Hampering Our Growth

Southeast Asian countries are at different stages of economic development and will have higher demand for energy. In fact, according to the Global Energy & CO2 Status Report published by the International Energy Agency or IEA, Southeast Asia (SEA) accounted for eight percent of global energy growth last 2017.

An earlier report released by the same agency, the Southeast Asia Energy Outlook 2017  revealed that the region’s energy demand is likely to grow by roughly two thirds and account for a tenth of the world demand by 2040. Installed capacity is set to increase from 240 GW in 2017 to 565 GW by 2040 with coal accounting for  40 percent of the growth. This will push Southeast Asia to become a major importer of fossil fuels by 2040. The IEA predicts that the region’s annual net import bill will be over $300 billion, which is equivalent to four percent of the SEA’s total gross domestic product.

The IEA, however stressed that the region can still avoid incurring such a huge net import amount if governments implement policies that will reduce the demand for energy and increasing the use of renewables. Based on IEA’s estimates, Southeast Asia can lower the import bill by $180 billion if  the region increases Renewable Energy’s share in the mix by 20 percent.

The agency stressed that the increasing energy demand both pose as a challenge and an opportunity as governments can opt to go for affordable policy and technology options. ” The rapidly declining cost of wind and solar PV provides an opportunity to help meet growing electricity demand in a cost-effective and sustainable manner  while also helping spur local manufacturing industries.”

IEA also noted that attracting investments in RE will be crucial to meet the region’s energy requirements as Southeast Asia will need some $2.7 trillion to $2.9 trillion in investments by 2040.

For his part, International Renewable Energy Agency or IRENA director-general Adnan Z Amin noted that Southeast Asian countries should do a better job in attracting higher investments for RE development.

He stressed that despite the falling costs of RE technologies around the world, financing for RE in SEA countries remain a challenge given the lack of clear policy and regulatory frameworks for investors. He urges SEA countries’ leaders and regulators to come up with clear and reliable long-term policies to attract financing for the sector: “Basically what we’re lacking right now is a sense of government resolve and a sense of adequate, reliable policy framework that allows the private sector to come in…The market opportunity has to be created by policy and regulations.”

 

eco business

Southeast Asia can save $180 billion if more renewables are used by 2040. Photo c/o www.eco-business.com

 

Unfortunately, the observation of the IRENA president reflects the state of our policies and regulatory environment of the energy sector in the Philippines. The regulations here in the country are far from friendly to RE developers and do scare potential investors.

For one, the foreign ownership restriction in our constitution prevents investors from coming in to help us build more RE plants. As I have suggested in the past, it is time for us to consider allowing foreign investors to provide the equipment and technologies needed convert our resources into power while limiting their ownership on the natural resources. After all,  building RE power plants is an expensive undertaking and there are very few local businessmen who can afford to develop RE.

Aside from our problem in the foreign ownership, our regulators and even some of the players in the sector fail to realize the importance of renewables on the economy.  As I have been discussing thoroughly in this blog, we need to realize that the concept of least cost– where we only look at the upfront cost of building our power plants– hinders RE from becoming mainstream in the country.

We seem to forget that the risks of foreign exchange fluctuations, global fossil fuel prices and other market conditions will cost us more in the future. Our country cannot fully realize the benefits of RE unless we appreciate  the crucial role it plays in ensuring both energy security and equity. This is unfortunate for us as our country has been blessed with natural resources we can tap to help us achieve equitable economic growth.

Plus, the world is heading towards distributed generation and smart grids with the advancement of technology and yet the Philippines still rely on central generation. Unfortunately, we still lack rules on distributed generation and remain focused on distribution monopoly controlling the development of embedded generation. This hampers the development of RE.

Our government should pave the way for a more flexible design of a distribution system that can immediately supply the power demands and at the same time deliver the preferred sources of power to the customers.  Our distribution companies should have intelligent systems capable of accommodating renewable energy sources. We need to take a good look at our distribution system and make some drastic changes if we are serious in our desire to bring more renewables in our energy mix.

These are just are some of the problematic  issues that the sector needs to address and there are more.  Around the world, developments are taking place to accommodate greater use RE, and unless our country and regulators are able to address the myriad of problems hounding the energy and hampering more investments in renewable development, then the Philippines will surely be left behind by the rest of the world.

References:

Southeast Asia Energy Outlook 2017: https://www.iea.org/southeastasia/

Global Energy & CO2 Status Report
The latest trends in energy and emissions in 2017:https://www.iea.org/geco/

https://www.businesstimes.com.sg/asean-business/clear-reliable-policy-direction-in-asean-needed-to-attract-renewables-investment

A More Cost Effective Alternative

Even before he assumed office, US President Donald Trump vowed to bring back jobs to the coal sector. Shortly, after elections, he signed an executive order to overturn the Clean Power Plan to revive the coal industry.

However, it seems like his efforts did not stop US utilities from shutting down coal-fired plants. Last year, 27-coal-fired plants with a combined 22 gigawatts (GW) capacity were announced for closure and early this year, energy companies have said that that they will close down at least five coal plants with more than a 1000 GW total capacity.

These announcements of closure are not surprising. Coal generation in the US has declined by 28 percent from 2012 to 2015 as more energy companies realized that shifting to Renewable Energy (RE) is the most cost-effective solution in bringing down power rates. In fact, several US utility companies are set to retire their coal plants and replace them with RE ones.

For example, the Public Service Company of New Mexico (PNM), the largest energy company in New Mexico, which boasts of roughly half a million customers will start retiring coal by the year 2022. PNM, which generated approximately 56 percent of its power from coal in 2015 will begin shutting down coal plants as it plans to produce all its power from solar energy, natural gas and even wind power in a bid to improve their financials and lower rates.

PNM’s Integrated Resource plan for 2017-2023 released April last year concluded that phasing out coal completely was the best way for the firm to match the demand for power with the lowest cost in the coming years. According to PNM’s estimates, the company’s most cost-effective portfolio is to increase the use of renewables to 36 percent and 33 percent from natural gas by 2035 from 11% and 6% respectively in 2017.

Similarly, Wisconsin’s largest utility, We Energies decided to shut down its 1.2 GW Pleasant Prairie coal plant this year. The energy company with its 2.2 million customers, sourced 50.6 percent of its capacity from coal in 2015 and will replace a portion of the size with its 350 MW solar power plant by 2020.

Likewise, in Texas, Luminant, an energy firm that supplies some 18 GW of power has decided to close its 1.8 GW Monticello power plant in January as well as two other coal plants with a combined generation company of 2.3 GW and will replace the lost capacities from coal plants with wind power. So far, the firm can generate 21 GW of wind power and additional 14-27 GW solar power by the year 2030.

These are just some of the major utilities in the US that are now moving away from coal and shift to cleaner forms of energy, and there are more. After all, contrary to those opposed to RE, it is possible to go 100 percent renewables.

We do not have to look far to see such an example. Recently, the local government of Guimaras, the small island province in the Visayas announced its “Guimaras 100% Coal Free Declaration,” a ban on coal-fired plants in the province. In his speech, Guimaras Governor Samuel Gumarin said that “The people of Guimaras have embraced renewables over dirty, polluting energy. We want to show that a sustainable-development path, powered by renewable energy, is not only possible but more viable.”

guimaras

Windmills in Guimaras. The province declared a complete ban on coal power. Photo c/o http://www.evwind.es

 

Guimaras is not the only province in the country that favors RE. Last March, the Bohol local government through its Bohol Energy Development Advisory Group or BEDAG has decided to prevent the building of new coal plants in the province. In a statement, the BEDAG said: “the BEDAG and the entire Provincial Government of Bohol are fully intent on maintaining the sanctity and pristine condition of the environment.”

The development came after the provincial government via an SP ordinance has declared environmental impact as the most important consideration for the selection process for interested energy developers as part of the province’s energy development program. The provincial government will institutionalize its “No Coal” stand through an ordinance.

The above examples only show that it is possible to shift from coal power to cleaner energy. Unfortunately, while others are already shutting down coal-fired plants to lower energy costs, we in the Philippines are busy building them since 90 percent of the roughly 7300 MW capacity approved or already for construction by the Energy Department are coal-fired power plants. This despite calls from experts, world and business leaders to work extra hard to make the shift to greener forms of energy possible.

I wonder how long and what will it take to convince others that RE is the practical choice for all of us.

References:
https://www.forbes.com/sites/energyinnovation/2017/05/18/embracing-the-coal-closure-trend-economic-solutions-for-utilities-facing-a-crossroads/#1f05af1b1c99
http://www.iloilotoday.com/2018/02/guimaras-declares-coal-free-receives.html

http://www.boholchronicle.com.ph/2018/04/02/govt-blinks-no-to-coal-power-in-bohol/

UTILITIES OF THE 21st CENTURY Introducing Competition in the Power Distribution Sector

Around the world, changes in the energy sector, particularly in the distribution segment are taking place given technological advancements as well as the world’s worry over climate change

For example, in the United States, utilities are beginning to take the threats of climate change more seriously. New York’s Reforming the Energy Vision, a plan to “rebuild, strengthen, and modernize New York’s energy system” was initiated in 2014 partly because of the devastation brought by Hurricane Sandy in 2012. This is the most comprehensive utility proceeding today with its main idea of changing the utility model so that third party service providers can come in to serve the utility’s customers by moving away from the traditional utility model and going towards a Distribution System Platform (DSP) provider

The DSP model transforms the traditional utility into something like an air traffic controller that coordinates and facilitates the deployment of distributed energy resources (DERs). This becomes the focus of the utility, which is a far cry from the traditional concept of a monopoly. The staff of the Public Service Commission (PSC) stressed that “Under the customer-oriented regulatory reform envisioned here, a wide range of distributed energy resources will be coordinated to manage load, optimize system operations, and enable clean distributed power generation.”  The primary goal of this model is to make the utility customer-centric as “Markets and tariffs will empower customers to optimize their energy usage and reduce electric bills, while stimulating innovation and new products that will further enhance customer opportunities.”

This bold move by the New York City should not surprise us since electricity experts point out that significant transformations are causing a revolution in the way electricity is produced, distributed, and marketed. They stress that technology is giving consumers more autonomy and choice. These experts argue that we “have entered an age in which the technology-powered push and the customer-driven pull have beneficially collided.

In fact, as early as 2000, the United Kingdom (UK), already started introducing competition in the power distribution business through the Independent Connection Providers (ICPs) and licensed Independent Network Operators (DNOs), thus allowing customers to use an alternative provider for some connections work known as “contestable work.” These include but are not limited to, designing, purchasing materials to form the connection, reinforcement of the connection, and even directly connecting to the network. These tasks can be done by an Independent Connections Provider (ICP).

Indeed, change in the energy sector has already arrived where the customer’s choice has become the paramount objective of industry players by making room for more competition in the power distribution trade. The services at the retail level become less integrated by letting the customers choose his/her source of power, battery storage, Heating, Ventilating and Air Conditioning (HVAC) energy efficiency systems, and other similar value services.

The innovation will come from the ability of technology to combine customer data to Smart grids, microgrids, local generation, and storage, among others. Experts assert that the primary distribution channel for services will be online and the energy retailing price will hinge on innovative digital platforms.  In their view, these are the developments and trends that are coming and they will be coming soon.

For David Cane, former CEO of NRG Energy, the confluence of green energy and computer technology, deregulation, cheaper natural gas, and political pressure, is threatening the existing utility system. His opinion is that the grid will increasingly become irrelevant as customers move towards decentralized homegrown energy. Home automation will become king. Crane further argues that “When we think of who our competitors or partners will be, it will be the Googles, Comcasts, AT&Ts who are already inside the meter.”

Given all these developments, it, therefore, no longer inconceivable to think of two, or even more distribution utilities in one geographical area in the Philippines. These utilities need not perform the same functions.  As distribution services have been unbundled, e.g., metering as separate business units, distribution utilities can compete on which among them can connect the fastest and cheapest to the distribution grid.

It is no longer impossible to have two, or even more distribution utilities in one geographical area in the Philippines

The utilities can also compete on how much each supports home automation or distributed generation like rooftop solars. As pointed out recently by Google’s Chief Technology Advocate, Michael T. Jones, companies like Google can develop the service where “all electronic devices (to) talk about their power needs to an aggregator, and you can have a power auction for each one.”

Technology is now available to connect reading and billing of meters to bills payment through the mobile phone.  All these services have developed because of technology.

Even in constructing power grids in the distribution sector, one can have overhead wires, or underground ones, depending on the requirements or needs of the customers. Smart transformers connected to a Supervisory control and data acquisition (SCADA) platforms can fine tune the needs of customers.

Unfortunately, unless competition is introduced in the Philippines distribution sector, it will take a long time for the Filipino consumers to enjoy the benefits of the 21st Century.  The distribution sector has long been in the abyss of lethargy induced by a monopolistic structure, running counter to the cornerstone of Energy Power Industry Reform Act (EPIRA), which was crafted to introduce competition within the power sector. In particular, a guiding principle of the Distribution Sector is that it is a business affected with public interest. This objective of competition and guided by the principle of public interest required the unbundling of business activities as provided in Rule 10 of the Implementing Rules and Regulation (IRR) of the EPIRA.

It has traditionally been thought that because of the nature of the distribution business, this sector, and the Transmission Business, are natural monopolies. This was probably true in the past, but technologies have developed over the past few years thus making this view no longer true. As argued above, technological change has brought in innovation, creativity, and access to the masses. It has also brought down costs – the mobile business is a clear example. It is not, therefore, a theoretical argument that technology will bring down cost. That is a fact.

We cannot reach the goal of empowering the Filipino power consumer unless change comes in now. Distribution utilities’ vision should always be proactive and aligned with the varying needs and load profile of a dynamic consumer.  This may be reflected in the flexible design of a distribution system that instantaneously addresses the power demands and delivers the preferred sources of power to the customers. A sophisticated consumer-centric designed system encourages the proper management of electricity usage, which translates into savings on prices and resources.

To illustrate this point, let us take the case of a distribution utility and how it handles system loss. Currently, the task of managing systems loss at almost 20% seems like an insurmountable challenge. However, the introduction of smart meters and automated billing and payment systems can bring this down to a more manageable level at about 14% thus bringing down rates for the consumers, which translates into savings of about PHP 0.15/kWh. And this is just the initial and rough calculation.

The above is just an example how a much better equipped, and better-financed utility can bring down costs of the electricity consumer. In the medium term, replacement of aging wooden poles and overworked transformers will further push down systems loss and thus power rates. Finally, because of a strong balance sheet and excellent knowledge of the power market, the cost of generation can also be brought down.

Plus, competition is always beneficial for consumers because more players in the market will always result in cheaper goods and services.  Hence, consumers should be able to choose between service providers like distribution companies so that distribution companies can no longer just “pass on” any cost that they think they are traditionally entitled. While the Energy Regulatory Commission (ERC) will approve the rates, ultimately it will be the consumer who will choose.

Opening up our distribution system for more competition will also pave the way for more use of cleaner forms of energy. It would be ideal to have distribution companies who will have intelligent systems to accommodate renewable energy sources. Such a move will then give the consumers a choice to go for greener forms of power and help us in our goal of saving our environment. After all, making our power grids responsive to climate change will be another area of transformation and competition.  With typhoons becoming an even more frequent phenomenon in the country and elsewhere in the world, change has to come in designing, building and managing power distribution networks.

Making drastic changes in the way we distribute our energy locally is a win-win solution for all of us. We give consumers autonomy and more choices, we lower our electricity bills, and we help save our environment by paving the way for more RE use.

Indeed, significant changes are needed. And we need them soon.

References:

Institute for Local Self-Reliance, https://ilsr.org/u-s-power-grids-days-numbered/

https://www.utilitydive.com/news/are-recent-disasters-enough-to-spur-utilities-to-take-climate-change-seriou/517373/

https://www.utilitydive.com/news/rev-in-2016-the-year-that-could-transform-utility-business-models-in-new-y/412410/

Schwieter, N, and Flaherty T., “A Strategist’s Guide to Power Industry Transformation,” https://www.strategy-business.com/article/00355?gko=9fa18

 

 

Getting Closer to The Tipping Point

There have been various predictions on how and when renewable energy will soon displace coal as the most economical choice for the world’s power needs.

Just recently, Bloomberg New Energy Finance Michael Liebrich founder joined energy experts in saying that the time for renewables to take over will soon come. He estimated that renewable energy would gather roughly 86 percent of some $10.2 trillion investments in power generation by the year 2040.

His predictions do not end there. Liebrich further identified two tipping points that will push coal prices and natural gas to become unattractive.

 The first tipping point is “when new wind and solar become cheaper than anything else,” Liebreich said. And this may happen soon. He predicts that it will start by 2025 when it is cheaper to build a Solar PV plant than a coal-powered plant in Japan. Similarly, construction of wind power plants will be less expensive than building coal plants in India by the year 2030.

 The second tipping point, he says, is when operating the present coal and gas plants becomes more expensive than getting energy from wind and solar. This tipping point may take longer than the first and may happen first in Germany and China sometime between 2030 to 2040.

With all these forecasts or predictions, there is no denying that renewables will be the most economical source of energy all over the world.

 It is then crucial for us to seriously consider capitalizing on the price drops of these RE technologies and move fast in transitioning to heavy dependence on coal to renewable energy.

 Aside from being the cleaner form of energy, it is also essential for us to shift to RE because continued dependence on coal and other forms of fossil-fuel will hurt the pockets of our power consumers badly in the future.

 The above predictions only say that RE will be the cheapest option due to the declining cost of RE technology. However, there is another reason why coal will be more expensive for us Filipinos.

 As renewables take over, we can expect that coal and other similar fossil-based technologies will find it hard to acquire financing for their projects. With the growing clamor for greener technologies, it is likely that financial institutions will institute policies that avoid fuel technologies. Plus, of course, the declining costs of RE will make coal less competitive thus, pushing banks to lend–assuming they will– at significantly shorter maturity. The natural consequence is higher annuities. So, it is safe to say that around the world the cost of coal and other fossil fuels would sky-rocket.

We have to keep in mind that the Philippines only produces low-quality coal and our coal-fired plants are constructed for imported coal. In fact, in 2016, the Philippines imported a total of 20.79 million tons of coal, which is 47.8 percent higher than the imported figure in 2015. And a nation that depends heavily on imported coal will surely suffer from expensive power rates in the years to come as coal becomes more expensive in the world market.

 It is indeed time for our regulators and policy-makers to see the writing on the wall. Coal will be more expensive in the future, and our power consumers will pay much higher if we don’t shift our allegiance to RE.

 Our regulars have to act now. Otherwise, we will be paying more for our energy consumption, when in fact, cheaper energy has been abundant and available for us for a long time.

 Reference:

 https://www.rappler.com/views/imho/172064-sun-setting-coal

 https://www.bloomberg.com/news/articles/2017-09-19/tipping-point-seen-for-clean-energy-as-monster-turbines-arrive

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.

 

IMG_0015.JPG

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.

Reference:
http://beta.bworldonline.com/bmi-coal-remain-primary-power-source/

 

Empowering Small Islands

Ta'u Island

The island of Ta’u in American Samoa now running  on 100% on solar energy. Photo c/o wired.co.uk

It is indeed possible to shift from diesel dependence to renewable energy sources. Such is what happened to two islands in other regions.

The island of Ta’u in American Samoa recently made the headlines as the island was able to shift 100 percent from diesel to solar power. The Ta’u is a small island with somewhere between 200 to 600 residents depending on the season.

Last November, the island was able to go 100% renewable after Elon Musk-owned SolarCity finished the installation of some 5,328 solar panels that can generate 1.410 megawatts (MW) and 60 Tesla large batteries that can energize the island for three straight days without sunlight.

Similarly, news items also carried the accomplishment of Tilos, a small island in Greece, which is it set to become the first island in the Mediterranean to run on solar and wind energy.  Installation of a small photovoltaic park and a single wind turbine and micro-grid for generation and storage is on-going and is expected to change the lives of some 500 residents.

Currently, the island still relies on the oil-based electricity from its neighbor, Kos through the use of a submarine cable. Due to the vulnerability of the cable, power cuts in Tilos happen often.  Project proponents are hopeful that eventually, it will be Tilos that would be able to send some of its excess power to its neighbor Kos because of its shift to renewable.

These stories only prove that the shift to cleaner energy in small islands is indeed possible. There then is still hope for our off-grid islands to end their reliance on diesel and instead use renewable sources for their energy needs.

The Philippines, being an archipelagic country will benefit from looking at the above islands and working double time to power our off-grid islands with renewable sources.

A study by the Energy Economics and Financial Analysis (IEEFA) and Institute for Climate and Sustainable Cities (ICSC) has already discussed the economic benefits of using RE to supply the electricity needs in off-grid areas.

To quote the study, “Small island grids powered by solar, wind, and other renewable energy can reduce dependence on expensive imported fossil fuel generation without compromising the availability of power and grid reliability.”

Indeed, the benefits of using renewables, especially in these off-grid islands should not be ignored.

According to the report, “Electricity-Sector Opportunities in the Philippines: The Case for Wind- and Solar-Powered Small Island Grids¬” the Philippines can save as much as P10 billion a year if renewables are used instead of diesel.  This is because 80 percent of the operating costs of power generation in these islands are spent on diesel costs. And as I have pointed out in several posts, reliance on fossil fuels is costly due to oil price spikes.

Research by Professor Shimon Awerbuch, a big advocate for portfolio theory revealed that the oil price spikes from years 2000 to 2004 cost the European Union some €700 billion given the region’s reliance then on oil-powered plants.

Unfortunately, our regulators have been slow in crafting policies that would pave the way for greater renewable energy use in these areas.

The study by the IEEFA and ICSC stressed that there are no incentives for island electric cooperatives to purchase cheaper energy sources given the present system where franchise ratepayers do not benefit from the cost savings as these go exclusively to the missionary fund. Both the Energy Regulatory Commission and National Electrification Administration yet have to change the tariff setting system to encourage electric coops in islands to increase their efficiency and lower their costs.

This is unfortunate. We, after all, have the resources to make the shift to renewable energy. In fact, our country can generate as much as 161.7 watts per square meter given that the Philippines is one of the sunniest countries. But we need to re-think and change our policies and regulations that hinder us from using these resources.

There is a pressing need to review our regulations to address the needs of our citizens in the islands. Hopefully, supportive policies and regulations will help us make better use of resources just like what the islands Ta’u and Tilos have done.

References:

http://news.nationalgeographic.com/2017/02/tau-american-samoa-solar-power-microgrid-tesla-solarcity/

https://www.theguardian.com/travel/2017/jun/15/tilos-greece-renewable-energy-wind-solar-power

Electricity-Sector Opportunities in the Philippines: The Case for Wind- and Solar-Powered Small Island Grids

“Green is Gold: How renewable energy can save us money and generate jobs”. Greenpeace for NREL figures

Faster Than Expected

Some experts are expecting that solar will eventually take over as the king of the energy mix. And it may come sooner than anticipated. Soon,  solar power, as well as renewable energy (RE), will dominate the power basket according to a Bloomberg New Finance outlook released last June.

The solar photo voltaic panels cost for one is expected to drop by 66 percent by the year 2040 while onshore wind power will dip by 47 percent after 2040.

The report noted that solar costs are now already just one-fourth of its prices in 2009 while onshore wind has seen a 30 percent decrease in the last eight years. Off shore wind prices are also expected to drop by 71 percent, making this RE technology more attractive.

Presently, solar costs are already comparable to new coal power plants in the United States and Germany. By 2021, the same will happen to emerging markets like India and China. By 2020s, both countries are expected to have lower power prices with the countries’ aggressive investments in solar energy. The BNEF report noted that close to 39 percent or some $4 trillion of RE investments of the world are to be poured in China and India.

“These tipping points are all happening earlier, and we just can’t deny that this technology is getting cheaper than we previously thought,” said Seb Henbest, the lead author of the BNEF research.

Due to the falling costs of the two technologies, the BNEF outlook stressed that in 2040, solar and wind power combined will account for close to half of the world’s installed generation capacity, more than four times the current 12 percent share.

Naturally, the greater share of these renewable sources will displace coal and natural gas plants. The estimate showed that roughly 369 gigawatts (GW) of coal plants projects would likely be canceled, an amount that’s equivalent to the combined generation capacity of Brazil and Germany.

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At present, solar costs are already comparable to new coal power plants in the U.S. and Germany

Even the United States where President Trump signed an executive order to “start a new era of production and job creation” especially in the coal sector, will see coal capacity drop by half in 2040.

Europe’s coal capacity is also expected to slide by 71 percent given the region’s environmental laws that will make fuel burning cost more.

The new king of the renewable mix is indeed coming.

Unfortunately, for us Filipinos, we still yet have to see a dramatic increase in the renewables’ share in our power mix. While India, has already embraced technology and the benefits that a nation can reap from harnessing its resources properly, our country has remained in the same position for years. In the last two years, the share of renewables— solar and wind combined– only accounts for one percent.

As I have been saying, our energy planners remain fixed in their incorrect thinking about how expensive RE is. While the rest of the world have been sensitive to the development of the RE sector, we still insist on having our ‘quick fixes.’ We favor the least cost in terms of capital outlay for power plants but refuse to look at the additional cost that consumers will shoulder for our heavy dependence on fossil fuels.

We only need to look at the devastating impact on energy prices from history to see the risks of relying heavily on either coal or oil plants. In the 1990s, the Gulf War, for example, brought roughly 30 percent increase in the average spot price for crude oil.  According to the average unit price of crude oil increase in the country was approximately 56.1 percent.

We don’t even have to go as far as the 1990s. Just last year, our Energy Department officials warned of a possible disaster with the news that Indonesia has extended its imposed moratorium on coal exports to the Philippines due to the kidnapping of several Indonesian sailors in the Sulu sea by the Abu Sayaff.  We, after all, get 70 percent of our coal or 15 million tons for 2015 from Indonesia. A few years before that, Indonesia also changed its rules about coal exports which led to an even higher cost of generating power from coal.

A necessary consequence to all these is this: coal and other similar fossil fuel-based technologies will increasingly have difficulties in getting financing. Not only because financial institutions will institute policies to avoid fossil fuel technologies, but if at all, banks will have to shorten the tenors it will give to coal plants. Because of the expected decline in costs of RE technologies, the competitiveness of coal plants will increasingly decline.  Therefore, banks will have to lend, if at all, at much shorter maturities.  With shorter maturities come higher annuities.  This will make financing coal plants extremely difficult and uncompetitive.

All these points to one thing: Let us be like other countries, like our Asian neighbors India and China that have embraced and capitalized on developments of the RE. And part of it is welcoming fixed contracts in our energy mix to take advantage of the falling prices of RE technologies and having the maximum levels allowed in our Renewable Portfolio Standard (RPS), where power players are required to either source or produce a specified percentage from RE

Given that our Power Sales Agreements (PSAs) are ‘floating’ where risks such as price escalations of fossil fuel and foreign exchange rates are passed on to consumers, we need to have our fixed priced contracts to at the very least soften the blow on the negative impact of the ‘pass-on costs.’ Fortunately, renewables are in a good position to hand out those much needed fixed contracts.

While the rest of the world are embracing the lower costs of RE generation, we are still stuck in the old ways of thinking that fossil fuels and fixed price contracts are the correct formulae to our power rates woes.  Let us see the economic sense in investing and helping renewable energy flourish in our rich country.

If we want to maximize our abundance of RE sources in the country, which as many have said is the key to lower energy prices, then we must consider those fixed priced contracts for RE. And if we want to truly embrace and benefit from the falling costs of RE technologies such as what the recent BNFF report has noted, then we must be quick in adopting my above proposals. Otherwise, we will be left wondering years from now how and why we failed to find a solution to what seems to be never ending high electricity prices in the country, when in fact, the answer had been quite obvious.

References:

https://www.bloomberg.com/news/articles/2017-06-15/solar-power-will-kill-coal-sooner-than-you-think

http://www.philstar.com/headlines/2016/06/27/1597092/philippine-power-supply-jeopardized-indonesian-ban

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