Calibrating Our RE FIT Strategy for Achieving our Clean Energy Goals

Heeding the Expensive Lessons of the DOE’s FIT Program

David Celestra Tan, MSK
21 February 2020

After the first and second wave of about 2,000mw of Renewable Energy projects enticed by super generous Feed-In-Tariff rates, the RE industry lost its vibrancy. And now solar and wind are at a standstill. It seems to have become too subsidy dependent.

Not much additional capacity have been developed although developers, local and foreign, continue to pursue Solar projects apparently in anticipation of another round of juicy FIT Subsidies. DOE Secretary Alfonso Cusi however has been in no mood to further burden the Filipino electric consumers with more FIT subsidies. Bless his heart.

Providing Feed-in-tariff subsidies for solar, wind, mini-hydro, biomass, and ocean energy is mandated by the Renewable Energy Law of 2008. This RE Law also mandated that to promote the adoption of clean energy, the Distribution Utilities be required to include in their generation mix a minimum level of RE. It is called RPS or Renewable Portfolio Standard. We wish though it is more meaningful than the insignificant minimum 1% set by the DOE’s Renewable Energy Management Bureau (REMB) for compliance.

To implement the RPS program, the REMB is proposing a “green energy tariff” that shall be bench-marked on the degressed FIT rates of the RE Technologies, primarily those on solar, wind, hydro, biomass. That means the DOE’s REMB is proposing practically the same level as the FIT rates of P8.69 per kwh for solar, P7.40 for wind, P6.5959 for biomass, and P5.8705 for hydro.

In a press statement in the Manila Bulletin, Ms. Sharon Montaner of the ERC’s Renewable Energy explained that if the degressed or reduced FIT rates will be adopted as proposed by the REMB as the pre-approved “green energy tariff”,it will be very expensive because these rates were still based on rates eight years ago in 2012. Any decrease in the cost of the technologies will not be captured, she said.

Ms. Montaner continued: “There had been no degressed FITs for solar and wind but rather these are the second wave FIT rates imposed for the higher installation caps set for these two technologies. We only have degressed FIT rates for run-of-river and biomass and these were based on the ERC ruling issued in 2015. The reduced tariff for biomass hovered at P6.5959 per kwh; and hydro at P5.8705 per kwh.

We wish in setting the “green energy tariff”, policy makers would heed the hard lessons of the first and second rounds of FIT and the realities of the solar prices globally.

1. The FIT rate of solar is excessive and unnecessary at P8.69 per kwh in the 2nd round and P9.68 in the first round. At these levels, the consumers are subsidizing solar at the rate of P3.69 to P4.75 per kwh above the avoided cost of average generation charge in the Meralco area. That amounts to tens of billions in excessive subsidies every year.
A basic effort at research should reveal that the lucky and well connected solar companies are making more than 50% margins.

2. The global prices of utility scale solar has been in the P2.50 to P3.50 per kwh range. It is even less in the USA.

3. The solar services granted with these juicy FIT rates by the REMB are not even grid compatible. They do not have their own voltage regulating system that would protect the power grid from their frequent intermittence from passing clouds. To avoid brownouts in the Visayas where about 400mw of solar is installed, NGCP had to buy about 100mw of ready instantaneous reserve just to remedy solar’s lack of self-regulation. NGCP of course is passing this added cost to the consumers as part of ancillary services.
Self-regulation can be in the form of an uninterruptible power supply or UPS that assures the solar facility will continue supplying its level of energy delivery despite its drop in output during passing clouds. It can be 15 minute storage batteries but can be other technologies.

REMB’s proposed “green energy tariff” that is based on the current FIT rates even if theoretically degressed, totally ignores the above lessons and market realities. Unfortunately it will be at the expense of the consumers. On the subject of “degression”, which is also mandated by the RE law, these solar companies that are enjoying generous FIT rates, must be required to make their power plants at least “grid compatible” just like the rest of the industry. The consumers should not be made to pay additional for additional instantaneous reserve on top of the excessive FIT rates.

It is a hopeful sign for consumers that Ms. Montaner of ERC announced that the regulatory agency will instead conduct its own study first before coming up with a formula on the proposed “green energy tariff” instead of automatically adopting the REMB proposal, hook line and sinker, as was done before when the current Feed In Tariff was approved in 2012. Let us hope that Ms. Montaner’s team will at least consider the above realities.

Going back to basics, Renewable Energy does not mean mainly solar. And so far we have already doled out a disproportionate amount of RE FIT subsidies from the first two waves of FITs. There is a need to calibrate our approach to promoting the development of RE by recognizing the unique energy efficiency and economics of each type of RE. We seem to be subsidy biased so one wonders whether our RE policy is to dole out subsidies and not to achieve higher production of clean energy. This tendency is anti-consumer because we are paying for it.

Not All RE’s are the Same

We must also realize that there are significant differences in the RE technologies covered by the RE Law and rate methodologies must be designed to address their unique economic factors to make each one attractive for investments.

1. Solar’s capex cost has dropped significantly by 80% and their output radiance is more known and can be better forecasted. Land however have increased in value significantly. Still, their thermal energy input, which is the sun, remains to be free. This points to a significant reduction in their green energy tariff.

In the least the current FIT rate for solar is already way outdated and referring to it as a degressed to rate when in fact it is not as revealed by Ms Montaner of ERC, is inappropriate. The DOE REMB’s proposal to adopt this outdated high rate and award them through an “auction” held by the DOE is still a dole out scheme. As we have seen, consumers are already paying enough subsidy for solar and it is no longer necessary because solar can be had at less than P5.00 per kwh with 15-minute UPS. Achieving a 1% RPS is easy without subsidies.

2. Wind’s capex cost have also dropped as a result of technological advances and better economies of scale. Their energy resource which is the wind also remains free.

3. The capex of Run-of-the river mini-hydro’s have increased and while water remains to be free, their hydrologic risks have increased due to climate change, deforestation, and annual typhoons.These point to a judicious increasing of the green energy tariff if we are to develop viable mini-hydro facilities.

4. Biomass is something that is significantly different from the rest of the RE because its energy input, feedstocks, in the form of agricultural waste and energy crops, are not only NOT FREE but RISING significantly in prices. In Nueva Ecija rice husk that used to be P500 per ton is now P3,000 in the off-season and P2,500 per ton during the harvest and milling season. That is a result of overbuilding of biomass plants. We seemed to have failed to learn from the known lesson of Thailand on uncontrolled creation of competition for the finite rice husk. But this is not supposed to happen according to some REMB officials five years ago. How can this happen under the supposed strict monitoring by the REMB? The current FIT Rate for Biomass of P6.59 is based on a feedstock price of P1,232 per ton. This points to be a different rate methodology where feedstock prices are passed on up to a certain maximum price.

In other words the REMB, in promoting clean energy under a new Renewable Energy Portfolio Standard or RPS that mandates distribution utilities to embrace renewable energy, is again accepting and endorsing that solar power is worth P8.69 per kwh and wind is P7.40. You wonder why they seem to not have heard that the world market price for solar is the equivalent of P2.50 to 5.00 per kwh. Some basic research also would have shown them that the solar companies who were lucky to move fast enough and to be well connected, are making atrocious margins of 40 to 60%.

The RPS is intended by the Renewable Energy Act of 2008 to boost the widespread adoption of renewable energy by requiring distribution utilities to have a minimum level of RE in their power supply mix. The DOE is targeting to implement RPS this year and the projects to be granted with the pre-approved “green energy tariff” shall be considered via a competitive selection process or auction that will be administered by the energy department.

We would like to throw in the pot our take on Green Energy rate setting and the long term promotion of RE power development.

1. Since Not All RE are the same, unique rate methodologies must be formulated for each one to provide a fair and reasonable rate that will be attractive enough to encourage their long term development and continuous contribution to reducing the countries carbon foot print.

2. Solar

a. See Solar Soar!
If we really want to see solar energy investments and capacities to soar in a way that is not too expensive for the consumers, instead of an arbitrary and proven to be overpriced green energy tariff, why not open the door wide for all appropriate solar that is equivalent or lower than the avoided cost of coal, which is the carbon pollutant that RE is trying to off-set in the first place. If we are currently paying P5.25 per kwh for Meralco’s mostly coal generation supply, why should we not be willing to pay the same rate for solar clean energy? We don’t subsidize it and we get the benefit of clean energy. Plus of course, we the consumers don’t get charged a 12% VAT for RE. Clean solar at this avoided cost rate is welcome even if they generate power only from say 10am to 5pm. They do need to be required to be grid compatible by adding a 15 minute UPS.

This open door policy will encourage investors with better solar schemes and technologies. With the world market for solar feasible at P3.50 to 4.00 per kwh, a P5.25 per kwh green rate for solar with UPS seems very reasonable. Let the proponents figure it out. It should lead to much more solar capacity deployment than we can achieve from a 1% RPS program.

b. Solar can also be required to be part of the power mix in missionary areas that the government is spending billions on every year in missionary subsidies. Adding solar to a hybrid system can reduce total TCGR by about 15% and promote clean energy in many islands where polluting diesel and bunker c are the incumbent energy source.

c. A need to disperse solar locations and insure they are within grid connection range. The killer of solar in the daytime is the passing clouds. We therefore cannot have too much concentration in one area. This aspect must not be under estimated.

d. As to the lucky ones who got juicy FIT rates in the first and second wave, it would be reasonable for the government to adopt a more aggressive regression schedule and as a first step require them to be grid-compatible or self-regulating for at least 15 minutes. (15 minutes allows time for the grid operator to dispatch replacement power from other sources instead of the expensive instantaneous and transient regulating reserve).For judicious guidance in a fair regression rate, an independent audit of the first and second wavers can be undertaken. They should find that an aggressive regression can be done from five years onwards.

e. Wind energy is even more intermittent than solar due to the minute by minute variation in wind volume and speed, despite variable pitch technologies. Carefully chosen sites should be efficient generators of clean energy. Extra care however must be taken when installing them in small island grids because wind power is very disruptive to the system and needs continuous self-regulating systems to be grid-compatible.

f. Mini-Hydro’s seems doing ok with the current FIT rates. Their lack of more widespread deployment is more due to the limited availability of viable sites with consistent hydrology.

g. Biomass is one RE that is not intermittent and can be base-load. Hence it has the potential of contributing significantly to lowering our dependence on fossil fuel. Biomass in various forms generate power from the waste and produce of the human ecosystem. You grow rice, and the husk can become biomass fuel. Your livestock manure can be turned into biogas that can fuel a generator.
The problem with Biomass is that its feedstock supply is not infinite. Its costs can increase and hence its green energy tariff cannot have a fixed rate. In other words the green tariff for Biomass must be flexible enough to allow, with safeguards, the movements in prices of feedstock.
Green Energy Rate for biomass may not be standardized but can allow for variations in each island depending on the cost of feedstock. To protect consumers, the Biomass Green rate can be an acceptable band of say P6.00 to P7.50. The addition of the CSP process will insure that this will not be unreasonably high and certainly not near the propose solar FIT of P8.69 per kwh.

We have learned our lesson on how the solar and wind FIT has been punishing the consumers by tens of billions a year. In this age when it is clear solar’s generation cost has plummeted significantly, it is unfair to consumers to adopt it as the pre-approved green energy tariff.Solar has its role in a RE program. However, Biomass can generate more clean energy per hectare than solar.

We are glad the ERC has decided to conduct its own studies on it and we hope they will consider the evident realities of each of the RE technologies. We need to heed the expensive lessons of the DOE’s FIT program.

We also hope that the Office of the Energy Secretary Alfonso Cusi will further review the REMB proposal.

MatuwidnaSingilsaKuryente Consumer Alliance Inc.
matuwid.org
david.mskorg@yahoo.com.ph