Wednesday, December 28, 2022

BWorld 574, Top 10 energy stories/ideas 2022

* My article in BusinessWorld last Dec. 19.

Here is my list of big energy stories and some of my ideas of 2022, five of which are global and five national.

1. Big jump in energy prices due to economic sanctions vs. Russia’s invasion of Ukraine.

Germany, the UK, France, Italy, etc. are not parties to the Russia-Ukraine war, they have no territorial dispute with Russia unlike Ukraine whose Crimea and Donbas regions are being claimed by both countries. But these European countries opted to cut their importation of cheap gas, oil, and coal from Russia and bought them elsewhere where prices are high, and transportation takes longer and is more costly. The European Union/Title Transfer Facility (EU/TTF) gas jumped from below €20/megawatt-hour (MWh) in 2019-2020 to nearly €340/MWh as the peak price this year. France, which had an average price of about €50/MWh in 2019-2020, experienced a spike to €1,130/MWh this year (See Table 1).

The economic sanctions have penalized the Europeans more than the Russians. Urals crude or Russian oil even experienced big jump in price in March, then again in June this year.

2. Wind and solar energy index continued decline.

In 2021, there were already spikes in energy prices in Europe as it was a less-windy, less-sunny, more-cloudy year, so their wind and solar farms produced little energy and the countries had to buy more gas and coal to avoid blackouts. The peak wind and solar energy price index occurred in January 2021, since then their glow and bubble started falling.

3. Prices of fertilizer and some industrial commodities made from fossil fuel jumped.

Fertilizers like ammonium nitrate, urea, and di-ammonium phosphate have as their main raw materials natural gas and oil. Bitumen, asphalt, and paints’ main raw material is crude oil. So high prices of gas and oil means high prices of fertilizer and some industrial products, which, in turn, leads to high agricultural and food prices.

As more countries push electric vehicles (EVs) and plan to phase out gasoline and diesel engines in the future, the price of lithium, the main component for EV batteries, started rising much much faster than prices of oil (See Table 1).

4. Rich countries’ fossil fuel consumption and electricity generation continue decline.

The BP Statistical Review of World Energy (SRWE) 2022 was released last July. I computed the combined consumption of oil, natural gas, and coal in Petajoules (PJ) by country and derived the PJ per million population, then the kilowatt-hours (kWh) per capita. All the G7 countries and other rich countries in Europe have been cutting their fossil fuel consumption and power generation.

5. Asians (except Japan) continue increasing their fossil fuel use and power generation.

And they have significantly increased their GDP per capita. Singapore, which has very high fossil fuel use (three times that of the US, almost six times that of Germany and Japan) also has very high per capita income. Vietnam, which has twice the fossil fuel use than the Philippines, has also overtaken us in per capita income (See Table 2).

6. The Philippines’ need for more fossil fuel to address frequent low reserves.

See these reports in BusinessWorld this December: “Luzon grid placed on yellow alert” (Dec. 1), and “Red, yellow alerts raised over Visayas grid” (Dec. 5). Thirty years since the frequent and long blackouts of 1991-1992, the country still experiences frequent yellow-red alerts due to low and thin reserves. Which leads to high power prices. As shown in Table 2, the Philippines’ fossil fuel use in 2021 was only one-half of Vietnam and Indonesia’s, one-fourth of Thailand’s, one-tenth of Malaysia’s, and 1/40 of Singapore’s. The share of wind and solar in the generation mix remains practically insignificant — only 3.3% of total in October-November this year, 14 years after the Renewable Energy law of 2008 (RA 9513) was enacted (See Table 3).

7. Need to abolish electricity price control is highlighted.

Price control in the form of primary and secondary price caps (SPC) is at only around P6.25/kWh. From the Independent Electricity Market Operator of the Philippines (IEMOP) data, until Dec. 11, SPCs were imposed 83% and 78% of the time in the Luzon and Visayas grids. This means that reserves are so low that power distributors and retailers were willing to pay high prices just to avoid blackouts. Since price controls were frequently imposed, then no new big peaking plants will come in. Very soon the public will get cheap electricity but it will not be available — blackouts.

8. ERC’s denial of SMC Global Power’s petition for a rate hike.

In 2019, SMC’s two power plants won the competitive selection process (or price bidding) to supply Meralco with 1,000 MW, their prices were low and fixed so other bidders were quickly defeated. SMC experienced high revenues. Then the Russia-Ukraine war and sanctions happened, the prices of coal, gas, and oil increased, and SMC said they were losing money so they wanted a rate hike. The Energy Regulatory Commission (ERC) said “No.”

See some reports this December alone in BusinessWorld: “Higher power rates seen on ceased 670-MW supply” (Dec. 8), “Meralco tells SPPC: Pay added cost of market-priced power” (Dec. 13), and “Meralco secures needed power from Aboitiz firm” (Dec. 16).

I am curious about two things. One, the prevailing spot prices are P9/kilowatt-hour (kWh) yet Aboitiz Power will supply Meralco with 670 megawatts (MW) in coal power at P5.96/kWh — this is price demotion and yet they still expect to earn a profit? Two, SMC’s winning bid was P4.30/kWh, and they said they lost P10 billion in 2021 and P5 billion in January-May 2022. I checked coal prices — from June to December 2021, the average prices were only about $180/ton and SMC said they lost big money, while coal prices from Dec. 1-16 this year are at around $400/ton and yet Aboitiz thinks they can make a profit? SMC seems to be bluffing the public — good that ERC said “No” to their bluff.

9. The need for privatization of PSALM plants and corporatization of electric cooperatives.

The Marcos Jr. administration is gung-ho in legislating the Maharlika Wealth Fund (MWF) and they need huge capitalization without huge public opposition. One potential big source is the privatization of many government-owned hydro power plants in Mindanao which are currently under the Power Sector Assets and Liabilities Management Corp. (PSALM).

Many of the electric cooperatives are charging high prices and penalizing power consumers in the provinces. When they lose big money, they run to the National Electrification Administration (NEA) which sends them millions, if not billions, in taxpayer money. Now the same electric cooperatives want tax exemptions. These cooperatives should become private corporations and NEA should be abolished — end political protectionism for these cooperatives.

10. Nuclear power gets traction in the country.

These two recent reports in BusinessWorld are great and brilliant: “Meralco eyes US grant to look into small nuclear reactors” (Dec. 9), and “AboitizPower eyes nuclear project” (Dec. 19). Government has killed the construction of new coal plants, imported LNG prices remain high, and solar-wind remain insignificant contributors to the country’s energy demand. Nuclear power is a very good long-term solution.

See also:
BWorld 571, Economic projections for 2023 and beyond, December 9, 2022
BWorld 572, State assets should finance Philippine sovereign wealth fund, December 10, 2022
BWorld 573, Ten economic issues to watch, December 27, 2022.

No comments: