What a FIT!

It is only a matter of time before high power rates whack us again, thanks to the Energy Regulatory Commission, or ERC, which sets the power rates in this country—now said to be the highest in Asia.

The increase in power rates is a certainty because of the FIT (feed-in tariff) rates, which the Aquino (Part II) administration is poised to give to companies generating renewable energy, or RE, such as solar and wind power.

In a way, the FIT rates are the government’s way to subsidize new RE plants by making the rates much higher than the going rate in the open market called WESM, about four to five times higher.

And we—whether big business or illegal settler—must pay for such a prohibitive subsidy!

*  *  *

The ERC gave us a sneak preview of the FIT rates when, in June last year, it “provisionally approved” (exact terms of the ERC ruling, as signed by its chair and four commissioners) an amazing FIT rate of P9.30 per kilowatt-hour.

By the way, the going rate in WESM in the past year was about P3 to P4 per kwh.

The recipient of such a generous ruling by the ERC is none other than Northwind Power Development Corp., which was said to have been organized by former Energy Secretary Vincent Perez, a Cabinet member during the administration of Gloriaetta.

As reason for its generosity, the ERC cited the financial state of Northwind, specifically its “dire financial condition.”

Yet the ERC also said that its generosity to Northwind would be for our own good. The ERC ruling said that the P9.30 per kwh FIT rate for Northwind would “redound to the benefit of consumers in terms of continuous, reliable, efficient and affordable energy.”

And now, ladies and gentlemen, may I direct your attention to the word “affordable.” I am at a loss here. ERC would allow Northwind to charge us three to four times more than the regular electricity rates and it wanted us to believe that the rate would still be “affordable.”

The fact is, as the ERC pointed out in its ruling, the generous “provisionally approved” FIT rate for Northwind is an out-and-out bailout. There is no other way to look at it.

The consumers will thus have to cover the bailout cost. Maybe the ERC, by using the word “affordable,” meant we could “afford” the billion-peso bailout for Northwind.

*  *  *

Just how exactly the Northwind project—from out of nowhere—suddenly qualified for the highly subsidized FIT system, to begin with, is still one of the biggest mysteries of the universe.

The FIT was meant for new projects, as a way to encourage new RE plants. Suddenly a new rule surfaced, saying that even existing RE plants could get the subsidized FIT rates, as long as they did not have existing contracts.

When Northwind started operations in 2005, it had a ready contract with Ilocos Norte Electric Cooperative, or INEC, which serves the home province of Sen. Ferdinand “Bongbong” Marcos Jr.

INEC and Northwind fought over money, even bringing their fight to the ERC, in a case that Northwind also won. The problem of INEC was that it was supposed to pay for all the power produced by Northwind, whether or not INEC customers were using it. At night, unfortunately, INEC actually had little use for the electricity.

In that case, ERC forced INEC to honor the contract, although INEC could not possibly pay for all the electricity that Northwind generated, simply because INEC did not have the corresponding revenue from the power.

That was the popular story on why INEC and Northwind parted ways. That Northwind let INEC off the hook in the contract, and that the government also decided to give subsidized FIT rates to existing plants (like Northwind’s) as long as they did not have existing contracts, could just be pure coincidence.

*  *  *

From what I gathered, the ERC considered a number of factors in determining the FIT rate of P9.30 per kwh that it “provisionally approved” for Northwind. One was the so-called capacity factor, which considers the vagary of the elements—wind, in the case of Northwind.

Supposedly Northwind was losing money because it stopped producing power at times as the wind could come and go. In other words, wind power supply was not constant.

Here it gets a little bit technical. Northwind claimed before the ERC that it only had a capacity factor of 23 percent, meaning, its wind-powered turbines could produce at only 23 percent of its capacity. Northwind supposedly put up the capital for the entire capacity, which it somehow must recover. Thus the ERC considered such a factor in giving the generous “provisionally approved” FIT rates to the company.

In its original projection, Northwind claimed a capacity factor of 33 percent. Just where the rest went, the ERC did not bother to check perhaps.

Anyway, capacity factor also has something to do with the efficiency of the plant. From what I gathered from documents submitted by Northwind to the Department of Energy, its “outages” (when it is not producing power) went up to more than 20 percent. This was due to such things as breakdowns—not because of the absence of wind. There was something wrong with the equipment.

In a way, the FIT rate of P9.30 per kwh would help cover for such inefficiency of the wind power plants. Thus we reward inefficiency. Yes!

By the way, according to our contacts in the Philippine Chamber of Commerce and Industry, or PCCI, business in this country is not competitive, as against those in our neighbors, mainly because we have the highest power rates in Asia.