1. The Renewable Energy Policy Debate in the Philippines Maureen Ane D. Rosellon PIDS Research Workshop 11 August 2016

2. Outline of Presentation Background of the Study Objectives Renewable energy (RE) sources in the Philippines Profile of the RE sector in the Philippines – Key features of the RE laws – Sector performance vs targets, global trends Implementation of policies and emerging issues Insights

3. Debate on RE Why endorse RE deployment?Criticisms against RE resource/policies - RE resource replenishable, minimal impact on environment - Minimizes externalities, push down cost of electricity - Diversifies energy sources - Growing demand for electricity - Volatile fossil fuel prices - Energy supply variable/intermittent - High cost of developing RE technologies - FiT rate relatively high by regional standard (second to Japan) - Lengthy permitting process - Incentives that impact on consumer electricity prices

4. Objectives of the Study To profile the renewable energy sector in the Philippines and examine the renewable energy resources, industry structure, market performance, regulatory and policy environment, and economic agents’ behavior. To analyze trends in the development of the domestic renewable energy sector vis-à-vis global trends. To identify and analyze the current debate/s on renewable energy development, market transactions, and policy implementation. To find data and information supporting the different sides of the debate/s and formulate conclusions based on such data and information. To recommend policy refinements or revisions going forward.

5. Hydropower – electricity derived from the potential energy when moving from higher to lower elevations (e.g. run-of-river, reservoir- based). Geothermal – heat energy emitted from within the earth’s crust, usually in the form of hot water and steam. It can be used to generate electricity in a thermal power plant or to provide heat directly at various temperatures. Wind - use of air flow through wind turbines to mechanically power generators for electricity Solar photovoltaics (PV) - A technology used for converting light into electricity. Solar PV cells are constructed from semiconducting materials that use sunlight to separate electrons from atoms to create an electric current. RE sources in the Philippines

6. Ocean - energy captured from ocean waves, tides, currents, salinity gradients and ocean temperature differences. Wave energy converters capture the energy of surface waves to generate electricity; tidal stream generators use kinetic energy of moving water to power turbines. Biomass - energy derived from combustion of solid, liquid and gaseous biomass fuels in high-efficiency conversion systems, which range from small domestic appliances to large-scale industrial conversion plants. Modern applications include heat and electricity generation, combined heat and power (CHP) and transport. Biofuels - used as alternative fuel for the transport sector: a) biodiesel - derived from coconut oil; blended with petrodiesel b) bioethanol – derived from sugarcane, cassava, sweet potato; blended with gasoline. RE sources in the Philippines

7. Policy instruments in promoting RE development Regulatory policies – Feed-in Tariff (FiT) scheme – Renewable Portfolio Standards (RPS)/Quota – Green certificate trading Fiscal incentives – Tax exemptions/reductions, for instance in equipment importation, value-added or sales, etc. – Capital subsidies and rebates

8. RE laws in the Philippines Renewable energy laws in the Philippines: Republic Act (RA) 9367 or the Biofuels Act of 2006, and RA 9513 or the Renewable Energy Act of 2008 Renewable Energy Act: aims to accelerate the exploration and development of renewable energy resources and reduce the country’s dependence on fossil fuels to ‘minimize exposure to price fluctuations international markets. It provides for fiscal and non-fiscal incentives to promote efficiency and cost-effectiveness of renewable energy systems. Biofuels Act: aims to reduce dependence on imported fuels by mandating utilization and promoting the development of locally- produced. It covers regulations on ‘production, blending, storage, handling transportation, distribution, use and sale of biofuels, biofuel blends and biofuel feedstock in the country

9. Renewable Energy Act of 2008 (RA 9513) – Feed-in Tariff (FiT) System- for electricity produced from wind, solar, ocean, run-of-river hydropower and biomass. – Net Metering agreements with qualified end-users who will be installing their renewable energy system. – Fiscal Incentives: income tax holiday; duty free importation of renewable energy machinery, equipment and materials; special realty tax rates on equipment and machinery; net operating loss carry-over; accelerated depreciation; zero% VAT; cash incentive of renewable energy developers for missionary electrification; tax exemption of carbon credits; tax credit on domestic capital equipment and services. – Renewable Portfolio Standards (RPS). – Renewable Energy Market (REM), operated under the Wholesale Electricity Spot Market (WESM). A Renewable Energy Registrar will be established by the Philippine Electricity Market Corporation (PEMC) that will issue, keep and verify RE certificates used for compliance with the RPS. – Green Energy Option program that provides end-users the option to choose RE resources as their source of energy. – Exemption from universal charge for renewable power and electricity generated for the generator’s own consumption and/or for free distribution in the off-grid areas.

10. – Fiscal incentives for farmers engaged in plantation of biomass resources – Financial assistance: GFIs will provide preferential financial packages for the development, utilization and commercialization of RE projects (with endorsement from DOE). – Renewable Energy Trust Fund to enhance the development and greater utilization of renewable energy. – Creation of the Renewable Energy Management Bureau (REMB) under DOE. The REMB’s function include among others: develop, formulate and implement policies, plans and programs to accelerate the development, utilization and commercialization of renewable energy resources and technologies; develop and maintain a database; conduct technical and impact studies; information, education and communication services. – Creation of the National Renewable Energy Board (NREB), assisted by a technical secretariat from the REMB. The NREB is primarily tasked to recommend policies to DOE and monitor the implementation of the Renewable Energy Act.

11. RE laws in the Philippines, Key features Biofuels Act of 2006 (RA 9367) – Mandatory use of biofuels. All liquid fuels for motors and engines sold in the country shall contain locally-sourced biofuels components – Fiscal incentives: zero specific tax on local/imported biofuels component per liter of volume; value-added tax rate (VAT) exemption for sale of raw materials used in the production of biofuel (e.g. coconut, sugarcane, cassava, corn, sweet sorghum). – Financial assistance: Government financial institutions (GFIs) will extend financing with high priority to Filipino citizens or entities (at least 60% Filipino-owned shares) involved in biofuel activities from production to transport, including blending of biofuels with petroleum. – Creation of the National Biofuel Board (NBB). The NBB will monitor the implementation of the National Biofuels Program; provide recommendations to the DOE on matters concerning supply/production and utilization of biofuels and biofuel-blends. – Security of domestic sugar and feedstock supply. The Sugar Regulatory Authority (SRA) will formulate guidelines in ensuring sufficient supply of sugar to meet the domestic demand and stable price of sugar. – Security of domestic biofuels feedstock supply. The Department of Agriculture (DA) will ensure reliable supply of biofuel feedstocks. – One-stop Shop for processing applications for feedstock production, biofuels and biofuel blends production and distribution.

12. Primary Energy mix (%) Renewables: 2010 – 39.51% of total energy 2014 – 39.63% 2015 – 37.8%

13. Domestic performance PHILIPPINES (as of Dec 2015) FUEL TYPE Capacity (MW) InstalledDependable Coal5,8935,632 Oil Based3,6102,734 Natural Gas2,8622,759 Geothermal1,9171,601 Hydro3,6003,073 Wind427379 Solar165125 Biomass221146 TOTAL18,69516,451 Electricity Generation Sources, Installed Capacity and Dependable Capacity Total RE: 34% (installed capacity); 32% (dependable capacity) Installed Capacity Dependable Capacity

14. RE goals/targets National Renewable Energy Program goals – Increase RE-based capacity for power generation to 15,304 MW by 2030 (almost triple of the 2010 capacity level of 5,438 MW), through: – Goals per technology basis: Increase geothermal capacity by 75 percent Increase hydropower capacity by 160 percent Deliver additional 277MW biomass power capacities Attain wind power grid parity with the commissioning of 2,345 MW additional capacities Mainstream an additional 284 MW solar power capacities and pursue the achievement of the 1,528 MW aspirational target – Develop the first ocean energy facility for the country.

15. Sector Installed Capacity, (MW) as of 2010 Target Capacity Addition by: Total Capacity Addition (MW) 2011- 20130 Total Installed Capacity by 2030 2015202020252030 Geothermal1,966.0220.01,100.095.080.01,495.03,461.0 Hydro3,400.0341.33,161.01,891.80.05,394.18,724.1 Biomass39.0276.70.0 276.7315.7 Wind33.01,048.0855.0442.00.02,345.02,378.0 Solar1.0269.05.0 284.0*/285.0 Ocean0.0 35.535.00.070.5 Total5,438.02,155.05,156.52,468.885.09,865.3 15,304.3 */Based on existing RE Service/Operating Contracts awarded and being evaluated by the DOE. The aspirational target of 1,528 MW solar power capacity will still be pursued Notes: Figures may differ with those in tables by location due to rounding off Source: Renewable Energy Plans and Programs 2011-2030 RE-based capacity installation targets

16. Performance vs targets Sector Installed Capacity, (MW) as of 2010 (a) Target Capacity Addition by 2015 (b) Target Capacity by 2015 (a+b) Installed Capacity as of December 2015 Geothermal1,966.0220.0 2,186.0 1,917 Hydro3,400.0341.3 3,741.3 3,600 Biomass39.0276.7 315.7 221 Wind33.01,048.0 1,081.0 427 Solar1.0269.0 270.0 165 Total5,438.02,155.0 7,593.0 6,330 Target installed capacity by 2030: 15,304.3MW Potential capacity as of March 2016: 13,574.7MW (based on 682 awarded projects) Wind: Potential capacity as of March 2016 is 1,168.0MW

17. Biofuel production Resources No. of Companies No. of Projects Registered annual capacity (million liters) Bioethanol10 282.12 Biodiesel11 584.90 Total21 867.02 Biofuels Registration/Accreditation (as of March 2016) 2015: Bioethanol local production – 59% of annual capacity; Biodiesel production – 35% of annual capacity

18. Performance vs targets Year Diesel Demand (in million liters) Biodiesel Blends (Targets) Supply Requirement / Fuel Displacement (in million liters) Actual Local Production 20126,922.852%138.46138 20157,343.105%367.15204.3 20207,923.3710%792.34- 20258,693.7320%1,738.75- 20309,030.6820%1,806.14- Biodiesel measurable targets Notes: Total supply requirement of biodiesel is equal to total diesel to be displaced; Source: Table 74, Philippine Energy Plan 2012-2030, page 135. Note: Target blend still at 2% (B2) in 2015 while increasing it to 5% is being reviewed. 2% blend 3% blend

19. Year Gasoline Demand (in million liters) Bioethanol Blends (Targets) Supply Requirement/ Fuel Displacement (in million liters) Actual Local Production 20123,730.6710%373.0735.09 20153,794.7210%379.47167.39 20204,301.8020%860.36- 20254,682.8120%936.56- 20305,052.2620%1,010.45- Notes: Total supply requirement of bioethanol is equal to total gasoline to be displaced; Source: Table 75, Philippine Energy Plan 2012-2030, page 136. Bioethanol measurable targets 0.9% blend 4.4% blend

20. Global trends: Share of renewables in electricity production (%) Source: Enerdata

21. Regulatory PoliciesFiscal Incentives Feed-in Tariff Renewable Portfolio Standard/Quota Net metering Tradable Renewable Energy Certificates Capital subsidies, Grants, Rebates Tax credits/ exemptions (investment, production, etc.) Reductions in taxes (sales, energy, CO2, VAT, etc.) Brazil Chile China India Indonesia Philippines Thailand Renewable energy policies in selected countries Adapted from GIZ (2012) From the list of countries, Philippines appears to have the most comprehensive RE policy; but implementation has been difficult – some of the policies have not been executed and IRR is taking longer than what the law provided (within a year from effectivity of law, e.g. RPS, certificate trading)

22. Implementation of policies and emerging issues RE issues and criticisms – Cost of implementing/building RE technologies – Permitting process – FiT rate, eligibility – ‘First come, first served’ policy – Priority dispatch – Biofuel – target on blends

23. On Cost U.S. average LCOE (2013 USD/MWh) U.S. average levelized costs of electricity, by technology (2010 USD/MWh)

24. Annual estimated capital costs for solar PV technologies from various agencies, 2005-2015 (in 2014$ per kilowatt)

25. Annual estimated capital costs for wind technologies from various agencies, 2005-2015 (in 2014$ per kilowatt)

26. Cost per technology based on interviews RE technologyCost per MW (USD) Solar1.68M Wind2.8M Geothermal3.85M * Total project cost is the overall cost of the project including development costs, capital costs, land acquisition, required studies to establish commercial viability, construction costs, transmission line, start-up costs, etc.

27. On the permitting process Summary of Stages of Renewable Energy Projects -Lengthy permitting process (experience in wind project – 2 years; hydro – 3 years) -Numerous permits required (based on experience – around 66 permits for geothermal project, around 70 permits for wind. Some of the permits are pre- requisite to other permits - delay in one permit would cause cascading delays in the overall project.) -Varying interpretation of rules by regional office heads (e.g. NCIP) -Change of guidelines upon assumption of new head/lead officer

28. On FiT rate PH FiT rates are relatively high by regional standard, second to Japan Rates were adjusted, new installation targets were issued by the government. Solar: from 50MW to 450MW, FiT rate: 8.69 Wind: from 200MW to 400MW FiT rate: 7.40

29. FiT is like a tax that will be added to the consumers’ electricity bills to encourage use of new RE (FEF) FiT rates are pegged for the next 20 years; coal/diesel prices are dictated by the international market (low or high)

30. On the ‘First come, first served’ policy This is a policy in allocating the installation target: – upon a project being declared commercially viable, a developer must compete with other project proponents in building a RE facility before being awarded a FiT – Endorsement for FiT eligibility possible only after 100% electro-mechanical completion of the plant Introduces risk of building a power plant only to fail to qualify for FiT due to unforeseen delays Biomass: 250MWSolar: 50MW, now at 450MW Ocean: 10MW R-hydro: 250MWWind: 200MW, now at 400MW

31. On priority dispatch Under this policy, eligible RE resources is given priority to inject to the grid: – As price takers, they may displace expensive conventional energy sources, which may possibly result in lower electricity prices, especially during peak period; – On the other hand, off-peak, electricity prices may increase due to thinning demand for which the generators would compete, and with thin market for competition, there could be temptation to exercise market power via collusion.

32. On biofuel blends There are reports that bioethanol producers have been importing ethanol to comply with the mandated 10% bioethanol blend (due to lack of capacity of sugarcane distillers, low productivity and high production cost) 5% biodiesel blend target in 2014 but currently still at 2% because production/suppliers are unable to meet the target Objective of Biofuels Act to develop and utilize indigenous renewable and sustainably-sourced clean energy sources to reduce dependence on imported fuels’ appears to be challenging to accomplish

33. Insights Declining cost of RE technologies – consider in adjusting the FiT rate. Missing the biofuels target – review biofuels program, make realistic targets. On ‘first come first served’ policy – review awarding of FiT eligibility at 100% mechanical completion – One recommendation from RE developer: consider, for instance, completion of development stage requirements as criteria for eligibility. – Metric for substantial completion of project (not necessarily 100%); as safeguard, as a condition for FiT approval, there should be a specific timeline for 100% completion of the project Bureaucratic reform needed in addressing lengthy permitting process – streamline, one-stop shop. Continue monitoring of impact of the priority dispatch policy on the electricity market