Philippines: The Green Path – Part 2

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How the Philippines, an archipelagic nation in the Pacific, strives to advocate renewable energy

The first segment of this series focused on the background of the Philippine energy landscape. For this second chapter, the focus will be given on renewable energy development in the country as well as the mechanism that promoted the increase in renewable energy penetration during the last decade.

Renewable Energy Highlights

As presented in the previous chapter, around 30% of the installed capacity in the Philippines are from renewable energy generation. A huge chunk of it is attributed to mature technologies such as geothermal and hydropower, while variable renewable energy such as wind power and solar power have seen significant growth only in the last five years.

Both hydropower and geothermal are site-specific and require an exhaustive technical feasibility study. For geothermal, several subsurface geological studies and well drilling must be done to verify the presence of resources. The location of the Philippines in the Pacific Ring of Fire initiated active volcanism and tectonics, which led to good potential for high temperature geothermal suitable for power generation. For the longest time, the Philippines has been the country with the second-largest geothermal capacity, next to the United States of America. However, in 2018, Indonesia took second place at 2,043MW, higher than the Philippines’ 1,868 MW geothermal capacity [10]. It is possible that the significant and easily identifiable geothermal sites have already been developed, and the strategy of geothermal developers now shifts to plant optimization, expansion, and revisiting previously abandoned geothermal sites. On the other hand, hydropower includes site-specific requirements related to the water flow and structural integrity of the proposed site. Socio-political considerations are also given much focus for the development of hydropower sites since most of the large river systems in the Philippines have indigenous settlers.

Emerging renewable energy technology such as wind, solar, biomass, and run-of hydropower has been the focus of increased RE penetration in the Philippines since 2008 when the RE Law was passed. These emerging technologies are less site-specific; for example, wind and solar resources are inexhaustible, and search for great resource locations are less challenging than geothermal. As for biomass, one of the primary considerations is the proximity with the feedstock source, which will help improve the fuel and operations costs. These technologies can also be deployed in various scales, from kW scale in residential solar, to few MW scale in commercial rooftop solar and mini-hydro, to greater than 10MW utility-scale facility which can be served by all these emerging renewable technologies. It should be noted that ocean power is also included in the list of emerging renewable energy; however, this has yet to show significant progress in the Philippines, and the global market has yet to determine one single best engineering design to harness ocean and tidal power at the most efficient and cost-effective manner.

Cost Reduction on a Global Level

Figure 5: Levelized Cost of Electricity (LCOE) of various renewable energy technology [11]

The last decade has seen significant uptake of renewable energy, not just in the Philippines but all over the world. In 2015, developing countries took the lead over developed countries in investing in renewable energy. China, Brazil, and India accounted for almost 45% of new investments in RE in 2017 [11]. The global shift to a more environmentally driven society, together with the decreasing price of capital equipment, makes renewable energy cost-competitive to conventional fossil fuel generators. Figure 5 below shows the levelized cost of electricity from various RE technologies from 2017 to 2019. Levelized cost of electricity or LCOE is a measure of how much one unit of generation from certain technology costs. It is used to benchmark the cost of production, taking into consideration the inherent efficiency and capacity factors of each technology. It can be seen from the table below the dramatic drop in PV solar cost from 300$/MWh to less than 100$/MWh in 2017. This trend in solar PV continues as a significant number of companies in solar PV manufacturing and R&D compete to make the supply price more attractive to investors and developers. Onshore wind remains the technology with the lowest LCOE; however, it is just recently that offshore wind power shows considerable improvement in cost. Parabolic trough remains high, which makes the deployment of this technology challenging. On the other hand, biomass shows a sideways trend in cost.

Policy-driven RE Growth in the Philippines

In the Philippines, rules and regulations have a massive impact on the direction of renewable energy. The Electric Power Industry Reform Act (EPIRA) of 2001 or Republic Act 9136, as discussed in Part 1, is one of the most important laws enacted to facilitate a pro-market, pro-competition power system [12]. Although the effects of EPIRA are not only limited to the growing renewable energy generation, the privatization of power generation prompted the rise of investments among local and foreign energy developers and the increase in receptiveness to the innovation of the energy sector. Renewable energy is highly driven by innovation, from optimizing the design of wind turbines and creating a half-cell photovoltaic module, to solar cells in roof tiles and façade, and more.

Renewable Energy Act of 2008

In 2008, the Philippines enacted the Renewable Energy (RE) Law or Republic Act no. 9513 to facilitate the increased uptake of renewable energy in the country [13]. It aims to accelerate the exploration and development of indigenous renewable resources to improve the country’s energy self-reliance and lessen its exposure against fluctuating fossil fuel prices in the international market. To achieve this, the RE Law institutionalized national and local capabilities on renewable energy system development and provided incentives to firms who will participate in this initiative. RE Law and its intended consequence of increased RE penetration is the Philippine’s attempt to lessen harmful greenhouse gas emissions from conventional fossil fuel generation and promote economic growth while taking into account the state of the environment.

RE generation facilities are given priority dispatch and grid connection. Furthermore, entities doing exploration and development of renewable energy will receive fiscal incentives such as income tax holiday and low-income tax rate on following years, duty-free importation of equipment, and zero-rating on value-added tax on power generation sales, as well as purchases of local supply and services for development and construction of the facility

Feed-in Tariff System

Feed-in Tariffs (FiT) are fixed electricity prices paid to renewable energy developers, usually paid per kWh of the net generated energy exported to the grid. FiT is a guaranteed offtake and is often a long-term contract that makes a renewable energy investment attractive. In the Philippines, FiT-qualified RE facilities will receive the FiT rate for 20 years, with minimal digression rate after 1-2 years.

Table 1: Approved FiT rates in the Philippines vs FiT rates in other Asian nations [14, 15]

FiT is actually part of the non-fiscal incentives mentioned in the RE Law, together with renewable portfolio standards, green energy options, and net-metering scheme. The mechanism definitely kickstarted the increase in emerging renewable energy technologies such as wind, solar, biomass, and run-of-river hydropower. The FiT race was a notable era in the Philippine renewable energy landscape. Massive amounts of investments in wind and solar power happened in the country, mostly because of the considerably high FiT rate. Table 1 below shows the summary of FiT rates of various emerging RE technologies in the Philippines, and its comparison to FiT rates of other countries in East Asia.

Figure 6: Installed emerging RE capacity in the Philippines from 2000 to 2017, in GW [15]

FiT was a sprint to project completion and commercial operations since there is only a specific allotted capacity per technology that can get the fixed tariff. Developers not making it to the cut may face challenges in seeking an alternative offtake arrangement that may not be as competitive as the FiT rate. In the Philippines, Wind FiT has an initial target of 200MW in the first round and an additional 200MW in the second round at a slightly lower rate. For Solar FiT, the initial target was 50MW, and the second round introduced an additional 450MW capacity target. Both run-of hydropower and biomass have a target capacity of 250MW [14].

Figure 6 from BNEF shows how emerging RE technologies start to enter the Philippine power sector after the enactment of RE Law. From the enactment of RE Law, the government worked on crafting and approving the Implementing Rules and Regulations of the RE Law, including the FiT rules. In 2012, the Energy Regulatory Commission released the approved FiT rates, and a significant increase happened around 2014 when several wind power projects started their commercial operations. Solar PV showed a massive increase in 2016 when it reached its FiT cap. Both Solar and Wind FiT ended March 2016, while biomass and run-of hydropower targets were not yet reached and were given a 2-year extension in 2018.

Author’s Info:

Claris Canta

  • Six years of working for a renewable energy developer in the Philippines
  • Received a Master’s degree in Energy Systems from the University of Melbourne, 2018

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