Cut power subsidies, gov’t urged

MANILA, Philippines–A group of Filipino economists is urging the government to disclose and, eventually to limit, the amount of public subsidy for renewable energy projects, arguing that this could run up to several tens of billions of pesos and could further increase the already high electricity costs in the country.

According to the Foundation for Economic Freedom (FEF), the government should consider the ability of the public to shoulder additional levies on a per-kilowatt-hour cost of electricity.

“The Philippines already suffers from one of the highest power rates in the world. We should not unnecessarily add to the already heavy burdens of our electricity consumers and businesses,” FEF said.

As an incentive to renewable energy developers, the government is expected to set a feed-in-tariff (FIT) rate effective over the next 20 years to assure them of future cash flows for the projects, while all electricity end-users will be charged fixed amounts to cover the production of energy from renewable sources.

The amount would form the universal levy called FIT-allowance and would be based on the proposed FIT rates for each resource (solar, wind, biomass, hydro and ocean) and installation target of 830 megawatts combined. The proposed FIT-allowance was initially pegged at 11.38 centavos a kWh.

Selection

So as not to jack up electricity prices with the entry of more renewable energy sources, FEF said the selection of projects that have recourse to such subsidies should instead be based on lowest cost of renewable energy projects first, regardless of technology.

“We believe this is the best use of resources for the country as it will require the least amount of subsidies per kilowatt-hour generated, which, in turn, can support higher installation targets and greater quantities of environment-friendly energy for a given cost to the consumer,” it said.

“We estimate the subsidies required for the two most expensive RE technologies, solar and wind, could otherwise pay for six times as much energy from the next cheaper source, which is biomass, or 15 times as much energy from the cheapest, which is run-of-river hydro, among the RE technologies eligible for the feed-in tariffs,” FEF pointed out.

“When you add the cost of additional reserves and transmission facilities needed to support these RE projects, the case for judicious allocation of the FIT subsidies becomes even more compelling,” it added.

While this approach may initially discourage the diversity of RE sources, the potential to produce more renewable energy at affordable costs should be the overriding policy direction, according to FEF.

“In any case, the projected energy from these more expensive technologies is not of a magnitude that would impact the energy mix, just the energy cost. Postponing some of the more expensive technologies, instead of locking in the high costs now for 20 years, will allow the Filipino people to benefit from the expected improvements in both the efficiency and costs of these technologies,” FEF explained.

Affordability

The Philippines currently has renewable energy generation capacity equivalent to almost 34 percent of its total installed capacity.

“We can move further ahead by focusing our limited resources on the more affordable renewable energy projects at this time,” it said.

“This is not to say that technologies such as solar have no place in our energy mix at this time. They may be the best in some areas, which have expensive diesel-fired plants serving off-grid customers. When they are used to augment off-grid diesel installations, the avoided costs [and emissions] are higher, so the required incremental subsidy is less. And no additional reserves or transmission facilities are needed. In fact, solar technology is already used in a significant number of rural electrification projects all over the country,” FEF explained.