CleanTech was featured in this Philippine Star article, written by Danessa Rivera.

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MANILA, Philippines — The scrapping of the public offering requirement for generating companies is seen to lure more investors into the power industry, particularly in the renewable energy (RE) space.

Sen. Sherwin Gatchalian is pushing for the removal of the public offering requirement, which is a provision in Republic Act 9136 or the Electric Power Industry Reform Act (EPIRA) of 2001, to lure more companies to engage in the generation of electricity in the country.

“In order to promote competition and encourage market development, we have to relax some policies such as the public listing which proved to be burdensome to generation companies, especially to small RE gencos that have difficulty in complying,” said the lawmaker, who chairs the Senate Committee on Energy.

Under the EPIRA, all private power gencos and distribution utilities (DUs) are directed to sell a portion of at least 15 percent of common shares to the public in a period of five years.

They can offer their shares by listing in the PSE, any other exchange or direct offer to the public or employees approved by the Board of Investments (BOI).

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In a text message, Institute for Climate and Sustainable Cities (ICSC) senior policy advisor and former National Renewable Energy Board (NREB) chairman Pedro Maniego Jr. said the public offering may be “an impediment to small to medium size companies due to the costs involved in offering their shares to the public and fulfilling the numerous (initial public offering) IPO requirements.”

The Energy Regulatory Commission (ERC) acknowledges the hurdle in complying with the minimum public ownership requirement as it is only constrained to give out provisional authorities to operate (PAOs) pending the compliance of gencos, ERC commissioner and spokesperson Floresinda Digal said in a text message to The STAR.

“Currently, one of the reasons why the commission is limited to just issuing a provisional authority to operate (PAO) is the inability of some gencos to comply with the IPO requirement. Thus, we recognize the objective of the measure and the wisdom behind the move to dispense with the requirement,” she said.

Before any genco can commence commercial operations, a certificate of compliance (COC) is required. A COC has a term of five years during which period the generators are required to comply with the terms and conditions set forth in the ERC’s guidelines, which include reportorial, technical and financial requirements.

The COCs are issued by the ERC in favor of a person or entity to operate a power plant or other facilities used in generation of electricity pursuant to Section 6 of EPIRA.

Meanwhile, pending the issuance of a COC, a PAO may be issued by the ERC to enable a genco to operate its generation facility.

“As of now, what we do is require them to comply within a specific period,” Digal said.

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In filing Senate Bill 2217, Gatchalian said Section 43(T) of the EPIRA no longer serves its purpose—which is to ensure successful restructuring and modernization of the electric power industry—as the country needs to put up an additional capacity of 71,817 megawatts (MW) by 2040.

“The initial purpose of the public offering requirement for generation companies in the EPIRA has been rendered irrelevant given all the developments in the electric power sector. If we were to encourage more investments in generation to meet our demand needs in the next 20 years, it is crucial to eliminate this additional barrier to entry,” Gatchalian said.

Of that 71,817 MW, 9,508 MW or 13.24 percent of the additional total installed capacity will come from RE capacity to meet the one percent renewable portfolio standard (RPS) requirement.

A mechanism under the RE Act of 2008, the RPS requires DUs, electric cooperatives, and retail electricity suppliers to source a percentage of electricity requirements from RE sources. The RPS level is currently set at one percent until 2022.

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Commenting on the issue of minimum public ownership, Cleantech Global Renewables Inc. CEO Salvador Antonio Castro said no RE company has gone public which may be a “result of a combination of factors - amount being raised, valuation, market conditions etc.”

“While the eventual IPO requirement may be seen as a hindrance to some foreign investors, I don’t think this is the main factor,” he said.

For RE companies, particularly local firms, the lack of a long-term off take agreement is the most important factor, Castro said.

Meeting the additional RE installations could be addressed by mechanisms issued by the Department of Energy such as the Green Energy Auction Program (GEAP).

Under the green energy tariff program issued by the DOE in July last year, GEAP will facilitate supply contracting by qualified suppliers with eligible customers under a competitive process. The agency is initially looking at offering 2,000 MW this month.

“The GEAP will likely auction off 20 gigawatts (GW) in the next 10 years. That amount can still be upscaled or downscaled.

We need at least 100 GW of solar, wind and energy storage to effect the energy transition away from thermal to sustainable technologies. We will need more than the GEAP to accomplish this,” he said.

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Another challenge for small RE companies is getting funding from banks, especially if the prospective plants do not have contracts and will serve as merchant plants.

Merchant plants are power plants selling their output to the wholesale electricity spot market.

“If there is no long-term offtake agreement option in the Philippines, then we need policies (not necessarily incentives) to motivate banks to lend to merchant solar (and wind) plants,” Castro said.

“We need banks, institutional and retail investors to finance merchant solar (and wind) plants.

This is being done in UK, Germany, Chile, US, Canada, Australia, Mexico, etc. We just need to learn from them and re-apply the lending practices that have allowed those banks to finance merchant plants,” he said.