Wanted: Renewable energy investors in far-flung areas
MANILA, Philippines – To meet its target of providing electricity to 90% of all households in the Philippines by 2017, the government is inviting the private sector to invest in renewable energy systems in the countryside.
To make the offer more enticing, the Department of Energy (DOE) has committed to streamline the process based on recommendations from a study done with the European Union.
The DOE is looking into reducing a process that normally takes two or 3 years to about a year, said DOE Renewable Energy Management Bureau Director Mario Marasigan on Tuesday, October 28.
To get this done, the agency is considering providing upfront identified pricing so investors will know the cost of the project, helping them craft their business models.
They may also centralize the usually arduous licensing process.
"You don't need to go to different offices of the DOE. Its something like when you call DOE, the different entities that do the licensing process will come as one to streamline the process," said Marasigan.
There have been concrete steps taken to cut down the waiting time for potential investors. The National Power Corporation (NPC), for example, has committed to reduce 6 months of processing time to one month, he added.
There are still over 4 million households in the country with no access to modern and reliable energy services, according to the DOE.
Many of these households are in remote islands or mountainous areas either unconnected to any major power grid or too far for local electric cooperatives to reach.
Many depend on diesel generators or diesel-powered mini-grids which tend to be expensive because of the cost of transporting the diesel to these remote areas.
This is why communities like these stand to benefit the most from either stand-alone renewable energy systems or hybrid renewable energy and diesel systems.
Open for business
There are two options for interested investors.
They can apply to be a Qualified Third Party (QTP) or New Power Provider (NPP).
A QTP must be able to provide power generation and distribution facilities to the remote areas currently within the franchise area of electric cooperatives where the immediate extension of a distribution line (like electricity cables) are not feasible.
One advantage of the QTP is that they don't have to go through bidding or a competitive selection process. They just need to pass the accreditation process.
After getting accredited, the QTP can select the area it wants to develop, propose its plan to the DOE, and get the necessary permits.
QTPs should be 60%-owned by a Filipino so foreign companies who want to make use of the scheme need to form a company with a local partner.
The DOE has already identified 428 barangays (villages) that are open to QTPs.
The New Power Provider (NPP) must be able to generate power by either building a new plant or buying the assets of the NPC, which currently provides electricity to the area at high cost to the government.
Most of these areas are electrified by diesel generator sets which cost the NPC P1.1 billion (US$24.5 million) monthly in fuel, maintenance, and repair costs.
The aim of the scheme is to transfer the operation and maintenance of these NPC-manned plants to the private sector in the form of the NPP.
The DOE and NPC have identified 14 island grids as priority areas for NPPs: Bantayan Island and Camotes Island in Cebu, Catanduanes, Occidental Mindoro, Oriental Mindoro, Marinduque, mainland Palawan, Masbate, Romblon, Siquijor, Tablas, Basilan, Sulu, and Tawi-Tawi.
All investors will enjoy fiscal incentives laid out in the Renewable Energy Act of 2008.
- Income tax holiday of up to 7 years
- 10% income tax rate after the tax holiday
- Duty free importation, special realty tax rate
- Tax exemption on carbon credits
- 0% VAT on renewable energy sales and purchases
- Cash incentive of 50% of the Universal Charge for Missionary Electrification in missionary areas (small isolated grids, mostly in islands)
Tool for inclusive growth
The schemes also promise to benefit the Filipinos in far-flung areas that currently make do with erratic, undependable and often expensive power supply if they even have access at all.
Renewable energy systems – which make use of abundant natural resources like sunlight, water, biomass, wind or heat from the earth – can lower the true cost of generation by P2 or P6 ($0.45 to $0.13) per kilowatt hour, said NPC vice president for corporate planning Urbano Mendiola Jr.
Hybrid systems may work best for places where there is only one renewable energy source.
This could translate to cheaper electricity fees, not only for the areas with the RE systems, but for the entire country since the systems reduce the amount of government subsidies needed to electrify remote areas.
For instance, Sunwest Water and Electric Cooperative (Suweco) in Catanduanes has the lowest power supply cost of P5.39/kWh. Suweco is an NPP that operates a 3.6-megawatt hydro power plant.
Not only does Suweco have the lowest rates, it also does not avail of any subsidy, according to the DOE.
The cost of "green energy" could even go lower in the coming years as technology like solar panels are getting cheaper. (READ: Renewable energy use gaining worldwide – IAE)
On the other hand, diesel, a fossil fuel, is increasingly becoming costly because of the need to keep transporting it to far-flung areas. This puts consumers and power providers at the mercy of unstable oil prices.
Virtues of 'hybrid'
A hybrid system that combines renewable energy with diesel would make more sense for places where there is no other renewable energy source.
Solar panels, for example, can only produce electricity during the day when the sun is shining (unless there is a cloud). Unless the area can tap geothermal or hydro power, the system will need a diesel generator to provide power at night or on cloudy days.
Even with diesel in the picture, the hybrid system could still lead to more savings compared to a purely diesel-run system.
"If you have two diesel generators and you get solar panels, you can stop using one diesel generator during the day. If the cost of fuel is P60 ($1.3) per liter and the generator consumes 100 liters then that would be savings of P6,000 ($134)," explained National Electrification Administration deputy administrator Edgardo Piamonte.
While diesel generators require regular purchase of costly diesel, renewable energy systems only require one upfront cost. Solar panels have a lifespan of 20 to 25 years.
But more than the immediate savings and return on investment, RE and hybrid systems are able to spur development in areas once on the margins of growth, said Simone Rolfe, program officer of the EU delegation to the Philippines.
"Access to electricity is a decisive factor for human development not only to higher levels of literacy but also higher levels of health and economic productivity." – Rappler.com