BWorld 216, Positive and negative disruptions in the electricity market

* This is my article in BusinessWorld last Monday, May 28, 2018.

Last week, May 22, a BusinessWorld report said “DoE forecast for peak power demand exceeded on May 17” referring to 10,688 MW peak demand in the Luzon grid on May 17 reported by the National Grid Corp. of the Philippines (NGCP) vs peak demand in 2017 of 10,054 MW.

The increase of 634 MW or 6.3% increase can be considered as positive disruption. Demand for electricity to power various economic activities by households and corporations including those with 24/7 operations remains high and they approximate GDP growth.

Reports of more renewable investments and installations, wind-solar especially, are not “disruptors” because in 2017 or nine years after the enactment of RE law of 2008, solar-wind contribution to total electricity generation in the Philippines constituted only a measly and near-negligible two percent (2%).

Reports also of more battery storage for intermittent wind-solar can neither be considered as a “disruptor” because those batteries do not produce electricity. If it is cloudy or raining then there is no extra solar power to store; if the wind does not blow then there is no extra wind power to store.

During the BusinessWorld Economic Forum 2018 last May 18 at Grand Hyatt BGC, among the speakers were Kristine Romano of McKinsey & Company, and Luis Miguel Aboitiz of Aboitiz Power Corporation. Ms. Romano partly mentioned that innovations in the energy sector is among the big disruptors in the world today. Mr. Aboitiz skirted discussing his sector and mentioned more about the challenges and opportunities of endless innovation and disruption in many sectors.

And we go back to renewables touted as disruptor to “save the planet” (save from what, rains and floods?) and there is one belief or myth that continues to persist — that the cost of wind-solar technology is declining quickly so the cost to generate electricity from them will decline too.

Intermittent or variable renewable energy sources (VREs) are given feed in tariff (FIT) or guaranteed price subsidies for 20 years, among many other perks, by the RE law of 2008 (RA 9513). What happened to this scheme?

First, the FIT rates given to RE developers keep rising yearly, despite the touted decline in the cost of wind-solar, and second, the estimated revenues per kWh is are highest for wind-solar and lowest for run of river (RoR) hydro (see table).

Bangui Wind 1 and 2, built in 2005 then August 2008 or before the enactment of RE law in 2008, a bit anomalous, were also given special FIT rates: P6.63/kWh in 2015; P7.05 in 2016; P7.26 in 2017; and P7.53 in 2018.

Then also last week, May 21, the ERC has granted the rise in FIT-Allowance (FIT-All) in our monthly electricity bill from 18.30 centavos/kWh to 25.32 centavos /kWh starting June 2018 billing. This is to cover under-recoveries in 2017 alone.

And that explains the negative disruption in the Philippines electricity market. Energy coming from “free” solar and wind and “declining” technology cost actually result in even more expensive electricity.

This higher FIT-All rate includes only under-recoveries until 2017. Under-recoveries this year not included yet, so a higher rate of probably 33 centavos/kWh can be expected in late 2018.

The environmental and RE lobbyists succeeded in making cheaper coal become more expensive via higher coal tax of P50/ton in 2018, P100/ton in 2019, and P150/ton in 2020 under the TRAIN law. Taxes for oil used by power plants also went up as well and expanded VAT application to transmission charges.

Expensive electricity is wrong.

Adding more intermittent, brownout-friendly, and expensive VREs like wind-solar is wrong. Adding battery storage will reduce the intermittency but will definitely raise the cost to consumers further.

Government should take the side of consumers who desire cheaper, stable electricity. Government should stop its double standards in energy taxation, slapping higher excise tax for reliable oil and coal plants but exempting from excise tax the unreliable, unstable, intermittent VREs especially wind-solar.

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See also:

BWorld 210, Electricity competition, EPIRA, and WESM, May 16, 2018 

BWorld 214, Disruption in global economic power, May 24, 2018 

BWorld podcast 2, TNVS fare and surge control are wrong, May 26, 2018 

BWorld 215, Urban mobility index and transport disruption, May 29, 2018

Energy Econ 7: Renewables, FIT, RPS and Climate

Two months ago, I had a friendly discourse with fellow UPSE alumni in our yahoogroups about the Renewable Energy (RE) law, the feed in tariff (FIT), renewable portfolio standards (RPS), the Energy Regulatory Commission (ERC) and climate.

Very civil discourse focused on content and issues, not personalities. Unlike in my recent debate with some anti-coal fanatics who cannot sustain a debate on issues and would quickly slide into personally attacking those who support a coal power plant or those who cast doubts on the renewables. See the 23+ pages debate here,  Energy Econ 6: Intolerance in Anti-Coal Hysteria, Cadiz Coal Project, September 17, 2012.

Before that, let me insert this good chart about the estimated generation cost of various power sources in the US about four years from now.

Source: http://www.eia.gov/forecasts/aeo/electricity_generation.cfm
Reposted with discussion by Willis Eschenbach, The Dark Future of Solar Electricity, December 03, 2011.

Here is our discussion. The related tables and charts mentioned here are posted in my article,
Energy Econ 2: Renewable Energy and High Electricity Prices, July 30, 2012.

I am inserting below some photos of wind and solar farms, both the cute and the ugly. Another long paper, about 11 pages including the two images, enjoy!

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July 28-30, 2012

Eto na, eto na, how climate alarmism and racket would further rob more money from us, energy consumers.

The guys who were clapping their hands in making our energy prices become even higher are among the champions of climate alarmism racket:

See my brief discussion how Tony la Vina, WWF and Greenpeace fear of being followed even on twitter by people who question their warming religion,

Climate Tricks 13: Block Skeptics and Keep Fooling the Public, July 25, 2012.

The WB and ADB climate and energy loans racket should be jumping also with joy with this development. 

About 2 or 3 years ago, PDE organized a forum in UPSE about "burning planet and climate mitigation" something like that. The 2 speakers were the head of the Carbon Finance Solutions (CAFIS) and the chief economist of ADB, a Japanese I think. Among those who gave welcome remarks were SE faculty member and now NEDA chief Arsi Balisacan and Prof. Noel de Dios.

Fat-Free Econ 16: Coal, Climate and Government

* This is my article yesterday in TV5's news portal.
http://www.interaksyon.com/article/37648/fat-free-economics-coal-climate-and-government
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Coal is a cheap energy source for developing economies like the Philippines. We cannot develop fast enough, create more jobs fast enough, if we are groping in the dark with frequent power outages like what we experienced in the early 1990s. Or if a big portion of household and company expenditures are spent on high power rates.

During a Platts forum last week, one of the speakers, Ismael Ocampo of the Department of Energy, presented the following data:

Sources of power generation in the Philippines, percent of total.




Source: Ocampo, Ismael, “Overview of the Philippine Coal Mining Industry”, July 11, 2012.

Total power generation in 2009 was 61,943 gigawatt-hours and in 2010, 67,743 GWh, for a 9.4 percent growth. Notice the big jump in the share of coal from 2009 to 2010, and the decline in natural gas, geothermal and hydro.

This shift is also shown in the increase in local oil consumption, by a million metric tons per year on average. Both local production and importation were also rising.

Coal supply and demand in the Philippines, 2007 to 2011, in million MT


Source: Ocampo, Ismael

What drives this rather fast shift to coal? A second speaker, Cecilia Quiambao who is associate editor of Platts for coal, provided some answers. She showed these charts:

Global coal prices, December 2009 to May 2012.



Prices were increasing in 2010 with peak points at around $130 per ton in January 2011 for the Richards Bay (S. Africa), then mild decent for the rest of 2011, going down to around $98 per ton by May 2012.

Now is the time to further industrialize and modernize with declining global coal and other energy prices. This trend is supported by other developments, as Quiambao illustrated:

- US coal export capacity could reach 270 million MT in 2016, according to UBS. US coal producers can flood the international market once pricing becomes attractive to 270 million MT from the current 158 million MT, increasing the disruptive nature of US suppliers on the seaborne market.

- Bain & Co. said cheap shale gas is set to dethrone coal as the preferred source of power generation in the US in the long term as it is widely available and cost effective. The availability of cheap shale gas in the US and its wide use for power generation has led coal producers to export more to Europe and Asia at cheaper prices.

- Korea South East Power received offers for at least 1.3 million MT of coal in its two recent spot tenders for a combined 260,000 MT.

Thus, supply is five times the amount demanded in the case of Kosep. It is a buyer’s market, thanks largely to the further development of shale gas in the US and other rich economies.

Coal is not an “evil” energy source that is said to contribute to “man-made warming” as portrayed by the UN, Al Gore and some environmental groups like Greenpeace and World Wildlife Fund. Climate change is mainly natural, warming-cooling-warming-cooling in multi-decadal cycles, regardless of how many billions or trillions of tons of coal is burned worldwide each year. So while global warming was true, global cooling was also true, and is happening now.

See below the trend in global air temperature (UAH and RSS satellite data), average for northern hemisphere, tropics, southern hemisphere, and carbon dioxide (CO2) concentration in the atmosphere:

Air temperature vs. CO2 concentration, 1979 to May 2012


Source: Friends of Science, http://friendsofscience.org/

From January 2002 to May 2012, as CO2 kept rising to nearly 400 parts per million, global temperature was declining or cooling by 0.04 degrees centrigrade per decade. “Causality” between more CO2 and “more global warming” is not seen or happening. What we normally experience here in the Philippines and other countries in the tropics is more rain and more flooding, not less, little or no drought, not more. And these are indicators of cooling, not warming.

Recently, certain groups like the National Renewable Energy Board - a new bureaucracy created by the Renewable Energy Act of 2008 (Republic Act 9513) - are proposing to impose a carbon tax on non-renewable energy sources, like $1 per ton of imported coal. This is a rent-seeking move by the NREB and other lobbyists to demonize and make an affordable energy become more expensive. Renewables, like wind and solar power, will become “less costly” as they distort upward the prices of the non-renewables and impose an indirect tax to subsidize the renewables.

This indirect tax is called the feed in tariff scheme. Energy consumers - you and me - will pay FIT for the mandatory use of those expensive power sources. This will make our already high electricity bills more expensive. We have the highest electricity cost for industrial users in Asia: $0.18 per kilowatt-hour in 2010 as against $0.15 in Japan and Singapore, down to only $0.06 in Indonesia and Korea. Check out International Energy Agency, IMD World Competitiveness Online as well as Welfare Economics, Philippine Institutional Issues.

The role of government is to allow enterprises to seek cheaper and reliable power sources, and not play cronyism by taxing some power sources while subsidizing others. For now, coal will become cheaper as many industrialized economies shift to shale gas, and coal producers from those countries will sell lower to developing countries like the Philippines.

This is good news and will jibe with the high growth scenario of the government. Climate alarmism and renewable energy cronyism should not be allowed to distort this new development.
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See also:

Fat-Free Econ 12: Privatizing PAGCOR, June 08, 2012

Fat-Free Econ 13: P2 Trillion of Election Spending and Taxes, June 15, 2012

Fat-Free Econ 14: Traffic, Car-pooling and LTFRB, June 21, 2012

Fat-Free Econ 15: IMF and Freedom From Debt, July 01, 2012

Energy rationing 2: The Renewable Energy (RE) law, February 18, 2011

Energy rationing 6: FEF on the RE racket, June 09, 2011

Climate stupidity 22: Expensive Electricity and the Durban Meeting, December 03, 2011

Energy rationing 6: FEF on the RE racket

The Foundation for Economic Freedom (FEF) has produced a new statement, Manifesto Against Increases in Power Rates to Subsidize Solar and Wind Energy Producers and to Guarantee their Superprofits. Portions of it below. Click to get a larger image.

I am not exactly a fan of the FEF, but on certain issues, I support their campaigns. Like this one, to expose the racket and legalized robbery in the Renewable Energy (RE) law, where we, ordinary energy consumers in the Philippines, will be forced to pay even higher electricity rates to the already high rates, to subsidize the RE power plants of the new energy cronies.

Towards the closing paragraphs of the statement, the FEF says,

We believe that the subsidy in the form of Feed-in-Tariff rates should NOT be given to existing power producers as this will mean a tremendous windfall for them. These producers are already enjoying tax and duty free incentives and will not add to the nation's power supply.

I think it's already late for the FEF and the public to complain about the Feed-in-Tariff (FIT) system. It's already in the law. The strong RE lobby, led then by the World Wide Fund (WWF), Greenpeace and other climate alarmist groups, made sure that the new energy cronies will get such incentive in order to help "save the planet." Those lobbyists for RE cronyism will insist that the law should be implemented.

But if public pressure to set aside the FIT provision will be strong as it will mean even more expensive electricity rates, perhaps the RE producers and cronies will be ashamed to push for it. It's a good fight worth pursuing.

Once people fall for climate alarmism and the various racket and rent-seeking provisions, regulations and taxation that the alarmists and governments want, they're trapped. It just happened that a number of the FEF Fellows and members are part of the climate alarmism movement.

Meanwhile, here's another article from Boo Chanco today. This should be a continuation to Energy rationing 5: Boo Chanco on the RE racket

Renewable energy

Beyond the subsidy called Feed-in Tariff, there are other things that ought to be looked at before we agree to allow them to put additional burdens on our power users. For instance, it is not clear, the position paper of the Foundation for Economic Freedom (FEF) observes, what is it exactly that the envisioned FIT program is supposed to buy us?

“Is it to lower our carbon emissions in order to help arrest global warming? Our carbon footprint is a rounding error vs. the large and more industrialized countries, and our RE component, at 30 to 40 percent of installed capacity, is already five times the global average.”

Romy Bernardo who spearheaded the paper’s drafting illustrates: The subsidy cost for solar per kWh is over P12. (calculated as the FIT rate of P17.95 less avoided cost of P4.50/kwh or the cost of buying at the current grid cost). One can lower consumption of power by giving away new efficient light bulbs that produce 60 watts of brightness at 15 watts use of power. Based on the calculation, by an ADB expert, the cost of doing this translates to $0.025 per kWh saved, roughly ten centavos/kWh saved. The numbers are striking-- P12 solar vs. P0.10 for energy efficient light bulbs.

In short, just give free light bulbs and you can do more than 100 times the benefit in terms of reducing carbon footprint for the same peso spent from public purse. A slightly clever solar operator selling at FiT rates can put solar panels under a light bulb, run even when there is no sunlight (like even night time) to get paid for power at P 17.95 per kWh, and only incur cost of P4.50 per kWh to buy power from the grid for the light bulbs.

Finally, am reposting here portions of a new article by Dr. Steve McIntyre of Climate Audit.
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IPCC WG3 and the Greenpeace Karaoke

June 14, 2011

On May 9, 2011, the IPCC announced:

Close to 80 percent of the world‘s energy supply could be met by renewables by mid-century if backed by the right enabling public policies a new report shows.

In accompanying interviews, IPCC officials said that the obstacles were not scientific or technological, but merely a matter of political will.

Little of the increase was due to ‘traditional’ renewables (hydro and ‘traditional’ biomass, mostly dung), but to solar, wind and non-traditional biomass.

I, for one, was keenly interested in how IPCC got to its potential 80%. Unfortunately, in keeping with execrable IPCC practices, the supporting documents for the Renewables Study were not made available at the time of the original announcement. (Only the Summary for Policy-makers was made available at the time.) This showed one worrying aspect of the announcement. The report was based on 164 ‘scenarios’ and the ‘up to 80%” scenario in the lead sentence of their press release was not representative of their scenarios, but the absolute top end. This sort of press release is not permitted in mining promotions and it remains a mystery to me why it is tolerated in academic press releases or press releases by international institutions....

The basis for this claim is a Greenpeace scenario. The Lead Author of the IPCC assessment of the Greenpeace scenario was the same Greenpeace employee who had prepared the Greenpeace scenarios, the introduction to which was written by IPCC chair Pachauri.

The public and policy-makers are starving for independent and authoritative analysis of precisely how much weight can be placed on renewables in the energy future. It expects more from IPCC WG3 than a karaoke version of Greenpeace scenario.

It is totally unacceptable that IPCC should have had a Greenpeace employee as a Lead Author of the critical Chapter 10, that the Greenpeace employee, as an IPCC Lead Author, should (like Michael Mann and Keith Briffa in comparable situations) have been responsible for assessing his own work and that, with such inadequate and non-independent ‘due diligence’, IPCC should have featured the Greenpeace scenario in its press release on renewables.

Everyone in IPCC WG3 should be terminated and, if the institution is to continue, it should be re-structured from scratch.
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The Greenpeace (and World Wildlife Fund) racket in renewable energy is getting more obvious. The distinction or dividing line between environmental activists and UN climate bureaucrats has also been erased in this case, as a Greenpeace activist has become a lead author of an IPCC Working Group (WG) 3.

The ultimate goal of this continued energy rationing in favor of RE power plants is simple: to get as much tax money and energy subsidies from governments and hapless energy consumers. Such scheme will make their RE farms cute, profitable and "sustainable".------

Related articles:
Energy rationing 1: Energy loans and climate alarmism, February 13, 2011
Energy rationing 2: The Renewable Energy (RE) law, February 18, 2011
Energy rationing 3: Restricting poor countries' access to cheap energy, April 01, 2011
Energy rationing 4: Anti-coal, anti-nuke hysteria, April 14, 2011

Climate stupidity 10: The Sun and GCRs don't affect climate?
Earth Hour lunacy, Part 3

Energy rationing 2: The Renewable Energy (RE) law

(Notes: (a) this is my article today in thelobbyist.biz with original title, RE and Energy Cronyism. (b) Picture of a fozen and temporarily useless wind farm is from WUWT, and (c) Pictures of powerpoint slides are from Mr. Vince Perez's presentation. Click on those pictures to get larger images.)

One of the by-products of climate alarmism is energy rationing and energy cronyism. Producers and suppliers of “non-clean” or non-renewable energy sources will be slapped with various government regulations and taxation while suppliers of “clean” and renewable energy (RE) will be exempted, or be given highly relaxed regulations.

This is happening now, after the enactment of the Renewable Energy Act or RA 9513 in December 2008, and its implementing rules and regulations (IRR) became effective in June 2009.

The law is highly distortionary as it will give assured revenues and profit for the developers of immature, expensive and unstable power supply like solar, wind and ocean energy. A normal business in a competitive environment does not work this way. There is no “assured or guaranteed profit”, there are only possibilities of business expansion or bankruptcy, depending on how efficient a company is in producing the products and services needed by the consumers and the public.

The favoritism and cronyism given by the law and its IRR to RE developers and companies are too much compared to the various regulations and taxation imposed on non-RE companies and developers, when both simply produce energy that our houses, offices, schools, malls, computers and cell phones need.

Several schemes in the law and its IRR assure the developers of RE companies but the two most important ones are the Renewable Portfolio Standard (RPS) and the Feed-in-Tariff (FIT).

RPS is giving minimum percentage of generation to be sourced from eligible RE resources. FIT is giving guaranteed fixed price for at least 12 years for electricity produced from emerging RE resources (wind, solar, ocean, run-of-river hydro and biomass). See the presentation by former DOE Secretary Vince Perez, Status of Renewable Energy Policy in the Philippines presented in June 2009.

These two schemes immediately assure the RE companies of guaranteed markets and buyers, even if current RE costs per kwh are high, between 2x to 5x the prevailing rates, and even if RE supply is unstable and unreliable. Us energy consumers will be forced to pay for their more expensive energy output, on top of the already expensive energy costs. The ballpark figures are about 15 centavos per kwh add-on to the already high energy costs.

This is a sure formula for enriching the RE developers and a sure formula for further impoverishing poor energy consumers. Then there is the cash incentive for RE developers for "missionary" areas.

And aside from the above guaranteed market at guaranteed price, there are lots of other incentives given to RE companies that are absent or not provided to non-RE companies. These freebies are: (a) Income Tax Holiday for 7 years, (b) Duty-free importation of RE machinery, equipment and materials within the first 10 years, (c) Special realty tax rates, (d) Net Operating Loss Carry-over (to be carried for the next 7 consecutive years), (e) 10% Corporate tax rate, (f) Tax Exemption of Carbon Credits, and (g) Tax Credit.

If the government is hungry for more revenues to plug its endless and annual budget deficit, to pay its ever-rising interest payment (constituting on average one-fifth of total expenditures of the national government) due to its ever-rising public debt, why would it give lots of income tax holidays to RE companies?

The quick answer is that the government will slam-dunk the other companies and private individuals with the heavy burden of existing taxes (like 32 percent personal income tax, 30 percent corporate income tax, VAT, doc stamp tax, import tax, etc.).

Mr. Perez’ presentation also has a table entitled "Comparison of RE Promotion Policies, Asian Countries". The Philippines is giving away so many freebies to RE companies, but not to non-RE companies. It is a give away admission of how much favoritism and cronyism the RE law has created.

Then there are two new bureaucracies created by that law. One is the National RE Board (NREB) to be composed of different government agencies to some private sector players. The other is a technical secretariat, the RE Management Bureau (REMB).

The scientific, economic and business distortions created by the man-made warming scam keep increasing. And we taxpayers, we energy consumers, will pay for all those distortions and rent-seeking behavior by certain government agencies in cahoots with new crony companies and NGOs.
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See also Energy rationing, Part 1.