An Independent View
Monday, April 1, 2013
THE government has made attempts to create a renewable energy (RE) industry by the use of carrots (Feed-in Tariffs for electricity obtained from the RE sources of run-of-river hydropower, biomass, wind, and solar) and sticks (mandated use of vehicle fuel containing ethanol produced from biomass).
Neither carrot nor sticks have produced the hoped-for benefits for the RE industry. At the same time, motorists are inconvenienced by the mandated use of 10% ethanol in their fuel which starts today.
Governance in which the many are discomfited and the few obtain insubstantial benefits is not compatible with democracy or even sound decision making. We hope the incoming 16th Congress will sort out the difficulties by passing revised legislation based on common sense and not on an impractical ideology.
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Ethanol
To produce fuel containing 10% ethanol for the nation’s motorists requires over 400 million liters of ethanol annually. Despite legislation being in place for over six years, we estimate that only 80 million liters of ethanol is produced by our fledgling bioethanol industry. Hence, for our legislation to be adhered to, 80% of our ethanol has to be imported from overseas. This was not the intention of those who framed the Biofuels Act (RA 9367). A re-examination of this Act is necessary.
It is relevant to ask: “Is a 10% ethanol mixture welcomed by the nation’s motorists?” The answer is “no.” Older vehicles, those manufactured before 2005, which constitute a large proportion of vehicles on the road are not compatible with E-10 (10% ethanol) which may damage the vehicles’ fuel lines, fuel pumps, and carburetors. Also, the energy produced by ethanol is only two-thirds that of gasoline, which means that the ethanol blend will result in lower mileage per liter. Fuel costs per kilometer are rising and part of the increase is due to government’s insistence on 10% ethanol.
We need revised legislation.
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SCBP
Last year, Governor Marañon met a group of Swiss and German venture capitalists who were interested in the possibility of generating electricity from renewable energy sources. This meeting has borne fruit and funds have now been committed for an 18 MW (=18,000 KW) electricity generating plant to be situated adjacent to San Carlos Bioenergy Inc. (SCBI).
The new entity, San Carlos Biopower (SCBP), will generate the electricity from biomass so that synergy between the interconnected companies, SCBI and SCBP is feasible. P3 billion is reportedly committed for the SCBP venture for which the construction phase is due to begin in May. The economic impact for San Carlos is substantial since construction of the plant is expected to involve around 1,000 workers. When the plant is operational, SCBP will provide employment for up to 400 people.
Whether or not SCBP is a financial success depends significantly on whether it attracts the government’s feed-in tariff incentive. This currently amounts to P6.63 per KWH for biomass and the scheme provides for increases commensurate with inflation over the next 20 years. But there is no certainty that the SCBP project will attract FIT because the government will not make a decision until the electricity is generated. FIT incentives for SCBP are possible but not definite.
If approved, then for SCBP the FIT incentives are substantial. P6.63 per KWH for an 18 MW plant operating 24/7 would attract an annual FIT of P6.63 x 18,000 x 24 x 365 = P1.05 billion. So for a P3 billion investment, whether or not FIT is offered means a swing of annual return on investment of around 35%. Even if the plant is not operational 100% of the time, then the FIT benefits will be proportionately reduced but will still be substantial.
Once these numbers get into the public domain, opponents of the FIT scheme, such as Meralco, will campaign for the FIT to be reduced. Electricity co-operatives will follow Meralco’s lead because it is the end consumer who will have to pay for the FIT incentives in the form of even higher electricity bills.
Last week’s announcement from First Maxpower International Corp that it is spending P4.9 billion for a 50MW wind power operation in Pulupandan (“expected” by the end of 2015) presents even more of a challenge to the government’s FIT scheme. Wind power FIT is currently P8.53 per KWH. Therefore, a 50MW wind power operation could attract annual FIT revenues of P8.53 x 50,000 x 24 x 365 = P3.7 billion. If the data supplied by Maxpower are accurate, then the FIT scheme will surely be challenged. We cannot expect the FIT rates to be maintained at such a high level.
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Creating a firm base of rules and regulations for which there are no uncertainties is not a strong feature of PNoy’s government. We expect further changes to the FIT scheme before anyone receives any benefits. Inconsistencies and uncertainties in government policies have created a huge damper on private sector investment. Both local and foreign investors are deterred. The government must do better if we are to achieve the most advantageous growth rates.
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