INSIDER VIEW | Are consumers paying twice for green energy?

I have always opposed asking consumers to shoulder for the subsidies for renewable energy (RE) generators. Today, in the Philippine renewable energy debate, a critical concern has emerged: consumers may be paying twice for the energy delivered by developers.

Breaking down the issue

To understand this issue, we need to examine the underlying mechanics:

• Energy injection and market dynamics: When renewable energy plants generate power, it enters the national grid and is recognized by the Wholesale Electricity Spot Market (WESM). This influx typically drives down prices, benefiting consumers. However, the savings may not translate into lower bills.
  
  
• The FIT payment mechanism: RE generators receive compensation through the Feed-in-Tariff Allowance (FIT-All) fund, rather than the WESM price. This fund, sourced from a universal levy on consumers, creates a disconnect between how energy is paid for and how it is billed.
  
  
• Consumer pricing: Consumers continue to pay standard tariffs reflecting the total cost of energy, which includes payments to traditional generators. This leads to a misunderstanding of the actual cost of renewable energy: a portion of it has already been funded through the FIT-All, yet consumers still pay the full market price.
  
  
• The implicit subsidy transfer problem: Essentially, the FIT-all mechanism may be trapping consumers in a dual-payment scenario: they subsidize renewable energy via the FIT-All while also covering the market costs, which reflect traditional energy pricing. This creates an indirect double payment.

Guido Alfredo A. Delgado

"Policymakers must address this issue to ensure a fair and equitable energy landscape for all Filipinos."

A firsthand experience

All these I personally experienced when we were running a 250,000-household utility some years back. 

On behalf of consumers, the utility paid the generation tariff. However, on top of that, we still charged them the FIT-All tariff. As it was during the pandemic, we did not have time —or the luxury of time — to question this practice. 

However, today, as we reflect on this practice, it appears to be double-counting. The ERC could explain this seemingly irreconcilable conundrum or point out if my calculations are mistaken. 

Other countries have addressed similar challenges by deducting FIT-subsidized energy from market costs or implementing explicit priority dispatch measures. 

A look at Germany’s model

Germany's Renewable Energy Act, or Erneuerbare-Energien-Gesetz (EEG), reportedly uses the market premium model. 

Under this system, RE generators sell their output directly to the market like any other generator. Instead of receiving a feed-in tariff as a secondary payment, a premium is paid, equivalent to the difference between the market price and the designated support level. This model avoids double-counting.

Unfortunately, to the best of my knowledge, the Philippines has yet to adopt these solutions, leaving consumers vulnerable to a confusing and potentially unfair pricing structure.

A call for clarity

In fact, the calculation of the FIT-All is questionable as well. I will address this separately.

The complexities of renewable energy pricing in the Philippines reveal a significant challenge in the energy transition. 

While the intention to promote renewable energy is commendable, consumers may be facing a hidden double payment. Policymakers must address this issue to ensure a fair and equitable energy landscape for all Filipinos.

The ERC could clarify this issue.