Missed Targets Equal Expensive Power

The Department of Energy (DOE) says it’s now updating the country’s renewable energy targets.

The DOE admits that the country has failed in meeting its targets 10 years after the Renewable Energy Act was enacted. That’s not surprising given the constant increase of approved coal power plants in the last few years.

That’s not surprising given the constant increase of approved coal power plants in the last few years.

That’s the sorry state of the renewable energy development in the Philippines. Our slowness in adopting cleaner forms of power means that we are missing the benefits of renewables such as jobs generation, a cleaner environment, and cost savings.

Our reliance on traditional sources of energy is costing Filipinos a lot of money. And it is the reason why we have one of the highest electricity prices in the world.

The above points are not only my assertion. In fact, studies after studies have shown that we are paying a high price for our dependence on coal.

One of the recent studies with the same conclusion is the report entitled “Prospects Improve for Energy Transition in the Philippines” by the Institute for Energy Economics and Financial Analysis (IEEFA). The finding of the report struck me as it echoes what I have been saying all this time.

According to IEEFA, fuel price pass-throughs have inflated power prices in the Philippines.

It is no secret that our country has the highest power prices among Southeast Asian countries. Our energy prices are also considered relatively high compared to global standards by roughly Php10 per kilowatt-hour. (KwH) The report points out that, this is due to our reliance on imported fossil fuel, high financing cost, and uncompetitive market structures.

The report cites one coal plant of 167.4 MW as an example, which was supposed to deliver Php3.96 per kilowatt based on a signed power sales agreement (PSA) price in 2016. Unfortunately, the coal plant, on an average delivered PHp2 per kWh more than the agreed price in the PSA and even reaching Php7.11 per kWh. As I have been pointing out, the difference of the price was passed on to consumers, all thanks to the “pass-through” provisions in the contracts. Sadly, it is the Filipinos who suffer from such instances as they are the ones who have to pay the cost of fluctuations in foreign exchange rates and coal or fuel prices.

By just how much did the Filipinos “suffer”? The report says that from May 2018 to May 2019, coal’s unpredictable prices has led to Filipino consumers paying more than Php788.7 million. Again this is all courtesy of the pass-through costs and our dependence on traditional power sources. That’s just for 2018 to 2019.

coal

Coal imports. IEEFA report says that from May 2018 to May 2019, coal’s unpredictable prices has led to Filipino consumers paying more than Php788.7 million. Photo c/o http://www.financialexpress.com

Unfortunately, the value of imports has climbed up significantly over the years. The report says that coal imports in 2005 was USD317 million and has tripled to over 1 billion by 2010. From 2017 of 1.9 billion it ballooned to 2.7 billion by 2018.

So, us Filipinos, have been paying billions for these pass on costs since our energy planners have favored what I have been referring to as “floating” PSAs, which as the IEEFA pointed out burden consumers with the pass-through costs.

We could have saved billions for Filipino consumers only if our planners have opted for what I call “fixed contracts”. And as my preferred term indicates such contracts peg the price at a fixed price for a specified number of years.

Unfortunately, our planners tagged fixed-price contracts as more expensive. At a glance, a PSA of Php5.10 per kWh for 25 years may look more expensive than a floating PSA of Php5 per kWh. And as the example of IEEFA, floating PSAs can reach beyond the agreed price due to global price spikes and foreign exchange. So, again, I ask which is more expensive? A floating PSA that has a lower agreed price at the start but could balloon up in the few years or a fixed price contract that will have consumers pay the exact amount until the PSA contract has ended?

Plus, of course, these floating PSAs do not provide incentives to power producers to minimize operating costs since these are passed on to consumers anyway.

There’s no denying that our energy planners’ preference for coal power despite experts’ assertions that renewable power is the way to move forward has been costing Filipino consumers a lot.

There was a time when building coal-fired power plants was an economical and practical choice. I have built some of them myself many years back. But times are changing, and what once used to work for us no is longer is the best option

Our best bet is to put our money and resources on renewable power. The IEEFA report stresses that we can lower the wholesale power prices by 30 percent if we allow renewables to flourish. I have been saying time and time again that if we want stable power prices, then we must develop and have more renewable energy in our power mix. The DOE can review our renewable energy targets all they want, but the bottom line is, our government should  pave the way for renewables to penetrate the market easily and consistently.

References:

https://www.philstar.com/business/2019/09/02/1948208/doe-updates-renewable-energy-targets

Prospects Improve for Energy Transition in the Philippines. IEEFA

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