Pedro H. Maniego, Jr. - Best Practices in FIT Design II

8/6/2019 Pedro H. Maniego, Jr. - Best Practices in FIT Design II

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Best Practices in FIT Design II:Best Practices in FIT Design II:Driving Innovation and Cost ReductionsDriving Innovation and Cost Reductions

Pedro H. Maniego, Jr.Chairman



Accelerate the development of the country’s renewable energyresources by providing fiscal and non-fiscal incentives to private

sector investors and equipment manufacturers / suppliers.

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Signing of RE Act on 16 December 2008



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Functions of NREB1. Recommend the feed-in tariff for each

emerging RE technology2. Recommend, monitor and review

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Energy Plan3. Evaluate, recommend and monitor the

mandated Renewable Portfolio Standards4. Oversee Renewable Energy Trust Fund

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NREB Challenges

• Feed-In Tariff which would:•

Allow RE developers to recover their investments andprovide them with internationally acceptable ROI’sduring the FIT period

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•

cce era e e eve opmen o compe vetechnologies, and• Not unduly burden the consumers with heavy pass-on

charges



NREB ChallengesInstallation Targets which are:

• In compliance with the Renewable Portfolio Standards;

and• Consistent with Philippine Energy Plan and the

National Renewable Energy Program

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Renewable Energy Portfolio Standards which would:• Promote the diversification of energy supply,• Help reduce GHG emissions; and• Ensure compliance from the mandated participants



RE Act of 2008

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Sec. 7: FIT System

(a) Priority connections to the grid for electricity

generated from emerging RE resources

(b) Priority purchase and transmission of, and payment

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for, such electricity by the grid system operator(NGCP is designated in FIT Rules )



Sec. 7: FIT System(c) ERC in consultation with NREB to determine

the fixed tariff to be paid to electricity

produced from each type of emerging RE,andthe mandated number of years for the

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application of these rates, which shall not beless than 12 years (20 years for initial FITs )

(d) The FIT to be used in compliance with the RPS

established in accordance with the RPS rules to beestablished by DOE.



Other Incentives

Sec. 20. Intermittent RE ResourcesNGCP to determine maximum penetration limit of intermittent

RES “Must dispatch” based on available energy Priority dispatch

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prov s ons w c o no a ow mus spa c s a us or RE deemed amended/modified PEMC & NGCP to implement technical mitigation &improvements to ensure reliability & reliability of transmission

Intermittent RE resources are variable, unpredictable,irregular, inherently uncontrollable Include wind, solar, run-of-river hydro & ocean



FEED-IN TARIFFRULES

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1.4 ScopeSpecific for each emerging Renewableenergy technology

• Biomass, Solar, Run-of-River Hydro, Ocean &Wind

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incremental capacities utilizing emergingtechnologies of existing facilities which enterinto commercial operation after effectivity ofthe FITs



Regulatory Framework

2.2 Per Technology and Size

Technology-specific FITs based on NREBrecommendationMay further be differentiated based on the size of

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t e g e ant as recommen e y• May also be differentiated:Based on feed-stock in the case of biomass

Based on whether building-installed or ground-mounted in the case of solar




2.3 FixedThe FIT to be established shall be a fixed tariff When appropriate, ERC shall issue the rules forthe adoption of premium based FITs

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2.4 Time-of-Use (TOU) FITsFit for peak hours and off-peak hours may beestablished for RE technologies that follow the

dynamics of demand• Biomass and• Hydro power




2.5 Feed-Tariff Allowance (FIT-All)NGCP shall ensure that the FIT-All fund issufficient to pay all RE producers regularly

• Shall include sufficient allowance for working capitalrequirements in case some customers default or delay

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in their obligations• ERC shall impose appropriate penalties to the erring

parties20% penalty surcharge

Monthly interest on unpaid accounts = 91 day T-bills plus 300basis point, andAllowing NGCP to disconnect any erring party from the Grid if delay persist over more than 2 billing periods




2.10 Adjustments to the FITsThe ERC shall adjust the FITs annually for the entireperiod of its applicability to allow pass-through of local inflation and foreign exchange rate variations.

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to all technologies based on the applicablepercentage sharing between local and foreign capitalsas determined by ERC shall be employed .




2.11 DegressionTo encourage the RE producers to invest at the

initial stage and hasten RE deployment• FITs shall be subject to a degression rate based on

NREBs recommendation

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Eligible RE Plants shall be entitled to degressedFITs corresponding to the year they startedcommercial operation.

ERC may approve different degression rates fordifferent technologies



3. Applicability of FITs

FITs shall be paid for additional or incrementalcapacities above an established generation baseline of

existing facilities utilizing emerging RE technologies thatundergo re-powering, modernization and/or expansionFITs shall be paid for electricity exported to the

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distribution or transmission network as metered on thehigh voltage side of the step-up transformer at theEligible RE Plant side

FITs shall only be paid for such amount of electricityactually exported to the distribution or transmissionnetwork and not utilized for own use .



4. Duration of FITs

Eligible RE Plants shall be entitled to the applicable FITsto them for a period of 20 years .

After this period, the tariffs shall already be based onprevailing market prices or whatever prices they shouldagree with an off-taker

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After the initial FITs, the ERC shall determine theduration of succeeding FITs which may be at theminimum of 12 years,

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subject to extension depending on the full loadhours that the plant should run during the first 12years.



5. Determination of FITs

NREB shall propose the FITs taking into account the:• Installation targets in expected MW capacity, and• Number of years when this target shall be achieved.FITs shall cover the following:

• Costs of the plant

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• Costs o ot er services t at t e p ant may provi e• Costs of connecting the plant to the transmission or

distribution networkFITs shall be calculated over the expected lives of the plant

FITs shall provide for market-based weighted average costof capital (WACC) in determining return on invested capital.



6. Administration of FITs

NGCP shall be authorized to perform the following for all REgeneration:

a) Collect information for all RE injections in any distribution ortransmission network across the Philippines,• Including embedded Eligible RE Plants

b) Audit the metering

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d) Collect and make paymentse) Enter into an RE Payment Agreement (REPA) with Eligible RE

Plants.• The ERC shall issue a proforma REPA after due proceedings• Any REPA executed between the NGCP and an Eligible RE

Plant which conforms to the REPA shall be deemedapproved.



TechnologyPhilippines

(NREB-Approved)

Adjusted Philippines

(at Equity IRRat 8%)

Malaysia 1/ Thailand Germany Spain

Biomass 7.00 5.913.31 to

3.453.74 to

4.00--- ---

FIT RATES IN OTHER COUNTRIES

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Run-of-River Hydro 6.15 3.32

3.31 to5.04

4.40 to5.32 --- ---

Solar 17.95 12.6612.23 to

18.2813.82

19.57 to26.35

14.09 to26.95

Wind 10.37 7.51 --- 7.92 to9.24

5.64 4.47

Ocean 17.65 12.59 --- --- --- ---

1/ Assumed exchange rate is Php14.3915 for every Malaysian ringgit



RE assisted by FIT All builds local capacity to scale-up as RE

prices drop and conventional prices increase!Price of non-RE power rises due to:- Increase in oil and coal prices- A price on carbon- Environmental externality costs Consumers are

“hedged”against futureprice increases

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Power priceP/kWh

20 Year life of RE power plant (Years)

RE FIT price increaseswith CPI and FOREXonlyFIT All is an Investment to prepare

for wider RE deployment

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FIT and GRID PARITY

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• These installation targets for Wind and Solar PV requires a 6.0centavos /kWh investment that allows the country to:

• Encourage the local semiconductor industry to build RE

components e.g. inverters, Sunpower – ~500 MW annualcapacity in the Philippines.

Why not wait for RE cost to come down?

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• Train local technicians for Solar and Wind to support large scaledeployment in a few years time.

• For a coal plant, a US$10 increase in the price of coal results in a 21

Centavo / kWh increase in its electricity price

IMPLEMENTING THE FIT NOW MAKES ECONOMIC SENSE!25



Proposed Feed-in Tariffs (FITs)

in Php/kWh

Technology

Proposed by RE Developers NREB Approved

June

2010

Oct.

2010

Nov.

2010

April

2011Degression Rates

Biomass 1/ 9.84 11.48 9.94 7.00 0.5% after 2nd year

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Run-of-River Hydro2/

7.80 7.44 7.40 6.15 0.5% after 2nd year

Solar3/ 22.64 23.81 20.55 17.95 6% after 1st year

Wind 11.23 11.92 11.85 10.37 0.5% after 2nd year

Ocean 18.52 18.52 18.52 17.65 None

1/ For a solid biomass project2/ For a project with capacity between 1MW and 10MW3/ For a ground-mounted project with more than 500kW capacity



Initial Installation Targets

in MW

Technology

Proposed by RE Developers

DOENREB

Approved

(April 2011)June2010

November2010

Biomass 357 416 233 250

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Run-of-River Hydro 131 131 170 250

Solar 235 542 20 100

Wind 710 710 220 220

Ocean 10 10 10 10

TOTAL 1,443 1,809 653 830



7. Review of FITs

NREB shall monitor and review regularly the developmentof RE generation and the impact of FITs

• Report to ERC within 3 years and every 2 years thereafter

ERC may review and re-adjust the FITs in the followingcases:

a) When the installation target per technology as defined by NREB is

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achieved

b) When the installation target per technology is not achieved withinthe period targeted

c) When there are significant changes to the costs or when moreaccurate cost data became available that will allow NREB tocalculate the FITs based on the methodology to be adopted by ERC

d) Other analogous circumstances that justify review and re-adjustment of the FITs



7. Review of FITs

In such cases, NREB shall inform the ERC of thenecessity of reviewing the FITs.

The ERCsuo moto shall initiate the proceedings forRule-making for the review an re-adjustment of theFITs

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The new FITs set by ERC following the review shallapply only to new RE projectsEligible RE Plants in commercial operation as of the

time of approval of the new FITs shall be entitled totheir prevailing FITs.



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Thank

You!

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Pedro H. Maniego, Jr. - Best Practices in FIT Design II