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Boom in renewables drives energy remix

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Boom in renewables drives energy remix

Renewable energy, or RE, is getting much attention amid the Philippines’ drive to grow its economy in an environmentally sustainable way and tap new technologies to diversify its energy sources to curb further its dependence on imported, finite energy sources such as coal and oil.

While the Department of Energy set the target of having a 30-30-30 energy mix consisting of coal, natural gas and RE (with the remainder to come from other technologies), the Climate Change Commission (CCC) embarked  on a virtual crackdown on coal power generation under an “urgent and comprehensive” review of the government’s energy policy.

For their part, other agencies such as National Transmission Corp. (Transco), the quasi-judicial Energy Regulatory Commission (ERC) and the advisory National Renewable Energy Board (NREB) are promoting RE through the implementation of the Feed-in-Tariff (FIT) incentive program and innovations such as net metering, where households with RE installations may get paid for extra energy produced and exported to the grid. FIT in particular clicked among investors, especially for wind and solar power developments.

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President Aquino signed Commission Resolution No. 2016-001 which mandated the CCC to do “a national policy review and framework development on energy, through a whole-of-nation approach, in accordance with a low carbon development pathway and national goals and targets for climate change mitigation and adaptation, disaster risk reduction and sustainable development.”

Policy review

CCC, along with other concerned government agencies, will also set a clear government policy on coal-fired power plants, the biggest source of man-made carbon emissions. Coal-fired plants accounted for about 35 percent of global greenhouse gas (GHG) emissions.

In the resolution, the Department of Environment and Natural Resources (DENR), the Department of Energy (DOE) and the National Economic Development Authority (Neda) are urged to harmonize policies and regulations on new and existing coal-fired power plants and assess their impacts on the environment. The harmonized policies should include low-carbon development and climate change adaptation and mitigation strategies to be adopted in the formulation of all national and local development plans.

The review is seen to pave the way for the country’s swift transition to renewable energy, enhance energy efficiency and conservation, and ensure clean, affordable and reliable energy for the entire country.

The transition, CCC vice chair and Secretary Emmanuel De Guzman said, was supported by existing laws such as the Electric Power Industry Reform Act (Epira) of 2011 and the Renewable Energy Law of 2008, which both back environment-friendly, indigenous and low-cost sources of energy.

Aquino, who chairs the CCC, signed the resolution on May 18, 2016. The other signatories were De Guzman and Commissioners Frances Veronica Victorino and Noel Antonio Gaerlan.

In October 2015, the Philippines submitted during the Conference of the Parties to the  United Nations Framework Convention on Climate Change (UNFCCC) its Intended Nationally Determined Contributions (INDC), in which the country pledged to reduce its GHG emissions by 70 percent by 2030, subject to support provided by developed countries. The reductions will come from the energy, transport, waste, forestry and industry sectors. As a member of the UNFCCC, the Philippines supported the adoption of the global climate accord reached in Paris, France in December last year.

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De Guzman said an urgent review of the government’s energy policy was necessary given the growing number of new coal power plants in the country and the global demand for drastic GHG emission reductions to achieve the primary goal of the new global climate deal reached in Paris, which was to limit global warming to 1.5 degrees Celsius.

“We must aim for nothing less than the transformation of the country into an economy with a low carbon energy development pathway,” De Guzman said.

The CCC resolution affirms the government’s resolve to mainstream low carbon development pathway in accordance with the country’s commitment under the UNFCCC and its INDC, which indicates what post-2020 climate actions the pledging country intends to take, he said. Under the Paris Agreement adopted in December 2015, the INDC will become the first Nationally Determined Contribution or NDC when a country ratifies the agreement, unless it decides to submit a new one.

Last month in New York, the Philippines—through Environment Secretary Ramon Paje—signed the Paris Agreement on the recommendation of the Cabinet Cluster on Climate Change Adaptation and Mitigation. The Philippines also supported the adoption of the Sendai Framework on Disaster Reduction Risk Reduction 2015-2030 and the 2030 Agenda for Sustainable Development, which both advocate for a balance between economic growth and environmental protection toward building a resilient future.

Environmentalists and other groups support the CCC’s move and called for a bigger role of RE in the country’s energy portfolio.

Gov’t drive

State firms such as National Power Corp. (Napocor) are helping keep RE momentum going with a program to pursue hybrid systems (mixing diesel and RE) in its missionary electrification program to lower the subsidy rates for the 290 Small Power Utilities Group (SPUG) power plants across the country.

Company president and CEO Ma. Gladys Cruz-Sta. Rita said Napocor’s RE program aimed to install some 2.7 MW of solar projects to mix with existing diesel plants in off-grid areas with sizes ranging from 16kW to 152 kW.

However, Napocor’s RE program has not yet included wind hybrid systems as it has yet to conduct wind data acquisition and analyses in targeted areas.

On top of lowering the subsidy, Napocor hopes that with the hybrid system, it will be able to extend the operating hours of its power plants in the islands, especially during day time, she said.

“The use of renewable energy is expected to lower the subsidy in missionary areas where there is high cost of fuel due to their remoteness and susceptibility to imminent weather. Though reduction in the Universal Charge for Missionary Electrification (UCME) may vary depending on the true cost of generation in the area and the true cost of generation of RE resources, we still see reduction in UCME requirement from solar and wind resources in missionary areas,” she said.

Napocor has already started its capacity development training on RE in partnership with the Industrial Technology Research Institute (ITRI) of Taiwan. The training course conducted was on Solar PV-Diesel Hybrid System.

FIT and its financial impact

According to a Philippine Electricity Market Corp. (PEMC) study on the impact of FIT-incentivized resources in the spot market, there is a possible net decrease in energy spot market costs that may be enjoyed by consumers with RE getting priority dispatch in the Wholesale Electricity Spot Market (WESM) and pushing out more expensive diesel-powered peaking plants.

However, only customers of distribution utilities that buy about 11 percent from the WESM may enjoy such reduction in power cost. If the utilities buy less than that, the benefit will be less, and their customers still have to pay the universal charge to support FIT incentives (called the FIT-Allowance or FIT-All). The utilities that do not buy from WESM and the utilities in Mindanao, which do not have their own WESM, will not benefit and they still have to pay FIT-All.

Thus, in terms of enjoying the full benefits of FIT, utilities would do well if they have a good mix in their power portfolio and not to fully contract their demand through bilateral contracts. Should they go for bilateral contracts, they should also look at such energy sources as embedded RE plants like solar farms to avoid payment of transmission fees that could translate to savings for customers.

Overall, industry players—from state energy firms to private generation companies and utilities—all agree that RE is playing a bigger role in the Philippine market and will remain on the radar of investors because of government support in the form of incentives, as well as non-financial support such as priority dispatch of RE in the WESM.

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