Fluctuation and Energy Costs

It has been in the headlines; the Philippine peso hit a 7-year low when it breached the P48 benchmark in September. The falling value of the peso against the dollar worried many people, as it impacts many businesses, especially those firms whose loans are in dollars. On the other hand, dollar-earning Filipinos such as our OFWs are probably rejoicing at their increased purchasing power.

But what many fail to realize is that the average Filipino families are affected by the strength of the dollar against the peso. In fact, Filipinos will have to shell out more for electricity if the peso continues its depreciation. After all, importation of raw materials of traditional sources of energy is mostly US dollar denominated.

It doesn’t help either that coal prices in the world market, according to Meralco are getting more expensive. The falling peso value against the dollar and the increase in coal prices then makes an unfortunate consequence for us: higher generation charges.

Such is the price we have to pay for choosing what we thought was the least cost. I have been consistent in explaining the perils of favoring the least cost method of energy planning.

We have for the longest time been favoring fossil fuel generation over renewable energy because of our penchant for choosing the least cost in terms of current market prices. In energy planning, this means choosing coal-fired plants over renewable energy to dominate our energy mix. At a glance, coal plants seem cheaper. Plus, it is faster to build. On the other hand, renewable energy power plants require higher capital.

Unfortunately, looking at only current prices can be misleading as it fails to consider other factors, particularly, the higher costs of raw materials. Consider this example. One may build a coal-fired plant at $1/kWh based on current prices or a solar power plant at $4/kWh for the next 25 years.

What would be the ‘cheaper’ option?

At first, we may think that coal is the cheaper option. However, what if the international prices of coal go up significantly in the future? It is a given that the cost of producing electricity would be far greater than $1/kWh, and could even double, triple, quadruple and so on.  We have already been in this situation many times in the past. For example, we suffered from the changing policies of coal producing nations when a few years back, Indonesia decided to stop exporting some certain grade of coal. We ended up paying more for electricity since the Philippines is a heavy importer of coal from Indonesia.

And we are back again in a scenario where we will likely pay more for the higher costs of coal. With the falling peso value against the dollar, we are likely to make a dent in our pockets when it’s time to pay our electricity bills.

On the other hand, choosing to build solar powered plants means a guaranteed cost for next 25 years. That means being free from the risk of having to pay more in the future for events that are beyond the consumers’ control.

So, is it really cheaper to depend heavily on fossil fuel power plants? Maybe not, if we consider that world events such as the US Federation’s announcement of maintaining their current interest rate—the cause of the strengthening of the US dollar— indeed happen and they affect the cost of our electricity.

Let us also remember, too that prices fossil fuels are likely to spike as these resources are slowly depleting. In fact, the world’s consumption of fossil fuels outpaces the world’s production of coal and fossil fuel.

Our energy mix is under review headed by our Climate Change Commission. Hopefully, the review results in an energy mix that is dominated by renewable energy sources, not only because it will be beneficial for our environment, but also because it will help the consumers’ pockets.

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