RATE ANALYSIS OF THE FIT-ALLOWANCE IMPLEMENTATION IN THE PHILIPPINES
25 October 2016 | Bangkok, Thailand
Manila Electric Company Philippines
Backgrounder
v ElectricityrateinthePhilippines
v RenewableEnergyLaw(RELaw)
v Feed-in-Tariff(FIT)scheme
Alookbackonthe-irstyearofFIT-AllowanceimplementationinthePhilippines
Average All Markets 13.24 Average Unsubsidized Markets 14.03
Meralco 14.65
0.00
5.00
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20.00
25.00
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US
c/kW
h (e
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Tariff excl Taxes Other Taxes & Charges (excl VAT) Estimated Subsidy Notes 1. All data for Jan 2016 except EU countries which are H2 2015 and US (average) which is Dec 2015 2. Australia (WA) is actual subsidy. Other subsidies calculated as estimated cost of supply minus actual tariff * Indicates subsidized (or under-priced) markets. Australia (WA) is actual. Estimated subsidies calculated as 1.37x average estimated cost of supply minus actual residential tariff
MERALCO’s average retail tariff
16th highest out of 44 countries
May 2016 Causesidenti@iedonwhyelectricityratesarehighinthePhilippines:
Nosubsidiesfromgovernment
Geographicalfactors
Highdependenceonimportedfuelforelectricgeneration
Renewable Energy (RE) Law and Feed-in Tariff (FIT) Scheme in the Philippines
RE Law (RA 9513)
Fiscal Incentives
Non-Fiscal Incentives
Net-Metering
FIT Scheme
Renewable Portfolio Std
Green Energy Option
q Guaranteed@ixedrevenueperkWhfor20years
q Fully-fundedbyend-usersthroughgenerationchargesandtheFIT-Allrate
FIT Implementation Timeline in the Philippines
2008 • RE Act of 2008
2010 • FIT Rules promulgated by ERC
2012 • FIT Rates approved by ERC
2014 • FIT Guidelines promulgated by ERC • Solar target increased (50MW à 500MW)
2015
• FIT-All rate: PhP0.0406/kWh or USc 0.0892/kWh • FIT Rates for Solar 2 approved • Wind target increased (200MW à 400MW) • FIT Rates for Wind 2 approved
2016 • FIT-All rate: PhP0.1240/kWh or USc 0.2603 FIT Rates
AveragespotpricecollectedbyWESMfromthespotmarket
FIT-allowanceratecollectedbyDU&RES
FIT Monitoring Board Summary (as of Jan 2016)
RESOURCE For Nomination /
Conversion With Certificate of Confirmation
of Commerciality
With Certificate of Endorsement
to ERC TOTAL No. of
Projects Capacity
(MW) No. of
Projects Capacity
(MW) No. of
Projects Capacity
(MW)
Solar 18 681.3 30 892.5 6 131.9 1705.7 Wind 7 1,023.6 5 431.0 6 393.9 1,848.5 Biomass - 4 24.4 11 94.3 118.6 Hydro - 66 610.9 4 26.6 637.5 TOTAL 25 1,704.9 105 1,958.8 27 646.7 4,310.3
Installation Targets (MW)
Initial Updated
50 500
200 400
25 250
250 250
750 1,400
TotalcapacityapplyingforFITismorethanthricethecurrentinstallationtarget.
Feed-in Tariff (FIT) Scheme in the Philippines
0
200
400
600
800
1000
1200
1400
1600
Initial Updated
Meg
aWat
t-ho
urs
Solar
Wind
Biomass
ROR Hydro
RE Sources
Installation Targets (MW)
FIT Rates (USc/kWh)
Initial Updated Initial Updated
Solar 50 500 21 19
Wind 200 400 19 16
Biomass 250 15
R-O-R Hydro 250 13
TOTAL 750 1,400
REtechnologieswiththehighestFITratesreceivedincreasesininstallationtargets.
IncreaseinREinstallationtargets• Whichin@latesenergyvolumethatwouldreceive
guaranteedrevenueundertheFITscheme
ToanalyzetheimpactofpolicychangesontheFIT-Allratepaidbythecustomers
Withconsiderationson:
“Meritordereffect”• Whichallegedlypressesdownonthe
electricityspotmarketprices
Objective of the Study
Inthisrateanalysis,thefollowingwerenotconsideredaspartofthepaper’sscope:
Useofgridenergybatterystorage
Projectionandcomparisonwithfossilfuelrates
Analysisofpeaksheddingbysolarsources
TheadditionalancillaryservicescoststoaddressintermittencyofREsources
Economiceffectsinthelong-termbychangesininvestmentexpectations
Scope and Limitations
Components of the FIT-Allowance (FIT-All) Rate
FIT-Allowance
FIT Differential
(FD)
Forecast National
Sales Allowances
FIT Differential
(FD)
§ FIT-AllistheFeed-in-TariffAllowance
§ FDistheestimatedFITDifferential
§ WCAistheestimatedWorkingCapitalAllowance
§ AAistheAdministrationAllowance
§ DAistheDisbursementAllowance
§ FNSistheForecastNationalSales,inkWh
FIT-All=FD+WCA+AA+DAFNS
The FIT Differential (FD)
Negativelycorrelated• FCRR• (Lowerspotprices~higherFD)
Positivelycorrelated• ForecastREGen• (Increasedinstallationtarget~higherFD)
FD(over)/underrecoveryinthepreviousyear
§ ForecastREGenistheforecastedREgenerationofeligibleREPlant,inkWh
§ ForecastFITRateistheFITrate,inPhP/kWh
§ ForecastCostRecoveryRate(FCRR)istheaveragepriceintheelectricityspotmarket,
§ FD(over)/underrecoveryisthevariancebetweentheactualandthecollectedFDinthepreviousyear
We’llexaminetheeffectofmerit-orderonFCRRandFD.
Demand
Capacity
Capacity
Price
Price
The Merit Order Effect (MOE)
*IllustrationfromCleanEnergyWire
InclusionofFITREplantscauseslowerpricesintheelectricityspotmarket.
v FIT-eligibleplantsareconsideredmust-dispatchorprioritydispatch
v ThecapacityofREplantsundertheFITschemedisplacescapacityfromconventionalpowerplants
v Sometimes,evenotherREplants
v TheresultingclearingpriceislowercomparedtowhenFIT-eligibleREgeneratorsarenotincludedinthestack
MOE’s Impact on the FIT Differential
Merit-ordereffectisshort-term.Bene-itsarecancelledoutinfullbytheunderrecoverytermandthelowerFCRR.
v AsdemonstratedintheFeb2016FIT-Allratere-calculation,lowerthanexpectedgenerationcostresultedinunderrecoveryin2015FD.
v Thiswas‘corrected’/addedbackinthe2016FD.
èHigherFDinsucceedingyearèHigherFIT-All
v Byde@inition,lowerspotpricesmeanslowerFCRR.AndsinceFCRRisinverselyproportionaltoFD.
èHigherFDinsucceedingyearèHigherFIT-All
AveragespotpricecollectedbyWESMfromthespotmarket
FIT-allowanceratecollectedbyDU&RES
Scenario-based Analysis of the Impact of Policy Changes on FIT-All
• AssumedfullsubscriptiontotheinitialinstallationtargetssetbythePhilippineDOE.
Baseline
• Assumedfullsubscriptiontotheupdatedinstallationtargets,inwhichthePhilippineDOEapprovedtheadditionofsolarandwindcapacityof450MWand200MW,respectively.
Scenario1
• Aggressivescenario.AssumedfullsubscriptionandaccommodationofallFIT-applicantsbeyondtheinstallationtargets,usingdatafromtheFITmonitoringreportofthePhilippineDOEinJanuary2016.
Scenario2
Scenario-based analysis on the effects of FIT-related policy changes Impact of FIT-related Policy Changes
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
On the 20th year of FIT scheme implementation
Gig
aWat
t-ho
urs
RE Generation
Baseline Scenario 1 Scenario 2
SuddenpolicychangesincreasedFIT-Allprojection.
0.21
0.33
1.38
-
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
2015
20
16
2017
20
18
2019
20
20
2021
20
22
2023
20
24
2025
20
26
2027
20
28
2029
20
30
2031
20
32
2033
20
34
US$
/kW
h
FIT-All rate projection
Baseline Scenario 1 Scenario 2
Key Results v TheFeed-in-Tariff(FIT)policymechanisminthePhilippineshasspurredsubstantialcapacityadditionfromemergingrenewableenergysources.
v SuddenpolicychangeshaveresultedinhigherelectricityratesfortheconsumersthroughtheFIT-Allrate.
v ThemeritordereffectcausedbyFIT-eligibleplants,ontheotherhand,tendedtolowertheclearingpriceinthespotmarket—butonlyashort-termeffectonthegenerationcharges.
v BoththeincreasedvolumeofgenerationofFITplantsandtheresultingreducedspotpriceswouldultimatelydriveuptheFIT-Allratetobecollectedfromend-users.
Conclusions and Recommendations v Abruptchangesinpolicy,suchastheexpansionofinstallationtargets,largelyaffectstheFIT-Allratethatalltheend-usersbear.
v Hence,technicalfeasibilitystudies,followedbyrigorouseconomicimpactstudies,wouldbehelpfulforstateregulatorsandpolicymakerstomakeinformedpolicydecisionsthattakeintoaccountthewelfareofallstakeholdersespeciallythecustomers.
v TheRELawaimstopromoteinvestmentsinRE,butthissupporttosustainableenergysourcesshouldbebalancedwithconsumerinterestssuchthat-inancialburdenareendeavoredtobeminimized.