IFC recommends subsidy to RE

Manila Bulletin

July 6, 2011, 1:34am

MANILA, Philippines — The International Finance Corp. (IFC), the investment arm of the World Bank, has warned the government against flip flopping on its policy on renewable energy projects saying the subsidy to RE projects would attract investments to this expensive but environment-friendly power generation technology.

“If we really want RE then we have to give a subsidy, just do it because at the end of the day investors will look at their bottom line,” said IFC resident representative Jesse Ang when asked whether it would be a bad policy if government pursues plan not grant subsidy to RE projects during yesterday’s launch of the 2nd Philippine Energy Efficiency Forum 2011.

It could be recalled that Trade and Industry Secretary Gregory L. Domingo has made clear his position against the granting of subsidy to RE projects via the FIT (Feed-in-Tariff) saying studies have shown that RE projects are viable even without subsidy.

Ang said that is frustrating to investors because the government has passed the RE law or RA 9513 that provides for incentives to RE projects and yet it is government that is delaying its implementation. He expressed apprehensions that investors would just walk away because of the delays just like what happened to Electric Power Industry Reform Act.

“You (Government) passed a law, you created a hoopla, the government should make a decision. Are we going to do this? They (investors) are all disappointed with the delays just like EPIRA they all left after a year,” Ang said.

“The proposed FIT is okay,” Ang said of the proposed FIT (Feed in Tariff) submitted by the National Renewable Energy Board (NREB) for approval by the Energy Regulatory Commission.

The proposed NREB rates are: P7 per kilowatt-hour (kWh) for biomass, P6.15/kWh for run-of-river hydroelectricity, P10.37/kWh for wind power, P17.65/kWh for ocean energy and P17.95/kWh for solar energy.

It is a 20-year contract adjusted to inflation and foreign exchange rates.

FIT guarantees payment to renewable energy investors through a universal charge. The renewable energy portfolio standards require distribution utilities to source a certain percentage of the power they distribute from renewable energy sources.

It is actually the cost consumer have to pay extra for the use of green energy. It is literally a subsidy to RE projects or RE producers.

“We need FIT because the reality is RE is going to be expensive. FIT is the best and most effective regime,” Ang said.

Ang said that IFC has already funded two RE projects SPC Thailand (solar) and one in China. In the Philippines, it collaborated with CEPALCO for a solar power plant, which he said is doing good.

Al Santos, vice president of the country's leader in RE projects First Gen Corp., however, explained that FIT is not actually a subsidy but a differential because the rate is reduced as RE contribution to the total energy mix becomes higher.

This means, he said, that the differential can actually go down in three to four years time.

Ed Chua, president of Pilipinas Shell, said that the Philippines can actually excel in RE. He cited the Philippines as second only to the US as geothermal energy producer. (BCM)