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An Independent View
Monday, August 19, 2013
LAST week’s news that a group of 40 German investors would come to Negros Occidental in October to investigate the feasibility of installing an 85 megawatts of biomass power plant is welcome.
‘They are serious investors’ explained Gov. Marañon.
Of course they are. They’re Germans.
We already have some investment in biomass power.
In 2007, San Carlos Bioethanol Inc. was set up as a cogeneration (that is electricity and ethanol) plant and, I understand, supplied some electricity to Victorias Milling Company Rural Electric Service Cooperative (VRESCO). Now its main thrust is the production of ethanol and has reportedly produced 37 million liters in the past year.
Last year, Marañon hosted a group from the European, mainly German, venture capital company, Thomas Lloyd. As a result San Carlos BioPower Inc (which has overlapping ownership with San Carlos Bioethanol Inc), has initiated the construction of an 18 megawatt, multi-feedstock biomass power plant in Barangay Palampas, San Carlos. Commercial operations are targeted to begin in December 2014. The groundbreaking ceremony took place last April and Wuxi Huaguang from China is the key contractor for the construction project.
The progress of the San Carlos BioPower, Inc. project should provide helpful insights to the German investors arriving in October.
Marañon reportedly mentioned that the feed-in-tariff for biomass is inexpensive at P6.63 per megawatt (MW) hour. In fact, if he has been correctly reported, he is mistaken by a factor of one thousand, since the feed-in-tariff is a not inexpensive subsidy of P6.63 per kilowatt hour.
The Energy Regulatory Commission (ERC) has currently set a limit of 250 megawatts for approved feed-in-tariffs from biomass. If production, nationwide, of electricity from biomass exceeds 250 MW, then, under the current rules not all producers will be eligible for the lucrative feed-in-tariffs.
The Foundation for Economic Freedom (FEF), consisting of a group of prominent economists and chaired by former Finance Secretary Roberto de Ocampo is strongly opposed to any increase in installation targets for renewable energy, citing the need to protect consumers.
FEF makes the valid point that the feed-in-tariff allowance (Fit-All) is, in effect, a tax on consumers. ‘Increasing the tax burden of consumers without going through Congress is patently unconstitutional’ said FEF.
We agree. The Bioenergy Act introduced the concept of feed-in-tariffs only in qualitative terms. We cannot believe that Congress, by so doing, has apparently signed a blank cheque. The current FIT-ALL approved by ERC is P5.90/Kilowatt Hour (KWH) for hydro (up to 250MW), P6.63/KWH for biomass (up to 250 MW), P8.53/KWH for wind (up to 200MW), P9.68/KWH for solar (up to 50MW). On a 24/7 basis the Fit-All subsidies, is fully utilized, will cost the electricity consumer P46 billion per annum.
The Fit-All concept needs to be re-evaluated by Congress so as to bring our encouragement of renewable energy production to a level which is satisfactory to the populace. We suggest P10 billion may be acceptable. P46 billion is not.
There is the question as to how the Fit-All subsidies will be extracted from the electricity consumer. Is it to be passed on to us by the local electricity co-operative? If so, will this not encourage Ceneco, for example, to continue to purchase its electricity produced from coal, which not being politically correct, attracts a zero Fit-All? If Fit-All is to be collected equitably, then this needs to be administered by ERC which would have to issue invoices to the co-operatives. The co-operatives, such as Ceneco, would then have the difficult and potentially disputatious task of extracting the appropriate Fit-All from each individual consumer. Ceneco would, surely, not welcome this activity, particularly if it maintained its straightforward bilateral arrangement with Kepco.
We mention Fit-All because without these, electricity from biomass is almost certainly an unviable investment. Potential foreign investors would rapidly lose interest.
We salute Marañon for encouraging electricity self-sufficiency for Negros particularly after the failure of the EDC to implement the planned 49 MW geothermal project.
Productive use of biomass, as opposed to merely burning it is desirable. But the investment costs, which are front-loaded, are huge. San Carlos BioPower, Inc. claims that its investment is P3.5 billion.
As mentioned earlier, however, the investments are unlikely to be fruitful without the feed-in-tariffs which are not payable until the electricity is actually generated and sold. As far as we know, no-one is guaranteed the feed-in-tariffs at present.
Foreign investors are wary of the unknowns of doing business in the Philippines where uncertainties and changing the rules are commonplace.
As the World Resources Institutes recently reported: ‘Lack of mobilization of stakeholders, long renewable energy permit application processes and lack of infrastructure are some of the issues the government has to address if it wants to meet the country’s renewable energy goals.
The lack of infrastructure is relevant to biomass which is often in areas where the roads to potential electricity generating plants are inadequate. This, coupled with the high fuel costs in Negros, adversely affects the profitability of biomass projects.
Investors will be comparing costs of operating in Negros Occidental with elsewhere. We hope they will choose Negros Occidental.
‘I have been studying how I may compare. This prison where I live unto the world.’ -- Richard II Act 5 Sc5 line 1 William Shakespeare (1564-1616)
Published in the Sun.Star Bacolod newspaper on August 19, 2013.