Feed-in Tariff Implementation in the Philippines

The Renewable Energy (RE) Act of 2008 sets forth the government’s policy
objectives with respect to the RE sector. It provides for the fiscal and non-
fiscal incentives to achieve these objectives and tasks various stakeholders
such as the Department of Energy (DOE), Energy Regulatory Commission
(ERC), the National Renewable Energy Board (NREB), Philippine Electricity
Market Corporation (PEMC), among others, in the formulation of the
necessary plans, implementing policies and rules to attain these objectives
and implement these various incentive mechanisms. Among the non-fiscal
incentives identified in the law are the Renewable Portfolio Standards, the
Feed-in Tariff System (FIT), Green Energy Option, and Net-Metering.

The ERC in 2010, in consultation with the NREB and various other
stakeholders formulated the FIT Rules, which set the framework for the FIT
System. As provided for in the FIT Rules, the ERC thereafter set the various
initial FITs for the different technologies eligible for the FIT (except ocean),
which were linked to installation targets for each technology as determined
by the DOE. The ERC then came out with another issuance, this time
detailing how the eligible RE Developers will be compensated and how the
surcharge, known as the FIT Allowance (FIT-All) will be calculated, set,
collected, and administered, to answer for any differential needed to pay the
eligible RE Developers. In January 2015, the FIT System was finally
introduced.

Due to the increase in the installation targets for solar and wind, and the
deployment of capacities in excess of the original targets for these
technologies, the ERC reviewed and reset the FITs for these technologies.
The second Wind FIT applied only to the three projects that were constructed
but were not accommodated in the original target, and the second Solar FIT
was made effective only until March 15, 2016. There is uncertainty as to how
the FIT regime will be administered, especially for Wind and Solar (after
March 15, 2016), given pronouncements made as regards the adoption of
auctions for succeeding phases of FIT implementation.

In the meantime, the legal challenge hurled against the validity of the FIT
design, particularly the collection of the FIT-All, remains pending with the
Supreme Court and may derail future FIT implementation if the ERC’s FIT
issuances are not upheld. Opposition to the FIT System may further
intensify given the possibility of an increase in the FIT-All from the existing
4-centavo level.

With the FIT in place, several RE projects, particularly, Wind and Solar, were
constructed. Given the high concentration of these plants in specific areas,
issues on transmission capacity and maximum RE penetration level were
highlighted. There were also discussions that the merit order effect has
started to manifest in the Wholesale Electricity Spot Market, which will only
put pressure on the FIT-All as the differential between the approved FITs
and the market prices widens.