Sunday, June 21, 2020

BWorld 440, Growth recovery via stable, cheaper electricity

* My article in BusinessWorld, June 18, 2020.

There is a direct and close relationship between electricity consumption and GDP growth so the former with real-time data can be used as a proxy to estimate the latter which are often announced about six weeks after the end of the quarter.

From the Independent Electricity Market Operator Philippines (IEMOP) data for the Luzon-Visayas grids, here are the changes and demand contraction in April, May and June 1-15 in 2020 versus same period in 2019: April -20.3%, May -15.6%, June 1-15 -7.9%, average -14.6%.

At this rate, a GDP contraction of -10% or higher is possible for the second quarter (Q2) 2020, much worse than -0.2% in Q1 2020, which was already a big dip from +6.4% in Q4 2019.

Note also the April 2020 labor force data: 7.3 million unemployed in the labor force plus 3 million working age Filipinos who did not join the labor force anymore, did not look for a job because they knew that there will be no jobs available. Total of 10.3 million working age but idle Filipinos, a huge number.

This plus the projected deep GDP contraction in Q2 2020 and beyond should set a panic mode for the government’s economic managers. Since they and other members of IATF (Inter-Agency Task Force for the Management of Emerging Infectious Diseases) cannot admit that the hard lockdown was wrong, at least they should have further relaxed and opened up the economy in the second half of June, but they extended the general community quarantine (GCQ) instead, another wrong move.

Now as the Philippines and many countries figure out how to recover early from the economic damage of prolonged lockdowns, there are many sectors that push irrational proposals of higher environment and energy taxes, more expensive energy.

Two proposals stand out: One, small and poor countries pressuring rich countries that regardless of their current hardships, they must honor their commitment in the Paris Agreement 2015 to give $100 billion/year of climate money starting 2020. And, two, the Frankfurt School-UN Environment Program-BloombergNEF (FS-UNEP-BNEF) study and lobby to raise investments for solar-wind and other intermittent sources by $3.1 trillion from 2020-2030 or average of $300 billion/year.

Two recent reports in BusinessWorld reflect these pressures: “Renewables seen key in powering post-pandemic recovery” (June 11), and “ADB makes pitch for more clean energy investment in stimulus spending: (June 17).

I checked the comparative electricity prices of selected countries, and I saw two reports from the International Energy Consultants (IEC) and the Global Petroleum Prices (GPP). Then I checked the solar-wind use of countries, data from the BP Statistical Review of World Energy (SRWE) 2019, to see if there is any connection. The result is interesting (see the table).

European countries, especially Denmark, Germany, Belgium and Spain, have high electricity prices, double or triple those of the US, Thailand, and South Korea, partly or largely because of their high reliance on intermittent solar-wind.

These intermittent sources need large batteries, and the grid transmission and distribution systems need extra devices and mechanisms to stabilize wild swings in power surges and dips. These automatically raise their cost. Then consider the endless subsidies like feed in tariff allowance (FIT-All) that all electricity consumers in the Philippines have to pay now and many decades to come.

Many East Asian economies actually hardly pay attention to injecting more solar-wind into their national electricity grid. Singapore, Hong Kong, Vietnam, Malaysia, and Indonesia have a solar and wind share of only 0.1 to 0.6% of their total electricity generation.

As the Philippines moves towards more house-based online work and education, the need for more stable reliable power, with no blackouts for even a minute, and cheaper electricity becomes even more important than before.

People may have the gadgets, electronics, and faster internet, but if they have unstable power from intermittent sources, their work and online education will be disrupted and affected. Reason and economic realities must prevail over ecological biases and alarmist climate projections.

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