renewable energy investments

Hampering Our Growth

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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

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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/

The Path to 100

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Just recently, the International Renewable Energy Agency (IRENA) released a study titled “Accelerating the Deployment of Renewable Energy Mini-Grids for Off-Grid Electrification.” The research tackled how the Philippines can promote better access to basic electricity services as the government works on achieving total electrification in the country.

The study came up with five major recommendations ranging from defining roles and responsibilities, having a strategic and comprehensive planning for electrification, promoting the setting up of micro-grids, reviewing the regulatory frameworks for mini-grid projects and increasing support for project development and execution.

Of these recommendations, several caught my attention.

10891-cobardor-island-solar-panels-lines-wide-angle

Our government must now seriously consider using RE for off-grid islands. Photo c/o ADB

IRENA, in its conclusion, stressed that the country needs to prepare a definite plan for off-grid electrification, with the government revising the current Missionary Electrification Development Plan “to focus on reliable energy electricity access to small, remote and isolated areas.” Part of which is to aim for a 24-hour electricity service that can support both commercial and industrial needs to enhance livelihood opportunities to increase incomes.

The report noted that such goal could be achieved by “strategically using renewable energy technologies (RETs), selected based on a least-cost approach to lower generation costs, improve reliability, increase service hours and avoid the use of fossil fuels.”

The reason for prioritizing RE for small and remote off-grid areas was underscored: “These technologies can reduce generation costs and increase service reliability and service hours, while simultaneously mitigating climate change and improving climate resiliency.”

Now, don’t these conclusions and recommendations of advocating the use of RE Technologies for off-grid islands by the IRENA sound familiar? I have been in fact, advocating almost the same recommendations and conclusions above.
For one, as I have been saying, renewables are the cheaper option as generation costs from them are not subject to global price changes and foreign exchange adjustments. On the other hand, traditional sources of power cause consumers to pay higher when the peso falls against the greenback or when prices of coal or oil surge in the world market.

Plus, of course, RE is obviously the better option to use to mitigate the effects of climate change.

But I’m not the only one who echo the calls made by the IRENA report. There are other reputable organization, too that are calling out our government to transition to RE for our energy needs.

For example, The Energy Economics and Financial Analysis (IEEFA) and Institute for Climate and Sustainable Cities (ICSC) earlier this year released a study emphasizing the need for RETs in off-grid islands. The research, “Electricity-Sector Opportunities in the Philippines: The Case for Wind- and Solar-Powered Small Island Grids” noted that “Small island grids powered by solar, wind, and other renewable energy could reduce dependence on expensive imported fossil fuel generation without compromising the availability of power and grid reliability.” In fact, the country can save up to Php10 billion if off-grid islands use RE rather than traditional power sources.

The report stressed that off-grid islands in the country could transition away from fossil-fuels to RE except for the country’s policies and regulations, which are already outdated: “Barriers to small island grid uptake of modern renewable energy power include outdated regulations that have not kept up with technology.”

Time and time again, we have heard experts urge our government to invest in RETs for stable and secure supply both for those in the main grid supply as well as for off-grid islands especially since our government aims to achieve 90% household electrification by the end of this year.

As of July 2016, household electrification rate is at 89.6%, which means some 2.36 million homes are either without power or with limited electricity services of four to six hours daily. Such is still far from our government’s goal “that every Filipino family shall have an equal opportunity to access basic electricity service.”

There is no doubt, as many experts suggest, that the path to complete electrification is RE. But I will have to stress that RE can do more than just help us achieve our goal of 100 percent electrification. In fact, renewables are the long-term solution needed for our country’s energy security. And the sooner we learn how to implement RE systems, the more secure our future will be.

References:

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

“Accelerating the Deployment of Renewable Energy Mini-Grids for Off-Grid Electrification.” IRENA

 

 

 

 

 

A Growing Consensus

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There is a growing consensus among energy players and experts around the world that the best path forward to a sustainable energy and clean energy is to combine renewable energy with natural gas. Unless an alternative type of fuel is found, or until battery storage (or similar technologies) become economically feasible, this may be the case.

For one, Royal Dutch Shell, Europe’s biggest energy company is investing heavily in liquefied natural gas (LNG) plants and developing a market for it. Shell currently has various LNG projects scattered in practically every continent.

Now why the massive investment on LNG? According to Maarten Wetselaar, Royal Dutch Shell Plc’s director of integrated gas and new energies, its because “We are deeply convinced that the end-point energy mix that provides cheap, or at least affordable, reliable and clean energy to everybody will consist of renewable power, biofuels, and natural gas.”

He added that that the company will go full speed with investments projects that can produce the cheapest LNG.

As early as 2012, Shell’s CEO, Peter Voser already announced that the firm would invest some $20 billion in the natural gas around the world in the next three years.

Shell isn’t alone in its belief that renewables should be combined with natural gas.

Craig Ivey, president of US Energy firm, Consolidated Edison Inc, stressed that the US shift to RE like wind and solar is feasible if there is greater reliance on natural gas. Consolidated Edison Inc. provides electric service to some 3.3 million customers and gas service to roughly 1.1 million customers in New York City and Westchester County in the US

Ivey added that REs could account for half of New York’s energy needs by 2030 only with the help of natural gas.

But energy company officials are not the only ones to have this conclusion. A study published recently by the National Bureau of Economic Research concluded that natural gas power plants that can fire up quickly must be used to meet the cut emissions and energy stable supply.

Author’s of the study, “Bridging The Gap: Do Fast Reacting Fossil Technologies Facilitate Renewable Energy Diffusion?” stressed that “Renewables and fast-reacting fossil technologies appear as highly complementary and that they should be jointly installed to meet the goals of cutting emissions and ensuring a stable supply.”

I have to agree with these experts as adding more natural gas helps in ensuring a stable energy supply through diversification.

 

Shell LNG

Adding more natural gas to the power mix is key to achieving energy diversification. Photo c/o https://www.green4sea.com

 

According to Andy Stirling, a Professor of Science & Technology Policy at the University of Sussex, there are three basic properties when it comes to diversification: variety, balance and disparity.

In the context of energy systems planning, variety is about the number of energy supply options available. And having more variety of energy types means that there is greater diversity in the system.

On the other hand, balance pertains to the reliance on each option available where the system is considered as more diverse if there is more balance across energy choices while disparity refers to the differences in each option. There is more diversity in the energy supply system when options are more disparate.

This is why we need to make use of various energy types for our energy mix.So far, we depend heavily on coal to meet our ancillary needs. According to the Department of Energy, last year, coal accounted for 48 percent of our energy needs while some 22 percent came from natural gas.

Obviously, our energy supply is far from diverse given the numbers above. This is why we need to develop and increase the share of natural gas in our energy mix. We can lower our reliance on coal, and use more natural gas for our ancillary need as we add more renewable energy mix.

Keep in mind that both wind and solar power are intermittent. Thus, we need to beef up on our ancillary services to maintain the correct direction and flow of power as well as to address the imbalance between the supply and demand on the grid. And for that we can utilize more LNG rather than always turning to traditional power sources for our ancillary needs.

After all, there are advantages in using natural gas. For one, natural gas is three times more useful compared to conventional power. It is highly efficient as around 90 percent of natural gas produced can be converted to useful energy.

Natural gas is less harmful to the environment, too since its main component, methane, results in lesser carbon emission. LNG’s carbon dioxide emissions are 30 percent less than oil and 45 percent lower than other conventional fuels.

Plus, the death print of natural is less than coal according to energy expert James Conca who defined death print as “the number of people killed by one kind of energy or another per kilowatt hour (kWh) produced”. Natural gas death print is 4,000 significantly less than coal’s 100,000.

We have so much to gain by developing our LNG to replace coal-fired plants in the country. Adding more LNG will make our energy supply system become more diverse while helping us achieve our goal of helping the world become a less polluted place.

In the long-term, however, maybe indigenous, sustainable and therefore renewable energy may be the way to go.

References:

http://www.reuters.com/article/usa-property-coned-energy-idUSL1N1IY1DK

https://www.cnbc.com/id/49841864

fuel.https://www.bloomberg.com/news/articles/2017-09-06/shell-seeks-to-boost-lng-demand-as-canada-in-mix-for-new-plant

https://www.washingtonpost.com/news/energy-environment/wp/2016/08/11/turns-out-wind-and-solar-have-a-secret-friend-natural-gas/?utm_term=.dbf4c1935ceb

https://www.doe.gov.ph/electric-power/2016-philippine-power-situation-report

Diversity and Sustainable Energy Transitions: Multicriteria Diversity Analysis of Electricity Portfolios By Andy Stirling

 

Getting Closer to The Tipping Point

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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

Are We Getting Any Closer? Revisiting our Foreign Ownership Rules

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IMG_0008

Changing our constitution to allow  more foreign investors is a must if we are to succeed in developing our nation. Hence, we must be fast  in doing so if we are to take advantage of the global development in RE including falling prices.

As early as last year, President Rodrigo Duterte already announced his plans to open various industries to foreign players.

In a speech made during a visit to New Zealand last year, 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.

These days, foreign ownership of companies is in the headlines as the government is set to release the upcoming Foreign Investment Negative List ( FINL). The FINL defines which investment areas of the country are still off-limits to foreign investments and open to 40%  foreign ownership. 

Unfortunately, the government can only do so much with its FINL as they need to work within what’s allowed by our constitution.  Perhaps it’s also time to make amendments to the constitution given that times have changed. In this day and age of technology, we need to be more competitive. Unfortunately for us, our laws have not been updated to keep up with the times.

Many economists have already stressed the need for significant changes in our constitutional provisions on ownership

Just recently, former National Economic Development Authority or NEDA chief Cielito Habito has emphasized the need for these changes. “The hope is we will be willing to amend economic provisions of the constitution because that is what really is holding us back. It is outdated. Many of the restrictions in foreign advertising, mass media, education, are really out of date. Given the technology in recent years, those rationales don’t apply anymore to the information age,” he said.  

He further added that we are being left behind by our Southeast Asian neighbors because of the lack of participation of foreign investors. “The reason we continue we to  lag behind our neighbors, in spite of dramatic improvements already made, is still because of these legal constraints to more foreign participation in our industries.”  

The President back then said that he wants changes in the “regulatory requirement and institutional arrangements to hasten the entry of new players in the power industry and energy sector.

And I cannot wait for these changes to take place. We need this if we are determined to shift to cleaner sources of energy. Our progress in moving to more renewables for our energy has been quite slow. We are not getting any closer to our goal of using more RE for our needs. In fact, we seem to be heading in an opposite direction as coal fired power plants are seen to dominate our energy mix in the next 10 years as noted by BMI Research of the Fitch Group. The study revealed that 90% of the 7,300 MW of power projects in the pipeline are coal-fired plants. 

As I have been saying, the review of foreign ownership rules has been long overdue.  I have been vocal in my desire to open up the energy sector to more foreign investors, particularly the renewable energy sector. Mainly because putting up the RE plant has a high up-front cost and as such very few businesses can venture into this area. 

The government must consider limiting the ownership of foreigners of the renewable resources but increasing their ownership in owning the equipment required to convert these resources. 

Around the world costs of RE technologies are dropping. If we want to take advantage of this development in the hope of increasing the RE’s share in our energy mix, then we must act quickly and make the necessary changes in the foreign ownership rules. 

References:

http://www.investphilippines.info/arangkada/constitutional-amendments-needed-to-boost-fdi/

http://bworldonline.com/constitutional-amendments-needed-boost-fdi/

 

 

 

 

 

 

 

 

 

Unfortunate But Not Hopeless

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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/