#1Country Perspective Philippines Fair FIT Workshop WRI & ADB 21-23 February 2012 Pete H. Maniego, Jr. Chairman NREB National Renewable Energy Board#2Outline of the Presentation 1. State of Renewable Energy in the Philippines 2. Renewable Act of 2008 3. The NREB, its Functions and Challenges 4. FIT System 5. FIT-All Determination 6. FIT-All Impact 7. Effects of Climate Change in the Philippines 8. Fair FIT Support from International Institutions 9. Advantages of Implementing the FIT now 10. Status of FIT and other RE Mechanisms#3PHILIPPINES: Vast RE Potential Geothermal > 4,000 MW Wind resource > 76,600 MW ➤ Hydropower Solar Ocean Biomass > 10,000 MW > 5 kWh/m²/day > 170,000 MW > 500 MW (bagasse & rice hulls only) •Largest producer of coconut oil ⚫Ranks 10th in world sugarcane production Source: Renewable Energy Management Bureau, DOE 3#4PHILIPPINES: A Significant RE Producer ➤World's 2nd largest producer of geothermal energy at 2,000 MW ➤Largest wind power producer in Southeast Asia at 33 MW ➤Installed hydropower generation capacity of over 3,300 MW Host to the following: ⚫First solar wafer fabrication plant in Southeast Asia - Sunpower ⚫First continuous biodiesel plant in SEA ⚫First sugarcane-based ethanol and cogeneration project in SEA Source: Renewable Energy Management Bureau, DOE 4#5RA 9513: RENEWABLE ENERGY ACT OF 2008 RENEWABLE ENERGI OCL OF 8 Accelerate the development of the country's renewable energy resources by providing fiscal and non-fiscal incentives to private sector investors and equipment manufacturers / suppliers. PAN LONG P PILIPINAS Signing of the Renewable Energy Act on 16 December 2008#6RA 9513: RENEWABLE ENERGY ACT OF 2008 One of the most ܀ 6 comprehensive and forward looking RE law in the world Provides ܀ substantial fiscal and non-fiscal incentives#7Incentives Under the RE Act Renewable Energy Law (RA 9513) Fiscal Incentives Non-Fiscal Incentives Renewable Portfolio Std FIT Scheme Net- Metering Green Energy Option 7#8Summary of Incentives RE Developers RE Commercialization Incentives 7-Year Income Tax Holiday Duty-free Importation VAT-free Importation Special Realty Tax Rate <= 1.5% Net Operating Loss Carryover Yes Yes Yes Yes No. Tax Credit Yes Yes Yes Yes 10% Corporate Tax Rate after ITH Yes Accelerated Depreciation Yes Yes Zero Percent VAT on RE Sales & Purchases Yes Yes Cash Incentive = 50% of UC for Missionary Electrification Yes Tax Exemption on Carbon Credits Yes Tax Credit on Domestic Capital Equipment & Yes Yes Services#9Incentives Renewable Portfolio Standards RE Developers Electricity Suppliers End -users Yes Feed-In Tariff on Emerging Technologies Yes Yes Renewable Energy Market & Certificates Yes Green Energy Options Yes Net Metering Yes Government waives share of proceeds on RE Yes micro-scale Projects <= 100 kW Exemption from Universal Charge Yes Payment of Transmission & Wheeling Charge = Yes Average kWh rate Tax Rebate for RE Components Yes Financial Assistance Program Yes Incentives for Host Communities Yes#10NATIONAL RENEWABLE ENERGY BOARD ENERGY REGULATORY COMMISSION NATIONAL RENEWABLE ENERGY BOARD CHAIRMAN Pedro H. Maniego, Jr. VICE CHAIRMAN Ernesto B. Pantangco (Electricity Suppliers) DEPARTMENT OF ENERGY MEMBERS Jose Rene D. Almendras - (Department of Energy) Jose M. Layug, Jr. - (Department of Energy)* Antonio M. Cailao - (Philippine National Oil Company) Froilan A. Tampinco - (National Power Corporation) Joseph Ferdinand M. De Chavez - (National Grid Corporation of the Philippines) Melinda L. Ocampo - (Philippine Electricity Market Corporation) Adrian S. Cristobal (Department of Trade and Industry) Juan Miguel T. Cuna - (Department of Environment and Natural Resources)* Gil S. Beltran - (Department of Finance) Mark Q. Dia - (Non-Governmental Organization) Rosario B. Venturina - (Renewable Energy Developer) Francisco F. Del Rosario, Jr. - (Government Financial Institutions) Jaime P. Benito, Jr. - (Philippine Rural Electric Cooperatives Association) Ranulfo M. Ocampo - (Private Electric Power Operators Association) NON-VOTING MEMBERS/OBSERVERS Gregory Tangonan - (COMSTE) Roque N. Agton - (National Commission on Indigenous Peoples) Edgar R. Piamonte - (National Electrification Administration) Sharon O. Montaner - (Energy Regulatory Commission) Rolando T. Bacani - (National Transmission Corporation) Marriz B. Agbon - (Department of Agriculture) Graciano Yumul- (Department of Science and Technology) Aura Matias - (UP College of Engineering) *Alternate#11NREB COMMITTEE STRUCTURE NATIONAL RENEWABLE ENERGY BOARD NATIONAL RENEWABLE ENERGY PLAN COMMITTEE Usec. Jose M. Layug Jr. FINANCE AND PLANNING COMMITTEE Francisco F. Del Rosario Jr. RE TRUST FUND SUBCOMMITTEE Benedicto Emesto R. Bitonio Jr. TECHNICAL COMMITTEE MARKET TRANSFORMATION & PROMOTION COMMITTEE Rosario B. Venturina Mark Q. Dia FIT SUBCOMMITTEE Rosario B. Venturina FIT TWG OFF-GRID COMMITTEE Froilan A. Tampinco TECHNICAL SUB-GROUP P. J. Benavidez ONE-STOP SHOP SUBCOMMITTEE Cristino L. Panlilio RE HOSTS INCENTIVES SUBCOMMITTEE Jaime P. Benito Jr. RPS SUBCOMMITTEE Emesto B. Pantangco TDD SUBCOMMITTEE Ma. Cynthia Y. Manrique GREEN ENERGY OPTION SUBCOMMITTEE Emesto B. Pantangco REPA TWG Benedicto Emesto R. Bitonio Jr. RPS TWG Asec. Mario C. Marasigan ADMINISTRATIVE/ LEGAL SUB-GROUP M. L. B. Plofino FINANCIAL SUB-GROUP U. C. Mendiola PLANNING & BUDGET SUBCOMMITTEE Benedicto Emesto R. Bitonio Jr. RENEWABLE ENERGY MARKET SUBCOMMITTEE Melinda L. Ova NET METERING SUBCOMMITTEE Ranulfo M. Ocampo GRID IMPACT TWG Giovanni A. Galang#12Major Challenge How to balance: ➤ Attracting and promoting investment in Renewable Energy -While- ➤ Minimizing the burden to the end-users#13NREB Challenges • Feed-In Tariff which would: • Allow RE developers to recover their investments and provide them with internationally acceptable ROI's during the FIT period, • Accelerate the development of competitive RE technologies, and • Not unduly burden the consumers with heavy pass-on charges. 14#14NREB Challenges Installation Targets which are: • In compliance with the Renewable Portfolio Standards; and • Consistent with Philippine Energy Plan and the National Renewable Energy Program Renewable Energy Portfolio Standards which would: • Promote the diversification of energy supply, • Help reduce GHG emissions; and • Ensure compliance from the mandated participants 15#15NREB Challenges Green Energy Option which would: • Provide End-users the option of choosing RE Resources as their source of energy Net Metering which would: • Give incentives to End-users to generate electricity from eligible on-site RE generating facility and delivered to the local generation grid; •Generate employment for installers of solar panels, micro wind turbines and other building-installed RE equipment 16#16Arguments vs. FIT ➤The Philippines already gets more than 30% of its power supply from RE sources, The country has minimal per capita GHG emissions (0.9 MT for PH vs. 4 MT global average), and ➤RE power is more expensive than conventional power and would increase the already high electricity rates. 17#17Feed-in Tariff Mechanism Elements Payment Coverage Provisions under the RE Act, IRR & FIT Rules •Guaranteed, on a fixed rate per kWh •Emerging technologies- biomass, solar, run-of-river hydro, ocean and wind, excluding generation for own use •For projects which enter into commercial operations after effectivity of the FITs with certain exceptions for existing plants •On-Grid areas only Mandated duration •Initial FITS- 20 years; Minimum - 12 years Connection to Grid Dispatch •Priority connection, purchase, transmission and payment by grid system operator ⚫NGCP to determine maximum penetration limits for intermittent Res •PEMC and NGCP to implement technical mitigation & improvements to ensure reliability of transmission •Priority and must dispatch 18#18The FIT Determination Process Proposals Received initial proposal from each RE association Consultation and Evaluation In accordance with the ERC FIT Rules Obtained comments from third party consultants of the DOE ➤ Applied uniform financial model for all technologies ➤NREB conducted consultation and verification as follows: Met with developers from January 2009 to April 2011 • Verified the figures from project submissions by developers to the DOE • Verified from actual cases and decisions by the ERC ➤ Applied international and historical benchmarking on project costs, O&M, and technical assumptions Recommendations In conformity with ERC Rules of Practice & Procedure on Rule- making. ➤ Representative project ➤Single rate for each technology initially. Differentiated FITS per technology to be submitted as a supplement to the initial Petition ➤ FIT Application with ERC was submitted on 16 May 2011#19How Did We Compute for the FIT? Construction Cost Debt + Equity Production volume X FIT (?) || Revenues Less Construction period O&M and G&A costs Operating period Net Capacity Factor and Installed Capacity Using Excel's Goal- Seek function Annual capex and Target Equity IRR Debt service Corporate Income Tax and Local Taxes Present value of cash flows to equity investor equals equity investment cost Equals After-tax free cash flow 20 20#20Initial Feed-in Tariffs (FITs) in Php/kWh Proposed by RE NREB Approved Developers Technology June Oct. Nov. April April 2010 2010 2010 2011 2011 Degression Rates Biomass 1/ 9.84 11.48 9.94 8.22 7.00 0.5% after 2nd year Run-of-River Hydro²/ 7.80 7.44 7.40 6.56 6.15 0.5% after 2nd year Solar³/ 22.64 23.81 20.55 19.11 17.95 6% after 1st year Wind 11.23 11.92 11.85 11.29 10.37 0.5% after 2nd year Ocean 18.52 18.52 18.52 18.52 17.65 1/ For a solid biomass project 2/ For a project with capacity between 1MW and 10MW 3/ For a ground-mounted project with more than 500kW capacity None#21Parameters and Assumptions ROR Particulars Biomass Solar Wind Ocean Hydro Representative Size (MW) 6.0 8.3 10.0 30.0 16.2 Project Cost (US$ per kW) 3,565 3,039 3,400 2,758 12,637 EPC Cost (US$ per kW) 2,341 1,982 2,647 1,983 9,752 Net Capacity Factor (%) 47.0 72.0 16.0 25.0 60.0 O&M Cost (US$000/unit/year) 400 1,115 530 100 25 Fuel Cost (Php per ton) N.A. 1,297 N.A. N.A. N.A. Feed Rate (kWh/ton) N.A. 700 N.A. N.A. N.A. Equity IRR (%) 17.0 18.5 16.0 17.0 17.0 After-Tax WACC (%) 10.6 10.9 9.9 10.3 10.1 FIT (Php per kWh) 6.15 7.00 17.95 10.37 17.65 22#22Installation Targets The initial installation targets are not limits or caps. • Rather, these targets would be the basis in reviewing and re-adjusting the FIT rates in accordance with the FIT Rules (Sec. 7, ERC Resolution NO. 16, Series Of 2010).#23Installation Targets in MW Proposed by RE Developers Technology DOE June November 2010 2010 NREB Approved (April 2011) DOE Certification to ERC (July 2011) Biomass 357 416 233 250 250 Run-of-River 131 131 170 250 250 Hydro Solar 235 542 20 100 50 Wind 710 710 220 220 200 Ocean 10 10 10 10 10 TOTAL 1,443 1,809 653 830 760 24#24Maximize Deployment of Lower Cost RE ⚫ DOE in consultation with NREB had calibrated the 3 year "installation targets" to maximize the deployment of more cost competitive alternatives - hydro & biomass Technology Proposed (MW) NREB Approved (MW) Increase /Decrease) Solar 235 50 (78%) Wind 710 200 (72%) Hydro 131 250 90% Biomass 357 250 (30%) Ocean 10 10 TOTAL 1,443 MW 760 MW (47%) •Beyond this, a diverse mix of technologies is critical to the power system's reliability (e.g. Mindanao's energy mix is highly dependent on hydro; sustainability of biomass for fuel over 20 years). 25#25FIT Rates in Other Countries Adjusted Philippines Technology (NREB- Philippines Malaysia¹ Thailand Germany Spain (at Equity IRR Approved) at 8%) 3.31 to Biomass 7.00 5.91 3.74 to 4.00 3.45 Run-of- River 6.15 3.32 3.31 to 5.04 4.40 to 5.32 Hydro Solar 17.95 12.66 12.23 to 18.28 13.82 19.57 to 26.35 14.09 to 26.95 Wind 10.37 7.51 Ocean 17.65 12.59 7.92 to 9.24 5.64 4.47 1/ Assumed exchange rate is Php14.3915 for every Malaysian ringgit as of May 2011#26Indicative Rate Impact of the FIT in 2014 Avoided Cost based on Average WESM Price Technology RE Generation (GWh) FIT Payments Avoided Cost Rate Impact Rate Impact of the FIT of the FIT (A) (Php million) (Php million) (B) (Php million) (Php/kWh) (C) (B) - (C) (D) Biomass 1,577 10,982 8,301 2,682 0.0412 Run-of-River Hydro 1,029 6,299 5,419 880 0.0135 Solar 70 1,112 369 743 0.0114 Wind 438 4,519 2,306 2,214 0.0340 Ocean 26 464 138 325 0.0050 TOTAL 3,140 23,376 16,533 6,843 0.1050 Notes: 1. Rate impact of the FIT after three years of effectivity of the FITS 2. Avoided cost based on the average WESM price of Php 4.50/kWh (2010) 3. Applying respective degression in the FITS#27Indicative Rate Impact of the FIT in 2014 Avoided Cost Based on Average DU Generation Cost RE Generation FIT Payments Avoided Cost Rate Impact Rate Impact of the FIT of the FIT Technology (GWh) (A) (Php million) (Php million) (B) (C) (Php million) (Php/kWh) (B) - (C) (D) Biomass 1,577 10,982 10,282 700 0.0106 Run-of-River Hydro 1,029 6,299 6,709 (410) (0.00624) Solar 70 1,112 456 656 0.0010 Wind 438 4,519 2,856 1,663 0.0253 Ocean 26 464 170 294 0.0045 TOTAL 3,140 23,376 20,473 2,903 0.0442 Notes: 1. Rate impact of the FIT after three years of effectivity of the FITS 2. Avoided cost based on the average DU Generation Cost of Php 5.25/kWh (2011) 3. Applying respective degression in the FITS#28Impact of Climate Change in the Philippines Extreme Weather Events On 26 September 2009, Tropical Storm Ondoy inundated Central Luzon with 450 mm of rain over a 12 hour period, leaving over 300 people dead. Typhoon Pepeng quickly followed Ondoy in 3-9 October 2009, crossing over Central and Northern Luzon, with winds of up to 230 kph and cumulative rainfall of over 1,000 mm. The official death toll from these two disasters combined was 936, with 84 missing and 736 injured. ☐ Typhoons Pepeng & Ondoy alone caused damages and losses equivalent to 2.7% of GDP equivalent to US$ 4.3 B.#29Impact of Climate Change in the Philippines Extreme Weather Events Typhoon Sendong which hit Mindanao in December 2011 left 1,453 dead with thousands still missing, 719,485 persons displaced, and damages amounting to Php 1.14 B (US$ 27 M). According to Margareta Wahlstrom, head of the UN International Strategy for Disaster Reduction, a total of 33 natural calamities ravaged the Philippines in 2011. It is number one in the list of countries in terms of recorded calamities. China even with its much bigger land area is a far second with 21.#30Need for International Support Moral Imperative ➤ The poor are most vulnerable to, though least responsible, for global warming Stewardship towards creation requires collective effort towards preservation of creation's integrity 31#31Power price P/kWh FIT Support until Grid Parity is Reached Price of non-RE power rises due to: - - Increase in oil and coal prices¹ - A price on carbon Environmental externality costs Consumers are "hedged" against future price increases RE FIT price increases with CPI and FOREX 20 Year life of RE power plant (Years) FIT All is an Investment to prepare for wider RE deployment only 1 For a coal plant, a US$10 increase in the price of coal results in a ~21 Centavo /kWh increase in its electricity price. Panay Power Plant approved tariff at Php 8.00/kWh.#32Advantages of Implementing FITS NOW As there have not been any major projects harnessing renewable energy in the past two decades due to lack of incentives and support mechanisms prior to the RE Act, the country is already on a "catch-up" mode in the development of RE. - - - In 2010, RE accounted for around 50% of new electricity capacity added globally and investment was estimated at US$ 211 billion. Commercial wind power is now utilized in 83 countries and solar in more than 100 countries. Worldwide, jobs created in RE industries exceeded 3.5 million in 2010. Now is the most appropriate time to approve the FITS when the country's demand for electricity is increasing annually and supply is limited, thus giving RE developers in the country ample room to participate in the energy industry and provide much needed supply.#33. . . . Advantages of Implementing FITS NOW Compared to fossil fuel plants which tend to be volatile in the world market, FITS would be relatively stable and predictable throughout its implementation period. Being fixed during the mandated period and subject only to inflationary and foreign exchange adjustment, the FIT regime would provide stability to electricity rates. In contrast⇒ fossil fuel plants are subject not only to inflationary and Forex adjustment on their fixed costs, but also to "pass-through costing" on their fuel costs. • With the coal tariff rate ranging from at Php 6+ to 8+/kWh now, the weighted average FIT of Php 7.44/kWh in 2014 is projected to be lower than coal rates. ● Even at a 5% increase p.a., coal tariff will reach Php 9.26/kWh by 2014.#34. • . Status of FIT Implementation Renewable Energy Law (R.A. No. 9513) passed by Congress on 28 July 2008 RE Act signed into law by President on 16 December 2008 • RE Act became effective on 31 January 2009 • Feed-In Tariff Rules approved by the Energy Regulatory Commission (ERC) on 12 July 2010 • The National Renewable Energy Board filed the FIT Petition filed on 16 May 2011 • Expository Presentations and Pre-Trial Conference before ERC already completed Evidentiary hearings scheduled from December 2011 onwards#35Status of FIT Implementation One of the intervenors, the Foundation for Economic Freedom, filed a Petition for Certiorari with prayer for temporary restraining order against ERC • NREB has completed its presentation and offer of evidence in January 2012 Intervenors to present their evidence and witnesses in February 2012 • Completion of hearings- depends on ERC and the intervenors and Court of Appeals decision o • Approval 2nd Quarter of 2012 (?) -#36a) Rules 1. Feed-In Tariff b) Submission of FIT Petition to ERC c) Public Consultation d) Approval e) Effectivity 2. Renewable Portfolio Standards a) Rules Timetable for RE Mechanisms Mechanism Target Date Done May 16, 2011 Ongoing Agency ERC NREB ERC ERC ERC DOE - b) RPS minimum % to be imposed NREB December 31, 2011 1st Quarter 2012 c) Approval DOE d) Effectivity DOE 3. Net Metering a) Guidelines Including Pricing Methodology NREB b) Public Consultation c) Approval d) Effectivity 4. Green Energy Option a) IRR b) Public Consultation ERC ERC ERC NREB & DOE DOE 1st Quarter 2012 90 days 3rd Quarter 2012 1st Quarter 2012 90 days c) Approval d) Effectivity 5. Renewable Energy Market a) Change in WESM Rules b) Approval c) Effectivity d) Renewable Energy Registrar 6. Off-Grid RE Development DOE DOE PEMC DOE DOE PEMC ERC/NPC-SPUG 1st Quarter 2012 90 days a) Rules on Application of Non-Fiscal Incentives b) Public Consultation c) Approval ERC NPC-SPUG#37NREB National Renewable Energy Board Thank You! 38