Status of the

RE Mechanisms
Sharing Experiences on
RE Promotion
27 February 2012
Pete H. Maniego, Jr.
Chairman

Outline of the Presentation

1.
2.
3.
4.
5.

Renewable Act of 2008

The NREB, its Functions and Challenges
RE Mechanisms
Status of Implementation
Proposed International Support
Mechanisms

Accelerate the development of the countrys renewable energy

resources by providing fiscal and non-fiscal incentives to private
sector investors and equipment manufacturers / suppliers.

Signing of the Renewable Energy Act on 16 December 2008

One of the most

comprehensive
and forward
looking RE law in
the world

Provides
substantial fiscal
and non-fiscal
incentives

Incentives Under the RE Act

Renewable Energy Law (RA 9513)

Fiscal Incentives

Renewable
Portfolio Std

Non-Fiscal Incentives

FIT Scheme

NetMetering

Green Energy
Option

Summary of Incentives
Incentives

RE Developers

RE Commercialization

Yes

Yes

Yes

Yes

No. Tax Credit

Yes

7-Year Income Tax Holiday

Duty-free Importation
VAT-free Importation

Special Realty Tax Rate <= 1.5 %

Yes

Net Operating Loss Carryover

Yes

Yes

10% Corporate Tax Rate after ITH

Yes

Accelerated Depreciation
Yes

Yes

Yes

Yes

Zero Percent VAT on RE Sales & Purchases

Cash Incentive = 50% of UC for Missionary
Electrification
Tax Exemption on Carbon Credits

Yes

Yes

Tax Credit on Domestic Capital Equipment &

Services

6
Yes

Yes

RE Developers

Incentives
Renewable Portfolio Standards

Yes

Feed-In Tariff on Emerging Technologies

Yes

Renewable Energy Market & Certificates

Electricity
Suppliers

End -users

Yes
Yes

Green Energy Options

Yes

Net Metering

Yes

Government waives share of proceeds on RE

micro-scale Projects <= 100 kW

Yes

Exemption from Universal Charge

Yes

Payment of Transmission & Wheeling Charge =

Average kWh rate

Yes

Tax Rebate for RE Components

Yes

Financial Assistance Program

Yes

Incentives for Host Communities

Yes

Major Challenge
How to balance:
Attracting and promoting
investment in Renewable
Energy
-WhileMinimizing the burden to
the end-users

NREB 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.

13

NREB 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
14

NREB 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
15

Renewable Portfolio Standards

Elements

Provisions under the RE Act, IRR & FIT Rules

Purpose

To contribute to the growth of the RE industry by diversifying

energy supply
To help address environmental concerns by reducing GHG
emissions

Coverage

Electric power industry participants such as generators,

distribution utilities, or suppliers serving On-Grid areas on a
per grid basis

Types of RE
Resources

Eligible RE resources, not limited to emerging technologies

To be identified under the RPS Rules

Annual Minimum
Incremental %

No less than one percent (1%) of annual energy demand of

the mandated electricity industry participant

RPS Rules

DOE to formulate and promulgate upon recommendation of

NREB

Yearly minimum
RPS requirement

To be set by NREB in accordance with the RPS Rules

16

Green Energy Option

Elements

Provisions under the RE Act, IRR & FIT Rules

Definition

A mechanism which shall provide end-users the

option to choose RE Resources as their source of
energy

Regulatory
Framework

DOE in consultation with NREB to establish the IRR

ERC to issue the regulatory framework

Mandated
Parties

The TRANSCO or its successor-in-interest, DUs,

PEMC and all relevant parties mandated to provide
the mechanisms for the physical connection and
commercial arrangements

Information to
End-Users

End-user to be informed by way of its monthly

electric bill how much of the monthly energy
consumption and generation charge is provided by
RE Facilities.
17

Net Metering
Elements

Provisions under the RE Act, IRR & FIT Rules

Purpose

To encourage end-users to participate in RE generation

Definition

Consumer-based RE incentive wherein power

generated by an end-user delivered to the local
distribution grid may be used to offset electric energy
provided by the DU to the said end-user.

Mandate

Upon request by the end-user, the DUs shall without

discrimination enter into Net-Metering arrangements
with qualified end-users

Qualified EndUsers

Entities that generate electric power from an eligible

on-site RE generating facility, such as but not limited to
house or office building with PV system that can be
connected to the Grid

RE Certificates

DU shall be entitled to any RE Certificate resulting from

Net Metering arrangements
18

Renewable Energy Market

Elements

Provisions under the RE Act, IRR & FIT Rules

Purpose

To expedite compliance with the establishment of

the RPS

Market

REM shall be a Sub-market of the WESM, where

the REC trading may be made

Framework

DOE to establish framework that will govern REM

operation & direct PEMC to implement

REM Rules

PEMC to implement changes to the WESM Rules

to incorporate the rules specific to REM

Renewable
Energy
Registrar

PEMC shall issue, keep and verify RE Certificates

RE Certificates

Will be used in compliance with the RPS

19

Off-Grid Development
Elements

Provisions under the RE Act, IRR & FIT Rules

Purpose

To encourage RE deployment in Off-Grid Areas

Mandated
Entities

NPC-SPUG, DUs, and/or qualified third parties in OffGrid areas in pursuance of mandate to provide
missionary electrification

Obligation of
Mandated
Entities

To source a minimum % of their total annual generation

from available RE Resources in the area concerned

Guidelines

DOE to determine minimum percentage upon

recommendation of NREB

RE Certificates

Eligible RE generation in Off-Grid and missionary areas

shall be entitled to RECs

20

Feed-in Tariff
Elements

Provisions under the RE Act, IRR & FIT Rules

Payment

Guaranteed, on a fixed rate per kWh

Coverage

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

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

Dispatch

Priority and must dispatch

21

The 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 Rulemaking.
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

Overview of the Financial Model

The FIT calculation was conducted using a discounted cash flow (DCF) financial
model in Microsoft Excel

Assumptions for technical, construction, operations, financing, taxes and

economics were used as inputs to the Financial Model

The Financial Model computes for the Net Cash Flow, which is defined as annual
revenues less principal repayment, interest expense, O&M and G&A cost, and
income tax

The Net Cash Flow is then used to compute the Equity IRR based on the
assumed equity investment

The Financial Model then calculates the Weighted Average Cost of Capital
(WACC) based on assumed cost of debt and the computed equity Internal Rate
of Return (IRR)

Using the goal seek function of Excel, the Base FIT was derived such that the
Target Equity IRR or WACC is achieved
23

How Did We Compute for the FIT?

Construction Cost

Debt

Equity

Production volume

FIT (?)

Revenues

Construction
period

Less
O&M and G&A costs
Net Capacity Factor
and Installed Capacity

Using Excels GoalSeek function

Operating
period

Annual capex and

Debt service
Corporate Income Tax
and Local Taxes
Equals

Target Equity IRR

Present value of cash

flows to equity investor
equals equity
investment cost

After-tax free cash

flow
24

Initial Feed-in Tariffs (FITs)

in Php/kWh
Technology

Proposed by RE
Developers

NREB Approved

June
2010

Oct.
2010

Nov.
2010

April
2011

April
2011

Degression Rates

Biomass1/

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

None

1/

For a solid biomass project

a project with capacity between 1MW and 10MW
3/ For a ground-mounted project with more than 500kW capacity
25
2/ For

Parameters and Assumptions

ROR
Hydro

Biomass

Solar

Wind

Ocean

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

Particulars

26

Installation Targets
In proposing the initial FITs, NREB, in
consultation with RE Developers and the DOE,
considered the expected capacity for each RE
resource and the completion dates as initial
installation targets.
The initial installation targets, subsequently
revised and certified by the DOE based on
NGCP Grid Impact Study, shall be achieved
within three (3) years from effectivity of the
FITs.

Installation 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 Section 7 of the FIT Rules.

Installation Targets
in MW
Proposed by RE
Developers
Technology

DOE

NREB
Approved
(April 2011)

DOE
Certification
to ERC
(July 2011)

June
2010

November
2010

Biomass

357

416

233

250

250

Run-of-River
Hydro

131

131

170

250

250

Solar

235

542

20

100

50

Wind

710

710

220

220

200

Ocean

10

10

10

10

10

1,443

1,809

653

830

760

TOTAL

29

Maximize Deployment of Lower Cost RE

NREB has 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

1,443 MW

760 MW

(47%)

TOTAL

Beyond this, a diverse mix of technologies is critical to the power systems reliability (e.g.
Mindanao's energy mix is highly dependent on hydro; sustainability of biomass for fuel over 20
years).
30

FIT Rates in Other Countries

Adjusted
Philippines
Philippines Malaysia1
(NREBTechnology
/
(at Equity IRR
Approved)
at 8%)

Thailand

Germany

Spain

Biomass

7.00

5.91

3.31 to
3.45

3.74 to 4.00

---

---

Run-ofRiver
Hydro

6.15

3.32

3.31 to
5.04

4.40 to 5.32

---

---

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

---

7.92 to 9.24

5.64

4.47

Ocean

17.65

12.59

---

---

---

---

1/ Assumed

exchange rate is Php14.3915 for every Malaysian ringgit

31

Indicative Rate Impact of the FIT in 2014

Avoided Cost based on Average WESM Price

Technology

RE Generation
(GWh)
(A)

FIT
Avoided
Rate Impact
Payments
Cost
of the FIT
(Php million) (Php million) (Php million)
(B)
(C)
(B) (C)

Rate Impact
of the FIT
(Php/kWh)
(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

Indicative Rate Impact of the FIT in 2014

Avoided Cost Based on Average DU Generation Cost

Technology

RE Generation
(GWh)
(A)

FIT
Avoided
Rate Impact
Payments
Cost
of the FIT
(Php million) (Php million) (Php million)
(B)
(C)
(B) (C)

Rate Impact
of the FIT
(Php/kWh)
(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

Is the FIT All at risk of run-away costs like Spain due to

over installation of RE?
In Spain 2,500 MW of Solar PV from 2006 to 2008 from a base of
88 MW can this happen to the Philippines?

Under the FIT Rules, the installation targets set by NREB for the
initial FIT period of 3 years would serve as a governor or trigger
mechanism to adjust the FITs downwards or upwards.
As part of the FIT submission, degression rates were also included.
6% reduction for Solar One year after FIT rates apply
0.5% reduction for all others Two years after FIT rates apply

34

Advantages 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
countrys 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

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.

Advantages of Implementing FITs NOW

RE projects have long gestation periods and would take
two to three years to construct from financial closing
date.
The proposed FITs for Run-of-River Hydro and Biomass
RE sources are already lower than the recently
approved base coal tariff rates. By the time, the Wind
power plants go online in 2014 and 2015, their
degressed FITs are expected to be lower than coal tariff
rates at that time.
After the weighted average FIT reached Grid Parity by
early 2021, the installed RE power facilities would
actually contribute to the reduction of electricity costs
until the end of the FIT duration by 2030.

Advantages of Implementing FITs NOW

As compared to fossil fuel plants which tend to be volatile
in the world market, FITs would be relatively stable and
predictable throughout its implementing period.
Being fixed during the mandated period and being 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 of their fuel costs.
With the approved coal tariff at Php 8+/kWh as of October
2011, the projected weighted average FIT of RE power of
Php 7.44/kWh in 2014 is already lower .
Even at 5% increase p.a., coal tariff will reach Php 9.26/kWh
by the end of 2014.

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

Status 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 with the Court of Appeals
NREB has completed its presentation and offer
of evidence in January 2012
Intervenors to present their evidence and
witnesses in February 2012. Ongoing.
Completion of hearings- depends on ERC and
the intervenors and decision of the CA
Approval - 2nd Quarter of 2012 (?)

Timetable for RE Mechanisms

Mechanism
1. Feed-In Tariff
a) Rules
b) Submission of FIT Petition to ERC
c) Public Consultation & Hearings
d) Approval
e) Effectivity
2. Renewable Portfolio Standards
a) Rules- being finalized
b) RPS - minimum % to be imposed
c) Approval
d) Effectivity
3. Net Metering
a) Guidelines Including Pricing Methodology
b) Public Consultation
c) Approval
d) Effectivity
4. Green Energy Option
a) IRR
b) Public Consultation
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
a) Rules on Application of Non-Fiscal Incentives
b) Public Consultation
c) Approval

Agency

Target Date

ERC
NREB
ERC
ERC
ERC

Done
May 16, 2011
Ongoing

DOE
NREB
DOE
DOE

1st Quarter 2012

2nd Quarter 2012

NREB
ERC
ERC
ERC

1st Quarter 2012

90 days
rd
3 Quarter 2012

NREB & DOE

DOE
DOE
DOE

1st Quarter 2012

90 days

PEMC
DOE
DOE
PEMC

Study is on-going

ERC/NPC-SPUG
ERC
NPC-SPUG

1st Quarter 2012

90 days

Need 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
creations integrity

42

Impact 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.

Impact 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.

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

Power
price
P/kWh

Consumers
are hedged
against
future price
increases
RE FIT price increases
with CPI and FOREX
only

20 Year life of RE power plant (Years)

FIT All is an Investment to
prepare for wider RE
deployment
1For 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.
46

Innovative Models
Global Energy Transfer Feed-in Tariff (GET FiT)
Developed by Deutsche Bank in response to
request from the UN Secretary General
Advanced FiT provides supporting payments for
above market premiums
Light house PPAs as pre-FIT regulatory
mechanisms
Mini-grids or Off-Grid performance based FiT
design for decentralized multi-user energy
generation in rural areas

Innovative Models
Indonesia FiT Fund
Developed by FMO and NL Agency of the
Netherlands to support geothermal development
in Indonesia
Payments are structured to close the gap
between PPA contracts awarded to the generators
and the rates needed to meet ROI expectations
Indexed to fossil fuel prices
As fuel prices rises over time, the payment to the
generator would eventually exceed the fixed flat
amount guaranteed by the fund.

Innovative Models
Green Africa Power (GAP)
Utilize official development funds to provide
guarantees and payments to close the gap for
RE projects in exchange for CERS

Notes:
1. None of these models are operational
2. No longer classified as an LDC, CERs of Philippine
CDM projects registered post 2012 will not be
eligible in EU anymore. Extension is highly
recommended

Thank
You!
51