Honeyman: Renewable Energy Incentivization

Monday, November 28, 2011

BIOENERGY

Within the Visayas area, the current low sugar prices are clearly not good for the planters.

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However, the demand for molasses for the bioenergy sector, which converts molasses to ethanol, is robust. According to Lito Ballesteros who kindly provided me with the data for the 14 sugar mills in the Visayan region, the molasses overhang at the end of the 2010-2011 crop year (31 August 2011) was 144,000 tonnes. In addition, 93,000 tonnes have been produced during 2011-2012 (up to 13 November).

But, due to buoyant demand, in part from ethanol producers, the amount of molasses in storage is down to 120,000 tonnes. Prices are edging higher with molasses trading at P3,288 per tonne early last week. There is a balancing act here, however, because if prices rise too high, then the molasses/ethanol conversion becomes too expensive and the oil companies (Petron, Chevron, Caltex, Shell, etc) will buy from overseas in preference to local production.

Mr. Zubiri tells us that Energy Secretary Jose Almendras ‘is set to issue an administrative order requiring oil companies to purchase locally produced ethanol before importing.’ Unfortunately, Mr. Zubiri has an established track record of telling us erroneously what Secretary Almendras is going to do.

In October 2010, when high sugar prices caused domestically produced ethanol to be more expensive than ethanol imported from Brazil, the then Senator Zubiri airily told us ‘Almendras is bringing back the 20% tariff.’ This did not transpire.

We believe that, as far as the implementation of a renewable energy strategy is concerned, the numerous overlapping government entities are suffering from ‘paralysis by analysis.’ Action needs to be taken. The feed-in-tariff concept has some validity but, like the Philippine Chamber of Commerce, I believe that this should be implemented only for biomass and run-of-river hydro [P7.00 and P6.15 per KWH respectively]. The proposed feed-in-tariffs for solar and wind [P16.95 and P12.95 per KWH, and to rise with inflation] are too high.

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Taxation

Taxation can be used as a tool to encourage the renewable energy industry. For example, the Negros Oriental Electric Cooperative 2 (Noreco 2) has three power suppliers. These are the renewable energy Green Core Geothermal Incorporative at P4.85 per kilowatt-hour (KWH) VAT-free, Korea Electric Power Cooperation (Kepco) at P5per KWH + VAT and the Wholesale Electricity Spot Market (WESM) in which prices vary according to supply and demand.

A further aspect is that Noreco 2 has reportedly recently received a tax exemption from BIR in connection with systems losses, distribution and other taxable charges. This will enable Noreco 2’s consumers to save at least P24 per 100KWH. Not a lot but every little helps.

Can Ceneco do the same? If not, why not?

But charging VAT on systems losses has a big impact nationwide.

My estimate, based on information provided by the National Grid Corporation of the Philippines, is that for the whole country, the systems losses are around 10m KWH/day. Allowing tax relief, this would amount to almost P4 billion per annum being saved by the consumers.

A fairly big decision, even for BIR.

Do the co-operatives have to make individual applications, as apparently Noreco 2 has?

Or will BIR automatically issue a circular to all cooperatives in which the new VAT policy is explained.

We are holding our breath.

Next week: Transparency International will issue its 2011 Corruption Perception Index on 1 December. My 5 December article will include an analysis of these results.