‘After the Renewable Energy Act passed in 2008, under the law and related regulations, only projects that have been certified by the Department of Energy (DOE) qualified for the feed-in tariff (FIT) shall receive the corresponding permits that will entitle the project to the corresponding tariffs’, explains Najha Estrella, Partner at PJS Law.
‘As a result, RE developers raced to build their projects for inclusion in the programme, resulting in some solar and wind projects that have been “stranded”.’
Partners Najha and Monalisa Dimalanta speak more on the energy sector in the Philippines, below.
What are important aspects to consider when negotiating power purchase agreements?
Monalisa: In the Philippine context, the type of contract or target customer would matter: end-users belonging to the contestable market (i.e. consuming a monthly average peak demand of 750kW) are free to negotiate PPAs directly from registered Retail Electricity Suppliers (RES) and these contracts are not subject to any price regulation or review by the Energy Regulatory Commission (ERC). These retail PPAs, however, under the current regulations cannot have a term longer than two years. On the other hand, wholesale PPAs between generation companies and distribution utilities generally provide for longer term of 10 to 25 years, but are subject to various regulatory conditions including compliance by the utility involved with competitive selection process for the awarding of PPAs and ERC-approval for the PPA, particularly the tariff, as condition for implementation. Tariffs are generally benchmarked against similar plants in the system with PPAs that were previously approved by the ERC.
Najha: Apart from what Monalisa discussed, factors that generally affect regulated or wholesale PPAs in other jurisdictions likewise, should be considered. For instance, given the benchmarking approach of the regulator, the type of fuel for the plant matters as well as whether the supply is contracted to provide baseload, mid-merit or peaking requirements of the utility. Most utilities also require suppliers to be responsible for replacement power in the event that the plant or facility experiences any outage. There is a fully functioning wholesale electricity spot market or WESM in the Philippine power industry that can provide such replacement power supply, but price volatility could be an issue.
How do you advise your clients on the best approach on this matter?
Monalisa: We always ask our clients to identify their commercial drivers at the outset and then we structure a PPA on that basis. For instance, are they looking to finance a greenfield project? In which case, we would normally suggest a long-term PPA with an established utility and then prepare a selection of prospective utilities as well as contracting and regulatory approval timeline for them. On the other hand, if they are looking at supplemental or substitute PPAs only to expiring ones, we would suggest looking at the retail market for better commercial options and minimal regulatory oversight.
You work on difficult questions of law in litigation and appellate practice; can you share your biggest challenge so far and how you overcame it?
Najha: For the Energy Practice, the biggest issues so far have been on the regulatory side. For instance, we are still waiting for Supreme Court to decide on the legal issues arising from a spike in electricity prices in Luzon that happened back in 2013. Because of the significant hike in generation rates, the contracting and dispatch arrangements by certain utilities with their suppliers were challenged first with the ERC and then the decision of the ERC was brought to the Supreme Court. While the factual circumstances may no longer prevail and indeed because of other safety nets put in place since then it is unlikely to be repeated, there were other legal and regulatory issues in the case that await final resolution.
There is also another case pending with the Supreme Court on certain actions by the ERC regarding validity of certain bilateral power contracts executed by utilities immediately before the requirement of competitive process took effect.
Monalisa C. Dimalanta
Najha Katrina J. Estrella
We are the lead Partners for PJSLaw’s Energy Practice. PJSLaw is a Philippine-based law firm that assists clients from various parts of the world. We are a full-service legal practice established in 1997 by three young lawyers and have since grown in size to 47 fee-earners to date. We are ranked Tier 1 by various legal publications in the area of Energy, and among the Philippine firms cited as outstanding/recommended in the fields of M&A, Banking/Project Finance, and Dispute Resolution.
