets a little tricky and where the Feed-In Tariff program is starting to be unfit for consumers if we don’t watch it. First of all, the Department of Energy had decided that it will increase the target installed capacity of solar that will be subsidized at 9.68 per kwh from the originally planned 50mw to now ten times at 500mw, partly because of the strong investor interest in solar (and good old fashioned lobbying) and second part of its frantic efforts to increase overall generating capacity. Let us remember that the government (and yes actually the consumers) will be on the hook for the guaranteed FIT of 9.68 per kwh for solar and the projected “cost recovery revenue” for RE for about 20 years. There is supposed to be what they call a “regression rate” which means the guaranteed 9.68 per kwh will be reduced over time.

So let’s go to the “Cost Recovery Revenue” rules. That revenue depends on how the eligible RE facility is able to deliver its power to the user. If it is what is called an embedded generating plant it means it is delivering power only to a distribution utility (DU), who pays for the RE energy based on its “average generating cost from all suppliers”. So far this is fair enough. The green energy is sold at the realistic price, which is actually the avoided cost of the DU from other power generation sources. Plus I assume the DU is saving the 12% VAT that is applicable to fossil fuel based energy. RE is VAT exempt.

If it were up to me though I would be charging a “green rate” of say P4.00 per kwh to truly encourage DU’s to promote RE installations in their area and to give true meaning to the positive benefits of green energy. Can you imagine if Meralco knows it can buy green energy at P4.00 per kwh? They would be aggressively pursuing green projects in their franchise area especially in the remote areas of Rizal, Laguna, Batangas, and Quezon. They would be blanketing Talim island with solar and wind.

It is in the cost recovery revenue for grid-connected RE facilities where it does not look appealing to the consumers. Under the proposed FIT-ALL rules, for the RE facilities connected to the national grid, any energy of the RE not absorbed by the DU will be traded in the WESM spot market, the thought of which sends shivers to the spines of consumers because it had been blamed by Meralco itself as the reason for its rate increases (that and El Nino, boiler leaks, and Malampaya) In July the WESM purchases of Meralco averaged P13 per kwh. Unless the WESM rules are changed, it just spoils the broth to throw in a negative into what should be an all positive RE encouragement program. How does it look if the solar power that the consumers are already guaranteeing at 9.68 per kwh will eventually be sold (to them through the WESM) at P13 per kwh? Yes, we can argue that by selling it to the WESM at the high price, the consumers are actually reducing its net differential that will be passed on to the consumers. That rings hollow to Meralco consumers because, it is like paying for RE energy at P13 per kwh so that the FIT-ALL can actually come down to P0.03 per kwh. Why inject that uncertainty? Too convoluted and hard to argue. A predictable green energy rate would be more re-assuring for consumers. There is already too much uncertainty in the power cost to the consumers.

A FIT-FALL is the other costs of RE and Feed-In Tariff program for the cost of technology and equipment upgrading of the infrastructure and transmission system to absorb the variability, fluctuations, and intermittence of RE energy specially wind and solar. Quietly this will be incorporated by transmission concessionaire NGCP and the capex costs will become part of its rate base and allowable revenue. More charges to the consumers.

While on the subject of Renewable Energy and the FIT program, one is wondering why the government is setting limits on biomass and mini-hydro projects which are already grid competitive. There is too much focus on giving fiscal and subsidy incentives which are passed on to the consumers when these two competitive RE’s just need more non-fiscal incentives like shorter bureaucratic redtape.

The RE program as envisioned by the RE Law of 2008 is wonderful. It is in the implementation again that we are stumbling. Actually the consumers would love to absorb and easily afford even at FIT-ALL rate of double which is P0.10 per kwh, if the other anomalous charges in generation and distribution rates are rectified. If we can achieve the P3 per kwh reduction in Meralco’s rate as being proposed by MSK, the consumers can absorb a higher FIT-ALL. Consumers should not mind spending on the right and justifiable services.

The ERC and DOE still have some work to do to make the RE Feed-In Tariff scheme a truly positive program without FIT-FALLS.