The Fitch ratings upgrade is welcome, but...

Bangui wind turbines. From Flickr

Before this Administration drum-beaters capitalize on the recent upgrade of the Philippines by Fitch ratings agency to investment grade by blowing its own horn to prop up its candidates this coming elections, it is better for it to go on a Lenten retreat and reflect it's (upgrade) ramifications.

Specifically, Fitch gave credit to Arroyo's--not the present--administration for laying the economic foundations into what we have now.
That's a sobering thought.

Perhaps, the most  prescient reaction to the upgrade is that of William Pesek in his piece he wrote yesterday for Bloomberg. In it he said that the "sick man of Asia" has the unique ability to disappoint even the most hardened optimists. And for good reasons. While he lauded Aquino's administration for its drive for more transparency in governance by punishing his predecessor and ousting a former chief justice, putting a cap on runaway overpopulation and addressing chronic tax evasion, he wondered aloud,"where does Aquino go from here?"

Specifically, he is worried if Aquino's successor would have a divergent view on reforms that could unravel what has been achieved so far. But it won't require a new president with different ideas to nullify the ratings upgrade.

It only requires that we fail to manage and improve our the basic infrastructures  that are hounding economic progress.

Just yesterday, my flight to Manila was delayed due what was euphemistically called "air traffic congestion" which actually demonstrates the inadequacy of our transportation systems.  The creation of modern international airports and improvement of existing ones have been have been priority projects at the start of this Administration, but none seemed to have taken off. Even what looked like a simple project such as the expansion of the Mactan international airport has been bogged down by changes in the bidding procedures and likely political posturing.

Major road  and transportation projects which are the pillars of the much-touted public-private partnership (PPP) program have not even broken ground. What happened to the Daang-Hari interconnection, the extension of our light rail transport system and the planned ports?

The other pillar that needs to be strengthened is the power sector. Here, the Administration deserves a grade of at most a "C", for going into the motion of trying to.

Consider for example, the feed-in tariff (FIT) system which ought to jump-start the use of renewable energy sources such as wind and solar by guaranteeing a reasonable price of power generated by renewable energy companies.  The renewable energy law was passed in 2008 but the feed-in tariff mechanism was only released July of last year or four years later, and only solar projects of between one and 3 MW would hopefully stand to benefit starting next year, according to Mario Marasigan, the energy department's renewable energy bureau chief revealed in an interview with reporters a few days ago.

Forget about those for geothermal and wind; that would be three to five years away, he added. The government has not even approved any of the hundred or so projects that have been submitted for consideration under the renewable energy act.

Marasigan's lame excuse for the snail-paced roll-out is that the government was introducing a completely new energy financing scheme and this took time to get right.

Don't be kidding.

The feed-in tariff scheme has been around for so long and this has been credited for the ballooning of renewable energy projects in major countries such as the United States and Germany since the 1990s. We have been articulating for a speedy resolution of the scheme a long time ago in several posts such as this one.

In the meantime, halfway through the term of the present administration, no significant capacity has been added to the power grid.

Let's come back to what Pesek warns: "Every five years or so, markets get all excited about change in the Philippines only to regret it. That makes it a fool's errand to predict turning points in this most erratic of Asian economies."

He might be proved correct.

And the early Easter gift by Fitch might turn up to be an egg.

Raser rapidly deploys geothermal power at its Thermo plant in Utah

Raser Technologies, Inc. (NYSE:RZ) announced on December 30, 2008 that it has completed the initial commissioning process of its 10-MW Thermo geothermal plant at Beaver County, Utah. This will be the company’s first commercial scale power plant.

What makes this significant to the geothermal community worldwide is that the facility was built in only six months, compared to the normal five to seven years’ time using traditional field development and plant construction technology. Raser was able to achieve this breath-taking speed by using 50 off-the-shelf power generation units (the Model 280 PureCycle System) each capable of producing 280 kW of power from United Technologies Corp. (NYSE:UTX). Theoretically, the plant can generate up to 14 MW of power; but about 3 MW are used to run the pumps and other field equipment.

Each of these is actually an organic Rankine cycle (ORC), or binary cycle unit, which uses as organic compound as its secondary fluid. This means that hot geothermal water is used to boil this fluid—which turns the turbines—rather that the water used directly.

The scheme allows the use of very low temperature geothermal resources which hitherto are considered unusable for power generation. This expands significantly the geothermal resources available for power production not only in the U.S. but throughout the world.

Raser makes the impression that it is deploying advanced technology to exploit low temperature geothermal fields—but in fact, ORC has become a standard technology for these types of resources. Turboden of Italy and other turbine manufacturers, have deployed ORC units for low temperature geothermal development in countries such as Italy, Germany, Austria and Switzerland in recent years. These units are also ideal for power generation from waste heat.

What is somewhat new is the use of the refrigerant R-145fa, or 1,1,1,3,3-pentafluoropropane, as the working fluid and the number of units simultaneously deployed. Because the units are factory assembled in modular units, these can be easily transported and installed at the site.

R-145fa, a refrigerant with zero carbon emission and a global warming potential of 950 kg carbon dioxide (low compared to most refrigerants) has become a fluid of choice for most modern refrigeration systems and recently as secondary fluid in binary cycles even if the price is still somewhat high. It has a boiling point of only 15.3 C at atmospheric conditions which allows geothermal water at 91-150 C to be tapped for power generation.

The commissioning is progressing nicely, according to Raser, and should be completed in the next few weeks. During the commissioning, the power generated is taken up by Rocky Mountain Power, a division of PacifiCorp. Under regular operation the power will be dispatched to Anaheim, California under a signed power purchase agreement.

The geothermal world and investors in renewable energy would be watching keenly the interesting development at Beaver County—the Philippines included.

_____

UPDATE, January 16, 2009: Raser technologies reports January 15 that it expects the local utility which will take up its output will complete the installation of SCADA equipment soon. This will allow Thermo (the geothermal plant) to increase its generation to 3 MW it can send to the grid starting next week. Raser believes that their output can be transmitted to Anaheim within the next few weeks.

May we have more energy this year!

At the end of each year, pundits are likely to crow about “successes” of their predictions whether they’re about stock market prices, oil prices or weather patterns. At the same time, when they are way off target—which happens more often than not-- they simply keep quiet and hope nobody keeps a scorecard. We are tempted to do the same, but there is really nothing much to gain from chest-beating, except enlarging one’s ego—which is actually dangerous since a burst ego can no longer be inflated.

We prefer to offer some encouraging words of hope for the coming year in the energy arena as this is the reason for our being (the blog, not the person).

Let’s start with the big picture.

When oil prices peaked at $147/bbl, we suggested that prices would slide fast. We were completely wrong—at the rate of decline. Now that it is about $38/bbl, will the price snap back once economies recover?

Theoretically, yes, but historically, periods of economic slowdown take years to complete, and we are just starting to feel the financial crisis which started in the middle of 2008. So don’t expect oil prices to go back to $90 soon. Despite the announced OPEC production cutback. Despite Hugo Chavez. Even despite political pressures on oil-producing Iran.

The Somali pirates may unnerve some owners of oil tankers. But navies of the world would come to the rescue. Oil shippers would gladly fork over pennies for an armed escort than lose a $100 million oil cargo. Besides, if these buccaneers have the misfortune of seizing a British ship, then Her Majesty’s submarines would probably torpedo the rogue galleon ship to oblivion. Come to think of it, might be a swell idea to teach these bastards some good manners.

So, oil prices are likely to be around $25 to $30 per barrel rather than $90. This is because the world is now awash in oil. In fact, in many parts of the world, potable water is more expensive than oil.

The figures also represent more or less the cost of producing oil on the average worldwide. In the U.S., onshore production is about $20/barrel, but offshore and so-called enhanced oil production could cost up to $70/barrel. The effect of this on U.S. upstream oil producers is consolidation. Many of the lesser oil players would groan under low oil costs and difficulty in getting credit and finance; they would end up feast food for the majors like BP or Chevron.

Middle Eastern countries continue to produce at an average of $14/barrel, with Saudi Arabia getting oil at less than $10/barrel. But these countries can only cut back on production so much. They need cash to finance their lifestyles and keep their economies above water. Saudi Arabia has cut its production from 9.7 million bopd in summer to 8.9 million bopd by December 2008. Still, this is way above the target set by the kingdom.

Meanwhile, European and offshore African production costs hover near $30/barrel which could spell trouble to companies operating in these regions.

As an insurance against a repeat of $120/barrel scenario, car makers will continue to develop energy efficient cars, hybrids and even electric vehicles. They are at the same time as Kodak and Fuji—leaders in silver film technology—decided to go heavy on digital cameras.

Renewable energy would take a back seat—for a while. But development would continue, and governments around the world would offer more incentives for renewable energies. Maybe, not directly competitive with fossil fuels, but political pressures and environmental activism would keep the renewable flame lighted. Forget about Obama taxing the windfall profits of oil companies. He will be more focused on keeping American jobs and American soldiers alive in Iraq and Afghanistan.

In the local scene, the passage of the renewable energy law will not cause a flood of new investments. But this will not deter some bold souls to dip into the icy water of alternative energy development. Some who have already started their project in biomass for example, would be more hopeful with the new law.

It might even be a better strategy to start with the feasibility of that wind or solar project. By the time your project is ready to take off, the ground rules on feed-in tariffs or the renewable portfolio standard might be in place. Cross your fingers.

The government policymakers have probably now realized that government control on oil and resources is merely an illusion, fed by political expediency. The government will completely exit from Petron and oil retailing in an abject admission that it cannot control prices. It has gotten out of geothermal business completely after it has disposed of all its holdings in Energy Development Corporation.

For 2009, it will continue disposing its generation assets. But it would be fire sales rather than getting premium from competitive bidding.

The economic slowdown would unexpectedly give us some breathing space in terms of electricity supply. But the tight electricity generation and antiquated distribution would rear their ugly heads in the mid term. The new operator of the transmission grid would soon learn that the business is not easy with rundown equipment and lines.

This year, we would have energy to go by--but for the wrong reasons.

Happy New Year!

EDC acquires Pantabangan-Masiway hydro complex from First Gen

Ho-hum. Yawwn.

Excuse me. I know it is impolite to yawn in front of people but I was trying to make some sense of an M & A activity in the energy sector which was supposed to inject life to two of the hottest players in the industry before I nearly dozed off. Let see…

 Here it is. A week prior to the big announcement, Francis Giles Puno, First Philippine Holdings Corp. (PSE: FPH) chief finance officer told reporters “we have received some strong expressions of interests from both foreign and local companies” to acquire the 112-MW Pantabangan-Masiway complex its subsidiary, First Gen Corp. (PSE:FGEN) owns through the First Gen Hydro Power Corp. (FGHPC).

 Local punters and self-styled analysts expect First Gen to realize between $129 million and $208 million for the asset for a handsome profit. After all, it acquired the hydro plants for a measly $105 million in November 2006 from the Power Sector Assets and Liabilities Management Corp. (PSALM), the privatization arm of the government for the power assets of National Power Corp. (NPC). 

 A week later, the “foreign and local interests” turned out to be Energy Development Corp. (PSE:EDC)—First Gen’s own subsidiary! The tag price for the complex was a whooping $240 million, more than double the acquisition price.

Actually, First Gen is selling 60% of First Hydro to EDC which is valued at approximately $105 million. First Gen claims that the transaction emanated from an unsolicited offer made by EDC to it. Which is strange, since First Gen effectively owns EDC.

 As if to assure us, bystanders, that the deal is good for EDC, Punongbayan and Araullo, the advisory firm tasked to value the transaction said “this ($240 M) is below the range of values we have derived amounting to $262.9 million to $312.4 million.” The decimal point is real; that’s how accurate they are. And to make sure we understand everything, it interpreted its own finding by saying the lower enterprise value “is favorable to EDC from a financial point of view.”

 Really?

 The higher appraised value of the hydro assets was justified ostensibly because the Lopez group already made some refurbishments that enhanced the operating efficiencies of the two plants.

 What did the Lopez group do aside from holding for almost two years the right to operate the assets since winning the bid? 

 FGHPC has selected Austrian firm Andritz VA Tech Hydro (GmbH) only in February this year to refurbish and upgrade the Pantabangan hydroelectric plant. According to Andritz, the contract calls for the “replacement of the two 52 MW Francis turbines, new generator stator windings and the modernization of the complete electrical equipment including governor system, unit automation with Scada system, new static excitation, generator and transformer protection, new medium-voltage switchgear and low-voltage distribution.”

But the first unit will only be rehabilitated between July and December 2009, while that of the second unit will only be completed by December 2010. There are no misprints of the years mentioned.

 If the assets were that good, why is FGEN shuffling it around? For one, it will get $105 million  in cash which it could use to pare down its heavy debt load. As of end June, FGEN has $1.6 billion of long-term debt against an equity of $1.2 billion for a long-term debt-to-equity ratio of 1.33. For an infrastructure company in a mature market, this is already a disaster in the making. We don’t appear to be very bearish; we exclude the current liabilities of $820 million which if considered would jack up the total debt-to-equity to 2 or a gearing of 200%!

When the dust clears, the scenario would be something like this: FGEN gets $105-M cash from EDC to pay off a small portion of its debt. That would improve its balance sheet somewhat. EDC becomes a trailblazer into hydro--but it has to wait for two years before some profits from hydro starts to trickle in. It will now pay for the rehabilitation of the hydro complex. All without ceding an iota of control to outsiders.

See how accounting could do wonders?

 Because the $105-M cash originates from EDC—surely, the geothermal power producer gets something in return.

 Stephen CuUnjieng, vice-chairman for Southeast Asia at Macquarie, which advised EDC, justified the purchase this way: “This is not just about adding 112-MW of power. The reservoir means the hydro plant can expand without having to build a new dam and there will be internal organic growth over the next five years. So EDC becomes a company offering stability with growth rather than just stability, while keeping its green profile.”

 A report assures the minority shareholders, among them some friends, that the deal is good for them. They cannot say or do anything during the ceremonial special stockholders meeting to approve the deal. Their combined shares are insignificant compared to those of the majority bloc.

 What a brilliant move by EDC. I have always regarded my former employer to be a pro-active and dynamic organization which could seize opportunities the moment they cut across its path, and this should be one of them. So the market (investors) should be jumping for joy.

 After the deal was announced, FGEN’s share price promptly fell 4.8% to P15 per share while EDC’s dropped 5.7% to P3.30. Of course, this has to be nothing to do with the deal considering that the market has slumped so much due to the lingering worry of a global economic slowdown. As it were, the share prices for both listed companies are still expensive.

 Paul Aquino, EDC’s president and CEO chimed in with his view saying “our entry into hydro power clearly complements our portfolio and provides EDC with vast opportunities for growth.”

 But Pantabangan started operating in 1977 and by this time the reservoir should already be highly silted. So First Gen—now EDC—should be hard-pressed to recover the original output of 104 MW.

 How could the renewable energy portfolio of EDC grow with Pantabangan? It cannot even apply for carbon credits under the Clean Development Mechanism (CDM) of the Kyoto Protocol because it is already there. It fails the basic requirement of additionality. The term means that a carbon offset credits should be “in addition to” to what is avoided greenhouse gas (GHG) emissions if the project were not implemented in the first place.

 EDC is supposed to be developing a wind farm for up to 86 MW in Burgos, Ilocos Norte for years now. Northwind Development Corp. which came in later into the industry, promptly erected the 24-MW Bangui Bay, Ilocos Norte wind project way back in 2006. Now its majestic photos appear frequently on Philippine postcards and on Flickr.

 Now would you blame me for falling asleep? Wait, that’s a fine idea. Please wake me up at 10 minutes before 5 or when the boss comes to our cubicles, whichever comes first.

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.

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.

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.