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