Is it goodbye ‘FIT’… and will market forces prevail?

Solar’s FIT mess

At this point when the failure of the feed-in-tariff (FIT) system is becoming evident, energy sector players and policymakers are now exploring “new business” models to get things right.

It is not the first time that alleged irregularities in the award of FIT incentives had happened – it was a similar dilemma in the first wave race on wind farm installations. But since that trouble drifted away almost “unnoticed,” perpetrators may have been thinking that they can screw up the Filipino consumers the second time around.

At the very least, on reports of alleged “shadiness” in the second round of FIT-backed solar contracting, Senate Committee on Energy Chairman Sherwin T. Gatchalian wants an extensive probe on the reported FIT-COC approvals’ gambit, and he is expecting the energy department to be leading the way on that.

Energy Secretary Alfonso G. Cusi, in previous interviews with the media, has indicated that the outcome of their investigation will be out this month. Just and reasonable cost recoveries… not! The Energy Regulatory Commission (ERC), as culled from the provisions of the Electric Power Industry Reform Act (EPIRA), is mandated to set the rates being passed on to con- sumers based on “just and reasonable costs” with a viable rate of return for businesses/investors. And more than anything else, the industry regulator must “protect public interest” so they won’t be conned into paying charges that are disproportionately petitioned for or billed.

As a consumer, at least this was what I should have expected from the regulators – that before acting on NREB’s request, at least the ERC should have considered these basic questions: Has NREB been the proper entity they’re supposed to deal with on this? Has NREB’s letter-request been decided by its Board, since it’s not supposed to exist as a “collegial body” of one? And there is another question if reports are true: Was it ethical and within the bounds of regulatory protocol to allow a resigned DOE official whose resumé speaks of lawyering for RE companies, to be present allegedly on those ERC meetings that discussed matters having impact on millions of Filipino consumers?

In this whole “power play” bedeviling the solar FIT2 race, the blunders and allegations have been deep and tricky – and now more than ever, the ERC’s defensible balancing act is desperately needed. Alas, they might have been tricked once into the FITCOCs approvals and that would have been lamentable; but it would already be a second hand embarrassment and unforgivable if they will be lulled into complacency the second time around. At least, they must take this second chance to show the Filipino consumers that they are still capable of credibly protecting them against the exploits of predator-industry stakeholders.

Note that the estimated FIT cost recoveries are massive: They run in the tens of billions of Philippine pesos annually – and that would be like squeezing blood from a stone out of the consumers’ pockets in a stretch of two decades.

On the FIT-All application lodged by fund administrator National Transmission Corporation (TransCo) latter part of 2016, it seeks pass-on of R0.2291 per kWh if based on FIT-eligible nominated projects; and slightly lower at R0.2273 if it will just cover qualified projects with certificates of endorsements (COEs). That will be an increase from what is currently billed as FIT-All of R0.1240 per kWh.

The FIT Allowance cost item passon in the electric bills, started at a very modest R0.04 per kWh – and everybody knows by now, that the figure already tripled – a reverse of what was anticipated as lower rates that could have been saving Filipino consumers from crippling rates hikes – that was way back in the passage of the RE Law in 2008.

And with overcapacity in power supply across grids and the plummeting prices in the Wholesale Electricity Spot Market (WESM), consumers can only expect relentless climb in the FIT-All rate – and that only means, “prolonged pain” on the subsidy burden.

Bluntly, there’s another more tedious concern of the industry – the “internal strife” swallowing up sensibilities at the ERC, that in the process, has been affecting their judgment and ending up in higher scale of case backlogs – pity the industry! One is being crucified for an “unconsummated” R300,000 audiovisual presentation project; while four others are involved in the questionable approval of FITCOCs that would unreasonably burden consumers for billions of pesos – now among them, anyone who can credibly and solidly claim “blameless” – cast the first stone! Who then, of more mature thinking and cooler head, be the first to realize and voice out that it’s enough because there’s a greater good (the interest of the consumers to which their regulatory function is rooted) that they must give their prime attention to and just let the rule of law resolve the mess that had gotten the ERC in the untimely demise of their colleague? For all the industry stakeholders and just plain observers watching the turn of events, quite frankly, their theatrics had already been turning into a badly written telenovela. Bidding… the way out of FIT? To finally get out of this debacle, leading energy player and diversifying conglomerate San Miguel Corporation is now proposing an end to FIT subsidies and the business model shall instead shift to auction or bidding – determined under the terms of competitive selection process (CSP) scheme of contracting.

SMC President Ramon S. Ang, in particular, advanced such proposal as he condemned the alleged maneuvers and double-crossing committed by some individuals in the award of the FIT incentives – that in the end, will just be punishing consumers financially. “It is about time we find a balance between promoting clean energy and securing the country’s energy needs without making consumers bear the cost of a punishing subsidy for years in favor of RE producers,” he stressed.

The SMC group announced this week its investment plunge into the RE terrain without clinging into the plinth of cost-oppressive FIT subsidies.

The non-FIT landscape of RE ventures, was of course, navigated first by the Manila Electric Company (Meralco) when it had underwritten a power supply agreement at a relatively low cost of R4.69 per kilowatt-hour (in a pricematched level) for the 50MW capacity of PowerSource First Bulacan Solar, Inc.; and the other contract it sealed had been with Solar Philippines Tanauan Corp for another 50MW capacity.

On record, it’s Mr. Cusi who was first on the draw to sound off that the country’s honeymoon with burdensome RE subsidies would finally be over – and that he would want “market forces” tug its way into pulling down rates for the Filipino consumers. In the second wave of solar contracting, there are still close to 400 megawatts of capacities waiting for their turn to be granted with FIT perks – and policy as well as regulatory decisions have been on cliffhanger for that.

Mr. Gatchalian, for his part, is proposing a “reverse auction” as the new method that shall whet appetite and govern forward investments in the RE sector. He puts faith in this process as something that can bring the cheapest-priced RE development propositions for the consumers. He pointed out that in global trend of solar capacity contracting, competitive bidding had been yielding rates as low as the equivalent of R1.33 per kwh in the case of Mexico; R1.44 per kwh for Chile; R1.48 per kwh for United Arab Emirates; R2.46 per kwh for El Salvador; and R2.99 per kwh for Zambia.

The lawmaker asserted that “the interest of the public, particularly the power consumers, should remain the government’s primordial concern.” With the proposed bidding scheme, Gatchalian said “the government should grab this opportunity to level the playing field and encourage new RE players, both local and foreign, to enter the game,” emphasizing that “efforts should be made to make power cheaper, rather than on making it more expensive through subsidies given to private investors.”

Still, prior to this propounded roll into a new investment paradigm, it remains a fact that the credibility of the RE sector had been clouded with some degree of uneasiness and distrust.

And, if both the DOE and ERC would fail in sorting out the oversights in the solar FIT2 race, who suffers in the end? The millions of Filipino consumers who would be unjustly paying for subsidies for projects set out by double-dealing industry players and their cohorts in government.