‘First come, first served’ policy for RE projects

Allocation scheme seen to weed out speculators

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The Department of Energy is adopting a “first come, first served” policy in allocating the limited 760-megawatt installation target for renewable energy (RE) projects, eliciting a mix of disbelief and support among local developers.

Energy Secretary Carlos Jericho Petilla said this policy meant that renewable energy developers must take the risk of building the power plant first before securing from the government an allocation from the installation target for their projects.

The first developers to build their facilities and pass the criteria upon checking by the DOE would be qualified under the installation target, which refers to the total capacity of renewable energy projects that will be allowed to be constructed within a three-year period. This also means that their projects can get the feed-in-tariff (FIT) rates, which will assure developers of fixed cashflow over a 20-year period.

Under the current installation target, 250 MW has been allocated for hydropower projects, 250 MW for biomass, 50 MW for solar, 200 MW for wind power and 10 MW for ocean power.

According to Petilla, the new policy would help weed out the speculators from the more serious energy players, although he admitted that it might give an undue, default advantage to the bigger power players, which might have more expertise and financial muscle to execute their projects.

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  • nazar_agawin

    This policy would fall under “Regulatory Risk” in project finance. Power projects are capital intensive projects, thus equity participation of project proponents are limited to about 30 ~ 50%. The other source of capital would be coming from financial institutions. Now banks would limit their risk as well so they ask for guarantees such as bilateral contracts from off-takers and service contracts from DOE. But this policy would not guarantee the banks and therefore increase their risk. Eventually, project proponents will have a hard time securing financing from the banks. In the end, it is the big power companies (with deep pockets) that can finance these projects with 100% equity.I believe this policy go against the DOE’s reform agenda which is “Level Playing Field, Walang Lamangan” because as mentioned earlier it favors few companies positioned to finance RE projects largely by equity. If it is the good secretary’s intention that this policy would hasten RE projects, then he might be wrong. RE projects take time because preparatory studies to acquire data takes years since they are susceptible to climate change. A lot of duration studies are undertaken to assure that energy sources, i.e., wind velocity, sun-hours, river water flow are enough to drive turbines and panels to generate electricity as designed. Aside from these studies which took power companies years to acquire the required data they have also waited long for the DOE to come up with the FIT rates. Now that FIT rates are released, a policy on “First-come-first-served” has been issued. Regulatory risk is now on top of the risk that needs to be addressed in business planning and financial modeling because regime change in the Philippines would also follow a game changing policy change.

    nazar_agawin@yahoo.com
    power consultant

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