The Rise of Renewables

 

To be clear, I have no fundamental problems with fossil fuel-based power plants.  In fact, I have built a number of them.  My current focus on renewables stems from the belief that in the long-term, it will be economically more sound for our country and for our planet. My approach is based on a need to look at energy planning that takes on risk as a major parameter. From this perspective, a portfolio approach with renewables as a major part of the country’s energy portfolio will be good for business in particular, and the well-being of our countrymen in general.

Just last year, Pope Francis released a landmark encyclical that warns of the dangers we face for refusing to take care of our environment. The Pontiff also stressed the need for renewable energy development to address the growing concerns about the environment.

Similarly, the COP 21, the largest single gathering of world leaders produced what was considered as the most important agreement of nations in combatting climate change: to hold the increase in the global average temperature to below 2 centigrade above pre-industrial levels. An important agreement since achieving such will result in mitigating the rising atmospheric temperature to help prevent driving poor nations further into poverty.

Perhaps, the greater awareness and the campaigns made by known personalities such as the Pope and our world leaders about climate change and its consequences helped spur the growth of the renewable energy sector. But just how significant the growth of the RE sector will be?

A report by McKinsey solutions showed that energy demand will change significantly in the next 35 years as it is likely to grow only by 0.7 percent annually.  Electricity is seen to account for majority of the energy demand among all energy types and we are likely to see a shift to cleaner energy technologies with coal expected to peak by year 2025, while demand for oil flattens.

Similarly, a recent study conducted by Bloomberg New Energy Finance showed that two-thirds of the total investments in the power sector will be spent on renewable energy development from 2016 to 2040. According to the report, roughly $7.8 trillion are likely to be invested in renewable, an amount significantly higher than the expected $ 1.2 trillion to be invested in coal plants.  Of the $7.8 trillion, wind energy will account for $3.1 trillion, solar for $3.4 trillion and hydro roughly $911 billion.

We are already seeing the rise of the renewable energy sector as early as last year. After all, 2015 was a record year for global investments in renewable energy according to the report, Global Trends in Renewable Energy Investment 2016 published by Frankfurt School of Finance & Management. The report revealed that globally, investments in renewable power capacity in 2015 reached $265.8 billion, almost double than the investments in fossil power of $130 billion.  Plus, developing countries have overtaken developed nations in renewable energy investments. Developing countries, after all, have invested a total of $156 billion last year, which is higher than the $130 billion spent by advanced countries in their RE sector.

As a Renewable Energy developer, it is heart-warming to see that RE development globally are advancing significantly, and that most countries are now taking serious efforts in developing their green resources to replace coal as the main power source.

In our country, the government, too, are somehow making efforts to develop the RE sector. Just recently, a report of the Inquirer said that the Climate Change Commission (CCC) has announced that it has started what it called a “comprehensive review” of the Philippines’ energy policy. The DENR and DOE, along with NEDA are part of the review committee. This undertaking is expected to result in reshaping the power plans of the country, putting RE sources in the forefront to coal. According to the Commission, the review will take roughly six months to complete and a new development framework on energy development will be produced.  Plus, Secretary Emmanuel de Guzman, vice chair of the CCC said that the end goal is to “lay the ground toward clearer procedures away from coal and on the faster way to enhance RE.”

I say that this is a good step in paving the way for more renewable energy development in the country. However, it is also my fervent wish that this review is also accompanied by other reforms in the sector including the lifting on foreign restriction for investments, and other regulatory issues hounding the RE sector, which I have already discussed thoroughly in this blog. It is my hope that this review and major reforms in the sector take place soonest to help the growth of the renewable energy sector.

The War Against Renewable Energy

According to the Report Global Trends in Renewable Energy, the year 2015 was a record-breaking year for renewable energy (RE). Investments in the sector reached $258.9 billion globally. Of the total capacity installed last year, excluding hydro power, a whopping 53.6% came from renewable energy. There was also a significant increase in the installed capacity for wind and solar photovoltaics last year—rising remarkably from 49 GW to 62 GW for wind and from 45 GW to 56 GW for solar photovoltaics.

There is no denying that the world is starting to make its shift towards renewable energy. However, it seems that there are those who work hard against the tide. An ongoing war in the US hinders the rising demand to harness one of the world’s most constant sources of energy: the sun.

Nevada, which has the highest percentage of solar energy among all the states in the US, is regressing from its commitment to develop renewable energy, especially for solar. Its utility regulator allowed its state utility firm, NV Energy, to increase its fees to solar users arguing that these consumers should be charged for the use of the grid. The energy firm also decreased the amount they pay customers for the solar energy that they place back on the grid. Residents who have invested a lot to install solar rooftops on the premise of cheaper electricity are now at a disadvantageous position, given the change of heart of the state regulator.

Similarly, in 2013, Arizona regulators also approved a $5 monthly fee that was slapped on solar users. Reports also note that utilities in other states are lobbying to curtail the development of RE in their areas.

Why are large utilities battling against solar or perhaps, RE in general? Given the many calls to shift to the cleaner energy sources, energy companies that have been making profits in developing and supplying traditional sources of energy will fight hard to keep their businesses alive. As more people shift towards RE, we can also expect more initiatives launched against it.

Unfortunately, the war against renewable energy is not just confined in the US or other developed nations. I will argue that, locally, the renewable energy sector is facing its own battles.

For example, our local regulators are far from being friendly to redevelopers. Again, as I have stressed before, our regulators make it less enticing for private investors to develop renewable energy plants. Our regulators, unfortunately, do not give importance to the risks taken by RE plant developers when approving the tariff setting. As I have explained before, the ERC uses the same value for the Beta or measure of risk regardless of the technology used for the plant project instead of giving premium. Regulators are unable to reflect the real costs of the risks undertaken by developers in tariff setting. Simply put, the regulators’ behavior is unfair to RE developers as the cost recovery computation does not reflect the real cost of producing RE. RE developers, after all, take higher risks than traditional energy developers.

Similarly, the Competitive Selection Process or CSP implemented by DOE can be construed as a war against renewable energy.  The CSP, the brainchild of former Energy Secretary Jericho Petilla requires aggregation of demand and mandatory bidding to be conducted by a third party. It takes away the power of distribution utilities to contract power on their own. There have been many objections to the CSP by power industry players, and yet, despite consultations, our regulators have decided to implement the CSP (although ERC’s version is different from DOE).

Why do I say that the CSP is a form of war against RE? Keep in mind that under the CSP, demand must be aggregated first and bid out by a third party. The result is a bid for a large quantity of energy. Unfortunately, renewable energy plants relatively have small capacities. Any small power plant would have a difficult time competing against those traditional power plants that can generate large amounts of power. The CSP places RE plants at a disadvantage. Again, as I have expounded on in my previous post, the CSP runs counter to the goal of EPIRA, which is to promote a level playing field among industry players—as the implementation of such measure leaves RE developers in the cold.

Data from the DOE showed that as of 2014, some 43 % of power generated came from coal-fired power plants while geothermal energy and hydropower only accounted for 13% and 11%of the total power generated, respectively. Sadly, other RE technologies only accounted for 1% of the total power generated.

The DOE wants a fuel mix consisting of 30% RE, 30% coal and 30% natural gas by 2030. But it also admitted that if we continue with our usual business of neglecting the RE sector, and then coal will account for 70% of the energy mix.

Such great reliance on coal will obviously have its consequences. For one, we will be at the mercy of global prices of coal prices.

Just recently, Reuters reported that Indonesian authorities have blocked ships from leaving for the Philippines from two Indonesian coal ports for fear of ship hijacking in the Philippines seas by Islamist militants.  Such security concerns have led to the non-approval of shipping permits to the Philippines in these ports. This is an alarming situation as Indonesia supplies 70 percent of our coal. This means that our country might suffer from coal shortage, and likely to face higher electricity prices given that almost half our power are sourced from coal. Again, situations like this leave us vulnerable to energy price spikes.  What we need to do is to end our reliance on coal, and create a stable supply of energy by putting to good use our natural resources.

As they say, no one wins in any war. There will always be casualties and losses—and this case is no exception. It is time to put an end to the hostile environment suffered by RE developers and create a friendlier one for RE developers.

Developing the Non-Power Application of Geothermal Energy

Aside from providing a total island power solution through the development of a 40-megawatt geothermal power plant at Oriental Mindoro, geothermal company Emerging Power Inc. (EPI) also has another goal: provide sustainable sources of income opportunities to the local residents.

In my previous post, I have said that for me, corporate citizenship should be concerned with providing opportunities for the whole family by promoting prospects for entrepreneurship, among others. And this is what EPI is doing when planning the geothermal power plant – thinking of the benefits it can bring to the community.

Aside from providing jobs with the construction of the geothermal plant, EPI is also finding ways to provide the resources to develop the non-power application of geothermal energy. EPI’s  aim is simple: study and develop the commercially viable businesses that capitalize on the energy from the geothermal plant.

This concept may be unheard of to many, which is not surprising since according to the Department of Energy, “The country has yet to take off in terms of development of non-power applications of geothermal energy resources.”

But just how can we use geothermal energy in other ways? According to the Food and Agriculture Organization (FAO) of the United Nations,  geothermal energy can be used for geothermal heat pumps, space, green and aquaculture heating, agricultural drying, industrial uses, bathing and swimming and cooling or snow melting (in the case of cold countries.)

FAO also identified four ways of applying geothermal energy for agriculture namely, greenhouse heating, aquaculture, agro-industrial processing and soil heating for open-field plant root systems.

The DOE admits that the Philippines can build spa resorts and venture in crop-drying with our geothermal resources. However, the lack of awareness together with the prohibitive costs of developing such venture limits the potential of this concept.

At EPI, there is a team tasked to develop and coordinate the stakeholders to realize the potential of non-power application of geothermal in Najuan. The group is working on the development of an Integrated Agro-Tourism complex that will boast of a Medical Spa and Hotel, Ecotourism, Aquaculture and Agribusiness. The complex will be composed of 50 hectares of EPI-owned land and hopefully some 500 hectares of surrounding land as EPI plans to assist the landowners in the area to participate in the project.

Najuan, Oriental Mindoro. EPI is working on developing the area into an Agro-Tourism Complex

Najuan, Oriental Mindoro. EPI is working on developing the area into an Agro-Tourism Complex

EPI is working with ITALPINAS, Italian property and design experts, and agri-aqua-forest experts from the University of the Philippines – College of Economics and Management Alumni Association, Inc. (UPLB-CEMAFI).  The experts from the UPLB-CEMAFI have conducted a feasibility study on the best-suited type of agro-tourism complex for the area. A Mindoro Agro-Tourism Master Plan is currently being crafted and will be presented to all stakeholders soon.

EPI’s project is  inspired by the example of Iceland as it has the famous Blue Lagoon, situated near a geothermal power plant. Blue Lagoon is frequented by tourists who bathe in the water and apply the Silica mud to their skin, which can cure skin diseases. The area is also frequented by tourists for their spa and medical clinics. Plus, cosmetic products are now being produced and sold by the island.

Aside from the Blue Lagoon, Iceland also boasts of fish processing system using geothermal heat. In fact, the country is a great example of how non-geothermal application can be used for aquaculture heating. Iceland, after all, is the largest exporter of Bacalao in the whole world.

DSCF1896 (6)

Residents of Najuan

Mindoro is abundant in coconut, bananas, forest products and herbs, to name a few. As such, a study on the possibility of using geothermal fluids to process these produce of the local community is being undertaken.

What is in store for the community with this project?

The planned Integrated Agro-Tourism complex is estimated to generate some jobs for Najuan, thereby increasing the per capita income per person in the area.  The project is also expected to increase the number of tourists in the area, which in turn will increase the foreign currency reserves and agricultural production and farm revenues. The city, municipality and provincial governments will generate tax revenues from this undertaking, too.

Clearly, EPI does not only intend to build a geothermal power plant in the area.  It is planning and working hard to uplift the economic conditions of local residents, as well. This is consistent with my personal belief that we must find opportunities for entrepreneurship for others while enhancing God’s gift of nature to us. This project allows EPI to do both.

References:

https://www.doe.gov.ph/renewable-energy-res/geothermal

Uses of Geothermal Energy in Food and Agriculture: Opportunities for Developing Countries. Food and Agriculture Organization (FAO) of the United Nations Retrieved from: http://www.fao.org/3/a-i4233e.pdf

Geothermal Energy Development in the Philippines

The landscape of the geothermal energy development in the country has changed in recent years due to the privatization of the Energy sector in the country.

Exploration of geothermal energy in the country started somewhere in the 1950s under the helm of Professor Arturo Alcaraz, who headed the Commission of Volcanology. The Commission studied and made an inventory through geological mapping and surveys, and test drilling for the possible sources of geothermal energy.

By 1967, a historic lighting commenced in Tiwi, Albay, signifying the start of the development of geothermal energy in the area and power generation from the new power source commenced in Tiwi in 1979. It was later named as the first water dominated geothermal system that can produce more than 160 megawatts.

Aside from Tiwi, Albay the commission identified other areas where geothermal energy can be harnessed, including Makiling-Banahaw, Maibara, Negros, Leyte, Biliran, and Mindanao.

The government invited the Union Oil Company of California or Unocal for the exploration and development of geothermal energy in the country. The Unocal formed the Philippine Geothermal Inc. (PGI, now known as Chevron) which signed service contracts with the NAPOCOR in 1971. It is useful to stress that under the service contracts entered by the government at that time, the NPC was tasked with building and operating the geothermal plants while the PGI provided technical expertise and minimal capital infusion.

Field in Tiwi, Albay. Photo from www.ngaphil.org

Field in Tiwi. Photo from http://www.ngaphil.org

 
Given the high costs of developing geothermal energy plants, the government decided to develop it without the help of the private sector and created the Philippine National Oil Corporation-Exploration Development Corporation (PNOC-EDC) in 1976. The PNOC-EDC, a GOCC, was tasked to spearhead the development of the said energy resource in 1976.

 
The declaration of Executive Order 215 allowing the private sector to build and operate power plants and RA 6957 establishing the Build-Operator-Transfer scheme turned to be a game-changer. These laws allowed private entities including foreign ones to finance, construct, operate and maintain power plants for a defined period. The exploration, however, remained with the government. The private sector came in only after the exploration was de-risked.

The Unified Leyte Project was the first project developed under the BOT scheme. The EDC partnered with the California Energy to develop the 588.4-megawatt power plant. The unified power plants have been turned over in 2006 and 2007 to EDC after the 10-year cooperation period has expired.


Fast forward to today, and geothermal exploration and development mechanism in the Philippines have changed.
With the decision of the government to stay away from building and operating power plants or the privatization of the energy sector, development geothermal resources are now up to the private sector with some help of the government. What are the implications of this change?


For one, it is up to the private sector to undertake the exploration of new sources of geothermal energy, whereas, in the past, it was the government that spent and spearheaded exploration activities. The same cannot be said now, as it is the private sector that shells out funds to explore possible geothermal sources, which, by the way, is an expensive undertaking. Test drilling a hole alone–is the riskiest and most expensive phase in the exploration process–can cost $5 million. It is the private sector that shoulders both the cost and, of course, assumes the risk that the exploration activities will not yield any return.


Similarly, as pointed out earlier, it was NPC that provided cash for the building of the geothermal power plants and PGI only provided mostly technical expertise. Again, the same cannot be said for present times, as the private sector spends for the building and operation of the geothermal plants. This is on top of spending for the exploration of possible sources.
Simply put, the government previously assumed the costs from preliminary survey of the areas to operation and maintenance of the plants, whereas now, it is the private sector that assumes all the risks involved in developing geothermal energy.


But this is not to say that the government is idle in the development of geothermal energy in the country. The government, for its part, passed RA 9513: Renewable Energy Act of 2008. This law provides incentives to entities that will develop renewable energy products in the country and there are more sweeteners for geothermal energy development.

Incentives under this act, private include seven years tax holidays, 1.5 percent collection from gross sales of geothermal energy and exemption from universal and transmission charges, among others.


Are the incentives enough to offset the risks undertaken by the private sector? Did the passage of RA 9513 address the needs of renewable energy producers and players? These questions will be answered in a separate post.

References:

http://www.ngaphil.org/services/tiwi

GEOTHERMAL DEVELOPMENT IN THE PHILIPPINEShttp://www.jogmec.go.jp/content/300199107.pdf

Geothermal Energy Development in the Philippines with the Energy Development Corporation Embarking into Power Generation by Danilo C. Catigtig

Why Geothermal Energy?

Renewable energy, as I have mentioned in my previous post, plays a critical role in providing stable power source. However, many people criticize renewable energy as a more expensive source if one is to look at it from a “least cost” approach alone.

In this post, we will tackle one of the most abundant renewable energy sources found in the Philippines: Geothermal energy. The Philippines after all, is the second largest producer of geothermal energy in the world, next to the United States.  Our country also has roughly about 2,600 megawatts of untapped geothermal energy resource.

Geothermal energy is perceived to be expensive due to the start up capitalization required. It is of course very risky as the first phase of any geothermal development is exploration. Construction of geothermal power plants is 2/3 higher than the construction cost of a natural gas plant, for example, and as such, exploration and building of geothermal power plants have traditionally required assistance from the government in the form of subsidies or incentives.

Geothermal energy, however, has many advantages.

One of the benefits of geothermal energy is its capacity to act as a base load plant. In fact, this is one of the most favorite points raised by those who oppose the use of renewable energy: RE products cannot act as a base load. However, the same cannot be said of geothermal energy.

Generation of geothermal power, unlike other renewable energy sources, is not subject to weather conditions such as with solar and wind. Solar power cannot provide consistent energy given that it can only produce energy during daytime and wind is subject to the wind blowing.

Geothermal energy, on the other hand, can generate power 24 hours a day at any given day of the week. In fact, the US Energy Information Administration says that geothermal power has the highest capacity factor among coal, gas and biomass and even among other renewable energy technologies given its non-reliance on environmental conditions. Of course properly done, geothermal energy can also be designed for peaking especially now that the cost of battery and other forms of storage have gone down.

Thus, the geothermal power plants baseload characteristic makes it a great substitute to fossil fuel power plants. And finding alternatives to fuel-based plants is more critical now than ever given that many coal-fired power plants are set to retire. The United States where 40 percent of the power supply is sourced from coal plants is set to retire 50 to 77 percent of the coal-fired plants by next year.

Geothermal energy plants are great alternatives to replace these ageing coal-fired plants given their base load characteristics. These plants have a relatively long life-span, too since they can last up to 50 years. The geothermal plant in California, The Geysers was built more than 40 years ago and still runs efficiently.

In fact, other countries are beginning to rely heavily on geothermal energy. Iceland, for example, sources two-thirds of its power from geothermal power plants. New Zealand, the fourth biggest producer of geothermal energy, sourced 16.2 percent of its power from geothermal sources last year.

And in Kenya, both industrial and household consumers are able to save 30 percent on power costs or roughly $24 million per month due to their use of geothermal power

So is the geothermal energy more expensive?

On the contrary, in terms of cost, geothermal energy can be a cheap energy source. For example, Mindoro, which has been suffering from power storage for many years, will soon have the first Greenfield geothermal project after the passage of EPIRA.

The geothermal project in Mindoro will have a tariff of P6.58 per kWh for the 40-megawatt capacity, cheaper than the P14 per kWh tariff being paid currently to power up the island. So, while the start- up capital needed for exploration and building of actual plants at a glance seems too high, geothermal power can be competitive against fossil fuel alternatives.

Geothermal power plants have negligible fuel costs, too. Plants can be operated even at partial capacity without incurring higher operating costs given that there are no additional costs for the unused geothermal steam. The initial costs of opening of geothermal plants may be high, but it is offset by the stable and constant operating costs of the plants.

There are also other advantages of using geothermal power such as having the smallest carbon footprint among possible replacement for coal-fired plants, higher employment rates brought by the operations of the plants in local communities, higher earnings for the governments through royalties, taxes and property rentals, among others. In Mindoro, the non-power use of geothermal is now being studied seriously.

You may ask why geothermal power is underdeveloped in areas where they are abundant like in the US. The answer is simple: there are barriers to the development of this resource, particularly the high-cost and risk of developing geothermal energy. We will talk about geothermal energy development in the Philippines in my next post.

References:

http://geoenergy.org/reports/Economic%20Cost%20and%20Benfits_Publication_6_16.pdf

http://www.geothermal.org/PDFs/Values_of_Geothermal_Energy.pdf

http://cleantechnica.com/2015/03/02/electricity-cost-decreases-30-kenya-due-geothermal/

http://www.theage.com.au/national/education/deep-heat-geothermal-energy-an-earthly-power-to-be-reckoned-with-20150517-gh0tcr.html