Barriers to Developing Small Scale Hydropower in the Philippines

1. Barriers toDeveloping Small Scale Hydropower in the Philippines A Presentation for the Climate Change Information Center Dec. 10, 2002

2. Barriers to Developing Small-Scale Hydropower in the Philippines Summary • Introduction to HEDCOR • Mini-hydropower development in the Philippines • Barriers to developing mini-hydropower in the Philippines

3. About Hedcor Hedcor Hydro Electric Development Corporation • Is an affiliate of Aboitiz Equity Ventures • Owns and/or operates 14 mini-hydro plants • Total generating capacity of about 39 MWs • Generating about 150 GWhrs annually

4. About Hedcor Hedcor O&M contractor of 70 MW Bakun AC hydro plant • 1st and only BOT hydro project in the Phils.

5. About Hedcor Hedcor • Mini Hydropower Development (design, construction, maintenance & rehabilitation)

6. About Hedcor Hedcor • Fabrication & Machining • Watershed Management • Liaisoning

7. About Hedcor Hedcor’s vision: We lead in the promotion and development of clean energy.

8. Small-Scale Hydropower Developmentin the Philippines 3 laws & a code that affected the development of mini-hydropower: • R.A. 7156 - Mini-hydroelectric Power Incentives Act • R.A. 9136 – Electric Power Industry Reform Act • R.A. 6957 B.O.T. Law • National Grid Code

9. Mini-hydroelectric Power Incentives Act R.A.7156 Mini-hydroelectric Power Incentives Act defines mini-hydro as: 100 kws < MINI < 10 MWs Micro-hydro < 100 KWs

10. Mini-hydroelectric Power Incentives Act Republic Act 7156 • Grants incentives to mini-hydro developers (tax free importation of eqpt.) • Obligates NPC to buy generation at avoided cost • Vat-exempt status for mini-hydro • Special Privilege Tax of 2% • Enacted September 1991

11. Electric Power Industry Reform Act REPUBLIC ACT 9136 • The Power bill was suppose to bring transparency. • Deregulation, privatization & competition were to lower cost to “true cost of power” • Instead we have higher subsidies

12. Electric Power Industry Reform Act REPUBLIC ACT 9136 • SEC. 2. (h): To promote the utilization of indigenous and new and renewable energy sources in power generation in order to reduce dependence on imported energy. • SEC. 37. (e) (i): Encourage private sector investments in the electricity sector and promote development of indigenous and renewable energy sources. • No specific IRRs

13. Build Operate Transfer Act REPUBLIC ACT 6957 & 7718 • Provided a framework of risk sharing between the private developer and GOVERNMENT • Developers could negotiate BOT contracts w/ LGU’s, government agencies and GOCC’s • Typically, a developer bids for a contract, constructs and operates the project for 25 yrs, and then turns the project over

14. National Grid Code The Code that all power plants comply with: • SCADA requirements • Tele-protection requirements • Communication requirements

15. Challenges in Developing Hydropower MARKET • Most mini-hydro schemes are in remote areas and therefore usually in coop franchises • Electric coops have small loads and poor load factors • Run-of-river hydro schemes cannot maintain firm capacity whole year round

16. Challenges in Developing Hydropower MARKET • Most mini-hydro schemes are in remote areas and therefore usually in coop franchises • Only a handful of electric coops are bankable

17. Challenges in Developing Hydropower WHEELING POWER • High cost of wheeling power: • Transmission rate: P0.3076 • Sub-transmission rate: P0.0362

18. Challenges in Developing Hydropower WHEELING POWER • The wheeling fee is based on the monthly peak demand.

19. Challenges in Developing Hydropower WHEELING POWER • The customer’s demand charges will only be reduced if the generator is able to generate at a firm level for the entire billing period

20. Challenges in Developing Hydropower Finance Long term loans at developmental rates are not available.

21. Challenges in Financing Mini-hydropower Finance • Development banks receive foreign loans at developmental rates to help promote the development of mini-hydropower • And lend to developers at near commercial rates • Full collateral requirements

22. Challenges in Financing Mini-hydropower Finance • Commercial banks are unfamiliar with hydropower projects • Uncomfortable taking hydrological risks • Required parent company guarantee • More expensive than rates extended by development banks

23. Challenges in Financing Mini-hydropower FINANCE When we started (JEXIM): • 15.5% per annum (+ GRT) • 8 yr term – 21 equal quarterly payments • 3 yr grace period on principal • fully secured by parent company • NO project financing available

24. Challenges in Financing Mini-hydropower Probable commercial banking terms today: • banks are not very excited to lend to power projects • 90-day T-bills + 2.0% spread or about 12.0% (exclusive of GRT) • must be fully secured + parent guarantee • 70/30 debt equity requirement • Project finance using local currency not available

25. Challenges in Developing Mini-hydropower Suggested measures to promote the development of mini-hydropower: • Create a market • require utilities to purchase X% of their consumption from NRE’s • public awareness campaign on clean energy

26. Challenges in Developing Mini-hydropower Suggested measures to promote the development of mini-hydropower: • eliminate or reduce the wheeling fees for NRE’s • charge wheeling fees based on average monthly use (i.e. kwhrs/hrs x rate)

27. Challenges in Developing Mini-hydropower Suggested measures to promote the development of mini-hydropower: • DOE/DENR to initiate steps to augment the revenue of mini-hydropower developers • possibly through CDM

28. Challenges in Developing Mini-hydropower Suggested measures to promote the development of mini-hydropower: • exempt mini-hydropower plants from technical requirements imposed on bigger plants (i.e. spinning reserve, back-up reserve, SCADA, reactive power capability, system frequency limits, etc.)

29. PotentialMini-hydropower Sites Identified TOTAL POTENTIAL 100.15 MWS

30. www.hedcor.com