Renewable portfolio standards help usher in new era of RE dev’t

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Renewable portfolio standards help usher in new era of RE dev’t

By Jose M. Layug, Jr.

ON Dec. 22, 2017, Department of Energy (DoE) signed the landmark Department Circular No. 2017-12-0015 promulgating the “Rules and Guidelines Governing the Establishment of the Renewable Portfolio Standards RPS for On-Grid Areas” or the “RPS On-Grid Rules.”

The RPS On-Grid Rules marks an elementary shift in energy policy by the DoE from the previous race-to-the-finish feed-in tariff (FiT) eligibility program to a more calculated system that seeks to further scale up the utilization of indigenous renewable energy resources in the Philippines. Impelled by its desire to grow the country’s renewable energy sector, the National Renewable Energy Board set a mission to complete the draft RPS rules in 2017 through various public consultations that served as basis for the DoE to finally issue the RPS On-Grid Rules.

As early as the 1970s, the Philippines recognized that importance of renewable energy as a countermeasure to the rising oil prices in the world market. Where once it was heavily reliant on imported fossil fuels to meet its power requirements, the Philippines became the second largest producer of geothermal energy.

With fragmented pieces of executive issuances, the Philippines also successfully tapped its water resources to build large hydro dams and mini-hydro power plants. Decades later, with the passage of Republic Act No. 9513, known as the “Renewable Energy Act of 2008” or “RE Law,” the Philippines achieved more milestones in renewable energy development becoming the largest producer of wind and solar energy in Southeast Asia.

The Philippines provided the first blueprint and model for its neighbors with the release of the National Renewable Energy Program (NREP) in May 2011 as a component part of the RE Law. The NREP represents the government’s unbending covenant to carve out a clear direction towards the development of emerging technologies in the renewable energy fields. The NREP provides the guidepost that puts premium to climate protection policies and secures renewable energy supply for an endless period of time. The NREP served as the government’s commitment to increase renewable energy capacities to achieve legitimate ends of sustainable development.

To implement NREP, the DoE aggressively pursued the award of renewable energy service contracts to various developers and approved two mechanisms: the FiT system and the Net-Metering Program in 2012.

While many overwhelmingly responded to DoE’s call for aggressive development of the country’s green resources, risks, threats and challenges attended the roll out of the FiT system.

The RPS On-Grid Rules mandates all electric power industry participants, including distribution utilities for their captive customers, suppliers of electricity for contestable market, generating companies to the extent of their actual supply to their directly connected customers, to source or produce a specified portion of their electricity requirements from eligible renewable energy resources including biomass, geothermal, solar, hydro, ocean, and wind.

The RPS On-Grid Rules establishes a minimum annual RPS requirement and minimum annual incremental percentage of electricity sold by each mandated participant which shall, in no case, be less than one percent of such mandated participant’s annual energy demand over the next 10 years.

Together with the other instruments provided in the RE Law, the RPS On-Grid Rules seeks to achieve an aspirational target of 35% for renewable energy in the generation mix expressed in megawatt hours (MWh) by 2030 subject to review and assessment by the DoE.

As illustration, a distribution utility calculates its expected net electricity sales for 2018 as 100,000 MWh, which serves as its baseline year. The distribution utility then computes its net electricity sales for 2019 and succeeding years at a certain assumed expected growth rate, e.g., 3%. Hence, its projected net electricity sales will be 103,000 MWh for 2019, 106,090 for 2020, 109,272 MWh for 2021, 112,500 MWh for 2022 and so on.

Using the formula provided in the RPS On-Grid Rules and the annual incremental requirement of 1%, the distribution utility then tabulates its annual RPS requirement for 2020 by multiplying 100,000 MWh (the base year) with 3% (the assumed expected annual growth rate) and 1% (the minimum annual RPS requirement) or equivalent to 4,000 MWh of renewable energy or 4,000 renewable energy certificates.

Doing the same exercise, the RPS requirement of the distribution utility for 2021 is obtained by multiplying 106,090 MWh (the net electricity sales in 2020) with 3% (assumed growth rate), 1% (minimum annual RPS for 2019) and another 1% (minimum RPS for 2020).

After it calculates all its annual RPS requirements, the distribution utility then procures the equivalent electricity to be generated from renewable energy resources under a power supply agreement with a renewable energy power plant through a competitive selection process or through the renewable energy market to be established under the renewable energy market (REM) rules or the REM Rules.

Aside from the RPS On-Grid Rules, the RE Law also directs the issuance of the REM Rules, RPS for Off-Grid Areas, and the Green Energy Option Rules.

The REM Rules shall establish a market where the trading of renewable energy certificates or “RECs” equivalent to an amount of power generated from renewable energy resources is made. The Philippine Electricity Market Corporation (PEMC) shall undertake the necessary rules changes in the Wholesale Electricity Spot Market (WESM) Rules and pertinent manuals to accommodate the operation of the REM. PEMC shall also establish a Renewable Energy Registrar to record and monitor the RECs and compliance to the RPS requirements.

The RPS Off-Grid Rules is a policy that requires the National Power Corp., the government entity required to provide electricity to off-grid areas, to source a minimum percentage or all of their energy requirements or supply from available renewable energy resources in off-grid or missionary areas as determined by the DoE. Like the RPS On-Grid Rules, the RPS Off-Grid Rules has an annual incremental requirement of not lower than 1% of the previous year’s generation.

On the other hand, the Green Energy Option is a policy that provides the end-user the option to choose renewable energy resources as their source of energy. This gives the electricity consumers the power of choice.

The mandated participants, including the distribution utilities, shall ensure physical connection and commercial arrangements for renewable energy power plants necessary to ensure the success of the program.

With the RPS On-Grid Rules and the impending release of the other mechanisms provided under the RE Law, the Philippines hopes to meet its lofty ideal to serve its people in far-flung remote areas who will soon enjoy the benefits of electricity.

Fifth-class municipalities will be able to send children to schools illuminated by the power of renewable energy. With the help of renewable energy, access to electricity will no longer be a privilege. It will be a reality for more Filipinos.

The full implementation of the NREP, RPS, and other mechanisms provided under the RE Law is a promise that the Philippine government should keep. It is an honor pledge.

The NREP means that future generations will have bottomless abundance in energy supply. Our sustainable future is about developing what is abundantly ours. It is about paving the way for a future that is blessed with secure, reliable, and clean energy supply from our own resources.

I am sure that as emerging fuel technologies mature, the prices we pay to energize our homes and fuel our everyday lives will become more predictable, more affordable so that the next generations can enjoy a quality of life that everyone can and should afford.


Atty. Jose M. Layug, JR. is a Senior Partner of Puno Law Office. He recently served as Chairman of the National Renewable Energy Board and successfully completed the drafting of all pending renewable energy mechanisms for approval of the Department of Energy.