The Philippine renewable energy industry

According to the Institute for Development and Econometric Analysis, Inc. (IDEA), latest Industry Trends, a regular publication produced by IDEA, the Electric Power Industry Reform Act in 2001 pushed for faster growth in the electricity and gas sector, realizing a year on year Gross Value Added (GVA) growth of 5.8 percent in 2002 from only 0.8 percent the preceding year.

After slower growth rates from 2003 to 2005, the second half of  2006 up to 2008 witnessed a higher average growth rate. Due to the global financial crisis in 2009, weaker demand for electricity and gas slumped GVA as it fell by 3.5 percent, before bouncing back in 2010, with a growth of 8.8 percent despite the rotating power curtailments. GVA contracted in the first and second quarters of 2011—with negative growth rates of 0.4 percent and 1.3 percent, respectively compared to the same periods of the previous year—after being named the most expensive country for electricity.

Per IDEA, the industry however, regained momentum climbing by 7.9 percent in the first three months of 2012 from the same period of 2011 as the announcement of FiTs greatly enhanced investment prospects for the Renewable Energy (RE) sector. Positive growth continued for the sector from the third quarter of 2011 to the fourth quarter of 2012 despite overwhelming electricity rates and persistent power cutting storms. Lower than expected FiTs carry uncertain tides Feed in Tariff rates are energy development mechanisms meant to assure renewable energy (RE) developers of future cash flows by charging fixed amounts to end users meant to cover operation, production, as well as profit. Through FiT, the volatility and risk of investments are substantially lessened, assuring developers, investors, and affiliated lending institutions of the viability of renewable energy projects versus long standing fossil fuel projects.

To accelerate the exploration, development, and utilization of RE resources, the government passed the Renewable Energy Act of 2008 (RE Act), which mandates such feed intariffs for wind, solar, run of river hydro, biomass, and ocean resources. Three years and seven months after its passing, the Energy Regulatory Commission (ERC) approved the long awaited FiTs. However, ERC rates are noticeably less than proposed. The approved rates as opposed to those proposed by the National Renewable Energy Board (NREB) are as follows: hydro energy with a FiT rate of Php5.90 per kilowatt hour (kWh) from the proposed Php6.15/kWh; biomass with Php6.63/kWh from Php7/kWh; wind with Php8.53/kWh from Php10.37/kWh; and solar with Php9.68/kWh from Php17.95/kWh. No FiT for ocean and thermal energy conversion resource was set, pending further study, according to IDEA.

Per same published report, the ERC defends such considerably lower prices, especially for wind and solar, under updated construction costs reflecting its downward market trend as well as higher capacity factors to ensure the utmost efficiency of RE plants. While thankful to the ERC for finally approving the rates, many developers strongly contend the lower than expected rates. RE developers doubt the financial feasibility to construct and operate as the FiTs, they say, do not provide much leeway for a profit given operation and production costs. Authorities, however, claim that the ERCs lowered FiTs serve the purpose of cushioning the impact of implementation on electricity prices, while still being sufficient enough to attract new investments in renewable energy. (To be continued)

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