renewable energy act of 2008: hits and misses for the philippine geothermal industry
TRANSCRIPT
Renewable Energy Act of 2008: Hits and Misses for the Philippine Geothermal Industry Atty. Fernando S. Penarroyo World Geothermal Congress Melbourne, Australia 20 April 2015
Puno & Peñarroyo Law OfNices
Presentation Outline
• Energy Outlook • Geothermal Energy Development in the Philippines • Legal and Regulatory Issues • Recommended Policy Considera>ons for Philippine Regulators
• Conclusion
ENERGY OUTLOOK
Global Economic and Investment Outlook (Macquarie Research, 2015)
Cost of Doing Business • Capital costs: US$4-5M per installed MW • Operating and maintenance cost: US$0.03
to $0.05/kWh • Tariff: no FIT rates & reflects costs incurred
to obtain market-based financing prices (≈US$0.19/kWh); mainly contracted on Php/kWh; base rate escalated by inflation and forex indices
• Volume: plants are baseload with 90% capacity factor but will depend on the contracted kilowatt hours
• Government share: 1.5% of gross income
LOCATION
COMMISSIONING YEAR
2013-2015 2016-2020 2021-2025 2026-2030
LUZON 20 800 65 - VISAYAS 30 150 - 60 MINDANAO - 230 90 20
Total 50 1,180 155 80
TOTAL Geothermal Capacity Addition (2013-2030): 1,465 MW
Targeted Geothermal Capacity Addition (in MW), by Grid
Status of Renewable Energy Law
Because of regulatory delays, the Energy Regulatory Commission only established in July 2012 the FIT rates applicable to each type of renewable energy resource but were significantly lower than those applied for by the Na>onal Renewable Energy Board. Consumers have started to pay star>ng January 2015, an addi>onal P0.0406 per kilowaP-‐hour (kWh) in electricity rates, represen>ng so-‐called feed-‐in tariff allowance (FIT-‐All).
GEOTHERMAL ENERGY DEVELOPMENT IN THE PHILIPPINES
Hamaguchi , 2013
Investment Trends
• ODA loans from WB and JBIC for exploration to plant commissioning for state energy and power companies
• BOT for power generation, EPIRA, privatization of EDC
• Foreign equity under RE Law • Traditional energy companies (EDC, Chevron,
Aboitiz) and new greenfield developers • Company equity and risk capital financing for
new developers • Role of Philippine local banks
Cost of Doing Business
• Capital costs: US$4-5M per installed MW • Operating and maintenance cost: US$0.03 to
$0.05/kWh • Tariff: no FIT rates & reflects costs incurred to
obtain market-based financing prices (≈US$0.19/kWh); mainly contracted on Php/kWh; base rate escalated by inflation and forex indices
• Volume: plants are baseload with 90% capacity factor but will depend on the contracted kilowatt hours
• Government share: 1.5% of gross income
LEGAL AND REGULATORY ISSUES
Legal and Regulatory Issues
• Foreign ownership -‐ The government’s ambivalence in opening the geothermal sector to foreign ownership is a test of its resolve and seriousness in aPrac>ng investments that will compete with established local companies.
• Environment -‐ Government administrators must work doubly hard to address cogni>ve barriers, which relate to the low level of awareness, understanding and aPen>on, afforded to the complex array of policy, regulatory, technical financing and organisa>onal factors affec>ng geothermal projects and their wider economic and environmental benefits.
Legal and Regulatory Issues
• Local government -‐ The legal issue of local autonomy in rela>on to the explora>on, development and u>liza>on of natural resources vis a vis the power of control by the execu>ve over LGUs will only be sePled by judicial interpreta>on.
• Indigenous Peoples -‐ Given the complexity in applying the concept of free and prior informed consent, development agencies and the private industry are more inclined to adopt the standard of 'free, prior, and informed consulta3on resul3ng in broad community support’ where 'broad community support' is interpreted as requiring 'good faith nego>a>on with and informed par>cipa>on of indigenous peoples'.
Legal and Regulatory Issues
• Transmission Access -‐ To meet the challenges brought about by lack of transmission infrastructure, delays in grid connec>on, and curtailment of output in loca>ons where current policies and grid management systems undermine integra>on, government guarantees on electricity dispatch or priority connec>on must be put into place. A loan guarantee program for electricity transmission infrastructure expansion would support large-‐scale capital investment and as a cost reduc>on and risk mi>ga>on tool.
• Taxa>on -‐ The na>onal government should also develop a transparent system of accoun>ng for and alloca>on of sharing of revenues and taxes with LGUs.
Legal and Regulatory Issues
• Rules of Procedure for Environmental Cases – In a decision of the Philippine Supreme Court promulgated on 03 February 2015, the SC removed the legal impediment for the construc>on and opera>on of the 600-‐megawaP coal-‐fired power plant and upheld the validity of an environmental compliance cer>ficate issued in 2008. The SC reversed a Court of Appeals decision that granted the pe>>on for a Writ of Kalikasan, that is a legal remedy granted to pe>>oners if they show that the environmental damage arising from an ac>vity is of such magnitude that it prejudices the life, health, or property of inhabitants in two or more ci>es or provinces.
Legal and Regulatory Issues
• Amendment of EPIRA -‐ Recommenda>ons made by business groups include reviewing or modifying the WESM Rules and strengthening the capability of the market regulators like the DOE and ERC. The slow process for approval of power projects under the single buyer Power Purchase Agreement-‐based regime can be addressed by shortening the procedures and requirements for permidng.
-‐ Na>onal Grid Corpora>on of the Philippines takes at least 18 months to finish a Grid Impact Study -‐ DENR takes at least 2-‐3 years to issue an ECC -‐ ERC takes around 12 months to process the review of the Power Supply Agreement
RECOMMENDED POLICY CONSIDERATIONS FOR PHILIPPINE REGULATORS
Recommended Policy Considerations for Philippine Regulators • Poli>cal will – Congress must promulgate a new law in extreme urgency that will set the parameters for “energy project of na>onal significance”. Government should also give assurance that expropria>on measures are available as may be necessary, over private lands relevant to the project for steam transporta>on and electricity transmission. Government needs to address the perceived veto powers on energy and power projects of indigenous peoples and local government units.
Recommended Policy Considerations for Philippine Regulators • Valuing environmental and social benefits -‐ fossil fuel plants have a shorter lead >me making them more aPrac>ve but with no allowance for environmental externali>es. This places renewable energy at a commercial disadvantage but this can be resolved by regula>ng and internalising the associated cost of greenhouse gas emissions, noise and air pollu>on. Emissions trading will assist in crea>ng a value and cost associated with such factors. Another barrier is the non-‐recogni>on of environmental benefits, which may flow from RE e.g. amenity value and poverty allevia>on.
Recommended Policy Considerations for Philippine Regulators • Emerging technologies -‐ With the advent of new technology, government regulators should form policies covering hybrid energy rela>onships to increase geothermal power plants' efficiency and capacity. The government must formulate laws and guidelines that will facilitate geothermal developers to commercially access by-‐products, which is technically covered by a separate mining legisla>on. Government regulators should introduce differen>ated economic incen>ve schemes for new and emerging technologies.
Conclusion • The government may have been overly op>mis>c in its projec>ons of addi>onal geothermal poten>al capacity of under the new RE Law contractual regime. This may be due to the over-‐es>ma>on of the resources or failure to take into considera>on the regulatory delays and the permidng process involved in pudng the projects on-‐stream.
• Government must be unequivocal in easing ownership restric>ons to foreign capital and exert more poli>cal will in its efforts to mi>gate social and environmental concerns.
• Regulatory policy should be open to fast-‐paced development of technology in providing the legal cover and addi>onal incen>ves to private investors.
Renewable Energy Act of 2008: Hits and Misses for the Philippine Geothermal Industry Atty. Fernando S. Penarroyo World Geothermal Congress Melbourne, Australia 20 April 2015
Puno & Peñarroyo Law OfNices
About the Lecturer • Master of Laws (Univ. of Melbourne), Bachelor of Laws, BS Geo (UP),
• Managing Partner, Puno and Penarroyo Law (www.punopenalaw.com)
• Chief Opera3ng Officer, Clean Rock Renewable Energy Resources Corpora>on
• Director, Interna>onal Geothermal Associa>on • Trustee, Na>onal Geothermal Associa>on of the Philippines
• Professorial Lecturer, De La Salle-‐FEU MBA-‐JD Program, UP Na>onal Ins>tute of Geological Sciences
• hPp://www.philippine-‐resources.com/
Acknowledgment • Philippine Department of Energy for the facts and figures in this presenta>on