The U.S. also bails out its renewable energy industry

Buried within the 400 or so pages of sweeteners that were added to the recent $700 billion bailout package for the U.S.  financial sector that has been signed into law by President George W. Bush is a provision which breathes life to an anxious nascent renewable energy industry.

This is the extension of the Production (PTC) and Investment Tax Credits (ITC) which was unexpectedly passed as part of the Emergency Economic Stabilization Act of 2008 (H.R. 1424), as the bailout plan is officially known.

For months renewable energy practitioners--developers, investors, manufacturers and would-be users--could only wring their arms in anguish as they watch the spectacle of legislators bickering among themselves whether to extend or not the tax credits.

They view these tax credits as a lifeline to the whole renewable energy industry--solar, wind geothermal, and now the marine energy technologies--before it gets to its own maturity. The provision will extend the PTC for one year and the ITC for eight years.

The other highlights of the package include:

• Eliminating the $2,000 capon the residential ITC
• Allowing utilities to obtain ITC
• Authorizing $800 million for clean energy bonds for generating facilities using renewable sources
• Creating an ITC for so-called marine energy technologies which include tidal, wave current and ocean thermal

The solar energy industry is particularly ecstatic. The legislation "will enable (solar) companies to continue to invest in American production, American jobs and America's energy independence," said Mark Finocchario, president of SCHOTT Solar.

The wind industry considers the tax credits essential to the growth of the industry. In the geothermal sector, these credits encourage aggressive growth and support rapid deployment strategy for building geothermal plants within the decade, said Brent Cook, CEO of geothermal developer Raser Technologies.

That such incentives are vital to the industry can be seen in recent history. In 1999, 2001 and 2003 when Congress didn't renew the tax credits, wind power installations dropped by 93% in 2000 and by 74% in 2004.

Prior to the signing into law of the bailout package, wind developers have been putting projects on hold because financial institutions have been reluctant to fund these projects with only a glimmer of hope that the tax credit will be renewed, said Leon Steinberg, CEO of National Wind, a leading wind energy developer.

The solar industry relies on a 30% credit on new investments. If the credits were not renewed, the solar market could collapse, and solar-technology firms could end belly up,  according to an industry insider.

Our honorable senators and House representatives should take heed of the lessons from the U.S. situation. Their dilly-dallying of passing the renewable energy bill has cost the country enormous amount of opportunity losses.

Now that the bill will become law upon its signing, our legislators should realize that their job has only begun. We need to put some substance into the skeleton bill that they have just passed.

Making energy experts out of our legislators

The Senate has finally passed the renewable energy bill on the third and final reading after languishing for eons at the committee level. Now, it is up for Congress to reconcile both the Senate and House versions before the bill could be signed into law.

The news is a welcome whiff of fresh air; a respite from endless bickering among senators and parade of scandal accusations.

Why should our lawmakers take years to "read" important pieces of legislation? Due to delays in reading,  some bills are overtaken by events that they are no longer relevant. An example is the law dismantling the telecommunication monopoly years back. That law requires the new entrants to put up x kilometers of landlines if they wanted a piece of the action. Due to delays, the wireless revolution made many of these landlines virtually useless and nearly drowned those who did the mandatory roll out.

Nowadays in the U.S., energy issues occupy as much prominence and generate as much debate as Iraq and Afghanistan. In July for example, a bill to curb excessive speculation on oil was sponsored at the height of the oil price madness. This comes on the heels of a landmark passing of the energy bill of 2007. On the pipeline are a highly complex legislation on carbon emission through a cap-and-trade program and a carbon tax.

These pieces of legislation are highly involved and demand extensive research and voluminous background material.

What makes the U.S. energy lawmakers seemingly expert in this area whom I would imagine to be of similar breed as our local donkeys?

The September-October issue of EnergyBiz, a leading and award-winning publication in the energy sector, offers an explanation. On complex issues like futures trading, emission offsets and incentives to alternative energy developers, members of Congress usually turn to little-known Congressional Research Service (CRS) office.

Located across the Capitol, the CRS is one of the three major agencies that help Congress perform its job well; the other two being the Government Accountability Office (similar to our Commission on Audit) and the Congressional Budget Office which assists in determining the cost of legislation and other budgetary matters.

What makes it different from the energy committee staff for example, is that it is non-partisan and is not associated with any of the political parties or with the executive branch. The CRS listens to lobbyists but considers their position with healthy skepticism. It shifts through contradictory reports, verifies the veracity of data sources, and is ready to shoot down assumptions forwarded if need be.

For example, during the debate of the Clean Air Act of 1990, the CRS both examined the wide gap between the Environmental Protection Agency's cost estimate of $25 billion for the industry as against a claim of $80 billion by the National Association of Manufacturers.

We need a similar body to advise our honorable ladies and gentlemen in Congress on such matters as energy policies, alternative energy incentives, science development, consumer protection in the face of melamine and endosulfan scares, drugs policy and the like.

On energy, the Department of Energy can only do little, as it is beholden to its boss at Malacanang, and is subject to political machination come appointment time and budgetary allocation.

Like its U.S. counterpart, this proposed body should be composed of experts in energy, and doing full-time work in support of energy legislation. Its professionals should constantly monitor the radar screen of energy development, energy innovation and worldwide trends in energy policy.

If one observes a senate session during those few times when its members are actually talking about sensible legislation, much of the time is spent on points of clarification simply because our lawmakers are not well-grounded on the subject at hand. All the finer points of legislation should have been resolved even before a proposed legislation is brought before the members of a committee--not during a plenary session.

One cannot just pull out an academic teaching heat transfer and declares him a resource person and an expert on energy efficiency. Or hire a fresh graduate in science and ask her to research on energy policy.

Creating meaningful energy legislation cannot be relegated to the same level as the congressmen's favorite bills of renaming streets and towns in honor of their deceased forebears.

DOE plans yet another energy plan extending to 2030

THE GOVERNMENT, through the Department of Energy, is at it again.

In a recent briefing, Energy Secretary Angelo T. Reyes told the media that the Philippine Energy Plan (PEP) would be extended to 2030 as the 2005-2014 plan was "not applicable to some regions" which can be interpreted as an oblique admission that the original plan was full of holes, to put it kindly.

We are only three years into the original plan, yet we are effectively dumping it in the guise of extending it far into the future when nobody wouldn't, or couldn't, validate the plans.

The 2005-2014 PEP targets a 60% energy self-sufficiency level by 2010 and pursues effective reforms in the power sector. In effect, these aims are no longer valid.

The major problem of such a plan is not so much on the length of time, but on the soundness of the content. If one looks back at the 2005-2014 PEP plan, some are bordering on the grandiose bereft of solid fundamentals. Even a simple assessment of the electricity supply and demand situation for the next few years was off the mark.

Some aims were more of motherhood statements than concrete plans. For example, the plan aims to make the Philippines the number one producer by 2014 I believe, yet no rigorous verification was made whether such listed areas were in fact capable of producing the indicative MW outputs. If one were to compare our geothermal program with those of others such as the US and Indonesia, the gap between our production with US will widen by a huge margin, and we would be eating the dust of Indonesia even if we only count the committed and ongoing geothermal projects of the latter. We will surely slide to third, or even fourth worldwide.

For another example, the plan declares that we would be the premier wind energy producer by the end of the period, yet there is not even a comment whether the infrastructure to achieve such aim is in place. The Department cannot even push for the passage of a renewable energy bill which could be a springboard of a nascent renewable energy industry to significantly grow. The renewable energy bill itself, which is pending in congress for ages, does not have much substance.

The Department even relies on a study by the U.S., National Renewables Energy Laboratory (NREL) for the inventory of our own wind energy resources.

What the Department could do for example, rather than making yet another grand plan that stretches far into the future, is to set down and carefully study the implications of the renewable energy bill's provisions.

The end product could be white papers on renewable portfolio standards, how to set up the net metering infrastructure, or even the pros and cons of a feed-in tariff system which jumpstarted the wind and solar power industries in many areas of the world, but did not merit any mention at all in the RE bill.

Our legislators are too busy politicking to come up with really outstanding pieces of legislation that could help shape our energy policy. At the very least, the Department could pitch in to educate our lawmakers. Whatever comprehensive energy policy we have, if any, would now be sorely antiquated.

In the meantime, the international energy industry is in a swirling vortex, with energy and commodity prices in a wild roller coaster ride, and all our policy makers could do is watch helplessly in the dust, and wonder what has happened.

Capital intended for energy infrastructure around the world has been zigzagging across national boundaries, looking for worthwhile projects, but most are bypassing the country. Why, the DOE should ask.

Trading of carbon credits and other energy related financial instruments has been swelling at a blistering pace for the last two years, with the voluntary carbon market-- as opposed to the regulated carbon market-- tripling each year in value with hardly anyone from our energy policymakers noticing. The generators of these trad able instruments come mostly from renewable energy projects from developing countries, the Philippines included, only if we have put the right infrastructure in the first place.

There are many other worthwhile projects for our DOE other than crafting yet another nebulous energy plan.

Net metering: Enticing self-generating companies back to the grid

(Part 2 of a series on the renewable energy bill. See "Renewing calls for the renewable energy bill passage: Part 1", May 29, 2008)

By J R Ruaya

Apparently trying to deflect some of the criticisms hurled against it, the Manila Electric Company (Meralco) is now urging self-generating companies to directly connect to the grid to help in efforts to reduce power rates in the country.

Meralco president Jesus Francisco pointed out that system losses in the country are higher compared to those in other countries because the share of the industrial sector to overall electricity consumption is much lower.

He pointed out that the share of Meralco’s industrial customers in electricity consumption is only 28.2 percent. In contrast, industrial users in Korea, account for 52.9 percent; Taiwan, 50.9 percent; Malaysia, 45.4 percent and Thailand, 48.8 percent.

He further pointed out that in the 1970s, industrial users stood at 38%, but has now dropped to about 29 %.

“Some companies said that they are wiling to stop self generating and go back to the grid,” he said. Many of these companies opted out of the grid due to inefficiency of power supply as exemplified by the debilitating brownouts in the early 1990s.

It will take more than gentle persuasion to lure back these large industrial power users.

For those self-generating industries using crude oil, the escalating price of the fuel which now stands at above $140 a barrel, may be a rude awakening enough for them to go back to the fold.

For those using other sources or fuel such as biomass, they may be enticed to sell their excess capacity to the grid. For example, a 14-MW biomass generation plant uses only 9 MW for its own purpose, such as running a sugar mill. It would be more profitable to the owner if he could sell the extra 5 MW to the grid.

Such a mechanism is actually embodied in the renewable energy bill which the House of Representatives recently ratified; however, the Senate version still languishes at the committee level.

The mechanism is called net metering. Simply put, if you are a generation grid user and at the same time producing some power, you could have a two-way connection to the grid. You only pay for the net use from the grid. And at times when you have excess power, you could sell back some of the excess.

The system will only work if one has a distributed system in place. Provided that the appropriate infrastructure is in place, theoretically, a home owner using solar power, a farm using a small-scale wind turbine, or a small industry with a (say 5 MW) binary plant using low-enthalpy geothermal fluid, could sell the excess power to the grid. Alternatively, if the local generating plant needs maintenance work, the owner could source the needed power from the grid.

Aside from the interconnection to the grid, other parts of the needed infrastructure include proper power accounting, the measurement of actual power coming from and going into the grid, and of course, the issue of pricing.

Such a mechanism, combined with the other incentives offered in the renewable energy bill and the opening of a real competitive electricity market as envisioned by EPIRA or the electric power industry reform act, could at least encourage small to medium industries, and even homeowners, to generate their own power.

But we are still very far from that situation. Our legislators seem to be taking their sweet time just passing the renewable energy bill.

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.