Missing Out on Benefits

 

renewable-energy-jobs-in-world

10.3 million people were employed in renewable sector says IRENA. Photo c/o https://constructionplacements.com

Renewable energy as experts has been saying bring many benefits. All over the world, big global brands and governments are making the shift to sustainable sources of power because they to help the environment as well as save on power costs.

 

However, more affordable energy prices and a cleaner environment are not the only benefits of choosing renewable energy. Fortunately, opting to build RE plants has a direct on the economy through job generation.

The International Renewable Energy Agency or IRENA report, Renewable Energy and Jobs Annual Review 2018 showed that in 2017 alone, the renewable energy industry generated more than half a million jobs around the world. This number brings the total number of people employed by the sector to 10.3 million as some 500,000 more jobs were created last year by the industry.

The same report noted that United States, China, Brazil, Germany, Japan and India combined accounted for the 70 percent of the jobs. Asia on the other hand accounted for 60 percent of all the renewable jobs having employed three million workers for solar PV energy alone.

These numbers can silence many naysayers who claim that a shift to greener forms of energy could cost many workers their jobs. In fact, the change to cleaner forms of energy is set to create more employment in the next coming decades as noted by Adnan Z. Amin, Director-General of IRENA. “Fundamentally, this data supports our analysis that decarbonisation of the global energy system can grow the global economy and create up to 28 million jobs in the sector by 2050,” Amin stressed.

Locally, the RE sector can create plenty of jobs for the Filipinos, too.

The  Greenpeace report “Green is Gold: How renewable energy can save us money and generate jobs, in 2013, noted that the Philippines, being a tropical country can generate as much as   4.5 to 5.5 kWh/m2/day. Data collected by the research showed that a 10 MW solar power plant usually employs 1000 people during the construction phase that lasts for six months and additional 100 full-time employees.
And this is just for solar power.

Overall, Greenpeace’s report found that the RE sector in the country can provide as much as 6.3 million jobs by 2030. Plus, renewable power in the Philippines can create some 62,625 jobs for every 7.828 RE projects for development

Unfortunately, unless we can fix the problems in the sector, then we cannot expect to reap the full benefits of RE including providing more employment for the Filipino workers.

Inconsistent and unfavorable policies to developers hinder the sector from reaping the economic benefits of harnessing more power from natural sources. The IRENA report stressed this point when it noted: “Employment trends and patterns are shaped by a wide range of technical, economic and policy-driven factors. Where policies become less favorable to renewable energy, change abruptly or invite uncertainty, the result can be job losses or lack of new job creation.”

The developments in the last few months have been a testament to the uncertainty in the energy sector. Just last December, the Commission on Audit suspended the four commissioners of the Energy Regulatory Commission or ERC.  A bill in Congress is seeking to abolish the commission was filed in the lower house after. By February, the Court of Appeals’ granted a temporary restraining order stopping the suspension. The conclusion of this saga remains to be seen.

Plus, we are also dealing with the cha-cha of our government or back and forth of our government in increasing the shares of renewables in our power mix. The Energy Department had a goal of sourcing 35 percent of our overall power needs from RE by 2030 and later pushed the deadline further to 2040.

In fact, in the next decade, the share of coal is set to increase by 10 percent as noted by Fitch-owned, BMI “The share of coal [is]actually increasing over our 10-year forecast period—from just under 50 percent in 2017 to over 55 percent by 2027,” BMI noted. What’s worse is that the contribution of renewables in our energy mix will likely decrease to 16 percent in 2027 from 20 percent in 2020 according to the study.

These numbers do not reflect our goal to source more power from renewable energy. So, we are unlikely to generate more jobs from the RE sector if this projection materializes.

Aside from missing out on having lower energy costs and helping our environment, the Philippines is likely to miss out on the opportunity of providing additional jobs from the development of more renewable energy plants.

If we can only get our act together, then we can surely reap the benefit of having more jobs from harnessing more power from renewables especially since the Philippines is blessed with overflowing natural resources. Doing so will reduce the burden on Filipino households and provide individuals with more jobs and higher disposable income which Filipinos need and deserve.

References:

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

IRENA report, Renewable Energy and Jobs Annual Review 2018

http://www.manilatimes.net/coal-top-55-ph-power-mix-2027/377594/

Suspense Is Only Good For Movies

I’ve written so many posts about how our local policies have been far from friendly to renewable energy (RE) developers like myself. But these days, it seems that the regulatory environment has even gone worse.

There is uncertainty in the sector given that our Energy Regulatory Commission (ERC) is caught in a messy situation after the Ombudsman suspended the four ERC commissioners last December.

Just this week, the Court of Appeals has issued a 60-day Temporary Restraining Order (TRO) on the suspension.  But then again, as the order suggests, it is just temporary stay order. What happens after 60 days? Also, will the resolutions approved by the suspended commissioners during the 60-day TRO period be deemed legal?

But the complication does not end with the suspension order and the TRO. There is a bill filed in the Lower House seeking the abolition of the ERC. It was sponsored by no less than the Speaker of the House, Pantaleon Alvarez.

The House Bill 5020 not only seeks to abolish the commission but is also pushing for the creation of a new quasi-judicial regulatory body, the Board of Energy as ERC’s replacement.  The new board will be an attached unit of the Department of Energy (DOE)  and will be composed of a Chairperson and two members appointed by the President upon the recommendation of the Energy Secretary.

All these developments are worrying since the ERC while being far from being an ideal regulator even before the chaos brought by the suspension, at least provided some comfort to the sector that somehow issues will eventually get resolved. So, is it essential to abolish the commission and replace it with a new one? A new entity might not be the answer to problems already hounding the ERC, especially if it is attached to the Department of Energy (DOE). It is not implausible to think that the DOE can come up with policies which, contrary to its opinion, may not be good for consumers in the long-run. So, it is essential that ERC, or its equivalent, must remain independent of the Executive Branch.

The bigger issue here is REGULATORY CAPTURE. And here, I am not even implying covert attempt to control the ERC. Because the deregulation and privatization were not ideally done, there are pockets of monopolies and monopsonies that make it difficult for the ERC to make sound decisions that benefit the Filipino consumers. Because of all these, the ERC is sometimes constrained to follow “jurisprudence” and those with vested interests will not question the commission’s decisions. Creativity and innovation in rule-making for the benefit of the Filipino consumer are gone.

For example, as I have explained previously, the commission had the incorrect appreciation and application of the Capital Asset Pricing Model in the tariff setting for cost recovery in power contracts. From the very beginning I have always questioned the use of the CAPM – a classic situation of the emperor not having clothes. The CAPM is NOT appropriate for the Philippines. We do not have a well-developed equity market. Our economy is controlled by a few families, thus obliterating the classic economic model of “perfect competition.”

Since all the cases in the past have been decided on this economic model, how can the ERC reverse itself without putting in jeopardy its previous decisions? Can you imagine the amount of money that may have to be REFUNDED to the consumers if someone can prove in court that the CAPM was wrongly used in the past,? Billions!

Unfortunately, the suspense on the fate of the ERC will not only affect RE developers but everyone in the sector, and ultimately, the Filipinos. At this point,  power sector players are probably holding their breaths, waiting for the next scene in the ERC saga. In the meantime, local power producers will be having a hard time obtaining loans and getting their power sales agreements (PSAs) approved, which might result in massive rotating blackouts as new capacities are stalled.

Newly minted ERC chairperson Agnes Devanadera has warned that the suspension would paralyze the power sector, could result in massive blackouts as the commission cannot act on P1.59 billion worth of PSAs.

Similarly,  BDO Capital & Investment Corp. president Eduardo Francisco stressed that lending to the industry might be affected by the Ombudsman’s order. Banks are likely to postpone approval of loans given the absence of off-take contracts. “We can give conditional approval, but usually conditions to lend are based on the ERC approved contracts. There will be an impact on lending,” he was quoted by The Philippine Star.

We do like suspense, but only if we are watching films or TV series.The uncertainty on ERC’s operations has no place in the real world. Hopefully, the mess in the ERC gets resolved quickly.

Let us keep in mind that the current administration is pushing for sustainable economic development, including the building of more public infrastructure in the next couple of years.  Our goal of putting up more bridges, airports, and roads cannot be achieved if we have an almost paralyzed or inefficiently functioning regulator in the Energy sector.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Inaction vs. Action: The Cost of Choosing “Cheap”

Quite a number of articles I have written on this blog discussed the portfolio theory, which essentially debunks the myth that choosing traditional forms of energy are more economical.  As I have been saying, our penchant for choosing the energy source based on current market prices or what we term as the least cost method for energy planning, may, in fact, be more costly in the long run.

However, what I have written focused on the cost of building the power plants and energy generation. There is one aspect that makes traditional sources of energy more costly for everyone: the impact on the environment.

Perhaps, it is still unclear to many what the relationship between climate change and the use or non-use of traditional sources of energy. To put things in better perspective, we should illustrate why we must choose renewable energy with the following numbers:

According to the report ‘Energy Darwinism: Why a Low Carbon Future Doesn’t Have to Cost the Earth’, published by Citi, the power sector contributes roughly two-thirds of the total greenhouse gas emissions. On the other hand, other sectors such as land use, agriculture, and forestry, as well as other industrial processes combined only contribute a third of the overall greenhouse gas emissions.

To make matters worse, 90 percent of the greenhouse emissions of the energy sector are carbon dioxide emissions or CO2 since most greenhouse emissions are C02.  However, 65 percent of CO2 emissions from the sector are from fossil fuels and other industrial processes.

Given the above figures, surely, we can no longer say that the fossil fuel powered plants are the cheaper options.

Fortunately, the report of the third largest bank in the US also includes an analysis of the cost implications of continuing with the world’s current heavy reliance on fossil fuel versus the cost of changing the energy mix to include more renewable energy.

What Citi did in its report is to analyze two scenarios: the cost of inaction and action. Under the inaction scenario, the world will continue its energy consumption patterns that are heavily reliant on fossil fuels. Under this assumption, there would be a slight pick-up in renewable energy investment, but the penetration rate of RE will stay at 6% by 2040 and fossil fuels will compose of two-thirds of the power mix. This scenario also assumes zero investments in energy efficiency, which will result in a compound annual growth rate (CAGR) of 2.4% of electricity generation from 2015 to 2040.

On the other hand, the Action scenario assumes that the energy mix favors renewable energy as solar and wind will contribute 22% of the energy mix while fossil fuels are reduced to 28%. The penetration rate of RE also increases to 34% from a mere 6% in 2012.

Is there a difference in costs of the Action and Inaction scenarios? The report says yes, one scenario costs more than the other. Contrary to popular belief, though, the cost of taking the Action scenario is cheaper than the Inaction scenario: the business as usual energy mix is at $192 trillion while the low carbon option will only cost $190.2 trillion from 2015 to 2040.  Citi notes that the falling costs of renewable energy coupled with less dependence on fuel usage account for the cheaper costs of the Action scenario. The report stressed that “Yes, we have to invest more in the early years, but we potentially save later, not to mention the liabilities of climate change that we potentially avoid.”

 

action-vs-inaction

Cost of Action vs Inaction. Source: Citi Research

What would it cost the world if we choose the Inaction route?

 

A report written by Lord Stern with the title “The Economics of Climate Change” in 2006 warned us of the possible overall costs of failing to act on the risks of climate change. The report, widely known as the Stern Review, concluded that losses from effects of climate change would be five percent of the world’s gross domestic product (GDP) per year between ‘now and forever.’ It could even be as high as 11% when we include other effects on the environment and health, which, unfortunately, are hard to quantify.

There are also other research papers that tackled the potential losses in GDP due to damages from climate change. The Citi research noted that a temperature increase of 2.5°C could result in loss of 0.9 to 2.5 % of the world’s GDP.  A loss of 0.7% to 2.5 % of the GDP is roughly % $44 trillion, the report said.

Aside from losses because of climate change, there are also losses in GDP due to heavy reliance on traditional sources of energy.  In a study, Professor Shimon Awerbuch noted that the oil price spikes in the years 2000 to 2004 cost the European Union €700 billion. The prominent advocate of portfolio theory in energy planning further noted that the world would avoid losses of $95 to $176 billion for at least an addition of 10 percent renewable energy in the mix.

The findings of these reports may vary in their calculations, but it is clear that it’s time to do away with thinking only of short-term prices in energy planning. What we should do is plan our energy needs with the future in mind since our penchant for looking at the current and short term costs are and will cost us more. And unfortunately, the costs are not purely monetary

We favored what we thought was cheap. Sadly, what we thought would save us money is making us pay more. The Citi report summed the situation best “A simple reason why atmospheric concentrations of greenhouse gases has grown is that they have been put there as a result of our using historically the cheapest, easiest, or most readily available solutions to a requirement, such as energy. To look at it another way, adopting a lower carbon path is (at least superficially) more expensive, otherwise all things being equal we would logically have gone for a cleaner option.”

References:

Energy Darwinism: Why a Low Carbon Future Doesn’t Have to Cost the Earth by Citi

The Role of Renewables in Enhancing Energy Diversity and Security: Portfolio Approaches by Shimon Awerbuch