This is good news and should not be surprising, given the extensive industry experience of its new chair, Atty. Saturnino “Nino” Juan.
One critical need of the industry is connecting various renewable energy power plants to the grid. I personally know of about 1,000 MW of solar projects that need almost immediate grid connection.
Winners of the Green Energy Auction Program (GEAP) have deadlines to meet. Unfortunately, National Grid Corporation of the Philippines’ (NGCP) ability to construct and energize substations and transmission lines is stymied by ERC delays in approving these projects.
Fixing connection delays
There are some practical solutions that can be implemented to further mitigate this regulatory risk.
First, the Department of Energy (DOE) can include a “deemed completed” provision in its GEAP awards. This provision stipulates that if the solar plant is ready for commissioning but the corresponding substation or transmission line is not yet ready, the solar plant will begin receiving payments for its energy.
Second, NGCP could allow solar plant owners to build the associated substations and transmission lines in accordance with its specifications. While this is being done now, it should be made a policy so that the connection risk can be eliminated.
Because the plans of NGCP, DOE, and the solar power plant investors are not always synchronized, a “chicken and egg” situation will arise. NGCP, on the one hand, will hesitate to put up the substation, as it is unclear whether the solar power plant will be completed on time— or built at all.
A possible third solution is for the solar power plant owners to finance the associated substation and transmission lines. According to NGCP, once ERC approves the project, it cannot allow the solar power plant owner to build the transmission assets. Allowing the solar power plant to finance itself is a practical workaround for this policy.
Managing regulatory risk
The root of this problem is regulatory risk—the risk that the ERC will either not approve a project or approve an amount that is lower than the asset’s actual cost. In other words, it is the risk of being unable to secure the proper tariff to recover the cost of the asset.
The government should take on this risk. At the NGCP level, it can ask solar power plant owners or other interested parties to build the necessary assets, then file the appropriate manifestations with the ERC.
Any unrecoverable amount resulting from the ERC’s decision can be paid by the government through TransCo or PSALM.
Beyond leadership change
As I mentioned previously, the biggest source of risk is the ERC. While I am not advocating the elimination of the ERC, the government should address this regulatory risk.
I am confident, Atty. Juan can lead the agency to mitigate this risk. Addressing the regulatory risk problem, however, may require legislative action.
We need to revisit the function and role of the ERC.
A power industry expert with over 40 years in experience as chief executive officer in firms ranging from banking, power, and advisory services.
