Energy Security Series, Part 1: High Power Rates

The Internal Energy Agency (IEA) defines Energy Security as “the uninterrupted availability of energy sources at an affordable price.” Energy security, the agency says, has many aspects. There’s short-term energy security, which the agency defines as “the ability of the energy system to react promptly to sudden changes in the supply-demand balance. There’s also the long-term energy security, primarily concerned about timely investments to supply energy for both economic development and environmental needs

There’s no better time than now to talk about energy security in the Philippines, especially as we are experiencing a lack of power supply, resulting in rotating brownouts and energy price spikes. 

And energy security in the Philippines is what I would like to discuss in this post and succeeding ones.

Personally, the term “energy security” is difficult to define. “Secure” from what? Does the concept pertain to physical threats to power supply or exposure to global prices? What sector are we referring to– transport or electricity? Does energy security pertain to the ability of power utilities to weather economic uncertainties?

Long before the COVID-19 pandemic, the Philippines was already exposed to various risks.

For one, more than 80 percent of our coal is sourced from Indonesia. And at the start of the pandemic, I was worried that our supply from our neighbor could be affected by border closures and hampered supply chain and logistics.

There’s also the big percentage of tariffs on energy regardless of whether they are electricity or fuel that are affected by global supply and prices. These risks are shouldered by consumers.

Let me start tackling energy security in the Philippines by discussing high power rates.

It’s no secret that the Philippines has one of the highest power prices not only in Southeast Asia but also around the world. A report by the Institute for Energy Economics and Financial Analysis (IEEFA) noted that our power rates are higher by Php10 per kilowatt-hour (kWh) when compared to global standards.

The report entitled “Prospects Improve for Energy Transition in the Philippines” said that our reliance on imported fossil fuel, uncompetitive market structures, and high financing costs are causing the high power rates in the country. The pass-through costs have inflated power prices in the country.

Let me expound on this as I have long been saying that the high power rates in the country can be attributed to our cost recovery mechanism in our tariff setting, our dependence on imported coal, and our energy planners’ penchant for the least-cost method.

Let’s start with the least-cost approach, which has failed to live up to its name. If anything it has driven power rates up.

The least-cost approach compares various technologies and prioritizes the “cheapest” power source to produce. It only looks at the upfront and standalone costs and fails to factor in other considerations such as risks of supply shortage, global price fluctuations, and foreign exchange.

The least-cost method favors traditional power plants as the upfront costs of building them are cheaper than developing renewable sources. However, relying on traditional sources such as coal comes with big risks. For one, they are purchased in dollars, and as we all know, foreign exchange fluctuates. Plus, there’s the risk to its supply. Had Indonesia closed down its borders due to the pandemic, then where would we source coal?

The problem with the least coach approach is exacerbated by our Power Sales Agreements (PSAs), which typically last for 25 years. Our PSAs have pass-through provisions, meaning the foreign exchange and higher fuel prices are passed on to consumers to allow power producers to recover costs. This means that for the next 25 years or as long as the PSAs are valid, the consumers are exposed to volatilities of foreign exchange global price risks. It’s what I have been calling the ‘floating contract.’

I have then argued for a fixed contract, which is possible for renewable energy sources. The consumers pay the same prices for as long as the PSA is valid. It minimizes the exposure and likelihood of consumers paying when the peso is weak or when global fuel and coal prices are up.

Some generation companies have started to offer fixed-price contracts. I am not privy on how these companies hedge the coal price and forex risks, but I can imagine that these companies play on portfolio management, tenor of power sales agreements and over-the-counter hedging instruments to allow them to offer fixed price contracts albeit for a shorter period. This augurs well for consumers in the long-run as they will be paying the same rate for a fixed period rather than shoulder the costs of a weaker peso or higher global prices.

However, let us go back to our energy planners’ penchant for the least-cost method has gotten consumers into trouble. Just take this pandemic as an example.

Another study by the IEEFA entitled “Philippines Power Sector Can Reach Resilience by 2021″ revealed the weaknesses of the Philippine Energy sector. It noted that the country’s dependence on large scale fossil plants with guaranteed contracts have resulted in grid inflexibility and price instability

Coal plants are inherently inflexible. And so as the pandemic depressed the power demand, fossil fuel plants turned to their mid-merit load factors, which are more costly to run, increasing the cost per kilowatt-hour. This is allowed as the PSAs have cost recovery mechanisms of coal plants that in the words of IEEFA are “designed to ensure IPPs can recover their capital costs and repay their loans on a timely basis. This means that neither the financial sector nor the power sector is liable for the risk they take, as these are passed on to end-users who are ill-equipped to manage such risk.”

Sadly, 80 percent of our caseload coal plants are inflexible.

Again, our reliance on coal, penchant for the faulty appreciation of the least-cost method, and our pass-on provisions are causing consumers to pay more than what they should. All these have caused price instability. Our regulations allowing pass-on costs to consumers are a disservice to the Filipinos. I am happy to note, however, that there are now concrete plans to put up new gas-fired generation plants. Adding gas-fired power plants will allow the entry of more intermittent renewable energy projects. This, partly addresses some of the issues causing high power rates.

Aside from batting for more fixed-price contracts, we should also push the government to order the immediate development of indigenous sources along with making changes to procurement rules. The Energy Regulatory Commission (ERC) does not differentiate imported energy from indigenous ones. 

The commission should require distribution utilities during procurement to testify that either there are zero offers from indigenous power producers or there are no available indigenous resources in their franchise area.

When we talk about energy security, particularly energy prices then we should look at how favoring the least-cost approach has led us into more trouble. IEEFA in its report said it best “Power sector planners assumed that a large system lock-in such as coal would lead to the least-cost system. Unfortunately, this lock-in for countries that import coal has led to inflexibility, price instability, and high prices.”

Additionality: A Concept Often Overlooked in Local Geothermal Energy Development

Photo c/o https://climatographer.com/

The term “additionality” is often used in the climate change space, pertaining to when greenhouse gas projects’ impact exceeds their initial targets.

Cambridge Dictionary defines the word “additionality” in two ways.

In an environmental context, additionality according to the Cambridge dictionary is when there is “the reduction in the amount of carbon dioxide gas released into the environment that happens only as a result of trading carbon credits.”

The Dictionary’s other definition is finance-related, with additionality being described as “the situation in which a government or organization is able to get money from another government or organization especially the European Union, only if it pays for most of the project itself.”

The Organisation for Economic Co-operation and Development (OECD) has identified three kinds of additionality in impact investing, namely financial additionality, value additionality, and development additionality. It is financial additionality that I would like to focus on in discussing the problems in our local renewable energy development

According to the OECD, financial additionality “describes a private-sector investment that otherwise would not have happened.”

Energy consultancy group in the Asia Pacific, Lantau Group has a simplified definition, describing the term additionality as “when someone takes an otherwise non-viable project and makes it happen anyway.”

We can take the concept of additionality and apply it to our local geothermal energy development conundrum.

Local geothermal energy development has been stagnant as very few private entities are willing to undertake exploration risks. Previously, the government shouldered the cost of the preliminary surveys of geothermal areas. Those days are gone now since after the passage of the Electric Power Reform Act or EPIRA, geothermal power exploration and development are left entirely to the private sector. The exploration costs are assumed by the private developer. So, we can say that private firms offer financial additionality when they embark on geothermal exploration and eventually development.

The Lantau Group stresses that additionality implies a premium, and “is clearly a requirement of the economic concept of making something happen that would not otherwise have happened. “

The research group further added that risk is an important element of additionality as investors typically spot an opportunity that looks attractive in current market conditions “but if that value proposition is incomplete or could deteriorate in the future, the investor has to consider risk.”

And there lies the problem with our renewable energy projects, particularly geothermal energy development. Unfortunately, our regulators fail to realize that additionality is about premium. Local regulators have such little appreciation of the risks being assumed by private geothermal developers. This can be seen in our current tariff setting.

I have discussed this lack of appreciation in a previous post. To recap, our tariff setting uses the Beta in computing for the cost of the equity under the Capital Asset Pricing Model or CAPM. The Beta determines the return on equity for any project.

Given the risks being assumed by the private sector in geothermal energy development, one would think that Energy Regulatory Commission (ERC) would offer a premium for the risks of geothermal energy development. Sadly, our ERC uses the same Beta across all power projects, failing to consider the risk profile of each power plant project. The CAPM is being incorrectly applied in our tariff setting.

So, as with the concept of additionality, why should investors put their money into developing geothermal resources when there is no premium to make something happen that would not otherwise happen? Geothermal greenfield exploration costs a lot of money. And one study done by the International Finance Corporation some years back showed that worldwide, only 60 percent of the explored holes turned out to be successful.

It’s clearly easy to see why investors are shying away from geothermal energy development as they are assuming high risks of exploration but won’t be properly compensated for assuming those risks. Again, for investors, a premium is needed to make something happen that would not otherwise have happened.

Revisiting the problems in geothermal energy development in the Philippines is not just timely but also necessary. For one, we are now experiencing rotational brownouts as of this writing given the lack of supply as more people turn on their cooling device this hot season.

For the entire first week of June, red and yellow alert statuses were raised on the Luzon grid. The grid operator was projecting a power supply deficiency of around 201 megawatts. The long-term solution, National Grid Corporation of the Philippines (NGCP) says is to add to the current power supply as demand continues to rise.

The NGCP has warned us of an impending power supply shortage in Luzon as early as March saying that operating margins were forecast to be thin from April to August this year. The grid operator called on policymakers and power industry players to address the impending shortage.

It was a warning that was downplayed by the Department of Energy (DOE) claiming that supply and demand projections don’t indicate any possibility of a red alert, although the Energy Secretary did admit in a Senate Energy Committee that a power generating capacity supply shortage does exist.

The current power supply and demand situation highlight the Philippines’ problem with energy security, particularly energy power supply problems.

More so, since there has been a moratorium on new coal power plants. Banning new coal-fired plants is a step in the right direction but without proper planning, the moratorium also leaves the country in a more vulnerable position. We are left with very limited options for baseload power plants, namely diesel, gas, and geothermal.

Geothermal power can act as a baseload plant, which is why it’s a great substitute for traditional sources of power. We can use geothermal to replace coal-fired plants.

Plus, new geothermal technologies are emerging. For example, there’s Google’s partnership with Fervo and Dandelion energy.

Fervo is developing the world’s next geothermal project, which will offer an “always-on” carbon-free resource. The company is working on how to use advanced drilling, analytics techniques, fibre-optic sensing, artificial intelligence and machine learning. Fervo aims to use AI and machine learning so the geothermal plants are more effective in responding to energy demands while fiber-optic cables can collect real-time data on temperature and flow of the geothermal resources so the best existing geothermal resources can be identified.

As for Dandelion, it’s making home geothermal heating more accessible. So far, the firm has installed hundreds of geothermal heating sites in New York and is currently improving its drilling technology to make residential drilling and heat pump installation easier and also more competitive with the current fossil fuels.

All these new technologies and developments in geothermal energy development should bode well for us as the Philippines have massive geothermal energy sources. Addressing the challenges hindering the growth of geothermal energy development in the country swiftly will go a long way in providing more baseload power and more alternatives for the consumers.

Thus, it’s important for us to review the concept of additionality and how our failure to provide investors with a premium is keeping us from using other sources of power for baseload. Our regulators need to incentivize investors. The government can no longer engage in exploration and development so it’s up to the private sector to make something happen that would not otherwise have happened or simply put help make more geothermal power more available.

Revisiting the Role of Battery Storage in Renewable Energy Development

According to the annual report of the International Renewable Energy Agency (IRENA) entitled “Renewable Capacity Statistics 2021” more than 80 percent of all new electricity capacity added in 2020 was renewable. In contrast, total fossil fuel additions fell to 60 GW fin 2020 for the 64 GW recorded in 2019, which as the report noted stresses the continued downtrend of fossil fuel expansion.

IRENA Director-General Francesco La Camera says that “2020 marks the start of the decade of renewables” since costs continuously falling, and clean tech markets are growing. It’s an unstoppable trend but more needs to be done if the world is to achieve the Paris Agreement goals of bringing C02 emissions close to zero by 2050.”

Another IRENA report entitled “World Energy Transitions Outlook” says the world needs more technology and innovation to advance the energy transition. The world will have to increase investments in the energy transition by 30 percent to a total of $131 trillion from now to 2050

It’s a conclusion that Morroo Shino president and CEO of Marubeni Asian Power echoes. The head of the Japan-based independent power producer sees two categories that will accelerate our shift from fossil fuels to sustainable, clean power. The first category is investments in proven technologies like wind, solar, and energy storage. The second is increasing investments in rolling out new technologies that can help overcome current challenges in RE development such as solutions for baseload power.

Indeed, more investments are needed to store renewables as only geothermal energy can act as a baseload plant. Energy storage plays a crucial role in our electricity grid and will pave the way for increased renewable energy generation.

Let us keep in mind that most electricity grids virtually have no storage capabilities. In the Philippines, we have the most mature and common storage facilities, that is pumped hydropower, where two reservoirs with different elevations can store extra power. The Kalayaan pump is an example, except it was not originally intended to store renewable energy and presently provides ancillary services to the system.

Recently, San Miguel Corporation’s power arm, SMC Global Power Holdings Corp announced that it will be spending more than a billion dollars to build new battery energy storage facilities with a rated capacity of 1,000 megawatts (MW). SMC said that 31 new battery energy storage units are already underway with some storage facilities already in the advanced stages of completion.

SMC Global Power is building battery energy storage facilities to help address power quality issues. Photo c/o https://www.sanmiguel.com.ph/

The company said that the immediate goal of building the facilities is to address power quality issues as the projects will be used as a regulation reserve ancillary service by our grid operator, National Grid Corporation of the Philippines (NGCP).

Having more battery energy storage systems (BESS) bodes well for the Philippines. BESS stores energy during off-peak times while the battery supplies power during peak periods, thus providing frequency regulation and voltage control to the power system. This is over and above its use as a generation resource. Because of its nature, it can provide energy at 100% capacity factor. Think of your mobile phones – even if the charge goes down, it still delivers the same energy and capacity. Of course, eventually, you will need to recharge the battery of your phone.  This is the same what happens when batteries provide energy to the grid.

BESS is also the optimum solution to problems of storing energy from renewable sources as it can also discharge when more power is needed in central, de-central, and off-grid situations. It is exceptionally useful for our faraway provinces or off-grid areas.

Plus, battery energy storage also reduces the need for both peak generation capacity and transmission and distribution capacity upgrades. It also lowers greenhouse gas emissions.

Those are just the operational benefits of a battery energy storage system. There are also social and economic benefits to be gained. For one, the ability to shift demand to off-peak results in energy bill saving and reduces the need for dispatching expensive peaking generators during peak time. There are significant savings on fuel bills In hybrid systems where diesel generating sets operate alongside BESS and renewable energy.

And more importantly, in renewable energy, battery energy storage systems address the challenges of dealing with the intermittency of renewables. In the words of ADB senior energy specialist Atsumasa Sakai,“Mega battery energy storage systems are one technology that holds significant promise for increasing the share of renewable energy available for the grid, and for energy consumers.”

Unfortunately, we lack ancillary services in the Philippines. Data from the Department of Energy (DOE) shows that a total of 2,604 MW have been identified as required ancillary service but to date only 727 MW are deemed confirmed ancillary services.

NGCP in a recent senate hearing admitted that the grid operator could not contract firm AS reserves due to the lack of available capacity. So, SMC’s foray in BESS is beneficial in closing the gap between our grid’s needed ancillary services and available capacity in the market.

It would also be helpful if we have independent platform for ancillary services. One that’s transparent and inclusive, meaning a platform that includes all ancillary services as long as they meet safety and security requirements. NGCP had plans of having its own ancillary procurement platform but it yet has to push through.

BESS has so much to offer us both on renewable energy development and the economic and operational side. But as experts have been saying, when it comes to renewable energy development, more support is needed in the policy framework. In the case of battery energy storage, much like other developing countries, we need to adopt laws and regulations that would encourage market players to provide ancillary services, or specifically a transparent procurement platform.

All Is Not Lost

The world was on its way to massive energy transitions before the pandemic came. Governments were announcing ambitious clean energy targets and banks were shying away from funding coal projects. Big businesses, too were flexing their muscles, announcing 100 percent renewable energy targets to be met in the next few decades.

However, the COVID-19 pandemic, one of the major shocks in major history, happened. It caused disruptions in every business, mobility, and everyday life. This pandemic also caused the most severe economic recession since World War II.

As the world grapples with the effects of the COVID-19 pandemic, has all been lost when it comes to clean energy transition? Are governments less keen on keeping up with their clean energy goals and Paris Agreement targets?

Not all bets are off said Boston Consulting Group (BGC) Center for Energy Impact. COVID-19 may have changed the economic calculus of many governments but these could bode well for renewable energy development.

The consulting group studied how regions around the world are adopting evolving stimulus measures that are altering energy transition plans. The study noted that Europe’s clean energy shift is likely to move forward while some hard-hit countries in South Asia, Africa, and Latin America’s ability to promote energy transitions are severely constrained. It also said that the adoption of renewable and electrification of transport in Northeast and Southeast Asia are likely to increase.

BGC said some countries are pushing forward with their clean energy plans as they have suffered less adverse health and economic impacts from COVID-19. Many leading Asian economies such as Singapore, Malaysia, China, Japan, and South Korea are in a good position to make substantial energy infrastructure-related investments required to make the energy transitions. These countries, after all, are likely to gain the most by aggressively investing in renewable energy generation. These Asian countries have also adopted policy reforms and stimulus measures aimed at increasing industrial competitiveness.

BGC also looked back at history to determine how governments’ responses to economic recessions influence the energy sector’s trajectory.

Back in the global recession of 2007 to 2009, various governments implemented green stimulus programs justifying such moves by saying that a greater commitment to renewable energy development could jolt economic development and offer long-term competitive benefits. 

Green energy policy measures back then were not entirely brought about by climate change concerns. The Paris Agreement did not exist back then. BGC stressed that the European Union and the United States governments directed stimulus spending towards renewables to generate new installation, domestic construction, and manufacturing jobs.

Governments too can bank on renewable energy development to drive economic activities during this pandemic. A report by the International Renewable Energy Agency (IRENA) released last year showed that accelerating investments in renewable energy can help economies recover as they can spur the global gross domestic product (GDP) by almost $98 billion between 2020 and 2050. Renewable energy development can also quadruple the number of jobs over the next three decades.

BGC recognized in its report that the COVID-19 pandemic and the economic recession that comes with it are quite different from the 2007 to 2009 global recession. The collapse of the economy back then required governments to stimulate and sustain new economic activity while the present recession is forcing governments to allot more resources to combat the health crisis while minimizing the impacts of unprecedented short-term employment. Governments are more focused on keeping the economy afloat given their smaller tax revenues and higher spending, rather than jump-starting new economic activity.

In the Philippines, we can expect a much slower energy transition. Aside from the fact that the government’s lukewarm reception to renewable energy before the pandemic, the Philippines also has trouble getting back to its feet economically speaking. As I write this, we are on the fifth week of the enhanced community quarantine or ECQ part 2. The recent jobs report also showed that 4.2 million Filipinos lost their jobs while 7.9 million took pay cuts in February alone. 

According to BGC, “the worse a country is affected by the pandemic, the less likely its government and businesses are to be able to focus on materially altering its energy infrastructure.” It added that energy transitions require a stable economic and social environment to pour substantial investments in energy infrastructure. As the Philippines is badly affected by the pandemic, our country’s clean energy transition will probably be slower.

But this is not to say that the Philippines is in a hopeless situation regarding the clean energy transition. There has been good news last year, after all.

For one, the Department of Energy (DOE) implemented a moratorium on the approval of new coal contracts. It was a move that surprised many as the DOE previously rigorously defended its technology-neutral stand. 

Second, Yuchengco-led Rizal Commercial Banking Corporation surprisingly declared that it would stop funding local coal-fired power projects, following the footsteps of international banks like US third-biggest bank, Citigroup, Sumitomo Mitsui Banking Corporation of Japan, South Africa’s ABSA bank, and Mizuho Financial Group. Such a bold move deserves the country’s gratitude for pioneering this much needed change in our energy landscape.

The Philippines, however, has to make some policy adjustments to attract low-cost funding for renewable energy development. As I have been saying, requiring a higher level of fixed-price contracts is long overdue. Likewise, I have been advocating for a portfolio approach to energy planning so that the tariffs are also based on this portfolio approach.

I’m not alone in these assertions. A study by S&P Global entitled, “How is COVID-19 Impacting the Energy Transition” noted that global investment appetite for green energy remains strong but sustaining appetites requires either fixed-price auctions or long-term visibility in terms of power price agreements. As I have always argued in the last, fixed price contracts will lead to lower power rates for the man on the street.

The Philippines has so much to gain in shifting to renewables swiftly. Even before the pandemic, our government was aiming to become an upper-middle-income country status by 2022. Sustaining economic growth will require more electricity, and local electricity demand is seen to increase by an average of 6.7% annually.

Plus, we need energy security. This pandemic should teach us that it is necessary to end our reliance on imported fossil fuel to power our nation. Just imagine the devastating effect had Indonesia closed its borders and decided to stop exports of its coal. Thankfully, it didn’t happen, but by now we should be working on ensuring our local energy supply.

And experts after experts predict that it would be cheaper to build renewable energy plans than continue the use of existing coal-fired plants, which eventually would become stranded assets.

We are facing monumental challenges in the Philippines as the coronavirus continues to claim lives and cause havoc in our economy. But hopefully, we continue our quest for a faster clean energy transition as more renewables will help us in our economic recovery and ensure energy security. As they say, we need to build back better.

A Stronger Case for Distributed Energy

Apart from disaster resilience, the country will do well in welcoming more distributed energy systems because of other benefits. Photo c/o http://www.advisian.com

Time and time again, thousands of Filipinos are left in the darkness after destructive typhoons hit us.

Just a few weeks ago, Tropical Depression Auring left some residents of Surigao del Norte and Davao Oriental without electricity although the outages didn’t last that long. Auring, after all, was merely classified as a Tropical Depression and didn’t wreck as much havoc as the three typhoons that we experienced last year.

In the last quarter of 2020, Typhoon Quinta, Super Typhoon Rolly, and Typhoon Ulysses battered the country, leaving massive destruction and causing major power outages. The Bicol Region suffered a total power blackout due to these typhoons. 

According to the National Electrification Administration (NEA), the country suffered some Php500 million worth of damages to the utility system because of these three typhoons.

It’s a given that the Philippines will always suffer from catastrophic typhoons given its location. On average, the country is visited by at least 20 typhoons annually, five of which are destructive. We can’t change our location but we can invest in resiliency measures.

 For the Energy Sector, this means revisiting our energy systems, and reinvesting in distributed energy and smart grids

As I have mentioned in a previous post, many countries are already moving away from traditional central power production and are moving toward distributed energy production. The Philippines must follow suit as distributed energy will bring many benefits to Filipinos.

Disaster resilience is one benefit. Our current centralized systems require power lines spanning long distances, which proves detrimental for us when natural disasters happen. Damage to a single line can leave thousands without electricity, which is why it’s hard to restore power immediately. Power distributors, cooperatives, and the transmission company will first have to assess which lines are damaged and affected. Only then can linemen start physically restoring power. Power restoration after a calamity is risky and sometimes results in the deaths of some linemen.

Apart from disaster resilience, the country will do well in welcoming more distributed energy systems because of other benefits.

A recent study in the United States conducted by Vibrant Clean Energy found out that investing in local solar and wind energy, storage, and distributed energy technologies can save the US some $473 billion in power bills from now and year 2050. This amount of savings the research said is feasible if the US invests heavily and uses solar and wind power and distributed energy to power businesses, farms, homes, and schools.

The research also revealed that investments in distributed energy and other technologies that can power 25 percent of US homes are the most efficient way of meeting the country’s climate goals while generating 2 million jobs along the way. And as I have discussed above distributed energy can also help boost the resilience of communities that are dealing with wildly variant weather patterns.

Speaking of farms renewables and distributed energy can also help our agricultural sector.

Recently the Department of Agriculture (DA) and the Department of Energy (DOE) announced that they will jointly undertake pilot renewable energy (RE) projects for the agriculture and fishery sectors in strategic areas of the country. The goal is to promote the use of clean energy in boosting food security. 

Some of the pilot RE projects will include off-grid electrification in corn, rice, and sugar cane farms and the use of solar-powered systems for aquaponics, hydroponics, crop irrigation, and poultry egg incubators and hatchers. The pilot projects will help jumpstart the Renewable Energy Program for the Agriculture and Fishery Sector (REPAFS).

The REPAFS will eventually serve as the blueprint for efficiently and effectively integrating renewables in the agriculture and fishery sector to enhance productivity and ensure sustainability and environmental protection.

The REPAFs will benefit from distributed energy and renewables. Areas that heavily rely on variable energy resources such as wind and solar are better off investing in distributed energy systems as renewable power can be deployed to help balance the grid and improve system reliability.

In this regard we are looking at off-grid solar with battery solutions to be implemented in such areas. One system we are seriously looking into will allow almost a 24-hour electrical source to power  a TV, radio, and a set of lights. And the system will cost below what it currently costs NPC to provide electricity to SPUG areas. We are also exploring collaboration with Land Bank of the Philippines (LBP) to provide the financing needed for the farmers and fishermen.

Distributed energy can also help power rates become more affordable as consumers can sell back power to the grid or receive compensation for allowing the use of their storage systems to help stabilize the grid.

Plus, distributed generation can help breakdown monopolies in power distribution. A study by the Massachusetts Institute of Technology (MIT) entitled, “Utility of the Future” noted that present electricity distribution systems create a natural monopoly as regulators tend to be clueless about the distribution utilities’ managerial inefficiencies and costs. This in turn allows DUs to justify their higher operating and convince regulators to pass the additional costs to consumers.

Distributed energy systems work differently as they bank on other advanced technologies such as advanced metering, energy management systems, and dynamic-based pricing, all of which offer more transparency on pricing.

The transmission and distribution businesses were once conceded as natural monopolies, but technological changes proved that transmission and distribution need not be dominated by a single or few players. 

The transmission and distribution businesses were once conceded as natural monopolies, but technological changes proved that transmission and distribution need not be dominated by a single or few players. Around the world, the energy sector is undergoing massive changes given the many technological advancements and the need to address climate change. It’s high time the Philippines joins other countries that are moving away from centralized distribution as Filipinos will benefit more from distributed energy.

ONE YEAR LOCKDOWN: WHAT I HAVE LEARNED

As we saunter into the second year of what may be another year of lockdowns, albeit, in varying degrees, I am compelled to share with you my friends, what I have learned this past year. What seemed to be a broad spectrum in our lives pre-COVID 19 suddenly became very narrow, concrete activities in our daily lives. In fact, for many of us, we lost a very vital aspect in our lives: livelihood. The loss of ability to provide for one’s family is so devastating that it leads one to think: can I make it through? Where can I find help…

Pope Francis in his encyclical, Fratelli Tutti, said it well when he pointed out that “the storm has exposed our vulnerability and uncovered those false and superfluous certainties around which we constructed our daily schedules, our projects, our habits, and priorities .” This hit me most especially because in my attempt to protect that ability to maintain a livelihood, a livelihood that also ensured the livelihood of many, I found there were activities I was engaged in that only led to false and useless ends.

Today, although certainly in a tighter bind than pre-COVID 19 financially, my life is, I believe, in better order. Of course, worries about the uncertainty of the future stare at my face every day. But this pandemic has taught me how to put these worries in context. One can sublimate these worries in human and supernatural terms. There are worries about the vulnerability of one’s health, especially now we are senior citizens. Again, as long as we are prudent in following health protocols and have a healthy attitude towards the inevitability of death, we should be able to sleep soundly at night. My Apple Watch tells me I sleep on the average 7-8 hours every night with 4-5 hours of deep sleep.

So what have I learned?

1. Family Matters: It is Our Basic Social Unit

As obvious as it seems, this was a fact that dawned on me a month after the lockdown started in 2020. In the beginning, everyone thought that the lockdown will be for 30 days. So, I took it for granted that my entire family — down to my grandsons — were with me when the government first announced the lockdown period last March 15, 2020.

However, as the days went into months, and now the months may turn out to be a year, I feel really blessed to have been locked down with my entire family. I found out it is not healthy to be alone. Man, psychologically and physiologically, needs to have that face-to-face contact that is currently being restricted by the pandemic.

This pandemic has taught us that it’s not our officemates who will ultimately determine our surviving this pandemic. It’s not our drinking buddies, and it’s not even our business partners.

This pandemic has made my resolve to protect the family as our primary social unit even more vital. While our constitution protects this basic concept, there are attempts these days to redefine what “family” means. For those surviving this pandemic, there is no other way to define what “family” means — a mother, father, children, and grandchildren.

2. Social Interaction with Friends and Colleagues Matters

Over this last year, I lost 15 friends to COVID-19. Except for one to whom I could send a taped message even when he was intubated, I was never able to visit or talk to the others. I am told of the solitude of those who die from the disease. I am informed of the pain they suffer alone without being able to feel the touch of a loved one or hear the consoling whisper from a spouse, child, or even just a friend.

This is why I feel it is essential to reach out to friends and colleagues. I have regular chats with friends, former classmates. We have no particular agenda, just sharing experiences and reminiscing our past. Of course, we do have regular “ZOOM” meetings with our business colleagues, but just being able to talk will surely help.

You and I, we are all suffering in the strictest sense of the word. Suffering because we cannot do what a normal human being, a social animal, a social being, was designed to do. Therefore, we should reach out to whoever we can. This will help our mental and physical health.

3. Physical and Mental Health Matters

We are lucky to live in a gated community that eventually allowed its residents to use the subdivision roads to walk, run, or simply exercise. Otherwise, we would have been relegated to a small gym and just our room. As the doctors recommend Vitamin D to get from the sun, a year without the sun would have been disastrous. While this may be an exaggeration, one gets the drift.

Regular exercises have kept my body active daily. It’s a daily mental struggle to go out and sweat. The Activity app of my Apple Watch helps, of course. The challenge is finding variety in the activities that I do. After running throughout the village, I often itch to go out of the subdivision and run the way I used to run — in faraway places like the UP oval!

While watching Netflix or Apple TV+ can tend to be addicting, with some self-control, this activity helps balance off my day. I tend to watch crime whodunit series– it makes my brain work, and documentaries to find out more about events and people worldwide.

I have grabbed a couple of books from my library of never-read books. I do not know, but I had this habit of buying books that I never ended up reading at all. This pandemic has forced the issue — what else is there to read except the books I never read?

4. Wine and Music Matters

Some wine and music at the end of the day have kept the doldrums out of our lives this past year. Whether it’s just Joy and me or with the kids, we find every reason to sit back and listen to a Diana Krall or some excellent soothing jazz album. It’s that time of day when she and I can either just throw out nonsense at each other, like daydreaming of traveling soon or seriously talking about our future.

We would sit in different parts of the house to mimic the “tapas crawl” we miss. While enjoying a bottle of Ribera del Duero, we would put on a Bebo and Cigala album to bring us back when we were strolling along the Plaza Mayor of Salamanca. Or maybe a bottle of Chablis or Pouilly-Fumé that can invoke those nostalgic memories. We talk of the times we would walk along the Seine to go to Robert e Louis, a traditional restaurant in 64 rue Vieille du Temple, in Paris.

For the music, I can stream from Qobuz, Tidal, Spotify, or Apple Music. As a platform, I can stream through Roon, Sonos, or Apple Homepods. So between those apps and speakers, my music choices are almost limitless.

I limit myself to classical music as background to my working time: Bach, Mozart, and Chopin are my favorites. I often leave the easy track and dabble with Rachmaninoff, Dvorak, and Tchaikovsky. Then try some unknown composer to test my mental ability to focus on whatever it is I am working on.

As for jazz, I start off late in the afternoon with vocal jazz, then progress into heavier bebop as the night gets late. Often I would go for Bossa Nova. Sometimes I jump into completely unknown artists suggested only by the AI of my streaming apps.

Finally, I have gone back to my guitar playing, and I have learned to play the piano again. All these help me keep a balance during these days of the pandemic. Indeed, music and wine are the two elements of life that translate into the soul’s language. As one writer puts it, “sipping wine while listening to music can be an intense experience that fills our hearts and tickles our minds.”

5. Spiritual Health Matters

From almost the first day of the lockdown, our family started to pray the Holy Rosary every evening. One of the more painful realities of this daily routine is we literally witnessed the demise of the stalwart of the family. As the pandemic days wore on, his ability to pray with us became increasingly difficult for him until we lost him last August. However, as a family, we are grateful that he was with us in prayer until he breathed his last.

This is why during this pandemic, our spiritual life is the most essential aspect of our existence. I have realized that nothing on this earth worth anything. Our branded shoes, our expensive cars, our jewelry, all our wealth, all these mean nothing in the face of this pandemic. When COVID-19 hits you, you die, and you die alone without any strapping of your wealth.

This pandemic and lockdown have allowed us to hear Mass every day. As one writer puts it, the Holy Mass is heaven here on earth. Scott Hahn, in his book “The Lamb’s Supper,” points out the passage from Vatican II that made him realize that in the Holy Mass, we are all in heaven:

“In the earthly liturgy, we share in a foretaste of that heavenly liturgy which is celebrated in the Holy City of Jerusalem toward which we journey as pilgrims, where Christ is sitting at the right hand of God, Minister of the sanctuary and of the true tabernacle. With all the warriors of the heavenly army, we sing a hymn of glory to the Lord. (no. 1090).”

We usually go to the online Mass of the Manaoag Minor Basilica. We alternate this with the noon mass of the Manila Cathedral. In the whole year of the lockdown, we only received Holy Communion once, Ash Wednesday, and just because it was in our village chapel. I was able to go to Confession twice. This is one Sacrament the Church has not allowed to be online.

It has also given me time to do daily spiritual readings and mediation. All these have made me realize that God’s command to “love other as I love you” is a challenging task to accomplish. Given the misery surrounding us, it has compelled us to walk an extra mile in being merciful and compassionate to those around us. At the same time, this mercy and this compassion are precisely the blame that soothes our aching bodies, our tired minds, and our listless souls.

One year has passed, and while the vaccines are here, the end is still uncertain. However, these five lessons I’ve been taught by the pandemic are lessons I will pass on to my 3 grandsons: Emilio, Andres, and Alfonso. In passing on these nuggets of wisdom to the young, I remember again what Pope Francis said in his Encyclical Fratelli Tutti:

“If someone tells young people to ignore their history, to reject the experiences of their elders, to look down on the past and to look forward to a future that he himself holds out, doesn’t it then become easy to draw them along so that they only do what he tells them? He needs the young to be shallow, uprooted and distrustful, so that they can trust only in his promises and act according to his plans. That is how various ideologies operate: they destroy (or deconstruct) all differences so that they can reign unopposed. To do so, however, they need young people who have no use for history, who spurn the spiritual and human riches inherited from past generations, and are ignorant of everything that came before them.”

God bless us all.

What 2020 Taught Us

Image c/o https://www.sdmmag.com/


To say that the year 2020 was tough is an understatement. But the COVID-19 pandemic along with natural disasters we experienced in the Philippines in the last quarter of the year, have taught as many valuable lessons.

For one, the community quarantine imposed by the government exposed the vulnerabilities of the energy sector. 

The report by the Institute For Energy Economics and Financial Analysis (IEFAA) showed the downside of our inflexible coal baseload plants and long-term guaranteed contracts. 

The study entitled “Philippines Power Sector Can Reach Resilience by 2021” noted that the depressed demand for power due to the lockdown forced coal plants to turn to mid-merit load factor. This in turn increased the power cost per kilowatt-hour. The pass-on provisions of our Power Sales Agreements (PSA) that allow cost recovery for the independent power producers ensured that the higher costs are shouldered by consumers.

Our penchant for large volumes of baseload capacity running on imported fuel did not bode well for us given that 80% of baseload coal plants are inflexible. This means that fuel and other variable expenses in running power plants remained flat regardless of power demand. We may have experienced a depressed demand during the Enhanced Community Quarantine but plants had to run at their minimum operating levels.

The study, released in June, estimated that power consumers could be paying PHP9.679 billion more in power rates if energy sales volume decline by 10% in 2020. 

These illustrate what I have been pointing out as the downside of not having fixed-price contracts and our over-reliance on coal-fired plants. This pandemic served as a wake-up call to fix the problems of the sector for the benefit of consumers

On top of the prolonged lockdown and the ensuing community quarantines, the Filipinos unfortunately also had to deal with natural disasters in the last quarter of 2020. Typhoon Goni, referred to as Super Typhoon Rolly in the Philippines, caused heavy rainfall, landslides, and flooding in Luzon. The super typhoon, considered the strongest landfalling typhoon in the world for 2020 left massive destruction in Luzon especially in Albay, Catanduanes, Camarines Sur, and Quezon. 

Estimates showed that Super typhoon Rolly’s damage to infrastructure reached Php 11.3 billion, causing massive livelihood loss as battered areas rely heavily on the agriculture sector.

As if that wasn’t enough, less than two weeks after Rolly’s devastation, the Philippines was once again battered by Typhoon Vamco. Locally known as Ulysses, this typhoon triggered extensive flooding in many areas like Metro Manila, Rizal, Cagayan Valley and Isabella. Estimates show that its damages are around Php 20 billion, surpassing the damages caused by Typhoon Rolly.

These two typhoons are not the only ones to hit the country last quarter of the year. There were five in total in October and November, costing the Philippine economy Php90 billion in lost output. Plus, there was tropical depression Krovanh, or locally known as Vicky, which claimed lives and caused floods in some parts of CARAGA region just before Christmas.

These weather disturbances are due to the undeniable climate crisis. Our country, unfortunately, is among those most affected by natural disasters exacerbated by climate change, despite our meager contribution to the world’s carbon footprint.

Thus, it is imperative for us to also move fast in implementing effective mitigation. The wide adoption of renewable energy is one of the most effective climate change mitigation actions.

In the words of Finance Secretary Sonny Dominguez, “Severe weather events inflict human, social, and economic costs on the Filipino people. We lose billions every year in damage to crops and infrastructure. These mounting losses dampen our overall economic progress. These costs will continue to accumulate unless we move fast on mitigation measures.”

The need for a swifter shift to more renewable energy use is more emphasized than ever. We may have been survivors of many weather disturbances and natural disasters but this pandemic should fuel action for faster mitigation measures. More so since experts have pointed out that climate change contributes to pandemics. 

We may have experienced some of the worst times, but there are still great lessons and developments to be thankful for.

For one, this pandemic has also accelerated the use of digital technologies locally. 

For example, more payment options now available allow customers to settle bills more conveniently, to avoid crowding in distribution utilities and coops’ offices and there will be more seamless and contactless payment options coming soon. Other technologies soon to be available are contactless meter application and remote reading, activation, and deactivation of power supply, to name a few.

There’s also the announcement of the Department of Energy of the moratorium on approval of new coal contracts. This announcement came as a surprise since the department had been insisting on its technology-neutral stand. 

For years, the Philippines has been lagging in its commitment to shift to renewable energy development. The country may have once been a leader in RE development having passed the RE law, but later failed to advance in renewable energy development.

Following DOE’s announcement is Yuchengco-led Rizal Commercial Banking Corporation (RCBC) surprising declaration that it will stop financing new coal coal-fired power projects in the Philippines. Now RCBC joins the ranks of Citigroup, Mizuho Financial Group, and Japan’s Sumitomo Banking Corporation banks that have already made the same move.

RCBC President and Chief Executive Officer (CEO), Eugene Acevedo made it clear that the bank will shift funding to renewables and gas-fired power facilities. “I’m going to say that moving forward, all our loans for energy projects will be non-coal, it will be 100 percent non-coal.”

It’s a statement that’s highly similar to the strategy of Finance Chief, Sonny Dominguez “Our rule should be simple: projects that are not green and sustainable should not see the light of day.” 

Shying away from financing coal-projects makes financial sense as renewable energy technology prices have been falling in recent years. According to Carbon Tracker, soon it will be cheaper for Southeast Asian countries to build renewable energy plants than continue using existing coal-fired plants. Coal plants run the risk of becoming stranded assets, which eventually will drain resources.

We may have limited control over the many unfortunate events that unfolded this year. But we do have the power to act by learning from them and ensuring that we do things better. Fortunately, recent developments give hope that indeed we are using crises as opportunities to make better policies and programs that are more responsive to modern times.

As We Plan for Economic Recovery

The energy sector should also be overhauled to support government efforts to rebuild the economy. Image c/o http://www.benzinga.com

The COVID-19 pandemic resulted in a global recession. Here in the Philippines, the imposed months-long lockdown caused our economy to contract as much as 16.5 percent in the second quarter of 2020. Economists predict that the Philippine economy will likely experience an 8 percent negative growth for 2020.

Our government is banking on its flagship infrastructure program, “Build, Build, Build” to revive our battered economy. It has allocated P1.1 trillion, equivalent to 5.4 percent of our gross domestic product (GDP) to infrastructure projects in 2021.

For the power sector, this means higher demand for electricity as we as build more roads, bridges, ports, railways stations, and airports.

As we start planning for the Philippines’ economic recovery we should also overhaul our energy sector now so we can support our government’s effort to rebuild our economy. We need to address the short-term and long-term price stability so we can meet the demand for more power at cheaper prices.

The Philippine Peso has been touted as the best performing currency in Asia, strengthening 4% against the United States dollar. We can take advantage of the Peso’s strength by purchasing all imported fuel that’s oil-based or indexed to global prices while the Peso is strong. Let us remember that our fossil fuels are based on the U.S. dollar and indexed to global prices, and we have plenty of power plants that are importing coal and oil.

I have always talked about how a weak peso and increasing fuel costs hurt Filipino consumers because our Purchase Sales Agreements (PSAs) have pass-through provisions in previous posts. Consumers end up paying more for a weaker peso and more expensive imports. But a strong peso against the dollar can be used to our advantage as we can now use them to lower electricity prices for the next few years.

The government can order all power plants to buy all their fuel requirements in advance. Doing so will place a cap at fuel prices at today’s prevailing prices and foreign exchange rates. Power plants can buy years worth of their fossil fuel requirements so they can fix their prices at a rate that’s advantageous for their consumers.

This is a short-term solution. To ensure stable prices in the years ahead, the Department of Energy (DOE) and the Energy Regulatory Commission (ERC) should require a higher level of fixed-price contracts. I’ve been advocating for fixed-priced PSAs since the pass-on provisions always burden the consumers when the peso is weak and the global fossil fuel prices increase.

Likewise, the government can also order the off-takers of the Malampaya gas to purchase either part or all of the remaining gas so the prices of power will be pegged at current prices and present forex rates. The reasons are the same as my first suggestion for buying fuel requirements in advance. After all, the Malampaya gas is also based on prevailing forex and oil prices. 

One might argue that distribution utilities may not have enough funding to import fossil fuels and or purchase the Malampaya gas. However, we have our government banks, Land Bank and Development Bank of the Philippines that can lead a consortium of local banks to help purchase fossil fuels in advance.

Pegging fossil fuels at current global prices and forex rates will directly impact households and micro, small, medium enterprises (MSMEs) as they will be paying less for electricity. This is especially beneficial now as most Filipinos have less money to spend due to the economic recession. Taking away uncertainty is always a good option – it is valuable.

And to ensure long-term stable energy prices, our government should allow competition at the power distribution level. We have the Electric Power Industry Reform Act or EPIRA but there’s little competition still. In the past we thought that the wires business is a “natural” monopoly.  Latest developments in technology is showing that it ism not.  There are even non-wire alternatives (NWA) to power distribution.

 Currently, the the thinking is that two or more franchise holders for the same area is harmful. This policy, however, results in a monopoly, which does not benefit consumers. A monopoly doesn’t give the franchise holder any incentive to constantly innovate and improve its services.  Allowing more players will push utility companies to provide better services at cheaper rates to consumers. There are ways to improve the service to consumers through competition.

A clear definition of a load profile will also benefit us all in the long-run. Currently, our current procurement rules do not result in an efficient deployment of our energy resources because the ERC focuses on individual contracts. Consumers are paying more for power because we are not deploying power cost-effectively.

Coal-fired power, which is best used for baseload power is also being used for mid-merit power, thus whatever cost advantage of coal goes away. This happens because current procurement rules do not require ECs or DUS to differentiate the different power requirements. We need to define a load profile and regulate the appropriate levels of baseload, mid-merit, and peaking. The DOE and ERC can work on the limits and ensure that these are reflected in PSAs. The ERC should reject contracts that fall outside these limits. The recent announcement of DOE that there will be a moratorium in the issuance of permits for coal-firepower plants is a step in the right direction.

Reviving our economy requires the cooperation of all. For the power sector, this means ensuring sustainable and affordable electricity. More so since according to the Philippine Energy Plan 2018 to 2040 draft, local electricity demand is set to increase by an average of 6.7% annually. We can only meet this demand while making power rates cheaper by fixing the ills of our sector now.

Energy Transformation is What We Need

Sydney is powered by 100% renewable energy. Photo c/o https://www.energymatters.com

There’s been some good news on the renewable energy sector in recent months.

For one,  the City of Sydney, the biggest city in Australia, recently announced that is now powered by 100% renewable energy. This means that all public operations such as sports facilities, street lights, buildings, and the historic town hall in the city that’s home to 250,000 residents are running on clean energy starting July 1. The feat was made possible by a power purchase agreement (PPA) valued at $60 million, saving the city roughly half a million dollars annually over the next 10 years.

 Plus, there’s the United Kingdom (UK), which was able to generate almost half of its power needs from renewables in the first quarter of the year. The UK government data showed that renewable power made up 47% of the country’s electricity in the first three months of the year, breaking the previous set quarterly record of 39% in 2019. The substantial increase in the total renewable output of the UK was primarily driven by growth in power generated by wind farms and solar panels.

And RE sector’s record in the UK is likely to be broken in the coming years with the government’s plan for “a massive expansion of renewables as part of the UK’s green economic recovery” says Rebecca Williams, policy manager of RenwableUK, a non-profit renewable energy trade association.

Meanwhile, in the Philippines, the National Renewable Energy Board (NREB), recently reported that the renewable energy share in the power supply mix keeps on “dwindling.”

In 2015, renewable’s contribution to the supply generation mix was around 25%. RE’s share was even lower for 2016, 2017, and 2018 at 24.21%, 24.57%, and 23.38%, respectively. According to NREB Chairman Monalisa Dimalanta, renewable power’s share in 2019 was even lower at 21%.

In contrast, coal dominated the power mix, recording its highest share in 2018 at 52.05%.

As for the total installed capacity, the Philippines still is far from its target. Dimalanta notes that in 2019, RE capacity was only 5,000 megawatts (MW), more than 10,000 MW short of the 15,304 MW target by 2030.

But perhaps renewables contribution to the Philippines ’ power mix would be better in the following years. Hopefully, the government and the energy planners so engrossed in the faulty appreciation of the least cost method in power planning will finally appreciate what renewable power has to offer.

The COVID-19 has, after all, exposed the vulnerability of our energy sector. For a while, I was worried that Indonesia, the Philippines’ largest source of coal, would close its borders, thus putting our energy source at risk. Even the Energy Secretary has acknowledged that the coronavirus pandemic highlighted the need to ensure energy security by developing our indigenous resources.

Thankfully, the Indonesian government did not close its borders and stop the export of coal. But this pandemic should teach us valuable lessons, pushing us closer to clean energy transition. There’s a strong case for doing so given that experts have been saying that now is the best time to ramp up renewable energy development both locally and around the world.

For example, a policy paper, titled “Can COVID-19 spark an energy transition in the Philippines?” noted that this pandemic has provided an opportunity for the Philippines to pursue the development of more RE source more aggressively given that the lower coal generation due to the drop in power demand. 

The paper penned by Ateneo de Manila University economics department Associate Professor Majah-Leah Ravago and The University of Hawaii, Manoa economics department Professor Emeritus James Roumasset noted that “the rather dramatic fall in coal-fired generation may afford an opportunity for the Philippines to meet their renewable targets without resorting to costly subsidies.” 

The study noted that power demand dropped by 30% nationwide with coal generation decreasing from 56 to 48 %. On the other hand, generated energy from renewables remained the same with biomass and solar power generation rising slightly during our enhanced community quarantine.

Now is the best time, too to invest more in renewable energy projects says the International Renewable Energy Agency (IRENA) in its report “The Post-COVID Recovery.” It noted that the renewable energy sector has proven to be more resilient than other parts of the energy sector given the high shares of renewables continue to operate effectively. “Renewables have proven to be the most resilient energy sources throughout the current crisis. This evidence should allow governments to take immediate investment decisions and policy responses to overcome the crisis,” said Francesco La Camera, Director-General of IRENA.

The IRENA report added that accelerating the energy transition will bring substantial socio-economic benefits, specifically job creation. Aligning immediate stimulus action for the next three years, particularly from 2021 to 2023 and scaling up public and private energy spending to USD 4.5 trillion annually would boost the world economy by an additional 1.3 percent. 

This level of investment would also create 19 million more energy transition-related employment by 2030. Jobs in renewables power would grow to almost 30 million in 2030 from about 12 million in 2017. The study stressed that every one million dollars invested in renewables can provide three times more jobs than in fossil fuels.

I, along with other experts, have been arguing that the COVID-19 pandemic and the economic recession should not deter us from pursuing our clean energy transition goals. Like the experts quoted above, there’s an opportunity and a greater need for us to accelerate our shift to renewable energy.

A fast clean energy transition would reap enormous benefits for all and help in the global economic recovery. It also means ensuring energy security in the Philippines. And in the words of the IRENA President, “Now is the time to invest in a better future. Government policies and investment choices can create the necessary momentum to enact systemic change and deliver the energy transformation away from fossil fuels.”

Will the Power Sector Survive a Recession?

The COVID-19 pandemic is more than just a health crisis. It is also an economic one given that the lockdowns and restrictions have resulted in the loss of jobs and livelihood of people.

In the Philippines, the long enhanced community quarantine (ECQ) paralyzed the economy and caused a sharp economic contraction for the second quarter at 16.5%. According to Acting Secretary of the National Economic Development Authority (NEDA), Karl Kendrick Chua, 8.8 million jobs were lost between January until April “because of the very strict quarantine.” The country’s average unemployment rate in 2020 to date is at 11%, 6% up from the normal 5%.

Unfortunately, it is the masses, the rank-and-file employees, and the micro, small, and medium enterprises (MSMEs) that are particularly affected by the economic recession. A survey from Publicus Asia revealed that 78% of survey respondents said at least a member of their family who earns Php9,500 to Php 19,040,00 per month and 65% of those earning between Php19,040 to Php 38,080 have lost their jobs due to the ECQ.

In terms of businesses, only 22.1% is on full operation according to the Department of Trade and Industry (DTI). Around26% are closed and 52% are only partially operating. Professor Eric Soriano, a World Bank Consultant, in a webinar with the Philippine Chamber of Commerce and Industry (PCCI) said that it is the MSMEs that have been the hardest hit. The MSMEs contribute 40% of the GDP and employ 70% of the workforce.

The magnitude of the job losses and business closures means that many poor and low-income families are having a hard time making ends meet, and have barely enough to eat. With no source of income, how will they afford to pay their utility bills?

In the United States, the report from the National Rural Electric Cooperative Association (NRECA) showed that U.S. electric cooperatives could take a financial hit of approximately $10 billion through 2022. “As GDP growth falls below pre-COVID-19 projections, electric co-op electricity sales are projected to decline,” NRECA noted.

The group said that high rates of utility bill delinquency along with service disconnection moratoria in some states and the surge in unemployment is making it difficult for electric coops to continue providing services. “Lost revenue can severely constrain the ability of certain electric co-ops to meet the needs of their community,” the NRECA said in a letter addressed to lawmakers.

Local utility companies are facing the same challenges. Many utility companies for months now are experiencing a significant drop in their collection rates and surviving with considerably less cashflow. Eventually, these companies will have no option but to discontinue their services for those who cannot pay. So, how will utilities survive?

Perhaps we should look at our government’s response to address the impacts of high unemployment rates and business closure.

The International Labor Organization (ILO), in its policy paper entitled “COVID-19 and the world of work: Impact and policy responses” stressed that epidemics and economic crisis tend to have disproportionate impact on some segments of the population, exacerbating the worsening wealth inequality.

ILO said government policy responses should have two immediate goals: Health protection measures and economic support on both the demand and supply side.

The organization noted that stimulating the economy and labor demand through economic and employment policies to stabilize economic activity, through active fiscal policies and particularly social protection measures is necessary. Governments must protect employment and incomes for enterprises and workers negatively impacted by the indirect effects

Yes, one might argue that we have the Bayanihan To Heal as One Act One signed into law last March that provided cash aid to displaced workers. Plus, we have the newly signed Bayanihan Act II with a Php 140 billion allotment to help revive the economy and fight COVID-19.

However, are those enough? Some experts agree that the Bayanihan Act is too small and too late. 

University of the Philippines (UP) economics professor and former NEDA chief Solita Monsod pointed out that the first Bayanihan law is only equivalent to 1.93 percent of the gross domestic product (GDP) a measly amount when compared to other countries that are allocating funds equal to 5 to 21 percent of the GDP. She stressed that “But my God, Bayanihan 2 if you add it all together, is only 0.7 percent of GDP.” 

The UP economist said that the government fears that the debt figure will balloon and the credit ratings will suffer is a misguided fiscal conservatism. “We spent 1.3 percent (of GDP) in the first half and got nowhere. You think we’ll get somewhere by spending only 0.7 percent?” she added.

JC Punongbayan, a teaching fellow at the UP School of Economics echoed the thoughts of Monsod. “Good though its intentions are, Bayanihan 2 is too small. It’s not nearly enough to shore up our embattled economy.”

He pointed out that only Php 6 billion are being allotted for the Department of Social Welfare and Development’s various aid programs including emergency subsidies for poor households but only households in granular lockdowns will receive cash aid.

Punongbayan said that that economic managers are banking on the multiplier effects wherein a peso spent on business loans for companies can generate Php8 to 10 in economic activity, which is why the government thinks it does not need to shell out much more to revive the economy. However, he noted that there is no government study to back up this claim.

Both economists agree that the bill does little to help already struggling Filipino families. And in the words of Monsod, “The people, especially the poor, are always the last priority. The first priority, I tell you, seems to be the credit rating of the country,” she added.

I am no economist but I do know that joblessness during the pandemic brings economic hardships to low-income families and that it is the government’s job to provide aid to them. Economists have been giving their opinions on the meager amount allotted to help Filipinos and revive the economy, which the government must pay attention to.

From a utility standpoint, loss of jobs and business closures definitely have a negative impact not only on the collection of utilities since the consumers’ ability to pay for basic utilities will also erode over time. When the population no longer can pay basic utilities, how can these utilities survive? 

The answer to the above question is beyond the power sector of which I belong to. This is exactly why I included the economists’ thoughts on our government’s response to the health and economic crisis. But let me point out that utility companies are suffering too when consumers do not have enough in their pockets to pay for their basic needs. NRECA CEO, Jim Matheson said it best “The economic health of electric co-ops is directly tied to the wellbeing of their local communities.”

Thus, we need to find a way to help the Filipinos struggling to pay for food and other basic needs. And as Matheson stressed, “As the economic impact of this pandemic spreads, electric co-ops will be increasingly challenged as they work to keep the lights on for hospitals, grocery stores, and millions of new home offices.” In the end, power companies, which are essential in economic development and nation building might also be left with nothing.

References:

https://rappler.com/voices/thought-leaders/analysis-bayanihan-2-here-yet-too-small-late

https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/nreca-says-us-electric-co-ops-may-take-10b-financial-hit-from-covid-19-58152700

NCR COVID-19 Survey 3: ECQ job loss affects 69% of households surveyed