Best Practices in FIT Design II:

Driving Innovation and Cost Reductions

Pedro H. Maniego, Jr.

Chairman

Accelerate the development of the countrys renewable energy resources by providing fiscal and non-fiscal incentives to private sector investors and equipment manufacturers / suppliers.

Signing of RE Act on 16 December 2008 2

Functions of NREB
1. Recommend the feed-in tariff for each emerging RE technology 2. Recommend, monitor and review implementation of National Renewable Energy Plan 3. Evaluate, recommend and monitor the mandated Renewable Portfolio Standards 4. Oversee Renewable Energy Trust Fund
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NREB Challenges
Feed-In Tariff which would:
Allow RE developers to recover their investments and provide them with internationally acceptable ROIs during the FIT period Accelerate the development of competitive RE technologies, and Not unduly burden the consumers with heavy pass-on charges

NREB Challenges
Installation Targets which are: In compliance with the Renewable Portfolio Standards; and Consistent with Philippine Energy Plan and the National Renewable Energy Program Renewable Energy Portfolio Standards which would: Promote the diversification of energy supply, Help reduce GHG emissions; and Ensure compliance from the mandated participants
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RE Act of 2008

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 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, and the mandated number of years for the application of these rates, which shall not be less 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 be established by DOE.
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Other Incentives
Sec. 20. Intermittent RE Resources
NGCP to determine maximum penetration limit of intermittent RES Must dispatch based on available energy Priority dispatch All provisions which do not allow must dispatch status for 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
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FEED-IN TARIFF RULES

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1.4 Scope
Specific for each emerging Renewable energy technology

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

Wind

Applied only to generation facilities or incremental capacities utilizing emerging technologies of existing facilities which enter into commercial operation after effectivity of the FITs

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Regulatory Framework
2.2 Per Technology and Size
Technology-specific FITs based on NREB recommendation May further be differentiated based on the size of the Eligible RE Plant as recommended by NREB

May also be differentiated:

Based on feed-stock in the case of biomass Based on whether building-installed or groundmounted in the case of solar

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Regulatory Framework
2.3 Fixed
The FIT to be established shall be a fixed tariff When appropriate, ERC shall issue the rules for the adoption of premium based FITs

2.4 Time-of-Use (TOU) FITs

Fit for peak hours and off-peak hours may be established for RE technologies that follow the dynamics of demand
Biomass and Hydro power
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Regulatory Framework
2.5 Feed-Tariff Allowance (FIT-All)
NGCP shall ensure that the FIT-All fund is sufficient to pay all RE producers regularly
Shall include sufficient allowance for working capital requirements in case some customers default or delay in their obligations ERC shall impose appropriate penalties to the erring parties
20% penalty surcharge Monthly interest on unpaid accounts = 91 day T-bills plus 300 basis point, and Allowing NGCP to disconnect any erring party from the Grid if delay persist over more than 2 billing periods
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Regulatory Framework
2.10 Adjustments to the FITs
The ERC shall adjust the FITs annually for the entire period of its applicability to allow pass-through of local inflation and foreign exchange rate variations. A simple benchmarking indexation formula to apply to all technologies based on the applicable percentage sharing between local and foreign capitals as determined by ERC shall be employed.

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Regulatory Framework
2.11 Degression
To 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

Eligible RE Plants shall be entitled to degressed FITs corresponding to the year they started commercial operation. ERC may approve different degression rates for different technologies
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3. Applicability of FITs
FITs shall be paid for additional or incremental capacities above an established generation baseline of existing facilities utilizing emerging RE technologies that undergo re-powering, modernization and/or expansion FITs shall be paid for electricity exported to the distribution or transmission network as metered on the high voltage side of the step-up transformer at the Eligible RE Plant side FITs shall only be paid for such amount of electricity actually exported to the distribution or transmission network and not utilized for own use.
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4. Duration of FITs
Eligible RE Plants shall be entitled to the applicable FITs to them for a period of 20 years. After this period, the tariffs shall already be based on prevailing market prices or whatever prices they should agree with an off-taker After the initial FITs, the ERC shall determine the duration of succeeding FITs which may be at the minimum of 12 years, subject to extension depending on the full load hours that the plant should run during the first 12 years.
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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 Costs of other services that the plant may provide Costs of connecting the plant to the transmission or distribution network FITs shall be calculated over the expected lives of the plant FITs shall provide for market-based weighted average cost of capital (WACC) in determining return on invested capital.

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6. Administration of FITs
NGCP shall be authorized to perform the following for all RE generation:
a) Collect information for all RE injections in any distribution or transmission network across the Philippines,
Including embedded Eligible RE Plants

b) c) d) e)

Audit the metering Calculate the payments for each Eligible RE Plant Collect and make payments 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 deemed approved.
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FIT RATES IN OTHER COUNTRIES

Technology Philippines (NREBApproved) Adjusted Philippines (at Equity IRR at 8%) 5.91 3.32 12.66 7.51 12.59 Malaysia1/ Thailand Germany Spain

Biomass Run-ofRiver Hydro Solar Wind Ocean

1/ Assumed

7.00 6.15 17.95 10.37 17.65

3.31 to 3.45 3.31 to 5.04 12.23 to 18.28 -----

3.74 to 4.00 4.40 to 5.32 13.82 7.92 to 9.24

---

----19.57 to 26.35 5.64 --22

----14.09 to 26.95 4.47 ---

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 future price increases

Power price P/kWh FIT All is an Investment to prepare for wider RE deployment 20 Year life of RE power plant (Years)

RE FIT price increases with CPI and FOREX only

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FIT and GRID PARITY

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Why not wait for RE cost to come down?

These installation targets for Wind and Solar PV requires a 6.0 centavos /kWh investment that allows the country to: Encourage the local semiconductor industry to build RE components e.g. inverters, Sunpower ~500 MW annual capacity in the Philippines. Train local technicians for Solar and Wind to support large scale deployment 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!

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Proposed Feed-in Tariffs (FITs)

in Php/kWh
Proposed by RE Developers Technology June 2010 Biomass1/ Run-of-River Hydro2/ Solar3/ Wind Ocean
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NREB Approved April 2011 7.00 6.15 17.95 10.37 17.65 Degression Rates 0.5% after 2nd year 0.5% after 2nd year 6% after 1st year 0.5% after 2nd year None

Oct. 2010 11.48 7.44 23.81 11.92 18.52

Nov. 2010 9.94 7.40 20.55 11.85 18.52

9.84 7.80 22.64 11.23 18.52

For a solid biomass project a project with capacity between 1MW and 10MW 3/ For a ground-mounted project with more than 500kW capacity
2/ For

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Initial Installation Targets

in MW
Proposed by RE Developers Technology June 2010 Biomass Run-of-River Hydro Solar Wind Ocean TOTAL 357 131 235 710 10 1,443 November 2010 416 131 542 710 10 1,809 233 170 20 220 10 653 27 DOE NREB Approved (April 2011)

250 250 100 220 10 830

7. Review of FITs
NREB shall monitor and review regularly the development of 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 following cases:
a) When the installation target per technology as defined by NREB is achieved b) When the installation target per technology is not achieved within the period targeted c) When there are significant changes to the costs or when more accurate cost data became available that will allow NREB to calculate the FITs based on the methodology to be adopted by ERC d) Other analogous circumstances that justify review and readjustment of the FITs
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7. Review of FITs
In such cases, NREB shall inform the ERC of the necessity of reviewing the FITs. The ERC suo moto shall initiate the proceedings for Rule-making for the review an re-adjustment of the FITs The new FITs set by ERC following the review shall apply only to new RE projects Eligible RE Plants in commercial operation as of the time of approval of the new FITs shall be entitled to their prevailing FITs.

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Thank You!
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