When Private Sector Efforts Aren’t Enough

Recently, tech giant, Amazon announced three renewable energy projects totaling 265 megawatts (MW) that would provide power to its data centers. The tech giant said these new projects are all part of Amazon’s efforts to power 100% of its operations via renewable energy.

The three projects consist of a wind farm with a maximum capacity of 50 MW in Scotland, and two solar projects with 215 MW capacity in North Carolina and Virginia. All three projects are expected to start generating power by 2021.

Amazon’s new renewable energy is all part of the company’s commitment to helping the environment. “We are committed to minimizing our carbon emissions and reaching 80% renewable energy use across the company by 2024,” Amazon’s Director of Sustainability Kara Hurst said.

Amazon is not the lone global brand to make headlines recently for its commitment to renewable energy. Likewise, The Estée Lauder Group announced that it has already reached 100% in renewable power in the United States and Canada ahead of its target date. The brand also announced that it has signed a virtual power purchase agreement (VPPA) for wind energy. This makes the Estée Lauder Companies Inc the first prestige beauty firm to execute a VPPA.

Under the signed VPPA, the beauty company will purchase power 22 MW from the Ponderosa wind farm in Beaver County, Oklahoma owned by NextEra Energy Resource. The company says this new development is a great addition to its renewable portfolio “We’re so pleased to meet our 2020 RE100 commitment for North America early. Projects like the Ponderosa wind farm and others in our Net Zero portfolio are all significant achievements toward our commitments to address climate change,” said Nancy Mahon, Senior Vice President, Global Corporate Citizenship and Sustainability of The Estée Lauder Companies Inc.

Corporate renewable energy procurement has been aggressive in the last few years as private firms do their best to honor their commitments to zero emissions.

In 2018, corporate renewable energy deals were on a roll as clean energy contracts entered into by corporations more than doubled from 2017. There was a total of 13.4 gigawatts signed by 121 corporations across 21 nations last year.

Corporate renewable energy deals are impressive but are they enough to meet the world’s commitment of net-zero carbon by 2050?

The answer is no, since gas, oil and coal still dominate the energy mix according to Nick Butler, chairman of The Policy Institute at King’s College London and energy commentator for Financial Times. He stressed that in 2018, only $300 billion out to $1.8 trillion in investments in the energy sector went to renewables. The rest of the money went into fossil fuels, particularly gas and oil.

Butler says the established hydrocarbons for energy remain resilient since renewables only supply five percent of the global power demand. Within 10 years, renewable power is only likely to contribute 12 percent to global energy. Coal will continue to dominate in the next few decades.

This is not to say that renewables will never be the primary source of energy. Butler points out that renewables could dominate the world’s power mix but it will take more than 20 years.

The chairman says that the key to a faster energy transition is more involvement from the public sector. So far, return on investments for renewable energy is still far from the returns in oil and gas projects.

Butler proposes the adoption of a mixed economy model where the state will provide long-term capital to balance the low rate of with the value that renewable power brings to the public. He cites the cases of BP, and Equinor, formerly known as Statoil. The latter was put up by the Norwegian government as the state’s oil company and later became a major player in the gas market and the world’s largest oil and gas offshore operator. The company has rebranded into Equinor and now actively investing in solar energy and offshore wind.

For the Philippines, this will require a major shift in its energy policy.  The EPIRA clearly steered the Philippine power sector to more private investments rather than the government. Its intention was to make the power sector “market driven.”  Unfortunately the Philippine energy market is not efficient and still too young to be a reliable indicator of market prices.  Therefore relying on this current market structure will not bring in new renewable energy projects in the scale and speed at which we need to put in place in the country.

There are ways to make the shift possible even under the current EPIRA regime.  The Renewable Portfolio Standards (RPS) regulation is one way to go albeit its contribution will be very small. The issuance of a tariff policy requiring more stable power rates will help bring this surge in renewable energy investments.  There are other ways.  However, the government must first realize the need for more RE investments.  Otherwise, all its policies and directives will be palliative solutions to what is going to be a major challenge in the country’s energy security situation.

https://www.theclimategroup.org/news/est-e-lauder-companies-inc-achieves-100-renewable-electricity-us-and-canada-ahead-schedule-and

https://cleantechnica.com/2019/11/13/corporate-green-energy-adoption-flourishes/

https://www.cnbc.com/2019/10/24/amazon-announces-three-new-renewable-energy-projects.html

 

Getting Ready for IoT

The Speedtest Global Index ranked the Philippines 103rd out of 139 surveyed countries in terms of mobile internet speed. Our average internet mobile download speed is 15.06 megabits per seconds (Mbps), which is significantly lower than the global average of 26.12 Mbps Our average is even slower than war-torn Syria which has 19.48 Mbps and Zimbabwe’s 15.2 Mbps

For fixed-line internet, our country was again one of the slowest placing 101 out of 179 countries in the study. While the global average is 57.91, ours was much slower at 19.51. That’s not even half of the speed of the global average.

Just last September, 1-Pacman Rep. Mikee Romero filed a bill in Congress seeking to establish and create a comprehensive broadband control and management framework.

HB 185 or the National Broadband Development Act aims to create more efficient Information and Communication Technology (ICT) and broadband services in the country. The bill seeks to create an integrated policy environment that would lead to a broad market-led development of the ICT enabled services. The bill aims to expand and establish ICT infrastructure to enable the continuity of ICT-broadband based services that can help support the government’s economic objectives.

In the bill’s explanatory note, Rep. Romero says he hopes ” to ensure universal access to quality services, promote the development and widespread use of emerging new ICT technologies, and to ensure the availability and accessibility of services in all areas.”

Of course, it’s embarrassing that the Philippines has one of the slowest internet speeds in the world. We need a stable and reliable internet connection not only because we need to stream in high definition or so that we can enjoy internet-based games.

No, we need a faster and reliable internet connection for economic development. We need this reliable internet so our consumers can have better energy choices and control their consumption. The power sector, after all, is in the cusp if not already in a massive transformation phase with the emergence of renewable energy and storage technologies. Plus, of course, there’s the Internet of Things or IoT.

IoT, in its simplest explanation, is about the connectivity of one device with an on and off switch to the internet or a massive network of connected things. This means that “anything that can be connected, will be connected.”

And as the internet is widely becoming more available, there are more devices produced with Wifi capabilities and built-in sensors. Smartphone penetration is also high as more phone makers are making them affordable. In the energy sector, IoT is revolutionizing every aspect of the power industry including generation, transmission, and distribution.

Just how is IoT changing the energy industry?

For starters, sensors allow for the remote maintenance of the generation, transmission and distribution equipment. There’s the digital twin technology that creates an advanced digital model of an existing piece of equipment. When connected to the physical equipment the digital twin technology can collect data about the equipment’s performance remotely. This also means that such technology will allow virtual troubleshooting and support even in remote areas. Imagine, being able to monitor the performance of our energy equipment in remote and hard to reach areas by simply clicking on mobile phones.

IoT also allows for a more distributed grid. With the growth of home solar panels, both homeowners and businesses are now generating their own power. And generating your own power is not limited to solar technology as there are also some building their small wind turbines.

The smart grid powered by IoT is indeed enabling the distributed energy transformation. And with distributed energy, grid operators can handle the demand changes on their grids. Smart grids let grid operators detect and react to the supply and demand of power remotely. This is all thanks to the fact that they can obtain information in real-time without having to rely on their on-site equipment.

Speaking of grid management, IoT also helps in better grid management as sensors placed in distribution lines and substation generates real-time power consumption data, which helps grid managers make decisions about a variety of things like network configuration, voltage control, and load switching.

IoT

IoT gives empowers consumers. Photo c/o http://www.electricalindia.com

Indeed, there are many benefits that IoT brings in the world of power. But one of the best things about this technology is that it gives more options. Hence, more power at the hands of the consumers.

Running low on budget and need to cut down on household expenses? IoT can help you. This is because of smart devices and smart meters that help customers make informed choices on their power usage.  Imagine having smart devices that can measure the power consumption of each device and appliances that can be installed in homes. Consumers can then use such information to figure out which are power-hungry appliances and optimize their use to save on power costs. 

Clearly, internet connection is changing the way we do things including in the energy sector. As such, our government should find ways to make reliable internet affordable and accessible. Sustainable and affordable power in the Philippines is achievable if we do invest in our ICTs as well.

And its not just about improving internet connectivity in the country. As we move towards a more distributed and more connected electricity system, our Department of ICT and local energy players should start investing time, effort and resources in Critical Information (CIP) standards. CIP is what helps keeps safe smart grids from attacks. It sets out the minimum security requirements for power assets that are critical to a country’s bulk electric system. Naturally, the growth of internet-connected sensors and control systems come with some vulnerabilities.

In the United States, the National Institute of Standards and Technology is on the lookout for vendors that will help in developing solutions to secure the IoT. Our regulations and plans in the future must also figure in cyber protection.

The Department of ICT (DICT) should also go beyond just common towers. It should tap the country’s power transmission and distribution towers and poles for a common fiber optic policy. Today, each telco enters into a Pole Sharing Agreement with power utilities. So we can see not only one fiber optic in our poles, but three or even more. Not only does this make our telco or cable tv services expensive, it also messes up the wires and poles of the utility.

Our government should be rolling out their sleeves and getting ready for work as the world moves towards greater use of ICTs and broadband services. Let’s go beyond simply looking at internet speeds and accessibility and figure out how cutting edge technologies are transforming various sectors including the power sector. We are now moving away from the traditional models of power distribution, generation, and transmission and we need stable internet, increased information security and appropriate regulations so that we can enjoy the benefits of IoT.

References:

https://www.philstar.com/business/2019/09/08/1949856/bill-seeks-faster-internet-connection-philippines

https://www.renewableenergymagazine.com/emily-folk/how-iot-is-transforming-the-energy-industry-20190418

https://www.utilitydive.com/news/security-and-distributed-resources-an-attacker-will-eventually-get-in-s/565966/

Should We Have a Moratorium on New Coal Plants?

 

According to news reports, Germany intends to shut down its first power plants that use black coal in 2020 as part of the country’s efforts to phase out all coal plants by 2038.

Earlier this year, Germany, one of the largest consumers of coal in the world, announced that it would shut down all 84 coal-fired power plants in the next two decades in the hope of meeting its international commitments in the fight against climate change. 

Coal plants account for roughly 40 percent of Germany’s electricity as the country is the last bastion of coal burners inNorth-Western Europe.

The decision to close all of Germany’s coal-fired plants was no walk in the park. The German coal exit commission consisting of industry representatives, politicians, and non-government organizations (NGOs) spent seven months of discussions and a 21-hour negotiating session deciding whether to junk coal-fired plants altogether. 

The decision to end coal plant operations was described as “a historic accomplishment,” by Ronald Pofalla, chairman of the 28-member government commission. Likewise, Hans Joachim Schellnhuber, a member of the commission and an adviser to the German chancellor, Angela Merkel stressed that “This is an important step on the road to the post-fossil age – a step that also opens up new perspectives for the affected regions through innovation-driven structural change.” 

German Chancellor Angela Merkel’s administration is reported to have allotted some 1 billion euros or $1.1 billion to fund the closing of several coal plants with a total of five gigawatts capacity by 2023. Merkel’s government intends to replace coal power with renewables by increasing the share of renewable energy from 38 percent to 65 percent in 2030.

Germany, one of the largest consumers of coal in the world is shutting down all 84 coal-fired power plants in the next two decades. Photo c/o carbon brief. org

Germany is not the only country that’s retiring coal-fired plants. The United Kingdom government has earlier committed to phasing out its coal plants by 2025.

Similarly, in the United States, coal plants are being closed as well. According to data from the U.S. Energy Information Administration and Thomas Reuters, around 10,6000 megawatts of coal-fired plants are either to be retired or converted to gas by the end of 2019. Last year, several coal plants with a total of 13,000 MW ceased operations.

The Philippines, however, is going against the global trend. Data shows that coal accounts for 52.1 percent of the country’s power generation mix in 2018, up from 49.6 in 2017. On the other hand, the contribution of renewable energy has declined from 24.7 percent in 2017 to 23.5 percent in 2018.

And the Philippines will continue to rely on coal for at least two more decades, according to BNEF’s New Energy Outlook 2019. 

Caroline Chua, BloombergNEF’s energy analyst for Southeast Asia noted that coal-fired power generation in the Philippines will steadily increase and will remain as the biggest single source of electricity until 2041. “By 2050, the Philippines will still have almost as much coal-fired generation as today,” Chua stressed.

Our country’s reliance on coal does not sit well with various sectors. There have been calls to place a moratorium or suspension on the building of new coal-fired power plants. Cagayan de Oro City 2nd district Rep. Rufus Rodriguez floated the idea during a budget deliberation so the Philippines can cut its carbon emissions. 

Congressman Rodriguez asked Energy Secretary Alfonso Cusi if he agrees to a moratorium on coal to help the Philippines meet its commitment to the United Nations by 2030. “May we know whether the Secretary agrees that we should, therefore, to comply with our Intended National[ly Determined] Contribution to the UN, we should therefore already have a moratorium on coal plants?” he asked.

The secretary, however, was quoted to have said a “moratorium on any technology is a disservice to our country.” If we can find alternative ways to provide electricity service, then it will not be a disservice.

The suggestion of Congressman Rodriguez has its merits. If we want to meet our international obligations of cutting down carbon emissions, then preventing the construction of more coal-fired plants is a great start. I am from Cagayan de Oro, and I am proud of Congressman Rodriguez’s stand. He will get my support.

But setting aside environmental concerns, there are other reasons why the Energy Department should consider placing a moratorium on coal power, particularly large central thermal coal plants.

We have to keep in mind that coal-fired power plants with large generating capacities are signed up for long-term power supply agreements (PSAs). These contracts often run up to 25 years.

The problem with these long-term PSAs is that they take away the power of consumers to choose their preferred sources of energy or technologies. Essentially, big coal-fired plants that are signed-up by distribution utilities will end up burdening consumers who are stuck with the same power supply contract for as long as 25 years. This is a disservice to consumers since what we should be aiming for and working for is for the consumers to be given a choice on their preferred technology and pricing. So distribution utilities should balance their portfolio by matching type and tenor of their contracts to the needs of their consumers.

This is just the problem with our energy planning. We often fail at being consumer-centric when in fact, placing the welfare of the consumers should always be the priority. Looking after consumers mean giving them as many options as possible. Unfortunately, locking them into long-term supply contracts is akin to taking away their power to choose. We could change all that now by considering a moratorium on the construction of big central thermal coal power plants.

But the discussion should be beyond just discussing “moratorium” as we should really be thinking about alternative ways to tap the environment for energy. It is this mentality of looking for an easy way out of our energy needs that leads us to the usual suspect: coal. So yes, we should have this moratorium on new coal plants while developing other sources of energy.

References:

Murang Kuryente slams DOE refusal to impose coal moratorium

Green energy use to rise but coal to remain necessary

http://ieefa.org/u-s-coal-plant-retirements-to-top-10gw-in-2019-eia/

Cusi not cool with coal-fired power plant moratorium

https://cleantechnica.com/2019/10/04/a-uk-coal-power-station-closes-signaling-the-end-of-an-era/

https://www.theguardian.com/world/2019/jan/26/germany-agrees-to-end-reliance-on-coal-stations-by-2038

Missed Targets Equal Expensive Power

The Department of Energy (DOE) says it’s now updating the country’s renewable energy targets.

The DOE admits that the country has failed in meeting its targets 10 years after the Renewable Energy Act was enacted. That’s not surprising given the constant increase of approved coal power plants in the last few years.

That’s not surprising given the constant increase of approved coal power plants in the last few years.

That’s the sorry state of the renewable energy development in the Philippines. Our slowness in adopting cleaner forms of power means that we are missing the benefits of renewables such as jobs generation, a cleaner environment, and cost savings.

Our reliance on traditional sources of energy is costing Filipinos a lot of money. And it is the reason why we have one of the highest electricity prices in the world.

The above points are not only my assertion. In fact, studies after studies have shown that we are paying a high price for our dependence on coal.

One of the recent studies with the same conclusion is the report entitled “Prospects Improve for Energy Transition in the Philippines” by the Institute for Energy Economics and Financial Analysis (IEEFA). The finding of the report struck me as it echoes what I have been saying all this time.

According to IEEFA, fuel price pass-throughs have inflated power prices in the Philippines.

It is no secret that our country has the highest power prices among Southeast Asian countries. Our energy prices are also considered relatively high compared to global standards by roughly Php10 per kilowatt-hour. (KwH) The report points out that, this is due to our reliance on imported fossil fuel, high financing cost, and uncompetitive market structures.

The report cites one coal plant of 167.4 MW as an example, which was supposed to deliver Php3.96 per kilowatt based on a signed power sales agreement (PSA) price in 2016. Unfortunately, the coal plant, on an average delivered PHp2 per kWh more than the agreed price in the PSA and even reaching Php7.11 per kWh. As I have been pointing out, the difference of the price was passed on to consumers, all thanks to the “pass-through” provisions in the contracts. Sadly, it is the Filipinos who suffer from such instances as they are the ones who have to pay the cost of fluctuations in foreign exchange rates and coal or fuel prices.

By just how much did the Filipinos “suffer”? The report says that from May 2018 to May 2019, coal’s unpredictable prices has led to Filipino consumers paying more than Php788.7 million. Again this is all courtesy of the pass-through costs and our dependence on traditional power sources. That’s just for 2018 to 2019.

coal

Coal imports. IEEFA report says that from May 2018 to May 2019, coal’s unpredictable prices has led to Filipino consumers paying more than Php788.7 million. Photo c/o http://www.financialexpress.com

Unfortunately, the value of imports has climbed up significantly over the years. The report says that coal imports in 2005 was USD317 million and has tripled to over 1 billion by 2010. From 2017 of 1.9 billion it ballooned to 2.7 billion by 2018.

So, us Filipinos, have been paying billions for these pass on costs since our energy planners have favored what I have been referring to as “floating” PSAs, which as the IEEFA pointed out burden consumers with the pass-through costs.

We could have saved billions for Filipino consumers only if our planners have opted for what I call “fixed contracts”. And as my preferred term indicates such contracts peg the price at a fixed price for a specified number of years.

Unfortunately, our planners tagged fixed-price contracts as more expensive. At a glance, a PSA of Php5.10 per kWh for 25 years may look more expensive than a floating PSA of Php5 per kWh. And as the example of IEEFA, floating PSAs can reach beyond the agreed price due to global price spikes and foreign exchange. So, again, I ask which is more expensive? A floating PSA that has a lower agreed price at the start but could balloon up in the few years or a fixed price contract that will have consumers pay the exact amount until the PSA contract has ended?

Plus, of course, these floating PSAs do not provide incentives to power producers to minimize operating costs since these are passed on to consumers anyway.

There’s no denying that our energy planners’ preference for coal power despite experts’ assertions that renewable power is the way to move forward has been costing Filipino consumers a lot.

There was a time when building coal-fired power plants was an economical and practical choice. I have built some of them myself many years back. But times are changing, and what once used to work for us no is longer is the best option

Our best bet is to put our money and resources on renewable power. The IEEFA report stresses that we can lower the wholesale power prices by 30 percent if we allow renewables to flourish. I have been saying time and time again that if we want stable power prices, then we must develop and have more renewable energy in our power mix. The DOE can review our renewable energy targets all they want, but the bottom line is, our government should  pave the way for renewables to penetrate the market easily and consistently.

References:

https://www.philstar.com/business/2019/09/02/1948208/doe-updates-renewable-energy-targets

Prospects Improve for Energy Transition in the Philippines. IEEFA

Rolling Out New Programs May Not Be Necessary

It is no secret that the Philippines is heavily dependent on coal for its energy needs.

Data from the Department of Energy show that coal’s share in our country’s energy mix was 35.4% in 2017 up from 34.6% in 2016.  On the other hand, renewable energy contracted last 2018, only contributing 31.1% of the total, down from 32.5% in 2017.

Indeed, the Philippines is declining in terms of renewable energy development.

This is why it’s heartwarming to hear President Rodrigo Duterte address this issue in the last State of the Nation Address (SONA) where he ordered to fast-track the development of renewable energy resources. His exacts words were: “We recognize the urgent need to ensure the sustainability and availability of resources and the development of alternative ones. In this regard, I trust that Secretary Cusi shall fast-track also the development of renewable energy sources, and reduce dependence on the traditional energy sources such as coal.”

Naturally, the Department of Energy (DOE) responded to such call. In a statement, Energy Secretary Alfonso Cusi said that “The DOE is encouraged by the President’s comments. Indeed, his leadership will be pivotal for the DOE to implement policies and regulations that ensure the affordability, reliability, security, and sustainability of energy in the Philippines for generations to come.” 

The secretary promised to fast-track the implementation of the key renewable energy policies, namely the Renewable Portfolio Standard and the Green Energy Option. The former mandates distribution utilities to source a percentage of their power from renewable sources. The latter, on the other hand, empowers consumers to demand that their power comes from renewable sources.

The Energy secretary also said that it is looking at implementing a Green Energy Rate that will help the country to build a renewable energy portfolio of 2,000 megawatts in 10 years. There would be a ceiling rate and a green tariff rate would be auctioned among investors and developers.

Green tariffs and Green Energy Options are nothing new.  Other countries already have these programs, although the Green Tariff in other countries seems to be quite different from the one being planned by the DOE.

For example, in the United States, utility green tariff is optional programs in regulated electricity markets that are offered by utilities and by the state public utility commissions. The program lets industrial customers and large commercial clients purchase bundled renewable energy power with a special utility tariff rate.  It allows utilities to supply large industrial and commercial clients with up to 100 percent renewable power that’s either owned by the utility or sourced from another independent power producer. I’m not sure if this is the model the DOE and National Renewable Energy Board (NREB) are looking at. 

In the United Kingdom (UK), the green tariff is also available and works quite differently.  It is offered to those who want to lessen their carbon footprint with their power consumption by allowing customers to give back the same amount of power consumed back to the national grid in the form of renewable energy. Green tariff can also work by supplying the customer with either 100 percent RE or a portion of.

Clearly, Green tariffs are in place in other countries to help their RE sector prosper as well as to provide customers with cleaner option.

However, in the Philippines, rolling out new programs may not be the most urgent concern if we want our renewable energy sector to flourish. What our regulators must pay attention to are the current programs that hinder the growth of the sector. There is the Competitive Selection Process  (CSP) as it places renewable energy developers at a disadvantage and the Retail Competition and Open Access (RCOA) that fails to help local renewable energy development.

Let’s take a look at the CSP mandating energy demand must first be aggregated then later bid out by a third party. This means that the power capacity becomes large before it can be auctioned off. It is then the large quantity required by the bid that places renewable energy suppliers at a disadvantage. We have to keep in mind that most RE plants have small capacities.  Unfortunately, those with smaller capacities RE plants will be left out in the cold as a result of aggregating the power requirement before the auction.

So, will the planned Green Energy Tariff by the DOE no longer require undergoing the CSP? I am personally curious about the mechanics of this planned program intended to help develop renewable energy in the Philippines. 

Our government should indeed work harder to make renewable energy development a priority. After all, going for sustainable and green energy helps in bringing down our power rates. Renewable power will also provide us with energy security.

As I have been saying, renewable energy, unlike traditional sources of energy are not vulnerable to foreign exchange and world price fuel prices. This means consumers are spared from the consequences of ‘floating contracts’ where Filipinos pay for higher power prices when the peso falls against the dollar or when coal or oil prices in the world market spikes.

Developing renewable power bodes well for us. Traditional sources, particularly oil and coal are finite sources. What then happens when these power sources are low in supply or worse are already unavailable?

There’s also the RCOA that’s also meant to help the sector by allowing a number of customers to source their preferred service provider.  Unfortunately, only those with  750 kilowatts or higher monthly demand can be considered contestable customers, thus restricting the number of consumers that has the option of choosing their power source.

So, yes we can look at other programs to help the RE sector prosper. Unfortunately, DOE has a track record of showing its lack of appreciation on the many benefits of renewable power for the Filipino consumers. 

We have to keep in mind that sometimes new programs, entities or rules can wait. They may not even be necessary. All we have to do is to simply review current regulations and practices rather than find new ones. And if we as a nation want to heed the orders of the President to develop cleaner and sustainable sources of power, then we urgently need to review our current regulations. 

References:

https://www.epa.gov/greenpower/utility-green-tariffs

https://www.comparethemarket.com/energy/information/energy-tariffs-explained/

Coal plants’ share in 2017 energy mix expands to over 35%

Amid fears of global economic recession, let’s worry about high power rates, too

Those who regularly read the business news would know that the US-China trade war has been hogging the headlines way back in 2017.

Two years ago, the United States launched an investigation into China’s trading policies and imposed tariffs on Chinese products worth billions of dollars a year after. Beijing, naturally retaliated.

The trade war between these two countries escalated after China allowed its currency, the Yuan to depreciate for the first time in over 10 years. This move was criticized and China was called a currency manipulator by the US.

I will not delve on how the trade war will place the Philippines in an advantageous or disadvantageous position. I leave that to economists.

Now, perhaps you are wondering why am I writing about this trade war when my expertise is the energy sector?

The answer is simple. The trade war, just like other major global developments in the Philippines  hurt the Philippine peso since global issues such as the spat between the US and China affect emerging economies such as ours.

For example, the peso sank to Php51.955 from Php51.79, down by 16.5 centavos on August 6 after the US tagged China as a currency manipulator. A trader quoted by a Business Word report said that “The peso weakened significantly due to demand for safe-haven currencies after the US Treasury Department labelled China as a ‘currency manipulator,’ further heightening current tensions between the US and China.”

According to S&P Global Ratings director Andrew Wood early August,  the Philippine Peso has been weakening as the trade and currency war of the two giant economies makes currencies vulnerable to downward pressure. “The Philippines and India have relatively strong external profiles, stronger than Indonesia, but they have proven to be relatively vulnerable when we do have these global contagion effects in the currency markets in the past. So the peso and Indian rupee could also be somewhat vulnerable to downward pressure,” Wood said

But the row between China and the US is not the only thing that’s affecting the performance of the Philippine Peso against the dollar.

peso dollar

Some forecasts say that the peso could be on the softer side and go as low as Php 53.50 against the dollar. Photo c/o Business world

For example, worries over a pending global economic recession last August 15 weakened the peso where trading day ended from 52.498 to a dollar from a 52.28 close a day before. “The peso depreciated as a potential U.S. recession pushed investors towards risk aversion,” a BPI Research market report said. It added  that a possible US economic slowdown and reports that Germany posted zero economic growth in the second quarter also caused the Pesos’ depreciation.

Some forecasts say that the peso could be on the softer side and go as low as Php 53.50 against the dollar or even slight below the P54 level if worries over a global economic recession worsen. For example, Mizuho Bank head of economics and strategy Vishnu Varathan as quoted by ABS-CBS news said that “For most of the next half, we’re looking at the peso on the softer side,” he said.

So, what does a weak peso mean for Filipino consumers?

As I have been pointing out, fluctuations to the peso dollar exchange will hurt the Filipino consumers.

I have discussed this at length in many posts. But let me reiterate that our energy planners love for a “floating” power sales agreements (PSAs) and reliance on traditional power sources can cause high energy rates. This is all thanks to the pass-on costs provision in our PSAs where consumers shoulder the cost of the falling peso against the dollar. Unfortunately, our reliance on coal, which we mostly export and pay for in US dollars means that we will pay higher electricity rates when the peso falls against the dollar. It also does not help that our independent power producers also have the majority of their billings in dollar denomination.

Yes, one can argue that the peso may also strengthen despite the forecasts of analysts. But it could also go the other way around.  Unfortunately, there’s no way of exactly predicting what will happen to the local currency. And there lies the problem with the floating PSAs. It leaves consumers in a vulnerable position.

So, again, we must revisit having fixed price contracts work for us as we watch how the Philippine peso fares against the US dollars amid the chaos in the global economy. Let us see the good in letting the consumers pay the  same amount for their electric bill for a specified period regardless of the performance of our local currency. This will ease the burden of consumers who pay more for energy when the peso is weak.

And while we’re at it, helping develop our renewable energy sector will also ease the burden of the Filipinos. Doing so will reduce the need to import traditional power sources that trade in US dollars.

Let the economists and analysts debate on what the government should do in light of the on-going trade wars and possible global economic slowdown. In the meantime, our energy planners should take a closer look at how these global issues will affect power rates and how we can ease the burden of consumers  by turning to renewable energy which can peg electricity rates at a fixed prices and eliminate the need to import raw materials for energy production.

I believe the world will be going towards energy independence as a goal for every household and community.  The reliance on big thermal plants and high voltage transmission networks will wane in the coming years.  Increasingly, electricity consumers will want to have more control of how and when they consume power in their homes.

This development of taking “power in their own hands” will mean that electricity consumers will be able to delink forex and global price risks.  And maybe with more independence, other supply and demand markets, other than WESM, may spring up independently.

Let me discuss these possibilities in my next blog.

References:

https://news.abs-cbn.com/business/08/19/19/peso-seen-in-p5150-p5350-vs-1-range-on-global-recession-worries

Peso sinks further on yuan move

Peso to trade sideways

https://www.philstar.com/business/2019/08/07/1941135/philippines-vulnerable-us-china-trade-tension-currency-war

https://www.pna.gov.ph/articles/1077961

The New Age of Grids

The Philippines finally appreciates the value of smart grids.

For starters, the upcoming 200-hectare New Clark City (NCC) located in Clark’s special economic zone will boast of having the first completely smart power grid in the Philippines.  The NCC, after all, is designed to be the country’s first smart, sustainable and disaster-resilient city.

NCC’s owner, the Bases Conversion and Development Authority (BCDA) already inked a deal with the Meralco-Marubeni Consortium to be the city’s power distributor. This, after the consortium, won the bidding with their proposed tariff bid of Php 0.6188 per kilowatt-hour (kWh). The tariff rate is lower than the Php1.25 kWh tariff ceiling set by the BCDA for power distribution.  It is also cheaper than the Php1.24 kWh rate of Mactan Electric, the lowest distribution supply metering tariff under the traditional distribution system.

The smart city will have state-of-the-art facilities on par with other smart cities around the world.  The smart grid in the NCC is seen to have better reliability standards and will allow customers to access real-time information from the distribution utility. Distribution lines will be underground adding to the aesthetics of an environmental-friendly city.

Plus, just recently, the National Electrification Administration (NEA) has announced that it has piloted a smart grid technology aimed at improving the reliability of a Batangas electric cooperative’s distribution system with the help of the Japan International Cooperation Agency. The technology to be used in this pilot is the Distribution Automation System that is expected to improve the distribution system reliability as well as lessen the duration of a power outage. These are all thanks to automation.

NEA says the smart grid technology will hopefully do wonders for the operational efficiency, particularly the reliability of the cooperatives’ system reliability.

Indeed, smart grids are now making their way to the Philippines. And why not when there are so many advantages in investing in modernizing our power distribution system?

For one, smart girds, unlike the traditional grids allows for two-way communication of electricity data thus providing real-time data collection on the power demand and supply during the transmission and distribution.  This means that the electrical grid can respond quickly to changes in the power demand, thanks to the grid’s controls, automation, computation, and equipment. The said cannot be said of the traditional grid that has a one-way interaction during generation and consumption.

smart-grid-Borg-2

Smart grids empowers consumers by providing real-time data on power demand and supply. Photo c/o telecomdrive.com

 

Smart grids also empower consumers by providing them with information on when the power demand is at its lowest or highest. This information allows them to schedule high energy-consuming activities such as ironing or running the washing machine when electricity costs are lowest. Plus, smart grid coverage lets consumers purchase their electricity straight from retail suppliers.

Another benefit of smart grids is its ability to integrate renewable energy into the system.

In the case of the NCC, the BCDA plans to integrate embedded generation that has renewable energy as its primary power source. The city can also source its power from rooftop solar PVs, waste-to-energy and natural gas, among others.

Clearly,  modernizing our power system with the help of smart grids is a great way to move forward. But, of course, regulations must also be updated as we shift to the smart grid.

Currently, the Philippines has no rules concerning smart grids. The Department of Energy has said that a roadmap for smart grids in the country is underway and will be released by the third quarter of this year in the form of a department circular.

Hopefully, this roadmap will be able to address issues regarding the use of smart grids such as smart meter, real-time dynamic pricing, and grid cybersecurity, to name a few. May it will pave the way for the proliferation of smart grids so that Filipino consumers can take advantage of such technological advancements.

Finally, let me say that the advent of smart grids will lead to the integration of ICT and power systems. This will lead further to the development of data centers nationwide, increase in the number of internet exchange servers, and eventually bring down the cost of both power and telecommunication services. The distribution grids that can adapt to these developments will be those that have the 21st technologies at their disposal. This will indeed help spur the development of the country. As I said, however, only competition in the distribution sector can speed this up.