BWorld 617, Energy realism: Raising consumption and economic growth

Energy realism: Raising consumption and economic growth
June 29, 2023 | 12:02 am

My Cup Of Liberty
By Bienvenido S. Oplas, Jr.
https://www.bworldonline.com/opinion/2023/06/29/531213/energy-realism-raising-consumption-and-economic-growth/

(Part 1)

This column will produce a series of articles on energy realism, not alarmism, to support sustained economic growth for developing countries, especially the Philippines. New global data are now available from the Energy Institute (EI), which launched the Statistical Review of World Energy 2023 on June 26. The report has been published by British Petroleum since the 1960s until 2022.

We start with consumption of primary energy — commercially traded fuels, fossil and nuclear, plus modern renewables for electricity generation.

I compare GDP per capita at purchasing power parity values at constant prices, and primary energy consumption in gigajoule (GJ) per capita. One GJ is equivalent to 277.8 kWh in electricity, or 0.16 barrel of oil.

I grouped the selected countries below into three. Group A consists of G7 member-countries, group B is made up of the big North and South Asians, and group C consists of the ASEAN-6 countries. I chose a 20-year gap — 1982, 2002 and 2022, with 2019 as peak GDP levels before the global lockdowns of 2020-2021 that slammed many economies into deep recession.

The results over the past 40 years, 1982 to 2022, are interesting.

One, only the US has doubled GDP per capita among G7 countries. Only Japan has expanded GJ per capita; the rest have experienced a decline especially the UK.

Two, group B countries expanded their GDP per capita many times — India 5.5x, Taiwan 6.5x, South Korea 7.4x and China 24x. Their GJ per capita consumption also expanded many times — Taiwan 3.2x, India 3.9x, South Korea 5.6x and China 6.3x. Higher energy consumption raises productivity and income.

For ASEAN-6, it’s the same trend as for group B countries. Singapore has very high GJ per capita. In 2022 it was almost 5x that of the UK and Italy, and Singapore has very high GDP per capita, more than 2x of G7 countries except the US. Vietnam has expanded its energy consumption 12.3x and income per capita has expanded 7.1x.

The Philippines remains to have the lowest energy consumption per capita in ASEAN-6 in 2022 — only 51% of Thailand, 39% of Vietnam, 26% of Thailand and only 13% of Malaysia. The mothballing of the Bataan Nuclear Power Plant in 1985 — 620 MW of reliable, dispatchable electricity source with no alternative — that led to large-scale blackouts in 1990-1992 is one of the major factors. One result is muted growth. Per capita income expanded only 2x over four decades (see table).

Another factor is that the Philippines legislated an energy-alarmist law, the Renewable Energy Act of 2008 (RA 9513), which pushed hard intermittent, unreliable, nondispatchable on-demand sources like wind and solar energy. While the installed megawatt capacity of the Philippines is rising high mainly from wind and solar energy, the actual MWh electricity generation remains low. That’s because wind and solar energy produce no electricity when the wind does not blow and when it is nighttime, or produce very little energy even at daytime when there are thick clouds or when it’s raining.

The 26-page paper “Full Cost of Electricity ‘FCOE’ and Energy Returns ‘eROI’” by Lars Schernikau, William Hayden Smith & Rosemary Falcon in the Journal of Management and Sustainability offers good advice on economic and energy realism for policy makers in the Philippines and other developing countries.

“Energy policy and investors should not favor wind, solar, biomass, geothermal, hydro, nuclear, gas, or coal but should support all energy systems in a manner which avoids energy shortage and energy poverty,” according to the paper. “All energy always requires taking resources from our planet and processing them, thus negatively impacting the environment. It must be humanity’s goal to minimize these negative impacts in a meaningful way through investments — not divestments — by increasing, not decreasing, energy and material efficiencies.”

Amen to that.

Meanwhile, there have been developments in the Philippine energy sector as reported in BusinessWorld: “ERC says 48 power distributors applying for rate adjustments” (June 20); “NGCP says investment in substation upgrades reached P6.47 billion”(June 20); “DoE expects offshore wind rules to help bring down power rates” (June 22); “Emergency power procurement pricing allowed to vary from approved tariff” (June 26); “ERC asks SC to void decision halting power deal” (June 26); and “Reserve power market commercial launch expected by September” (June 27).

The ERC move asking the Supreme Court to void the halting of the power deal of a San Miguel energy company is good. The establishment of reserve power market is also good. Modern blackout economics in the Philippines is largely explained by the absence of long-term power reserve contracts by the only remaining private monopoly nationwide, NGCP. So having an institutional reserve market is a move in the right direction.

One reform that must be done to complement this reserve market is the abolition of electricity price control via primary and secondary price caps in the wholesale electricity spot market (WESM). Or at least adjust it high. Peaking plants do not run 24/7, 12 months a year. They run only for a few months and weeks with tight power supply and thin power margins so they must be rewarded with a higher price to avoid blackouts, potential or actual. That is how real capitalism should work. We should have it back in WESM.
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See also:
BWorld 614, FDI in the Philippines and the energy mix, June 30, 2023
BWorld 615, The law of diminishing marginal utility and public policy, July 01, 2023
BWorld 616, Financing sustained growth: NAIA privatization, July 02, 2023.