DOE embarks on crucial step in renewed renewable-energy push
In a bid to give power industry players enough time to comply with the renewable portfolio standards (RPS), the Department of Energy (DOE) has set a two-year period—from 2018 to 2019—as transition years to prepare the mandated participants in developing their compliance plans to the minimum RPS requirements.
This is so since the success of the RPS, a DOE order that mandates distribution utilities (DUs) and retail electricity suppliers (RES) to source a portion of their power supply from eligible renewable-energy (RE) sources, relies on the power sector’s big players’ compliance.
Violators are slapped with fines ranging from P100,000 to P500,000 or, upon the DOE’s discretion, revocation of license, franchise or authority to operate, and imprisonment of one to five years.
This can easily be shelled out by the big players, as most of them are also in the distribution and supply business.
“[The] RPS is a good mechanism to help achieve the 35-percent renewables target. Enforceability and compliance are critical to make this an effective mechanism, and the current policy may need to be enhanced along these lines,” AC Energy President Eric Francia noted in an interview.
“The DOE is giving the industry a head start to give time to build RE plants,” he added.
The DOE has issued Department Circular DC2017-12-0015, which prescribes the rules and guidelines in the establishment of RPS for on-grid areas.
The circular mandates DUs and RES, including power-generation companies serving direct connection to customers, to source or produce a certain percentage of their electricity requirements from eligible RE resources. In particular, it should be less than 1 percent of their annual energy demand over the next 10 years.
It also provides that eligible RE participants may use biomass, waste-to-energy technology, wind energy, solar energy, run-of-river hydroelectric power systems, impounding hydroelectric power systems, ocean energy and geothermal energy, among the other systems, as defined in the RE Act.
The RPS for on-grid areas is initially anchored on the country’s aspirational target of 35-percent RE share in the energy mix by 2030, which will be reviewed under the forthcoming updating of the National Renewable Energy Program (NREP).
A proof, in the form of certificates, is issued to complying firms.
RE certificates (RECs) will be issued by the RE registrar to electric power industry participants showing the energy sourced, produced and sold or used. The REC may be traded in the RE market in complying with the RPS.
RE market refers to a market where trading of RECs is made. The RE registry will be created by the DOE.
“For the purpose of this circular, the REC shall represent all RE and environmental attribute form 1 megawatt-hour [MWh] of electricity generation sourced from duly registered eligible RE facilities,” stated the circular.
Francia explained that these certificates are somewhat similar to the concept of carbon trading, except that RECs are specific to RE as opposed to a certified emission reduction (CER).
Francia emphasized that REC is specific to RE. “The CER is much broader because it does not only involve RE, but also waste-to-energy, waste management, forest protection, etc…. There is a trading scheme in the Philippines, but a very specific trading scheme through the RPS, which requires us to purchase a certain percentage of demand to supply RE source. Now, the REC serves as the proof,” he said.
CER is issued per ton of carbon dioxide avoided and serves as currency in carbon trading, which is the sale of carbon-emission reduction based on specific baselines or carbon-emission standards. “[Carbon trading] is not newsworthy. It’s not being practiced here anymore,” Francia noted.
DOE Director Mario Marasigan agreed. “Carbon trading happened here in the country, but that was a very long time ago,” he said.
Don Mario Dira, Bronzeoak Philippines director, said via e-mail that carbon trading has minimal impact to date due to a very low market value.
“Trading of this [carbon] is down. However, there is still perceived value on carbon credits for those positioning for the long term. Not until the US and China sign out on the climate-change protocols, carbon credits are still low tradable assets,” Dira said, adding that carbon trading is not present in the country and practiced “only in Europe and the US.”
The Manila Electric Co. (Meralco) had stated that it will defer the implementation of RPS until further comprehensive studies on the feasibility and necessary policy mechanism are conducted.
Meralco said mandating the RPS will definitely reduce RE developers’ incentive to be more and more cost-competitive, to the detriment of consumers. “However, if we allow the market to work, without distortionary policies like the RPS, we may see more and more RE being integrated into the system without adverse consequences on prices and on the reliability and quality of electric service,” Meralco Vice President and Head of Utility Economics Lawrence Fernandez said.
He added there should first be an assessment of what RE-based projects will be available for compliance. Equally important, he stressed, is the capacity of the grid to absorb them should they be studied ahead of any RPS implementation.