The wind blows stronger in the north

Recently, the Northwind Power Development Corp., operator of the Bangui Bay wind farm in Ilocos Norte, has announced that it has completed the expansion of its project to 33 MW. Initially, the project started in 2005 with a capacity of 24.75 MW. The wind source provides 40% of the requirement of the local distributor, the Ilocos Norte Electric Cooperative (INEC).

On top of this, the Company will also put up a new 40-MW wind farm project in Aparri, Cagayan this year which costs up to $95 million. This was announced by Northwind chairman Fernando Dumlao who also said that the expansion program will be undertaken by a recently created subsidiary.

“We are pursuing our expansion plans because wind is a renewable form of energy and it is very timely because of the passage of the Renewable Energy Bill,” he said.

We can only heap praises for Northwind for undertaking this initiative to develop aggressively clean energy sources despite the lack of implementing rules and regulations (IRR) in the newly passed Renewable Energy (RE) Law.

As it is, a wind development such as the Bangui Bay project cannot hope to compete with traditional sources such as coal or natural gas-fired power plants without incentives such as those embodied in the RE Law. The project only came to fruition because it was registered under the Clean Development Mechanism (CDM) of the Kyoto Protocol. Under the mechanism, the project has been able to generate so-called carbon or emission reduction (ER) credits which can be traded in a carbon market. The carbon credits represent the amount of avoided carbon dioxide emissions--which totals 356,000 tons over the project life of 10 years--if it were a fossil-fuel based project.

It helps that financing was provided by essentially zero-interest loan from the Danish Development Agency (DANIDA) which contributed to the viability of the project. The covenant of course requires that the project source its wind turbines from Danish manufacturers. Other projects won’t likely have these incentives.

For the case of Bangui Bay project, the ERs generated are purchased by the Prototype Carbon Fund (PCF), a consortium of six governments and 17 private companies, which authorizes the World Bank, as Trustee, to purchase ERs in behalf of the fund. Because the prices of the tradable certificates which represent the ERs generated have escalated rapidly since the start of the project, the Fund (and its investors) would already have profited much from the project. These profits should have gone directly to Northwind and its investors if the ER credits were directly traded by them.

But the CDM has a sunset clause; which means that one could only avail of its benefits within a time span, which I believe, will end in 2012. Beyond that, the project will be on its own, financially.

It would be too risky to put money to a clean energy project where its viability comes solely from the CDM, or through generous governmental loans, as in the case of Bangui Bay. This is where the RE Law should come into the picture.

Two of the major provisions of the RE Law (excepting the usual financial incentives such as tax breaks) that should impact greatly to wind (and solar) energy projects are: the renewable portfolio standards (RPS) wherein electricity distributors are compelled to source a percentage of their supply from renewable energy, and feed-in tariff, which puts a premium on the electricity price from renewable sources.

It is important that the detailed provisions of the RPS would now be established so that a potential developer could now input the effect on the viability of the project. One cannot just pluck a “nice” percentage number out of thin air; the concerns of all the stakeholders—energy producer, distributor, consumers and even the local government units—must be taken into account by those who are tasked to write the provisions.

Determining the feed-in tariff is not straightforward. An in-depth study needs to be made to come up with an amount acceptable to all stakeholders. At present, the tariff paid by INEC to Northwind is set by an electricity supply agreement (ESA). The feed-in tariff is on top of this price.

The Bangui Bay project, being the first wind farm to be established in the country, should be considered the prototype of similar renewable energy projects in the future. It has provided the necessary numbers and insights which could fine tune the new RE Law.

With the trailblazing work of Northwind and the RE Law, we have high hopes that wind power would blow stronger not only in the North but throughout the archipelago as well.