richard tantoco - the philippine geothermal energy industry

7/31/2019 Richard Tantoco - The Philippine Geothermal Energy Industry

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THE PHILIPPINE GEOTHERMAL

ENERGY INDUSTRY

RICHARD B. TANTOCO

President and COO

Energy Development CorporationPhilippines

1

A look at the factors behind the sectors rapidgrowth and the drivers for future development

7TH ASIA CLEAN ENERGY FORUM

Asian Development Bank, Pasig City, Philippines

June 8, 2012


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BORN OUT OF THE 1970s OIL CRISIS, THE PHILIPPINE GEOTHERMAL

INDUSTRY HAS GROWN RAPIDLY OVER THE LAST 4 DECADES VIA EDC

2

1964 1967 1973 1976

OIL CRISIS:

Philippine National

Oil Company

(PNOC) is created

to support

commercializtion of

alternative energy

PNOC- EDC is

created to explore,

delineate and

develop

indigenous energy

resource in the

country

Philippine

Commission on

Volcanology

(COMVOL)

investigates the

countrys capability

to produce

geothermal energy.

The Philippine

Government installs

a 2.5 KW pilot plant

in Tiwi, Albay

1983

EDCs first

geothermal

steamfields are

commissioned

(supplying 112.5MW

Tongonan and 112.5

Palinpinon Plants

EDCs first

geothermal power

plant is

commissioned

(125MW Upper

Mahiao Plant in

Leyte)

1996 2007

EDC is privatized.

First Gen Corp. of

the Lopez Group

acquires a 40%

economic / 60%

voting stake

2006

EDC undergoes itsinitial public offeringthe largest IPO in thePhilippines that year

The Philippine Government championed geothermal development thru EDC


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Others36%

EDC64%

Global Geothermal Energy Production (MW) Installed Capacity in the Philippines

Total1,783

MW

The Philippines is the 2ND largest geothermal producer

in the world next to the US

Geothermal energy accounts for 11% of total installed

capacity in the Philippines, with EDC 64% of the Philippine

geothermal market with total installed capacity of 1,149 MW

Geothermal energy accounts for 14% of generated energy

Source: Geothermal Energy Association (Sept 2011), except for the Philippines (DOE, 2012) Source: Department of Energy (May 2012)

Total

69,050

GWhOthers

35%

EDC

65%

Total

9,942

GWh

AS A RESULT OF EDCS PIONEERING EFFORTS, THE PHILIPPINES TODAY

IS THE WORLDS 2ND LARGEST GEOTHERMAL POWER PRODUCER

3

Hydro

9,440

Natural

gas/Wind/Solar20,796

Geothermal

9,942

Oil

3,294Coal

25,577

3,215

1,783 MW

1,136

958

915

0 1,000 2,000 3,000 4,000

US

Philippines

Indonesia

Mexico

Italy

Total

16,162

MW

Hydro3,491 Natural gas

2,861

Geothermal

1,783

Oil2,994

Coal4,917

Others117


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Geothermal Development Lifecycle

Acquire Concession

Preliminary Survey

GO/NO GO Decision

Permitting

Infrastructure, Exploration Well Drilling

Resource Assessment

GO/NO GO Decision

Preliminary Design and EPC Bid

PPA Negotiations, Permitting

Development/ Production Drilling

Financing

GO/NO GO Decision

Construction

COMMISSIONING

WHILE GOVERNMENT BACKSTOPPED GEOTHERMAL DEVT IN THE PAST,

TODAYS DEVELOPERS MUST MANAGE RISK WITH SCIENCE AND SKILL

Biggest risks are encountered and addressed in the early parts in the lifecycle 4

0

50

100

150

200

250

300

350

400

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

1 2 3 4 5 6 7

RISK OF FAILURE

COST IN

MILLIONS

Risks and Costs in Geothermal Development

Investment by Developer Debt


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BARRIER TO ENTRY IN GEOTHERMAL REMAINS HIGH DUE TO THE LACK

OF RISK-SHARING MECHANISMS IN THE EARLY STAGE OF DEVELOPMENT

Key Risks Mitigation

Exploration and

Development Risk,

especially Resource

Confirmation

Government incentives, like reimbursement for dry wells

Funding assistance from Development Agencies

Longer exploration periods granted under the service contracts

Permitting support (esp. for National Parks) to ensure maximum time

spent on actual exploration vs permit acquisition Updated national geothermal resource database

Engagement of experienced exploration partners or consultants

Market Risk

FiT or similar tariff guarantees for new markets, as opposed to tariff

bidding

Government guarantees on electricity dispatch or priority connection

Financing Risk

Development Agencies providing long-term facilities

Cheaper Political Risk Insurance, or, equity contributions by Government

or Development Agencies

5


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The Department of Energy processes, evaluates, approves all applications

for renewable energy (RE) concession areas.

It issues RE Contracts for approved RE projects

An RE Contracts contains the following key provisions:

Term: 25 years from the effectivity of the RE contract.

Renewable for another 25 years.

Major obligations of the developer: comply with work program , deliver

financial commitment, pay government share and taxes, comply will applicable

laws affecting the stakeholders.

The RE Law provides fiscal, non-fiscal incentives, as well as the ff. support:

Processing support in availing of incentives from govt agencies

Access to all sites / areas needed for RE exploration

Assistance, i.e. eminent domain powers, in securing needed permits

Exclusive right to conduct RE-related operations within the concession

TODAY, GEOTHERMAL DEVT IS GOVERNED BY AN ESTABLISHED

FRAMEWORK ENABLING ROBUST PRIVATE SECTOR PARTICIPATION

Key Enablers for Philippine Geothermal Development

CENTRAL

BODY

CLEAR

PROCEDURES

THE R.E.

LAW

6


7/11

INCENTIVES HAVE SUCCESSFULLY ATTRACTED MORE PLAYERS AND ARE

ENABLING DEVELOPERS TO PRODUCE POWER AT COMPETITIVE RATES

Key R.E. Law Incentives:

Principal

Tax

Benefits

Income Tax Holiday (ITH): 7-yr

ITH from start of operations

Post-ITH income tax rate of 10%

Carbon credits tax exemption

Zero-rated VAT Sales

Primary

Revenue

and Cost

Incentives

Government Share

Steam and electricity: 1.5% of

gross income for geothermal

energy and 1.0% for hydro

Import of materials / equipment

Zero duties within 10 years of

certification

NOLCO: 7 years

Other Key

Incentives

Feed-in tariff

Renewable Portfolio Standards

Renewable Energy Market

Green Energy Option

SIPC (Panay

Diesel

Power

Plant)

CEDC Global

Coal

KSPC Naga

Coal

Green Core

Geothermal

, Inc

plus VAT (12%) 1.11 0.74 0.65 -

Tariff (Pre-VAT) 9.25 6.20 5.45 4.70

-

2.00

4.00

6.00

8.00

10.00

12.00

P

hP/kWh

10.36

6.946.10

4.70

Pre-RE Law

Just 7

geothermalcontract areas

Post RE Law

Now 26geothermalcontract areas

Increased developer interest:

Cheap base load power:

7


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BEYOND INCENTIVES HOWEVER, LONG-TERM SUCCESS WILL NEED

DELIVERY ACROSS THE FF. PILLARS AS EVIDENCED BY EDCS EXPERIENCE

TECHNICAL

EXCELLENCESTAKEHOLDER

MANAGEMENT

ENVIRONMENTALSUSTAINABILITY &

SOCIALACCEPTANCE

GOVERNMENTSUPPORT

36 years of technical

experience across entire

geothermal value chain:

R&D, Exploration,

Drilling, Engineering,

Construction, and

Operations

Our stakeholders help us

reach our goal of

providing clean, reliable

power and ensuring full

compliance with all laws

and regulations

Efforts to preserve the

environment are reflected in

our geothermal operations.

EDC also ensures it uplifts the

lives of the people in the

surrounding communities

Government support has

been an integral part of

EDCs success. To-date,

EDC continues to partner

with the government in

policy-making and

community-building.

EDCS 4 PILLARS FOR OPERATIONAL SUSTAINABILITY

8


9/11

IF WE DO THIS, WE WILL HELP DOUBLE INSTALLED GEOTHERMAL

CAPACITY IN THE PHILIPPINES (TO 3.5 GW) OVER THE NEXT 20 YEARS

Continued resource assessment and exploration

2011 2015 2020 2025 2030

Installation ofadditional220 MW:

New Areas- 70 MW

Existing Areas- 150

MW


New Areas- 1020

MW

Existing Areas- 80

MW


New Areas- 30 MW

Existing Areas- 65

MW


New Areas- 20 MW

Existing Areas- 60

MW

Source: Department of Energy, 2011

9

Geothermal Development Roadmapof the Philippine Government

With over 10 active projects today, EDC will deliver a significant portion of this growth


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PARTING WORDS: THE PHILIPPINE GEOTHERMAL

INDUSTRY IS READY TO EMBARK ON ITS NEXT GROWTH SPURT

While no longer state-sponsored, the R.E. Law itsmechanisms, incentives and support structures willdrive geothermal development through the foreseeablefuture

The domestic market is ready Growing need for indigenous energy

The rest of the private sector has joined the power generationbandwagon

Local banks now extending long-term financing to local power

projects Existing operations, like those of EDC, provide a template for

sustainable success thru inclusive and effective stakeholdermanagement

10


11/11

THE PHILIPPINE GEOTHERMAL

ENERGY INDUSTRY

RICHARD B. TANTOCOPresident and COO

Energy Development Corporation

Philippines

11

A look at the factors behind the sectors rapid

growth and the drivers for future development

7TH ASIA CLEAN ENERGY FORUM

Asian Development Bank, Pasig City, Philippines

June 8, 2012

THANK YOU.

richard tantoco - the philippine geothermal energy industry

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