BWorld 152, Cronyism in Renewable energy, gas sectors?

* This is my article in BusinessWorld last September 7, 2017.

Last week, the National Transmission Corp. (TransCo), the administrator of feed in tariff (FiT) — which guarantees high prices for 20 years for variable renewable energy (solar, wind, biomass, run of river hydro) filed a petition at the Energy Regulatory Commission (ERC). It sought for an increase in FiT-Allowance to be paid by all electricity consumers nationwide.

FiT-All is one of roughly 12 different charges and taxes in our monthly electricity bill and the one with the fastest increases in recent years: four centavos/kWh in 2015, 12.40 centavos in 2016, 18 centavos this 2017, and 29.32 centavos next year. It is a clear example of renewables’ cronyism that penalizes electricity consumers and rewards renewable energy (RE) developers supposedly to help “save the planet.”

Also last week, I attended the Energy Policy Development Program (EPDP) lecture at UP School of Economics, entitled: “Natural gas: Addressing the energy trilemma and powering our energy needs.” The lecture was delivered by Mr. Giles Puno, President and COO of FirstGen, a big Lopez-owned power company. Mr. Puno covered many topics but I will only focus on the lecture’s three aspects.

One, the lecture mentioned that the cost of wind-solar keeps decreasing so efforts to decarbonize the economy is improving, away from coal power which cannot remain cheap in the long-term.

During the open forum, I said that this is not exactly correct because while it is true that the technology cost of wind-solar is declining, the FiT rates given to wind-solar keeps rising actually. FiT rates for wind batch 1 (2015 entrants) were P8.53/kWh in 2015, this went up to P8.90 in 2016, and P9.19 in 2017. Wind batch 2 (2016 entrants) were P7.40/kWh in 2016 and P7.71 in 2017.

Solar batch 1 (2015 entrants) FiT rates were P9.68/kWh in 2015, P9.91 in 2016, and P10.26 in 2017. Solar batch 2 (2016 entrants) FiT rates were P8.69/kWh in 2016 and P8.89 in 2017.

FiT revenues collected by all RE firms given FiT privilege were P10.22B in 2015, a figure that rose to P18.54B in 2016, and P24.44B in 2017.

Two, to address the energy trilemma (energy security, energy equity/affordability, environmental stability), the lecture questioned the 3,500 MW worth of coal supply in the Meralco power supply agreements (PSA). These PSAs were anathema to environmental stability and energy equity since power rate hikes will be expected since coal prices are expected to rise over the long-term. That government should instead prioritize natural gas development.

I mentioned in the open forum that I saw the World Energy Council (WEC) World Energy Trilemma Index 2016 and out of the 125 countries covered, the Philippines was #1 in environmental sustainability, thanks to our big geothermal and hydro, plus recently added variable REs. But Philippines was #92 in energy equity because of our expensive electricity, 3rd highest in Asia next to Japan and Hong Kong.

So it is wrong to demonize coal (nearly 35% of installed capacity but 48% of actual electricity production in 2016) that contributed to declining prices in generation charge in recent years. For instance, the load-weighted average price (LWAP) at the Wholesale Electricity Spot Market (WESM) was declining from about P5.40/kWh in 2012 to only P2.80 in 2016.

Consider also the fact that Philippines’ coal use is small compared to what our neighbors in the region consume. Vietnam consumes twice the amount of what we use, Taiwan three times, Indonesia five times, South Korea and Japan six times — for 2016 alone (see graph).

Power companies like FirstGen should focus on ensuring that electricity consumers have cheap and stable electricity available 24/7 without any brownouts, even for a minute. Instead of demonizing and suggesting the stopping of more coal power to come on stream.

Third, Mr. Puno and FirsGen want “government support crucial for LNG development and (1) Holistic and defined energy mix to direct planning and investments, (2) Incentivize LNG through fiscal and non-fiscal policies, (3) Secure LNG Off-take, similar to how Malampaya was underpinned.”

The first two items I consider as cronyist or seeking a crony status from the government. Setting the energy mix should be done by the consumers, not government. The previous Petilla/Monsada plan of 30-30-30-10 energy mix for coal-natural gas-renewable energy-oil respectively is wrong and has no sensible basis. It is good that new DoE Secretary Cusi has dumped it in favor of 70-30-10 energy mix for baseload-mid merit-peaking plants, respectively.

Government taxes should apply to all technology — coal, natgas, hydro, geothermal, etc. — no special privileges of tax breaks and other non-fiscal sweeteners. To ask for tax and non-tax privileges for LNG is asking for crony privileges.

We need less government regulations in setting the energy mix, less government favoritism for expensive wind-solar resulting in more expensive electricity. Government should focus on having energy laws and taxes that apply to all technology and players without any entity enjoying special privileges.

-----------------

See also:

BWorld 148, Energy Trilemma Index 2016, September 16, 2017 

BWorld 149, Free tuition and irresponsibility, September 17, 2017 

BWorld 150, Rising state-inspired murders and budget 2018, September 18, 2017 

BWorld 151, Mining taxes per hectare of land, September 22, 2017

BWorld 148, Energy Trilemma Index 2016

* This is my article in BusinessWorld last August 11, 2017.

The Philippines has acquired a growth momentum that started a few years ago in the past administration and we are now looked upon as among the fastest growing economies in the world. Sustaining fast GDP growth will require stable and cheaper energy because almost all economic activities now require energy and electricity.

The World Energy Council (WEC), a UN-accredited global energy body composed of 3,000+ organizations from 90+ countries (governments, private and state corporations, academe, NGOs, other energy stakeholders) produces the annual World Energy Trilemma Index.

The Trilemma index is based on a range of data sets that capture both energy performance and their context, indicating energy sustainability of countries. The index is composed of three factors: energy security, energy equity, and environmental sustainability, defined as follows:

Energy security — effective management of primary energy supply from domestic and external sources, reliability of energy infrastructure, and ability of energy providers to meet current and future demand.

Energy equity — accessibility and affordability of energy supply across the population.

Environmental stability — achievement of supply and demand-side energy efficiencies and development of energy supply from renewable and other low-carbon sources.

There are 125 countries covered and ranked. Top five countries overall in the 2016 report are Denmark, Switzerland, Sweden, Netherlands, and Germany. Here are the rankings of selected Asian countries. Some Asian economies not included in the study are Indonesia, Taiwan, and Vietnam (see table).

Based on these numbers, here are the implications for the Philippines in energy policy:

1. Environmental sustainability: We are already world’s number one in this category. We have high reliance on renewables like hydro and geothermal plus newly added renewables like run of river hydro, biomass, solar and wind. There is no need to “further decarbonize” as suggested by the CCC, DENR and other greenies, suggesting that we close or discontinue having more coal power plants.

2. Energy equity: We are very low here, ranking 92nd because of our expensive electricity, 3rd highest in Asia next to Japan and Hong Kong. However, there has been a steady decrease in generation cost of electricity in the country. The Load Weighted Average Price (LWAP) at the Wholesale Electricity Spot Market (WESM) has decreased from an average P5.37/kWh in 2012 to P4.65 in 2014 and further down to P2.81 in 2016. This is the result of more big coal plants, more players, more competition. But there are other factors that can neutralize these as discussed further below.

3. Energy security: We are midway, ranking 61 out of 125 countries in this category. We need to add more big conventional plants to take over many aging plants, and to put in place an LNG facility in Batangas to import gas in case no substantial gas reserves are discovered when Malampaya gas runs out sometime around 2024.

There are at least four dangers in Philippine energy policies resulting in prices either rising or flatlining.

One is feed-in-tariff (FiT) or guaranteed high prices for 20 years for variables renewables especially wind-solar. FiT has been rising steadily and slam-dunking all electricity consumers from Aparri to Tawi-tawi: four centavos/kWh in 2015, 12.40 centavos in 2016, 18 centavos middle of this year, and going up to 26 centavos (Transco petition at the Energy Regulatory Commission [ERC]) later this year.

Two is transmission charge. NGCP must add more ancillary services to stabilize power supply from intermittent wind-solar, and build more transmission facilities in far-flung areas where these wind-solar plants are constructed. Consequently, transmission fees will slowly and steadily rise.

Three is system losses. High losses in provinces — areas which are run by monopoly electric cooperatives (ECs) — are ultimately passed on to the consumers. Current ERC and legislative proposals plan to allow these ECs to retain their high system losses while pressuring private distribution utilities (DUs), which on average have low system losses, to further bring this down.

Four is the impending renewable portfolio standards (RPS). This will require all ECs, DUs, and retail electricity suppliers (RES) to get a mandatory, minimum percentage of their electricity sales to come from expensive wind-solar and other variable renewables. If these renewables are cheap and getting cheaper as claimed by their developers and lobbyists, there is no need for RPS. But because they are expensive, RPS is made mandatory and coercively imposed.

Nature has given the Philippines energy advantage. Volcanoes have given us plenty of geothermal resources and potentials. Our big mountains have given us more waterfalls and big river systems.

Government policies favor expensive electricity via FiT, RPS, priority dispatch of renewables at WESM, accommodating more renewables in the grid. These policies must be reversed soon. Only then will we have higher scores in energy equity and energy security and finally, economic security.

-----------------

See also:
BWorld 145, Energy agenda of China’s Belt and Road Initiative, August 11, 2017 
BWorld 146, Mining and industrialization in Duterte SONA 2017, August 12, 2017 
BWorld 147, Sugar tax and health alarmism, August 15, 2017