Feed-in Tariff Key to Philippines’ Renewable Energy Development

By Aedan Kernan, Greenwell Consulting
April 2012

In early 2012, electricity consumers on Mindanao, the second largest island in the Philippines archipelago, experienced daily power curtailments of between 30 and 90 minutes. Peak demand on Mindanao is 1,261 MW; however there is only 1,112 MW of power available.

Renewables Sector with Massive Potential

The Philippines possesses enough renewable resources to satisfy current and future energy demand. It is one of the leading countries in Southeast Asia in the development of renewable energy resources. Renewables, including hydro, accounted for around one third of the country’s 16.8 GW of generation capacity in 2009.

illustration of hydro-electric dam and wind turbines set against backgroudn of map of Philippines

The Philippines has developed 2 GW of geothermal generation, making it the second largest generator of electricity from geothermal energy in the world. In addition, the island nation has 3.3 GW of installed hydropower and 33 MW of grid-connected wind power.

However, developed renewable energy sources are dwarfed by the size of the Philippines’ untapped potential. Across a country made up of more than 700 islands, there is an estimated 76 GW of wind capacity, 10 GW of hydropower, and good solar potential. Biomass potential is abundant, too: the Philippines is the world’s tenth largest producer of sugarcane and the largest producer of coconut oil, and those industries create enough waste biomass to generate 230 MW per year of electricity.

Comprehensive Policy Support

In January 2009 the Philippines enacted what was then the most comprehensive renewable energy policy package in Asia, the Renewable Energy Act. The act calls for a renewable portfolio standard, which would require power suppliers to include a percentage of energy from renewable sources. A feed-in tariff provision would provide renewable energy generators with a guaranteed market and a guaranteed price for their power, in addition to tax credits for developers and value added tax and duty-free importation of renewable technologies. There would be support for microgeneration and for the communities that host generation facilities. Consumers would be able to opt for green energy among other demand-side reforms. So far, work has begun on establishing the administrative bodies needed to oversee the policy refinement and implementation.

The future for renewable generation continued to look promising with the election of a President Noynoy Aquino in 2010. While his primary policy goal was to tackle poverty and corruption in the country, President Aquino also set out a vision of renewable energy as a tool to break the Philippines from its dependence on imported fossil fuels which he described as “expensive and volatile”. The country has quadrupled its coal production in recent years, but continues to import around half the coal and 75% of the oil it consumes.

There is considerable sensitivity to anything that may affect the electricity prices of Philippine consumers. Most Filipino consumers pay the highest rates in Asia, and the business sector is particularly concerned that electricity prices affect the competitiveness of the country’s businesses. Some government ministers have expressed similar concerns. Opponents of the feed-in tariff concept are concerned about rising prices, and are threatening legal action. This threat has delayed deployment of renewables, but in January 2012, President Aquino assured local and foreign investors that he would prioritize investments in baseload power plants and opening access to retail competition in electricity.

Waiting for a Price

Developers are eager to move ahead with renewable energy production. The First Gen Corporation, which has a major stake in the country’s geothermal facilities, plans to develop both hydroelectric plants and wind projects. First Gen’s President, Francis Giles Puno, told the Business Mirror that renewable energy projects were their focus for growth. Once a feed-in tariff is in place, First Gen will proceed.

Other complications with grid development have stalled deployment. The National Grid Corporation of the Philippines (NGCP) called for a national plan for grid development to facilitate renewable energy sources. However, developers are not prepared to build wind farms without guarantees that transmission lines will be built, while transmission companies are reluctant to commit to build lines without guarantees that the wind projects will be built. To solve this dilemma, the NGCP proposes that the government identify renewable energy zones in areas with the best potential.

In the meantime, demand for energy continues to grow. Despite the unreliability of electricity, the Philippines’ GDP in 2011 grew at more than 5%. The country will require considerably more generation capacity in the near term. Coal plant developers are coming forward to fill the gap, but the Philippines has the potential to follow through on its policy foundation to leverage its vast renewable energy resources.