World Bank unit wavers on RE funding

‘First come, first served’ policy favors big firms

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05:22 AM March 18th, 2013

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By: Amy R. Remo, March 18th, 2013 05:22 AM

MANILA, Philippines—International Finance Corp., the private sector funding arm of the World Bank, is considering whether it should finance certain renewable energy (RE) projects given the government’s “first-come, first-served” policy, which it said tended to favor the bigger power developers.

IFC Philippines resident representative Jesse O. Ang said the agency would still have to take a look at the policy. IFC will determine if it has to put out money for power projects despite the uncertainty of whether these will be eligible for the feed-in-tariff (FIT) rates.

FIT is a mechanism under the Renewable Energy Act that assures developers of fixed cash flow over the next 20 years.

“Ideally, the best solution is that you’re eligible and so no more question that you’ll build it. But the government has decided they would do something else—the first come, first served [policy]. So it comes with a certain characteristic because you’re going to put money out even if you don’t know if FIT is going to happen. What if they don’t build it properly? By the way, the money is out already, which means the money’s gone. So will banks do that? [Banks] have to have some assurance,” Ang explained.

According to Ang, the policy announced by the Department of Energy affected largely the small power players.

Some renewable energy projects, Ang said, could be done on the back of a strong balance sheet by some of the bigger power entities that have the financial muscle because this meant that such developers could carry the risk of not being able to secure a FIT.

“Of course, this favors the big guys. For the others who really need FIT and they don’t have strong balance sheets, they would be somehow in a disadvantage,” he added.

“Some projects will happen but it favors (the big companies) because they’re the ones with the balance sheet. Clearly, without assurance of FIT, you also have to find another way to have an assurance, so the cheaper technologies like hydro [resources] will have an advantage over the wind and solar [sectors], which really need [the support of] FIT rates because they are very expensive. But if the government decided it that way, then let it be that way,” Ang pointed out.

The DOE earlier announced its adoption of a “first come, first served” policy in allocating the limited 760-megawatt installation target for renewable energy projects. This policy means that upon the project’s declaration of commerciality, a developer must race against other project proponents in building its own renewable energy facility to be awarded an allocation and therefore be eligible to avail itself of fixed cash flow over the next 20 years via the FIT rates.

Although developers have come to appreciate the value of this policy as this would weed out the so-called “flippers,” many proponents argued that this policy posed a huge challenge for them.

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