Tuesday, February 02, 2021

BWorld 472, Subsidies and energy policies under Biden

* My column in BusinessWorld, January 26, 2021.

There are many interesting energy stories recently. Below are some reports published by BusinessWorld in the past two weeks:

1. “Luzon power projects with supporting battery storage, financing estimated at 320 MW” (Jan. 12).

2. “Lawmaker asks Meralco to extend installment payment scheme” (Jan. 13).

3. “Sotto: No need for 3rd stimulus after extension of Bayanihan II” (Jan. 14).

4. “Household electrification rate hits 92.96% in Oct. — DoE” (Jan. 15).

5. “Extended ‘lifeline’ power subsidy for poor passes on 3rd reading in Senate” (Jan. 19).

6. “Priority sought for ‘stranded’ projects as DoE prepares auction for green energy” (Jan. 19).

7. “Meralco sees no impact from lifeline rate extension” (Jan. 20).

8. “ERC taps third-party to audit electric cooperatives” (Jan. 21).

9. “PSALM reduces debt by 9.5% by end-2020” (Jan. 21).

10. “No-disconnection policy extension urged for poor power consumers” (Jan. 22).

11. “DoE clears six firms to serve customers who opt for ‘green’ energy” (Jan. 22).

12. “Manila eyes more projects on clean energy under US President Biden” (Jan. 25).

Stories number 1 and 4 are related. As more intermittent, unreliable, unstable, weather-dependent sources like wind and solar are added to the grid, they will need more large batteries and backup fossil fuel plants which will raise energy costs via ancillary services and higher transmission charge. And even rural villages with electricity will not be assured of 24/7 power but suffer many hours of daily blackouts.

Stories number 2, 3, and 10 are related. Senators Risa N. Hontiveros-Baraquel and Sherwin T. Gatchalian are pushing for an indefinite no-disconnection policy by using populist but jaded arguments that Manila Electric Co. (Meralco) and other distribution utilities (DUs) should extend staggered payment schemes because people “could not yet afford to settle their bills.”

Does this mean the “no-disconnection policy” should be as indefinite as the government lockdown/quarantine policy?

In particular, the extension of Republic Act (RA) No. 11494, or the Bayanihan to Recover as One Act (Bayanihan II), until June 2021 via RA No. 11519 — note this Section 4, sub-section (vv) of RA No. 11494:

“… the minimum 30-day-grace period and staggered payment… shall apply to all payments due within the period of the community quarantine (CQ) in the entire electric power value chain to include generation companies, the transmission utility, and distribution utilities.”

This is dangerously interventionist. A mandatory staggered payment policy — even just for areas under general community quarantine — means that gencos (power plants), transmission (National Grid Corporation of the Philippines), and distribution (DUs, electric cooperatives [ECs], and retail electricity suppliers [RES]) will not be paid on time.

Congress and the Energy Regulatory Commission should then order that other charges should also not be paid on time — universal charge by the National Power Corporation and the Power Sector Assets and Liabilities Management (PSALM) Corp.; feed-in tariff (FIT) by RE firms; local taxes by local government units; value-added tax and excise tax by the Bureau of Internal Revenue.

Stories number 5 and 7 are related, amending a portion of RA No. 9136 (the Electric Power Industry Reform Act [EPIRA] of 2001) so that “lifeline” customers or those consuming 100 kilowatt-hour (kWh) per month or less will get subsidy for the next 10 years until 2031. Not really good because not all low electricity consumers are poor.

Consider these three groups: (a) condo residents using more energy-efficient appliances and lights, (b) vacation homes of the rich, and (c) rich households with solar panels on their rooftops, which decrease their grid-connected electricity consumption.

What may stick as a separate issue perhaps is Meralco’s own subsidy scheme for customers using 101–400 kWh per month. Meralco’s distribution charge for residential customers with monthly usage range are as follows: 1–100 kWh (lifeline customers), P1.00/kWh; 101–200 kWh also P1.00/kWh; 201–300 kWh, P1.318/kWh; 301–400 kWh, P1.618/kWh; 401 and higher kWh, P2.1387/kWh.

I hope that Meralco will later reconsider this subsidy for those in the 101–400 kWh per month category because they are subsidized by residents in the 401+ kWh per month category. On the other hand, I understand that they are under constant heavy mortar attacks from left-leaning legislators and NGOs like Bayan Muna, or occasional pressure from populist legislators like Sens. Hontiveros and Gatchalian. So Meralco devises ways to further reduce price pressure on low- and middle-income households.

Stories number 6 and 11 are related, since they are both about the green energy option program (GEOP) under RA No. 9513 (Renewable Energy Act of 2008). This is a voluntary and market-based mechanism that allows consumers with at least 100 kilowatts (kW) per month usage to get renewable energy only from certain retail energy suppliers. We should have more GEOP and no mandatory subsidies via FIT and renewable portfolio standards (RPS).

People should walk their talk. If they support renewable energy only and despise fossil fuels, then GEOP is for them. The rest of the population should not be coerced to subsidize expensive, intermittent, and unreliable wind and solar energy.

Stories number 8 and 9 are somehow related. ECs should not be coddled and regulated by the government via the National Electrification Administration. They should be corporatized and regulated by the Securities and Exchange Commission. We even have many one-person corporations and yet ECs with hundreds or thousands of personnel are not corporatized.

The PSALM, under the EPIRA, should vaporize as all government power plants should be privatized to have more gencos competition. But 19 years after the EPIRA, PSALM appears to be a forever government agency. It holds financial obligations of P381.9 billion in 2020, a bit lower than P422.0 billion in 2019.

Story number 14 is about US President Joe Biden’s climate and energy policies, a form of virtue signaling that may influence many countries, including the Philippines. Before we fall further into the climate alarmism and expensive energy trap, consider this fact: Countries with fast GDP (gross domestic product) growth have small wind-solar generation and countries with low, anemic growth have high wind-solar generation, suffering from high energy prices.

From the top 40 largest economies in terms of GDP size, here are the growth frontrunners and laggards. Data from the IMF World Economic Outlook (WEO) and BP Statistical Review of World Energy (SRWE). Electricity generation in terawatt-hours (TWH).

Legislating staggered energy payments and an indefinite no-disconnection policy (along with an indefinite lockdown policy) are wrong. Even tomatoes and onions in public markets are paid for in cash, not in delayed or staggered payments. Why should the government push installments for a very important service like electricity?

When the government forces businesses to carry the obligations of individuals without concern for the day of reckoning, when all these bills pile up and the customers cannot pay, the government is courting the risk of household and corporate default.
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See also
BWorld 469, Top 10 energy stories of 2020, January 12, 2021 
BWorld 470, 10 big changes in the 2021 budget, January 13, 2021 
BWorld 471, The US and world economy these past four years, January 24, 2021.

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