We Pay Higher With A Weaker Peso

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The Philippine Peso has been falling against the greenback in the last few weeks. Tagged by Bloomberg as Asia’s worst performing currency, our currency has lost 1.6 percent this year. Bloomberg also noted that the Philippine peso is also the worst performer among emerging markets, only next to the Argentina Peso.

Both forecasts by DBS Bank and Bloomberg also predict that the exchange rate would be P52 to a dollar by year-end, In fact, according to DBS Bank, the weak peso could continue until middle of next year.

The weakening of the peso is a result of various factors. Unfortunately, a shrinking peso against the dollar is detrimental to normal Filipinos if we are talking about their power rates. The falling peso could spell doom for many Filipinos, mainly because the lower peso would increase power prices.

As I have pointed out in previous posts, our Power Sales Agreements or PSAs have the provision for the pass-on costs where the consumers pay for the foreign exchange and fossil fuel upward price adjustments. To put it simply, the consumers will pay for the weak peso in their electric bills.

Remember December last year where the biggest power distributor announced a P0.1011 per kilowatt-hour (kWh) increase because of the upward adjustment in the generation charge caused by the significant weakening of the peso against the dollar. A news report then noted that the peso slid down to P49.73 in November from P46.59 to a dollar from August of the same year. That’s almost a three peso difference in three months, which resulted in the increased electricity bill. We have to keep in mind that the largest DU in the country sources its electricity from independent power producers, which, unfortunately, have 90 percent of their billings in dollar denomination.

As I have discussed in detail, our energy planners have favored the ‘floating’ PSAs rather than fixed ones, thinking that it is cheaper. To simplify, these floating PSAs are not necessarily more inexpensive as there are unknowns specifically fossil fuel global price spikes and falling value of the peso against the dollar. These unknowns are, sadly, inevitable.

As with our experience last year in the above example, a weaker peso resulted in higher power prices. So, we cannot say that floating PSAs are cheaper because, in the end, the poor consumers will shell out more money when the inevitable happens.

This is why we need the fixed priced contracts. Under fixed priced contracts, consumers will pay the same amount for a specified period, let us say, 25 years, for their electricity. Fixed price contracts eliminate the need for users to pay for the pass-on costs or to simplify, pay for higher power charges when the peso falls against the dollar or when prices of coal or oil in the international market increases. I’m sure our consumers would appreciate knowing how much they would be paying for their energy consumption on a monthly basis rather than be surprised when their electric bills come.

Let us see the economic sense in having fixed price contracts for the sake of the end consumers. Rather than just fret on how a weak peso could hurt us, let us make the adjustments needed to ease the burden for the Filipinos who will shoulder the cost of the falling peso when they for pay their electricity. Surely, Filipinos have other uses for their hard-earned money.

Job Generation in Renewables

Going green, in this case, going for more renewable energy sources to dominate our energy mix has its rewards. Coal, as we have been discussing, is harmful to our environment, as well as health. Sourcing energy from renewables would lead to savings from medical expenses.

Aside from the environment and health-related benefits, there is one advantage of going renewables, an outcome that can help the lives of impoverished families And this is the focus of GreenPeace Philippines report, “Green is Gold: How Renewable Energy can save us money and generate jobs.” Renewable energy development generates employment. The report cited the example of Europe where the renewable energy sector employs some 650,000 individuals. The RE sector in Germany alone has roughly 370,000 jobs. Data from the German Renewable Energies Agencies stressed that there are more employment available in solar energy than nuclear and coal energy combined. Likewise, in Spain, its RE industry has already provided close to 89,000 direct jobs.

In its report, GreenPeace stressed that solar power could generate the highest number of employment. Research by the University of California, Berkeley pointed out 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.” A good example would be the solar power business in Japan, where some 9,800 jobs were generated after completing the installation of a total of 360 MWp (megawatt peak) of PV power.

And it’s not just solar power that can provide employment. The study also showed that other RE sources could provide a great number of employment, too.  For example, a typical wind farm generating 250 MW can generate 1079 direct jobs–jobs in the manufacturing, construction, maintenance and operation of power plants– during the installation phase alone. Naturally, indirect jobs are created as well.

On the other hand, job generation figures of geothermal power are impressive, too.  A Philippine company that generates some 1,189 MW of geothermal power has directly hired more than 2,500 individuals.

At Emerging Power Inc. or EPI, we also employ locals in our various power plants including indigenous people. Our Mindoro power plant has employed some Mangyans while there are hundreds of Aetas working with us in the Subic solar plant. So far, we have roughly 400 individuals working with us, and this figure is likely to increase over time as we build more renewable energy projects.

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Workers at EPI’s solar plant in Subic.

Aside from giving them employment, EPI also provides them with the opportunity to go back to school through our CSR programs.  For example, our Alternative Learning Program sponsors individuals to go back to school regardless of their age. In fact, one of our recent high school graduates is a 47-year old Mangyan, who unfortunately had to quit school in the past due to poverty.

Clearly, growing our RE sector will help address the country’s unemployment problems especially when renewables provide more employment than coal-fired plants. A study by the University of Massachusetts, The Economic Benefits of Investing in Clean Energy in the US, noted that about 2.5 million new jobs are to be created when investments on clean energy reach a total of $150 billion. Concluding their report, the researchers added that “clean-energy investments generate roughly three times more jobs than an equivalent amount of money spent on carbon-based fuels.”

Again, I am not against coal power plants per se. In fact, I had helped built some them when I was with NAPOCOR. But times are different, and we need to make some changes to address the needs of our country and the earth.

We have to remember that we are a country that benefits from abundant natural resources. For one, we are the second largest producer of geothermal energy in the world. Plus, the Philippines has a long and hot summer, as well.  According to the National Renewable Energy Labor NREL, the Philippines has the potential of generating an average of 161.7 watts per sq. m., being one of the sunniest countries on the planet.

No doubt that we are set to gain more economically if we harness our resources properly. Building more power plants from renewables could help lower our unemployment rate which stands at 19.7% as of July this year.  RE doesn’t only help save the planet; it also helps improve the lives of so many through the creation of jobs.

References:

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

Note: Data including geothermal, wind employment & NREL figures, cited UCLA Berkeley, University of Massachusetts & German Renewable Energies studies and definition of direct employment are included in the Greenpeace report.

Labor Force Survey. PSA. https://psa.gov.ph/statistics/survey/labor-force

A Belated New Year’s Wish List

It might be a bit late (almost two months after the start of 2016), but here is my wish list for the local Energy sector.

 

  • Lift the foreign restriction on ownership

 

At the risk of sounding like a broken record, it’s time for our lawmakers to review and carefully understand the implications of restricting foreign ownership in the renewable energy sector.  Climate change is global problem – therefore, there should be a global collaboration in addressing this problem.

 

We are aiming for a better energy mix consisting of higher energy sourced from renewable sources. However, there are few local businessmen who can shell out the capital needed to put up renewable energy plants.  The country’s goal is to increase our renewable energy capacity to 15,400 MW by 2030. We can focus on limiting the foreign ownership of the resource e.g. the sun, the water resources, wind, and others. The ownership of the equipment we need to convert these resources to energy should be opened up to foreign ownership.  After all, we do not have these technologies.

 

  • For people to dispense the notion that renewable energy is more expensive than traditional sources of energy

 

I wrote extensively on this item last year. The problem lies with our energy planners as they favor the least-cost method, choosing the cheaper energy source based on current prices in energy planning. Again, the least-cost method does not consider risks such as the volatility of oil prices.

 

In the beginning, it may seem cheaper to put up a fossil fuel-based plant. But again, what happens when oil prices spike? Oil prices are down these days, but who knows when and by how much the uptick will be in the future? Businessmen prefer predictability, and this has a cost.

 

  • For our energy planners to review the use of Capital Asset Pricing Model (CAPM) in computing for tariff setting.

 

Again, this is one topic I have been discussing lengthily or arguing for so strongly.  Regulators should realize that the CAPM doesn’t work for non-efficient economies like ours. Similarly, it uses the Beta that supposedly represent the “market”. Unfortunately, there are not enough companies that can fully represent the market.

 

And in the meantime, while our regulators insist on using CAPM, they should understand that their application of the model particularly of the Beta is wrong.

 

Our ERC uses the same Beta, the measure of risk, for all power plant projects when computing for the tariff. This means that a coal-powered plant and geothermal power plant will have the same Beta.  Our regulators assume that all power plant projects have the same risk profile when computing for the cost recovery in setting the tariff.

 

This is wrong, as I have mentioned since the risk, of let us say of a geothermal power developer, will be higher than a coal power plant developer. Exploration for geothermal is more costly and hence its Beta should be higher to reflect the costs of undertaking that risk.

 

  • For anti- renewable energy advocates to stop saying that renewable energy cannot act as a baseload plant

 

Many of those who oppose renewable energy often argue that the renewable energy sources cannot act as a baseload plant. This is an incorrect assumption. Arguably, wind and solar cannot produce energy 24 hours a day, but a geothermal power plant can. The argument that no renewable energy source can act as a baseload plant should have been retired a long time ago.

 

  •  Prioritize long-term stability through a balanced energy portfolio of conventional and renewable energy for Mindanao

 

Mindanao, unfortunately, always figures in the news due to the peace and order situation and its recurring power shortage problem. Last year, discussions on the creation of a Mindanao Power Corporation, as well as privatization of the island’s power plants were lively. However, it is my belief; that government should first prioritize the opening of more power plants—both conventional and renewable energy to secure the power system on the island.  We first should achieve a long-term and stable solution to the power crisis in Mindanao. Only then can we talk about privatization of the island’s power plants.

 

  • A review of the Competitive Selection Process (CSP)

 

Last year, former Energy Secretary Jericho Petilla came out with a circular requiring Distribution Utilities (DUs) to use a third-party entity when securing their power sales contracts. This circular caused a stir among energy players as the CSP is largely problematic. Many argued, including me, that the CSP does not protect the interest of the smaller players, and hence defeats the purpose of EPIRA to promote fair competition among the power players. This is just one of the many arguments hurled against this circular. It is then my wish for the DOE to review and reconsider this rather alarming circular.