It’s About Time

President Rodrigo Duterte made strong pronouncements after attending the Asia Pacific Economic Cooperation in Peru, promising to open up our utilities to more competition.

In his speech delivered in New Zealand, the president said “The only way to make this country move faster to benefit the poor is really to open up the communications, the airwaves and the entire energy sector. My decision now is to open the Philippine economy to other players.”

He further added that the government is “now also looking into regulatory requirements and institutional arrangements to hasten the entry of new players in the power industry and energy sector.”

This is good news for us, not only for energy players like myself but the rest of the country. I have long been advocating for the opening up of the sector to more players, including foreign ones. I have always been vocal in my desire to lift the 40 percent restriction on foreign ownership to address the energy needs of our country for several reasons.

For one, the building of power plants, particularly renewable energy plants is capital intensive, and there are very few local businessmen who can cough up the needed money to explore and build RE plants. The government no longer spends for the exploration of renewable energy and has left the task to the private sector. Unfortunately, exploration is not a cheap undertaking.

Take the case of geothermal energy where drilling of a single hole can cost $5 million, and that doesn’t include expenses incurred for the feasibility studies before drilling.

What we need are foreign investors who can shell out the money and provide the technologies needed to harness the energy from renewable sources because local businessmen do not have them. What we can do is to limit the foreign ownership of the renewable sources, but welcome more foreign investors to own equipment needed to convert our resources.

There’s another reason why the energy sector is ripe for more foreign ownership. The International Energy Agency or IEA has reported that roughly $165 trillion funds are ready for renewable and efficiency efforts from the years 2020 to 2030 after the government heads last year signed the agreement to reduce and limit carbon emissions to help save the environment.  This means the Philippines can take a share of that pie if we open ourselves to more foreign owners. We are, after all, a natural choice to receive these funds given the country’s abundance of natural resources.

The Philippines has been one of the fastest growing economy in the region and the Duterte administration is determined to keep our economic growth momentum that will be felt by the Filipinos. But the government can only accomplish such by building infrastructure to support our economic growth including power plants for stable and affordable energy supply.

Hopefully, the president can achieve his goals by having a cooperative Congress that will push for the needed changes in the Constitution. This necessary change is long overdue.

Reference:

http://business.inquirer.net/220139/digong-opens-3-sectors-foreign-investors

 

Fluctuation and Energy Costs

It has been in the headlines; the Philippine peso hit a 7-year low when it breached the P48 benchmark in September. The falling value of the peso against the dollar worried many people, as it impacts many businesses, especially those firms whose loans are in dollars. On the other hand, dollar-earning Filipinos such as our OFWs are probably rejoicing at their increased purchasing power.

But what many fail to realize is that the average Filipino families are affected by the strength of the dollar against the peso. In fact, Filipinos will have to shell out more for electricity if the peso continues its depreciation. After all, importation of raw materials of traditional sources of energy is mostly US dollar denominated.

It doesn’t help either that coal prices in the world market, according to Meralco are getting more expensive. The falling peso value against the dollar and the increase in coal prices then makes an unfortunate consequence for us: higher generation charges.

Such is the price we have to pay for choosing what we thought was the least cost. I have been consistent in explaining the perils of favoring the least cost method of energy planning.

We have for the longest time been favoring fossil fuel generation over renewable energy because of our penchant for choosing the least cost in terms of current market prices. In energy planning, this means choosing coal-fired plants over renewable energy to dominate our energy mix. At a glance, coal plants seem cheaper. Plus, it is faster to build. On the other hand, renewable energy power plants require higher capital.

Unfortunately, looking at only current prices can be misleading as it fails to consider other factors, particularly, the higher costs of raw materials. Consider this example. One may build a coal-fired plant at $1/kWh based on current prices or a solar power plant at $4/kWh for the next 25 years.

What would be the ‘cheaper’ option?

At first, we may think that coal is the cheaper option. However, what if the international prices of coal go up significantly in the future? It is a given that the cost of producing electricity would be far greater than $1/kWh, and could even double, triple, quadruple and so on.  We have already been in this situation many times in the past. For example, we suffered from the changing policies of coal producing nations when a few years back, Indonesia decided to stop exporting some certain grade of coal. We ended up paying more for electricity since the Philippines is a heavy importer of coal from Indonesia.

And we are back again in a scenario where we will likely pay more for the higher costs of coal. With the falling peso value against the dollar, we are likely to make a dent in our pockets when it’s time to pay our electricity bills.

On the other hand, choosing to build solar powered plants means a guaranteed cost for next 25 years. That means being free from the risk of having to pay more in the future for events that are beyond the consumers’ control.

So, is it really cheaper to depend heavily on fossil fuel power plants? Maybe not, if we consider that world events such as the US Federation’s announcement of maintaining their current interest rate—the cause of the strengthening of the US dollar— indeed happen and they affect the cost of our electricity.

Let us also remember, too that prices fossil fuels are likely to spike as these resources are slowly depleting. In fact, the world’s consumption of fossil fuels outpaces the world’s production of coal and fossil fuel.

Our energy mix is under review headed by our Climate Change Commission. Hopefully, the review results in an energy mix that is dominated by renewable energy sources, not only because it will be beneficial for our environment, but also because it will help the consumers’ pockets.

Heeding the Pope’s Call

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Heeding the Pope’s Call

Climate Change has taken the center stage as world leaders met in France for the United Nations Climate Change Conference (COP-21) with the goal of producing an international treaty to address the effects of climate change.

The Pope has earlier admonished our leaders for being passive in addressing the issue of climate change saying “It is remarkable how weak international political responses have been. The failure of global summits on the environment make it plain that our politics are subject to technology and finance.”

And perhaps it is appropriate for Pope Francis to remind all of us of our failure to protect our environment and take drastic measures to address climate change.  After all, according to the World Health Organization (WHO), climate change is “the defining issue for the 21st century.”

In the 180-page encyclical released last July, Pope Francis discussed thoroughly the effects of climate change and warned all of us of the possible consequences of our neglect on the environment. The Pope did not mince words and instead insisted that we all take notice of this problem.

Climate change is a global problem with grave implications: environmental, social, economic, political and for the distribution of goods. It represents one of the principal challenges facing humanity in our day.”

Why is it essential for us to take the words of the pope to heart? Aside from being good Christians, there is also a practical utility for us to address climate change. Even the pontiff expounded the effects of failure to address climate change and even offered practical solutions to the problem.

According to Pope Francis, preserving our environment is a must, otherwise more people will end in poverty since climate change “will probably be felt by developing countries in coming decades. Many of the poor live in areas particularly affected by phenomena related to warming, and their means of subsistence are largely dependent on natural reserves and ecosystemic services such as agriculture, fishing and forestry.

This assertion of the pope is echoed and supported by the data of WHO. In a report, the group said that:

“It is predicted that climate change will cause an additional 250 000 deaths per year from malaria, diarrhea, heat stress and under-nutrition between 2030 and 2050. Children, women and the poor in lower income countries will be the most vulnerable and most affected, widening health gaps.”

WHO’s report also stressed that the Philippines as a developing country is highly vulnerable to the effects of climate change including sea-level rise, an increase in the frequency of extreme weather events and rainfall and rising temperature. The effects will result in higher incidence of infectious disease, population displacement, heat stress and frequent disruption of economic activities especially in the agricultural sector.

The pope offered a solution to the problem through replacement of harmful sources of energy with renewable energy.

“We know that technology based on the use of highly polluting fossil fuels – especially coal, but also oil and, to a lesser degree, gas – needs to be progressively replaced without delay. Until greater progress is made in developing widely accessible sources of renewable energy, it is legitimate to choose the lesser of two evils or to find short-term solutions.”

Unfortunately, we are the perfect example a country that is abundant in renewable energy sources and yet are unable to tap these God-given resources. And a major reason for this is self-inflicted: we have put in too many regulatory barriers.

Data from our Energy Department shows that we are still sourcing our energy mostly from coal and natural gas. In 2014, we have sourced 42.78% of our energy from coal and 24.19% from natural gas. On the other hand, the Philippines yet has to achieve a greater energy mix consisting of renewable energy since we only generated 13.34 percent of our energy from geothermal and 0.2 percent from solar and wind. This is unfortunate for us as we are the second largest geothermal energy producer in the world, and a tropical more fair country that experiences weather.

The Philippines’ slow progress in making renewable energy can be attributed to a variety of factors, but largely because what I already said – the barriers and hurdles of implementing a project here are unimaginable. I have been vocal in saying that major reforms are needed in our regulatory framework and system planning philosophy.

It is sad that a country as poor as ours are unable to produce more renewable energy for the benefit of all. When I was CEO of National Power Corporation, we were supposed to implement a renewable energy UPP program – 100 MW per year across all technologies, if I remember right. Unfortunately, it was never followed through in the subsequent administrations.  My idea then was for us to learn the different RE technologies so that when the time came, we would have the resources and the people to implement them.

That time has come. And we are really not prepared.

There is a need for us to develop other sources of renewable energy, especially that WHO’s data showed that inefficient and polluting forms of energy are drivers of climate change that lead to air pollution. Roughly seven million people have already died due to air-pollution-related illness, making it the biggest environmental health risk. And in the Philippines, 46 percent or roughly 12,700 child deaths are caused by acute lower respiratory infection from household air pollution in 2012 alone.

Given the consequences of climate change, its effects in our environment, lack of government support and failure of our leaders to make the necessary changes, it is up to us—the private sector and local communities—to find ways to develop renewable sources of energy. Even Pope Francis acknowledges the contribution of local communities in developing more environment-friendly sources of energy.

“In some places, cooperatives are being developed to exploit renewable sources of energy which ensure local self-sufficiency and even the sale of surplus energy. This simple example shows that, while the existing world order proves powerless to assume its responsibilities, local individuals and groups can make a real difference.”

Perhaps it’s time to heed the call of the Pope and be good human beings by becoming better stewards of our environment. Otherwise, future generations will be deprived of God’s gifts just as Pope Francis warned.

“We may well be leaving to coming generations debris, desolation and filth. The pace of consumption, waste and environmental change has so stretched the planet’s capacity that our contemporary lifestyle, unsustainable as it is, can only precipitate catastrophes, such as those which even now periodically occur in different areas of the world. The effects of the present imbalance can only be reduced by our decisive action, here and now.”

I have built fossil fuel power plants and these plants have contributed greatly to our country’s economic progress. Times are, however, different now. The future is no longer based on fossil fuel.  For the first time we are hearing one single line from world leaders: build renewable energy.

Let’s roll up our sleeves and heed the Pope’s call.

References:

WHO calls on countries to protect health from climate change

Climate and Health Country Profile – 2015 Philippines

http://www.who.int/mediacentre/news/statements/2015/climate-change/en/