Expensive electricity via government price guarantee for
20 years is wrong. Business is about risks and returns, capitalism is about
corporate expansion and bankruptcy, so there is no such thing as guaranteed
price nor assured profit for many years in a competitive economy. Only politics
and cronyism will try to negate the nature of competition and business reward
and punishment.
Last Aug. 17, 2016, it was reported here in BusinessWorld
that Geothermal technologies sought to be included in FiT program.
“The National Geothermal Association of the Philippines
(NGAP) is asking the government to include emerging geothermal technologies in
the feed-in-tariff (FiT) program to address the cost and risks encountered by
developers,” the report said.
This is wrong. Other renewables should also not aspire
for FiT system. Granting FiT for intermittent renewables like wind and solar
for 20 years was already wrong because it exposed consumers to high and rising
electricity prices and the grid to volatile power fluctuations within minutes,
among others.
The association was correct in calling that “On the
policy front, NGAP calls for expedited regulatory action and permit approvals,
as well as assurance of peace and order in some of the more remote prospects.”
Let there be less government interventions and
bureaucracies for businesses.
Another reason why granting FiT to geothermal and other
renewables is wrong is because energy technologies keep improving and hence,
their costs keep falling. So why give an assured, guaranteed high price for
technologies that evolve towards falling price through time?
The numbers below on levelized cost of electricity (LCoE)
will support the above statement. LCoE is not a perfect measurement of the
overall cost per technology but it is a good dimension of the overall
competitiveness of different power generation technologies.
Some definitions here.
a. Dispatchable energy sources are those that can easily
adjust to consumer demand. Non-dispatchable technologies are those that are
generally dependent on the weather.
b. Capacity factor means the ratio of actual electricity
output over rated or installed capacity.
c. CC means combined cycle for natural gas plants.
d. CCS means carbon capture and storage, it is made
mandatory by the US government for all new coal plants and it pushes the capex
to high levels, making coal power in the US more costly (see table).
So in the US, the no. 1 geothermal electricity producer
in the planet, the LCoE of geothermal is falling fast, the lowest among all
energy sources at only $42.3/MWh by 2022. The Philippines is no. 2 geothermal
producer in the planet, next only to the US. Technologies also follow the law
of diffusion of molecules, making expensive technologies become cheaper through
time.
On another note, I wrote in my column last Aug. 17, 2016,
Brownouts, coal power and the electricity market, “can we expect PEMC to be
more independent, more candid, in assessing the harm, actual and potential, of
more REs in WESM and grid stability?... no. The DoE cannot contradict itself
and say that REs are necessary and that REs are dangerous to the customers’
pockets and the stability of the national grid.”
The Philippine Electricity Market Corporation (PEMC)
through Atty. Phillip C. Adviento replied last Aug. 23, 2016. They said that
PEMC “acts only as the Market Operator responsible for the governance and
operations of the WESM. The function of maintaining the security, reliability
and integrity of the power grid is lodged with the System Operator. Against
this context, it is grossly inaccurate to claim that PEMC is expected to study
the impact of influx of RE resources in the grid.”
Good point, I recognize that strict distinction between a
market operator (of WESM) and system operator (of the national grid). Still,
PEMC has the data, it generates that data, of the intermittency per hour and
even per minute, of the overall low capacity factor, of the renewables that
enter the WESM.
PEMC added that it is “not a government-controlled
corporation.”
However, it IS a private but government-controlled
corporation. The Governance Commission for GOCCs (GCG) itself said this at the
Senate Committee hearing last Jan. 26, 2016, then chaired by former Senator
Serge Osmeña III.
Since the DoE Secretary sits as ex officio Chairman of
the PEMC Board, the Secretary determines who among the private players can sit
and cannot sit on the board, the Secretary has included government-owned energy
corporations on the board even if they have minimal or zero contribution to
electricity supply at WESM (NPC and PSALM), also TransCo. That makes PEMC a
government-controlled corporation.
Government needs to step back from its intervention in
the sector. It should reduce the number of permits that firms need to secure so
that they can put up new power plants quickly. The government should also cut
or abolish the system of guaranteed price for decades for favored renewables,
reduce the taxes and fees imposed on energy companies, and the electricity
costs paid by the customers.
Bienvenido S. Oplas, Jr. is the head of Minimal
Government Thinkers and a Fellow of SEANET and Stratbase-ADRi.
---------------
See also:
BWorld 66, Renewable portfolio standard and electricity prices, June 26, 2016
BWorld 70, Wind power firms corner billions of FIT money, July 09, 2016
BWorld 76, Solar can never power the PH and Asia, August 06. 2016
BWorld 70, Wind power firms corner billions of FIT money, July 09, 2016
BWorld 76, Solar can never power the PH and Asia, August 06. 2016
BWorld 79, Brownouts, coal power and the electricity market, August 21, 2016
BWorld 80, Declining share of agriculture in GDP, September 11, 2016
BWorld 81, Property rights are human rights, September 30, 2016
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