A Belated New Year’s Wish List

It might be a bit late (almost two months after the start of 2016), but here is my wish list for the local Energy sector.

 

  • Lift the foreign restriction on ownership

 

At the risk of sounding like a broken record, it’s time for our lawmakers to review and carefully understand the implications of restricting foreign ownership in the renewable energy sector.  Climate change is global problem – therefore, there should be a global collaboration in addressing this problem.

 

We are aiming for a better energy mix consisting of higher energy sourced from renewable sources. However, there are few local businessmen who can shell out the capital needed to put up renewable energy plants.  The country’s goal is to increase our renewable energy capacity to 15,400 MW by 2030. We can focus on limiting the foreign ownership of the resource e.g. the sun, the water resources, wind, and others. The ownership of the equipment we need to convert these resources to energy should be opened up to foreign ownership.  After all, we do not have these technologies.

 

  • For people to dispense the notion that renewable energy is more expensive than traditional sources of energy

 

I wrote extensively on this item last year. The problem lies with our energy planners as they favor the least-cost method, choosing the cheaper energy source based on current prices in energy planning. Again, the least-cost method does not consider risks such as the volatility of oil prices.

 

In the beginning, it may seem cheaper to put up a fossil fuel-based plant. But again, what happens when oil prices spike? Oil prices are down these days, but who knows when and by how much the uptick will be in the future? Businessmen prefer predictability, and this has a cost.

 

  • For our energy planners to review the use of Capital Asset Pricing Model (CAPM) in computing for tariff setting.

 

Again, this is one topic I have been discussing lengthily or arguing for so strongly.  Regulators should realize that the CAPM doesn’t work for non-efficient economies like ours. Similarly, it uses the Beta that supposedly represent the “market”. Unfortunately, there are not enough companies that can fully represent the market.

 

And in the meantime, while our regulators insist on using CAPM, they should understand that their application of the model particularly of the Beta is wrong.

 

Our ERC uses the same Beta, the measure of risk, for all power plant projects when computing for the tariff. This means that a coal-powered plant and geothermal power plant will have the same Beta.  Our regulators assume that all power plant projects have the same risk profile when computing for the cost recovery in setting the tariff.

 

This is wrong, as I have mentioned since the risk, of let us say of a geothermal power developer, will be higher than a coal power plant developer. Exploration for geothermal is more costly and hence its Beta should be higher to reflect the costs of undertaking that risk.

 

  • For anti- renewable energy advocates to stop saying that renewable energy cannot act as a baseload plant

 

Many of those who oppose renewable energy often argue that the renewable energy sources cannot act as a baseload plant. This is an incorrect assumption. Arguably, wind and solar cannot produce energy 24 hours a day, but a geothermal power plant can. The argument that no renewable energy source can act as a baseload plant should have been retired a long time ago.

 

  •  Prioritize long-term stability through a balanced energy portfolio of conventional and renewable energy for Mindanao

 

Mindanao, unfortunately, always figures in the news due to the peace and order situation and its recurring power shortage problem. Last year, discussions on the creation of a Mindanao Power Corporation, as well as privatization of the island’s power plants were lively. However, it is my belief; that government should first prioritize the opening of more power plants—both conventional and renewable energy to secure the power system on the island.  We first should achieve a long-term and stable solution to the power crisis in Mindanao. Only then can we talk about privatization of the island’s power plants.

 

  • A review of the Competitive Selection Process (CSP)

 

Last year, former Energy Secretary Jericho Petilla came out with a circular requiring Distribution Utilities (DUs) to use a third-party entity when securing their power sales contracts. This circular caused a stir among energy players as the CSP is largely problematic. Many argued, including me, that the CSP does not protect the interest of the smaller players, and hence defeats the purpose of EPIRA to promote fair competition among the power players. This is just one of the many arguments hurled against this circular. It is then my wish for the DOE to review and reconsider this rather alarming circular.

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