Geothermal handbook: PlanninG and Financing power Generation t e c h n I c a L r e p o r t 2 / 2

in the Philippines
, the Renewable Energy Bill was signed into law in late 2008. It went into effect in 
July 2009, providing legal definitions and financial incentives to further develop all renewable sources 
of power, including geothermal. Even though provisions in the law for FITs exclude geothermal energy, 
the law includes a range of other incentives that are intended to encourage geothermal energy 
development. These additional provisions extend to all renewable energies, including geothermal 
power development and generation. The provisions include establishing RPS for utilities, promoting 
transmission access, and offering a range of tax and investment incentives (Ogena et al. 2010). 
Additional incentives are listed in Box 3.5. Foreign investors are encouraged by the provision in the 
law that explicitly allows foreign-owned companies to participate in geothermal energy exploration and 
development.
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Overall, it can be observed that FITs are not used as much for geothermal as for other renewables. 
While this may change in the future, possible explanations for limited application of FIT schemes to 
geothermal energy can be found in the following line of reasoning. 
A feed-in tariff is designed to address an incremental cost that arises when renewable energy is more 
expensive than conventional generation. Developers can use the promise of a reliable incremental 
revenue stream to strengthen their case in raising the initial financing. However, this is only helpful 
insofar as investors and/or lenders have confidence in the capacity of the proposed project to reach 
the revenue generating stage. In the case of geothermal, incremental cost is not the only issue—and 
for some projects may not be an issue at all. Instead, the large uncertainty regarding the resource early 
in the project cycle is a major obstacle for financing, and a FIT approach does not specifically target 
this barrier. However, if the resource exploration is undertaken by the government, there may well not 
be a need for additional subsidies later on; with the resource risk in part or completely removed from 
the equation, geothermal can be very competitive—i.e., there may not be an incremental cost.
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A recent Indonesian PPA to be negotiated was for the 330 MW Sarulla geothermal power plant in North Sumatra, with a levelized price of 
US$ 0.0697, with the initial price to be higher than in later years (Norton Rose 2010).
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For other renewable technologies, 60% Filipino ownership in the company is required.

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C h a p t e r 3
In those cases where an incremental cost is still an issue after the resource is confirmed, a FIT for 
geothermal power can be an appropriate policy choice. However, the introduction of a FIT policy 
should be done with consideration of the impact on every link down the supply chain. When utilities 
are obliged to off-take electricity generated from renewable/geothermal resources that can financially 
cost more than other available alternatives, then “someone has to pay” for these incremental costs. 
International experience suggests that these additional costs are either passed through to consumers 
or covered through government outlays or fiscal incentives. Increasingly, carbon off-set trading is also 
utilized by developers to enhance their revenues and bridge some of the incremental costs.