Renewing calls for renewable energy bill passage: Part 1

By J R Ruaya

Lost in the din of the clamor for lower electricity rates and soaring oil prices which have already reached $130 a barrel is a piece of legislation which could alter the whole energy scenario in the years to come, but is unfortunately slowly gathering dust in the halls of Congress: the renewable energy (RE) bill.

Dubbed Senate Bill No. 2046, or “AN ACT PROMOTING AND ENHANCING THE DEVELOPMENT, UTILIZATION AND COMMERCIALIZATION OF RENEWABLE ENERGY RESOURCES”, it seeks to provide a coherent policy framework of the development of renewable energy sources of the country. It is actually a consolidation of some 18 bills and resolutions which have been filed during the past several years, but which have not been acted upon by our legislators.

It has been certified by President Gloria Macapagal-Arroyo as urgent and listed by the Legislative-Executive Development Advisory Council (LEDAC) as one of the 28 priority bills which need to be passed by Congress. At the moment, it is only being considered for approval at the Senate committee level.

If this is indeed, an important piece of legislation, why is it that it has not received ample attention due to it? Considering its various incarnations, the bill has been pending in Congress since 1997 at least.

To be sure, the bill is non-populist, does not have grandstanding value as a probe like the NBN-ZTE deal, and its deliberations do not invite a live media coverage. Even before it could take off, some militant groups are already denouncing it, due to the fear it may aggravate electricity prices woes.

Environmental advocates on the other hand, warmly embrace it. For example, the group calling itself the Renewable Energy (RE)Coalition, a broad-based advocate for clean energy sources, has been at the forefront in the lobbying for its passage.

Other environmental groups, in an ironic twist, have taken the cudgels for the bill's passage, but on the same breath, bitterly oppose geothermal power development. Such an ambiguity in position could be partially traced to inadequate appreciation of the bill's provisions.

Incentives offerred

Catherine Maceda, head convenor of the RE Coalition, noted that in a much publicized survey, 77% of investors puts the highest priority to a predictable regulatory regime before they cough up investment money, while capital constraints fare poorly at only 10%. She went on to suggest that a coherent renewable energy policy such as that embodied in the bill is what is needed to jumpstart the development of significant amount of energy from renewable sources.

So, the renewable energy bill is the answer?

The bill offers a mixture of fiscal and non-fiscal incentives for developers of renewable energy sources. The fiscal incentives offered to risk-taking investors include (1) an income tax holiday, (2) preferential real estate tax rates, (3) exemption from import duties for capital equipment and (4) a reduction of government shares from royalties, among others.

For non fiscal incentives, the bill introduces a number of features which by themselves, are unfamiliar to most people, even to stakeholders in the energy industry. These are:

(1) the Renewable Portfolio Standards (RPS) which is a market based policy that requires electricity suppliers to source a certain portion of their supply from RE;(2) the Renewable Energy Market (REM) where RE power can be traded, purchased or sold, as part of the infrastructure support to facilitate compliance with the RPS mandate. It is envisioned to be a module of, linked to and be a function of the Wholesale Electricity Spot Market (WESM)(3) the Green Energy Option (GEO), which gives consumers the choice to use RE. In essence, it is claimed the Green Energy Option accelerates the open access concept under the Electric Power Industry Reform Act (EPIRA) of 2001.

(4) the Net Metering arrangement, allows distribution grid users who may produce RE powerand be appropriately credited with its contribution to the grid;

(5) The Minimum RE Generation Mandate for power generators in off-grid areas, which is expected to widen access to energy services to the rural constituents

Institutional support

Government and institutional support are embodied in the general provisions which create the following:

(1) the National Renewable Energy Board (NREB) which has the following functions:

(a) Evaluate and recommend to the DOE the mandated RPS and minimum RE generation capacities in offgrid areas, as it deems appropriate;

(b) Recommend specific actions to facilitate the implementation of the National Renewable Energy Program (NREP to be executed by the DOE and other appropriate agencies of government;

(c) Monitor and review the implementation of the NWP, including compliance with the RPS and minimum RE generation capacities in off-grid areas;

(d) Oversee and monitor the utilization of the Renewable Energy Trust Fund created pursuant to Section 19 of this Act and administered by the DOE;

(2) the Renewable Energy Trust Fund, which has the following functions and objectives:

a) Finance the research, development, demonstration, and promotion of the widespread and productive use of RE systems for power and non-power applications;

(b) Support the development and operation of new RE resources t improve the competitiveness in the market;

(c) Conduct nationwide resource and market assessment studies for the power and non-power applications of renewable energy systems;

(c) Propagate RE knowledge by accrediting, tapping, training, and providing benefits to institutions, entities and organizations which can extend the promotion and dissemination of RE benefits to the national and local levels; and

(d) Fund such other activities necessary or incidental to the attainment of the objectives of this Act.

Will it work?

With the basic provisions spelled out, one has the impression that the bill is saying a mouthful, but may signify nothing tangible. The bill obviously borrowed concepts mainly from the developed world, but the first question is, are we ready for these? Have we thought out the consequences once these policies are adopted? Is the current industry structure ready for any of these policies?

There is nothing wrong with adopting best practices from other nations; in fact, by doing so, one avoids the pitfalls of groping in the dark.

The fundamental premise for any of these concepts to work is an open, free and competitive energy and electricity market, which obviously we do not have. Seven long years after the passage of the EPIRA law, we still do not have a truly competitive wholesale electricity spot market. The one which is pretending to be is only confined in Luzon, and has been mired in controversies such as price-fixing.

The privatization of generating assets falls short of targets. The winning concessionaire for the transmission grid still lacks a legislative franchise to operate. Except for major cities, the electricity distribution network is still in the hands of inefficient, highly subsidized electricity cooperatives which are more often than not, under the whims and caprices of local politicians and moguls. Will these be covered, say, by the renewable portfolio standards?

The bill is even hazy on such very fundamental definition as what constitutes renewable energy sources? Large-scale hydro and mini- or micro-hydro are obviously renewables, but would these be treated equally? How about rooftop solar photovoltaics and grid-connected solar arrays? What about geothermal? Would all the laws governing geothermal development be superseded by the bill once it becomes law (it ought to be, by the rule of law)?

If the objective of the bill is only to have a motherhood statement policy, like the Constitution, fine. But for the bill to attract significant amount of investment in renewables, it sorely needs auxilliary laws which are clear and unambiguous. In various states of the U.S. and in countries of the European Union, each of the concepts lumped into the bill, such as RPS, Green Option, net metering, etc., is usualy contained in a separate piece of legislation, each with its detailed rules of engagement.

A more fundamental question is: are any, a combination, or all of these policies enough to jumpstart RE development?

Conspicuously absent is a feed-in tariff policy which requires only low cost deployment, but that has single-handedly pushed the explosive growth of wind and solar power in the European Union. Belatedly, the United States and Canada is playing catch up with several states like Michigan, Minnesota and Illinois in the U. S. and Ontario in Canada, rushing up their feed-in tariff policies only in the last few months.

Interestingly, Northwind, the developer of the wind farm at Bangui Bay, Ilocos Norte suggests a feed-in tariff specifically for wind projects to support the emerging source, but has only been met with blank stares.

Better than nothing?

As crafted, we have a bill noble in intentions but lacking much in substance. Shall we push for its passage, despite its flaws?

Microsoft, the software giant, has the propensity of releasing imperfect products only to correct flaws in mid stream. Would we follow the same tack?

At the moment, the best argument for its passage is, at least we would have a framework policy on which to build up the detailed structure later.

But, if you pass it, would they (investors) come?

Would the bill when signed into law actually pushes the energy industry into a more open and competitive market, or would we wait for an open and competitive market before acting on the bill?

Despite a perceived noise to the contrary in the mainstream media, there have been not much sober, analytical and methodological discussion on the merits and weaknesses of the bill. I am not aware of any scientific-based concept or white paper probing the implications of any of the aforementioned provisions in the Philippine context. What is passed on as discussion in the media is mostly histrionics for or against it.

This corner hopes to contribute to the discussion in future posts.