DOE’s “First Come First Served” Approach to RE FIT Allocation Outdated
David Celestra Tan
20 December 2014
When the subsidized rate for Renewable Energies were announced by the ERC, many green energy companies, local and foreign wanted to take advantage of such attractive rates. But the Philippines, evidently aware of the potential cost to the government or the consumers of uncontrolled RE power, established limits on how much each RE power shall be installed and subsidized.
The DOE, under the leadership of then Energy Secretary Rene Almendras, established the limits on each of the RE technologies as follows:
Solar: 50mw
Wind: 200mw
Biomass: 250mw
Mini-Hydro: 250mw
Ocean: 10mw
Total of: 760mw
During the time of Energy Secretary Reyes, there was an unprecedented amount of RE projects being accredited and given permits to develop projects. Some in a matter of weeks after application. It was like the great Louisiana land grab!
The ERC eventually approved the Feed-in Tariffs per kwh for each of the RE technologies
Solar: P9.68
Wind: 8.53
Biomass: 6.63
Mini-hydro: 5.90
Solar energy originally lobbied hard for P17.00 per kwh hence the low allocation. Can you imagine a subsidy of P12.00 per kwh for solar?
None for Ocean (bless your heart ERC!)
The difference between these rates and the average generation of each of the distribution utility using the RE energy will be the subsidy. In the Meralco area, this means, each solar energy produced will be subsidized at P4.28 (assuming a solar FIT rate of 9.68 minus the average rate of Meralco of 5.40 per kwh.)
The wind projects will be subsidized by P3.13 per kwh.
Now the question for DOE is who will be the lucky ones that will be given these subsidies?
By the time the new team of Energy Secretary Carlos Jericho Petilla arrived at the DOE, not many of the Reyes-registered RE projects had progressed much. Partly because the Feed-In Tariff rate took sometime for the ERC to approve. But mostly, many of the registrants turned out to be opportunists and speculators. The DOE announced that the best way is to allocate these subsidies on a “first come first serve basis”.
Now many RE power developers are racing against time and each other to complete their project and be declared to have achieved “commerciality”.
By all indications, solar is now oversubscribed and wind is too. Magically, the DOE announced that they will increase the allocation for solar to 500mw from 50mw, a ten-fold increase, with every kwh of energy produced receiving P4.28 per kwh in feed-in tariff subsidies. That is approximately P600 million in monthly subsidies (P7.2 billion a year and P72 billion over 10 years!) for 500mw of solar from the original P60 million a month or only P720 million a year.
The way wind projects are being announced it can reach about 350mw in two years. That would take about P322 million a month (P3.8 billion a year) in subsidies from the original P185 million a month or P2.2 billion a year.
Biomass and mini-hydro are undersubscribed so far.
DOE’s “first come, first served” allocation is actually contradictory to sensible power project investments and development. Who would put in money, not knowing that you will get the FIT rate, until you finish your plant? Most solar projects are being pursued on the expectation that the target will be increased to 500mw. Power Investment is not a crap-shoot. The DOE’s first come first served approach had worked only in the beginning because there were not enough players and projects. Now that there are many, the FIT allocation or eligibility must be updated to more sensible and predictable methodology.
The DOE must now subject the allocation to competitive bidding and the lowest offers get the allocation. Solar developers must achieve a certain level of development before they are eligible to bid. Presumably before they start construction.
Competitive bidding will bring down the cost of solar power from the current FIT of P9.68 and wind from the current P8.53. The DOE must also factor in the cost of the transmission lines for the proposed location. Competitive bidding, instead of being stuck with a 9.68 per kwh, will bring down the RE subsidy from the P4.20 per kwh for solar and P3.13 per kwh for wind. Costs of solar installations are continuing to fall and the subsidies must similarly come down.
Beyond that, continuing with a “first come, first served” approach will discourage real developers because it is actually too risky. And why 500mw of subsidized solar energy? Why not 250mw only and the rest be focused on roof-top solar that may not need FIT subsidies.
Why do we always take for granted that the electricity consumers can be charged whatever and however the government and the power industry decide are chargeable? We need to keep the other eye in the cost consequence to electric consumers of the policy decisions and government rules.
Lets hope the DOE updates its first come, first serve approach and reduce the subsidies that will be absorbed by the electricity consumers as FIT-ALL.
Happy holidays!
Matuwid na Singil sa Kuryente Consumer Alliance Inc.
