Philippines: Investment barriers to renewable energy technologies

In its comprehensive report “Towards high quality & low carbon power systems in Asia”, Climate Markets and Investment Association (CMIA) looks in detail at the Philippines where “dependency on imported fossil fuel has been growing over the past decades” and “renewable energy technologies are still facing substantial investment barriers”.

The full CMIA report written by Ann Lehmann is freely available – http://www.cmia.net/cmia-in-the-news/141-cmia-report-renewable-energy-in-asia-140519 – so here we provide some of the highlights.

Its summary for policy makers is headed with the question: Keep on risking the future? The report states that despite ambitious policies and agreed cross-party visions towards a healthy and prosperous Philippines, the country has set itself on a high-risk and high-carbon development path that will be hard to reverse if it continues.

• Dependency on imported fossil fuel has been growing over the past decades and will keep doing so if the country continues on a business as usual path.
• Conservative estimates suggest that the country’s net oil imports of 277,000 bbl/d in 2012 resulted in a fuel bill for the Philippines of around US$ 9.3 billion for oil alone in. Two and half years’ worth of oil would already be enough to cover the entire investments needed for the 10 GW additional renewable energy (RE) capacity planned by the Government (Total investment needs are estimated at PhP 1.2 trillion, app. US$ 25.6 billion) (EIA 2012, APEC 2013).
• All this spending for fossil fuels won’t help to deliver on both economic and social development goals. The current centralised fossil fuel based energy system is costly and inefficient and further expansion will even worsen the situation by locking-in fuel costs for future generations that will further hamper economic development.
• The current system has failed to increase electrification and growth outside of urban centres, it does not create employment in rural areas and it does not deliver electricity to the 30% of the population without electricity access to date, which is needed to create opportunities for rural growth. Not to mention the environmental damage to local and global ecosystems and their devastating side effects.
• The service sector and households are the main driver of economic growth in the Philippines today and the work force is growing at 2% per year (ADB 2013). Missing out on investing into healthy ecosystems and creating jobs across the country will take the drive out of that development, which would put future GDP growth at risk. A fossil-fuel based future is the wrong future for poor and vulnerable communities that depend on foreign currency remittances from overseas workers.

A system change is possible, says the report and that technologies are available to change that trajectory.

Decentralised on- and off-grid power systems hold the potential to massively increase rural electrification and deliver on a number of development goals: they create rural employment, avoid and reduce waste, encourage local infrastructure development, reduce dependency on fossil fuels and free up foreign reserves.

• The manufacturing industry and expanding rural business development hold the potential to absorb significant parts of the incoming workforce in the Philippines. Unlocking this potential in industry and in SME sectors will require stable and high-quality energy systems to be in place.
• New approaches to energy system planning at regional and local level are needed to assure optimal integration of generation technologies that are based on the creation of ‘virtual power stations’ that manage supply and demand peaks of the various technologies (including energy storage) and provide for the reserve margin, just as conventional power stations do. These systems are currently being tested globally and in the region, but to work efficiently they need to be tailored to resources and conditions in the Philippines.
• Private and public national and international investors are ready to deploy capital in sustainable energy systems, but are being held back by uncertainty over the commitment of the country to RE. The Feed-in-tariff was a good first step, but without further – and major – improvements, will not release the capital needed to meet the RE goals of the country. Investors are hugely disappointed by the scheme and are already moving away from it (e.g. towards closure of direct power off-take agreements with local distributors or consumers).

And the report makes it very clear that regulatory support needs to be ramped up.

To date, the private sector has only committed to finance 125 MW (US$ 382 million) of the planned 10 GW new RE capacities. This leaves a huge financing gap of over US$ 25 billion, which will need to be closed in due course if the nationally set targets are to come within reach. The following actions need to be taken now to encourage the private sector to invest in the Philippines and not move away to other countries in the search for clean development opportunities

Investors’ recommendations for the Philippines:

An ambitious expansion plan has been set for the power sector to meet growing demand and deliver on the national target to provide “Energy Access for More” while stimulating local productivity and countryside development. As per the Philippine Energy Plan (PEP) 2012-2030, a total capacity increase of 80% (13 GW) to around 29 GW is needed to meet the projected peak demand in 2030, which includes tripling RE generation capacity from about 5 GW in 2010 to 15 GW by 2030.

The National Renewable Energy Program (NREP 2011-2030) aims at 50% power production from RE sources and provides technology specific generation targets until 2030.

Furthermore, the program introduces the milestone target of 2,155 MW of capacity additions by 2015, which is highly ambitious considering that only 125 MW of the planned 10 GW additional RE capacity have been committed to date (APEC 2013). If this deployment speed prevails over the coming years, neither the 2015 milestone target, nor the 2030 target will be within reach.

In consequence, investors are already moving away from the scheme and towards bi-lateral off-take agreements with customers and distributors in the vicinity. This ‘bottom-up’ development of on-the-ground opportunities shows that the private sector is ready to deploy capital in sustainable power supply in the country. The right incentives could spark much faster deployment while ensuring technology integration and system stability.

Recommendations for the Philippines

I.Slow down investment in fossil generation capacity now.

Every peso that is spent towards maintaining the status quo provides a barrier for investments into sustainable energy opportunities.

II. Regulatory reforms needed now

a. Review the RE Act and remove barriers for off main grid generation,

b. Provide support for micro-grid development

c. Encourage bi-lateral PPAs between power generators and local costumers.

d. NREP targets for solar power don’t include off-grid rooftop or grounded solar PV and hybrid systems.

III. Institutional reforms needed now

Enhance neutrality on NREB by allocating an equal number of chairs to public and private sector stakeholders.

IV. FiT reforms needed now

a. develop sub-categories for the FiT depending on technology maturity, regional specification and socio-economic settings (e.g. solar PV for households, commercial roof tops, community buildings, commercial solar farms etc.); include municipal solid waste as eligible technology

b. Add a targeted bonus on top of the tariff to promote reliable technologies for sustainable system performance and specific regions.

c. Reduce the costs for project developers by standardising and simplifying the regulatory process: shortening the approval process; allocating more staff and standardising eligibility requirements (e.g. provide checklists, best practices etc.)

d. Introduce a standard PPA format for smaller scale projects

V. Prepare the ground for change

1. Accelerate development and research of net-metering and smart-grid program suitable for local conditions
2. Implement techno-economic studies and modelling at sub-national/ local level to develop regional targets and investment strategies. Set targets for off-grid power generation. Integrate these targets into barangay plans and sitio plans where applicable.
3. Provide education and information campaign on decentralised renewable energy systems, involve sub-national levels of administration.
4. Introduce a carbon price across the economy.

Anna Lehmann, Report Author and Board Member, CMIA, anna.lehmann@climatepolicyadvisory.com

Anna Lehmann is independent climate and energy policy expert with more than 12 years experience in working for public and private sector investors in South, East and South East Asia. She is currently implementing a long-term research project on public sector incentives for low carbon investments in the power sector in Thailand and the Philippines.

Anna has more than 12 years working experience in international climate policy, of which six years in high-level policy advisory. She served as investment advisor for two carbon market funds and holds a Board seat with the London based Climate Markets and Investment Association (CMIA). Based out of Germany, she aims at transferring discussions taking place within Europe on incentives for sustainable off-grid power systems into developing countries.

Source: www.cmia.net