FIT rates feared to make developers complacent

The implementation of feed-in tariff (FIT) rates for renewable energy projects may cause developers to be complacent and not exert as much effort to make their operations more efficient, as they will be assured of their cash flows, according to the Philippine Association of Flour Millers (Pafmil).

In a statement issued Tuesday, the group, composed of the country’s biggest flour millers, said RE project developers might not be compelled to search for the most efficient technologies if they would be given sure revenues for at least 12 years.

“A mandated FIT, especially for a period of not less than 12 years, could have negative effects since there will be not much incentive to be more efficient as compared with current energy or power generation technologies and facilities since the RE power provider is assured of prioritized sale and a fixed tariff,” the group said.

Whatever type of technology an RE provider opts to use, except for hydro and geothermal, the output would surely cost higher than traditional power sources, Pafmil said. For RE to be viable, there would have to be the right economies of scale.

The incentives being granted to RE projects, the group said, were also contingent on the assumption that using RE sources would cause a significant displacement in fossil fuel use.

However, if the assumed displacement would not be achieved, all the incentives granted to RE developers, including the FIT rates, might not be worth it, Pafmil said.

“Our power rates are already one of the highest in the world. More expensive power imposed by RE FIT rates would mean loss of an industry’s competitiveness, which, in turn, would affect labor, which, in turn, affects the general populace and, therefore, the country as a whole,” Pafmil said. “Therefore, RE may not be at all beneficial if all the conditions for the provision of policy incentives are not met.”

The imposition of FIT rates should not bring price levels far from current power charges, Pafmil said. At the maximum, new rates should just equate to the cost of power at peak periods.

Under RA 9513, or the Renewable Energy Act of 2008, RE developers are entitled to the following incentives: seven-year income tax holiday; duty-free importation of machinery, equipment and materials; special realty tax rates on equipment and machinery; net operating loss carry-over; 10-percent corporate tax after the seven-year tax break; accelerated depreciation; zero value-added tax; tax-exempt carbon credits; and tax credit on domestic capital equipment and services.