PH dismantling barriers to renewable energy boom
The Philippines is clearing the hurdles to accelerate the shift to green energy, taking to heart the global agenda of transitioning from fossil-based to zero-carbon energy production and consumption.
This time, the government is banking on the private sector to harness cleaner sources of energy, and ultimately reduce reliance on fossil fuels. To get the ball rolling, it started overhauling the rules and policies governing renewable energy.
Just recently, the Department of Energy (DOE) mandated distribution utilities, electric cooperatives and retail electricity suppliers to tap more renewables in supplying electricity to their customers.
Under the Renewable Portfolio Standards (RPS), the percentage of utilization of renewables for on-grid areas increases to 2.52 percent from the current 1 percent. The DOE says the adjustment annual percentage under the RPS, as encapsulated in Department Circular No. 2022-09-0030, will take effect in 2023.
“By increasing the annual percentage overtime, renewable energy (RE) would drive us on a path toward energy sustainability,” says Energy Secretary Raphael Lotilla.
RPS is a market-based policy requiring suppliers to source or produce a fraction of their electricity from eligible RE plants. It is also a mechanism designed to provide a guaranteed market for RE.
Likewise, the DOE has given all renewable sources a preferential dispatch in the Wholesale Electricity Spot Market (WESM). Under newly-issued Department Circular No. 2022-10-0031, all qualified and registered generating units utilizing RE resources must become both “must dispatch” and “priority dispatch” in the current bidding order in the WESM.
In a previous policy promulgated in 2015, the agency had qualified that “must dispatch” referred to generating units that utilize intermittent RE-based plants such as wind, solar, run-of-river hydro and ocean energy. It had no bearing on whether or not these plants were part of the feed-in tariff scheme, a financial incentive to entice investments in the renewable arena.
“Priority dispatch,” on the other hand, gave preference to biomass plants under the feed-in tariff scheme pursuant to Section 7 of the Renewable Energy Act of 2008.
But with the new circular, geothermal, biomass and hydroelectric power plants may now enjoy the option of preferential dispatch in the WESM, the centralized venue for buyers and sellers to trade electricity as a commodity.
It also requires the market operator, the WESM Governance Arm, as well as the system operator and distribution utilities to make the necessary adjustments to the WESM rules and manuals to ensure the efficient and effective scheduling and dispatching of preferential dispatch generating units.
Prior to that, the Philippine Electricity Market Corp. (PEMC) had launched the interim commercial operations of the renewable energy market (REM), which serves as the platform for buying and selling RE certificates.
RE certificate is a market-based instrument representing the property rights and other nonpower attributes of generating nonconventional energy resources.
PEMC, as the designated market registrar, will issue one RE certificate for every megawatt-hour of actual generation from qualified RE sources to market participants.
Easing foreign ownership
Beyond policy updates, the DOE sought legal guidance from the Department of Justice to push for renewables further, hoping to lure more investments in this sector. The DOJ, in turn, rendered at least two legal opinions favoring liberalization of ownership.
Earlier, the DOJ opined that investments in this sector are not subject to the Constitution’s 40-percent foreign ownership restriction. The department, in its Sept. 29 opinion, explains that Section 2, Article 12 of the 1987 Constitution—on the exploration, development and utilization of natural resources—“only covers things that are susceptible to appropriation, thus excluding the sun, the wind and the ocean.”
All forces of potential energy, it says, are not considered “kinetic” or energy in motion. This means RE sources—including solar, wind, hydro and ocean or tidal energy—are kinetic energy while potential energy is energy at rest.
“Moreover, the intent of the Constitutional foreign ownership restriction was to preserve for Filipinos limited and exhaustible resources,” it adds. “The compelling reason behind the Constitutional foreign ownership restriction finds no application to inexhaustible renewable energy sources.”
But let’s get first things first: the DOJ pointed out that the DOE must amend the implementing rules and regulations of Republic Act No. 9513 before foreign investors could own 100 percent of RE projects. Lotilla says they are undertaking the necessary revisions to these RE guidelines.
At present, foreign developers are allowed to develop RE plants through a service or operating contract with the government but their ownership interest is capped at 40 percent since the state has full control and supervision of the exploration, development, production and utilization of natural resources.
The DOJ, in a separate opinion dated Sept. 23, surmised that the National Power Corp. (Napocor) has the legal authority to borrow funds or contract loans to fulfill its edict of providing electricity to remote areas nationwide.
Missionary electrification
Lotilla says the favorable DOJ opinion will allow the state-run corporation “to establish a credit line with local banks that would enable it to manage the fuel price increase that has significantly affected the NPC’s financial position.”
The Energy chief says the necessary controls are now in place for the judicious use of the power to contract loans from financial institutions.
The Electric Power Industry Reform Act puts Napocor in charge of energizing off-grid areas through the Small Power Utilities Group, and generating power and providing associated power delivery systems in areas not connected to the transmission system.
Currently, Napocor’s missionary electrification initiative is bankrolled by the Universal Charge for Missionary Electrification, collected by power distributors from all electricity end-users.
“Private sector investments are central [to] achieving our renewable energy targets and vision for the Filipino people and this is a welcome development for our foreign investors to invest in renewable energy production here in our country,” Lotilla says.
Napocor is now seen to have the leeway to raise funds for RE projects in areas not palatable to private investors.
Private sector commitment
The government is aiming for a 35 percent share of renewables in the energy mix by 2030 and 50 percent by 2040.
The share of renewables before the enactment of the RE law stood at around 35 percent. However, the share of nonconventional energy in the power generation mix has been on the downtrend, with the latest DOE data noting that coal-fired power plants as of 2021 cornered a 58.48-percent share, while renewables came at a distant second with 22.4 percent.
Company executives laud recent policy moves to significantly grow the uptake of RE in the country and vow to pitch in the campaign to further promote the use of renewables.
“We support the DOE’s latest move to increase the share of renewable energy in our power generation mix. In San Miguel, we have been investing heavily in advanced technologies and new facilities to meet our country’s increasing power needs and significantly reduce our emissions,” San Miguel Corp. (SMC) president and CEO Ramon Ang says in a message.
SMC’s plan is to undertake 10,000 megawatts (MW) of RE capacity in the next 10 years, in support of the country’s goal to sustain economic recovery and growth and speed up the transition to a clean energy future.
“In support of this, we recently completed building 31 battery energy storage systems facilities nationwide. These can store energy coming from intermittent renewable sources such as wind and solar and purposely deploy them when supply is needed the most,” Ang says.
“Our approach has always been to maintain a broader portfolio of both the reliable traditional and variable renewable sources with the balance shifting towards more clean energy and less fossil fuels,” he adds.
ACEN Corp. president and CEO Eric Francia makes the same pledge.
“We welcome the recent moves by DOE, as they all encourage more investments in renewables. We are also hopeful that the renewable energy market and the reserve market will be implemented soonest as both are also critical in scaling up renewables in the country,” says Francia in a message.
Alternergy Holdings Corp. says the updated RPS requirement will expand the RE industry. Its chair Vicente Perez says the Philippines, possessing a wide array of RE projects, is in a “unique position” to take advantage of the growth of the RE sector in the next five years.
“The increase in the mandated RPS requirement will create a massive demand for RE capacity moving forward,” Perez, a former Energy Secretary, says in a statement.
“The Philippines cannot continue being hostage to any jump in the world oil and coal prices. The policy directions being set by the DOE and the new administration to meet the country’s electricity requirements with more and cleaner energy solutions mitigate these risks, at the same time ensure a sustainable energy supply for the country,” he adds.
Jaime Azurin, Meralco PowerGen Corp. president and CEO, hails the expanded rules on RPS, saying these will fast-track the country’s energy transition.
“We welcome this policy update as it will advance deployment of clean energy in the country and trust that together with other RE-related policies (e.g. General Energy Auction Program) would keep the power rates unaffected,” says Azurin in a message.
MGen, the power generation business of Manila Electric Co., is constructing 1,500 MW of renewable energy projects in the next seven years, starting with Bulacansol’s 55 MW solar plant in San Miguel, Bulacan. Azurin says they have commenced the construction of solar plants in Rizal and Ilocos Norte.
Fund flows
So far, about P270.8 million of investments have flowed into the local RE space. Based on the latest DOE tally, solar cornered almost half of the total investment at P130.4 million while wind came in next with P52.9 million, followed by hydropower, P38.7 million; biomass, P38.2 million and geothermal, P10.5 million.
As of June this year, the DOE has awarded a total of 998 RE contracts with a total installed capacity of 5,460.59 MW and potential capacity of 61. INQ
