Are We Getting Any Closer? Revisiting our Foreign Ownership Rules

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Changing our constitution to allow  more foreign investors is a must if we are to succeed in developing our nation. Hence, we must be fast  in doing so if we are to take advantage of the global development in RE including falling prices.

As early as last year, President Rodrigo Duterte already announced his plans to open various industries to foreign players.

In a speech made during a visit to New Zealand last year, the president said “The only way to make this country move faster to benefit the poor is really to open up the communications, the airwaves and the entire energy sector. My decision now is to open the Philippine economy to other players.

These days, foreign ownership of companies is in the headlines as the government is set to release the upcoming Foreign Investment Negative List ( FINL). The FINL defines which investment areas of the country are still off-limits to foreign investments and open to 40%  foreign ownership. 

Unfortunately, the government can only do so much with its FINL as they need to work within what’s allowed by our constitution.  Perhaps it’s also time to make amendments to the constitution given that times have changed. In this day and age of technology, we need to be more competitive. Unfortunately for us, our laws have not been updated to keep up with the times.

Many economists have already stressed the need for significant changes in our constitutional provisions on ownership

Just recently, former National Economic Development Authority or NEDA chief Cielito Habito has emphasized the need for these changes. “The hope is we will be willing to amend economic provisions of the constitution because that is what really is holding us back. It is outdated. Many of the restrictions in foreign advertising, mass media, education, are really out of date. Given the technology in recent years, those rationales don’t apply anymore to the information age,” he said.  

He further added that we are being left behind by our Southeast Asian neighbors because of the lack of participation of foreign investors. “The reason we continue we to  lag behind our neighbors, in spite of dramatic improvements already made, is still because of these legal constraints to more foreign participation in our industries.”  

The President back then said that he wants changes in the “regulatory requirement and institutional arrangements to hasten the entry of new players in the power industry and energy sector.

And I cannot wait for these changes to take place. We need this if we are determined to shift to cleaner sources of energy. Our progress in moving to more renewables for our energy has been quite slow. We are not getting any closer to our goal of using more RE for our needs. In fact, we seem to be heading in an opposite direction as coal fired power plants are seen to dominate our energy mix in the next 10 years as noted by BMI Research of the Fitch Group. The study revealed that 90% of the 7,300 MW of power projects in the pipeline are coal-fired plants. 

As I have been saying, the review of foreign ownership rules has been long overdue.  I have been vocal in my desire to open up the energy sector to more foreign investors, particularly the renewable energy sector. Mainly because putting up the RE plant has a high up-front cost and as such very few businesses can venture into this area. 

The government must consider limiting the ownership of foreigners of the renewable resources but increasing their ownership in owning the equipment required to convert these resources. 

Around the world costs of RE technologies are dropping. If we want to take advantage of this development in the hope of increasing the RE’s share in our energy mix, then we must act quickly and make the necessary changes in the foreign ownership rules. 

References:

http://www.investphilippines.info/arangkada/constitutional-amendments-needed-to-boost-fdi/

http://bworldonline.com/constitutional-amendments-needed-boost-fdi/

 

 

 

 

 

 

 

 

 

A Gloomy Warning

What would you do if the temperature becomes too hot that you must stay every single day indoors?

Sounds like doom to me, right?

Unfortunately for us, this a possible scenario if we keep up with the business-as-usual in dealing with climate change. Or at least that’s what a climate change expert says.

Hans Joachim Schellnhuber, a member of the Pontifical Academy of Sciences in the Vatican and the Director of Germany’s Potsdam Institute for Climate Impact Research (PIK)  warned us that the Philippines and its neighbors in Southeast Asia could suffer from extreme temperatures daily if countries continue with the present high emission levels.

The Nobel Prize Winner stressed that “All of the tropics will develop conditions that physiologically, humans cannot live outside anymore.”

Schellnhuber was in the country to present the study “A Region at Risk: The Human Dimensions of Climate Change in Asia and the Pacific.” He said that based on modeling and simulation studies from the report, temperatures would keep increasing by 1.7 degrees Celsius above pre-industrial levels by 2030, and up to 2.7 degrees by 2050. By 2070, temperatures could be up to 4 degrees.

According to Schellnhuber, we could “see a complete shift in living conditions,” if people fail to address climate change. He further stressed that we would be facing extreme summer heat, an unusual weather condition, which the Philippines only experience once in every 740 years.

Nations must do everything they can to avoid such extremes, he warns. If not, Schellnhuber pointed out, that millions of people will be forced to flee their homes. “You would actually have to give up the Philippines altogether….Unless you put the entire population into a shopping mall, which would be a very big mall, and by the way, needs a lot of fossil energy to keep air-conditioned, and that would exacerbate global warming, so it is certainly not a solution.”

Gloomy, indeed.

Schellnhuber’s words reminded me of the Pope’s encyclical on climate change two years ago. Pope Francis made strong calls to act quickly on the issue of climate change. “We may well be leaving to coming generations debris, desolation and filth. The pace of consumption, waste and environmental change has so stretched the planet’s capacity that our contemporary lifestyle, unsustainable as it is, can only precipitate catastrophes, such as those which even now periodically occur in different areas of the world. The effects of the present imbalance can only be reduced by our decisive action, here and now.”

Unfortunately, two years after the powerful message of the Pope, little has been done locally to work on reducing our carbon footprint if we are to talk about renewable energy development.

The BMI Research of the Fitch Group recently released its study noting that there will be more coal-fired power plants in the next 10 years. “Growth in the Philippines power infrastructure sector over the next 10 years will be driven by investment in coal-fired generating capacity as companies and the government build a slew of new power plants to support growing electricity demand.”

The report noted that 90 percent of roughly 7,300 megawatts (MW) power plant projects in the pipeline are coal-fired ones.

So, we are in the business-as-usual scenario, still relying heavily on coal for our energy needs.

We certainly have failed to heed the Pope’s call. I can only pray and hope that Schellnhuber’s warning below will not be ignored, too.

Reference:

http://www.interaksyon.com/expert-warns-with-no-cap-on-greenhouse-gas-emissions-going-outdoors-will-be-deadly-by-2100/

Unfortunate But Not Hopeless

While other countries in the world are slowly shifting to cleaner forms of energy, the Philippines seems to be moving in the opposite direction.

The recent BMI Research of the Fitch Group noted that coal-fired power plants would dominate new energy infrastructure in the next 10 years. “Growth in the Philippines power infrastructure sector over the next 10 years will be driven by investment in coal-fired generating capacity as companies and the government build a slew of new power plants to support growing electricity demand,” according to the report.

Based on the group’s research, there is roughly 7,300 Megawatts (MW) capacity that is either under, approved or already for construction. Of these, 90 percent are coal-fired energy plants. Even the Visayas and Mindanao regions, which by the way have more renewable energy sources particularly, hydro and geothermal in their power mix, will be recipients of the future coal plants.

The report pointed out that the there is a price to pay for the country’s continued reliance on coal-fired plants.

One of the significant consequences is that the Philippines will have to keep fuel imports steady in the next five to 10 years when these power stations become operational.

“As the share of electricity generated from thermal — and especially coal — sources grows from 73% in 2017 to 77% in 2026, the Philippines will have to increase imports of fuels to feed newly built coal-fired power plants.”

There are various reasons why this report bothers me.

For one, we are lagging behind in our commitments to provide cleaner forms of energy given the amount that would be generated in the coming years from coal plants. While the rest of the world is moving away from coal, we are still stuck and depending heavily on this form of energy.

Again, I stress that I have no issues with coal plants per se, having built some of them during my time as Napocor chief. But the world and its needs have changed, and we need to get our energy from cleaner sources. Other countries are making drastic changes. China alone, the world’s biggest consumer of coal is shifting to RE by pouring some $361 billion worth of RE investments by 2020. Its government has also canceled roughly 150 coal projects from September last year to March this year.

Unfortunately, we are heading towards the opposite direction largely because our government regulations are not supportive of the growth of the RE sector. For one, we still have limited participation from foreign investors in the energy infrastructure, and as such, limited funds flow to build more RE plants.

Our regulatory environment is far from friendly for both consumers and RE producers, too.

For one, our regulators use an incorrect valuation for the beta by taking the value from the point of view of the generator than of the consumers for our floating Power Sales Agreements or PSAs. Unfortunately, our PSAs have pass through costs, which means power consumers pay end up paying for higher energy prices when the peso falls against the dollar and when coal and oil prices surge in the global market because of the value of the beta, which has a positive value.

As I have said previously, this is incorrect as the the consumers are the ones who are shouldering the cost of foreign exchange fluctuation as well as the fuel risks. Hence, the beta in our tariff setting should be a negative one to reflect the risks borne by consumers for both the foreign currency adjustments and world prices of oil and coal.

Plus, I have discussed in an old blog post, our regulators place an arbitrary value on the beta when it comes to cost recovery in our tariff setting. For example, a geothermal plant and coal-fired power plant will have the same beta value. This is faulty because the developer of a geothermal power plant takes more risks given the exploration cost than the coal-fired power plant developer. The incorrect application of the core concept of the capital asset portfolio model is detrimental to the development of renewables.

 

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Coal-fired plants must be a thing of the past. Renewable Energy is the future. 

 

Again, at the risk of sounding like a parrot, our energy planner belongs to the school of thought that coal-plants are cheaper the RE ones. These planners only look at the upfront cost of building power plants rather than scrutinize the risks that consumers shoulder when relying significantly on fossil fuels.

I have repeatedly pointed out that traditional sources of energy are not necessarily cheaper as we could end up paying more given our heavy dependence on imported coal. Even the above report of BMI stressed that we are importing 70 percent of our coal needs from neighbors. So, what happens when coal prices increase? What happens if importation becomes more expensive due to various factors? We have been in this situation before where our power rates have increased because getting coal abroad has become difficult.

Sadly, it is the Filipinos who are screwed with such flawed thinking as the ordinary Pinoy consumer pays for these upward price adjustments. We do, after all, have the pass-on provisions where customers pay for price fluctuation.

We have been suffering from high power rates for several decades now. And as I have been discussing in quite some posts, the key to solving high electricity prices is to one, have more renewable energy in our mix and second to have fixed-price contracts for our PSAs.

Our best bet to lower power prices is to have more RE in our energy mix. RE will be a cheaper alternative as many experts have stressed that the prices of RE technologies will continue to fall.

Regrettably, it seems unlikely that our country will shift to more cleaner form of energy soon. Understandably, moving to cleaner energy will not happen over night.

In the meantime, we must find ways to mitigate the consequences of relying heavily on coal-fired plants. I stand firm on my position that we need a greater share of renewables. But we must, at the very least, consider having fixed-priced contracts where we use a risk-free rate, the negative beta as I have mentioned above in the discount rate in computing for the tariff (reasons for this are in an in-depth discussion in my previous post.)

RE sources are in the best to position to give out these fixed-priced contracts, which do not pass-on the costs to consumers. These contracts will not burden consumers by making them pay for price fluctuation of coal importation costs since there are no import costs of raw materials in RE production.

Yes, we do need more infrastructure, particularly more power plants as our economy develops. But we must also pay attention to the welfare of ordinary Filipinos as we build for our future. Heavy reliance on coal-fired plants will be detrimental to our families as they shell out more money to pay their electric bills. I implore our energy planners to map out and scrutinize all options available as we try to meet our increasing demands for energy.

Reference:
http://beta.bworldonline.com/bmi-coal-remain-primary-power-source/

 

Empowering Small Islands

Ta'u Island

The island of Ta’u in American Samoa now running  on 100% on solar energy. Photo c/o wired.co.uk

It is indeed possible to shift from diesel dependence to renewable energy sources. Such is what happened to two islands in other regions.

The island of Ta’u in American Samoa recently made the headlines as the island was able to shift 100 percent from diesel to solar power. The Ta’u is a small island with somewhere between 200 to 600 residents depending on the season.

Last November, the island was able to go 100% renewable after Elon Musk-owned SolarCity finished the installation of some 5,328 solar panels that can generate 1.410 megawatts (MW) and 60 Tesla large batteries that can energize the island for three straight days without sunlight.

Similarly, news items also carried the accomplishment of Tilos, a small island in Greece, which is it set to become the first island in the Mediterranean to run on solar and wind energy.  Installation of a small photovoltaic park and a single wind turbine and micro-grid for generation and storage is on-going and is expected to change the lives of some 500 residents.

Currently, the island still relies on the oil-based electricity from its neighbor, Kos through the use of a submarine cable. Due to the vulnerability of the cable, power cuts in Tilos happen often.  Project proponents are hopeful that eventually, it will be Tilos that would be able to send some of its excess power to its neighbor Kos because of its shift to renewable.

These stories only prove that the shift to cleaner energy in small islands is indeed possible. There then is still hope for our off-grid islands to end their reliance on diesel and instead use renewable sources for their energy needs.

The Philippines, being an archipelagic country will benefit from looking at the above islands and working double time to power our off-grid islands with renewable sources.

A study by the Energy Economics and Financial Analysis (IEEFA) and Institute for Climate and Sustainable Cities (ICSC) has already discussed the economic benefits of using RE to supply the electricity needs in off-grid areas.

To quote the study, “Small island grids powered by solar, wind, and other renewable energy can reduce dependence on expensive imported fossil fuel generation without compromising the availability of power and grid reliability.”

Indeed, the benefits of using renewables, especially in these off-grid islands should not be ignored.

According to the report, “Electricity-Sector Opportunities in the Philippines: The Case for Wind- and Solar-Powered Small Island Grids¬” the Philippines can save as much as P10 billion a year if renewables are used instead of diesel.  This is because 80 percent of the operating costs of power generation in these islands are spent on diesel costs. And as I have pointed out in several posts, reliance on fossil fuels is costly due to oil price spikes.

Research by Professor Shimon Awerbuch, a big advocate for portfolio theory revealed that the oil price spikes from years 2000 to 2004 cost the European Union some €700 billion given the region’s reliance then on oil-powered plants.

Unfortunately, our regulators have been slow in crafting policies that would pave the way for greater renewable energy use in these areas.

The study by the IEEFA and ICSC stressed that there are no incentives for island electric cooperatives to purchase cheaper energy sources given the present system where franchise ratepayers do not benefit from the cost savings as these go exclusively to the missionary fund. Both the Energy Regulatory Commission and National Electrification Administration yet have to change the tariff setting system to encourage electric coops in islands to increase their efficiency and lower their costs.

This is unfortunate. We, after all, have the resources to make the shift to renewable energy. In fact, our country can generate as much as 161.7 watts per square meter given that the Philippines is one of the sunniest countries. But we need to re-think and change our policies and regulations that hinder us from using these resources.

There is a pressing need to review our regulations to address the needs of our citizens in the islands. Hopefully, supportive policies and regulations will help us make better use of resources just like what the islands Ta’u and Tilos have done.

References:

http://news.nationalgeographic.com/2017/02/tau-american-samoa-solar-power-microgrid-tesla-solarcity/

https://www.theguardian.com/travel/2017/jun/15/tilos-greece-renewable-energy-wind-solar-power

Electricity-Sector Opportunities in the Philippines: The Case for Wind- and Solar-Powered Small Island Grids

“Green is Gold: How renewable energy can save us money and generate jobs”. Greenpeace for NREL figures

Faster Than Expected

Some experts are expecting that solar will eventually take over as the king of the energy mix. And it may come sooner than anticipated. Soon,  solar power, as well as renewable energy (RE), will dominate the power basket according to a Bloomberg New Finance outlook released last June.

The solar photo voltaic panels cost for one is expected to drop by 66 percent by the year 2040 while onshore wind power will dip by 47 percent after 2040.

The report noted that solar costs are now already just one-fourth of its prices in 2009 while onshore wind has seen a 30 percent decrease in the last eight years. Off shore wind prices are also expected to drop by 71 percent, making this RE technology more attractive.

Presently, solar costs are already comparable to new coal power plants in the United States and Germany. By 2021, the same will happen to emerging markets like India and China. By 2020s, both countries are expected to have lower power prices with the countries’ aggressive investments in solar energy. The BNEF report noted that close to 39 percent or some $4 trillion of RE investments of the world are to be poured in China and India.

“These tipping points are all happening earlier, and we just can’t deny that this technology is getting cheaper than we previously thought,” said Seb Henbest, the lead author of the BNEF research.

Due to the falling costs of the two technologies, the BNEF outlook stressed that in 2040, solar and wind power combined will account for close to half of the world’s installed generation capacity, more than four times the current 12 percent share.

Naturally, the greater share of these renewable sources will displace coal and natural gas plants. The estimate showed that roughly 369 gigawatts (GW) of coal plants projects would likely be canceled, an amount that’s equivalent to the combined generation capacity of Brazil and Germany.

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At present, solar costs are already comparable to new coal power plants in the U.S. and Germany

Even the United States where President Trump signed an executive order to “start a new era of production and job creation” especially in the coal sector, will see coal capacity drop by half in 2040.

Europe’s coal capacity is also expected to slide by 71 percent given the region’s environmental laws that will make fuel burning cost more.

The new king of the renewable mix is indeed coming.

Unfortunately, for us Filipinos, we still yet have to see a dramatic increase in the renewables’ share in our power mix. While India, has already embraced technology and the benefits that a nation can reap from harnessing its resources properly, our country has remained in the same position for years. In the last two years, the share of renewables— solar and wind combined– only accounts for one percent.

As I have been saying, our energy planners remain fixed in their incorrect thinking about how expensive RE is. While the rest of the world have been sensitive to the development of the RE sector, we still insist on having our ‘quick fixes.’ We favor the least cost in terms of capital outlay for power plants but refuse to look at the additional cost that consumers will shoulder for our heavy dependence on fossil fuels.

We only need to look at the devastating impact on energy prices from history to see the risks of relying heavily on either coal or oil plants. In the 1990s, the Gulf War, for example, brought roughly 30 percent increase in the average spot price for crude oil.  According to the average unit price of crude oil increase in the country was approximately 56.1 percent.

We don’t even have to go as far as the 1990s. Just last year, our Energy Department officials warned of a possible disaster with the news that Indonesia has extended its imposed moratorium on coal exports to the Philippines due to the kidnapping of several Indonesian sailors in the Sulu sea by the Abu Sayaff.  We, after all, get 70 percent of our coal or 15 million tons for 2015 from Indonesia. A few years before that, Indonesia also changed its rules about coal exports which led to an even higher cost of generating power from coal.

A necessary consequence to all these is this: coal and other similar fossil fuel-based technologies will increasingly have difficulties in getting financing. Not only because financial institutions will institute policies to avoid fossil fuel technologies, but if at all, banks will have to shorten the tenors it will give to coal plants. Because of the expected decline in costs of RE technologies, the competitiveness of coal plants will increasingly decline.  Therefore, banks will have to lend, if at all, at much shorter maturities.  With shorter maturities come higher annuities.  This will make financing coal plants extremely difficult and uncompetitive.

All these points to one thing: Let us be like other countries, like our Asian neighbors India and China that have embraced and capitalized on developments of the RE. And part of it is welcoming fixed contracts in our energy mix to take advantage of the falling prices of RE technologies and having the maximum levels allowed in our Renewable Portfolio Standard (RPS), where power players are required to either source or produce a specified percentage from RE

Given that our Power Sales Agreements (PSAs) are ‘floating’ where risks such as price escalations of fossil fuel and foreign exchange rates are passed on to consumers, we need to have our fixed priced contracts to at the very least soften the blow on the negative impact of the ‘pass-on costs.’ Fortunately, renewables are in a good position to hand out those much needed fixed contracts.

While the rest of the world are embracing the lower costs of RE generation, we are still stuck in the old ways of thinking that fossil fuels and fixed price contracts are the correct formulae to our power rates woes.  Let us see the economic sense in investing and helping renewable energy flourish in our rich country.

If we want to maximize our abundance of RE sources in the country, which as many have said is the key to lower energy prices, then we must consider those fixed priced contracts for RE. And if we want to truly embrace and benefit from the falling costs of RE technologies such as what the recent BNFF report has noted, then we must be quick in adopting my above proposals. Otherwise, we will be left wondering years from now how and why we failed to find a solution to what seems to be never ending high electricity prices in the country, when in fact, the answer had been quite obvious.

References:

https://www.bloomberg.com/news/articles/2017-06-15/solar-power-will-kill-coal-sooner-than-you-think

http://www.philstar.com/headlines/2016/06/27/1597092/philippine-power-supply-jeopardized-indonesian-ban

Oil Price Shocks and Devefoping Countries: A Case Study of the Gulf Crisis by Sarah Ahmad Khan

The Cost of Being Outdated

Numerous studies reveal the benefits of shifting to more renewable energy. These research papers debunk the myth that RE is more expensive and rather stresses that in the long-run, greener forms of energy may be cheaper if one is to consider many factors including cost of oil importation and effects on health and environment, to name a few.

One such study is the recently released “Electricity-Sector Opportunities in the Philippines: The Case for Wind- and Solar-Powered Small Island Grids¬” by the Energy Economics and Financial Analysis (IEEFA) and Institute for Climate and Sustainable Cities (ICSC).

According to the report, the Philippines is likely to save more than P10 billion annually if we are to replace diesel-fired power plants with renewables in off-grid islands or areas that are not connected to the grid.

For these off-grid islands, energy is provided by the small power utilities group or SPUG under the National Power Corporation (NAPOCOR) or by Independent Power Producers (IPPs). According to the report, there are 310 SPUG and IPPs combined with a total dependable capacity of 267 MW with mini-grids that uses oil-powered plants. The cost of generating electricity in these islands are subsidized under the Universal Charge for Missionary Electrification (UCME) of NAPOCOR where fuel costs account for 75% of the NPC-SPUG cost of power generation.

The reliance on oil for energy needs comes at a significant cost as fuel account for 75% of the NPC-SPUG cost of power generation. The cost of generating electricity in these islands are subsidized under the Universal Charge for Missionary Electrification (UCME). The researchers point out that P60 billion are spent on subsidies even if these areas only generate 0.49% of the overall generated power in the country and 6% of the total energy demand.

With the falling costs of RE technologies, the study noted that great savings can be made A swift transition to RE for these off-grid islands is possible says the researchers, except the country’s policies and regulations, are outdated: “Barriers to small island grid uptake of modern renewable energy power include outdated regulations that have not kept up with technology.”

The researchers emphasized that the present system fails to provide incentives to buy cheaper sources of power, which unfortunately causes the slow the shift towards RE in these areas “This system tends to be biased against renewable generation because franchise managers would rather stick with diesel generation they are used to, even though more expensive.”

The authors recommend for the Energy Department to provide incentives to the SPUG to hybridize their power plants as well as for the National Electrification Administration (NEA) to order electricity cooperatives to be neutral in their purchase of energy. After all, the researchers concluded that “Small island grids powered by solar, wind, and other renewable energy can reduce dependence on expensive imported fossil fuel generation without compromising availability of power and grid reliability.”

In a previous post, I have tackled the problem of energy poverty as some 1.2 billion individuals are without electricity. Unfortunately, our country is suffering, too from the lack of access to power.  We are in fact being left behind in terms of electrification in the region.

hybrid thailand

Photo c/o http://www.thai-german-cooperation.info

The Philippines is almost at the bottom of the list in South East Asia when we talk about national electrification rate which is at 79% while our neighbors such as Malaysia, Singapore, and Brunei have already achieved 100%. Thailand, Vietnam, Laos and Indonesia have impressive numbers at 99%, 97%, 87%, and 81%, respectively. We are at the bottom three along with Cambodia and Myanmar.

Indeed, there is a need to hasten in reviewing our policies to catch up with our needs especially since we are aiming for more inclusive growth.

The big picture is actually very simple: The Philippines should exploit and encourage the development of all renewable energy resources for the simple reason that: a) no need for fuel importation and thus saving foreign exchange; b) the Philippine economy will be shielded from wild swings in the global energy markets; and c) electricity prices will be stable over the long-term.

Clearly, falling prices of renewable energy aren’t enough for a major shift towards renewable energy. A problematic regulatory system must be addressed if we want cleaner and cheaper sources of energy.

The lack of foresight, willpower and competence can be a bane for the growth of any sector. And our power sector is one of those that stands to gain if only regulators competently enact changes needed to help our country develop.

References:

Electricity-Sector Opportunities in the Philippines: The Case for Wind- and Solar-Powered Small Island Grids

World Economic Outlook 2015 data base. International Energy Agency http://www.worldenergyoutlook.org/resources/energydevelopment

We Pay Higher With A Weaker Peso

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The Philippine Peso has been falling against the greenback in the last few weeks. Tagged by Bloomberg as Asia’s worst performing currency, our currency has lost 1.6 percent this year. Bloomberg also noted that the Philippine peso is also the worst performer among emerging markets, only next to the Argentina Peso.

Both forecasts by DBS Bank and Bloomberg also predict that the exchange rate would be P52 to a dollar by year-end, In fact, according to DBS Bank, the weak peso could continue until middle of next year.

The weakening of the peso is a result of various factors. Unfortunately, a shrinking peso against the dollar is detrimental to normal Filipinos if we are talking about their power rates. The falling peso could spell doom for many Filipinos, mainly because the lower peso would increase power prices.

As I have pointed out in previous posts, our Power Sales Agreements or PSAs have the provision for the pass-on costs where the consumers pay for the foreign exchange and fossil fuel upward price adjustments. To put it simply, the consumers will pay for the weak peso in their electric bills.

Remember December last year where the biggest power distributor announced a P0.1011 per kilowatt-hour (kWh) increase because of the upward adjustment in the generation charge caused by the significant weakening of the peso against the dollar. A news report then noted that the peso slid down to P49.73 in November from P46.59 to a dollar from August of the same year. That’s almost a three peso difference in three months, which resulted in the increased electricity bill. We have to keep in mind that the largest DU in the country sources its electricity from independent power producers, which, unfortunately, have 90 percent of their billings in dollar denomination.

As I have discussed in detail, our energy planners have favored the ‘floating’ PSAs rather than fixed ones, thinking that it is cheaper. To simplify, these floating PSAs are not necessarily more inexpensive as there are unknowns specifically fossil fuel global price spikes and falling value of the peso against the dollar. These unknowns are, sadly, inevitable.

As with our experience last year in the above example, a weaker peso resulted in higher power prices. So, we cannot say that floating PSAs are cheaper because, in the end, the poor consumers will shell out more money when the inevitable happens.

This is why we need the fixed priced contracts. Under fixed priced contracts, consumers will pay the same amount for a specified period, let us say, 25 years, for their electricity. Fixed price contracts eliminate the need for users to pay for the pass-on costs or to simplify, pay for higher power charges when the peso falls against the dollar or when prices of coal or oil in the international market increases. I’m sure our consumers would appreciate knowing how much they would be paying for their energy consumption on a monthly basis rather than be surprised when their electric bills come.

Let us see the economic sense in having fixed price contracts for the sake of the end consumers. Rather than just fret on how a weak peso could hurt us, let us make the adjustments needed to ease the burden for the Filipinos who will shoulder the cost of the falling peso when they for pay their electricity. Surely, Filipinos have other uses for their hard-earned money.