1. After Fukushima,quo vadis renewable energy?
In the aftermath of the Japan nuclear crisis, investor confidence in
renewables rose as the public and investors recoil from nuclear energy.
Public perception of events was likely to taint the reputation of nuclear
power and significant investments in nuclear powerare expected to be
delayed or deferred.The tragedy comes on top of the oil price rise because of
industrialization in China and India, the BP disaster in the Gulf of Mexico,
unrest in the Middle East and North Africa - all of which has made
renewables more attractive.
But some doubted that the accident would benefit renewables. In her
analysis,Scotiabank economist Patricia Mohr suggested the"more lasting
impact of the incident at the Fukushima-Daiichi Nuclear Power plant...will
be to trigger a re-examination of nuclear safety procedures and reactor
technologies around the world and to slow the development of nuclear
power.”Over the medium-term, Mohr anticipates some shift from nuclear
energy to imported LNG in Japan and natural gas-fired power generation in
the U.S. and parts of Europe,"Wind and solar power (alone) are not viable
choices for large-scale „base-load' electricity generation."
Japan's nuclear disaster will result in nuclear power as politically
unacceptable and intensify the global race for fossil fuelswith most future
energy research and development going into nuclear safety.European
governments are stepping up efforts to assess nuclear safety and agreeing in
principle to a series of "stress tests" for nuclear power stations.It is expected
that nuclear power may be hit most by rising safety and insurance costs
after Fukushima.
On 04 April 2011, the New York Times ran a story about the new
pragmatism that is influencing energy policy. The report cited Richard
Heinberg's theory of "peak everything," which suggests that the world is
running short of vital assets like clean water, carbon-free air, some minerals,
fish stocks and the cheap fossil fuels that have powered the world economy
and helped rein in the price of food. However, alternative energy sources, as
well as renewable energy, are more expensive and would force the world into
a more frugal future according to Heinberg.
The 2007-2035 Philippine Energy Plan of the Department of Energy (“DOE”)
urged the reconsideration of a nuclear power program amidst rising oil
prices. The Philippines has gained a new record, that of having the most
expensive electricity in Asia as reported by the Manila Electric Companyto
the power and energy committee of the Philippine Chamber of Commerce
and Industry (“PCCI”) on 03 February 2011. The study had shown that with
an average retail rate of electricity of 18.1 US cents per kilowatt/hour, the
Philippines has topped Japan whose rates were at 17.9 US cents per
kilowatt/hour.The high cost of electricity is because all costs from producing
power to distribution and taxes are passed on to consumers in the absence
of state subsidies.
DOE Secretary Rene Almendras earlier commissioned a study to assess the
benefits of the Bataan Nuclear Power Plant (“BNPP”). For Almendras, the

2. biggest issue has always been seismic considerations with lessons from the
disaster in Japan to be incorporated into any policy decision.While the
disaster would not stop the ongoing DOE technical study,Malacañang insists
it is standing pat on its decision to sideline the revival of the BNPP.
On the RE front, regulators grapple with commercial-viability issues
affecting the sector, as wind and solar remain prohibitively expensive to
produce. Environmental advocates and RE developers are pushing the
government to expedite the implementation of themandated regulations on
renewable portfolio standards (“RPS”) and feed-in tariff (“FiT) rates.The
developers are proposing an installation target totaling 1,482-MW from 442-
MMW biomass plants, 420-MW solar power plants, 340-MW for wind power
plants, 30-MW for ocean and 250-MW hydropower plants.
The DOE Renewable Energy Management Bureau, however, could only
confirm a total of 790-megawatt of total generating capacity from 170-MW
run-of-river hydropower plants, 370-MW biomass, 20-MW solar photovoltaic
systems, 220-MW of wind generating capacity and 10-MW of ocean power
generating capacity. Powerplant investments targeted for RE projects could
only go as high as 830 MW for the next three years, as the National
Renewable Energy Board (“NREB”) set the cap to meet the national grid‟s
absorptive capacity.According to the NREB the approval of the 830-MW
installation targets was also conditional and could be adjusted depending on
the grid impact study to be submitted by the National Grid Corporation of
the Philippines.The grid must have enough buffers to absorb and cover the
sudden losses of power supply from RE sources, thus the NREB cannot
recommend installation targets that are beyond the grid‟s absorptive
capacity.
Power consumers may have to bear an additional charge of 11.38 centavos a
kilowatt-hour from the use of RE sources once the Energy Regulatory
Commission (“ERC”) approve the proposed FiT rates.The proposed FiT
allowance of 11.38 centavos a kWh is actually lower than the industry
proposal of 16.45 centavos. Once approved, the FiT-allowance will be
implemented by 2014 when all the expected RE facilities that would generate
a combined 830 MW would have started operations.
Meanwhile, the ERC is also mulling over the approval of FiT rates for each
RE source separately, some earlier than others, to allow developers to move
forward and get financial closing for their proposed power projects.The FiT
measure is the most awaited mechanism under the RE Law because it will
determine the economic and financial viability of RE projects.The FiTs intend
to mitigate demand-side risks in the face of inherent production variability
by ensuring purchase by all grid-connected consumers at a guaranteed long-
term fixed price.However, the PCCI urges government to ensure that the
costs of RE will not be too restrictive for consumers.Injecting RE into the
grid could jack up already high electricity prices and further reduce the
country‟s competitiveness. The PCCI suggested that by careful planning of
the country‟s RPS, the government should take into consideration the
possible impact of RE on both overall generation and transmission costs, as
well as the high initial cost of putting RE and the associated developmental
costs.

3. A high FiT rate will tie consumers for the duration of its implementation
while the consequence of low FiT rates is that the ERC can fine-tune the
pricing in subsequent years. The lack of takers should have no consequence
on power supplysince RE is not expected to be part of baseload. The cost of
RE technologies is expected to decline over time with more efficient
technologies still to emerge.Perhaps it would be prudent on the part of
regulators not to rushFiT rates or consumers may be facing another
backlash similar to the outcome of the take-or-pay provisions entered into
by the Philippine government with independent power producers in the early
1990s. In the meantime, environment advocates, RE developers and
consumer groups are eagerly anticipating how the government will address
the issue.
Fernando “Ronnie” Penarroyo is the Managing Partner of Puno and Penarroyo Law
Offices(www.punopenalaw.com). He acquired his Bachelor of Science in Geology
and Bachelor of Laws from the University of the Philippines and Master of Laws from
the University of Melbourne. He specializes in Energy and Resources Law, Project
Finance and Business Development.