Contract to achieve 45% renewable energy may be in jeopardy
Palau’s move to achieve its promised objective of 45% use of renewable energy by year 2025 as early as September of next year based on the recent agreement signed between Palau Public Utilities Corporation and ENGIE EPS, is in danger of collapsing due to very tight timeline conditions.
The Purchase Agreement recently signed between PPUC and Engie EPS calls for ratification of the sovereign guarantee by the Senate by October 17, 2018. Senate during its 8th Regular session last night referred the Joint Resolution 10-38 to its Committee on Public Utilities, Communications & Housing Development.
Under the agreement, ENGIE EPS will “design, finance, construct, commission, own, operate and maintain a 35MW of Solar Photovolatic Generation Units and 45MWh battery-based storage system that will be interconnected with Palau’s power grid.” Palau Public Utilities will buy electricity from ENGIE EPS at 19 cents per kwh from year 1 to year 5, 20 cents from year 6 to year 20 and 20.5 cents from year 21 to year 30. Palau government will provide sovereign guarantee (agreeing to take over PPUC’s debts under this agreement), should PPUC defaults.
Under the Sovereign Guarantee, government will abstain from creating laws or policies that would penalize or obstruct construction and operation of the plant.
Some of the issues Senators raised on the contract include gross receipts and import tax exemptions afforded the Supplier. Import taxes exemption will apply to materials and labor for the construction of the plant.
Contract does not exempt employees of the plant from personal income tax or PPEF fees.
Another major stickler is the government guarantee of PPUC’s debt in this project in case of PPUC’s defaults. Under the contract, if PPUC defaults it will have to pay Suppliers Credit Documents and such documents of debts were not provided with the contract.
On Sovereign Guarantee requirement, President Remengesau Jr. stated, “This is standard for these type of agreements in that it ensures that the government does not take away or stop the operations once the partners have come in to the country and made substantial investment such as this which is worth over $80 million dollars.”
The signed contract, if approved by resolution, will fulfill Palau’s commitment under the Paris Agreement of achieving 45% renewable energy use by year 2025.
The solar energy will provide electrical power for about six hours each day during day time whilst diesel generators will provide night time electrical power to the country.
“We say 45% but we will actually exceed 45%,” expressed PPUC Board member Brian Melairei. “This has not taken into account energy provided by standalone solar panels such as those at Ministry of Education, Ministry of Health, Airport and the Capital. All together we can say, we will be producing 57% through solar energy,” added Melairei.
Currently PPUC charges between 30 to 32 cents per kilowatt for commercial customers and 19.7 to 32 per kilowatt to residential customers based on usage. Currently residential customers at certain level of usage are eligible to receive power subsidies from the government.
The Joint Resolution was deferred to Senate Committee on Public Utilities, Communications and Housing Development on October 15 and the deadline provided in the contract for approval of resolution is October 17, 2018. (L.N. Reklai)