Re And Fossil Fuel

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Re And Fossil Fuel

  1. 1. The DOE’s Precarious Balancing Act between Renewable Energy and Fossil Fuel Power GenerationRenewable energy (“RE”) stakeholders gathered for the first time since the passage ofthe RE Act in 2008 happened, on 02 and 03 December 2010 for the “RE Conferenceand Expo Manila 2010”. Organized by the RE Coalition and the Department ofEnergy (“DOE”), the conference saw the attendance of at least 350 stakeholdersincluding cabinet-level officials, legislators, international financial organizations,international RE experts, RE developers, members of civil society, the academe andthe scientific community, to assess the gains made and the challenges faced in theimplementation of the RE Law.In the RE conference, the DOE vowed to speed up support systems for renewableenergy development, admitting that progress on this front in the power sector has beenslow as DOE Secretary Jose Rene D. Almendras admitted that implementation of theRE law has been hobbled by delays. The National Renewable Energy Board(“NREB”) reconstitution took a while as the DOE consulted stakeholders rather thanjust take it upon government to decide on the membership of the board. The DOE’sobjective was to find the most appropriate representation for each of the stakeholdergroups in the NREB.Secretary Almendras said they expect the collaboration among the Renewable EnergyManagement Bureau and all DOE bureaus to be fine-tuned by the first quarter of2011. The DOE aims to come up in 2011 with renewable portfolio standards (“RPS”)and feed-in tariff (“FiT”) rates upon the recommendation of the NREB, as well asconnect the main grid to all operational renewable energy plants. Formulation ofRPS, which will set the capacity needed from each RE technology, is set for thesecond quarter of 2011; FiT rates that will provide guaranteed payment to REinvestors through a universal charge will also be due that same quarter; whileconnecting the main grid to all existing renewable energy plants is targeted for thethird quarter. The green-energy option program is also expected to be done in thesame time.The DOE is reportedly tapping the help of the World Bank to come up with a globallyaccepted FiT rates and RPS for RE projects as well as seeking the support from allsectors, including non-government organizations to be able to draw up the best FiTand RPS. The RE Coalition has invited a resource person from the World Bank whohas had experience on both policy directions and the DOE plans to invite the expert tosit with the NREB and Technical Working Group. The objective is to find the bestpossible way to encourage investments into RE without unduly burdening end-users.The DOE expects that the share of RE in the country’s generation mix wouldprobably decline in the next five years from the present 52% as more coal-firedfacilities come on stream. Secretary Almendras anticipates that starting 2015, all thenew energy requirements should come from the RE sector.According to the Secretary, the government had generated investment pledges ofmore than P80 billion (about $1.8 billion) for RE projects in the last two years but thatis a pittance against at least $40.6 billion needed to secure the country’s energyrequirements until 2030. Secretary Almendras urged RE developers to put up 8,000
  2. 2. megawatts (MW) of generating capacity by 2030. But in the near term, he also askedthem to work to set up between 2015 and 2016, at least 2,000-3,000 MW of REgenerating capacity. Secretary Almendras also invited RE developers to also look atthe possibilities and build RE generating power plants in non-grid areas.Based on estimates of the US Department of Energy National Renewable EnergyLaboratory, the country’s RE potential stands at 247,000 MW. The RE Coalition saidthat while the Philippines is a member of the global community of more than 100countries that have adopted policies promoting RE use and development and is thesecond largest producer of geothermal energy in the world, the growth of the local REsector still trails behind that of other countries.In the meantime with the looming power shortfall, the Philippine government hadbeen aggressively inviting prospective investors to build coal-fired facilities. On theupstream side the DOE has identified prospective coal areas that could yield 1.806billion metric tons, as the government moves to fast-track the development of thisresource to secure national energy supply. The DOE will start offering prospectivecoal areas under the next Philippine Energy Contracting Round. It is estimated thatP543.9 billion would be needed to develop the country’s fossil fuel resources, mainlyfor coal and petroleum. The DOE is expecting 2,700 MW in additional capacity fromcoal-fired power generation facilities between 2013 and 2015. As a consequence, thedevelopment of RE resources particularly wind and solar, might slow down relative tothe development of coal resources until such time that the country’s power supply hasstabilized.The DOE hopes that over P810 billion in new investments is poured in the local REsector over the next 20 years based on its latest list of planned power projects. Datafrom the DOE showed that once completed, up to 6,940 MW could be generated fromRE projects that had been put forward by prospective investors. These projects fallunder the “indicative” category, which means that the proponents still need to securethe necessary permits, clearances and finances. In the Energy Investment Forum heldon 15 December 2010, the DOE reported that it has awarded 587 RE ServiceContracts to serve the grid and estimated the cost of developing indicative REresources at P902.48 billion.Cutting the cost of RE projects is a major challenge. Despite having minimumoperating costs, emerging RE technology has relatively high capital costs. In themeantime, existing and prospective investors into RE are keenly anticipating theproposals of the NREB on the FiT and other standards. Coming up with the right FiTand RPS is a challenge not only for the DOE but for the whole industry as well.With the threat of a power crisis in the near term amidst instability of energy supplyand a deteriorating environment, the Philippine government must seek a workablebalance between the imperative of setting a long-term goal of sourcing majority of thecountry’s electricity from RE sources and the need to expedite the commissioning ofshorter lead-time fossil fuel-based power plants.
  3. 3. Fernando “Ronnie” Penarroyo is the Managing Partner of Puno and Penarroyo LawOffices (www.punopenalaw.com). He acquired his Bachelor of Science in Geologyand Bachelor of Laws from the University of the Philippines and Master of Laws fromthe University of Melbourne. He specializes in Energy and Resources Law, ProjectFinance and Business Development.

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