A Comprehensive Briefing on the Solar Feed-in Tariff System in the Philippines

A Comprehensive Briefing on the Solar Feed-in Tariff System in the Philippines

Background and Evolution

After a long delay and vocal opposition from certain sectors, the policy on Feed-in Tariffs (FITs) as contained in the Philippine Renewable Energy (RE) Act of 2008 finally materialized on July 2012. The FIT scheme was primarily viewed as a way to entice private sector players to hasten investment into the power generation sector due to the urgent need of the country to deploy additional capacity. According to the Philippine Department of Energy's (DOE) 2009-2030 Power Development Plan, the  country's  energy  consumption  is  seen  reaching  149,067  gigawatt -hours  (GWh)  by  2030,  from  an  estimated demand of 86,809 GWh by 2018 and actual demand of 55,417 GWh in 2008. Peak demand should hit 14,311 GWh by 2018 and go up to 24,534 GWh by 2030, from 2008's 9,226 GWh. To ensure adequate power supply considering these demand projections, a whopping 17,000 MW of new capacities should be put in place.  Luzon  alone  will  need  12,500  MW  in  additional  capacities  in  the  next  20  years,  while  Visayas  and Mindanao  –  both already  experiencing power shortfalls since 2010  –  will need  2,150 MW and 2,500 MW in new capacities, respectively, during the same period. Solar was especially and favorably viewed as the immediate solution to the country’s energy supply challenges, since it is the only cost-effective technology that could be installed and commissioned in as short as a few months.

In the Philippines, the FIT scheme mandates electric power industry participants to source RE-derived electricity at a guaranteed fixed price (“the FIT rate”) applicable for 20 years. Under the scheme, developers of RE projects are assured of future cash flows, as electricity end-users will be charged fixed amounts to cover production of energy from renewable sources. The scheme also imposes annual “Installation Targets”, which are considered as caps vis-à-vis the installed capacity of projects that would enjoy the FIT rates.  The table below shows the evolution of the FIT rate and the Installation Targets, from the original proposal of private sector players as represented by the Philippine Solar Power Alliance and the National Renewable Energy Board (NREB), a committee composed of government and industry sector representatives, to the official numbers approved by the Energy Regulatory Commission (ERC).



For the solar sector in particular, the FIT allocation would only be granted to developers who complete their projects and achieve commercial operations (“First to Commission, First to FIT” allocation scheme). Aimed at weeding out speculators, this policy has meant that developers would have to bear the risk of constructing even without any assurance of a FIT allocation.   In addition, this rule has also given advantage to companies who have access to financing as opposed to smaller players who need power purchase contracts prior to financial closing. 

Other FIT allocation criteria – similar to FIT rules in other countries -- that emerged  for consideration but were not implemented were: (1) first to submit complete requirements, first to be allocated;  (2) “Equal distribution”, based on the number of pre-qualified firms; (3) “Equitable distribution”, among a number of firms that declare to be viable with a set MW capacity; and (4) a Competitive bidding process, based on the lowest offer.  But ultimately, the Philippine solar FIT was kept in the simplest format – a Solar Race. 

By the end of 2013, or a full year after the FIT policy had been official, there were more than 1,045 MW worth of Solar Energy Service Contract (SESC) applications submitted to the DOE, of which an indicative total of 1,012.21 MW or 97% have been awarded.  At that time, the FIT Installation Targets were still capped at 50 MW, which was the “Installation Target” for solar in 2012. This meant that the indicative capacities of pending and awarded SESC’s and the actual applications for FIT inclusion were already significantly above the 50 MW Installation Target.  This prompted the announcement of an additional 450 MW in April 2014 (“FIT Phase 2”) to accommodate the overwhelming response from the private sector and to help combat the 2015 Philippine summer power shortage, as solar was deemed to be the only RE technology that can be commissioned within a year's time that could address the huge deficiency. Phase 2 of the FIT had a commissioning deadline of March 2016.


Current Status and Industry Response

By the end of March 2016, a total of 818.24 MW from 29 projects across the Luzon, Visayas, and Mindanao island-groups have been completed and commissioned.

Figure 1. Comparison of Capacity Constructed vs Capacity Included for Solar FIT Allocation in the Philippines as of March 2016

Out of this and, in accordance with the prevailing allocation policy, “only” 526 MW of installed solar capacity have been granted FIT status. A total of seven projects made it to the FIT Phase 1 allocation, which afforded the developers a guaranteed rate of PHP 9.68/kWh, while 17 solar projects with a combined capacity of 417.05 MW have been approved for the FIT Phase 2 allocation, with a guaranteed rate of PHP 8.69/kWh, or a 10.2% reduction.

Solar FIT Phase 1:

  1. Ormoc Solar Power Project (30MW) of Phil. Solar Farm-Leyte, Inc.
  2. Cavite Economic Zone Solar Power Project (41.3MW) of Majestics Energy Corp.
  3. San Carlos Solar Power Project Phase A (13MW) of San Carlos Solar Energy Inc.
  4. Pampanga Solar Power Project (10MW) of RASLAG Corp.
  5. San Carlos Solar Power Project Phase B (9MW) of San Carlos Solar Energy Inc.
  6. Burgos Solar Power Project Phase I (4.1MW) of Energy Development Corp.
  7. SM North Solar Power Project (1.5MW) of Solar Philippines Commercial Rooftop Projects Inc.

Solar FIT Phase 2:

  1. Cadiz Solar Power Project (132.5MW) of Helios Solar Energy Corp.
  2. Calatagan Solar Power Project (63.30MW) of Solar Philippines Calatagan Corp.
  3. Tarlac Solar Power Project (50.07MW) of PetroSolar Corp.
  4. San Carlos Solar Power Project (“SACASOL I-C and I-D”) (23MW) of San Carlos Solar Energy Inc.
  5. Clark Solar Power Project (22.33MW) of Enfinity Phils. Renewable Resources Inc.
  6. Currimao Solar Power Project (20MW) of Mirae Asia Energy Corp.
  7. Bais Solar Power Project (18MW) of Monte Solar Energy Inc.
  8. Bulacan III Solar Power Project (15MW) of Bulacan Solar Energy Corp.
  9. Hermosa Solar Power Project (14.51MW) of YH Green Energy Inc.
  10. Pampanga Solar Power Project Phase II (13.14MW) of RASLAG Corp.
  11. Kibawe Solar Power Project (10.49MW) of Asian Greenergy Corp.
  12. Cabanatuan Solar Power Project (10.26MW) of First Cabanatuan Renewable Ventures
  13. Valenzuela Solar Power Project (8.50MW) of Valenzuela Solar Energy Inc.
  14. Centrala Solar Power Project (6.23MW) of nv-Vogt Philippines Solar Energy One Inc.
  15. Palauig Solar Power Project (5.02MW) of Agri-Rural Communities Corp.
  16. Burgos Solar Power Project Phase II (2.66MW) of Energy Development Corp.
  17. Lian Solar Power Project (2.04MW) of Absolut Distillers Inc.

With an excess of 292 MW of already-constructed projects that did not successfully qualify in the FIT Phase 2 race, the administration of new DOE Secretary, Mr. Alfonso G. Cusi, who assumed office in June 2016, has been tasked to decide on the situation. The previous Secretary, Ms. Zenaida Y. Monsada, admitted on record that deciding on the excess capacity was among her administration’s “unfinished businesses”, and so the situation was left pending.

As of August 2016, or five months after the March 2016 FIT Phase 2 deadline, various sources within the DOE’s Renewable Energy Management Bureau have revealed that the excess has ballooned to almost 400 MW, with a handful of developers completing construction of projects that failed to commission by March 2016. Pending the effectivity or an announcement of a “FIT Phase 3” or similar policy, it is generally assumed that there has been no new construction of plants that are being undertaken.

Issues and Challenges

The manner by which the FIT scheme has been implemented in the Philippines has been lauded and critiqued in equal measure by various stakeholders. What is certain though is that the FIT scheme allowed the massive growth in solar deployment in such short a period.

Firstly, the “first to commission, first to FIT” allocation policy favored well-capitalized and deep-pocketed RE developers and carried high financial risk since it meant that developers had to proceed with procurement and construction without assurance of FIT allocation.  Nonetheless, as evidenced by the more than 800 MW of installed capacity that responded to the FIT scheme, this meant that developers viewed the Philippine FIT rates as reasonably appetizing to take on the risk.

Figure 2. Distribution of Solar Capacity across the main grids in the Philippines


The apparent lack of coordination between the DOE and the National Grid Corporation of the Philippines (NGCP) as to the location of projects was also one of the sources of frustrations from various industry players. Specifically, since different grids and island sub-grids have varying absorptive capacity to such an intermittent power generation source as solar, a more strategic planning process and policy -- spearheaded by the two entities – was clearly needed. This resulted to an imbalance in solar capacity vis-à-vis the geographic location of projects. Visayas, which is composed of island sub-grids, hosted the largest number (in MW) of solar projects, significantly more than Luzon, which has the highest electricity demand being the location of Metro Manila. Out of the 481.5 MW of capacity installed in Visayas, 341.5 MW or more than 70% is located in one island, Negros, whose peak demand as of 2016 does not reach 300 MW and occurs in the evening where there is zero solar production. With the submarine cables connecting Negros to Cebu, the biggest demand center in the region, currently still being improved, it has been reported that the production of Negros solar power plants have to be curtailed in order to preserve grid stability.

Perhaps the biggest issue at hand among solar developers is the immediate resolution on the excess or “stranded” projects, since to date there has been no clarity on how they will be addressed nor has there been any announcement on the next FIT phase. These projects are effectively forced to sell to the Wholesale Electricity Spot Market (WESM) in the interim, where rates have been reported to be in the range of PHP 3.50/kWh or a massive 60% less than the FIT Phase 2 rate.

As everyone has seen, the industry responds positively to the government’s call for additional power generation capacity provided that policy is clear and risks are manageable. However, with some USD 600 million of investments currently being at risk of not seeing expected returns, how the industry responds to the next chapter of any government announcement remains to be seen.