Is wind energy poised to take off in the Philippines?

Recent pronouncements by various investor groups seem to indicate that wind energy use for power generation in the country is about to blow hard.

Three groups have recently submitted proposals to the Department of Energy (DOE) to undertake wind power projects in various parts of the country. These are: Energy Development Corporation (PSE: EDC) with proposed projects in Burgos, Ilocos Norte; Northern Luzon UPC Asia Corp. in Pagudpud, Ilocos Norte; while PetroEnergy Resources Corp. (PSE: PERC) has identified sites in Sual, Pangasinan, and Nabas, Aklan.

The proposals of these companies have pre-qualified according to the requirements of the DOE, according to Energy Assistant Secretary Mario Marasigan. The DOE is ready to give them the green light to go ahead with the projects.

Waiting in the wings include the local unit of Korea Electric Power Corp. (KEPCO) which plans to undertake renewable energy projects like wind and hydropower with the government-owned Philippine National Oil Co.-Renewable Corp. (PNOC-RC); and Trans-Asia Oil and Energy Corporation (PSE: TA) of the PHINMA group which is reported to have conducted preliminary studies.

The three committed wind projects could generate up to 200-MW of power, according to Marasigan, but this amount is but a fraction of the often-quoted 76,600 MW of wind potential the country could offer.

The growing interest in wind energy could be partly attributed to the passage of the Renewable Energy Act of 2008 which offers fiscal incentives such as income tax-holidays, tax-free importation of capital equipment, and tax-free carbon credits to RE projects. But what could accelerate the growth of such projects are the non-fiscal incentives such as the renewable portfolio standards (RPS) which require electricity distributors to source a percentage of their requirement from RE sources, and feed-in tariff scheme which tries to level the playing field in the power sector for the RE producers against traditional (fossil-fuel) generators.

These two last incentives have been credited with the explosive growth of wind energy particularly in the Unites States, Germany and Spain. However, our own similar policies have not really been given due clarification from responsible agencies of the government. Until, and only when, the implementing rules and regulations for these incentives are sufficiently clear will these companies fast-track their projects.

Northwind Development Corp., the developer and operator of the 33-MW wind farm at Bangui Bay, Ilocos Norte, has shown that given favorable circumstances, a wind project can be viable under local conditions. Aside from supplying 40% of the power needs of Ilocos Norte Electric Cooperative, the wind farm has boosted local tourism with its majestic turbines appearing in postcard pictures posted in Flickr and other websites.

But these wind energy projects can only really take-off given a push of a tail wind in the form of a clear renewable portfolio standards and an attractive feed-in tariff scheme.

Meralco shows way in sourcing ‘clean energy’

Can you choose a ‘clean energy’ supplier for your electrical power needs? Theoretically, yes, even if you are tapping the transmission grid.

 Manila Electric Company (PSE: MER), the country’s biggest power distributor that supplies Metro Manila and environs with electricity is showing the ‘clean energy’ path by planning to source part of its electricity load from two more methane-gas recovery plants.

 In a recent press briefing, Meralco president Jose P. De Jesus said the distribution company will source electricity from the methane gas fired plants to be owned and constructed by Montalban Methane Power Corp. (MMPC) which already owns the pioneering plant at the Montalban (Rodriguez) dump site. The new plants will be situated in Malabon and Sta. Rosa, Laguna.

 Recently, Meralco has already signed a contract with MMPC for the latter to supply it with up to 8 MW of power. The supply arrangement would allow Meralco to source relatively cheaper electricity from MMPC as the generated power would be tapped directly into sub-transmission lines already owned by the firm, thereby bypassing the wheeling charges imposed by the grid operator.

 What is more significant though, is that it allows Meralco “to increase its capacity and alleviate global warming through the reduction of carbon emissions during electricity generation.” Part of the statement may be public relations efforts, but the step it is taking would be a prototype of what steps distribution firms should be taking in the future.

 Sourcing from renewable energy sources is now actually embodied in the recently passed Renewable Energy Law under the heading renewable portfolio standards (RPS). Under this concept, a distribution company is compelled to source a percentage of its electricity supply from renewable energy generators (solar, wind, geothermal, biomass) by a given time, say after ten years.

 Our own renewable energy law do not have specific guidelines on how this is to be achieved as the implementing rules and regulations (IRR) have yet to be hammered out. Of course, these rules are not straightforward to craft.

 Some questions that need to be answered are: (1) what is the appropriate percentage? (2) What would be the timeline for the distribution company to achieve the target percentage? (3) Are there available sources for the distributors to reasonably meet the law’s requirements? (4)Will the prices be competitive enough against traditional sources? (5) Would these renewable energy sources be in the “right places?” And so on.

 These questions are inextricably intertwined and need to be addressed to the satisfaction of all the stakeholders from the government, the generator, the distributor and the consuming public.

 Now that Meralco has actually conscientiously contracted a portion of its distribution needs from a renewable energy source, it would be interesting to watch how this arrangement would pan out. Our energy regulatory bodies, especially the recently-convened National Renewable Energy Board which is tasked to oversee the implementation of the renewable energy law, should study in detail the nuances of this experiment—as well as of others, including that of the Bangui Bay wind farm and the biomass projects in the Visayas—to come up with a sound and equitable renewable portfolio standards.

The success of this particular provision could determine whether we would be getting cleaner power or more of the polluting energy sources we already have in the future.

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.

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.