Suspense Is Only Good For Movies

I’ve written so many posts about how our local policies have been far from friendly to renewable energy (RE) developers like myself. But these days, it seems that the regulatory environment has even gone worse.

There is uncertainty in the sector given that our Energy Regulatory Commission (ERC) is caught in a messy situation after the Ombudsman suspended the four ERC commissioners last December.

Just this week, the Court of Appeals has issued a 60-day Temporary Restraining Order (TRO) on the suspension.  But then again, as the order suggests, it is just temporary stay order. What happens after 60 days? Also, will the resolutions approved by the suspended commissioners during the 60-day TRO period be deemed legal?

But the complication does not end with the suspension order and the TRO. There is a bill filed in the Lower House seeking the abolition of the ERC. It was sponsored by no less than the Speaker of the House, Pantaleon Alvarez.

The House Bill 5020 not only seeks to abolish the commission but is also pushing for the creation of a new quasi-judicial regulatory body, the Board of Energy as ERC’s replacement.  The new board will be an attached unit of the Department of Energy (DOE)  and will be composed of a Chairperson and two members appointed by the President upon the recommendation of the Energy Secretary.

All these developments are worrying since the ERC while being far from being an ideal regulator even before the chaos brought by the suspension, at least provided some comfort to the sector that somehow issues will eventually get resolved. So, is it essential to abolish the commission and replace it with a new one? A new entity might not be the answer to problems already hounding the ERC, especially if it is attached to the Department of Energy (DOE). It is not implausible to think that the DOE can come up with policies which, contrary to its opinion, may not be good for consumers in the long-run. So, it is essential that ERC, or its equivalent, must remain independent of the Executive Branch.

The bigger issue here is REGULATORY CAPTURE. And here, I am not even implying covert attempt to control the ERC. Because the deregulation and privatization were not ideally done, there are pockets of monopolies and monopsonies that make it difficult for the ERC to make sound decisions that benefit the Filipino consumers. Because of all these, the ERC is sometimes constrained to follow “jurisprudence” and those with vested interests will not question the commission’s decisions. Creativity and innovation in rule-making for the benefit of the Filipino consumer are gone.

For example, as I have explained previously, the commission had the incorrect appreciation and application of the Capital Asset Pricing Model in the tariff setting for cost recovery in power contracts. From the very beginning I have always questioned the use of the CAPM – a classic situation of the emperor not having clothes. The CAPM is NOT appropriate for the Philippines. We do not have a well-developed equity market. Our economy is controlled by a few families, thus obliterating the classic economic model of “perfect competition.”

Since all the cases in the past have been decided on this economic model, how can the ERC reverse itself without putting in jeopardy its previous decisions? Can you imagine the amount of money that may have to be REFUNDED to the consumers if someone can prove in court that the CAPM was wrongly used in the past,? Billions!

Unfortunately, the suspense on the fate of the ERC will not only affect RE developers but everyone in the sector, and ultimately, the Filipinos. At this point,  power sector players are probably holding their breaths, waiting for the next scene in the ERC saga. In the meantime, local power producers will be having a hard time obtaining loans and getting their power sales agreements (PSAs) approved, which might result in massive rotating blackouts as new capacities are stalled.

Newly minted ERC chairperson Agnes Devanadera has warned that the suspension would paralyze the power sector, could result in massive blackouts as the commission cannot act on P1.59 billion worth of PSAs.

Similarly,  BDO Capital & Investment Corp. president Eduardo Francisco stressed that lending to the industry might be affected by the Ombudsman’s order. Banks are likely to postpone approval of loans given the absence of off-take contracts. “We can give conditional approval, but usually conditions to lend are based on the ERC approved contracts. There will be an impact on lending,” he was quoted by The Philippine Star.

We do like suspense, but only if we are watching films or TV series.The uncertainty on ERC’s operations has no place in the real world. Hopefully, the mess in the ERC gets resolved quickly.

Let us keep in mind that the current administration is pushing for sustainable economic development, including the building of more public infrastructure in the next couple of years.  Our goal of putting up more bridges, airports, and roads cannot be achieved if we have an almost paralyzed or inefficiently functioning regulator in the Energy sector.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Path to 100

Just recently, the International Renewable Energy Agency (IRENA) released a study titled “Accelerating the Deployment of Renewable Energy Mini-Grids for Off-Grid Electrification.” The research tackled how the Philippines can promote better access to basic electricity services as the government works on achieving total electrification in the country.

The study came up with five major recommendations ranging from defining roles and responsibilities, having a strategic and comprehensive planning for electrification, promoting the setting up of micro-grids, reviewing the regulatory frameworks for mini-grid projects and increasing support for project development and execution.

Of these recommendations, several caught my attention.

10891-cobardor-island-solar-panels-lines-wide-angle

Our government must now seriously consider using RE for off-grid islands. Photo c/o ADB

IRENA, in its conclusion, stressed that the country needs to prepare a definite plan for off-grid electrification, with the government revising the current Missionary Electrification Development Plan “to focus on reliable energy electricity access to small, remote and isolated areas.” Part of which is to aim for a 24-hour electricity service that can support both commercial and industrial needs to enhance livelihood opportunities to increase incomes.

The report noted that such goal could be achieved by “strategically using renewable energy technologies (RETs), selected based on a least-cost approach[Let’s comment by putting a caveat that “least cost” as generally defined no longer cuts it.][Might not be feasible because if we do, we would be contradicting the conclusion. ], to lower generation costs, improve reliability, increase service hours and avoid the use of fossil fuels.”

The reason for prioritizing RE for small and remote off-grid areas was underscored: “These technologies can reduce generation costs[Because it has no link to global prices and forex, the fixed price gives consumers an over-all lower cost and reduced risk.][addressed in succeeding paragraph, highlighted in yellow.] and increase service reliability and service hours, while simultaneously mitigating climate change and improving climate resiliency.”

Now, don’t these conclusions and recommendations of advocating the use of RE Technologies for off-grid islands by the IRENA sound familiar? I have been in fact, advocating almost the same recommendations and conclusions above.
For one, as I have been saying, renewables are the cheaper option as generation costs from them are not subject to global price changes and foreign exchange adjustments. On the other hand, traditional sources of power cause consumers to pay higher when the peso falls against the greenback or when prices of coal or oil surge in the world market.

Plus, of course, RE is obviously the better option to use to mitigate the effects of climate change.

But I’m not the only one who echo the calls made by the IRENA report. There are other reputable organization, too that are calling out our government to transition to RE for our energy needs.

For example, The Energy Economics and Financial Analysis (IEEFA) and Institute for Climate and Sustainable Cities (ICSC) earlier this year released a study emphasizing the need for RETs in off-grid islands. The research, “Electricity-Sector Opportunities in the Philippines: The Case for Wind- and Solar-Powered Small Island Grids” noted that “Small island grids powered by solar, wind, and other renewable energy could reduce dependence on expensive imported fossil fuel generation without compromising the availability of power and grid reliability.” In fact, the country can save up to Php10 billion if off-grid islands use RE rather than traditional power sources.

The report stressed that off-grid islands in the country could transition away from fossil-fuels to RE except for the country’s policies and regulations, which are already outdated: “Barriers to small island grid uptake of modern renewable energy power include outdated regulations that have not kept up with technology.”

Time and time again, we have heard experts urge our government to invest in RETs for stable and secure supply both for those in the main grid supply as well as for off-grid islands especially since our government aims to achieve 90% household electrification by the end of this year.

As of July 2016, household electrification rate is at 89.6%, which means some 2.36 million homes are either without power or with limited electricity services of four to six hours daily. Such is still far from our government’s goal “that every Filipino family shall have an equal opportunity to access basic electricity service.”

There is no doubt, as many experts suggest, that the path to complete electrification is RE. But I will have to stress that RE can do more than just help us achieve our goal of 100 percent electrification. In fact, renewables are the long-term solution needed for our country’s energy security. And the sooner we learn how to implement RE systems, the more secure our future will be.

References:

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

“Accelerating the Deployment of Renewable Energy Mini-Grids for Off-Grid Electrification.” IRENA

 

 

 

 

 

My New Year Wishes

This holiday is the time to reflect on the past year as well hope and pray for a better one. So, while wearing my renewable energy developer hat, let me share my new year wish list.

Top on my agenda for 2018 is the resolution of the ERC issue. Just last month four commissioners were suspended, which left the energy sector in limbo. This means that the sector is left paralyzed and this does not augur well for the New Year. 

Legal experts tell me that the basis for their suspension is skating on a very thin ice. And many are concluding that the move reeks of political vendetta. If these are true, then it is a development that does not bode well for our country. This undermines the very integrity of the regulatory framework and will bring about uncertainties on the security of investments in the sector. And this, obviously, will spell disaster for the entire economy. 

Equally important is for the players in the sector to realize important role of renewable energy (RE) on the economy. Yes, environmental sustainability is a crucial aspect, but using RE has a more significant benefit for households and businesses: the minimization of risk and lowering of power cost. This approach goes beyond the “least-cost” traditional view of energy planning. With the state of geopolitics, energy security and lowering of prices should be on the top agenda of the regulators today. Renewable energy has to be a priority. 

Related to risk minimization is the diversification of energy supply. Coal cannot and should not be relied upon solely for our energy needs. Natural gas has an important role to play in the country. Today, we source over 2,500 MW of our power needs from natural gas.  We cannot expect coal to replace that capacity when Malampaya runs out in seven years; Coal just does not have the physical characteristics intrinsic to natural gas. It is time to seriously consider how to develop Liquefied Natural Gas (LNG). Unfortunately, a monopsony like MERALCO is not easily swayed to buy such a massive capacity of LNG. It is imperative for our government to be more creative in finding ways to introduce LNG into the country.

The proposal to have an Independent Market Operator (IMO) is long overdue. However, aside from the IMO, we should also have an Independent System Operator (ISO) to ensure complete independence in the dispatch and operations of the power network.

 Finally, the world will be going towards a phase of distributed generation and smart grids. The government must prepare for this by providing robust telecommunication and internet infrastructure since the current internet speed in the country is just unacceptable. Our telecom and internet should be vastly improved.

 Happy New Year, everyone!

A Growing Consensus

There is a growing consensus among energy players and experts around the world that the best path forward to a sustainable energy and clean energy is to combine renewable energy with natural gas. Unless an alternative type of fuel is found, or until battery storage (or similar technologies) become economically feasible, this may be the case.

For one, Royal Dutch Shell, Europe’s biggest energy company is investing heavily in liquefied natural gas (LNG) plants and developing a market for it. Shell currently has various LNG projects scattered in practically every continent.

Now why the massive investment on LNG? According to Maarten Wetselaar, Royal Dutch Shell Plc’s director of integrated gas and new energies, its because “We are deeply convinced that the end-point energy mix that provides cheap, or at least affordable, reliable and clean energy to everybody will consist of renewable power, biofuels, and natural gas.”

He added that that the company will go full speed with investments projects that can produce the cheapest LNG.

As early as 2012, Shell’s CEO, Peter Voser already announced that the firm would invest some $20 billion in the natural gas around the world in the next three years.

Shell isn’t alone in its belief that renewables should be combined with natural gas.

Craig Ivey, president of US Energy firm, Consolidated Edison Inc, stressed that the US shift to RE like wind and solar is feasible if there is greater reliance on natural gas. Consolidated Edison Inc. provides electric service to some 3.3 million customers and gas service to roughly 1.1 million customers in New York City and Westchester County in the US

Ivey added that REs could account for half of New York’s energy needs by 2030 only with the help of natural gas.

But energy company officials are not the only ones to have this conclusion. A study published recently by the National Bureau of Economic Research concluded that natural gas power plants that can fire up quickly must be used to meet the cut emissions and energy stable supply.

Author’s of the study, “Bridging The Gap: Do Fast Reacting Fossil Technologies Facilitate Renewable Energy Diffusion?” stressed that “Renewables and fast-reacting fossil technologies appear as highly complementary and that they should be jointly installed to meet the goals of cutting emissions and ensuring a stable supply.”

I have to agree with these experts as adding more natural gas helps in ensuring a stable energy supply through diversification.

 

Shell LNG

Adding more natural gas to the power mix is key to achieving energy diversification. Photo c/o https://www.green4sea.com

 

According to Andy Stirling, a Professor of Science & Technology Policy at the University of Sussex, there are three basic properties when it comes to diversification: variety, balance and disparity.

In the context of energy systems planning, variety is about the number of energy supply options available. And having more variety of energy types means that there is greater diversity in the system.

On the other hand, balance pertains to the reliance on each option available where the system is considered as more diverse if there is more balance across energy choices while disparity refers to the differences in each option. There is more diversity in the energy supply system when options are more disparate.

This is why we need to make use of various energy types for our energy mix.So far, we depend heavily on coal to meet our ancillary needs. According to the Department of Energy, last year, coal accounted for 48 percent of our energy needs while some 22 percent came from natural gas.

Obviously, our energy supply is far from diverse given the numbers above. This is why we need to develop and increase the share of natural gas in our energy mix. We can lower our reliance on coal, and use more natural gas for our ancillary need as we add more renewable energy mix.

Keep in mind that both wind and solar power are intermittent. Thus, we need to beef up on our ancillary services to maintain the correct direction and flow of power as well as to address the imbalance between the supply and demand on the grid. And for that we can utilize more LNG rather than always turning to traditional power sources for our ancillary needs.

After all, there are advantages in using natural gas. For one, natural gas is three times more useful compared to conventional power. It is highly efficient as around 90 percent of natural gas produced can be converted to useful energy.

Natural gas is less harmful to the environment, too since its main component, methane, results in lesser carbon emission. LNG’s carbon dioxide emissions are 30 percent less than oil and 45 percent lower than other conventional fuels.

Plus, the death print of natural is less than coal according to energy expert James Conca who defined death print as “the number of people killed by one kind of energy or another per kilowatt hour (kWh) produced”. Natural gas death print is 4,000 significantly less than coal’s 100,000.

We have so much to gain by developing our LNG to replace coal-fired plants in the country. Adding more LNG will make our energy supply system become more diverse while helping us achieve our goal of helping the world become a less polluted place.

In the long-term, however, maybe indigenous, sustainable and therefore renewable energy may be the way to go.

References:

http://www.reuters.com/article/usa-property-coned-energy-idUSL1N1IY1DK

https://www.cnbc.com/id/49841864

fuel.https://www.bloomberg.com/news/articles/2017-09-06/shell-seeks-to-boost-lng-demand-as-canada-in-mix-for-new-plant

https://www.washingtonpost.com/news/energy-environment/wp/2016/08/11/turns-out-wind-and-solar-have-a-secret-friend-natural-gas/?utm_term=.dbf4c1935ceb

https://www.doe.gov.ph/electric-power/2016-philippine-power-situation-report

Diversity and Sustainable Energy Transitions: Multicriteria Diversity Analysis of Electricity Portfolios By Andy Stirling

 

Getting Closer to The Tipping Point

There have been various predictions on how and when renewable energy will soon displace coal as the most economical choice for the world’s power needs.

Just recently, Bloomberg New Energy Finance Michael Liebrich founder joined energy experts in saying that the time for renewables to take over will soon come. He estimated that renewable energy would gather roughly 86 percent of some $10.2 trillion investments in power generation by the year 2040.

His predictions do not end there. Liebrich further identified two tipping points that will push coal prices and natural gas to become unattractive.

 The first tipping point is “when new wind and solar become cheaper than anything else,” Liebreich said. And this may happen soon. He predicts that it will start by 2025 when it is cheaper to build a Solar PV plant than a coal-powered plant in Japan. Similarly, construction of wind power plants will be less expensive than building coal plants in India by the year 2030.

 The second tipping point, he says, is when operating the present coal and gas plants becomes more expensive than getting energy from wind and solar. This tipping point may take longer than the first and may happen first in Germany and China sometime between 2030 to 2040.

With all these forecasts or predictions, there is no denying that renewables will be the most economical source of energy all over the world.

 It is then crucial for us to seriously consider capitalizing on the price drops of these RE technologies and move fast in transitioning to heavy dependence on coal to renewable energy.

 Aside from being the cleaner form of energy, it is also essential for us to shift to RE because continued dependence on coal and other forms of fossil-fuel will hurt the pockets of our power consumers badly in the future.

 The above predictions only say that RE will be the cheapest option due to the declining cost of RE technology. However, there is another reason why coal will be more expensive for us Filipinos.

 As renewables take over, we can expect that coal and other similar fossil-based technologies will find it hard to acquire financing for their projects. With the growing clamor for greener technologies, it is likely that financial institutions will institute policies that avoid fuel technologies. Plus, of course, the declining costs of RE will make coal less competitive thus, pushing banks to lend–assuming they will– at significantly shorter maturity. The natural consequence is higher annuities. So, it is safe to say that around the world the cost of coal and other fossil fuels would sky-rocket.

We have to keep in mind that the Philippines only produces low-quality coal and our coal-fired plants are constructed for imported coal. In fact, in 2016, the Philippines imported a total of 20.79 million tons of coal, which is 47.8 percent higher than the imported figure in 2015. And a nation that depends heavily on imported coal will surely suffer from expensive power rates in the years to come as coal becomes more expensive in the world market.

 It is indeed time for our regulators and policy-makers to see the writing on the wall. Coal will be more expensive in the future, and our power consumers will pay much higher if we don’t shift our allegiance to RE.

 Our regulars have to act now. Otherwise, we will be paying more for our energy consumption, when in fact, cheaper energy has been abundant and available for us for a long time.

 Reference:

 https://www.rappler.com/views/imho/172064-sun-setting-coal

 https://www.bloomberg.com/news/articles/2017-09-19/tipping-point-seen-for-clean-energy-as-monster-turbines-arrive

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/