The Philippines: Incentives pave way for renewables growth

A new incentives programme to be rolled out across the Philippines next year is expected to help the government boost the renewables sector, while also meeting rising domestic demand for power.

The programme will make additional payments available to energy companies for electricity generated by non-conventional means through the introduction of feed-in tariffs (FIT). However, the slow pace at which the scheme is being introduced and changes to its format are already frustrating private developers.

The need for investment in the Philippines’ power sector is growing and could soon become critical. According to a report issued at the end of March by the Energy Development Corporation (EDC), the country’s largest producer of geothermal energy, demand for energy in the main regions of the Philippines is expected to increase between 4.3% and 5.2% annually over the next five years.

The government’s National Renewable Energy Programme, which came into effect in 2011, calls for a near trebling of renewable energy capacity from its current level of 5438 megawatts (MW) to 15,304 MW by 2030. Achieving this target would give renewables around half of the domestic power generation market, while putting the Philippines at the forefront of alternative energy production.

The government hopes that FITs, which guarantee companies producing renewable energy a higher payment than the set rate given for conventional power sources, will help steer the Philippines towards its goal. The FIT scheme was first floated in 2008 in legislation tabled by the government of the time to make the segment more attractive to developers.

In July last year, the Energy Regulatory Commission approved proposed FIT rates for key renewable energy sources. Run-of-river hydroelectric power sources was given a P5.78 ($0.14) kilowatt-hour tariff, biomass P6.60 ($0.16), wind P8.26 ($0.20) and solar P9.50 ($0.23).

The rates were below the levels sought by the Renewable Energy Board, with the tariff awarded for solar power just over half the figure requested. However, the commission stood by the rates set, saying it believed they were high enough to attract investment, but would also soften the impact of incentives on electricity rates.

In an interview given to Agence France Presse at the end of March, Mario Marasigan, head of the Department of Energy’s Renewable Energy Management Bureau, said the first projects eligible for FIT should be up and running next year. Marasigan added that he expected solar power plants of between three and five megawatts to top the list of new ventures.

Although the launch of the FIT scheme was broadly welcomed by the industry, concerns were raised that its deployment was taking too long, with critics suggesting that delays risked discouraging investors.

A decision to amend the programme was also questioned. The government recently set out a clarification that FIT guarantees would be given to firms only once a project was operational rather than at an earlier developmental stage. Energy Secretary Carlos Jericho Petilla said the alteration in the terms was aimed at ensuring that only firms committed to seeing through renewable energy projects would embark on the programme.

However, critics have voiced concerns that the amendment could make it more difficult for some energy producers to obtain financing, especially smaller outfits. They argued the change favoured larger firms which were often better capitalised and found it easier to access funding.

In early April, Jesse Ang, the resident representative of the International Finance Corporation of the World Bank group, suggested that the amended terms for granting FIT certifications could affect the development of renewable energy projects, while also impacting investors’ choice of energy sources.

“Clearly, without assurance of FIT, you also have to find another way to have an assurance, so the cheaper technologies like hydro will have an advantage over the wind and solar sectors which really need FIT rates because they are very expensive,” Ang said in an interview with the Manila Bulletin on April 5.

Marasigan said the setting up of a new energy financing scheme was an involved process. “A FIT mechanism is relatively new to us,” he said. “It took us a while to learn and really decipher what is the best means for us.”

There is little to suggest that changes to the FIT guidelines are causing projects to be cancelled. Figures indicate that investment in the renewable segment is already on the rise, with the potential for above-tariff earnings expected to bring further expansion to the industry.

 

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