As We Plan for Economic Recovery

The energy sector should also be overhauled to support government efforts to rebuild the economy. Image c/o http://www.benzinga.com

The COVID-19 pandemic resulted in a global recession. Here in the Philippines, the imposed months-long lockdown caused our economy to contract as much as 16.5 percent in the second quarter of 2020. Economists predict that the Philippine economy will likely experience an 8 percent negative growth for 2020.

Our government is banking on its flagship infrastructure program, “Build, Build, Build” to revive our battered economy. It has allocated P1.1 trillion, equivalent to 5.4 percent of our gross domestic product (GDP) to infrastructure projects in 2021.

For the power sector, this means higher demand for electricity as we as build more roads, bridges, ports, railways stations, and airports.

As we start planning for the Philippines’ economic recovery we should also overhaul our energy sector now so we can support our government’s effort to rebuild our economy. We need to address the short-term and long-term price stability so we can meet the demand for more power at cheaper prices.

The Philippine Peso has been touted as the best performing currency in Asia, strengthening 4% against the United States dollar. We can take advantage of the Peso’s strength by purchasing all imported fuel that’s oil-based or indexed to global prices while the Peso is strong. Let us remember that our fossil fuels are based on the U.S. dollar and indexed to global prices, and we have plenty of power plants that are importing coal and oil.

I have always talked about how a weak peso and increasing fuel costs hurt Filipino consumers because our Purchase Sales Agreements (PSAs) have pass-through provisions in previous posts. Consumers end up paying more for a weaker peso and more expensive imports. But a strong peso against the dollar can be used to our advantage as we can now use them to lower electricity prices for the next few years.

The government can order all power plants to buy all their fuel requirements in advance. Doing so will place a cap at fuel prices at today’s prevailing prices and foreign exchange rates. Power plants can buy years worth of their fossil fuel requirements so they can fix their prices at a rate that’s advantageous for their consumers.

This is a short-term solution. To ensure stable prices in the years ahead, the Department of Energy (DOE) and the Energy Regulatory Commission (ERC) should require a higher level of fixed-price contracts. I’ve been advocating for fixed-priced PSAs since the pass-on provisions always burden the consumers when the peso is weak and the global fossil fuel prices increase.

Likewise, the government can also order the off-takers of the Malampaya gas to purchase either part or all of the remaining gas so the prices of power will be pegged at current prices and present forex rates. The reasons are the same as my first suggestion for buying fuel requirements in advance. After all, the Malampaya gas is also based on prevailing forex and oil prices. 

One might argue that distribution utilities may not have enough funding to import fossil fuels and or purchase the Malampaya gas. However, we have our government banks, Land Bank and Development Bank of the Philippines that can lead a consortium of local banks to help purchase fossil fuels in advance.

Pegging fossil fuels at current global prices and forex rates will directly impact households and micro, small, medium enterprises (MSMEs) as they will be paying less for electricity. This is especially beneficial now as most Filipinos have less money to spend due to the economic recession. Taking away uncertainty is always a good option – it is valuable.

And to ensure long-term stable energy prices, our government should allow competition at the power distribution level. We have the Electric Power Industry Reform Act or EPIRA but there’s little competition still. In the past we thought that the wires business is a “natural” monopoly.  Latest developments in technology is showing that it ism not.  There are even non-wire alternatives (NWA) to power distribution.

 Currently, the the thinking is that two or more franchise holders for the same area is harmful. This policy, however, results in a monopoly, which does not benefit consumers. A monopoly doesn’t give the franchise holder any incentive to constantly innovate and improve its services.  Allowing more players will push utility companies to provide better services at cheaper rates to consumers. There are ways to improve the service to consumers through competition.

A clear definition of a load profile will also benefit us all in the long-run. Currently, our current procurement rules do not result in an efficient deployment of our energy resources because the ERC focuses on individual contracts. Consumers are paying more for power because we are not deploying power cost-effectively.

Coal-fired power, which is best used for baseload power is also being used for mid-merit power, thus whatever cost advantage of coal goes away. This happens because current procurement rules do not require ECs or DUS to differentiate the different power requirements. We need to define a load profile and regulate the appropriate levels of baseload, mid-merit, and peaking. The DOE and ERC can work on the limits and ensure that these are reflected in PSAs. The ERC should reject contracts that fall outside these limits. The recent announcement of DOE that there will be a moratorium in the issuance of permits for coal-firepower plants is a step in the right direction.

Reviving our economy requires the cooperation of all. For the power sector, this means ensuring sustainable and affordable electricity. More so since according to the Philippine Energy Plan 2018 to 2040 draft, local electricity demand is set to increase by an average of 6.7% annually. We can only meet this demand while making power rates cheaper by fixing the ills of our sector now.

Hope Over Surrender

Filipinos have been at the receiving end of gloomy warning about our environment these past few weeks.

For one, the Global Climate Risk Index released the first week of December says that the Philippines is the second most affected country in 2018 when we talk of weather-related losses. Last year, our country was hit by Typhoon Mangkhut, the powerful typhoon that devastated Northern Luzon in September, which caused deadly landslides. The report measured the damage done by floods, storms, and heatwaves to humans and economies.

The study published by Bonn-based, German Watch also noted that the Philippines was one of the countries most affected by extraordinary catastrophes in the last two decades. We were ranked fourth in the list of long-term climate impacted countries from 1999 to 2018. We join Myanmar, Haiti, Pakistan, Bangladesh, Thailand and Puerto Rico in this list.

It won’t also be surprising if the Philippines makes it to the list next year. Just a few weeks ago, Typhoon Tisoy, the strongest typhoon that hit the country this year, slammed the Bicol region with its strong winds and  heavy rains. Typhoon Tisoy forced tens of thousands in evacuation centers and  plunged the Bicol region in  darkness. The local government in Bicol provinces had so much difficulty restoring power in their areas. To date, some areas in Bicol are still without power.

Our country always experiences the wrath of these natural disasters. And in the words of  David Eckstein, Germanwatch policy advisor on climate finance and investments “Countries like Haiti, Philippines and Pakistan are repeatedly hit by extreme weather events and have no time to fully recover. That underlines the importance of reliable financial support mechanisms for poor countries like these not only in climate change adaptation but also for dealing with climate-induced loss and damage.” 

Similarly, a study released by the Climate Central said that major cities in the Philippines are likely to be submerged due to intense coastal flooding worldwide by 2050, all thanks to climate change.

This study warned that the rising seas could erase some of the world’s coastal cities because of higher tides. Unfortunately, Asian countries such as the Philippines, Bangladesh, Indonesia, Thailand, Japan, and China in danger of rising sea levels.

The study says cities in Metro Manila including, Navotas, Manila, Malabon, and Pasay are likely to be impacted by coastal flooding. Likewise, Bulacan could also be underwater by the year 2050 while areas in the Visayas such as Aklan, Kalibo and Roxas cities could possibly be submerged due to coastal flooding.

These are somber predictions to end our year. And sadly, there’s no denying the effects of climate change in the country. So, are we just to despair at these gloomy conclusions of our experts?

Fortunately, there’s something we can do to help these from happening, or at least be prepared for these potential disasters. As a nation we need to start being serious about resiliency plans. These plans should span from infrastructure to training of all citizens and to mobilization plans. At the UP Vanguard Inc., where I am National Commander, we are now developing plans to address this issue of resiliency from a strategic and tactical perspectives.

And of course, we can do our share in stopping the continuous rise of greenhouse gas emissions. Experts after experts have been saying that a shift to cleaner energy is one of the best ways to help save the Earth’s destruction by climate change. For the Philippines, this means, putting an end to coal’s dominance in our power mix.

Yes, we can say that it may seem like an impossible task to make this shift to cleaner energy. Yes, we can say that our shift to renewable energy may not mean much from a global perspective. Yes, one can argue that calls for renewable energy have fallen to deaf ears in this country as energy planners and government alike are allowing the prevalence of traditional fossil fuel power in our country despite laws meant to make RE flourish in our country.

Looking at the numbers, we can say that coal is likely to remain, king since as of 2018. Coal accounted for 52.05 percent of our energy source. The figure is more than half of renewable energy’s share of 22.27% for the same period.

So, are we to remain disheartened and give up the fight for renewable energy’s dominance in the Philippines’ power sector?

I dare say no, and I will borrow the words of U.N. secretary-general Antonio Guterres in the opening of the Climate Summit in Spain a few weeks ago where he said the world must choose hope over surrender in the battle against climate change.

So, I say let us not abandon our quest in helping our government and energy planners realize the value and potential of renewable energy in the country. Not only for our environment but also for energy security and price stability. 

Rather than surrender, we must continue to educate and advocate for a swifter transition to renewable power in the Philippines. Let us continue to remind our leaders of the need to pave the way for distributed energy as the world moves away from the traditional distribution of energy, so more Filipinos can enjoy the benefits of RE. Let us continue working on providing consumers with more choices of their preferred sources of power including renewable energy.

In the end, it may seem like a Herculean task to develop and let renewables flourish in our country. But in the words of the UN secretary “let us choose to hope and work hard towards our goals rather than surrender.”  

I will also pose the same question the UN Secretary-General asked in his opening speech “Do we really want to be remembered as the generation that buried its head in the sand, that fiddled while the planet burned?” And I will go further by asking “Do we want to be remembered as the generation that walked away when we could have made the lives of Filipinos better by giving them affordable and stable electricity?”

Merry Christmas everyone!

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

Record Breaking 2018

It’s official: 2018 was the fourth warmest year on record for global temperatures. This is according to various organizations such as the National Aeronautics and Space Administration, National Oceanic and Atmospheric Administration and the World Meteorological Organization. (WMO). The global average temperature in 2018 is the fourth warmest since 1880 which is just behind years 2016,2017 and 2015.

According to reports, the world was 1.5 Fahrenheit or 0.83 Celsius warmer in 2018 than the average set between years 1951 to 1980.

Naturally, experts are alarmed at the rising global temperature trend as it reflects the effects of climate change. The 20 warmest years on record have been in the past 22 years. The degree of warming during the past four years has been exceptional, both on land and in the ocean,” said Petteri Taalas, secretary general of the WMO.  “Many of the extreme weather events are consistent with what we expect from a changing climate…This is a reality we need to face up to. Greenhouse gas emission reduction and climate adaptation measures should be a top global priority,” he added.

Fortunately, there are serious efforts from many countries and even the private sector to meet commitments to the Paris Climate Change Agreement in 2015 where leaders agreed to limit global warming to just under two degrees. Various countries and big global firms are in the last three years are working hard to cut down on human-caused emissions of carbon dioxide by shifting to renewable power.

In fact, 2018 was record-breaking too for corporate renewable energy deals.  According to  Business Renewables Center of Rocky Mountain Institute (RMI), the United States renewables market has almost doubled its figure of corporate off-site deals since 2015.

The contracted capacity for renewables by private firms in the US amounted to 6.43 GW last year. Corporate renewable energy buying came in the form of green power purchases, power purchase agreements, outright project ownership, and green tariffs. 

 

hot0125

2018 was the fourth hottest year on record. Photo c/o http://www.mysinchew.com/

Corporate giants AT&T, Facebook, Walmart, Microsoft, and ExxonMobil are the top five firms leading the clean energy purchase. Facebook, the biggest buyer last year closed several deals that amounted to 1,8495 megawatts. And the social media giant is proud of its accomplishment.Facebook is proud to contribute to the record-breaking year of corporate renewable energy deals. We believe companies can and should set big commitments to drive our national transition to a clean energy future,” stressed Rachel Peterson, vice president of data center strategy at Facebook. 

The impressive figures from global brands only show that large firms are serious about their commitment to a sustainable and clean future according to the CEO of RMI Jules Kortenhorst. These companies are not  going to wait for public policy on climate issues to catch up,“ they are taking the initiative to accelerate toward a prosperous, low-carbon economy, he added.

Clean energy investments worldwide in 2018 was also remarkable. The Bloomberg New Energy Finance (BNEF) noted that investments in clean power last year amounted to $332.1 billion. The figure is eight percent lower than the amount recorded in 2017, but BNEF notes that 2018 was the fifth consecutive year that the investment exceeded the $300 billion mark.

China and the US were the two biggest investing countries with investments of $100.1 billion and $64.2 billion, respectively.

Other countries also recorded high increases in their clean energy investments. The Netherlands, for example, had a 60 percent increase in RE investments at $5.6 billion while South Korea’s jump was at 74 percent with investments worth $5 billion. Even our neighbor, Vietnam had impressive 18-fold growth in clean power investments last year.

It’s not surprising of course that the Philippines is not in the list of countries that saw major increases in renewable energy investments. As I have been saying, our regulatory environment and lack of government support for clean power hamper the growth of renewable power development in the country. Nevertheless, as a clean and sustainable power advocate, it’s gratifying to see that global brands and governments understand clearly the value of renewable power. After all, renewable energy is a sustainable business practice that also helps the world combat climate change. And as I have expounded repeatedly, it will lower power cost for everyone.

When will change come to the Philippines?

References:

https://solarindustrymag.com/report-2018-a-record-breaking-year-for-corporate-renewable-energy-deals/

https://about.bnef.com/blog/clean-energy-investment-exceeded-300-billion-2018

https://www.theguardian.com/environment/2019/feb/06/global-temperatures-2018-record-climate-change-global-warming