energy

We Need More Funding and Competition

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The Senate recently approved a bill amending the Public Service Act to allow full foreign ownership in key industries like transport and telecommunication.

With 19 votes, the Upper House voted to pass Senate Bill No. 2094 which will pave the pay for 100% foreign ownership of railways, airlines, shipping firms, subways, and telecommunications. The 1987 Constitution puts a 40% foreign ownership on public utilities. The new bill is making a distinction between public utilities and public services and frees up the latter for 100% foreign ownership

Senator Grace Poe, one of the bill’s principal authors said that “The main purpose of this measure is to provide consumers with choices and I believe that, by opening our economy to a diverse set of investors, we could provide our fellow Filipinos with more and better choices,” 

The new bill still treats three main industries as public utilities as they are believed to be “natural monopolies.” These industries include Water Works and Sewerage, Transmission of Electricity, and Distribution of Electricity, and will remain subject to the 60-40 rule on foreign ownership.

I have written about this bill in the past where I have questioned why the Senate is treating electricity distribution as a natural monopoly. I have argued that natural monopoly cannot and should not be regulated as it is a market condition. Natural monopolies, after all, exist due to either high start-up costs or powerful economies of scale. Natural monopolies only exist when a single firm can serve the entire market at a lower cost instead of having multiple firms competing for the same market.

Again should the Philippines still classify power distribution classified as a natural monopoly despite the advancements in technology and global trends?

All we need to do is look at other countries. Take the United States for example where several companies heavily investing in non-wire alternatives (NWAs), which are pushing both start-up and fixed costs down. Several complines like Duke Energy and Con Edison can avoid spending billions on transmission infrastructure by investing heavily in NWAs combined with distributed energy resources (DERs) and mini-grids.

New technologies, after all, are removing barriers to entry in the distribution of electricity, which means more players can enter the market more easily given the lower upfront costs of distributing power.

What we are seeing here is not a case of a natural monopoly actually driven by the market but rather a legal monopoly created by lawmakers and regulators. This is a classic example of what Nobel Prize winner Vermon Sith pointed out in this paper “Currents of Competition in Electricity Markets” where he said that “Regulation has been applied far too broadly to the electric power industry. As a result, policies intended to restrain monopoly power have instead propagated that power.”

In a separate development, President Duterte has also signed an executive order (EO) 156, an electrification EO to enable electric cooperatives to pursue rural electrification. In the EO, the president stresses that underperforming electric cooperatives (ECs) and distribution utilities (DUs) are hampering the electrification efforts of the government. 

Aside from transferring the powers to take over the DU’s and EC’s operations from the National Electrification Administration to the Office of the President, the EO also ordered all DUs to submit a comprehensive masterplan for the total electrification of their respective franchise areas including a detailed inventory of all inadequately served areas and action plans to achieve complete electrification.

The EO also directs the Department of Energy (DOE) to craft procedures for the participation of local government and communities in determining whether their areas are inadequately served.

But perhaps an alternative route is to open up competition for the same franchise area. Currently, the government is only allowing a single firm for a franchise area, which means that the franchise holder does not have incentives to improve its services or to innovate. Again, our regulations are what’s creating legal monopolies as we can, in fact, have healthy competition in franchise areas only if the government allows it.

It’s great that the EO is asking the DOE to promulgate regulation for the entry and integration of DERs, microgrids, and other alternative service providers in the electric power industry, but we need as well to consider allowing more competition in the same franchise area. Otherwise, consumers will have to wait for DUs to be deemed as inadequate before they can get alternative DUs, and even then they only get served by a single company, which still will have the monopoly in the franchise area.

Plus, we can actually help solve the problem of lack of access to electricity if we do not create legal monopolies as what the Senate bill is doing to the electricity distribution. We need the technology and expertise of foreign companies in developing DERs, microgrids, NWAs, and other new tools that can easily provide power to off-grid areas.

A reactor in our energy forum sponsored by UPVI last October, Bill Lenihan, CEO of ZOLA Electric, a company that offers power solutions in Africa stressed that centralized grid systems won’t solve emerging markets’ problems. He added that countries like the Philippines must make DERs and microgrids as the main source of power in many underserved areas in the country.

However, developing these technologies will again, as I have mentioned, require funding and technologies that foreign companies can provide. To classify power distribution as a natural monopoly when it is not is like taking away the chance from Juan Dela Cruz from far-flung areas to have access to electricity and lessen his chance of improving his economic condition and that of his community at the soonest time possible. 

We Can and Must Do Better

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269 cities and municipalities were left in the dark due to Typhoon Odette’s wrath. Photo c/o OneNews.PH

Christmas season is for merrymaking with friends and family. And we Filipinos just love this festive season.

However, many times the December holidays are spent dealing with the aftermath of strong typhoons. 

We just suffered the wrath of  Typhoon Odette that left around 400 dead as of this writing and caused almost Php16.7 billion in damages. The typhoon has also brought darkness to millions as 269 cities and municipalities experienced blackouts as the typhoon damaged transmission facilities and toppled electric posts. The National Disaster and Risk Reduction Management Council (NDRMMC) said that full restoration of power in affected areas may happen in February. Thousands of families are also without water supply and are going hungry.

Typhoon Odette is once again showing us that we have a disaster in the recovery efforts for electricity because of bureaucratic legal inanities. The governors were looking for interim generators. None of the generating companies could bring in gensets because that would have required bidding and then an approval from the Energy Regulatory Commission (ERC). The local government units (LGUs) themselves couldn’t bring in gensets for the grid because they are not licensed generators. 

The most logical entity to provide interim generators would have been the grid operator, National Grid Corporation of the Philippines (NGCP). For one, it has the financial muscle and is mandated to provide ancillary services. Unfortunately the ERC interprets that providing power as a backup ancillary is not within NGCP’s mandate. I disagree. However, it was suggested that Congress exempts NGCP from this supposed prohibition. Unfortunately, again Congress is in recess. So the President has to call for a special session. 

In the meantime people are dying. 

We should indeed look at how we respond to calamities. Take the case of Bohol. Governor Arthur Yap is decrying the bureaucracy in disaster response as paperwork is delaying Bohol’s plan to use power barges to put an end to the crippling absence of power. In an interview, the governor said he has sought exemptions required by three power distribution firms and NGCP to tap into other power sources.

The lack of electricity he said is paralyzing Bohol’s disaster response and communication especially since many towns still do not have capabilities. Governor Yap said he has been following up with the ERC for the exemptions but was told national agencies are still completing paperwork for the approval. These agencies want to ensure that approved rates are not breached with the additional expenses of tapping into new supply sources.

It’s time to review these regulations as they are obtuse.  It’s disheartening to hear local executives lamenting the slow response of the national government as it needs to comply with absurd laws. People are homeless, without food, almost dying due to dire conditions, and yet we insist on following irrational laws.

It’s not the first time we’ve been hit by strong typhoons. Many Filipinos often spend their December dealing with losses brought by weather disturbances.

In the last five years, Filipinos have had to deal with strong typhoons during December. We only have to recall Super Typhoon Nina in 2016, considered as the strongest Christmas Day tropical cyclone world wide dating to1960.  It made its landfall on Christmas day, hitting Catanduanes hardest. Typhoon Nina with International name Typhoon Nock-Ten, displaced some 380,000 individuals and cut power to five entire provinces.

Then there’s Tropical Storm Unman in 2018, the second deadliest weather disaster for that year. This storm hit the Bicol region the hardest and displaced at least 17,000 individuals in the region .

Scientists agree that the world’s weather is becoming more tumultuous with weather disasters taking home livelihoods, homes and lives. Sadly, the Philippines is considered as one of the world’s natural “hot spots” due to its topographical location. Thus, our country suffers more natural hazards than most nations. Filipinos have to endure droughts, landslides, volcanic eruptions, typhoons and floods more than any other country— even during the Christmas season.

There’s nothing much we can do about our location. But what we can work on is to build our resilience to natural disasters. 

Aside from fixing the bureaucratic issues and regulations, we should also work on building resilience to help mitigate the impact of natural disasters. 

As I have been discussing in previous posts, it’s time for us to make big investments in distributed energy resources (DERs). Recently, President Duterte signed Executive Order 156, for a “consistent and reliable electricity service” ordering the Department of Energy (DOE) to identify unviable, unserved, underserved and poorly served areas within the franchise areas of distribution utilities. 

The EO also orders the Energy Regulatory Commission (ERC) to  “promulgate rules in computing rates that allow full cost recovery for the facilities built by microgrids, [distributed energy resources], and other alternative electric service providers.”

It’s a step in the right direction since many nations are moving towards distributed energy production, recognizing that traditional central power production has its limits and disadvantages.

Centralized power systems characterized by power lines traversing long distances are disastrous during a natural calamity. Damage to a single line can leave hundreds if not thousands of families without power.  Restoration of electricity takes time as the transmission company, distribution companies and electric cooperative have to assess which power lines were affected and damaged, an undertaking that takes time given the size of their service areas. Power restoration after a natural disaster also costs lives.

To increase disaster resilience, we must push for barangay-level microgrid systems, all renewable energy-based. This is already feasible these days given the decreasing costs of technologies both in the Information and Communication Technology (ICT) and power sectors.  The merging of these two sectors will usher in a new dawn for power consumers. Barangay -level power systems are cheaper in the long run and more resilient. Power restoration after a disaster will be faster with barangay level power systems.

There are also other technological tools we can utilize to increase disaster resilience.  

Currently many areas affected by Typhoon Odette are not only cut off from power supply but also from water supply. There’s this technology I’m now advocating to ensure continuous water supply using renewable energy. It’s a state-of-the-art desalination system running solely on solar power, and can be connected to tier the grid or the combination of solar and grid generator. It  can convert any lake, river, contaminated borehole and even floodwater into safe and clean drinking water. When fitted properly with a solar panel system, these desalination units can operate 24/7.

These are just some of the ways we can increase our resilience against natural disasters. We can take advantage of new advances in technology and our abundance in natural resources to mitigate the effects of natural disasters. We should also review our laws as they hinder disaster response.

It is very heartbreaking to see our countrymen begging for roofs, water, power and  food after losing their loved ones, their homes and livelihoods. Filipinos are naturally resilient and have a strong bayanihan spirit. But much like what many are saying, we shouldn’t rely solely on Filipino resilience but we should instead build more resilient communities. As we usher in a new year, it is my hope that we can find ways to build and support hazard mitigation and ensure proper and quick disaster response.

HAPPY NEW YEAR TO ALL!

Energy Security Series Part 3: Infrastructure Issue

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Recently, the United Nations’ Intergovernmental Panel on Climate Change (IPCC) released a grim global report on climate change. The report, dubbed by the United Nations as “code red for humanity” revealed that the extreme weather is now being felt around the world and average global temperature increases that could have devastating effects will likely come sooner than expected.

The report said that human-caused climate change is already affecting every region across the world. Extreme weather has become more intense and frequent. And climate change’s effects will get worse over time. The report found that humans have increased the chances of extreme compound weather events like frequency of concurrent fire weather, droughts, and flooding.

Climate change has also brought big changes in the Philippines’ climate patterns. We are seeing massive flooding in recent years.

This December, we experienced the wrath of Typhoon Odette, which left hundreds dead and billions of iin damaged infrastructure. Some three million families are affected by power outages as the typhoon toppled electrical poles, and damaged transmission lines. Of course, it would take a while before power is fully restored in affected areas as the transmission company and electric cooperatives need to wait for floods to subside and to ensure that local conditions are safe enough for linemen and engineers.

Typhoon Odette toppled power lines and damaged transmission facilities. Photo c/o Rappler

The Philippines also experienced deadly and destructive weather disturbances last 2020.

In May of last year, the country had to deal with Typhoon Ambo. It was the first typhoon to hit the Philippines in 2020 and caused Php 2 billion damage to agriculture and infrastructure. It also left around 92,000 families homeless. Power restoration in the affected areas took weeks, months even. Sadly, some electric cooperatives lost their men to power restoration efforts.

There was also Typhoon Ulysses that unleashed torrential rain and powerful winds. This typhoon destroyed thousands of homes, killed dozens of people, and left swathes of Luzon heavily flooded. It was the deadliest tropical cyclone to hit the country in 2020.

Aside from Ulysses, the Philippines was also hit by Typhoons Quinta and Rolly in the last quarter of 2020. The National Electrification Administration (NEA) said that these three typhoons caused some Php500 million worth of damage to the utility system.

Plus, of course, there’s the COVID-19 pandemic that has restricted the movements of everyone. In the early months of the pandemic, there was a big issue about electric bills people received as many consumers received bills that were significantly higher than what they had consumed. Distribution utilities, after all, could not send their employees to read meters during the hard lockdown.

All these point to the fact that the Philippines needs to make its power infrastructure more resilient against natural disasters. We thus need to revisit our energy systems and start investing heavily in smart grids and distributed energy systems.

The global trend is to move away from the traditional central power production model and replace them with distributed energy production. As a country that is more prone to natural disasters, we should join the fray and move to decentralized power systems.

Decentralized power systems will make our infrastructure more resilient to disasters. Centralised power systems, after all, are characterized by power lines spanning long distances and are highly vulnerable to natural disasters. Damage to a single line due to natural disasters will leave thousands of homes without electricity. We only need to remember that it takes power distribution utility companies weeks even months to restore full power in areas affected by storms.

Electric cooperatives, power distributors, and the transmission company have to thoroughly assess the damage to the power line before the linemen can restore power physically. Power restoration after a calamity is a high-risk undertaking. Sadly, many have lost their lives in the physical restoration of electricity.

Centralized power systems, given their massive size, multiply the risk of disruption. A single felled tree can deprive plenty of homes of electricity. In contrast, decentralized systems create redundancies in the power system. Microgrids can easily disconnect from the main grid experiencing outages so they can run without any disruptions until the main grid is up and running again.

Centralized grid systems are also unable to differentiate end users. This means residential users are getting the same quality and amount of power as other establishments like hospitals and government centers. This means that during disasters, the system makes it challenging to provide electricity to the most crucial users or infrastructure.

Centralized grids typically can only be turned on or off, or simply put, either on one or everyone gets power. This inability to differentiate and direct power to the most crucial areas or infrastructure makes emergency and recovery efforts more difficult during calamities. Decentralizing electricity allows for the prioritization of essential infrastructure, cutting down hindrances to quick disaster recovery.

Now more than ever, we should be seeing the role of decentralized energy resources. Cities or towns that have been struck with a natural disaster can function better if essential infrastructure has continuous electricity. Hospitals that are now in full capacity, for example, have one less thing to worry about as they can continue their operations normally despite a disaster.

Aside from disaster resilience, distributed energy systems also offer more cost savings. It is also easily scalable. One study by Vibrant Clean Energy in the United States showed that investing in renewable energy, storage, and distributed energy technologies can save the US around $473 billion in electricity bills from now to 2050.

Plus, distributed energy and other related technologies offer massive employment opportunities. The study of Vibrant Clean Energy showed that distributed energy resources can provide two million jobs if 25 percent of US homes invest in DERs and related technologies.

Consumers also enjoy plenty of benefits in distributed energy systems as they can either receive compensation for allowing the use of their storage systems in stabilizing the grid or by selling back electricity to the main grid.

Distributed energy systems also help in breaking down monopolies in power distribution. As I have discussed in a separate post, power distribution is not monopolistic by nature as monopolies only become a monopoly due to regulation. Distribution energy systems offer better transparency on pricing like energy management systems, advanced metering, dynamic-based pricing, and more options for power consumers.

There are also other tools relying on renewable energy that can be used during disasters. For example, we currently have a technology that can convert any river, lake, contaminated borehole or even flood water into clean drinking water by state-of-the art desalination units running purely on solar power. The desalination units that can be connected to the grid or a combination of solar and grid generator so the units can run 24/7. At a minimum these desalination units can provide potable drinking water for 500 to 700 individuals. The units can be fitted with a 5-kilowatt hour (kWh) Solar Panel system so it can operate round the clock.

The Philippines is always dealing with natural disasters. Year after year we will be facing the same threats, which according to the United Nations are about to get worse over time. The technology we need to make our power infrastructure more resilient is now available. The Philippines only need to realize their value and make the most of what they have to offer.

Empty Gestures

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40 countries signed to stay away from coal during COP26. The Philippines, however refrained from promising to phase out coal-fired plants. Photo c/o Rappler

During the UN Climate Change Conference of the Parties (COP26), in Glasgow, Scotland, 40 countries signed to stay away from dirty coal.

However, local reports noted that the Philippines refrained from committing to phase out coal-fired power plants.

The agreement had four goals. The first is to rapidly scale the deployment of clean power generation. Second is to phase out coal power by 2030 for advanced economies and 2040 for the rest of the world. The third is to end all investments in new coal power generation both domestically and internally. Fourth is to make a just transition that benefits communities and workers.

However, as reports stressed not all signatories committed to all of the four mentioned goals. Our Energy Secretary who signed on behalf of the Philippines only endorsed goals/clauses one and four. 

A report by Manila Bulletin on this issue said that the Energy Department’s formal correspondence to the chargé d’affaires at the British Embassy-Manila, who solicited the Philippine’s support to the “Global Coal to Clean Power Transition Statement”, only said that the country only supported calls for an energy transition that will primarily be driven by more renewable energy installation and addition of energy efficiency technologies.

The said correspondence was notably silent on whether the Philippines will pull the plug on coal-fired power generation. The letter of the energy secretary instead demanded that climate justice from industrialized countries that are spewing higher scale carbon emissions. “We would like to reiterate the energy sector’s call for climate justice given that the Philippines is not a major emitter of greenhouse gases (GHG) but bear the worsening impacts of climate change,” Energy Alfonso Cusi in the letter said.

He also stressed that the country’s foremost agenda is energy security since “energy transition comes as a means to improve the lives of our people and for our country’s economic development.”

Perhaps, we should not be surprised at our government’s lack of commitment to phasing out coal completely.

During the forum on national energy security sponsored by UP Vanguard Inc. last October, most of the panelists agreed that it may not be feasible for the Philippines or the rest of the world to completely phase out coal by 2040. Mr. Gil Quinoñes the newly minted CEO of Commonwealth Edison Company, Chicago’s primary utility company said that it is more doable to achieve 80% electrification by renewable energy.

However, some of the panelists also slammed the government’s inaction in ensuring swift energy transition. One of our panelists, former Energy Undersecretary Atty. Jay Layug stressed that there has been a major decline in new renewable energy capacity addition in the last five years. He noted that there have only been 800 megawatts (MW) RE new cavity out of the 4930 MW capacity added in the last five years while from years 2010 to 2016, renewables contributed roughly 1,500 MW out of the 5180 MW of the total added capacity.

Atty Layug stressed that the Philippines cannot afford a technology-neutral policy and instead pave the way for a faster transition to clean energy.

To add to these thoughts, it seems to me that the drive for energy security is being used as an excuse for our lack of commitment to adopting more renewable energy in our power mix. Are we really achieving energy security by insisting on our reliance on fossil fuel power?

As I have discussed in a previous post, there are various definitions of energy security. For one, the Internal Energy Agency (IEA) defines energy security as “the uninterrupted availability of energy sources at an affordable price.” I have argued that energy security is difficult to define. However, I can easily tell you is that the Philippines is facing multiple risks when it comes to energy security.

Our reliance on imported coal is a source of insecurity. As I have mentioned, at the beginning of the pandemic my fear was that Indonesia, our major source of coal could close its border, which means we can’t import coal from them. 

Relying on imports also means that consumers are affected by global supply issues and pricing. Currently, oil prices are going up. Data from Energy Department showed that diesel prices have gone by Php18.10 per liter since the start of 2021 So, are we really heading towards energy security when we remain reliant on coal and oil?

If we are to follow IEA’s definition, then we are not achieving energy security as our power rates remain expensive especially when global prices go up.

I agree that we cannot fully phase out coal in the next 20 years, but the government has been quite slow in its push for renewables. This is evidenced by the downward revision of the share of renewables in the Philippine Energy Plan (PEP) 2020-2040. Recently, the Energy Department released its amended PEP 2020- 2020, which set a target of 50% renewable share in the power mix by 2040. In contrast, its previous PEP 2018-2040 set the target to a 54 % share of the power mix.

The Department did not explain why it changed its target. It’s quite baffling especially since it had already declared a moratorium on new coal-fired power plants last year.

Naturally, DOEs lack of commitment to end financing for coal or to end coal during COP 26 has been met with strong criticisms. Greenpeace Philippines Campaigner, Khevin You said that the organization is denouncing in “the strongest possible terms the Philippine government’s shameless climate hypocrisy and its lack of political will to end coal use and chart a decisive path away from dependence on fossil fuels.”

Likewise, the Center for Energy, Ecology and Development (CEED) said the government’s commitments are just an “empty gesture.” 

I again go back to what our panelists said in the UPVI forum. We have enough laws and we are not running of ideas on how fast we can transition to renewable energy but what we need is consistency in policy enforcement. We need political will and decisiveness in implementing laws. We need strong leadership to ensure a fast clean energy transition. Indeed, we don’t need empty gestures.

Leadership is What We Need: UPVI’s webinar on National Energy Security

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Last October 19, UP Vanguard Incorporated (UPVI) with SMC Global Power as a major sponsor, conducted a public webinar entitled “National Energy Security: Reliability and Resiliency in the New Normal”.

We had been fortunate to have a distinguished panel consisting of two former Energy Secretaries, namely Dr. Francisco Viray and Atty. Raphael Lotilla, and outgoing Chief Executive Officer of New York Power Authority, Mr. Gil Quinoñes. The forum was moderated by Atty. Mike Toledo, Director for Government Relations and Public Affairs of Metro Pacific Investment Corporation.

One of the main discussion points in the forum was the transition to clean energy. Panelists and reactors agree that the transition to a carbon-free environment is inevitable. Under the COP 21 Paris Agreement in 2015, countries should aim to limit global warming to preferably 1.5 degrees celsius compared to the pre-industrial level. 

Dr. Viray pointed out that the International Energy Agency has recommended the complete phase-out of all unabated coal and oil power plants by 2040 to reach net-zero global energy-related carbon dioxide emissions by 2050.

He, however, sees three issues in the clean energy transition for the Philippines.

First, is that the mismatch in clean energy investments for whatever reason can impact energy security and price volatility. Second, the availability of cost of non-greenhouse gas emitting technology sharing the same characteristics of fossil fuel-fired plants and balancing the need for VRE sources may be subject to geopolitical challenges as the Philippines will just have to sit and wait on the technology made available by advanced countries. Third, he asked who bears the costs of the energy transition, especially the replacement of capacity generated by fossil fuel plants.

For his part, Atty. Raphael Lotilla said that the transition will not happen overnight and that it must be managed well. The pace of the energy transition will vary from one country to another but the end game is the same: a carbon-free environment.

He raised two points on how the Philippines can manage the clean transition properly. 

First, he noted that the upstream natural gas and petroleum industry sector has a major role to play in the Philippines’ clean energy transition and energy security. Atty. Lotilla stressed that the country needs to provide investors with clear regulatory policies.

He cited the case of the Malampaya gas field’s tax issue where the Commission on Audit’s 2011 decision reversing the rule that the government will assume corporate income tax has caused major uncertainty among investors. The potential investors, he added, need more clarity and certainty before they shell out money for exploration and development work in other service contracts.

One of the reactors, UP Vanguard, Engineer Ray Apostol who is a long-time professional in exploration work, cited alarming statistics on the present administration’s lack of exploration activities.

Mr. Apostol noted that the Philippines is at the bottom among ASEAN countries when it comes to gas exploration. He stressed that there has been no exploration well drilled in the last five and half years. Mr. Apostol recommended that the government should ramp up support for exploration activities and carefully review the bidding process and exploration contracts. Likewise, the government should opt for non-exclusive exploration activities.

There is also a consensus that renewable energy is clearly the way forward for the Philippines. According to Dr. Viray, achieving energy security requires more development of renewables but, unfortunately, our country has no full control to harness and exploit these resources.

Atty. Lotilla stressed that we must allow more foreign investors so we can develop renewable energy sources in the country. He said that the provision in the constitution referring to foreign ownership that should be limited to 40 percent should only be interpreted for finite resources. The constitution talks about “potential energy” and thus must exclude solar and wind as they can be converted immediately to electricity.

One of the reactors, former Energy Undersecretary, Atty. Jay Layug echoed Atty. Lotilla’s point of allowing more foreign investors in the renewable energy sector. 

He lamented the fact that the Philippines imported more oil and coal in the last five years as renewables only accounted for 800 megawatts (MW) out of the 4930 MW capacity added in the last five years. In contrast, from years 2010 to 2016, renewables accounted for 1,500 MW out of the 5180 MW total added capacity.

Atty. Layug stressed that the government cannot afford to adopt a technology-neutral policy. It must instead step up and be an enabler to ensure that the Philippines become more dependent on renewables instead of imported fossil fuels. He added that the country has too many laws but the problem lies with implementation, adding that the National Renewable Energy program is a “bible” that the government must follow.

For his part, Mr. Gil Quinoñes said that it may not be feasible to be 100 percent coal-free by 2050 but what is more doable is for the world to achieve 80 percent electrification from renewables.

He added that clean energy transition may be expensive but the climate crisis requires that problems be addressed as fast as possible.

Mr. Quinoñes stressed that richer countries should advance clean energy technologies that can be adopted by emerging markets like the Philippines.

Another reactor, Bill Lenihan, CEO of ZOLA Electric, a company that offers power solutions in Africa, noted that a centralized grid system won’t solve the emerging markets’ problems. He added that distributed energy and micro grid adaptation in the Philippines will differ from the ways the US and other richer countries have developed these technologies. 

For example, in the United States, micro grids are necessary backups but they can afford to have them as mere backups as they have well-developed grids. On the other hand, the Philippines will need to make distributed energy resources (DERs) and microgrids as the primary source of power in many areas of the country.

In the end, Dr. Viray summed up the Philippines energy security problem best when he said that “We are not lacking in ideas and laws. What we need is to synchronize… Leadership is what we need.”

Energy Security Series Part 2: Energy Poverty

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Some 840 million people worldwide don’t have to electricity. Photo c/o WEF

Energy poverty can be defined in several ways. In its simplest definition, energy poverty is the lack of access to energy services.

The World Economic Forum (WEF) defines it differently. For the WEF, energy poverty is “the lack of access to sustainable modern energy services and products.”

In his encyclical letter entitled Fratelli Tutti, Pope Francis touched on energy poverty, stressing that “forms of poverty are emerging.” He calls on us to to view poverty differently since the modern world’s current criteria do not correspond to present-day realities. “For example, lack of access to electric energy was not considered a sign of poverty, nor was it a source of hardship. Poverty must always be understood and gauged in the context of the actual opportunities available in each concrete historical period.”

Data from the United Nations (UN) shows that there are some 840 million people who live without access to any electricity worldwide. 

In the Philippines, some 1.62 million households still don’t have access to power. The country’s archipelagic nature makes it challenging to provide electricity for the many remote islands and communities.

We cannot talk of energy security in the Philippines without discussing energy poverty. After all, access to electricity is necessary for economic growth.

A study by the Philippine Institute of Development Studies showed that rural households and rural-based economic agents need electricity to enhance their productivity and expand home-based economic ventures. Having access to electricity is a significant determinant of agricultural productivity. Electricity enables Filipino families to operate their livestock and poultry farms as well as store their produce efficiently. Electricity is necessary for many Filipinos to engage in micro-small businesses to help them get out of poverty.

That’s the economic side. Health-wise, the absence of electricity increases the risk of premature deaths due to household air pollution as many rely on solid fuel for cooking like fuelwood or charcoal. 

The World Health Organization (WHO) estimates that roughly four million die prematurely annually e due to household air pollution from the use of solid fuel for cooking.

As we still have seven percent of Filipino households without access to electricity, what must we do?

To connect the hardest to reach and the poorest households, we must invest in off-grid solutions such as mini-grids, solar home systems, and solar lighting. It has been working for the entire world as according to the World Bank since at least 34 million people in 2017 gained access to basic electricity services via off-grid technologies. At the local level, we have been receiving grants from other countries to develop mini-grids powered by renewables.

Off-grid technologies will not only provide access to electricity to Filipinos but will help cut down electricity costs for off-grid locations.

A study conducted by the Institute for Energy Economics and Financial Analysis (IEEFA) and Institute for Climate and Sustainable Cities (ICSC) concluded that the Philippines can save as much as Php 10 billion if off-grid islands rely on renewable sources than traditional ones.

The study stressed that mini-grids powered by generators running on imported diesel and bunk oil are not only proving to be expensive but have also resulted in blackout and power outages. It noted that Filipino taxpayers are footing a huge bill by subsidizing these expensive imported fuels.

The authors of the study “Electricity-Sector Opportunities in the Philippines: The Case for Wind- and Solar-Powered Small Island Grids” have called for prudent reforms where electric cooperatives and distribution utilities (DUs) will be required to procure cheaper sources to reduce costs.

Similarly, a European Union-funded program, the Access to Sustainable Energy Program (EU-ASEP) also concluded that the National Power Corporation (NPC) can also save roughly Php 2.25 million or Php 4.50 per kilowatt-hour if the agency combines renewable energy with traditional power for off-grid islands’ mini-grids.

Indeed, renewables are also the way to go in giving access to electricity to all Filipinos. 

IEEFA’s recommendation in its study echoes mine as I have been vocal in requiring distribution utilities to testify that there are no available indigenous resources in their franchise area during the procurement stage. We must change regulations as our goal is to provide electricity not regardless of the cost but to provide electricity that’s affordable. 

The DOE has already come up with rules and guidelines on renewable portfolio standards (RPS) for off-grid areas in 2018, which was supposed to be implemented this year. The department, however, has suspended first-year compliance to resolve a variety of issues.

Even if the RPS for off-grid areas is being implemented it’s not enough. I have been advocating for higher levels of renewables in the RPS. 

Our goal is not simply to provide electricity to all but as WEF said to ensure that there is access to modern energy services and products. The dominance of diesel-fired mini-grids should be a thing of the past. 

Advances in technology have driven prices of renewable energy technologies down and it’s time that we benefit from new technologies that make electricity more accessible and affordable. Modern times require us to change regulations as our goal is not only to make electricity accessible to all but to provide affordable electricity to all.

Is Power Distribution Still a Natural Monopoly?

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In his last State of the Nation Address (SONA), President Rodrigo Duterte asked Congress to pass priority bills including the proposed amendments to the Public Service Act.

Senate Bill No 1441 seeks to amend the Public Service Act to define the difference between “public service” from “public utility.” The amendment will lift nationality restrictions in the investment in areas of transportation, power generation, and supply, telecommunication, and broadcasting, among others. The 1987 Constitution does not define “public utility” and thus limits the allowed foreign investments in various sectors.

Under the bill, public utility will be treated as a mere subset of public service. Only three main industries will be treated as public utilities as they are argued as a natural monopoly. These three include Water Works and Sewerage, Transmission of Electricity, and Distribution of Electricity, which will be covered by the 60-40 rule on foreign ownership.

But my question is, must electricity distribution be considered a natural monopoly? A “natural” monopoly cannot be legislated by Congress. It is a market condition Legislating it as such is tantamount to legislating the law of supply and demand.

A natural monopoly exists because of either powerful economies of scale or high start-up costs in specific industries. It’s when a single entity is technologically capable of serving an entire market at lower costs rather than having multiple firms serve the same market.

According to a paper by Electricity Daily, it was more than a century ago when Samuel Insull, considered a legend in exploiting new technologies, masterfully demonstrated how a single firm could offer power at a much lower cost than the combined multiple small power companies. He invested in large turbines and boilers and connected such generators with many customers.

The paper entitled “Will distributed energy end the utility natural monopoly” stressed that natural monopolies thrived as policymakers embraced the idea of providing power at a lower cost to consumers by giving a single firm a legal monopoly and regulating power prices to recover costs. The policy was to offer exclusive rights to serve and combine it with cost-based regulation.

The study noted that the policy approach to natural monopoly is still highly recommended by economists today. I share the views of the authors of the paper when they said that we can easily confuse legal monopolies with natural monopolies. The Senate bill proposing to classify electricity distribution as a public utility is a testament to that fact. Plus, in the Philippines, only one entity is allowed to distribute in a franchise area.

The monopoly is legally created and is a clear illustration of Nobel Prize winner Vernon Smith’s point that regulators have encouraged monopoly in electricity markets. Economics professor Smith’s paper “Currents of Competition in Electricity Markets” noted that “Regulation has been applied far too broadly to the electric power industry. As a result, policies intended to restrain monopoly power have instead propagated that power.”

The past few decades have shown that technological advances are eroding utilities’ natural monopolies. Take the case of Independent Power Producers (IPPs) that are financed, developed, and operated by multiple independent companies that offered lower-cost power than a single larger counterpart. These IPPs proved that generation can be done by smaller firms at a lower cost, thus breaking the notion that power generation is not a natural monopoly.

We are now seeing the same happen on the distribution side with the emergence of distributed energy resource (DER) technologies and digital technologies.

A study published by the Massachusetts Institute of Technology noted that “DERs and digital technologies dramatically expand the number of potential investors in and operators of power system infrastructure, challenging traditional means of planning and coordinating the construction of generation, storage, and network assets.”

The study entitled “Restructuring Revisited: Competition and Coordination in Electricity Distribution Systems” stressed that there are relatively few barriers preventing investors and even consumers from adopting DERs in most developed power systems.

The authors also noted that “Indeed, many DERs (for example, “smart” HVAC units and water heaters) look more like consumer electronics than power sector resources. Consumers do not need to coordinate with the DNO/SO to install and operate these devices, despite the fact that these devices can have significant impact when considered in aggregate.”

The emergence of new technologies such as battery storage, rooftop solar, and non-wire alternatives (NWAs) are disrupting the long-held notion that power distribution is naturally monopolistic. These technologies are bringing down the fixed costs and high start-up costs in distributing electricity.

We only need to look at the case of NWAs, which use microgrids and DERs to replace the traditional “wire and poles” infrastructure in power distribution. Utilities that opt for NWAs avoid the expensive infrastructure investments.

US-based utility firm, Duke Energy makes a great case for the use of NWAs. The firm built a renewable micro gird on Mount Sterling in Great Smoky Mountain National Park and opted for non-wire alternatives in distributing electricity. The microgrid used 10kW of solar and 05 kWh of storage, allowing the firm to avoid shelling out large investments of a four-mile, 12.47 kV grid-connected distribution feeder.

Another US firm, Con Edison was able to avoid spending $1 billion for infrastructure by using $200 million non-wire alternatives under the Brooklyn-Queens Demand Management program. Con Edison opted for the combination of NWAs, DERs, solar-plus-storage microgrids to provide independent power to an area in Brooklyn while avoiding the high costs of lines and poles.

There are other new technologies available that can remove the barriers to entry in power distribution.

We also now have an Advanced Meter Infrastructure, enabling two-way communication of homes and network providers. The two-way communication allows the system to analyze data and act accordingly. Data that can be aggregated, analyzed, and communicated allows sector players to come up with services and products previously unavailable in the system.

Plus, the decreasing cost of information and communication technologies (ICT) will drive the network to improve resiliency and grid management, and increase competition. The Philippines is in a good position to capitalize on the decreasing ICT costs as the entry of the third telco, DITO will pave the way for more seamless integration of ICT and the power system.

So, must we still consider power distribution as a natural monopoly? New technologies are removing the barriers to entry, enabling more entities to enter the sector. Technological advancements allow multiple firms to serve the market more efficiently and cost-effectively than a single firm these days. Why do we insist that natural monopoly exists when there is a second or third player willing to distribute in the same franchise area?

The 1987 Constitution says that monopolies should not exist when public interest is at stake. The State after all should protect the public interest rather than the regulated or legal monopoly. Maintaining legal monopolies runs counter to what the constitution mandates as monopolies put consumers at a disadvantage. The lack of competition gives no incentive to the franchise holder to lower operating costs or provide excellent power distribution services.

We now have the opportunity to introduce competition into electric power distribution as new technologies offer new opportunities to lower power system costs. Instead, we are continuing to legally create monopolies. Smith’s assertion comes into mind “There are numerous ways to introduce competition into electric power distribution. Perhaps the most obvious is to eliminate state policies which grant distributors exclusive operating permits. Customers should have the right to bypass distributors and contract directly with generator owners.”

Power distribution is not a natural monopoly, we are only viewing it as such. Unfortunately, this view runs counter to the essence of the Electric Power Industry Reform Act (EPIRA), which was signed into law primarily to promote competition. Creating legal monopolies and protecting them also goes against our constitution. Failing to recognize that competition in power distribution exists and is possible with the right regulation is a disservice to Filipino consumers.

Energy Security Series, Part 1: High Power Rates

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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

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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

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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.