The DOE’s Precarious Balancing Act between Renewable Energy and Fossil Fuel Power Generation

by
Friday, 13 May 2011

Renewable energy (“RE”) stakeholders gathered for the first time since the passage of the RE Act in 2008 happened, on 02 and 03 December 2010 for the “RE Conference and Expo Manila 2010”.  Organized by the RE Coalition and the Department of Energy (“DOE”), the conference saw the attendance of at least 350 stakeholders including cabinet-level officials, legislators, international financial organizations, international RE experts, RE developers, members of civil society, the academe and the scientific community, to assess the gains made and the challenges faced in the implementation of the RE Law.

In the RE conference, the DOE vowed to speed up support systems for renewable energy development, admitting that progress on this front in the power sector has been slow as DOE Secretary Jose Rene D. Almendras admitted that implementation of the RE law has been hobbled by delays.  The National Renewable Energy Board (“NREB”) reconstitution took a while as the DOE consulted stakeholders rather than just take it upon government to decide on the membership of the board.  The DOE’s objective was to find the most appropriate representation for each of the stakeholder groups in the NREB.

Secretary Almendras said they expect the collaboration among the Renewable Energy Management Bureau and all DOE bureaus to be fine-tuned by the first quarter of 2011.  The DOE aims to come up in 2011 with renewable portfolio standards (“RPS”) and feed-in tariff (“FiT”) rates upon the recommendation of the NREB, as well as connect the main grid to all operational renewable energy plants.  Formulation of RPS, which will set the capacity needed from each RE technology, is set for the second quarter of 2011; FiT rates that will provide guaranteed payment to RE investors through a universal charge will also be due that same quarter; while connecting the main grid to all existing renewable energy plants is targeted for the third quarter. The green-energy option program is also expected to be done in the same time.

The DOE is reportedly tapping the help of the World Bank to come up with a globally accepted FiT rates and RPS for RE projects as well as seeking the support from all sectors, including non-government organizations to be able to draw up the best FiT and RPS. The RE Coalition has invited a resource person from the World Bank who has had experience on both policy directions and the DOE plans to invite the expert to sit with the NREB and Technical Working Group.  The objective is to find the best possible way to encourage investments into RE without unduly burdening end-users.

The DOE expects that the share of RE in the country’s generation mix would probably decline in the next five years from the present 52% as more coal-fired facilities come on stream. Secretary Almendras anticipates that starting 2015, all the new energy requirements should come from the RE sector.

According to the Secretary, the government had generated investment pledges of more than P80 billion (about $1.8 billion) for RE projects in the last two years but that is a pittance against at least $40.6 billion needed to secure the country’s energy requirements until 2030.  Secretary Almendras urged RE developers to put up 8,000 megawatts (MW) of generating capacity by 2030.  But in the near term, he also asked them to work to set up between 2015 and 2016, at least 2,000-3,000 MW of RE generating capacity.  Secretary Almendras also invited RE developers to also look at the possibilities and build RE generating power plants in non-grid areas.

Based on estimates of the US Department of Energy National Renewable Energy Laboratory, the country’s RE potential stands at 247,000 MW.  The RE Coalition said that while the Philippines is a member of the global community of more than 100 countries that have adopted policies promoting RE use and development and is the second largest producer of geothermal energy in the world, the growth of the local RE sector still trails behind that of other countries.

In the meantime with the looming power shortfall, the Philippine government had been aggressively inviting prospective investors to build coal-fired facilities.  On the upstream side the DOE has identified prospective coal areas that could yield 1.806 billion metric tons, as the government moves to fast-track the development of this resource to secure national energy supply.  The DOE will start offering prospective coal areas under the next Philippine Energy Contracting Round.    It is estimated that P543.9 billion would be needed to develop the country’s fossil fuel resources, mainly for coal and petroleum.  The DOE is expecting 2,700 MW in additional capacity from coal-fired power generation facilities between 2013 and 2015.  As a consequence, the development of RE resources particularly wind and solar, might slow down relative to the development of coal resources until such time that the country’s power supply has stabilized.

The DOE hopes that over P810 billion in new investments is poured in the local RE sector over the next 20 years based on its latest list of planned power projects.  Data from the DOE showed that once completed, up to 6,940 MW could be generated from RE projects that had been put forward by prospective investors. These projects fall under the “indicative” category, which means that the proponents still need to secure the necessary permits, clearances and finances.  In the Energy Investment Forum held on 15 December 2010, the DOE reported that it has awarded 587 RE Service Contracts to serve the grid and estimated the cost of developing indicative RE resources at P902.48 billion.

Cutting the cost of RE projects is a major challenge.  Despite having minimum operating costs, emerging RE technology has relatively high capital costs.  In the meantime, existing and prospective investors into RE are keenly anticipating the proposals of the NREB on the FiT and other standards.  Coming up with the right FiT and RPS is a challenge not only for the DOE but for the whole industry as well.   With the threat of a power crisis in the near term amidst instability of energy supply and a deteriorating environment, the Philippine government must seek a workable balance between the imperative of setting a long-term goal of sourcing majority of the country’s electricity from RE sources and the need to expedite the commissioning of shorter lead-time fossil fuel-based power plants.

Fernando “Ronnie” Peñarroyo is the Managing Partner of Puno and Peñarroyo Law Offices (www.punopenalaw.com).  He acquired his Bachelor of Science in Geology and Bachelor of Laws from the University of the Philippines and Master of Laws from the University of Melbourne.  He specializes in Energy and Resources Law, Project Finance and Business Development.

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