What 2020 Taught Us

Image c/o https://www.sdmmag.com/


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.

As We Plan for Economic Recovery

The energy sector should also be overhauled to support government efforts to rebuild the economy. Image c/o http://www.benzinga.com

The COVID-19 pandemic resulted in a global recession. Here in the Philippines, the imposed months-long lockdown caused our economy to contract as much as 16.5 percent in the second quarter of 2020. Economists predict that the Philippine economy will likely experience an 8 percent negative growth for 2020.

Our government is banking on its flagship infrastructure program, “Build, Build, Build” to revive our battered economy. It has allocated P1.1 trillion, equivalent to 5.4 percent of our gross domestic product (GDP) to infrastructure projects in 2021.

For the power sector, this means higher demand for electricity as we as build more roads, bridges, ports, railways stations, and airports.

As we start planning for the Philippines’ economic recovery we should also overhaul our energy sector now so we can support our government’s effort to rebuild our economy. We need to address the short-term and long-term price stability so we can meet the demand for more power at cheaper prices.

The Philippine Peso has been touted as the best performing currency in Asia, strengthening 4% against the United States dollar. We can take advantage of the Peso’s strength by purchasing all imported fuel that’s oil-based or indexed to global prices while the Peso is strong. Let us remember that our fossil fuels are based on the U.S. dollar and indexed to global prices, and we have plenty of power plants that are importing coal and oil.

I have always talked about how a weak peso and increasing fuel costs hurt Filipino consumers because our Purchase Sales Agreements (PSAs) have pass-through provisions in previous posts. Consumers end up paying more for a weaker peso and more expensive imports. But a strong peso against the dollar can be used to our advantage as we can now use them to lower electricity prices for the next few years.

The government can order all power plants to buy all their fuel requirements in advance. Doing so will place a cap at fuel prices at today’s prevailing prices and foreign exchange rates. Power plants can buy years worth of their fossil fuel requirements so they can fix their prices at a rate that’s advantageous for their consumers.

This is a short-term solution. To ensure stable prices in the years ahead, the Department of Energy (DOE) and the Energy Regulatory Commission (ERC) should require a higher level of fixed-price contracts. I’ve been advocating for fixed-priced PSAs since the pass-on provisions always burden the consumers when the peso is weak and the global fossil fuel prices increase.

Likewise, the government can also order the off-takers of the Malampaya gas to purchase either part or all of the remaining gas so the prices of power will be pegged at current prices and present forex rates. The reasons are the same as my first suggestion for buying fuel requirements in advance. After all, the Malampaya gas is also based on prevailing forex and oil prices. 

One might argue that distribution utilities may not have enough funding to import fossil fuels and or purchase the Malampaya gas. However, we have our government banks, Land Bank and Development Bank of the Philippines that can lead a consortium of local banks to help purchase fossil fuels in advance.

Pegging fossil fuels at current global prices and forex rates will directly impact households and micro, small, medium enterprises (MSMEs) as they will be paying less for electricity. This is especially beneficial now as most Filipinos have less money to spend due to the economic recession. Taking away uncertainty is always a good option – it is valuable.

And to ensure long-term stable energy prices, our government should allow competition at the power distribution level. We have the Electric Power Industry Reform Act or EPIRA but there’s little competition still. In the past we thought that the wires business is a “natural” monopoly.  Latest developments in technology is showing that it ism not.  There are even non-wire alternatives (NWA) to power distribution.

 Currently, the the thinking is that two or more franchise holders for the same area is harmful. This policy, however, results in a monopoly, which does not benefit consumers. A monopoly doesn’t give the franchise holder any incentive to constantly innovate and improve its services.  Allowing more players will push utility companies to provide better services at cheaper rates to consumers. There are ways to improve the service to consumers through competition.

A clear definition of a load profile will also benefit us all in the long-run. Currently, our current procurement rules do not result in an efficient deployment of our energy resources because the ERC focuses on individual contracts. Consumers are paying more for power because we are not deploying power cost-effectively.

Coal-fired power, which is best used for baseload power is also being used for mid-merit power, thus whatever cost advantage of coal goes away. This happens because current procurement rules do not require ECs or DUS to differentiate the different power requirements. We need to define a load profile and regulate the appropriate levels of baseload, mid-merit, and peaking. The DOE and ERC can work on the limits and ensure that these are reflected in PSAs. The ERC should reject contracts that fall outside these limits. The recent announcement of DOE that there will be a moratorium in the issuance of permits for coal-firepower plants is a step in the right direction.

Reviving our economy requires the cooperation of all. For the power sector, this means ensuring sustainable and affordable electricity. More so since according to the Philippine Energy Plan 2018 to 2040 draft, local electricity demand is set to increase by an average of 6.7% annually. We can only meet this demand while making power rates cheaper by fixing the ills of our sector now.

Energy Transformation is What We Need

Sydney is powered by 100% renewable energy. Photo c/o https://www.energymatters.com

There’s been some good news on the renewable energy sector in recent months.

For one,  the City of Sydney, the biggest city in Australia, recently announced that is now powered by 100% renewable energy. This means that all public operations such as sports facilities, street lights, buildings, and the historic town hall in the city that’s home to 250,000 residents are running on clean energy starting July 1. The feat was made possible by a power purchase agreement (PPA) valued at $60 million, saving the city roughly half a million dollars annually over the next 10 years.

 Plus, there’s the United Kingdom (UK), which was able to generate almost half of its power needs from renewables in the first quarter of the year. The UK government data showed that renewable power made up 47% of the country’s electricity in the first three months of the year, breaking the previous set quarterly record of 39% in 2019. The substantial increase in the total renewable output of the UK was primarily driven by growth in power generated by wind farms and solar panels.

And RE sector’s record in the UK is likely to be broken in the coming years with the government’s plan for “a massive expansion of renewables as part of the UK’s green economic recovery” says Rebecca Williams, policy manager of RenwableUK, a non-profit renewable energy trade association.

Meanwhile, in the Philippines, the National Renewable Energy Board (NREB), recently reported that the renewable energy share in the power supply mix keeps on “dwindling.”

In 2015, renewable’s contribution to the supply generation mix was around 25%. RE’s share was even lower for 2016, 2017, and 2018 at 24.21%, 24.57%, and 23.38%, respectively. According to NREB Chairman Monalisa Dimalanta, renewable power’s share in 2019 was even lower at 21%.

In contrast, coal dominated the power mix, recording its highest share in 2018 at 52.05%.

As for the total installed capacity, the Philippines still is far from its target. Dimalanta notes that in 2019, RE capacity was only 5,000 megawatts (MW), more than 10,000 MW short of the 15,304 MW target by 2030.

But perhaps renewables contribution to the Philippines ’ power mix would be better in the following years. Hopefully, the government and the energy planners so engrossed in the faulty appreciation of the least cost method in power planning will finally appreciate what renewable power has to offer.

The COVID-19 has, after all, exposed the vulnerability of our energy sector. For a while, I was worried that Indonesia, the Philippines’ largest source of coal, would close its borders, thus putting our energy source at risk. Even the Energy Secretary has acknowledged that the coronavirus pandemic highlighted the need to ensure energy security by developing our indigenous resources.

Thankfully, the Indonesian government did not close its borders and stop the export of coal. But this pandemic should teach us valuable lessons, pushing us closer to clean energy transition. There’s a strong case for doing so given that experts have been saying that now is the best time to ramp up renewable energy development both locally and around the world.

For example, a policy paper, titled “Can COVID-19 spark an energy transition in the Philippines?” noted that this pandemic has provided an opportunity for the Philippines to pursue the development of more RE source more aggressively given that the lower coal generation due to the drop in power demand. 

The paper penned by Ateneo de Manila University economics department Associate Professor Majah-Leah Ravago and The University of Hawaii, Manoa economics department Professor Emeritus James Roumasset noted that “the rather dramatic fall in coal-fired generation may afford an opportunity for the Philippines to meet their renewable targets without resorting to costly subsidies.” 

The study noted that power demand dropped by 30% nationwide with coal generation decreasing from 56 to 48 %. On the other hand, generated energy from renewables remained the same with biomass and solar power generation rising slightly during our enhanced community quarantine.

Now is the best time, too to invest more in renewable energy projects says the International Renewable Energy Agency (IRENA) in its report “The Post-COVID Recovery.” It noted that the renewable energy sector has proven to be more resilient than other parts of the energy sector given the high shares of renewables continue to operate effectively. “Renewables have proven to be the most resilient energy sources throughout the current crisis. This evidence should allow governments to take immediate investment decisions and policy responses to overcome the crisis,” said Francesco La Camera, Director-General of IRENA.

The IRENA report added that accelerating the energy transition will bring substantial socio-economic benefits, specifically job creation. Aligning immediate stimulus action for the next three years, particularly from 2021 to 2023 and scaling up public and private energy spending to USD 4.5 trillion annually would boost the world economy by an additional 1.3 percent. 

This level of investment would also create 19 million more energy transition-related employment by 2030. Jobs in renewables power would grow to almost 30 million in 2030 from about 12 million in 2017. The study stressed that every one million dollars invested in renewables can provide three times more jobs than in fossil fuels.

I, along with other experts, have been arguing that the COVID-19 pandemic and the economic recession should not deter us from pursuing our clean energy transition goals. Like the experts quoted above, there’s an opportunity and a greater need for us to accelerate our shift to renewable energy.

A fast clean energy transition would reap enormous benefits for all and help in the global economic recovery. It also means ensuring energy security in the Philippines. And in the words of the IRENA President, “Now is the time to invest in a better future. Government policies and investment choices can create the necessary momentum to enact systemic change and deliver the energy transformation away from fossil fuels.”

Will the Power Sector Survive a Recession?

The COVID-19 pandemic is more than just a health crisis. It is also an economic one given that the lockdowns and restrictions have resulted in the loss of jobs and livelihood of people.

In the Philippines, the long enhanced community quarantine (ECQ) paralyzed the economy and caused a sharp economic contraction for the second quarter at 16.5%. According to Acting Secretary of the National Economic Development Authority (NEDA), Karl Kendrick Chua, 8.8 million jobs were lost between January until April “because of the very strict quarantine.” The country’s average unemployment rate in 2020 to date is at 11%, 6% up from the normal 5%.

Unfortunately, it is the masses, the rank-and-file employees, and the micro, small, and medium enterprises (MSMEs) that are particularly affected by the economic recession. A survey from Publicus Asia revealed that 78% of survey respondents said at least a member of their family who earns Php9,500 to Php 19,040,00 per month and 65% of those earning between Php19,040 to Php 38,080 have lost their jobs due to the ECQ.

In terms of businesses, only 22.1% is on full operation according to the Department of Trade and Industry (DTI). Around26% are closed and 52% are only partially operating. Professor Eric Soriano, a World Bank Consultant, in a webinar with the Philippine Chamber of Commerce and Industry (PCCI) said that it is the MSMEs that have been the hardest hit. The MSMEs contribute 40% of the GDP and employ 70% of the workforce.

The magnitude of the job losses and business closures means that many poor and low-income families are having a hard time making ends meet, and have barely enough to eat. With no source of income, how will they afford to pay their utility bills?

In the United States, the report from the National Rural Electric Cooperative Association (NRECA) showed that U.S. electric cooperatives could take a financial hit of approximately $10 billion through 2022. “As GDP growth falls below pre-COVID-19 projections, electric co-op electricity sales are projected to decline,” NRECA noted.

The group said that high rates of utility bill delinquency along with service disconnection moratoria in some states and the surge in unemployment is making it difficult for electric coops to continue providing services. “Lost revenue can severely constrain the ability of certain electric co-ops to meet the needs of their community,” the NRECA said in a letter addressed to lawmakers.

Local utility companies are facing the same challenges. Many utility companies for months now are experiencing a significant drop in their collection rates and surviving with considerably less cashflow. Eventually, these companies will have no option but to discontinue their services for those who cannot pay. So, how will utilities survive?

Perhaps we should look at our government’s response to address the impacts of high unemployment rates and business closure.

The International Labor Organization (ILO), in its policy paper entitled “COVID-19 and the world of work: Impact and policy responses” stressed that epidemics and economic crisis tend to have disproportionate impact on some segments of the population, exacerbating the worsening wealth inequality.

ILO said government policy responses should have two immediate goals: Health protection measures and economic support on both the demand and supply side.

The organization noted that stimulating the economy and labor demand through economic and employment policies to stabilize economic activity, through active fiscal policies and particularly social protection measures is necessary. Governments must protect employment and incomes for enterprises and workers negatively impacted by the indirect effects

Yes, one might argue that we have the Bayanihan To Heal as One Act One signed into law last March that provided cash aid to displaced workers. Plus, we have the newly signed Bayanihan Act II with a Php 140 billion allotment to help revive the economy and fight COVID-19.

However, are those enough? Some experts agree that the Bayanihan Act is too small and too late. 

University of the Philippines (UP) economics professor and former NEDA chief Solita Monsod pointed out that the first Bayanihan law is only equivalent to 1.93 percent of the gross domestic product (GDP) a measly amount when compared to other countries that are allocating funds equal to 5 to 21 percent of the GDP. She stressed that “But my God, Bayanihan 2 if you add it all together, is only 0.7 percent of GDP.” 

The UP economist said that the government fears that the debt figure will balloon and the credit ratings will suffer is a misguided fiscal conservatism. “We spent 1.3 percent (of GDP) in the first half and got nowhere. You think we’ll get somewhere by spending only 0.7 percent?” she added.

JC Punongbayan, a teaching fellow at the UP School of Economics echoed the thoughts of Monsod. “Good though its intentions are, Bayanihan 2 is too small. It’s not nearly enough to shore up our embattled economy.”

He pointed out that only Php 6 billion are being allotted for the Department of Social Welfare and Development’s various aid programs including emergency subsidies for poor households but only households in granular lockdowns will receive cash aid.

Punongbayan said that that economic managers are banking on the multiplier effects wherein a peso spent on business loans for companies can generate Php8 to 10 in economic activity, which is why the government thinks it does not need to shell out much more to revive the economy. However, he noted that there is no government study to back up this claim.

Both economists agree that the bill does little to help already struggling Filipino families. And in the words of Monsod, “The people, especially the poor, are always the last priority. The first priority, I tell you, seems to be the credit rating of the country,” she added.

I am no economist but I do know that joblessness during the pandemic brings economic hardships to low-income families and that it is the government’s job to provide aid to them. Economists have been giving their opinions on the meager amount allotted to help Filipinos and revive the economy, which the government must pay attention to.

From a utility standpoint, loss of jobs and business closures definitely have a negative impact not only on the collection of utilities since the consumers’ ability to pay for basic utilities will also erode over time. When the population no longer can pay basic utilities, how can these utilities survive? 

The answer to the above question is beyond the power sector of which I belong to. This is exactly why I included the economists’ thoughts on our government’s response to the health and economic crisis. But let me point out that utility companies are suffering too when consumers do not have enough in their pockets to pay for their basic needs. NRECA CEO, Jim Matheson said it best “The economic health of electric co-ops is directly tied to the wellbeing of their local communities.”

Thus, we need to find a way to help the Filipinos struggling to pay for food and other basic needs. And as Matheson stressed, “As the economic impact of this pandemic spreads, electric co-ops will be increasingly challenged as they work to keep the lights on for hospitals, grocery stores, and millions of new home offices.” In the end, power companies, which are essential in economic development and nation building might also be left with nothing.

References:

https://rappler.com/voices/thought-leaders/analysis-bayanihan-2-here-yet-too-small-late

https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/nreca-says-us-electric-co-ops-may-take-10b-financial-hit-from-covid-19-58152700

NCR COVID-19 Survey 3: ECQ job loss affects 69% of households surveyed

Ditching the Notion of Least Cost

In a previous post, I have raised the possibility of Indonesia, our biggest source of coal, closing its ports because of the COVID-19 pandemic. Fortunately, this didn’t happen as we would have major problems given that we source 90 percent of our coal from Indonesia.

But this doesn’t mean that we should refrain from overhauling our energy sector. After all, this pandemic has exposed vulnerabilities in our energy sector especially since we are a fossil-reliant power country.

A study by the Institute For Energy Economics and Financial Analysis (IEFAA) discussed how the COVID-19 pandemic has revealed the weaknesses of the power sector. 

The report entitled “Philippines Power Sector Can Reach Resilience by 2021” stressed that our energy market, which relies heavily on fossil fuels because our energy planners prefer the least cost method, has not delivered on its promise of being the cheapest cost of energy. On the contrary, our reliance on large scale fossil fuel plants with guaranteed contracts have resulted in grid inflexibility, and price instability.

The researchers noted that the sector for so long has focused almost exclusively on mobilizing capital for large volumes of baseload capacity that runs on imported fuel. Unfortunately, coal plants are inherently inflexible, and in the Philippines 80% of baseload coal plants are inflexible.

The lockdown, the IEFAA said, has exposed the downside of the guaranteed contracts with coal plants.

According to the authors, with the depressed demand for power, coal plants are turning to their mid-merit load factors, which have a higher per kilowatt-hour rate. This is all thanks to our power sales agreements (PSAs) that ensure capital recovery for coal plants. 

The study pointed out that our PSAs have provision for capacity payments, which is the payment to ensure that the coal investor can recover their capital “it is designed to ensure IPPs can recover their capital costs and repay their loans on a timely basis. This means that neither the financial sector nor the power sector is liable for the risk they take, as these are passed on to end-users who are ill-equipped to manage such risk.”

And with the depressed demand for power, coal plants are turning to their mid-merit load factors, which in turn increases the cost per kilowatt-hour. Thus, Filipino consumers have to pay more for every kilowatt-hour, thanks to the pass-on cost provisions of the PSAs.

By just how much will consumers have to shoulder for these capacity payments? According to the study, if there is a 10% decline in energy sales volume for 2020 and if power comes from fossil plant with the usual PSA with the capacity payments clause, then end-users will have to fork out PHP9.679 billion (USD 193.573 million) in 2020. Now, that’s a lot.

All this could have been avoided if we had fixed-term contracts where our consumers will pay the same price regardless of the power demand. As I have been saying in the past, these pass-on provisions burden the consumers. I have been proposing for fixed-price contracts to protect consumers. This is the same recommendation of IEEFA of making fixed cost procurement.

Looking at our PSAs will help us understand what we are doing wrong in the energy sector. Having fixed-price long terms contracts will reduce our power rates regardless of technology. And as I have pointed out in previous blog posts, our PSAs are similar to asking Juan deal Cruz to shoulder the risks through the pass on costs, because our energy planners have a faulty appreciation of the least cost. But in reality and as IEEFA has stressed, big-scale fossil fuel plants have not delivered the least cost system but rather caused price instability.

Our least-cost approach has been faulty as we only base our decisions on the cheapest energy to generate by comparing technologies and choosing which sources are ‘cheaper’ than others. We exacerbate the problem by regulating the costs that can be passed on to Juan deal Cruz according to the returns we feel are owed to the investors rather than what consumers deserve.

The IEEFA study emphasized that the COVID-19 pandemic has highlighted the need for the market to turn to more flexible dispatch strategies especially because of the dramatic drop in demand during the lockdown months. It is recommending for the Department of Energy to start pushing for grid flexibility, modular system, a moratorium on new inflexible power, and for the Energy Regulatory Commission (ERC) to remove pass-through cost provisions and carve out curtailments for inflexible plants.

I would add further to these recommendations. As the government orders the immediate development of indigenous sources, our procurement rules should also change as the present rules for evaluating PSAs do not differentiate indigenous and imported energy. Thus, ERC should require distribution utilities to testify during procurement that there are no indigenous resources in the franchise area or that there are no offers from indigenous power producers.

It makes a lot of sense to recommend grid flexibility, modular dispatch, and grid upgrades via the inclusion of more renewable energy. This is nothing new. Renewable energy, after all, offers flexibility to a power system as they are capable of rapid start-up and dispatching adjustable capacity.

Plus, the prices of renewable technologies have been falling in the last few years. IEEFA noted that “The deflationary price trajectory of renewable electricity generation and storage triumphs over the cost of generating and moving electricity from a large fossil-fueled power plant.”  We can also have a fixed price for power sourced from indigenous materials. 

The IEEFA said it best when it noted that “Power sector planners assumed that a large system lock-in such as coal would lead to the least-cost system. Unfortunately, this lock-in for countries that import coal has led to inflexibility, price instability, and high prices.” And as we rebuild our economy, let us build better by addressing the ills in the energy sector. We can start by ditching the notion of least cost where we forget about the risks and only look at the upfront cost.

It bodes well for us to make a swifter transition to renewables. Unfortunately, the COVID-19 pandemic has paralyzed most economic activities. By now we should be working double hard to revive our economy. We can start by addressing the high power rates in our country by replacing traditional sources of power with renewable energy to support businesses as they recover. The construction of renewable power plants will also provide more jobs for Filipinos, too.

Wanted: Fast and Reliable Internet Connection

The Enhanced Community Quarantine or ECQ forced us all to stay indoors. As with the many Filipinos, I stayed inside and worked at home. But work from home means having a slow and unreliable internet connection.

According to Speedtest Global Index, as of February 2020, the Philippines’ mobile, download speed average is 16.66 while upload speed is 6.47 Megabits per second (Mbps). On the other hand, fixed broadband average download speed is31.48 Mbps and upload of 31.42 Mbps.

An internet speed test I did, however, show that my home internet’s download speed was at 1.59 Mbps while upload speed is 11.17 Mbps. I am subscribed and am paying for a plan that’s supposedly up to “100 Mbps”, considered my fast internet that can handle multiple activities online.

Yes, one can argue that with everyone at home there’s heavy usage of the internet. But really, my internet service provider (ISP) seems to be robbing me with my 1.59 and 11. 17 Mbps. My ISP says my subscription is up to 100 Mbps but really, my download speed is just 1.5 percent of what I’m subscribed to. The service I received is even way below than the Philippines’ average. This kind of service is just really absurd.

Clearly, and as everyone knows, we need better internet speed and reliable connection, requiring more investments in IT infrastructure. This isn’t because I simply want to stream in Ultra High Definition for my Netflix, Hulu or Apple TV. We need to invest in our IT infrastructure because our modern world depends on reliable interconnectivity.

In the Energy Sector, high speed and dependable internet is a prerequisite for modernizing the grid.

The Internet of Things or IoT is a game-changer and the internet is the backbone of IoT. Technological advancement has given birth to distributed energy systems, which foregoes the traditional distribution energy of centralized generation and transmission with really long high-powered lines delivering power. Rather, we now have a combined generator and distributor in small and even remote communities.

IoT is needed to empower consumers. There are more choices for everyone if we can leverage on what technology has to offer, allowing even a homemaker to be a generator and distributor at the same time. Imagine a homeowner with solar power or even wind turbines generating excess capacity that can be sold to neighbors.

Speaking of distributed energy, thanks to the internet, grid managers will have visibility over grid functions and performance remotely. Distributions lines and substations are equipped with sensors that can provide real-time data on power consumption helping grid managers make decisions remotely. Even when away from their substations, grid managers can decide real-time on network configuration, load switching, and voltage control, among others.

The Internet allows for virtual troubleshooting, too. We can expect fewer linemen risking their lives trying to fix broken power connections and consumers waiting for days or weeks to get their power back that after a devastating natural disaster.

As for consumers, they now have more information in their hands. With smart devices and meters, they can now know their power consumption and adjust their consumption patterns accordingly. Smart technologies allow them to choose and eventually limit the use power-hungry appliances. Likewise, they can strategize their consumption if they are likely to go over the budget with their power consumption. This is because IoT’s low-powered sensors and internet-connected devices allow for the collection and transmission of data to users quickly.

The case of Chattanooga City in Tennessee illustrates how crucial fast internet is in the modernization of grids and improvement of the community’s economy. In 2008, Chattanooga City rolled out a fiber-optic network that could provide speeds of up to 1000 Mbps. This despite the huge capital needed to install and maintain fiber networks which required new underground wiring and linking to individual homes.

Chatt gridsmart

Chattanooga City is reaping huge benefits from investments in fiber optics and smart grids. Photo c/o http://www.smartgrids.com

Chattanooga’s project was started as the small city wanted to build a “smart” power grid that’s capable of rerouting or switching electricity easily to prevent outages.

The city government opted to operate a city-owned agency, the Electric Power Board (EPB) that would run its own network offering higher-speed service than any private sector players can provide. Naturally, large businesses incapable of providing better service tried to prevent the entry of a new player that would change the competitive landscape. The city government faced lawsuits from US telecom giant, Comcast and local cable operators who tried to block the entry of EPB. But by September 2009, the internet service was already in operation.

A $111 million stimulus grant given to the city by the US Department of Energy saw the completion of the project. EPB managed to roll out its smart grid rapidly. The organization intended to complete the smart grid deployment in 10 years, but only needed three years. “Deploying a network for telecommunications is not fundamentally different from deploying a network for power,” Benoit Felten, a broadband expert with Diffraction Analysis said. “Chattanooga is the prime example of that, and it’s absolutely worked.”

These days, the EPB offers electric, cable, internet and telephone service to the majority of the Hamilton County in Tennessee and eight nearby counties in East Tennessee and Georgia. It manages 3560 miles of transmission line and serves around 178,000 residential and business customers.

Reports say that Chattanooga City is reaping huge benefits from EPB’s investments in fiber optics and smart grids. EPB is credited for being the most influential in Chattanooga’s astonishing economic transformation

The city’s smart grids have helped reduce power outages and incidents in half. This translates to 285 million customer minutes, which means EPB’ customers get to save around $50 million yearly in spoiled food, lower productivity, and other negative impacts.

Chattanooga City’s example shows that there are many benefits to be enjoyed if one invests in a smart grid. The best way to start modernizing the grid is to address the lack of high speed and reliable internet. This is why we need to have better internet services in the country. We need to invest in our internet infrastructure not because we need to stream our entertainment content in Ultra High Definition. But rather because, the Energy Sector needs reliable internet to provide more choices and better services to Filipinos.

We Lowered our Power Bill Despite Higher Consumption, Here’s How We Did It

Consumers are complaining of their energy bills these days after months of not receiving them. The mounting consumer complaints have compelled the Energy Regulatory Commission (ERC) to order the biggest power distributor, Manila Electric Company (Meralco) to explain how it billed its close to seven million customers, 92 percent of which are residential accounts.

According to Meralco, the high power bills of its subscribers are because of the higher usage of electricity at homes during the community quarantine. The summer season didn’t help in lowering power consumption either, the energy distributor says.

There’s also a problem with the meter reading. During the enhanced community quarantine (ECQ), Meralco did not send out its employees to conduct meter reading. Thus, the last three month’s average consumption was used as a basis for the billing during March and April.

There are various ways we could have avoided a bill shock.  The company says smart meters, which allows for remote meter reading, would have eliminated the need for meter readers to go door-to-door during the lockdown. Indeed, remote meter reading would have been beneficial for consumers. We are now developing a new technology that allows our personnel to read, connect, disconnect, and reconnect power remotely. We intend to roll-out this technology by year-end. 

While many consumers were shocked and left in dismay over their power bills, our household, on the other hand, has a different experience. I and other members of the family stayed at home like many Filipinos. Our power consumption is higher, too given multiple devices, gadgets, and appliances catering to our needs. But unlike most Meralco consumers, our power bill is lower despite our higher consumption. 

Fortunately, even before the lockdown, we have installed rooftop solar at our home. After all, as a renewable energy advocate, I knew that there are many benefits in investing in renewable power technologies. And indeed, our solar system installation came in very handy at a time when we all had to stay home and consume more energy for months.

Solar rooftop technology can cut electricity costs drastically. Many anti-renewables are always pointing out that the one-time investment in this technology is too expensive and might not be worth it. However, consumers have to consider that this system is a one-time investment. A household would only need to shell out money once, unlike getting electricity from a traditional distributor where they have to pay a monthly charge depending on their consumption and other pass-on costs. Consumers who don’t want to experience a bill shock would do well in installing a rooftop solar system. 

A rooftop solar system is also low maintenance since it merely requires proper cleaning from time to time, much like any appliance. There are no major maintenance costs involved in having rooftop solar at homes. Maintaining a car is way more expensive than the maintenance costs of using a solar rooftop technology.

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In the U.S., solar panels can increase the value of a home property anywhere between 3 to 9.9%. Photo c/o Greentech Media

Solar rooftops also increase a home’s resale value. A study by Zillow, a real estate information company in the United States revealed that adding solar power at home increases the property’s sale value, similar to the effects of renovating spaces such as kitchens and basement. According to Zillow, solar panels can increase the value of a home property anywhere between 3 to 9.9%, depending on the property’s location.

Our solar rooftops are of great help at a time when we are all staying at home. This technology allows me and my family to use even high-consuming appliances like airconditioners without much guilt, knowing that our investment in rooftop solar panels is working for us. It is unfortunate that some who would like to have this technology such as those living in high rise buildings won’t be able to take advantage of this technology, for now, to help with their power bills. But for those who can, solar rooftop system is indeed a worthy investment.

A New Normal for Power Distribution Companies: Less Face-to-Face with Customers but More Digital Engagement

In my previous blog entries, I have talked about Utilities of the 21st century, discussing how competition among energy players should flourish and how we should move to distributed energy systems. This was before the COVID-19 pandemic happened.

When I entered the power distribution business, my main priority was to provide a customer-centric service, which means ensuring stable energy supply and finding ways to help electricity rates become more affordable. 

According to an article, COVID-19: How Energy & Utility Companies Can Soften the Blow, most Energy and Utility companies usually have set contingency plans in place to address the impact of natural disasters. But no company is fully prepared for the coronavirus. And I agree since this pandemic is a new challenge in the power distribution business as we must craft strategies to ensure our customers and employee’s safety in light of the coronavirus.

The same article said that several measures must be undertaken by energy firms to address the impact of the pandemic. These measures include increasing the digital contact center footprint where companies should beef up on their customer services to allow real-time and two way interactions. Other recommended strategies are offering digital payments and leveraging social media to proactively tackle customer concerns.

Fortunately for us at the power distribution company I’m working with, we already have invested our efforts and resources in technological solutions that will make the lives of our customers easier even before COVID-19. 

In our case, before COVID-19, many customers would pay their power bills in our offices. We have recently added more payment partners. Our recent addition is Xenpay, allowing customers to pay their bills in the sari-sari stores, which minimizes the risk of exposure to the virus given that there’s a sari-sari store practically in every corner in the Philippines. We also have our digital payment channel through G-Cash. Now customers can conveniently settle their bills at the comfort of their homes.

As the article said, there’s a need to ramp up a company’s digital contact center footprint. For us, this means changing customer engagement from face-to-face interactions to social media. This is necessary given experts’ prediction that a vaccine for the coronavirus won’t be available for the next 18 to 24 months. In the meantime, distribution firms should find ways to minimize the need for our customers to go to our offices for official business.

For years now, companies are using social media to reach out to their customers more. But corporate social media accounts should do more than re-post news or carry announcements. While these are useful to customers, social media account should add more value. These days, power distributors must leverage social media more especially since studies show that people are spending more time in their social media accounts while confined at home. A Consumer Welfare Office that engages with consumers via Facebook messaging is useful.

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By this time, energy and utility firms should be working on additional digital assets to lessen face-to-face interactions with customers in light of the coronavirus pandemic. Photo c/o medium.com

By this time, energy and utility firms should be working on adding to their digital assets that will be utilized for mass knowledge dissemination, necessary to empower our customers. Using customer analytics to proactively identify and address customers’ concerns coursed through social media is a must these days.

Our company is working on an app that will let customers report power outages via social media, which in turn will alert our line-men in real-time, thanks to their GPS-enabled radios. This will allow our linemen to respond quickly to outages.

Relying on social media to minimize in-person interactions makes sense in this digital world. More so for the Philippines since according to a report on social media and digital trends, Filipinos spend an average of nine hours and 45 minutes online per day, making us the most active social media users around the world. This annual study by the creative agency, entitled, entitled Digital 2020, revealed that Filipinos spend an average of three hours and 53 minutes daily on social media.

The energy distribution sector is undergoing a massive transformation, thanks to technology. Before COVID-19, we were absorbed with cutting system losses, studying decentralizing power distribution systems, and technological solutions that will disrupt the sector. Now, we must also prepare for the new normal, a consumer-centric service delivery with limited personal interactions between consumers and power distribution company employees. Fortunately, we have the tools and human resources ready for digital engagement.

 

Is Weather Too Hot? Soon the World Will Be Unlivable

 

The summer season in the Philippines means enduring sweltering weather for two to three months. According to the state weather bureau, Philippine Atmospheric, Geophysical and Astronomical Services Administration or PAGASA, the month of May saw the country’s heat index reach its highest values for the year.

The heat index in May (or at least for the first half of May) reached what Health officials refer to as dangerous levels, a range between 41℃ to 54 ℃.  The dangerous level can cause heat cramps, and heat exhaustion and might result in a heat stroke. Unfortunately, the dangerous heat index was recorded in May all over the Philippines, the highest so far for the month was 51℃ to 53℃ in places like Dagupan City in Pangasinan, Butuan City in Agusan Del Norte, and Sangley Point, Cavite.

It was worse for San Jose City in Occidental Mindoro on April 20 as it recorded a heat index of 58℃. The Health Department says there is an extreme danger if the heat index is more than 54 ℃ because heat stroke is imminent. 

In mid-May, a tropical storm with an international name, Vongfong. After two days of torrential rains and strong winds in Northern Philippines, the warm summer heat in the Philippines returned a few days after, which is likely to last until mid-June. The current heat index we are experiencing shouldn’t be surprising since scientists have already predicted that 2020 will be the hottest year on record.

Fortunately for us, we only have to endure such sweltering heat for two to three months. But there’s a strong likelihood that the majority of the world will suffer from extreme heat by 2070 as new research revealed.

According to the study “Future of the human climate niche,” some three billion people will live in “nearly unlivable” conditions by 2070 if global warming remains unchecked. Authors say that much of the world’s population will live in climate conditions that are “warmer than conditions deemed suitable for human life to flourish.” I probably won’t be around by then but my grandchildren will be still on this earth by that time, so this warning is still alarming for me.

The study warns that the average annual temperatures will be above the climate “niche” in which humans have lived for 6,000 years. “We show that in a business-as-usual climate change scenario, the geographical position of this temperature niche is projected to shift more over the coming 50 years than it has moved (in the past 6,000 years),” the study noted.

If the world continues with its business-as-usual and refuses to take climate mitigation measures, a substantial part of the world will be experiencing average annual temperatures warmer than practically anywhere today by 2070. This means the future generations could be enduring warmer weather than what we are experiencing now here in the Philippines. 

 

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By 2070, the world will suffer from unlivable weather conditions if global warning remains unchecked. Photo c/o eco world

“Large areas of the planet would heat to barely survivable levels and they wouldn’t cool down again,” says the study co-author Marten Scheffer of Wageningen University in the Netherlands.”Not only would this have devastating direct effects, it leaves societies less able to cope with future crises like new pandemics. The only thing that can stop this happening is a rapid cut in carbon emissions.”

Again, this isn’t the only warning about the effect of climate change. we have heard. A few years ago, Nobel Prize winner and Director of Germany’s Potsdam Institute for Climate Impact Research (PIK) already warned us that Southeast Asia would likely suffer from extreme temperatures if nothing is done to lessen our high carbon emission levels. 

Schellnhuber’s paper entitled “A Region at Risk: The Human Dimensions of Climate Change in Asia and the Pacific,” said that temperatures would keep increasing where we could “see a complete shift in living conditions,” and that “All of the tropics will develop conditions that physiologically, humans cannot live outside anymore.”

Experts have been warning us all that lessening our carbon footprint is the only way we can avoid extreme temperatures around the world in the future. These studies also point out that a shift to renewable energy is one of the effective climate change mitigation measures we should adopt. 

Unfortunately, with the world already falling into recession, the renewable energy sector is likely to see a lean period, probably temporarily ending the sector’s rapid growth in recent years. Renewable power projects are exposed to various risks due to the economic crisis brought by the COVID-19 pandemic just like other sectors. One of these risks could be less access to financing.

Fossil fuels are likely to become more attractive in the cover-19 recovery period as coal prices have been falling even before COVID-19 forced locked downs. Plus, oil prices hit at an all-time low. Economies could be wary of the high upfront costs of renewable energy projects and potentially renege on long-term sustainable development plans.

But governments, particularly ours, shouldn’t be too quick to abandon or shelve clean energy transition plans for a variety of reasons. For one, analysts say that the low oil prices will be short-lived. According to an editorial entitled “Coronavirus: The Caribbean is the First Domino to Fall, but There is Hope” “It is expected that at current lows, many high-cost producers will shut down operations and some may go out of business. In a post-COVID world, with increasing global demand and a reduced number of suppliers, there will be upward pressure on oil prices.”

Plus, energy transition plans were well already underway before the pandemic causing the technology costs for renewables to fall in recent years.  Wind power and solar photovoltaic have become the cheapest source of energy in many markets, debunking the myth that renewable energy is the more expensive choice.

A report by the International Renewable Energy Agency also showed that accelerating investments in renewable energy could spur the global gross domestic product (GDP) by almost $98 trillion between now and 2050. IRENA projects that RE would provide returns of $3 to $8 for every dollar invested in renewables. The report entitled “Global Renewable Outlook” stressed that high investments renewable power could also quadruple the number of jobs in the sector over the next 30 years.

And in the short-term, decentralized energy systems will help small communities economically as IRENA Director-General, Francesco La Camera stressed recently. “Decentralized technologies also allow for greater involvement by citizens and communities in energy decisions, with transformative social implications. Importantly, they offer a proven approach for remote health care in energy-poor communities and add a key element to the crisis response toolkit.”

These are some of the reasons to debunk the belief that fossil fuel could be the better choice in the short-term. But if these counter-arguments illustrating that renewable energy isn’t the “expensive” option, then let us go back to the fact that we need to address climate change.

According to scientists, climate change is a potent risk multiplier or can contribute to pandemics. Plus, rising temperatures allow for the quick spread of certain infectious diseases like dengue and malaria. As research shows, failure to address rising carbon emissions will make the world an unlivable place as humans cannot survive the high temperature by 2070 unless they stay in an air-conditioned place, day-in and day- out.

A Bloomberg New Energy Finance (BNEF) report released before coronavirus was declared a pandemic said that 77 percent of investments from 2019 to 2050 will be in renewables. This prediction of BNEF remains achievable if we don’t let the pandemic and its economic effects derail us from putting more money in clean energy. Short-term plans to revive any economy post-COVID-19 must remain aligned with our long-term objectives on sustainable development and climate change. The COVID-19 pandemic should encourage us to build back better.

Finally, I would like to repeat my previous point that moving forward we need to move away from our dependence on imported fossil fuel.  The COVID-19 crisis has raised a specter that Indonesia may decide to shut down its ports and close down all ingress and exit points of the country.  If that happens – and thank God it has not happened – this will not augur well for the Philippines We rely on 90% of our coal from Indonesia.

We will have not only a pandemic but a total power meltdown.

Technology Will Keep Our Employees and Consumers Safe

Since mid-March, my living room has become my office where I start work as early as 4:30 due to the Enhanced Community Quarantine  (ECQ) imposed by the government. I join millions of others around the world who had to work from home because of the COVID-19 pandemic.

According to a paper published by McKinsey Digital, the demand for digital products and services has hit record levels as governments worldwide instituted lockdowns. The paper entitled “Driving digital change during a crisis: The Chief Digital Officer and COVID-19” also noted that hundreds of remote employees are now depending on collaboration tools and online processes to get work done.

I can fully appreciate the above-points as I have my tools—laptop, iPad, and smartphone— spread out in my living room. I also spend my days meeting online with colleagues who are in different areas.  Despite many of us working from home, during the ECQ, our team at Albay Power and Energy Corporation or APEC were still able to mobilize resources and distribute necessities like rice, flour, and alcohol, and protective personal equipment (PPEs) in the area. This is our company’s small way of helping Albay and its communities

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photo c/o APEC FB page

Experts predict that the coronavirus pandemic is likely to last between 18 to 24 months, which means businesses are now preparing to make remote work easier and more accessible, APEC included.

In our offices, the health and safety of our employees will be a priority. Our workspaces will be reconfigured to comply with the new social distance standards and APEC field workers will be provided with PPEs, among others.

Fortunately for us at APEC, we have already made plans for greater use of technology in our jobs since it has always been our goal to be a customer-centric organization.

Aside from the reconfiguration of our offices, our employees will be working in shifts and some of them will be working for home. They will be provided with the proper internet tools to increase their productivity. Plus, we have been preparing for the roll-out of a facial recognition software in logging in all employees for convenience purposes. Now, this technology will serve a different purpose of eliminating the need for individuals to put their fingers on the biometric machines. Soon, we will also be using a new employee app that will also do some contact tracing to ensure our employees’ safety at all times.

These measures are for our employees, but we remain steadfast in our commitment to offering excellent services to APEC customers. Our goal of improving services for APEC consumers has enabled us to lower the 22% system loss to 18% since we took over last January. The collection rate, which is integral for better service delivery has improved as well.

Improving the lives of those we serve at APEC has led us to rely on technology and data-driven solutions across all functions including accounting, collections, warehousing, procurement, finance, and engineering.

According to the paper by McKinsey, companies must re-craft digital strategies and develop a perspective of the business’ longer-term future given that “the best-performing companies have a digital strategy that’s tightly aligned with the business’s overall strategy”. The paper recommends that companies serve customers in a manner that safeguards their health, digitize interactions that used to be handled in person, and help transition customers from offline to online channels.

I am proud to say and as I mentioned, that at APEC, we meet all of the recommendations above as we have long planned for such digital transformations.

We already launched XenPay, a mechanism that allows customers to pay their electric bills in sari sari stores. We are currently reviewing our processes in payment centers as we aim to reduce the amount it takes to pay to 15 seconds per customer as we will only accommodate six people at a time.

 Soon, we will be launching an app allowing our customers to apply for meters online or via their smartphones. This will reduce the need to come to our offices. Plus, we hope to lessen the approval time from four weeks to one week for new power applications.

We are now developing a new technology that allows our personnel to read, connect, disconnect, and reconnect power remotely. We already are creating the prototype as we intend to have the technology ready by year-end.

Another app is in the works, which is intended for our customers to report outages via Facebook and other social media. Our linemen have been equipped with GPS-enabled radios that let the control center identify their location, allowing our linemen to respond to outages faster.

We have drones, too for monitoring, reducing the need for personnel to go out. The use of Artificial Intelligence in monitoring vegetation that causes outages is currently being explored with the help of our IT partner. Plus, we are working with different technology providers to enable APEC to implement more remote payment mechanisms and remote dispatch of embedded solar power.

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photo c/o APEC FB page

The novel coronavirus is forcing businesses to re-think their ways to adapt to the new normal. Thankfully, we have invested in programs that meet the demands of better power service delivery to consumers long before COVID-19 was declared a pandemic, and even before lockdowns happened. Little did we know, that these which were designed to bring APEC to the 21st century are the very same technological tools that will help keep both our employees and customers safe during these uncertain times.