REVIEWING CAPM: How to Truly Bring Down Power Rates in the Philippines

I recently came across and found the time to re-read a material written by renowned Energy scholar,the late Simon Awerbuch. I first encountered Awerbuch’s readings a few years ago. That article made me really reflect and understand why our consumer on the street, Juan de la Cruz, is probably getting a bad deal in his electricity prices.

In the material, Awerbuch discussed the Capital Asset Pricing Model (CAPM), and the importance of reviewing the traditional methods used in estimating electricity costs.  He asserted that traditional energy planning fails to consider the risk of price volatility of fossil fuels, which, unfortunately, has a negative correlation with the economy.

We use CAPM in our tariff setting. In my view,  the concept is misused. The reading made me think that if only our energy planners and regulators take the time to understand the concept and make the changes needed, then we will surely have lower power rates

For a long time, we in the power sector have been using the “least cost” approach to analyze which sources of power are cheapest or the most economical to use in the system.  We do this by comparing technologies where we conclude that certain fuel sources are “cheaper” than others. To exacerbate this further, we then go on and regulate what can be passed on to consumers based on the returns we want to give to investors rather than what consumers want nor deserve.

And for the Nth time, I say, we got this all wrong.  This is the reason why we find it extremely difficult to bring down power rates.

We need to look at our Power Sales Agreement or PSAs to understand what we are doing wrong. Reduction of energy cost is simple: regardless of the technology, introducing fixed-price long-term contracts will REDUCE power rates.

To understand the need to introduce fixed-price-long term contract, we first need to review the use of what I call the ‘floating’ power sales agreement.

Generally, PSAs have provisions to “pass through” or “pass on” foreign exchange and fuel prices to the end consumers. It is my contention that once we minimize PSAs with “pass through” or “pass on” rates and replace them with fixed price long-term contracts, we can truly bring down power prices.  Otherwise, as my good friend says, these “pass on” contracts will have to be, in the Visayan language, “pas-an” (to be carried) by the consumers.

In my other articles, I have always asked the question: which is cheaper, a floating PSA that is currently priced at P5.00/kWh or a fixed price PSA that is fixed at P5.10/kWh for 25 years? The traditional analysis will say it is the floating P5.00/kWh.  In fact, the way “rate impact” studies are done, most utilities calculate only the first year tariff and weigh the implications of that tariff when added to the current average tariff of the entire energy mix. The traditional analysis will conclude that, indeed, a floating P5.00/kWh is cheaper than a fixed P5.10/kWh.

Unfortunately, such analysis does not consider the possibility that the floating PSA can reach P10.00/kWh the following year should the value of the peso fall against foreign denominations or prices of fuel or coal significantly increase.

Choosing the ‘floating’ price is counter intuitive. Any businessman or even a housewife would rather pay a known fixed price because, from a budgeting perspective, it is far more convenient.  And more importantly, it is actually, conceptually cheaper. It is cheaper because the cost to hedge either the fuel or forex risk will have to be added on the P5.00/kWh if one is to adjust the cost of a floating PSA to reflect current prices of fuel or value of peso against a foreign denomination. And that is assuming there is such a hedge for 20 years.

But why is this penchant for choosing the floating PSAs embedded in our regulatory framework? For this, we can point to the calculation of the Weighted Average Cost of Capital (WACC) when computing for the Return on Equity (ROE) in the determination of the appropriate tariff for a particular PSA. Our regulators use the CAPM for tariff setting, but unfortunately, use an incorrect value for the beta in the computation. Our regulators assume that the beta has a positive value, which signifies that the return to the generator is positively correlated to the economy.

This indeed is a faulty assumption especially if used in the tariff setting for fossil-powered plants. On the contrary, studies have shown that oil price volatility has a negative relationship on macroeconomic activities. Awerbuch, simplified it best: financial betas of fossil prices must also be negative.

The above point leads me to the bigger, and more important question: why is the rate setting evaluated from the point of view of the generator? Since the consumer is taking the forex and fuel risks anyway, shouldn’t the consumer’s perspective be taken instead?  Shouldn’t we use the beta for consumers for a floating PSA instead of the beta of the generator?

First of all, we need to look at who bears the risk of having a volatile price.  How is Juan de la Cruz compensated for taking on this risk? This question is not even being asked right now.  This has to be asked because, in reality, Juan de la Cruz will end up subsidizing the generators if we insist on assuming a positive of the beta of the floating PSAs.

Given that we are calculating the required ROE in the WACC using a flawed “beta,” then the generators are getting a ROE far greater than they deserve. This leaves Juan de la Cruz in a sorry state.

BUT if we take on the perspective of the consumer, then the entire story changes.

If we want to compensate Juan de la Cruz for taking the volatility risk, then we must consider the financial evaluation of the floating PSAs. Otherwise, the traditional assessment will show that Juan de la Cruz is getting a “cheaper” floating PSA. However, this is a fallacy.  The proof of which can be seen from a mathematical calculation using the CAPM.

Comparison

Take a look at the table above.  Clearly, the floating PSA is riskier for the consumer than the fixed PSA because, again, the consumer bears the cost of the forex and fuel risk. Or to put it simply, the consumers pay more for the fuel and forex upward adjustments.

Now we have to ask: how much is Juan de la Cruz really paying for each type of contract?

A static price comparison obviously is wrong. One cannot compare one price alone, let us say a P5.0/kWh for a floating PSA versus P5.10 for a 20-year fixed-price contract.  We MUST take into consideration the WHOLE contract period.

It is however, IMPOSSIBLE to predict the future prices of fuel and the foreign exchange.  And one cannot possibly put the future prices inside the contract.  This is the reason why these volatile costs are “pass through” or “pass on.”  It is the consumers who will pay for the adjustments above the P5.0/kWh.

This begs the question of how to account for this uncertainty in the evaluation of cost for Juan de la Cruz.

The fixed PSA, on the other hand, is easy to figure out: it is fixed.

So, how can one evaluate what the real cost is for Juan de la Cruz? Common sense will tell you, the fixed price – as long as it is priced correctly – will be always be advantageous to Juan de la Cruz, all other things being equal.

Mathematically it can also be proven.  We still use the CAPM– the very same formula that is being used to determine the appropriateness of the tariff–except that this time, we use the CAPM from the point of view of Juan de la Cruz rather than the one of the generator.

CAPM

The formula above says the discount rate of any asset is equal to the risk-free rate plus a premium.  This premium is represented by the market return (MR) adjusted for the sensitivity of the asset to the return of the market.  Generally, in modern finance, the market return (MR) is defined as the return of the entire stock exchange, and the beta is the correlation coefficient of a particular stock against the return of the market.

If a stock’s price goes up or down with the market, then we say that stock is POSITIVELY correlated with the market.  The beta then will be a POSITIVE number.  If the stock’s price goes up when the market goes down and vice versa, then we say that stock is NEGATIVELY correlated with the market.  Then that beta will be a NEGATIVE NUMBER. If a stock price stays constant regardless of the behavior of the market, then we can say it has NO CORRELATION with the market. Then the beta will be ZERO.

Let us now apply the concept in evaluating the floating PSA versus the fixed PSA.

Let’s start with the easy one – the fixed price.

Since the price of the PSA is fixed (in real terms), then we can say it has NO CORRELATION with the movements in the fuel price or forex.  Or to put it simply from a consumer’s perspective—the consumer will pay the same price regardless of the fuel prices or forex. So, the beta will be ZERO, which means the discount rate we should use will be the risk-free rate. Let me go back to this number later when we do the analysis.

How do we handle the case of the “pass on” or floating PSAs?

Volatile prices, in general, will be NEGATIVELY correlated to the market, so the beta is a negative number. A simpler analogy is this: if the price of fuel or the cost of forex goes up, the value of the PSA goes down (becomes more expensive.) On the other hand, if the cost of fuel or forex goes down, the value of the PSA goes up (becomes less expensive). Clearly, there is a NEGATIVE correlation between a volatile PSA and the market.

Applying this logic to the CAPM, one will see that the discount rate for the fixed PSA will always be higher than the discount rate for the volatile or floating PSA (mathematical proof available upon request.) The reason is simple. In the case of the fixed price contract, we discount the price at the risk-free rate.

On the other hand, in the case of the floating contract, we discount the price at a rate LOWER than the risk-free rate.  Discounting at this lower discount rate will result in a higher price than one that is discounted at the higher discount rate.  That the mathematical truth.

How do we translate this to Juan de la Cruz?

This simply means, ceteris paribus, a fixed price contract will ALWAYS be lower than a floating volatile contract. And any analysis that does not take this into consideration is doing a disservice to the consumers. This also means that putting a fixed price contract into a utility’s energy mix will lead to LOWER power rates.

There is no magic in the CAPM formula. After all, anyone with some basic knowledge of calculus and finance can calculate using that formula. The major shift here is this: we should use the discount rate relevant to Juan de la Cruz rather than to the generator. It is the consumer taking the fuel and forex risks.  Hence, he must be compensated for taking on that risk. Using the generator’s beta (most likely greater than 1) to evaluate the PSA is wrong because the one paying the tariff is Juan dela Cruz and not the generator.

I am not saying that we should totally ignore floating PSAs. Floating PSAs generally are associated with fossil fuel-based contracts. I think the late Prof Awerbuch hit the nail on the head with his article. As he pointed out, “The CAPM analysis highlights some important implications of the negative correlation between energy prices and the economy, suggesting a broader conceptualization of energy security that reflects the deleterious economic effects of fossil volatility. These effects can be measured and reduced by incorporating technologies such as wind, geothermal and PV, whose underlying costs are uncorrelated to fossil prices. Fossil price risk can be mitigated only through such diversification.”

Unless this shift is made, Juan de la Cruz will always be screwed. It will be the consumer who will “pas-an” the generator because of the “pass on” nature of the volatile PSA.

Time to change.

China’s Pivot

China power

Wind and solar energy from Yiyang County in Henan Province, China. Photo c/o china.org.cn

China, the world’s biggest polluter, is making a significant shift.

At the start of the year, the world’s largest consumer of energy has announced that it will pour some $361 billion by 2020 into renewable energy investments.

The announcement came after China raised its very first national red alert for smog as two dozens of cities in the country suffered from the air pollution, where officials warned citizens of a possible reduction in visibility to less than 500 meters. The smog, which is a clear manifestation of high air pollution forced airlines to cancel flights.

China, the country that uses more than half of the world’s coal is now working on sourcing a big chunk of its energy needs from renewables.

Its economic planning office, the National Development and Reform Commission (NDRC), has said it plans to boost the capacity of solar power by five times.  The country will also spend one trillion yuan in solar, 700 billion yuan in wind energy and 500 billion in hydropower with tidal power.

At present, the country generates the most renewable energy in the world. As of 2015, China accounts for 199 GW of the world’s 785 GW produced RE capacity excluding hydropower. It has drawn up a total of 199 GW of RE, while all European countries combined and the United States only generated 276 GW and US 122 GW, respectively. The country is also the largest wind generator for the same year, producing some 30.8 GW, more than thrice the generated wind capacity of the United States and Germany at 8.6 and 5.7 GW.

China also outpaced all other countries in RE investments for the same period as its RE investments reached $102.9 billion. The amount is almost three times higher than $49.8 billion of investments of poured in by European and US of $44.1 billion.

Even before the announcement of massive investment into renewables, the Chinese government has already made it clear that it is serious in its drive to lessen its carbon emissions. Last September, the government canceled some 103 planned and under construction coal power plant projects with a combined total generating capacity of 120 GW. Just this March, the government also announced that it would either be shutting down or postponing a total of 50 GW coal projects.

With all these developments, China is poised to become the world’s leader in the global fight on climate change especially since US President Trump has headed in the opposite direction. And in the words of Greenpeace East Asia’s spokesman Li Shuo: “China has transformed itself from climate bad boy into a reluctant leader, and at the Paris climate change talks, really a true leader.”

But China’s change in gears isn’t only about towards a greener environment. It is also an economic strategy according to experts. In a report, a professor at King’s College London, Nick Butler notes that the new energy direction also aims to reduce China’s reliance on imported supplies and to create a modern economy that provides more jobs as its economy continues its transition. After all, the announced investment is seen to generate some 13 million jobs.

“Having managed the transition from a predominantly agricultural economy to one based on heavy industry, basic manufacturing, and construction, China must develop a more complex economy with a rise in services, consumption, and higher value added,” Butler said.

China’s pivot is an excellent example of how shifting to greater use of renewables comes with enormous benefits. Indeed, this significant change will pave the way for a cleaner environment as well as provide more jobs needed by its citizens.

The Philippines should take note of this shift given that the State Grid of China Corp. (SGCC) is a major investor in our transmission company National Grid Corporation or NGCP. The Philippines will stand to gain from this Chinese pivot if SGCC will help the campaign for RE in our country.

References:

http://www.newsweek.com/china-issues-first-national-smog-red-alert-538121

https://www.weforum.org/agenda/2016/06/china-green-energy-superpower-charts/

http://asian-power.com/power-utility/exclusive/china-dead-serious-its-greener-energy-mix#sthash.Nfl1olmQ.dpuf

http://www.reuters.com/article/us-china-energy-renewables-idUSKBN14P06P

http://www.abc.net.au/news/2017-03-02/china-coal-cuts-and-renewables-transform-climate-change-leader/8316660

http://www.independent.co.uk/news/science/how-china-is-planning-ahead-for-life-after-coal-a7725621.html

Let’s Not Forget Wind and Natural Gas

So much has been said about the potential of renewable energy especially on solar power in the news lately. But there’s another renewable energy source that could significantly help us reduce our greenhouse gas emissions: Wind Energy.

Similar to other renewable energy source, wind power does not emit greenhouse gas emissions, and of course, the resource is free.

But this form of energy has one advantage over other renewable sources: its low carbon foot print. According to energy specialist James Conca wind energy has the smallest carbon footprint (along with Nuclear), only emitting 15 grams per kilowatt hour (kWh). Its emissions are largely from the manufacturing, installation and the maintenance of the wind turbines.

Development in solar energy has overshadowed the good news about wind power. But we should also take note of the progress wind energy has made.

In 2016, a total of 54.6 gigawatts (GW) was installed globally, bringing the world’s total installed wind capacity at 487 GW according to the Global Wind Energy Council (GWEC). China alone has installed 23.3 GW of wind power last year, and now has the largest share of wind power in the world with 42.7%. US also added more wind energy last year after installing a total of 8.2 GW.

Analysts at the Bloomberg New Energy Finance notes that “wind is now one of the main workhorses in power markets around the world.” And the BNEF predicts that wind power’s growth will continue as some 59 GW will be commissioned this 2017, beating the additional installed capacity in 2016.

Apparently, wind power’s potential must not be ignored.

In the Philippines, the World Wide Fund notes that our grid can accommodate up to 500 MW of wind power without hurting the grid. Plus, there are new technologies, which could make the Philippines a leader at least in the South East Asia (SEA) for wind power.  While we have as much wind as our neighbor countries, the Philippines’ is friendlier to the generation sector, particularly on research and development compared to other SEA countries. Our restrictions on connecting to the grid are much less.

However, our government should be more supportive of the feed-in tariff for wind energy because, without it, development of wind power could be stunted. That’s a shame because developing this renewable source could help us shift faster to cleaner energy just like in the cases of other countries.

Last year, the wind power in the United King made waves as it generated more electricity than coal. This is a first in the country’s history.  Coal power generation in the UK declined from 22.6 percent of the country’s overall energy mix in 2015 to 9.2 percent in 2016 with the shutdown of three major coal power plants.

Just last February, Denmark was able to generate sufficient energy from the wind to supply the power needs of the entire country.  WindEurope reported that the country produced a total of 97 GW from wind, with onshore wind providing 70 GW and offshore wind at 27 GW. The volume generated was enough to supply to some 10 million average households in the European Union.

wind_turbines_denmark

Wind turbines off of Skovshoved, Denmark. Photo c/o http://www.euractiv.com/

As of 2015, wind energy combined with solar only accounted for less than 0.1 percent of the Philippines’ energy mix. There is obviously more room for wind power just like with other renewable sources if we want to meet the country’s goal of cutting our emissions by 70 percent by the year 2030.  And the best way to move forward in achieving our committed emissions is to shift our dependence on fossil fuels to liquefied natural gas or LNG for our ancillary needs.

Wind and solar energy are intermittent sources of energy. Thus, we need to beef up on our ancillary services to maintain the correct direction and flow of power as well as to address the imbalance on the supply and demand on the grid. Currently, we rely on traditional sources of energy for the security of our grid, which unfortunately, creates havoc in our environment and health.

On the other hand, natural gas is less harmful to the environment since its main component, methane, results in lesser carbon emission. Its carbon dioxide emissions are 30 percent less than oil and 45 percent lesser than other conventional fuels. Natural gas also produces less sulfur dioxide and nitrogen, which are precursors of acid rain and smog, respectively.

The benefits of depending on LNG rather than coal are undeniable. In fact, a study conducted by researchers at the University of Texas shows that natural gas and wind are the lowest-cost technology choice for power generation in the United States when cost, environmental effects and impact on public health are taken into consideration.

In the last two years, natural gas accounted for some 15 to 16% of our energy needs while coal dominated our power mix at 32 %. If we are committed to reducing our carbon emissions and saving our environment, then we should work harder in shifting away from coal and instead look at natural gas, solar and wind as viable options.

References:

https://about.bnef.com/blog/10-renewable-energy-predictions-2017/

http://www.cnbc.com/2017/02/13/china-and-us-lead-way-with-wind-power-installations-says-global-energy-report.html

https://cleantechnica.com/2017/02/24/denmark-generated-enough-wind-energy-power-power-needs-wednesday/

http://www.wwf.org.ph/stories/rp-grid-can-accommodate-500-mw-additional-wind

https://www.theguardian.com/business/2017/jan/06/uk-wind-power-coal-green-groups-carbon-taxes

https://news.utexas.edu/2016/12/08/natural-gas-and-wind-are-the-lowest-cost-for-much-of-us

 

More Reasons to Believe and Reflections by DiCaprio

The report, Renewables Global Futures Report: Great Debates Towards 100 % Renewable Energy, showed that the majority of energy experts expect a continuous drop in the costs of RE technologies within the next decade. The revelations of the report shouldn’t surprise anyone anymore. This isn’t the first time we have heard of such expression of confidence in the ability of RE to take the place of conventional power sources in the energy mix.

In terms of pricing, various experts have already predicted that solar is likely to be the next king. The Bloomberg New Energy Finance, for one, has already said that the global average of solar cost might be lower than coal by the year 2025, as solar prices have already dropped by 62% since 2009. In my own personal experience the cost of panels went down by 35% in a span of less than one year.

Recent developments around the world have given energy experts more reasons to believe that an RE domination is indeed plausible. I share this view.

For example, the Organization of Petroleum Exporting Countries or OPEC’s top producing nation, Saudi Arabia, is now investing heavily in renewable energy and its government intends to pour in $30 to $50 billion investments in renewables. The oil-rich kingdom is now in the planning stage of developing some 10 gigawatts (GW) of renewable energy by 2023, starting off with solar and wind plants in the northwestern part of the country.  This move would replace some 80,000 barrels of oil daily used to supply its energy needs.

saudi-arabia-solar

Solar panels at King Abdulaziz City of Sciences and Technology, Saudi Arabia. Photo c/o Reuters

Aside from the falling cost of RE globally, the world is moving towards making a significant shift as evidenced by the closure of coal plants.

The report Boom and Bust 2017: Tracking the Global Coal Plant Pipeline made by environmental groups, Greenpeace, Sierra Club and CoalSwarm showed that closure or retirement of coal plants is at an unprecedented pace as total capacity of closed coal plants totaled to 64 GW in the last two years.

The study also showed a slowdown in construction of new power plants as there has been a 48% drop in the preconstruction activity and 62% decrease in construction of new coal plants from January last year up to January 2017.  India and China combined, have frozen some 100 coal projects totaling to 68 GW.

Such developments only show that the world is moving towards greener forms of energy. But while there has been much progress in shifting to more renewable sources for the world’s energy needs, the report stressed that there are still challenges in developing renewable energy.

Social awareness on the benefits of RE sources is considered as a major hurdle, according to the report.  “The lack of awareness that renewables are already economically competitive was also considered problematic.”

Additionally, the study also stressed the need to address energy policies if we are to move towards greater use of RE.  “The absence of long-term thinking in energy policy and the lack of specific policies for the high penetration of renewable energy systems were also seen as huge challenges,” the report stressed.

Such thoughts of the authors only echo what I have been saying for quite some time now.  Our energy planners had failed to look at the long-terms effects of choosing traditional sources of energy over renewable ones without looking at how such a choice hurts our environment. For a long-time, many energy planners refusing to believe in the potential of RE sources of being a clean and inexpensive option. “Costs” as defined by current energy planners do not factor in risk. As a result, we can make seriously flawed options in our choice for energy source.

This penchant for only considering the short-term profits in energy planning is one of the topics tackled in the documentary, Before the Flood, produced by National Geographic and Oscar awardee, Leonardo DiCaprio. One of the interviewees in the documentary, environmental scientist, and director of the Penn State Earth System Science Center, Michael Mann noted how leaders and large global corporations have pushed the world into ignoring the effects of traditional sources of energy: “These people are engaged in an effort to lead us astray in the name of short-term, fossil fuel profits, so we end up in a degraded planet.”

Unfortunately, we are now suffering the consequences of our short-sightedness, refusing to believe in the potential of RE sources of being a clean and inexpensive option. DiCaprio, in the documentary, offered a reflection, which energy planners should be asking themselves: “Imagine the world right now if we’d taken the science of climate change seriously back then. Since then our population has grown by five billion people and counting. The problem has become more difficult to solve.”

There is, however, some glimmer of hope as some energy planners are now seeing the need to replace traditional sources of power with renewables as evidenced by the growth in investments in the sector. In 2015 alone, global investments in RE reached some $256.8 billion; double the amount poured in fossil power for the same year. The rise of renewables is undeniable, as even developing nations that suffer most from the effects of climate change are investing more in renewables compared to the rich countries. It seems like a great number of energy planners is seeing the value of choosing cleaner energy options.

Many planners still reject the idea of renewables dominating the energy mix, despite the recent development on RE, particularly, the falling costs of both wind and solar power prices. But perhaps the predictions by energy experts about the falling prices of RE, recent developments such as the one in Saudi Arabia, coupled with a strong campaign for renewables, will do the trick. Convincing energy planners and policy makers that the best way to move forward with our energy needs is to develop more renewable sources is a tedious task but must be done nevertheless.

References:

https://www.bloomberg.com/news/articles/2017-02-14/saudis-warm-to-solar-as-opec-s-top-producer-aims-to-help-exports

REN21 Renewables Global Futures Report

http://www.ren21.net/future-of-renewables/global-futures-report/

Boom and Bust 2017: Tracking the global coal plant pipeline

http://www.greenpeace.org/india/en/publications/Boom-and-Bust-2017/

Ignoring the Numbers

Just recently, United States President, Donald Trump signed an executive order, which mainly seeks to overturn his predecessor, Barrack Obama’s Clean Power Plan.

To recall, then President Obama announced the Clean Power Plan in August 2015 in response to the growing clamor to address climate change. The Plan’s primary objective is to reduce carbon pollution from power plants. The Environmental Protection Agency (EPA) subsequently issued the Carbon Pollution Standards, the first U.S. national standard on pollution.

Trump’s EO will trigger the review of the US Clean Power Plan and carbon standards for new coal plants. News reports, however, note, that it is unclear if the US will keep its commitment to made in COP 21 agreement to keep the world’s average temperature below two centigrade above pre-industrial levels.

Reports also quoted Trump as saying that his order is about “ending the theft of prosperity” as the signing of the EO will “start a new era of production and job creation,” particularly in the coal and mining sector.

Perhaps it’s not surprising that the new US President is ignoring the actions and calls of the global community to work double time to mitigate the effects of climate change. After all, he has promised to bring coal mining jobs back while dismissing climate change as “a hoax created by the Chinese” during his presidential bid.

More details are yet to be released on the full impact of this new executive order. But as early as now, environmental activists are already criticizing Trump for going backward on the progress already made by the US in fighting climate change. The U.S, once considered as the leading country in the world’s quest for a cleaner and greener world is now seemingly going backward.

I also join the many others who question Trump’s move in signing such an E.O. as Trump seemed to have ignored that cleaner forms of energy, do generate jobs. Many jobs in fact.

Weeks before Trump signed his controversial order, the US Department of Energy (DOE) released a report showing the contribution of the renewable energy (DOE) sector in jobs creation in the country.

The US, Energy and Employment Report revealed that solar power employs the most workers in the US Electric Power generation industry with wind energy is the third biggest. Solar alone provided work for 43 percent of the sector’s employees with 374,000 individuals from 2015 to 2016. In contrast, traditional fossil fuels all together just hired 22 percent of the workforce at 187, 117 for the same period. Coal’s job figures have been on the decline for the past decade the report stressed.

And renewables’ contribution to the additional employment in the power sector is not to be ignored either. The Energy Sector’s contribution to the overall job generation is significant as it accounts for some additional 300,000 jobs, which is 14 percent of the US job growth in 2016.

Plus, RE’s job growth is significant as it increased by 25 percent, creating a total of 73,000 new jobs last year.  Wind power employment alone grew by 32 percent.

The growth of the renewables has been significant in the past decade as more energy are generated from these sources the report stressed: “The electric generation mix in the United States is changing, driven by the transition of coal-fired power plants to natural gas and the increase in low-carbon sources of energy.”

The study pointed out that generation from coal sources has dropped by 53 percent from 2006 to September 2016 while solar power alone has increased by 5000 percent in the same period.

And with the stellar growth of cleaner energy, jobs are still created.

“These shifts in electric generation source are mirrored in the sector’s changing employment profile, as the share of natural gas, solar, and wind workers increases, while coal mining and other related employment is declining.”

china-solar-energy

Solar alone provided work for 43 percent of the sector’s employees with 374,000 from 2015-2016.  Photo c/o http://www.zmescience.com

Trump stressed during the signing of the report that the main thrust of the EO was to protect American jobs. But apparently, the above numbers released by the U.S. DOE shows that adding cleaner forms of energy in the mix does not necessarily translate into the loss of jobs. Renewable power generation also requires manpower.

The US DOE study isn’t the only one that talks about job generation in the RE sector. Earlier studies have already established that increasing investments in renewables will generate employment.

Research by the University of California, Berkeley has shown that “photovoltaic technology produces more jobs per unit of electricity than any other energy source. Most of the jobs are in construction and installation of solar facilities and can’t be outsourced to other countries.”

Similarly, the report of the University of Massachusetts, “The Economic Benefits of Investing in Clean Energy in the US” stressed that a total of $150 billion of investments in clean energy would produce some 2.5 new million jobs.

Inevitably, these numbers point to one thing: Clean energy generates jobs. Choosing cleaner forms of energy does not come at the expense of the workers. On the contrary, more employment opportunities are available as we grow the RE sector.

Industry experts are bewildered on how Trump will deliver his promise of bringing more jobs to the coal industry.  Jason Bordoff, founding director of the Center on Global Energy Policy at Columbia University, says that it is impossible to bring back coal jobs. “There isn’t a lot of investment activity because in some cases it looks more economically attractive for firms to invest in cleaner technologies.”

Additionally, the Institute for Energy Economics and Financial Analysis or IEEFA, in its 2017 U.S. Coal Outlook stressed that job losses would continue for coal industry as companies will continue to use fewer workers in the future: Promises to create more coal jobs will not be kept — indeed the industry will continue to cut payrolls.”

Plus, the IEEFA sees that natural gas will soon replace coal, which makes it almost impossible to for Trump to achieve his goal: “Trump’s false promise that he can bring back coal is really exposed as so much coal dust and mirrors by this executive order, since utilities will continue to use natural gas instead of coal.”

Sadly, the US President didn’t look at these numbers nor listened to industry experts.

References:

http://edition.cnn.com/2017/03/27/politics/trump-climate-change-executive-order/

http://www.independent.co.uk/news/world/americas/us-solar-power-employs-more-people-more-oil-coal-gas-combined-donald-trump-green-energy-fossil-fuels-a7541971.html

http://www.reuters.com/article/us-usa-trump-energy-idUSKBN16Z1L6

https://www.energy.gov/sites/prod/files/2017/01/f34/2017%20US%20Energy%20and%20Jobs%20Report_0.pdf

https://www.epa.gov/cleanpowerplan/fact-sheet-overview-clean-power-plan

http://www.independent.co.uk/news/world/americas/donald-trump-coal-mining-jobs-promise-experts-disagree-executive-order-a7656486.html

Green is Gold: How renewable energy can save us money and generate jobs”. Greenpeace

Note: UCLA Berkeley & University of Massachusetts studies are cited from the Greenpeace report.

 

 

The Key to Sustainable Energy: Energy Storage Solutions

One of the biggest criticism on renewable energy is its inability to act as a baseload plant. With the exception of geothermal energy, renewable energy sources such as wind and solar cannot provide power 24/7 and have variable outputs, thus making the task of balancing the supply and demand a tedious one.

This is why we need additional technology to store the energy sourced from renewables. Gladly, scientists discovered energy storage technologies for RE. They have been available for some time now, but with the rise of renewables, their importance is now being emphasized

There are different kinds of technologies for energy storage. The most mature and common energy storage is the pumped hydropower where two reservoirs with different elevation are used to store excess power. Water is pumped to the reservoir with a higher elevation when there is excess hydropower supply. Stored energy is drawn when needed by releasing the stored water into the reservoir with the lower height with the help of turbines.

In the Philippines, the Kalayaan Pump Storage is one such type of storage.  Originally designed for the Bataan Nuclear Power plant, the National Power Corporation in the 1990s expanded the capacity to 600 MW to precisely act as a pump storage. In its design, however, it was not contemplated to store renewable energy. This facility provides ancillary services to the system to regulate voltage and frequency.

There are also other storage technologies available, as well.

For example, thermal storage is used by solar plants where the heat from the sun is stored in molten salts, water or other liquid.  Another storage technology is the compressed air energy storage that compresses air and stored in underground caverns. The compressed air is then drawn from their storage and a combustion turbine is used to fire the air with the help of natural gas to produce power.

At Emerging Power Inc or EPI, we use the multi-hour flywheel battery storage. We are in partnership with California-based company, Amber Kinetics for our power storage needs in our solar power plant. The flywheels serve as the reservoir of significant volume of kinetic energy with the high-speed steel rotors. The fly-wheel batteries have been around for some time, but we chose Amber Kinetics’ technology since it can store and release power for hours unlike other similar technology that works only for some minutes. The pilot model is currently installed in the Subic solar farm.

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Flywheel technology by Amber Kinetics at the JSI Subic Solar farm

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Recently, the World Economic Forum named battery storage as one of the Top Ten Emerging Technologies of 2016, the advances in technologies that can help improve lives and industries significantly and help protect the environment.  This list includes technologies that have been available for some time but have reached a tipping point, or where the development in such technology is significant and advantageous to many.

Battery storage solutions after all, are on the rise, too. Zinc, aluminum and sodium batteries are being employed to service small areas. For example, Fluidic Energy, a start-up company that specializes in making batteries using air and zinc has already signed a deal with the Indonesian government to help power-up some 500 remote villages using solar power in the country. The firm will provide air batteries that can store as much as 250-megawatt hours of energy. Fluidic Energy, has earlier inked an agreement with the government of Madagascar to help 100 remote villages put up a mini-grid with the aid of their zinc-air batteries.

As we push for more use of RE, we also need to find a way to store harnessed power from renewables and its integration to grids more feasible. And fortunately, various organizations including governments are now heavily involved in research work to find more power storage solutions that will pave the way for a cheaper, greener and cleaner energy consumption.

References:

https://www.weforum.org/agenda/2016/06/next-generation-batteries

http://www.ucsusa.org/clean-energy/how-energy-storage-works#.WDKm9Pl9600

More Reasons to Shift: Health and Death Print

Recently, the Senate voted to concur the ratification of the Paris Climate deal after President Rody Duterte signed the ‘Instrument of Accession,’ signifying the Philippines’ commitment to Paris Agreement.

To recall, the Paris Agreement on Climate Change seeks to reduce carbon emission and was signed by 194 countries. Our country has pledged to cut 70% of its carbon emissions by 2030 with the help of the international community.

The Senate’s concurrence signifies that we are now legally bound to the agreement. This means it is time for us to double our efforts in reducing our carbon emissions.  One way of doing that is to add more renewable energy in our energy mix.

This shift has sound economic reasons, and more importantly, it has even more profound rationale: its impact on the health of our people.

Data from the Department of Energy reveals that we are still reliant on oil and coal for our energy needs. In 2014, we sourced our power from imported coal and oil by as much as 13.9% and 29.8%, respectively. The figures are even higher for 2015 as imported oil and coal accounted for 14.92% and oil was 32.79% of our energy mix.

Aside from the monetary consequences relying heavily on imported products, reliance on coal and oil for our energy needs has an impact on health of our countrymen, and therefore death rates. Coal, for one, has the largest carbon footprint among all energy types. One kilowatt-hour (kWh) of power produced from coal emits roughly 900 grams of carbon dioxide. And this has health consequences.

Data shows that shifting to renewable energy will pave the way for lesser carbon emissions. Just recently, a study revealed that in the United Kingdom, carbon emissions decreased by 5.8 percent in 2016 compared to previous year as the country’s use of coal dropped by 52% for the same period.

Aside from having a large carbon footprint, experts are now talking about another measure: “death print.”.  Both oil and coal have large death prints. According to James Conca, an energy expert, and geochemist, “death print is the number of people killed by one kind of energy or another per kilowatt hour (kWh) produced”.

Conca explains that coal, oil, and biomass are carbon particulates that result from burning and cause respiratory problems. Our internal organs, particularly the lungs, don’t respond well to these particulates.  Using them has the same result as inhaling cigarette smoke: black lungs.

Just how bad are the death prints of coal and oil?

Conca’s research shows that on global average, the mortality rate of coal –computed as death divided by trillion kWh of use–is 100, 000 when 50% of energy needs are sourced from coal.  It’s even worse in China, which sources 75% of electricity from coal as its mortality rate is 170,000.  The US sources 44% from coal, and its coal’s mortality rate is 10,000. Conca says that China has unfortunately ramped up the building of coal in the last decade with plants that usually do not have exhaust scrubbers thus the higher death print.

Oil has a large death print, too, as its mortality rate is 36,000 for every 8% energy it supplies.

On the other hand, solar rooftop and wind power, with each contributing roughly one percent to the global energy supply, has mortality rates of 440 and 150, respectively.

In the United States, Practice Greenhealth points out that a typical 200-bed hospital that uses coal-powered energy is responsible for $107,000 a year in direct healthcare costs associated with asthma attacks, chronic bronchitis, and other health problems. The organization is the leading membership and networking organization in the US for organizations in the healthcare community that have made a commitment to sustainable, and environmentally preferable practices.

Clearly, these numbers point that adding more renewable energy to the mix will both save the environment, as well as lives.

Again, as I have been saying in the past, I do not have problems with coal plants per se. In fact, I have built some of them during my days with the NAPOCOR. But I also believe in responding to the needs of our time. And studies suggest that the world needs more clean energy if we are to save the world for the succeeding generations.

References:

http://edition.cnn.com/2017/01/18/world/2016-hottest-year/

https://www.forbes.com/sites/jamesconca/2012/06/10/energys-deathprint-a-price-always-paid/#16e2ea1b709b\

https://qz.com/925294/carbon-emissions-in-the-uk-have-fallen-to-a-120-year-low/

http://www.rappler.com/nation/162865-duterte-signs-paris-agreement-climate-change

http://www.rappler.com/nation/162865-duterte-signs-paris-agreement-climate-change

https://practicegreenhealth.org/topics/leaner-energy