Unfortunate But Not Hopeless

While other countries in the world are slowly shifting to cleaner forms of energy, the Philippines seems to be moving in the opposite direction.

The recent BMI Research of the Fitch Group noted that coal-fired power plants would dominate new energy infrastructure in the next 10 years. “Growth in the Philippines power infrastructure sector over the next 10 years will be driven by investment in coal-fired generating capacity as companies and the government build a slew of new power plants to support growing electricity demand,” according to the report.

Based on the group’s research, there is roughly 7,300 Megawatts (MW) capacity that is either under, approved or already for construction. Of these, 90 percent are coal-fired energy plants. Even the Visayas and Mindanao regions, which by the way have more renewable energy sources particularly, hydro and geothermal in their power mix, will be recipients of the future coal plants.

The report pointed out that the there is a price to pay for the country’s continued reliance on coal-fired plants.

One of the significant consequences is that the Philippines will have to keep fuel imports steady in the next five to 10 years when these power stations become operational.

“As the share of electricity generated from thermal — and especially coal — sources grows from 73% in 2017 to 77% in 2026, the Philippines will have to increase imports of fuels to feed newly built coal-fired power plants.”

There are various reasons why this report bothers me.

For one, we are lagging behind in our commitments to provide cleaner forms of energy given the amount that would be generated in the coming years from coal plants. While the rest of the world is moving away from coal, we are still stuck and depending heavily on this form of energy.

Again, I stress that I have no issues with coal plants per se, having built some of them during my time as Napocor chief. But the world and its needs have changed, and we need to get our energy from cleaner sources. Other countries are making drastic changes. China alone, the world’s biggest consumer of coal is shifting to RE by pouring some $361 billion worth of RE investments by 2020. Its government has also canceled roughly 150 coal projects from September last year to March this year.

Unfortunately, we are heading towards the opposite direction largely because our government regulations are not supportive of the growth of the RE sector. For one, we still have limited participation from foreign investors in the energy infrastructure, and as such, limited funds flow to build more RE plants.

Our regulatory environment is far from friendly for both consumers and RE producers, too.

For one, our regulators use an incorrect valuation for the beta by taking the value from the point of view of the generator than of the consumers for our floating Power Sales Agreements or PSAs. Unfortunately, our PSAs have pass through costs, which means power consumers pay end up paying for higher energy prices when the peso falls against the dollar and when coal and oil prices surge in the global market because of the value of the beta, which has a positive value.

As I have said previously, this is incorrect as the the consumers are the ones who are shouldering the cost of foreign exchange fluctuation as well as the fuel risks. Hence, the beta in our tariff setting should be a negative one to reflect the risks borne by consumers for both the foreign currency adjustments and world prices of oil and coal.

Plus, I have discussed in an old blog post, our regulators place an arbitrary value on the beta when it comes to cost recovery in our tariff setting. For example, a geothermal plant and coal-fired power plant will have the same beta value. This is faulty because the developer of a geothermal power plant takes more risks given the exploration cost than the coal-fired power plant developer. The incorrect application of the core concept of the capital asset portfolio model is detrimental to the development of renewables.



Coal-fired plants must be a thing of the past. Renewable Energy is the future. 


Again, at the risk of sounding like a parrot, our energy planner belongs to the school of thought that coal-plants are cheaper the RE ones. These planners only look at the upfront cost of building power plants rather than scrutinize the risks that consumers shoulder when relying significantly on fossil fuels.

I have repeatedly pointed out that traditional sources of energy are not necessarily cheaper as we could end up paying more given our heavy dependence on imported coal. Even the above report of BMI stressed that we are importing 70 percent of our coal needs from neighbors. So, what happens when coal prices increase? What happens if importation becomes more expensive due to various factors? We have been in this situation before where our power rates have increased because getting coal abroad has become difficult.

Sadly, it is the Filipinos who are screwed with such flawed thinking as the ordinary Pinoy consumer pays for these upward price adjustments. We do, after all, have the pass-on provisions where customers pay for price fluctuation.

We have been suffering from high power rates for several decades now. And as I have been discussing in quite some posts, the key to solving high electricity prices is to one, have more renewable energy in our mix and second to have fixed-price contracts for our PSAs.

Our best bet to lower power prices is to have more RE in our energy mix. RE will be a cheaper alternative as many experts have stressed that the prices of RE technologies will continue to fall.

Regrettably, it seems unlikely that our country will shift to more cleaner form of energy soon. Understandably, moving to cleaner energy will not happen over night.

In the meantime, we must find ways to mitigate the consequences of relying heavily on coal-fired plants. I stand firm on my position that we need a greater share of renewables. But we must, at the very least, consider having fixed-priced contracts where we use a risk-free rate, the negative beta as I have mentioned above in the discount rate in computing for the tariff (reasons for this are in an in-depth discussion in my previous post.)

RE sources are in the best to position to give out these fixed-priced contracts, which do not pass-on the costs to consumers. These contracts will not burden consumers by making them pay for price fluctuation of coal importation costs since there are no import costs of raw materials in RE production.

Yes, we do need more infrastructure, particularly more power plants as our economy develops. But we must also pay attention to the welfare of ordinary Filipinos as we build for our future. Heavy reliance on coal-fired plants will be detrimental to our families as they shell out more money to pay their electric bills. I implore our energy planners to map out and scrutinize all options available as we try to meet our increasing demands for energy.



More Reasons to Shift: Health and Death Print

Recently, the Senate voted to concur the ratification of the Paris Climate deal after President Rody Duterte signed the ‘Instrument of Accession,’ signifying the Philippines’ commitment to Paris Agreement.

To recall, the Paris Agreement on Climate Change seeks to reduce carbon emission and was signed by 194 countries. Our country has pledged to cut 70% of its carbon emissions by 2030 with the help of the international community.

The Senate’s concurrence signifies that we are now legally bound to the agreement. This means it is time for us to double our efforts in reducing our carbon emissions.  One way of doing that is to add more renewable energy in our energy mix.

This shift has sound economic reasons, and more importantly, it has even more profound rationale: its impact on the health of our people.

Data from the Department of Energy reveals that we are still reliant on oil and coal for our energy needs. In 2014, we sourced our power from imported coal and oil by as much as 13.9% and 29.8%, respectively. The figures are even higher for 2015 as imported oil and coal accounted for 14.92% and oil was 32.79% of our energy mix.

Aside from the monetary consequences relying heavily on imported products, reliance on coal and oil for our energy needs has an impact on health of our countrymen, and therefore death rates. Coal, for one, has the largest carbon footprint among all energy types. One kilowatt-hour (kWh) of power produced from coal emits roughly 900 grams of carbon dioxide. And this has health consequences.

Data shows that shifting to renewable energy will pave the way for lesser carbon emissions. Just recently, a study revealed that in the United Kingdom, carbon emissions decreased by 5.8 percent in 2016 compared to previous year as the country’s use of coal dropped by 52% for the same period.

Aside from having a large carbon footprint, experts are now talking about another measure: “death print.”.  Both oil and coal have large death prints. According to James Conca, an energy expert, and geochemist, “death print is the number of people killed by one kind of energy or another per kilowatt hour (kWh) produced”.

Conca explains that coal, oil, and biomass are carbon particulates that result from burning and cause respiratory problems. Our internal organs, particularly the lungs, don’t respond well to these particulates.  Using them has the same result as inhaling cigarette smoke: black lungs.

Just how bad are the death prints of coal and oil?

Conca’s research shows that on global average, the mortality rate of coal –computed as death divided by trillion kWh of use–is 100, 000 when 50% of energy needs are sourced from coal.  It’s even worse in China, which sources 75% of electricity from coal as its mortality rate is 170,000.  The US sources 44% from coal, and its coal’s mortality rate is 10,000. Conca says that China has unfortunately ramped up the building of coal in the last decade with plants that usually do not have exhaust scrubbers thus the higher death print.

Oil has a large death print, too, as its mortality rate is 36,000 for every 8% energy it supplies.

On the other hand, solar rooftop and wind power, with each contributing roughly one percent to the global energy supply, has mortality rates of 440 and 150, respectively.

In the United States, Practice Greenhealth points out that a typical 200-bed hospital that uses coal-powered energy is responsible for $107,000 a year in direct healthcare costs associated with asthma attacks, chronic bronchitis, and other health problems. The organization is the leading membership and networking organization in the US for organizations in the healthcare community that have made a commitment to sustainable, and environmentally preferable practices.

Clearly, these numbers point that adding more renewable energy to the mix will both save the environment, as well as lives.

Again, as I have been saying in the past, I do not have problems with coal plants per se. In fact, I have built some of them during my days with the NAPOCOR. But I also believe in responding to the needs of our time. And studies suggest that the world needs more clean energy if we are to save the world for the succeeding generations.








Adding More Wind and Solar Energy

Previously, I have argued that the country will benefit from harnessing renewable energy given the fluctuating prices of coal and oil that result in energy price spikes.

I have also introduced the concept of portfolio theory, which says that risks can be minimized regardless of the level of expected return as long as investors mix low or zero-risk assets in their portfolio. In energy planning, this means adding more renewable energy in the energy mixes that are predominantly composed of fossil-based power plants. Again, fossil-based energy is considered a risky asset since the supply is fast diminishing, pushing both fossil fuel and energy prices upwards eventually.

The Benefits of Wind and Solar Energy

Among all renewable energy technologies, the wind is considered as one of the cleanest energy sources. Wind power generation does not release any gas or emission.

And just like with other renewable energy technologies, the establishment of a wind power plant can provide employment to local communities as wind turbines installation and the maintenance of wind power plants require manpower.

On the other hand, the sun is the greatest source of energy as the solar energy that is emitted to the earth in a year is twice the amount of the produced fossil and nuclear energy around the world. In fact, the earth receives roughly 340 watts of solar energy for every square meter.  And one second of sunlight is equivalent to 100-watt bulb use. Plus, solar energy plants require little maintenance after installation. A small herd of goats, in fact, will be beneficial.

Debunking the Misconception

However, there is this misconception that adding wind and solar energy to the portfolio or energy mix will increase the cost of power generation. This is brought about by the fact that the stand-alone cost of building wind and solar power plants is higher compared to the cost of building of fossil fuel or coal-based plants. Again, I have argued before, that this is the pitfall of energy planners given that they use the least-cost method in energy planning, favoring the cheaper energy source based on current prices. Those who choose the least-cost in power generation, however, do not look at the risks: the diminishing supply of coal and oil that will make such sources of power more expensive in the future.

That said, let us take a look at a study that discussed the cost implications of adding wind and solar into the generation mix to dispel notions that adding renewable energy in the mix increases power costs.

The National Renewable Energy Laboratory conducted a study on the effects of adding both wind and solar into the generation mix for the Rocky Mountain Power Pool (RMPP) region in the United States. The RMPP region covers the entire state of Colorado and some parts of South Dakota and Wyoming. The region was chosen because of its abundance of both wind and solar energy, and its heavy reliance on natural gas and coal thermal power plants.

Renewable Energy Lab Facility in Paonia, Colordado, Western Slope of Rocky Mountains Photo from http://www.solarenergy.org/

Renewable Energy Lab Facility in Paonia, Colordado, Western Slope of Rocky Mountains
Photo from http://www.solarenergy.org/

The study’s main objective is to determine the effect of higher penetration or use of both technologies as a hedge against the uncertainty of power costs in the region. The researchers simulated different RE penetration rates ranging from10 to 50 percent under different price scenarios of natural gas to determine whether adding more wind and solar energy into the energy mix increases energy costs.

The study showed that in a coal-dominated mix, the annualized variable system cost of adding 10 percent RE at a low natural gas price of $2/MMBtuis roughly $15/mWh. And the annualized variable system cost of electricity for the region goes down to $8/mWhwhen RE penetration is increased to 15 percent at a higher natural gas price ranging from $4/MMBtu and $9/MMBtu.

This simply means that adding more renewable energy, in this case, wind and solar can reduce the variable system cost of electricity even when natural gas prices shoot up.

Of course, the study did not tackle total system costs as capital recovery and fixed operations and maintenance costs– all affecting total system costs–vary. The research also showed diminishing marginal returns for the higher penetration rate of 35 to 40 percent of RE. But clearly, the study debunks the misconception that adding more renewable energy pushes energy prices up.

Sadly, as of 2014, wind and solar energy only contribute 0.2% and 0.02%, respectively to the total energy mix in the Philippines despite the country’s great potential to harness energy from these two renewable energy sources. According to NREL, the Philippines has a total of 76.6 GW of potential wind capacity.

As of last year, the country has a generation mix composed of 42.78% coal, 24.19% natural gas and 7.39% oil-based. It will then be beneficial for the Philippines to add more renewable energy to hedge against future power price escalations brought by the country’s dependence on coal and natural gas power plants.

Wind Farm in Ilocos Norte. Photo from tourism.gov.ph

Wind Farm in Ilocos Norte. Photo from tourism.gov.ph

Connecting Solar and Wind Power to the Grid is a Problem

Both wind and solar energy have their benefits. However, the intermittency of solar and wind power makes the job of the system operator (SO), in our case, the National Grid Corporation of the Philippines (NGCP) more difficult.

The role of NGCP as the SO is to balance the demand and supply of energy through the use of a system. The NGCP has to find the correct mix of high-voltage generating power plants and transmit the generated electricity to the distribution utilities, which in turn distribute to end-users.

With a constant power supply from conventional sources, SO merely watches the level of frequency, voltage, and the demand, and adjust the level of supply accordingly to ensure the system’s security and stability.

The process of balancing the supply and demand becomes more difficult when intermittent energy like solar and wind is included in the supply side since the SO will have to look at both demand and supply to ensure the system is stable and secure. It’s like watching a tennis match instead of a pelota game: there are two sides to scrutinize carefully instead of just watching one side.

Obviously, there are technologies available that allow any SO to balance the demand and supply properly when intermittent sources of power are added to the mix. Plus, NGCP is technically competent to ensure system security and stability even when renewable energy is added to the system.

But here lies the problem: the increase in complexity is not properly compensated by the regulator, the Energy Regulatory Commission (ERC).  So, the objective of injecting more renewable energy into the system, which again, comes with more intermittency is not aligned with NGCP’s financial objectives. Why should NGCP agree to manage a more complex system without a corresponding adjustment or fee to compensate for this complexity?

Of course, one can and should argue that NGCP has the legal mandate to manage the system regardless of the level of difficulty, and that the management of a complex system is already part of the SO’s management fees. However, the fact is, the Renewable Energy (RE) law was not yet in place when NGCP took over the SO function from Transco when it was privatized. This means that the valuation of Transco by NGCP did not consider the management of a more complex system with the full implementation of the RE law.

This problem is often exacerbated by the arrogant attitude of some RE developers who feel that their connection to the grid is a God-given right. It is true that NGCP is mandated to connect power projects–especially RE projects– to the grid, however, our SO will go through a whole lot of hoops before it makes this decision.  From a purely selfish perspective, why should NGCP connect an RE project to the grid when doing so will only make its work more difficult?


The Use of Solar and Wind as a Physical Hedge against Price Variability within a Generation Portfolio by National Renewable Energy Laboratory http://www.nrel.gov/docs/fy13osti/59065.pdf

Applying portfolio theory to EU electricity planning and policy-making by Shimon Awerbuch with Martin Berger

Renewable Energy Devt.in the Philippines: Presentation by Mario Marasigan, DOE

10 Reasons to Start Investing in Solar Energy


Benefits of Solar Energy http://www.greenoughsolarfarm.com.au/solar-energy/benefits-solar-energy