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---- A SUPERIOR ALTERNATIVE TO COAL ---RENEWABLE HYDROPOWER ENERGY AVAILABLE ON PALAWAN

Renewable energy hydro-power resources are available on Palawan to produce up to 40% of current electricity demand [80GWh/year] before 2017 . Potential commercial operation date Q3 2015 Q1 2016 Q4 2016

Project Langogan Narra Aborlan TOTAL

Capacity 6.8MW 5MW 3.5MW 15.3MW

Location Barangay Langogan Puerto Princesa City Barangay Princess Urduja, Narra Talakaigan, Aborlan

Generation/year 32GWh 27GWh 21GWh 80 GWh/year

The proposed tariff for electricity generated from these projects is the NPC Effective Rate which is Php 6.5896/kWh. Consumers do not pay VAT on the generation charge for renewable energy, but they do pay VAT on the generation charge for fossil fuel powered generation. The consumer saving from use of hydropower with current generation rates is about Php 1.13/kWh or a total of Php 90 Million for all Palawan consumers each year. The rate for the coal/diesel project proposed by DMCI is Php 10.5056/kWh. The mini-hydro would save the government Php 3.916/kWh in subsidy and consumers Php 1.1256/kWh in VAT payments compared to the coal/diesel combination. The hydro-projects do not require any subsidy ; this will save all electric consumers in the Philippines, and the government Php 8.5 Billion over the life of a 25 year electricity sales contract or Php 320 Million/year. Hydro-projects have a design life of 50 years. Project Investment required is Php 3.5 Billion. All risks to be assumed by the developer.

How a run-of-river hydro works The projects are run-of-river, they are environmentally benign (no emissions), no significant impoundment is required and after use for power generation the water is returned to the river.

MODEL TO INTEGRATE RENEWABLE HYDROPOWER INTO THE PALAWAN GRID

Simply put, the hydropower is sold to the National Power Corporation (NPC) at Php 6.6/kWh. This energy substitutes for higher-cost fossil fuel energy (Php 13/kWh). For each kWh of hydropower produced, a capacity fee of about Php 2/kWh is paid to the fossil-fueled power providers to compensate for their reduced output. The capacity fee is actually an ERC approved component of the total rate. It contains the fixed costs and profit of the power provider. Thus, when the hydro plants are operating, some portion of the fossil -fuel generators will be shutdown. However, despite not operating their plant, the fossil -fuel provider will receive compensation for all power up to the limit they have contracted with PALECO. The model works because of the very large difference in the rates between hydro and fossil-fuel generated energy. In this illustration, the total difference is Php 6.4/kWh (Php 13/kWh minus Php 6.6/kWh). Adding the Php 2/kWh capacity fee for the fossil fuel providers to the Php 6.6/kWh hydro rate brings the effective rate to Php 8.6/kWh which is still Php 4.4/kWh less than the true cost generation rate of the bunker/diesel installations. If the hydro power plants deliver 80 million kilowatt hours per year, this is an annual savings of Php 350 million pesos in UCME subsidy support. And because the 80 GWh is from a renewable source, consumers do not pay the 12% VAT. This is a Php 90 million savings to Palawan consumers. In addition to the very significant savings, an equally important benefit of the model is that it provides sufficient capacity in the system to overcome seasonal intermittencies incurred by the hydro plants. During the dry season, the hydro plants will operate at a fraction of their maximum capacity. During this period, the fossil-fueled plants will supply a higher percentage of the total demand. During the wet season, the hydro plants will run at or near maximum capacity and output from the fossil-fueled plants will be curtailed. The basic operating principal for this model (outlined in the 2008 Renewable Energy Law) is that the hydro plants must receive priority dispatch, i.e., no matter what the level of their output, all hydro energy must be accepted, with the residual demand filled by non-RE providers. The Palawan mainland grid currently has 54Mw of generating capacity (without the proposed coal plant) available with a peak demand of 33.7Mw. Adding 16Mw of hydro power brings the total to 70Mw by the end of 2017. This combination provides both sufficient capacity for growth and a reserve for unforeseen incidents for the 2014-2017 period. This model will bring significant renewable energy into the power mix on the Palawan mainland grid without displacing current fossil-fuel providers or jeopardizing existing contractual obligations. It eliminates government subsidy requirements on more than 40% of the energy produced on the mainland grid and reduces consumer VAT payments. Adoption of this strategy to introduce renewable energy provides a WIN-WIN solution for all stakeholders.