To say that the year 2020 was tough is an understatement. But the COVID-19 pandemic along with natural disasters we experienced in the Philippines in the last quarter of the year, have taught as many valuable lessons.
For one, the community quarantine imposed by the government exposed the vulnerabilities of the energy sector.
The report by the Institute For Energy Economics and Financial Analysis (IEFAA) showed the downside of our inflexible coal baseload plants and long-term guaranteed contracts.
The study entitled “Philippines Power Sector Can Reach Resilience by 2021” noted that the depressed demand for power due to the lockdown forced coal plants to turn to mid-merit load factor. This in turn increased the power cost per kilowatt-hour. The pass-on provisions of our Power Sales Agreements (PSA) that allow cost recovery for the independent power producers ensured that the higher costs are shouldered by consumers.
Our penchant for large volumes of baseload capacity running on imported fuel did not bode well for us given that 80% of baseload coal plants are inflexible. This means that fuel and other variable expenses in running power plants remained flat regardless of power demand. We may have experienced a depressed demand during the Enhanced Community Quarantine but plants had to run at their minimum operating levels.
The study, released in June, estimated that power consumers could be paying PHP9.679 billion more in power rates if energy sales volume decline by 10% in 2020.
These illustrate what I have been pointing out as the downside of not having fixed-price contracts and our over-reliance on coal-fired plants. This pandemic served as a wake-up call to fix the problems of the sector for the benefit of consumers
On top of the prolonged lockdown and the ensuing community quarantines, the Filipinos unfortunately also had to deal with natural disasters in the last quarter of 2020. Typhoon Goni, referred to as Super Typhoon Rolly in the Philippines, caused heavy rainfall, landslides, and flooding in Luzon. The super typhoon, considered the strongest landfalling typhoon in the world for 2020 left massive destruction in Luzon especially in Albay, Catanduanes, Camarines Sur, and Quezon.
Estimates showed that Super typhoon Rolly’s damage to infrastructure reached Php 11.3 billion, causing massive livelihood loss as battered areas rely heavily on the agriculture sector.
As if that wasn’t enough, less than two weeks after Rolly’s devastation, the Philippines was once again battered by Typhoon Vamco. Locally known as Ulysses, this typhoon triggered extensive flooding in many areas like Metro Manila, Rizal, Cagayan Valley and Isabella. Estimates show that its damages are around Php 20 billion, surpassing the damages caused by Typhoon Rolly.
These two typhoons are not the only ones to hit the country last quarter of the year. There were five in total in October and November, costing the Philippine economy Php90 billion in lost output. Plus, there was tropical depression Krovanh, or locally known as Vicky, which claimed lives and caused floods in some parts of CARAGA region just before Christmas.
These weather disturbances are due to the undeniable climate crisis. Our country, unfortunately, is among those most affected by natural disasters exacerbated by climate change, despite our meager contribution to the world’s carbon footprint.
Thus, it is imperative for us to also move fast in implementing effective mitigation. The wide adoption of renewable energy is one of the most effective climate change mitigation actions.
In the words of Finance Secretary Sonny Dominguez, “Severe weather events inflict human, social, and economic costs on the Filipino people. We lose billions every year in damage to crops and infrastructure. These mounting losses dampen our overall economic progress. These costs will continue to accumulate unless we move fast on mitigation measures.”
The need for a swifter shift to more renewable energy use is more emphasized than ever. We may have been survivors of many weather disturbances and natural disasters but this pandemic should fuel action for faster mitigation measures. More so since experts have pointed out that climate change contributes to pandemics.
We may have experienced some of the worst times, but there are still great lessons and developments to be thankful for.
For one, this pandemic has also accelerated the use of digital technologies locally.
For example, more payment options now available allow customers to settle bills more conveniently, to avoid crowding in distribution utilities and coops’ offices and there will be more seamless and contactless payment options coming soon. Other technologies soon to be available are contactless meter application and remote reading, activation, and deactivation of power supply, to name a few.
There’s also the announcement of the Department of Energy of the moratorium on approval of new coal contracts. This announcement came as a surprise since the department had been insisting on its technology-neutral stand.
For years, the Philippines has been lagging in its commitment to shift to renewable energy development. The country may have once been a leader in RE development having passed the RE law, but later failed to advance in renewable energy development.
Following DOE’s announcement is Yuchengco-led Rizal Commercial Banking Corporation (RCBC) surprising declaration that it will stop financing new coal coal-fired power projects in the Philippines. Now RCBC joins the ranks of Citigroup, Mizuho Financial Group, and Japan’s Sumitomo Banking Corporation banks that have already made the same move.
RCBC President and Chief Executive Officer (CEO), Eugene Acevedo made it clear that the bank will shift funding to renewables and gas-fired power facilities. “I’m going to say that moving forward, all our loans for energy projects will be non-coal, it will be 100 percent non-coal.”
It’s a statement that’s highly similar to the strategy of Finance Chief, Sonny Dominguez “Our rule should be simple: projects that are not green and sustainable should not see the light of day.”
Shying away from financing coal-projects makes financial sense as renewable energy technology prices have been falling in recent years. According to Carbon Tracker, soon it will be cheaper for Southeast Asian countries to build renewable energy plants than continue using existing coal-fired plants. Coal plants run the risk of becoming stranded assets, which eventually will drain resources.
We may have limited control over the many unfortunate events that unfolded this year. But we do have the power to act by learning from them and ensuring that we do things better. Fortunately, recent developments give hope that indeed we are using crises as opportunities to make better policies and programs that are more responsive to modern times.