With a population of almost 100 million people and annual economic growth averaging between 6 to 7%, the Philippines’ is anticipated to continue to have a robust energy demand. The Government’s refusal to subsidize power, heavy reliance on expensive fossil fuel imports, and added transmission cost because of the country’s archipelagic configuration have resulted in electricity prices being among the highest in the world. Thus, renewable energy projects present a viable business opportunity to resource developers. The business community believes that the introduction of retail competition and open access is the logical move to bring the power industry to the next level and establish a competitive market structure. There is a need to further diversify the energy mix and the government is banking on renewable energy to wean the country from its dependence on fossil fuel. The government through the Renewable Energy Act of 2008 (“RE Act”) sought to address the issues on the absence of a ready and guaranteed market for the output of RE power plants and the recovery of investments through electricity tariffs.

1. Renewable
Energy
Act
of
2008
–
Seven
Years
After
Introduction
With
a
population
of
almost
100
million
people
and
annual
economic
growth
averaging
between
6
to
7%,
the
Philippines’
is
anticipated
to
continue
to
have
a
robust
energy
demand.
The
Government’s
refusal
to
subsidize
power,
heavy
reliance
on
expensive
fossil
fuel
imports,
and
added
transmission
cost
because
of
the
country’s
archipelagic
configuration
have
resulted
in
electricity
prices
being
among
the
highest
in
the
world.
Thus,
renewable
energy
projects
present
a
viable
business
opportunity
to
resource
developers.
The
business
community
believes
that
the
introduction
of
retail
competition
and
open
access
is
the
logical
move
to
bring
the
power
industry
to
the
next
level
and
establish
a
competitive
market
structure.
There
is
a
need
to
further
diversify
the
energy
mix
and
the
government
is
banking
on
renewable
energy
to
wean
the
country
from
its
dependence
on
fossil
fuel.
The
government
through
the
Renewable
Energy
Act
of
2008
(“RE
Act”)
sought
to
address
the
issues
on
the
absence
of
a
ready
and
guaranteed
market
for
the
output
of
RE
power
plants
and
the
recovery
of
investments
through
electricity
tariffs.
Department
of
Energy
While
the
DOE
vowed
to
speed
up
support
systems
for
RE
development,
progress
has
been
slow,
as
the
DOE
admitted
that
implementation
of
the
RE
Act
policy
reforms
has
been
hobbled
by
regulatory
delays.
Resistance
from
many
stakeholders
-­‐
governmental,
private,
and
utilities,
among
others,
has
caused

2. further
delays,
which
has
been
the
primary
challenge
in
renewable
energy
development
for
the
country.
The
DOE
still
has
to
come
up
with
renewable
portfolio
standards
which
will
set
the
capacity
needed
from
each
RE
technology,
as
well
as
the
mechanics
to
connect
the
main
grid
to
all
operational
RE
plants.
Status
of
Feed-­‐In
Tariff
The
Energy
Regulatory
Commission
(“ERC”)
only
established
in
July
2012
the
Feed-­‐In
Tariff
(“FIT”)
rates
applicable
to
each
type
of
renewable
energy
resource
but
were
significantly
lower
than
those
applied
for
by
the
National
Renewable
Energy
Board.
The
Philippine
Department
of
Energy
(“DOE”)
approved
installation
“targets”
of
250MW
for
run-­‐of-­‐river
hydro,
250MW
for
biomass,
200MW
for
wind,
50MW
for
solar
PV
and
10MW
for
ocean
technology
in
2011.
In
February
2013,
the
DOE
announced
a
“first
come-­‐first
served”
policy
in
respect
of
entitlement
to
the
FIT
that
was
subsequently
confirmed
through
the
issuance
on
28
May
2013
of
DOE
Department
Circular
No.
DC
2013-­‐05-­‐0009,
or
the
Guidelines
for
the
Selection
Process
of
Renewable
Energy
Projects
under
Feed-­‐
In
Tariff
System
and
the
Award
of
Certificate
for
Feed-­‐In
Tariff
Eligibility
(the
“Eligibility
Guidelines”).
Department
of
Energy
The
20-­‐year
FITs
introduced
in
2012
are
now
considered
among
the
highest
in
the
region.
Wind
projects,
for
example,
receive
PHP8.53/kWh
(US$0.203),
while
solar
attracts
PHP9.68kWh
(US$0.230).
However,
the
cumulative
capacity
eligible
for
FITs
is
capped
with
tariffs
subject
to
review
after
a
three-­‐year
period
or
when
the
cap
is
reached.
FITs
are
available
on
a
‘first-­‐come,
first-­‐served’
basis,
with
oversubscribed
projects
relying
on
bilateral
agreements
with
an

3. Independent
Power
Producer
or
the
wholesale
spot
market.
Critically
though,
projects
can
only
apply
for
the
fixed
tariffs
once
construction
is
eighty
percent
(80%)
complete.
FIT
values
will
decline
over
time
to
ensure
that
projects
are
moved
and
optimized
rapidly
thereby
protecting
consumers
and
prevent
speculators.
A
significant
impediment
arises
from
the
rules,
which
requires
that
80%
of
the
facility
be
built
before
the
owner
may
even
apply
for
the
FIT,
after
which
the
FIT
could
still
be
denied.
Strong
developer
interest
and
the
growing
power
shortage
prompted
the
ERC
to
rethink
its
position
in
2014.
The
ERC
is
expected
to
further
adjust
the
rates
in
early
2015,
with
new
solar
FIT
rates
projected
to
be
reduced
to
P8.5-­‐9
($0.18-­‐
0.19)
per
KWh.
Large-­‐scale,
reservoir-­‐based
hydropower
and
geothermal
projects
are
not
included
in
the
FIT
scheme
due
to
their
ability
to
economically
match
with
conventional
fossil
fuel-­‐fired
power
plants.
The
DOE
will
continue
the
'first
come,
first
served'
approach.
Under
the
Eligibility
Guidelines,
upon
a
project
being
declared
commercially
viable,
a
developer
must
compete
with
other
project
proponents
in
building
a
renewable
energy
facility
before
being
awarded
a
feed-­‐in
tariff.
However,
the
wisdom
of
the
DOE
adopting
the
‘first-­‐come,
first-­‐served’
principle
for
certifying
eligibility
is
widely
debated.
Supporters
of
the
guideline’s
principle
argue
that
it
prevents
speculative
developers
that
have
no
intention
of
completing
a
proposed
RE
project
financial
gains
by
selling
the
RE
installation
target
allowances
allocated
to
them
to
genuine
developers
at
an
inflated
price.
The
act
of
allocating
limited
eligibility
certificates
to
developers
provides
the
opportunity
to
speculators,
once
the
installation
target
is
fully
subscribed,
to
arbitrage
the
allowances
as
financial
derivatives
driving
costs
up
and,
passing
it
to
consumers.
However,
the
guidelines
discriminate
against
small
start-­‐up
enterprises
and
support
only
those
large
companies
that
have
the
financial
wherewithal
to
maintain
the
long-­‐
term
financing
to
build
an
RE
plant
without
the
assurance
of
eligibility
of
FIT
rates.
With
no
firm
FIT
allocation,
small
developers
have
found
it
difficult
to
obtain
financing
from
banks
given
their
reluctance
to
lend
money
for
projects
in
a
relatively
untested
market.
[The
Philippines:
An
Update
on
the
Country’s
New
Feed-­‐In
Tariff
(2013)].
Consumers
have
started
to
pay
starting
January
2015,
an
additional
P0.0406
per
kilowatt-­‐hour
(kWh)
in
electricity
rates,
representing
so-­‐called
feed-­‐in
tariff
allowance
(FIT-­‐All).
The
rate
will
be
collected
from
electricity
end-­‐users
and
will
be
reflected
in
their
electricity
bills
as
a
separate
item,
as
mandated
by
the
RE
Act.
RE
Attractiveness
Index
In
Ernst
and
Young’s
latest
Renewable
Energy
Attractiveness
Index
published
on
March
2015,
a
looming
energy
crisis
in
the
Philippines
is
providing
an
impetus
on
the
development
of
the
country’s
renewable
energy
resources,
with
high
power
prices,
a
relatively
attractive
FIT
regime
and
liberalized
electricity
market
creating
solid
foundations.
The
country
ranked
32nd
out
of
40
countries
being
monitored
for
macro,
energy
market,
and
technology-­‐specific
drivers.
The

4. Philippines
was
among
those
cited
in
the
report
due
to
three
factors,
namely:
its
“ambitious
renewables
targets,
stable
incentive
regime,
and
high
energy
demand
driven
by
a
large
and
growing
population.”
The
report
further
stated
that
a
sixteen
percent
(16%)
increase
in
generating
capacity
has
failed
to
keep
pace
with
a
fifty
percent
(50%)
rise
in
consumption,
prompting
a
major
power
shortfall
expected
in
2015.
FITs
for
renewables
projects
are
among
the
highest
in
the
region
but
are
subject
to
relatively
stringent
conditions
and
caps.
It
noted
however
that
a
forty
percent
(40%)
cap
on
foreign
ownership
has
deterred
some
investments
to
date.
Challenges
The
permitting
process
and
transmission
capacity
remain
to
be
the
biggest
challenge
in
the
RE
industry.
There
is
a
pending
legislative
proposal
to
amend
the
Electricity
Power
Industry
Reform
Act
(“EPIRA”)
to
address
the
skyrocketing
power
rates.
According
to
the
Chair
of
the
House
Committee
on
Energy,
“While
the
Executive
is
empowered
by
the
EPIRA
to
ensure
power
supply
security,
it
is
incumbent
upon
Congress,
exercising
its
oversight
powers
through
the
Joint
Congressional
Power
Commission,
to
conduct
a
thorough
review
of
the
implementation
of
EPIRA,
the
rules
and
regulations
of
the
Energy
Regulatory
Commission,
and
the
Wholesale
Electricity
Spot
Market
(“WESM”).”
However,
the
business
community
believes
that
amending
EPIRA
is
not
the
solution
to
the
high
cost
of
electricity.
They
believe
that
amendment
of
the
law
will
make
the
investors/lenders
wary
and
uneasy,
as
it
will
project
volatility
in
the
regulatory
environment.
Recommendations
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
permitting.
Based
on
industry
experience
it
takes
the
National
Grid
Corporation
of
the
Philippines
at
least
18
months
to
finish
a
Grid
Impact
Study,
the
Department
of
Environment
and
Natural
Resources
at
least
2-­‐3
years
to
issue
an
Environmental
Compliance
Certificate
and
ERC
around
12
months
to
process
the
review
of
the
Power
Supply
Agreement.
In
addition
the
government
needs
to
address
the
perceived
veto
powers
on
energy
and
power
projects
of
indigenous
peoples
under
the
Indigenous
Peoples
Rights
Act
and
local
government
units
under
the
Local
Government
Code.
The
clearances,
permits
and
endorsement
procedures
under
these
two
laws
also
add
to
the
transaction
cost.
The
Philippines
archipelagic
geography
means
that
the
transmission
and
distribution
of
electricity
is
expensive.
The
lack
of
available
transmission
capacity
has
been
a
major
impediment
to
building
new
generation.
Any
major
power
plant
must
take
on
the
cost,
risk
and
responsibility
for
building
its
own
connection
to
the
grid
without
adequate
assurance
of
repayment.
Often,
this
aspect
of
the
project
is
more
challenging
than
constructing
the
power
plant
itself,

5. and
remains
a
major
cause
of
concern
for
lenders,
especially
with
respect
to
the
timely
acquisition
of
rights-­‐of-­‐way.
To
meet
the
challenges
brought
about
by
lack
of
transmission
infrastructure,
delays
in
grid
connection,
and
curtailment
of
output
in
locations
where
current
policies
and
grid
management
systems
undermine
integration,
government
guarantees
on
electricity
dispatch
or
priority
connection
must
be
put
into
place. Most
lenders
and
many
investors
will
require
evidence
of
executed
generation
interconnection
and/or
transmission
service
agreements
as
a
condition
of
financing.
A
loan
guarantee
program
for
electric
transmission
infrastructure
expansion
would
support
large-­‐scale
capital
investment
and
would
serve
as
a
cost
reduction
and
risk
mitigation
tool.
[Geothermal
Risk
Mitigation
Strategies
Report,
Deloitte
Development
LLC
(2008)]
Institutional
coordination
and
technical
capacity
are
the
main
non-­‐financial
barriers.
The
challenge
will
be
to
properly
mobilize
all
stakeholders
involved
in
the
sector
through
engagement
and
public
participation.
In
addition,
coordinating
decision
making
and
project
planning
processes,
and
ensuring
the
technical
and
human
capacity
exists
by
involving
beneficiaries
in
the
development
stages,
operation
and
maintenance
of
projects
will
help
strengthen
the
sector.
[Meeting
Renewable
Energy
Targets:
Global
Lessons
From
the
Road
to
Implementation,
The
World
Wide
Fund
for
Nature
(WWF)
in
collaboration
with
World
Resources
Institute
(2013)]
Policy
Consideration
for
RE
Regulators
As
with
any
major
resources
venture,
the
path
from
concept
to
completion/operation
is
an
arduous
exercise,
which
remains
especially
true
for
RE
developers
in
the
Philippines.
The
DOE’s
initiative
in
pushing
for
a
law
that
will
recognise
projects
of
national
significance
is
a
welcome
development
as
a
number
of
energy
projects
such
as
exploration
contracts
and
transmission
lines
cannot
move
forward
because
of
local
opposition.
Congress
must
promulgate
a
new
law
in
extreme
urgency
that
will
set
the
parameters
for
“energy
project
of
national
significance”.
Government
should
also
give
assurance
that
expropriation
measures
are
available
as
may
be
necessary,
over
private
lands
relevant
to
the
project
electricity
transmission.
The
energy
agencies
need
to
take
a
more
cross-­‐sectoral
approach
to
involve
other
departments
and
institutions.
Laws
are
in
place
but
implementation
is
weak.
There
is
also
a
tendency
for
laws
to
be
subjected
to
conflicting
interpretations
among
turf-­‐protecting
government
agencies.
Efforts
must
address
the
administrative
bottlenecks
and
allegedly
weak
enforcement
of
antitrust
laws
that
have
slowed
both
market
reform
and
the
pace
of
deployment.
Market
barriers
affect
RE
development
due
to
inequitable
market
and
policy
structures.
Fossil
fuel
power
generation
does
not
internalise
full
social
and
environmental
costs.
A
serious
barrier
is
the
fact
that
deployment
of
fossil
fuel
plants
have
a
shorter
lead
time
making
them
more
attractive
to
a
power-­‐hungry
economy
but
with
no
allowance
for
environmental
externalities.
This
places
RE
at
a
commercial
disadvantage
but
this
can
be
resolved
by
regulating
and
internalising
the
associated
cost
of
greenhouse
gas
emissions,
noise
and
air
pollution.
The
government
should
also
expand
the
efforts
of

6. multilateral
and
bilateral
aid
organisations
to
address
economic
and
non-­‐
economic
barriers,
as
renewables
must
often
compete
against
‘hidden’
subsidies
for
conventional
fuels.
Foreign
ownership
issues
have
also
dampened
enthusiasm
in
some
large-­‐scale
investments.
Government
must
be
unequivocal
in
easing
ownership
restrictions
to
foreign
capital
and
exert
more
political
will
in
its
efforts
to
mitigate
social
and
environmental
concerns.
Government
policy
should
be
open
to
fast-­‐paced
development
of
technology
in
providing
the
legal
cover
and
additional
incentives
to
private
investors
and
ultimately
induce
the
much-­‐needed
developmental
growth.
Conclusion
RE
investments
in
the
country
will
be
driven
by
the
combination
of
a
strong
energy
supply
imperative,
increasingly
liberalized
energy
sector,
ambitious
capacity
targets
and
a
relatively
stable
renewable
energy
off-­‐take
mechanism.
However,
the
government
may
have
been
overly
optimistic
in
its
projections
of
additional
potential
capacity
of
proposed
RE
projects
under
the
new
contractual
regime
in
the
RE
Law.
These
may
be
due
to
the
over-­‐estimation
of
the
resources
or
failure
to
take
into
consideration
the
regulatory
delays
and
the
permitting
process
involved
in
putting
the
projects
on-­‐stream.
The
Philippine
resources
bureaucracy
is
perceived
as
one
prone
to
create
political
barriers
associated
with
regulatory
and
policy
issues,
which
causes
market
uncertainty
and
cautious
investment
approaches.
Lack
of
policy
continuity
creates
an
ambiguous
view
of
economic
certainty.
Any
investment
made
under
lingering
policy
issues
is
exposed
to
the
numerous
reviews
and
potential
changes,
which
may
take
place
during
the
lifetime
of
the
project.
The
regulatory
uncertainty
makes
financing
difficult.
Needless
to
say,
good
governance
goes
hand
in
hand
with
investment
promotion.
Inviting
participants
to
the
RE
sector
is
not
the
end.
What
is
more
important
is
for
the
government
to
assure
investors
that
they
are
able
to
access
the
resources
within
the
time
frames
set
under
the
contracted
work
programmes.

7.
Fernando
“Ronnie”
Penarroyo
is
the
Managing
Partner
of
Puno
and
Penarroyo
Law
(fspenarroyo@punopenalaw.com).
He
has
been
involved
in
numerous
renewable
energy
projects
acting
on
behalf
of
local
and
foreign
energy
companies.