LAST month, the Philippine Competition Commission’s (PCC) Economics Office conducted what it calls a competition impact assessment (CIA) of the Department of Energy’s (DOE) Green Energy Auction Program (GEAP). While both the PCC and the DOE sought to downplay the seriousness of the several red flags the report identified, the findings are rather concerning, and should be addressed clearly before new rounds of the ongoing GEAP are held.
The GEAP began in 2022, with each round seeking bids for new renewable energy (RE) generation capacity, concentrating on specific technologies in each round, and to some extent specific geographic areas. There have been four rounds so far, and a fifth is currently under way. In general, the GEAP can be considered successful in attracting a substantial amount of RE development, although the program has been plagued by a large number of speculative or otherwise insincere bids, which the DOE has been addressing by aggressively terminating nonperforming contracts.
In fact, the trigger for the recent CIA report was most likely DOE’s own request for guidance from the PCC about possible competition issues that might arise in its effort to cull these contracts, as that effort suddenly became publicly high-profile beginning in mid-December. Many of the abandoned, delayed, or otherwise noncompliant contracts were held by Solar Power Philippines Holdings Inc. (SPPHI) or its subsidiaries, the company founded in 2013 by congressional gadfly Rep. Leandro Leviste, to the extent that SPPHI effectively controlled more than 83 percent of the total capacity awarded in the first GEAP round in 2022.
From a competition point of view, there is obviously something wrong with a system that allows a single entity to capture that much of a supposedly open auction, and the CIA identified four concerns that “could have led to limited bidder participation and posed possible opportunities for collusion.” These were the geographic segmentation of auctions by island group; the representative plants used in determining Green Energy Auction Reserve (GEAR) prices; the publication of price caps; and the holding of pre-bid conferences.
The troubling thing about this assessment is that from both a practical and policy perspective, these features of the GEAP are necessary to carry on the program. GEAR prices are largely out of DOE’s control, as those are determined by the Energy Regulatory Commission based purely on technical information. DOE can recommend which plants can be used as examples, i.e., provide a baseline rate per kilowatt-hour from which an appropriate auction reserve price can be calculated, but even here DOE’s hands are tied to some extent. For example, the current fifth round of GEAP is focused on offshore wind; the Philippines does not as yet have anything that can be used as a benchmark.
Likewise, the geographical segmentation of GEAP rounds is also necessary. All forms of electricity generation, renewable or otherwise, have geographical limitations. After all, you cannot build a hydroelectric dam without a river, and you wouldn’t build a solar farm at the bottom of a mountain valley that lies in shade for half the day. From a policy perspective, the DOE’s focus on particular areas, “to address local supply needs and reduce service delivery concerns,” is quite sound. Although it is indeed a form of market manipulation, it is necessary to ensure that development is fairly spread across the country.
As to the PCC’s gentle criticism of the publication of price caps and the holding of pre-bidding conferences, it is unfathomable how an auction could take place without those. Prospective bidders have every right to know what the parameters of the auction will be, and be given enough information to determine if participating is within their financial and technical capacity.
All of this raises a troubling question: Is the GEAP, which has been a good driver of RE development in the country, fundamentally anticompetitive?
The DOE obviously does not think so, and assured the PCC that it continues to evaluate and refine the GEAP to improve it in subsequent rounds. However, it is not clear where improvements could be made to the existing framework to open the program to more competition. Thus, the real question may be, is a certain level of competitive discrimination acceptable for the purpose of meeting the larger goals of increasing the amount of RE in the energy mix to 50 percent by 2040?
The large number of failed RE development contracts — more than 100 at last count — suggests that perhaps it is. But it is a question that policymakers, prospective investors, and most importantly, energy consumers, will need to reflect on and answer.
