Renewable Energy Act of 2008 Republic Act No. 9513 An Act Promoting the Development, Utilization and Commercialization of Renewable Energy Resources and For Other Purposes December 16, 2008 The Republic Act No. 9513 or An Act Promoting the Development, Utilization and Commercialization of Renewable Energy Resources and For Other Purposes was signed into law on December 16, 2008. The objective of the Renewable Energy Act of 2008 is to establish the framework for the accelerated development and advancement of renewable energy resources, and the development of a strategic program to increase its utilization. R.A. 9513

Renewable Energy Act of 2008 On-Grid Renewable Energy Development Renewable Portfolio Standards Feed-In Tariff System Renewable Energy Market Green Energy Option Net-metering for Renewable Energy Off-Grid Renewable Energy Development Minimum RE generation capacities R.A. No. 9513, aside from the fiscal incentives, set the mechanisms for the development of both on-grid and off grid renewable energy in the Philippines. R.A. 9513

Renewable Portfolio Standards Defined as “a market-based policy that requires electricity suppliers to source an agreed portion of their energy supply from eligible RE resources” The NREB shall set: Minimum percentage of generation from eligible renewable energy resources Which sector RPS shall be imposed on a per grid basis Now I will explain to you the various mechanisms provided for in the RE Act to mobilize deployment of RE in the Philippines. The RE Act mandated ALL stakeholders in the electric power industry to contribute to the growth of the renewable energy industry of the country. In line with this, it mandated the implementation of a market-based policy that requires electricity suppliers to source an agreed portion of their energy supply from eligible RE resources. This policy is called the Renewable Portfolio Standards or RPS, Rules of which to be set by the DOE while the minimum percentage of generation from eligible RE to be set by the NREB and imposed on the electric power industry participants serving on-grid areas, on a per grid basis. * Section 6 of the RE Law 4

Feed-In Tariff System ERC, in consultation with the NREB For emerging renewable energy resources to be used in compliance with the renewable portfolio standard Wind Solar Ocean Run-of-river Hydro Biomass Priority connection to the grid Priority purchase and transmission of, and payment for, such electricity by the grid system operators Fixed tariff by technology Mandated number of years, not less than twelve (12) The Feed-in Tariff or FIT System, on the other hand, is the guaranteed fixed tariff to be paid to electricity produced from each type of emerging renewable energy, to be applicable for no less than twelve (12) years. The FIT system is to be developed by the ERC, in consultation with the NREB. The purpose of the FIT system is to accelerate the development of wind, solar, ocean, run-of-river hydro and biomass energy resources, or what we call the emerging RE resources to be used in compliance with the Renewable Portfolio Standards. The law also provides for priority connection to the grid, as well as priority purchase and transmission of, and payment for, such electricity by the grid system operators. As mentioned earlier, Section 7 of R.A. No. 9513 and Section 5 of its IRR mandated the ERC, in consultation with the NREB, to formulate and promulgate the feed-in tariff system rules within 1 year from the effectivity of the RE Act. The ERC, in July 2010 came out final FIT Rules. The FIT Rules set the regulatory framework for the establishment of the FITs, its applicability and duration, and the determination and administration of the FITs. The Rules also provided for the procedure for filing and approval of the FITs, as well as the review process. I will discuss with you in more details, the FIT Rules later. Section 7 of the RE Law 5

Renewable Energy Market (REM) The DOE shall establish the REM Direct PEMC to implement changes to the WESM rules in order to incorporate the rules specific to the operation of the REM under the WESM PEMC, under DOE supervision, establish a Renewable Energy Registrar Issue, keep and verify RE Certificates The Renewable Energy Market or REM is the market where the trading of the RE certificates equivalent to an amount of power generated from RE resources is made. The RE Act mandated the DOE to establish the REM. In addition to that, the Act mandated PEMC to incorporate the rules specific to the operation of the REM under the WESM, and thus, implement the corresponding changes to the WESM Rules. Furthermore, PEMC was directed to establish a Renewable Energy Registrar, and issue, keep and verify RE certificates which will be used for compliance with the RPS. * Section 8 of the RE Law 6

Green Energy Option The DOE shall establish a Green Energy Option program which provides end-users the option to choose RE resources as their sources of energy End-users may directly contract from RE facilities their energy requirements TRANSCO, DUs, PEMC and all relevant parties are hereby mandated to provide the mechanisms for the physical connection and commercial arrangements necessary to ensure the success of the Green Energy Option ERC to develop regulatory framework Meanwhile, the Green Energy Option is a mechanism to be used to empower end-users to choose renewable energy in meeting their energy requirements. This program is to be established by the DOE, in consultation with the NREB, while the ERC is mandated to develop the regulatory framework. Under this mechanism, end-users may directly contract electricity from RE facilities. On the other hand, Transco, DUs, PEMC and all relevant parties should provide the mechanisms for the physical connection and commercial arrangements necessary to ensure the success of the program. * Section 9 of the RE Law 7

Net Metering for RE DUs may enter into Net-Metering agreements with qualified end-users The ERC, in consultation with the NREB shall develop Net-metering interconnection standards and pricing methodology and other commercial arrangements The DOE, ERC, Transco, DUs, PEMC and all relevant parties are mandated to provide mechanisms for physical connection and commercial arrangements And lastly, Net Metering is a consumer-based renewable energy incentive scheme where a distribution grid user has a two-way connection to the grid and is only charged for his net electricity consumption and is credited for any overall contribution to the electricity grid. The main objective of the Net Metering Program is to encourage end-users to participate in renewable energy generation. Under this program, DUs may enter into Net-Metering agreements with qualified end-users who will be installing an RE System. Qualified end-user means those entities that generate power from eligible on-site RE facility (i.e. house or office building with photovoltaic system). The ERC, in consultation with the NREB is mandated to develop the standards and pricing methodology for this program. Meanwhile, the DOE, ERC, Transco, DUs, PEMC and other relevant parties are mandated to provide the mechanisms for physical connection and commercial arrangements necessary to ensure the success of the program. * Section 10 of the RE Law 8

Feed-In Tariff System For emerging renewable energy resources to be used in compliance with the Renewable Portfolio Standard, to wit: Wind Solar Ocean Run-of-river Hydro Biomass Section 7 of R.A. 9513 and Section 5 of its IRR mandated the ERC, in consultation with NREB, to formulate and promulgate feed-in tariff system rules. Section 7 of the RE Law 9

Feed-In Tariff System Fixed tariff to be paid to electricity produced from these renewable energy resources. Mandated number of years, not less than twelve (12). ERC, in consultation with the NREB. Priority connection to the grid. Priority purchase and transmission of, and payment for, such electricity by the grid system operators. Section 7 of the RE Law 10

Feed-In Tariff Rules July 12, 2010 - ERC approved the Feed-In Tariff Rules (FIT Rules)   July 28, 2010 - Published in a Newspaper August 12, 2010 - Effectivity of FIT Rules May 16, 2011 - NREB filed a Petition for the adoption of its proposed FIT Rates In line with this mandate, on July 12, 2010, after several public consultations, the ERC promulgated the Feed-In Tariff Rules. The Rules were published in a newspaper of general circulation on July 28, 2010 and effective on August 12, 2010.   The FIT Rules set the regulatory framework for the establishment of the FITs, its applicability and duration, and the determination and administration of the FITs. The Rules also provided for the procedure for filing and approval of the FITs, which shall commence with the NREB’s submission to the ERC of its proposed FITs as calculated in accordance with the methodology described in the FIT Rules. FIT Rules

FIT Framework NGCP FIT-ALL Whenever there is renewable energy injected into the system, NGCP or the utilities, in the case of the embedded plants, allocate the energy among all their customers or electricity end-users. In turn, all electricity end-users are obligated to pay a uniform Peso/kWh charge referred to as Feed-in Tariff Allowance or FIT-All. The FIT-All is collected by the utilities and remitted to NGCP or by NGCP itself in the case of end-users that are directly connected to the transmission system. NGCP acts as the administrator of the FIT-All proceeds and takes care of the settlement with the Renewable Energy Developers based on the quantity they delivered into the system and the applicable Feed-in Tariff. NGCP FIT-ALL

Based on cost of a representative project The FIT and the FIT-All NREB ERC FIT Based on cost of a representative project Linked to installation targets of DOE/ NREB (based on RPS) Technology-specific Peak or Off-peak for certain technologies 20 years duration Subject to degression and adjustments Subject to review The FITs to be approved by the ERC shall be technology-specific, and may further be differentiated by the size of the plant and whether or not they are for peak or off-peak, in the case of certain technologies such as biomass.   The Feed-in Tariffs shall have duration of 20 years, meaning that the Renewable Energy Developers shall enjoy the prevailing Feed-in Tariff applicable to them from the time they start commercially operating and for 20 years thereafter. The Feed-in Tariffs are subject to annual adjustment to account for local inflation and foreign currency exchange fluctuations. A simple benchmarking indexation formula is provided in the Rules to apply to all technologies. In addition to that, the FITs to be set are to be subjected also to a degression rate to be determined by the ERC to encourage the developers to invest at the initial stage and hasten deployment of renewable energy. Subjecting the FITs to degression also avoids substantial windfall from being enjoyed by developers especially in the technologies where significant cost reductions are expected in the future as these technologies mature. The Feed-in Tariffs are subject to review and readjustment by the ERC in the following cases: When the installation targets are already achieved within the targeted period; When the installation targets are not achieved within the targeted period; When there are significant changes to the costs or when more accurate cost data become available; and Other analogous circumstances that justify the review and re-adjustment. However, the readjusted tariffs that may be set by the ERC following this review shall apply only to new Renewable Energy Developers. FIT Rules

ERC Case No. 2011-006 RM NREB (in PhP/kWh) ERC-Approved ROR Hydro 6.15 Comparative FITs: NREB (in PhP/kWh) ERC-Approved ROR Hydro 6.15 5.90 Solar 17.95 9.68 Wind 10.37 8.53 Biomass 7.00 6.63 Note: Decision on OTEC FIT deferred Fit Implementation

PARAMETERS/ ASSUMPTIONS   ROR HYDRO SOLAR WIND BIOMASS FIT (PhP/kWh) 5.90 9.68  8.53 6.63 NET CAPACITY FACTOR 22% NREB:16% 27.5% NREB:25% EPC COST 1,954,000/MW NREB:2,585,000/MW 1,236,000/MW NREB:1,335,000/MW 1,880,000/MW NREB:1,932,000/MW T-LINE COST 69,767 NREB:84,000 23,256 NREB:55,000 NREB:40,000 SWITCHYARD & TRANSFORMER COST 907,019.72 NREB:1,515,000 1,814,000 NREB:3,500,000 569,033 NREB:786,000 ACCESS ROAD COST 20,000/km NREB:182,000 CONTINGENCY 9% NREB:7.5% 2% NREB:4.8% EQUITY IRR 16.44% NREB:17%  NREB:17% 17% NREB:18.5% FORWARD PESO EXCHANGE RATE P43:US$1 NREB: P44:US$1

ERC Case No. 2011-006 RM Effectivity (per Decision dated July 27, 2012): “Payment of the approved FIT rates to the eligible RE Developers shall commence upon the effectivity of the Feed-in Tariff Allowance (FIT-All), which shall be determined by the Commission at a later date after due proceedings thereon.” Fit Implementation

Payable by all electricity users Periodically calculated and set The FIT and the FIT-All NGCP ERC FIT All Uniform ₱/kwh charge Payable by all electricity users Periodically calculated and set Based on forecasted RE deliveries Proceeds go to a fund administered by NGCP from where the RE payments will be sourced All end-consumers will share in the cost of RE through a separate uniform charge (in PhP/kWh) to be called Feed-in Tariff Allowance or FIT-All to be established and set by the ERC on an annual basis upon petition by NGCP. This is very much like the Universal Charge being collected at present from all end-users. The NGCP was tasked with the settlement and administration of the FIT-All Fund.   The following are the components of the FIT-All: Forecasted annual required revenues for the projected deliveries of the Eligible RE Plants; Applicable FIT for the year; Previous years’ over or under recoveries; Administration costs; and Other relevant factors to ensure that no stakeholder is allocated with additional risks in its implementation The FIT–All shall be collected by the DUs for consumers connected to them, by the NGCP for directly connected consumers, and, once open access and retail competition set in, by Retail Electricity Suppliers (RES) for contestable consumers. All proceeds shall be remitted to NGCP who will be responsible for the settlement and payment of the FITs for the Eligible RE Plants. The NGCP shall ensure that the FIT-All fund is sufficient to pay all RE producers regularly. In this regard, aside from ensuring sufficient working capital requirements in the calculation of FIT-All, the Rules provide for penalties for delay or default in the payment of FIT-All proceeds which include the imposition of 20% penalty surcharge, plus monthly interest on unpaid amounts based on 91-day T-bill plus 300 basis points. FIT Rules

Next Steps Approval of FIT-All Payment & Collection Guidelines (Pubcon schedule: Sept. 20) Calculation of FIT-All Unique characteristic of Mindanao (without WESM) Address issues of embedded generators FIT per grid issue Timing of billing, collection and payment of FIT-All FIT All Administrator Fit Implementation

Next Steps Renewable Energy Payment Agreement (REPA) Filing of FIT-All Petition by Administrator and approval by ERC Fit Implementation

THANK YOU! Thank you. www.erc.gov.ph Title of Presentation