They’re Diversifying And We’re Not

Recently, Petronas, the Malaysian oil and gas company has announced that it will be dabbling in the renewable energy sector. The firm recently announced that it inked a deal with Singapore-based renewable energy firm specializing in solar panels, Amplus Energy Solutions.

Petronas said that its deal with Amplus is part of the firm’s strategy to develop solar power plants and rooftop project. This deal says Petronas CEO Tan Sri Wan Zulkiflee Wan Ariffin is the first step into the firm’s diversification.  “This acquisition reflects Petronas’ strategic intent to grow in the renewable energy space as part of our strategy to step out beyond oil and gas into the new energy business. This also represents our first international solar venture and we look forward to providing energy solutions to our customers in these high-growth energy markets.”

Petronas is not alone in turning to renewable power to serve their customers well and maximize their profits. In fact, many Southeast Asian energy companies that are highly dependent on fossil fuels are also entering the renewable energy market in order to meet the region’s demand for electricity.

For example, Thailand-based energy firm, Banpu sources 90 percent of its revenue from its coal plant, but recently entered the renewable energy market. “We will integrate coal with renewable energy with the aim of maximizing profit and meeting social needs,” Banpu’s CEO Somruedee Chaimongkol says.

Banpu, which operates in several Asian countries as well as the United States has installed some 150,000 Kilowatt hour worth of solar generators. The firm also plans to build 80,000-kilowatts wind farm in Vietnam by 2021.

Likewise, State-backed energy companies in Southeast Asia are adopting the same diversification strategy. For example, Tenaga Nasional, a Malaysia energy firm started the commercial operations of its 50,000 kWh solar power plant near Kuala Lumpur, which is one of the largest solar plants in the country. 

Similarly, Indonesia’s state-run utility PLN is tapping on the country’s geothermal potential by purchasing renewable energy generated by independent geothermal power producers.

Darajat_geothermal_plant_Chevron_Indonesia-1024x682

PLN’s Darajat Unit Geothermal Power Plant. PLN is buying renewable energy from independent power producers. Photo c/o http://www.thinkgeoenergy.com

These companies, which once only had coal in their portfolio are probably now seeing the value of energy diversification. 

In energy systems planning, there are three basic properties of diversifications, namely, balance, variety, and disparity as pointed out by Andy Stirling,  a professor of Science and Technology Policy at the University of Sussex.

Variety pertains to the number of energy supply options available. This is what these companies are aiming for as having varied energy types means more diversity in their portfolio.

On the other hand, balance refers to the reliance on each available energy source option available. This means an energy system is also considered more diverse if there are proportionate dependence on each energy source. Disparity pertains to the differences in each power option.

It’s not only companies that will benefit from having a diversified energy mix. As I keep repeating, nations too will be in an advantageous position if there is diversity in their energy system.

For example, the Philippines relies heavily on coal to meet energy demands. This means our power costs go up when prices of coal in the global market increase. It also does not help when the peso falls against the dollar as we import coal. Whether power consumers will pay higher electricity bills highly depends on world prices and the strength of the peso. And this is all because we source most of our energy needs from coal plants.

We also have to remember that fossil fuels are finite resources. What happens then when these resources are depleted?

This is why we need to diversify our the power mix. This means we should be able to source a majority of our power from sources that are not vulnerable to external factors such as exchange rate and global prices. And again, as I have been saying, renewable energy prices can be fixed for many years. Of course, we also have to prepare for the scenario when finite power sources are low in supply or worse, already gone.

On a side note, many see the Supreme Court decision as challenging the supply of power in the future. I think we should take a step back and think of this as an opportunity to re-think about the energy mix of the country.  We have an opportunity to inject more indigenous and renewable energy in the system. We should grab this chance.

Energy diversification indeed has many virtues. Energy companies with mostly coal power plants in their portfolios are now seeing the value of diversifying their energy sources. Sadly, the same cannot be said about our energy system, our planners and regulators in the country.

References:

https://asia.nikkei.com/Spotlight/Environment/Southeast-Asia-s-energy-majors-pivot-sharply-to-green-power2

https://www.power-technology.com/news/petronas-renewable-energy/

Diversity and Sustainable Energy Transitions: Multicriteria Diversity Analysis of Electricity Portfolios By Andy Stirling

Isn’t It Ironic?

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Record-breaking year for ocean temperatures in 2018. Photo c/o Business Insider

Germany recently made an announcement that it will end its dependence on coal power plants by 2038 in an effort to meet its commitment to the Paris climate change goals. Reports noted that the country intends to reduce its coal energy capacity from 42.6 gigawatts (GW) to around 30 GW in 2020 and to 17 GW by 2030.

Germany at present still sources 40 percent of its power needs from coal. Last year was a first for the country as renewable energy dominated the power mix.

Hans Joachim Schellnhuber a member German coal exit commission hailed the decision as a move that’s very much needed in this day and age “ This is an important step on the road to the post-fossil age – a step that also opens up new perspectives for the affected regions through innovation-driven structural change.”

And I agree that the move is a step in the right direction. Each country needs to make drastic actions to help keep the world’s temperature at the desired levels. After all, the United Nations recently warned us that we only have 12 years to keep the world’s temperature to a maximum of 1.5 °C. Otherwise, we will suffer from worsening of risks of floods, extreme heat, droughts, and poverty.

We are already, of course, seeing the effects of climate change.

For example, as early as November last year, experts have warned that 2018 was likely to be the fourth hottest year on record. There is no confirmation of this record as of now. But what has been confirmed is that 2018 is that ocean’s had their warmest year on record.

The study that was published in the journal Advances in Atmospheric Sciences noted that the hot record indicates the enormous amount of heat is being absorbed by the sea due to rising of greenhouse gas emission. Rising ocean temperatures are not to be ignored says, experts, since they contribute to intense hurricanes and destruction of coral reefs.

Plus, the world is likely to suffer from El Nino this year, which will make 2019 as most likely to be the hottest year on record according to the Climate Prediction Center.

These warnings, of course, are pushing many countries, like Germany to step up their fight against dirty sources of power and honor their commitment to the Paris agreement in 2015.

The Philippines, unlike Germany and other countries, are far from making waves when it comes to greater use of renewable. This is a pity since we Filipinos have more reasons to shift to renewable power.

For starters, we are a country that is endowed with plenty of natural resources. We are just the third biggest geothermal power producer in the world. The Philippines used to be second, but sadly was overtaken by Indonesia (which merits a separate article). We are also a tropical country as well. Yet here, we are a nation that has coal plants as the major source of energy.

It also makes sense for us to do our share to help the earth limit its global warming. The Philippines, after all, has been tagged as one of the most vulnerable nations to climate change. But we are a country that has pushed back its target of sourcing 35 percent of overall energy needs by 2030 to 2040.

Plus, there’s a clamor renewable power among Filipinos. A survey by Pulse Asia last year showed that 89 percent of Filipinos are in favor of renewable energy. But alas, the country will be adding some. 10,423 MW of coal power.

We have every reason to shift to renewable energy. We have the natural resources. We are a country that suffers greatly from the effects of climate change. Our citizens want cleaner forms of energy. But no, we remain a nation dependent on coal. How ironic. And sad.

References:

https://www.philstar.com/business/2018/12/26/1879827/iemop-proposes-nationwide-system-renewable-energy-development

https://www.accuweather.com/en/weather-news/2019-may-be-the-warmest-year-on-record-as-a-result-of-an-el-nino-event-exacerbated-by-global-warming/70006943

https://edition.cnn.com/2019/01/16/world/climate-2018-hottest-year-for-ocean/index.html

More Competition in the New Year and the Coming Years

The previous year ended with news that the Meralco-Marubeni Consortium won the bidding for power distribution of the New Clark City, the first city in the Philippines to have a smart-power grid and underground cables. This means that residents and business of the smart city will enjoy low utility rates.

The Bases Conversion and Development Authority (BCDA), owner of the New Clark City is set to ink the agreement this month with the Meralco-Marubeni Consortium, consisting of Meralco, Marubeni Corp., Kansai Electric Power Co. Inc., and Chubu Electric Power Co. Inc., Their proposed tariff bid was P0.6188 per kilowatt-hour (kWh).

The Meralco and Marubeni consortium was able to beat the Aboitiz-Kepco Consortium of the Olongapo Energy Corp. and Kepco Philippines Holdings Inc, which proposed a P0.9888 per kWh tariff.

It is worthy to note that both bids were lower than the tariff ceiling Php 1.25 kWh set by the BCDA for power distribution. The proposals are also cheaper than the Php1.24 kWh of Mactan electric, the lowest distribution supply metering tariff that’s under the traditional distribution system.

This bidding is proof that competition, as any economist worth his or her salt would know, would always benefit consumers. And competition in the distribution of power is what the Filipinos need to enjoy cheaper power rates. Although the game I talk about is not exactly in this context, but this recent bidding gives flavor to what I mean.

And since it is the start of the year, let me share my reflections on what can be done to achieve lower electricity bills for all of us.

We can start by allowing more franchise holders in a single area rather than stick with the current rules of only granting a franchise to one. The logic is simple. Firms vying for the same customer base will find ways to beat their competitors either concerning better service or price.

Unfortunately, allowing just one franchise holder per area fails to push the franchise holder to improve its services and offer competitive pricing. This is what monopoly does– leave the firm to dictate prices and be complacent in its service delivery. If several businesses are competing for the same customer base, then surely we can expect players to always be on their toes to find ways to beat other firms or electric cooperatives.

Our lawmakers can also review the rules for the Retail Competition and Open Access (RCOA), too. Present rules, after all, require that only those with 750 kWh or higher monthly peak demand or contestable customers can choose their power providers. This means those with lesser than 750 kWh or captive customers are not given that option.

But why should we single out those with higher consumption and not give the option to all power consumers to choose their sources and distributors? If indeed the consumers’ welfare is the top priority, then we should also allow captive customers this alternative. We need to have some solutions to what people expect to be “stranded assets.” This, surely, can be addressed. We just need creativity here.

These are just some of the changes we need if we want Filipinos to benefit from the essence of EPIRA, the law crafted to foster more competition in the energy sector. We need to make major changes if indeed the Filipino consumers’ welfare is of the utmost importance.

The New Year brings hope to all of us. And, it is my wish for the New Year that our regulators would see the critical role that competition plays in the energy sector and have the political will to make the changes needed.

Ambitious, Admirable and Much Needed

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Spanish Turbines. Spain wants to source all its power needs from renewable sources by 2050. Photo c/o http://www.treehugger.con

Spain recently announced its plan to source all its power needs from renewable energy by 2050 in the hope of fully decarbonizing its economy. To achieve this goal, its government is committing to installing 3,000 megawatts (MW) of wind and solar capacity yearly in the next decade.

Aside from additional capacity from renewables, the Spanish government will also ban new licenses for hydrocarbon exploitation, fracking wells, and fossil fuel drills. Spain will also allot one-fifth of its national budget to mitigate the effects of climate change.

The government is prepared to look after the welfare of workers who are likely to lose their jobs due to the shift to renewable energy by providing early retirement schemes and re-skilling in clean energy jobs.

Not surprisingly, Spain’s announcement was hailed by many. The chief executive of the SolarPower Europe trade association, James Watson described Spain’s move as “a wake-up call to the rest of the world”.

Likewise, the chief executive of the European Climate Foundation, and former French climate envoy, Laurence Tubiana said that this move is both inspirational and groundbreaking. “By planning on going carbon neutral, Spain shows that the battle against climate change is deadly serious, that they are ready to step up and plan to reap the rewards of decarbonization,” she stressed.

Spain is not the only country that is making the headlines for its commitment to using more renewable energy. A recent report by Green Energy Markets found that Australia is likely to have three-quarters of its energy needs supplied by renewables by 2030.

The report noted that the installation of 150 megawatts of solar rooftop energy systems in residential and commercial zones in October alone is a record breaker as it is 76 percent higher than the monthly average last year. Australia has also committed to large-scale solar and wind farm projects with a total capacity of 412 watts with construction set to commence in October.

The additional 412 MW capacity brings the year-to-date total to 3,200 MW. The report stressed that this recent commitment and additional capacities will allow the majority of Australia’s power needs to source from clean forms of energy. “If we maintained over the next decade the record rate of both rooftop solar installations and wind and solar farm construction commitments that have prevailed since 2017 then renewable energy would represent 78 percent of electricity supply across Australia’s west and east coast main grids, ” the report noted.

Spain’s move, as well as Australia’s accomplishments, are more than welcome developments. After all, we need drastic action to combat the effects of climate change. More so since the world has only 12 years to limit climate change catastrophe as recently warned by the United Nations. This gloomy warning says that the world has only a dozen years to keep global warming to a maximum of 1.5 C. Otherwise, we will see the worsening of droughts, floods, poverty, and extreme heat.

Speaking of extreme heat, scientists also say that 2018 is likely to be the fourth hottest year on record. According to the World Meteorological Organization, the average global temperature between January and October was close to 1 c above the pre-industrial baseline.

The WMO stresses that the 20 warmest years on record happened in the past 22 years and the four hottest have all come in the last four years. A warmer world is very alarming and has dire effects according to WMO Deputy Secretary-General Elena Manaenkova. “Every fraction of a degree of warming makes a difference to human health and access to food and fresh water, to the extinction of animals and plants, to the survival of coral reefs and marine life,” she said.

Unfortunately, the Filipinos do not seem to share the other countries enthusiasm for renewable energy. Our energy planners and government officials fail to realize that shifting to renewables is the only way forward if we are to provide power for all as well as help save the planet.

This lack of appreciation is lamentable since the Filipinos will surely benefit from using more renewables. For example, off-grid islands will no longer have to rely on the expensive diesel-powered generators if we only we can harness our natural resources properly. In fact, one study showed that the Philippines could save as much as Php10 billion if off-grid islands turn to RE instead of the expensive diesel generators.

Plus, renewables can help ease the burden of Filipinos who pay more for power consumption everytime the international coal prices shoot up or when the peso falls against the dollars. As I have been explaining, renewable energy provides a fixed price whereas coal and gas power sources result in higher power rates as prices are affected by movements in the foreign exchange and world prices.

Of course, the Philippines should also do its part in helping improve the world’s carbon footprint. After all, our country is ranked as one of the most vulnerable to climate change, according to credit rater Moody’s. “The Philippines’ heavy reliance on agriculture (31% of employment) and high exposure to climate-related disasters (on average 19 events per year over the last decade) imply that it was already among a group of sovereigns that we assessed as vulnerable to climate change — but it is now among the most vulnerable.”

The reported, which was released last May, noted that the calamities in the country affect economic activities and food production. Plenty of Filipinos have also lost their lives due to natural disasters. It is then wise for us to do our share in mitigating the effects of climate change since the Filipinos suffer so much from its consequences.
Clearly, we need to grab every opportunity to reduce our carbon footprint to help keep global warming at the desired level as well as improve the Filipinos access to energy. This is why the two countries announcements and achievements may be ambitious but nevertheless admirable. Such actions, particularly shifting to renewable energy is what the world and the Filipinos badly need right now.

References:

https://www.theguardian.com/environment/2018/nov/13/spain-plans-switch-100-renewable-electricity-2050

http://www.xinhuanet.com/english/2018-11/30/c_137641641.htm

http://time.com/5466681/climate-change-hottest-year/

Electricity-Sector Opportunities in the Philippines: The Case for Wind- and Solar-Powered Small Island Grids. The Institute for Energy Economics and Financial Analysis

https://www.bworldonline.com/philippines-rated-among-most-vulnerable-to-climate-change-in-new-moodys-ranking/

Small Victories

 

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The EU agreed to increase RE share to 32% by 2030. Photo c/o https://www.finchannel.com

There are many small victories to celebrate among renewable energy advocates.

Last June, the European Commission, Parliament and Council agreed to increase renewable power use in the region to 32 percent by 2030, up from the previous goal of 27 percent.

Aside from setting this target, the agreement also included removal of barriers to entry of renewable energy small players as well as a review of the 32 percent goal in 2023.

The new goal was set so that the region can meet its goal of reducing greenhouse gas emissions by 40 percent, below 1990 levels by 2030 as part of its commitment to the Paris Agreement of keeping global warming below 2 degrees. “This deal is a hard-won victory in our efforts to unlock the true potential of Europe’s clean energy transition,” EU Climate Commissioner Miguel Arias Canete was quoted.

And there is more good news from this region since Sweden is set to achieve its renewable energy targets 12 years ahead of the deadline.

The Nordic nation is likely to reach its 2030 renewable energy target of generating 18 terawatt-hours annually from renewables by the end of the year according to the Swedish Wind Energy Association (SWEA). This feat will be possible, thanks to the aggressive installation of wind turbines since some 3,681 wind turbines will be operational across the country by year-end.

Europe is not the only one that brought good news. Japan also recently announced its plans of boosting renewable energy use by 2030 by 22 to 24 percent. Currently, the country sources 15 percent of its energy demand from renewable sources.

Unfortunately, the Philippines did not make a similar announcement and instead opted to push down our goal of sourcing 35 percent of overall power needs from RE by 2030 to 2040.

But this is not to say that we lack good news in renewable energy front or that Filipinos entirely lack appreciation for renewable energy. After all, several local government units (LGUs) have declared their support for cleaner forms of power.

For example, last June, the city council of Ozamiz revoked an earlier resolution endorsing the proposal to build a 300-megawatt coal-fired plant and instead adopted a new one to look for prospective investors for renewable energy in the city.

The same case happened in Bohol last March where its local government prevented the building of new coal power plants since “the entire Provincial Government of Bohol are fully intent on maintaining the sanctity and pristine condition of the environment.”

Eventually, the LGU of Bohol passed an ordinance against the establishment of coal power plants in the province on April 6, joining the ranks of Guimaras and Ilocos Norte, which had already banned coal and shifted to renewable energy.

Yes, our national government may be slow in realizing the value of renewable power, unlike other nations like the European countries and Japan but at least our provinces know the worth of going renewables. Maybe soon, more Filipinos including government officials will realize what renewable power can do for our country and that, as Guimaras Governor Samuel Gumarin said in a speech, “a sustainable-development path, powered by renewable energy, is not only possible but more viable.”

References:

https://www.rappler.com/nation/203386-bohol-no-coal-ordinance-epira-greenpeace

https://climatereality.ph/climate-reality-ph-lauds-ozamiz-city-climate-action-819/

https://www.channelnewsasia.com/news/asia/japan-aims-for-24–renewable-energy-but-keeps-nuclear-central-10495024

https://www.theguardian.com/business/2018/jun/14/eu-raises-renewable-energy-targets-to-32-by-2030

Sweden to reach its 2030 renewable energy target this year

Survey Says

The majority of Filipinos are dissatisfied with current power prices according to a survey by Pulse Asia.

Last August, the research firm released its report revealing that around 60 percent of Filipinos are dissatisfied with the power rates. “With the exception of Mindanao, at least half of adults in the main geographic areas are dissatisfied with the price of their electricity,” Pulse Asia said.

The survey also showed that a significant majority of Filipinos or 82 percent are in favor of “having a new option for electric service provider or electric utility.” In the National Capital Region (NCR), 88 percent of adult Filipinos expressed openness to having new electric service providers. Plus, 89 percent of Filipinos also favor renewable energy.

The survey results are a testament to the growing dissatisfaction of Filipinos on our high power rates. They are also aware that there is a need for more competition in our energy sector even in the distribution segment to cut the cost of electricity. Competition, after all, will always drive down market prices. And it is not surprising that the vast majority of the survey participant for NCR is open for more distributors as the monopoly of a company in any business will never be beneficial for consumers.

Unfortunately, the passage of the Electric Power Industry Reform Act (EPIRA) did little to invite competition in the markets in the distribution side as we focused more on having more players in the generation business.

But there are steps our regulators can take to generate more players in the distribution of power. For one, we can break away from the current practice of disallowing a new distribution entity to enter the market where one DU is in place. Such practice fails to promote competition and instead allows for a monopoly to flourish.

Aside from allowing other power players to enter an already franchised service area, our regulators should also consider lifting the cap for the Retail Competition and Open Access (RCOA).

Currently, the rule says that only those with a monthly peak demand of 750 kilowatts or higher can be considered contestable customers and can choose their preferred service providers. In my opinion, this rule should be revised as anyone regardless of their power consumption should be given the option to decide where to source their power.

We have to keep in mind that contestable customers get to save on their energy bills than the captive customers or those who are required to source from their distribution utilities or electric cooperatives. In a column in BusinessWorld, President of Minimal Government Thinkers, Bienvenido S. Oplas, Jr. President of Minimal Government Thinkers notes that contestable customers on average only pay Php 6.91 per kilowatt hour (kWh) considerably lower than the captive customers who pay roughly Php 7.78 kWh.

Our government then should work on giving choices to the majority of the Filipinos by allowing them to choose their power generator or distributor rather than force them to stay with their current ones. Naturally, aside from lifting the restriction on RCOA, there is also a need to make the infrastructure and resources available to pave the way for this scenario where customers have the freedom to choose their energy type, generator, and even distributor.

DU competition

Technology will soon render the traditional distribution system obsolete according to experts. Photo c/o https://m.dailyhunt.in

We have to make these changes if we do not want to be left behind. Let us keep in mind that the technological advancements will soon render the traditional distribution system obsolete as asserted by many experts. For example, David Cane, former CEO of NRG Energy believes that the existing utility system will become irrelevant in the near future since many advanced countries are moving towards decentralized homegrown energy where home automation be of great importance. He argues that “When we think of who our competitors or partners will be, it will be the Googles, Comcasts, AT&Ts who are already inside the meter.”

Indeed, we need to create an environment that can accommodate these technologies, so we can benefit from having more options as well as cheaper power prices to consumers.

Having choices is one of the best ways to promote competition and hence lower down the power costs in the country. However, major changes are needed that require a lot of willpower. It is time for our regulators to put the interest of the Filipino consumers above anything else.

References:

https://www.philstar.com/headlines/2018/08/21/1844441/filipinos-not-satisfied-high-power-rates-poll

https://www.bworldonline.com/electricity-competition-epira-and-wesm/

Moving Forward: Introducing Competition in Power Distribution

Around the globe, significant changes are taking place in the power sector, particularly in the distribution of energy given the advances in technology. Many countries are gearing up to take advantage of new technologies to help reduce the cost of power, among other reasons.

For example, the European Union (EU) is paving the way for its electricity system to be more efficient by encouraging consumers to use intermittent renewables at different times of the day to save on power and lower their electricity bills. At this time, the EU is working on policies to make it possible.

Those who use more power during off-peak demand or when renewable energy technologies are running on their peak will be given incentives also known as the dynamic pricing scheme.

Other European countries like Spain and Nordic states are already implementing the dynamic pricing. In the long run, EU envisions that customers’ appliances such as washing machines or dryers will run automatically during the day when the sun is shining at its brightest or during windy days. This dynamic pricing scheme is expected to save as much each household an estimated average of €400 annually with the help, of course, of smart meters and smart grids.

Some may be doubtful of EU’s vision and label it as too ambitious. But EU’s goal is achievable. After all, breaking away from the traditional model of the distribution of having power stations at one end with the customers on the other end of the supply chain is long overdue.

Consumers now should have the option of selecting their preferred kind of energy, source, and even meters. This is possible except our tolerance for monopoly has limited the choices available to us consumers, a point stressed by several experts.

For example, Nobel Prize awardee Vernon Smith, who as early in the 1980s, argued that deregulation of the electricity market is possible if there is competition for generation, transmission and even distribution.

In his paper, Currents of Competition in Electricity Markets, he stressed that “Competition is now evident on the fringes of power generation, and a foundation is in place for deregulating not only generation but possibly transmission and distribution as well.”

The economics professor pointed out that regulators have encouraged monopoly in electricity markets rather than implement rules that promote competition: “ An examination of the electric power industry as it exists today reveals a tremendous untapped potential for the development of competitive markets. 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.”

smart meters 2

Smart meters in Europe. Changes in the consumption and provision of electricity driven by emerging technologies are taking place and making way for more options in power consumption. Photo c/o http://www.nec-display-solutions.com

A recent paper, Utility of the Future by Massachusetts Institute of Technology (MIT), discusses how changes in the consumption and provision of electricity driven by emerging technologies are taking place and making way for more options in power consumption.

One of the goals of the research is to identify inefficient barriers to the integration of cost-effective new sources of electricity services to help create a level playing field for the provision and consumption of power services.

One of the recommendations of the study is that “the structure of the electricity industry should be carefully re-evaluated to minimize conflict. It is critical to establish a level playing field for the competitive provision of electricity services by traditional generators, network providers, and distributed energy resources.”

The study further stressed that it is essential to review how markets work to make way for new technologies and their integration into the electricity system: “Wholesale market design should be improved to better integrate distributed resources, reward greater flexibility, and create a level playing field for all technologies.”

And it seems that the researchers are addressing our local regulators with their recommendations. It is no secret that I have been calling out for revisions in our policies that would pave the way for new players so that Filipino consumers can enjoy lower power costs especially since new technologies are emerging.

Time and time again I have been calling the attention of the Department of Energy (DOE) to take drastic measures to promote competition rather than protect private interests as this is the essence of the Electric Power Industry Reform Act (EPIRA).

Unfortunately, despite the passage of this law, the welfare of the Filipino consumers takes a backseat while private interests in the distribution sector prevail as manifested in different ways.

For example, currently, our energy regulators are disallowing other franchise holders to enter the market where a Distribution Utility (DU) is already in place, which against runs counter to the essence of promoting competition.

This was the same point made by Smith in his paper when he stressed that “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.”

If one understands basic economics, then it is evident that having more players in the market would always push down prices and create a more efficient delivery of goods and services because this is what competition among businesses does. Preventing the encroachment of another player in an already franchised area will only result in a monopoly where consumers will have to endure higher prices and less efficient service delivery. There is no incentive for the lone provider to improve the services and lower down costs, anyway.

Our flawed power procurement rules should also be reviewed. At present the Energy Regulatory Commission (ERC) procurement rules do not require DUs or Electric Cooperatives (ECs) to differentiate between baseload, peaking and mid-merit, and fail to take account that some power sources are better used for baseload and others for peaking or mid-merit. The classic example is the use of coal-fired power plants during mid-merit, which when done, diminishes the cost advantages of the plant. Such practice results in inefficient deployment of energy sources.

Unfortunately, procurement rules do not differentiate the power requirements to the detriment of the consumers as they are not enjoying the cost advantages of a particular power source. Instead, our practice only benefits the DUs or ECs.

There is a remedy for this as the ERC can refuse to grant Power Sales Agreements (PSAs) that does not define the limits on the use of a particular power source. We can use each energy source more efficiently and at the same time help level the playing field for generators if the ERC puts such restrictions in the PSAs.

These are just some of the few issues that prevent competition to flourish within the power distribution sector. There are more that requires the attention of our regulators. Change is necessary if we want to move to where the EU is heading.

There are many reasons why countries and regions like EU are embracing technology such as the concept of dynamic pricing by changing and drafting new regulations. Lowering the cost of power rates is just one of them.

The Filipinos can enjoy lower power prices, too. They can even choose where or from whom to source their power as well as select their meters rather than merely accept the ones from the distributor. Consumers can also become generators and distributors themselves if they wish. All these are possible if major policy shifts take place and when our regulators finally prioritize the welfare of the public rather than those of the few.

References:

Currents of Competition in Electricity Markets by Vernon L. Smith

Utility of the Future by Massachusetts Institute of Technology

Run Your Dishwasher When the Sun Shines; Dynamic Power Pricing Grows

https://www.reuters.com/article/us-europe-electricity-prices-insight/run-your-dishwasher-when-the-sun-shines-dynamic-power-pricing-grows-idUSKBN1KN0L7

For European utilities, demand for dynamic pricing on the rise
https://www.accenture.com/us-en/blogs/blogs-european-utilities-demand-dynamic-pricing