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ERC Approves Feed-in tariff rates

July 28th, 2012 Posted in feed-in tariff

ERC Approves Feed-in tariff rates

The Energy Regulatory Commission (ERC), on July 27, 2012, approved the initial Feed-in Tariffs (FITs) that shall apply to generation from renewable energy (RE) sources, particularly, Run-of-River Hydro, Biomass, Wind, and Solar, as follows:

APPROVED   FITS (PhP/kWh)

HYDRO

5.90

BIOMASS

6.63

WIND

8.53

SOLAR

9.68

The ERC, however, deferred fixing the FIT for Ocean Thermal Energy Conversion (OTEC) Resource for further study and data gathering.

The decision came after a series of public hearings ending in March this year, on the petition of the National Renewable Energy Board (NREB) for the setting of the FITs. In its petition filed on May 16, 2011, NREB proposed the following FITs:

APPROVED   FITS (PhP/kWh)

HYDRO

6.15

BIOMASS

7.00

WIND

10.37

SOLAR

17.95

 

In fixing the FITs, the ERC accepted the methodology used by NREB in calculating its proposed FITs, which takes into account, among others, the cost of constructing and operating the representative plants for each RE technology, the generation output or capacity factors of these plants, and the reasonable return on investment to be allowed the developers of these plants.

The ERC arrived at FITs substantially lower than NREB’s proposed FITs for Wind and Solar after it updated the construction costs of the representative plants for these technologies to reflect the downward market trend of the costs of putting up these plants. It also adopted higher capacity factors for these plants to ensure that only the more efficient plants will enjoy the FIT incentive.

For all the RE technologies, the ERC revised other project costs such as those for the switchyard and transformers, transmission interconnection cost and access/service road cost using the same benchmarks it had employed in approving similar projects of the regulated utilities. The ERC also adopted a lower equity Internal Rate of Return (EIRR) of 16.44°/o in calculating for the FITs, except for Biomass, which was allowed a higher EIRR of 17% to account for fuel risks.

Section 7 of the Renewable Energy Act of 2008 mandates, among others, the setting of the FITs to apply to wind, solar, run-of-river hydro, biomass, and ocean RE resources. Under the FIT system, the eligible RE developers will be paid the FITs applicable to them for the energy they feed into the grid. The FITs are subject to degression to encourage the developers to invest at the initial stage and hasten deployment of renewable energy and also to avoid substantial windfall from being enjoyed by developers especially in the technologies where significant cost reductions are expected in the future.

The approved FITs shall also be subject to review and readjustment by the ERC after the initial FIT implementation of 3 years or when the installation targets for each technology as set by the Department of Energy shall have already been met.

“The ERCs lowered FITs will definitely cushion the impact of implementing the FIT incentive mechanism under the RE Act on the electricity rates, while still being sufficient enough to attract new investments in renewable energy. This is win-win for all,” ERC Executive Director Francis Saturnino Juan said.

July 27, 2012

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