With Private Sector Doing Its Share

Reducing the world’s carbon footprint requires cooperation from all sectors. While it is the government’s job to provide a conducive environment to develop the use of renewables, the private sector must also do its share.

Gladly, large enterprises are taking on the challenge of helping the world become cleaner again through their green initiatives.

A report of the World Wide Fund (WWF) and Ceres, a non-government organization, released last April showed that more Fortune 500 companies have at least one clean energy or climate target in 2016. These firms set their clean energy or climate target either by setting greenhouse emission, renewable energy, and energy efficiency targets.

The report noted that 48% of these Fortune 500 companies are now pushing for greener practices, a figure that is five percent higher from 2014.

The report, “Power Forward 3.0 How the largest U.S. companies are capturing business value while addressing climate change” noted there has been a 10% increase among firms that committed to reducing their emissions targets. A total of 23 of the Fortune 500 companies has also committed to using 100 percent renewable energy in their operations while 51 companies have identified their energy efficiency targets.

“American businesses are leading the transition to a clean economy because it’s smart business and it’s what their customers want,” said Marty Spitzer, World Wildlife Fund’s senior director of climate and renewable energy.

The report stressed that these firms with clean or renewable targets reap some economic benefits from cost savings.  In 2016, a total of $3.7 billion were saved by 190 companies with their 80,000 emission reduction projects and were able to reduce their annual C02 emissions by 155.7 million metric tons.

Unfortunately, I don’t think there’s any study on the Philippine firms, counting how many of them have green targets either via reduction of greenhouse emissions, RE purchase or energy efficiency programs.

And even more unfortunate is the slow implementation of the Renewable Portfolio Standards (RPS). To recall, setting the RPS was included in the Renewable Act passed into law in 2008. The RPS mandates energy industry participants including generators, distributors, and suppliers to either produce or source a certain percentage of the power from renewables.

The implementation of an RPS is crucial if we want to achieve a power mix that relies heavily on RE. The report above even underscored the importance of having RPS to help private entities to in their drive to shift to greener forms of energy to power their needs: “Support state renewable portfolio standards, which have created strong marketplaces for renewable energy in which large corporate buyers can now participate.”

Sadly, despite the value of having such a standard, our government has been slow in realizing and acting on the need to have the RPS implemented. It has been almost a decade since the passage of the Renewable Act, and yet no Implementing Rules and Regulations (IRR) have been set on the implementation of the RPS.

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When it comes to lowering power rates, which way are we heading? The road to success is through fixed rate contracts and maximum level for RE in the RPS.

Recent news reports have noted that the National Renewable Energy Board (NREB) has said that it aims to pass its recommendations on the IRR on RPS to the Energy Department soon. Hopefully, the NREB can also consider aggressively pushing for higher levels of RE in the RPS as well as recommend fixed price contracts. Of course, our regulators have a role to play, too.

As I have explained in a previous post, having fixed-price contracts will lower our power rates. Fixed price contracts will have lower rates as compared to our current ‘floating’ contracts where consumers shoulder the cost of volatility of fossil fuels given the provision of the pass-on costs.  Favoring the floating contracts along with our heavy dependence on fossil fuel power plants are the reasons why our energy prices high as consumers end up paying the price for fossil fuel or foreign exchange costs increase. We must introduce as much fixed price contracts in the energy mix of the utilities

I have made a recommendation to the appropriate government agencies to review the calculations used in evaluating fixed versus floating Power Sales Agreements (PSA) to reflect the discount rates between the two. After all, fixed contracts must be discounted at the risk-free rate and floating PSAs or some of them at a much lower rate. The government agency concerned must direct Electric Cooperatives (ECs) and Distribution Utilities (DUs) to use the correct levelised cost of electricity. It should also ask the ECs/DUs to prove that they have fixed price contracts in their energy mix and for DUs to prove that there is a diversification in the risks they pass on to the consumer.

As for the RPS, we should push for higher RPS levels as renewables is in a position to give fixed price contracts. We should consider the maximum RPS allowed under the RE law to at least lessen the negative impact that our pass-on provisions have on our consumers.

Let us not lose sight of the reasons why we push for RE. Aside from helping the environment, renewables is key to lower energy prices in the country. But that can only happen if we have our fixed price contracts as well as have the maximum level allowed in the RPS.

 

 

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