WITH the recent oil price shock, where we saw the price of oil going up to around $140 a barrel, the question is whether that is enough political impetus for us to go into renewable energy in a big way.
By a big way, we mean that we make the investments now in “renewables.” The problem is that renewable energy, technology-wise, is still being perfected, so that means it is not yet cheap. But if nobody invests, it will never become cheap because industry holds back on R&D, because there is no demand. So it becomes a chicken and egg situation. Given that the so-called carbon credits from developed countries can pay for up to 10 percent of the cost of the project upfront, it is still not attractive for some.
Enter the Philippine Renewable Energy bill. When passed, it will actually give a lot of incentives to investors to go into renewable energy (RE). Aside from the fact that RE is a good way to contribute to the climate change effort, if the RE bill is passed, it may actually make good financial sense to go into RE. Because right now, the climate change advocates root for the use of renewables but when you talk to the financial folks, they’ll tell you now is not yet the time.
But what is the right time? After the oil crunch of the 70s, we should have gone big time with renewables. But naysayers said at that time, “Now is not the time.” So now the world is slowly realizing that, now is the time. Because if not now, when? When the oil runs out? That will be too late.
If you look at the new version of the RE bill, aside from the typical tax breaks and tax credits, particularly for those who go into the manufacture and installation of RE systems, there will also be new incentives. This includes the lowering of royalties, and even the elimination of charges related to the use of the grid distribution system (also known as wheeling charges).
One of those being contemplated as a new feature of the RE bill is the concept of a Feed-In-Tariff (F-I-T). Feed-In-Tariff was developed in Europe, and was adopted in California, which caused massive amounts of investments in RE.
F-I-T works by requiring the utilities by law to source part (or a percentage) of their power requirements from RE sources. Now if that is implemented, that will not be enough to offset the current higher cost of RE compared with coal, for example. So what F-I-T does is require the utility to pay the RE source at a slightly higher price than what the fossil fuel based power sources sell.
This will then improve the net present value financial calculations for RE investors. You need to give all these incentives, because frankly, renewables are not yet attractive financially as compared to, say, coal or other fossil fuel sources. The utility is then (typically) allowed to pass on the added cost to consumers. Since there are many consumers, it turns out that the public is helping subsidize RE investments.
Now people can argue that this shouldn’t be passed on to the public. But that was the only way they were able to justify RE investments in Europe and the US. Without it, nobody made the investments.
So one can argue that we either move into RE or not. Think of it as investing for our children’s future. After all, when massive investments pour into RE, eventually the prices will drop and future RE plants will be cheaper to build and install.
Arguing that government should foot the bill might work for a certain amount but eventually we should ask where will we get the money?
Another way to look at this issue is now we are paying a foreign currency adjustment fee for oil. If we don’t move into RE now, we will keep paying that foreign currency adjustment. So why not move into a spread out public subsidy for RE, which eventually will mean cheaper power for everyone. We can take part of that oil price adjustment factored into our electricity bills and turn it into a subsidy for RE investments.
What do you think? Should the Philippines still live with the status quo or go into renewable energy in a big way?
(This article was written by the office of the Deputy Executive Director of the Congressional Commission on Science, Technology and Engineering).
September 17th, 2008 at 11:29 am
We should develop energy/fuel that is affordable or “free” and not controlled by corporate greeds.
We should not let these corporations supply us. We should supply ourselves.
I hope this day will come…
Arretez l’avarice!
September 17th, 2008 at 11:12 am
Hi Dennis,
Great to hear that somebody is looking into the RE bill and into the FIT in particular.
I am responsible for having the Feed in Tariff inserted. If done responsibly, the consumers will benefit in the longer term under a fixed tariff regime because power plants are built to last for at least 25 years and could reach up to 50 years.
Once a coal-fired power plant is put up, for instance, the country will be locked in to that source of power for a while. This means that we will be vulnerable to the increasing price of fossil fuels. However, under a FIT, the price will be predictable and help stabilize the price of electricity over the next several decades.
September 16th, 2008 at 7:34 pm
Why do we have to wait for the existing energy companies to invest in
alternative fuels (voluntarily or coerced)? Did our grandparents wait
for the buggy manufacturers to start making automobiles?
The logical purveyors of new products are new companies. When upstart
renewables companies start eating their lunch, the established players
will come around soon enough.
It’s already happening with coconut-based biodiesel.
Marc de Piolenc
Iligan
September 14th, 2008 at 1:14 pm
Demosthenes, Mike, Joel, Boyfuture - thank you for your comments.
Regarding Mike Du’s comment on renewables, I guess I have to clarify something. Right now, if you talk about using renewables for off-grid barrios or islands (isolated places), that is where renewables make sense because there is no alternative.
The incentives like F-I-T, etc. really kick in when there are fossil fuel alternatives that utilities can pick. For example, utilities are now attracted to clean coal and natural gas, vis a vis solar (for example) which ranges in the $2-4 per Watt range. Since clean coal and natural gas looks cheap, they go with that.
I precisely worded the opinion that way, that we are passing on the costs to the utility consumer, because it is better to be upfront and transparent about what F-I-T could mean.
HOWEVER, I would like to point out that our society needs to make a choice. Do we pick “cheap” fossil fuel based power, or do we pick a slightly more expensive power source that when used widely, could mean a cleaner environment and less dependence on OPEC.
For Mr. Boyfuture, the reason we are doing this is that we want to seek the opinion of the public. I hope we give this venue a chance…
My apologies if I cannot answer most if not all of the questions. I will try my best.
Note that this opinion, including the blog post, is my personal opinion, and not the official stand of any government agency or group.
Sincerely,
Dennis Posadas
Deputy Executive Director
COMSTE
September 13th, 2008 at 5:06 pm
Another comment: My Dad, Mr. Demosthenes Du, a veteran in the Agri Industry who has many experiences with Govt, and Industry associations in the Agri-Industry, would like to clarify on my statement of Adoption of Technologies, as he understands it;
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> Best Options are Liscensing, Transfer, or Joint Venture. The Startups who did the research usually have an add-on cost or a royalty fee for their technology, but at least you are assured the technology is stable and consistent. You may come out late in the game, but you are more in control of your costs.
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> Or you could do a Dr. William Dar (Head of ICRISAT and Former DA Secretary). He said to us in a seminar here in Cagayan de Oro, having flown all the way from Hyderabad, India, that Industries could reduce their research costs by forming Industry CONSORTIUMS and pay an ANNUAL FEE for the research anc consultancy, which is what they did to Sweet Sorghum for Ethanol Research. Costs are subdivided among the members, making it cheaper per member.
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> But this has to be done with an established Science Institution ( In ICRISATS case, an Agri-Science Park of 108+ Companies in India)
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> The hardest part is getting these startups to prioritize our Power Companies. Its like the courting game; you show you are desperate for the girl, magiging mapresyo siya. Court many startups, be serious about it, then, once they give feelers, select the most suitable technologies for the Philippines.
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> Best Regards,
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> Mike Du
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