BWorld 66, Renewable portfolio standard and electricity prices

* This is my article in BusinessWorld last June 21, 2016.

The key to cheaper prices and/or good services is more competition among more players, more voluntary exchange, and not more price coercion by regulators. If buyers do not like the price of seller A, they can opt out and go to sellers B, C, and so on. Seller A is then pressured to lower his price to compete with other sellers.

The key to expensive prices and/or lousy services is more government regulation and curtailing voluntary exchange. Buyers are forced to buy from expensive sellers and opting out is not allowed. This happens in government-created monopolies like tricycle routes, electric cooperatives, or government-favored sectors like producers of new renewables like solar and wind power.

The Department of Energy (DoE) along with the United States Agency for International Development (USAID) conducted a public consultation last June 16 at Shangri-La at the Fort, Bonifacio Global City about the proposed or draft Department Circular (DC) on the Renewable Portfolio Standard (RPS). The activity was hurriedly organized and was not posted on the DoE’s Web site.

But I heard about it from a friend and then I wrote to DoE’s Mario Marasigan and asked if I could attend it and he said yes. Thank you Sir Mario.

Here is a quick backgrounder of the subject.

1. Under the Renewable Energy (RE) Act of 2008 (RA 9513), RPS is defined as a “policy that requires electricity suppliers to source an agreed portion of their energy supply from eligible RE resources.”

2. Under the Implementing Rules and Regulations (IRR), Section 4, RPS, “...Annual minimum incremental percentage of electricity sold by each RPS-mandated electricity industry participant which is required to be sourced from eligible RE Resources and which shall, in no case, be less than one percent (1%) of its annual energy demand over the next ten (10) years.”

3. Under the draft DC discussed by the DoE last June 16, Section 8. “The minimum annual increment in the RPS level shall be initially set at 2.15% to be applied to the actual total supply portfolio of the Mandated Participant in each grid for the previous year.”

4. Under the Annex table, RPS Calculation, also prepared by the DoE that day, the cumulative RE capacity that will be needed from 2016 to 2030 is a glaring 30,862 MW (30.86 GW) or an average of 2.06 GW/year increase for RE alone (see Table 1).

During the open forum, I asked about many consumers’ concern about expensive electricity. What would be the implication in pricing of the proposed RPS, if they impose a 1.5% annual marginal increment (AMI)? How about at 1.75% or at 2.15% (their proposed rate)? And if they target 30% renewables in the energy mix by 2030, or 32% or 35% (their proposed target), what would be the impact on electricity prices?

The feed in tariff (FIT) without RPS was already four centavos per kilowatt-hour (kWh) last year, 12 centavos per kWh this year, so with FIT + RPS next year, will it become 20 centavos? 25 centavos?

DoE officials answered that no study on price implications has been worked out yet and that it can come out later as the current focus is the mechanisms on how RPS will be implemented, including penalties for violators or non-implementers of RPS.

So it is a weird circular because both the DoE and the National Renewable Energy Board (NREB), the multi-stakeholder body that recommends policy options for the DoE, are pushing for a policy where they admittedly do not have a clear idea on the cost of implementation to energy consumers.

One thing that can be favorable for RPS though is that distribution utilities (DUs) will have more options from among renewable technologies -- biomass, waste to energy, geothermal, run of river hydro, impounded hydro, wind, solar, ocean, hybrid systems, others -- and choose those that are least cost.

The above RPS and RE targets by 2030 are not practical and not viable because the Philippines is still way below many of its neighbors in power generation and we need to grow fast to sustain the economic momentum of recent years and create more businesses, more jobs to more people.

People who push for higher renewables in the national energy mix want to push out coal power as much or as soon as possible. This is a day-dream and illusionary goal because of the big role that coal power contributes to many industrialized and emerging Asian economies. From 2000 to 2015, Indonesia, Malaysia and Vietnam ramped up their coal power capacity from 375% to 609%. The Philippines’ 11.4 gigawatt (GW) coal capacity in 2015 was only one-half that of Vietnam’s 22 GW, only one-third that of Taiwan’s and nearly one-eighth of South Korea’s.

For Table 2, definition of the following terms:

a. 1 terawatt (TW) = 1,000 gigawatt (GW) = 1,000,000 megawatt (MW)

b. MTOE = Million tons of oil equivalent

c. 1 MTOE = produces about 4.4 terawatt-hour (TWh) of electricity in a modern power station.

The share of wind and solar in total electricity production in the Philippines is small, only about 0.8% of the total in 2015, despite their installed power share of around 2.5%-3% of total installed capacity. The explanation for this is the low capacity factor of these new renewables.

Some people insist that there is already “grid parity” by the new renewables with coal and natural gas, that “solar is cheaper than coal” now. If this is true, then why are they asking for another round of energy coercion through high RPS, on top of existing coercions on FIT (guaranteed price for 20 years) + priority dispatch to the grid + fiscal incentives?

A developing country like the Philippines should be given more leeway in building up cheaper and stable energy sources.

Energy poverty and expensive electricity result in lack of jobs because energy-intensive industries and companies would avoid the Philippines and go to energy-stable and competitively-priced economies like Malaysia, Indonesia, Vietnam and Thailand.

The DoE should either implement the minimum 1% of AMI in RPS, or further delay RPS implementation until the price implications are studied and the consumers are not further burdened with higher prices and unstable electricity supply.

Bienvenido S. Oplas, Jr. is a Fellow of SEANET and Stratbase-ADRi, and heads a free market think tank, Minimal Government Thinkers.

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See also: 

BWorld 51, WESM as market-oriented, PEMC as bureaucracy-oriented, March 25, 2016 

BWorld 55, FIT-All, renewables and elections 2016, April 23, 2016 

BWorld 58, INDCs and PH energy realities, May 14, 2016 

BWorld 63, Can renewables only power the PH and Asian markets? June 10, 2016 

BWorld 64, The WTO and trade agreements, June 17, 2016 BWorld 65, PH exports growth from 1960-2014, June 22, 2016

Climate Tricks 48, Denying climate cycles

Yesterday, I participated in the two-days Energy Policy Development Program (EPDP) Conference 2016. I was one of the panel speakers in the simultaneous discussions and I talked on this subject.

My Outline

I.  Climate change as natural  and cyclical events, not anthropogenic

II. But “man-made” CC means more rains and less rains, more flood and less flood…

III. Renewables to “save the planet”, Germany and UK cases

IV. Expensive electricity + mandatory renewables, Philippine case

V. Towards cheaper, reliable energy sources

VI. Summary and recommendations

I will post only Section I in this article.

Yes, nature including humanity, is about cycles. Birth, procreation, death, creating another generation that will repeat the cycle. Day-night cycle, El Nino - La Nina cycle. The current big El Nino has peaked, so La Nina is coming soon.

The PDO, the Atlantic Multidecadal Oscillation (AMO) cycle...

Climate changes from warming-cooling-warming-cooling... in endless natural cycles.

CWP was milder compared to MWP and RWP.

There are various types of solar cycles, from  the short-term, average 11-years cycle to multi-decades and hundreds of years cycle. The little ice age (LIA) about two centuries ago occurred during very weak total solar irradiance (TSI), during solar cycle (SC) 4 and 5.

There is also the very long-term Milankovitch cycles.

In one estimate made by systems engineer Dr. Ira Glickstein, he estimated that out of the 0.6 C warming that happened during the CWP that peaked more than a decade ago, "man-made" warming  contributed around 0.1 C while nature-made warming contributed some 0.5 C.

So if people say there is no climate cycle, there is no global cooling, only global warming, they are being dishonest, or duped by the anthropogenic or "man-made" global warming (AGW) alarmism. As I argued in the past, the purpose of climate alarmism is to have more government, more regulations and taxation, more energy favoritism, more costly travel and lifestyle, unless the source of power are the new renewables.
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See also:

Climate Tricks 44, Scary predictions in 2009, August 11, 2015 

Climate Tricks 45, On "vanishing" snow and "Godzilla" El Nino, November 13, 2015 

Climate Tricks 46, More alarmism --> more climate money expectation --> more disappointment, December 12, 2015
Climate Tricks 47, Severe UK flooding due to "man-made" warming, climate change? December 30, 2015

AEC 13, SEANET Website, AFAS in Financial Services

The South East Asia Network for Development  (SEANET) website, http://seanetwork.asia/, has been expanded. It now has more pages, more contents. Check it guys, thanks.

Yesterday, I attended this lecture at the Philippine Institute for Development Studies (PIDS) here in Makati. It's a USAID-funded study aimed to assess the Philippine government’s commitments on the financial services sector under the ASEAN Framework Agreement on Services (AFAS), the status of its compliance, and the country’s financial services sector’s competitiveness in comparison to other ASEAN Member States (AMSs).

Here is one indicator in the banking sector. Broad money/GDP ratio, A higher ratio connotes higher level of banking development. Malaysia, Singapore and Thailand had higher levels of banking development than the rest of AMSs, the Philippines’ratio was higher only than those of Indonesia’s and Myanmar’s.

In money supply per capita, the Philippines fell behind five AMSs; Singapore stood out way above other countries in the region; the Philippines fell behind five AMSs, including Vietnam.

The Philippines ranked 7th in terms of the ratio of banking assets to GDP, ranked 6th in banking assets per capita, deposits per capita was equivalent only to one-third of Thailand’s and one percent of Singapore’s.

In life insurance, Singapore had the largest market both in terms of assets and premiums while the

Philippines had the smallest market. Market penetration (insurance premium as percent of GDP) for the Philippines was second to the lowest among AMSs, and its insurance density (insurance premium per capita or average spending of each individual on insurance) was the lowest.

In non-life insurance market, the Philippines’ was the smallest both in terms of assets and

premiums. It is dominated by small companies just as its life insurance subsector. And the country was second to the lowest in terms of non-life insurance market penetration and the lowest in terms of non-life insurance density.

In capital market, the Philippines had virtually the same number of listed companies during the period 2003-2012 and stood at 268 in 2012. Vietnam experienced a sustained rise in the number of listed companies during the same period, overtaking the Philippines in 2010.

In market capitalization, Malaysia and Singapore stood out as consistent leaders in the region despite a sharp decline in their capitalization in 2008. The relatively few firms listed in the Philippine Stock Exchange, accompanied by a relatively high market capitalization, suggest that only a few large firms carry the ball compared with Thailand. And this also suggests that a few stocks tend to be highly priced, making the stock market greatly vulnerable to sudden withdrawal by investors as happened in the last global financial crisis.

In capital account openness index De Jure, this index takes on higher values the more open the country is to cross-border capital transactions. Singapore has the highest degree of capital openness among AMSs.  The Philippines has the same degree of restrictiveness as Thailand, Malaysia and Lao PDR, all of which are more restrictive compared with Vietnam’s and Indonesia’s.

In De Facto openness index, second chart below, the higher the ratio of total stock of foreign assets and liabilities to GDP indicates that the country concerned has a de facto higher degree of capital account openness. Singapore is still the most open, the Philippines is less financially integrated with the rest of the world compared with other AMSs. This is possibly due to, among others, the size of the markets for financial instruments in the country and investment climate.

In financial regulaton, AFAS commitments, the Philippines’ recent equity cap reform for banks is not yet reflected in the AFAS commitments. AMSs apply different degrees of restrictiveness on the equity participation of foreign players. Market entry can be further limited by imposing the requirement that the majority of the board members be nationals.

In financial regulaton, de facto, shares of foreign banks in total deposits is less than 10% in Indonesia, Lao PDR, the Philippines and Thailand. Foreign banks seem to focus more on wholesale banking, probably due to the limited number of branches in countries where they operate. ASEAN banks still have much room to expand their presence in the Philippines in the near term, while it is a big challenge for Philippine banks to penetrate the banking markets in other AMSs.

On the competitiveness of ASEAN narkets and financial institutions, descriptive analysis, banking subsector.

Descriptive analysis, insurance subsector.

The paper's recommendations as discussed by Dr. Lamberte.

1. Unlock the power of the banking system through the reduction of intermediation taxes (reserve ratio) and unwinding the special deposit accounts (SDA).

2. Continue the liberalization of the financial system, particularly by encouraging more foreign players to enter the domestic financial market.

3. Combine liberalization with a strong merger and consolidation policy. Having subsidiaries will allow foreign partners to play a bigger role in the domestic financial system than if confined to being branches of their head offices.

4. Introduce measures to support SMEs to scale up their operations. Raise competitiveness by allowing more branches on the basis of capital and SME loan portfolio.

Durng the open forum, I noted that the recommendations did not expound much on how the various government regulatory agencies should step back from costly regulations -- Bangko Sentral ng Pilipinas (BSP), SEC and the Bureau of Internal Revenue (BIR) especially. Their regulate-regulate-regulate, tax-tax-tax policies often tie the hands of players, existing and potential players, from engaging in more dynamic competition that benefit the borrowers and the public.

Dr. Lamberte replied that this is the latest paper in a series of studies they have done on the financial sector of the Philippines. Previous papers have touched on those regulatory agencies.

Well, this is a USAID-funded paper and I don't expect that it will take a more radical, less-government role in the financial sector perspective, as the US government itself (SEC, Fed, etc.) keeps piling up plentier and thicker set of regulations yearly. Nonetheless, the data presented by the paper are informative and useful.

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See also:
AEC 9: SEANET Forum on Economic Liberalization, Kuala Lumpur, April 23, April 19, 2015 
AEC 10: Indigenous Rights, Labor and Human Rights in the ASEAN, April 21, 2015 
AEC 11: Trade and Economic Development is Social Development, April 25, 2015 
AEC 12: Workshop on Trade Liberalization at the APF 2015, Kuala Lumpur, April 27, 2015

Health Spending 4: Global Aid on Health, 1990-2011

The main sources of development assistance for health (DAH) is slowly shifting from official foreign aid (bilateral and multilateral) to international NGOs and public-private partnerships. This is a good development.

I saw a nice interactive treemap from the Institute for Health Metrics and Evaluation (IHME) just recently posted, on the global channel of DAH from 1990 to 2011,
http://www.healthmetricsandevaluation.org/tools/data-visualization/development-assistance-health-channel-assistance-global-1990-2011-interacti#/overview/stories

Of the 22 years covered in that interactive data, I chose four years: 1990, 1997, 2004, 2011 (seven years gap) for the images. Below are data for 1990 and 1997.

In 1990, it seemed that about 90 percent or higher, DAH were channeled via official foreign aid bodies, especially through the World Health Organization (WHO) and the governments of France and the US. Seven years after, the World Bank or IBRD and its attached agency International Development Association (IDA), plus the government of Japan, became more prominent.

By 2004, the NGOs and the Global Fund to fight AIDS, TB and Malaria (GFATM), a public-private sectors partnership, showed prominence while the WB-IDA, WHO and US government remained among the major channels and donors.

Last year, the GFATM, the Bill and Melinda Gates Foundation (BMGF), GAVI (Global Alliance for Vaccines and Immunization), another public-private sector alliance, and other NGOs have become really prominent, channelling around one third of the global DAH. I think a substantial amount of the funding for GFATM and GAVI also came from the BMGF.

The official foreign aid channels still dominate, like the WHO, WB, US and UK governments. But we should recognize that not all of such foreign aid is comprised of actual service delivery to poor patients. A substantial amount of US Agency for International Development (USAID) funding for health for instance, is to finance various studies for public health policies. I think many faculty members and researchers of my alma mater, the UP School of Economics, make big money from USAID to do various research projects on healthcare.

The same with UK foreign aid via the Department for International Development (DFID). One DFID project for instance, is the Medicines Transparency Alliance (MeTA), a big multi-sectoral alliance to advance more transparency and accountability in medicines pricing, procurement, dispensation, and other services. There are MeTA projects in seven countries including the Philippines. The health coalition that I belong where I represent MG Thinkers, CHAT, is the civil society partner of MeTA Philippines.

With the fiscal burden of ever-rising public debt by the governments of the industrialized economies like the US, UK, France and Italy, the share of the official foreign aid I think will slowly but steadily decline. Those governments will be stuck in dealing with huge domestic health concerns with their ageing population and rising spending for interest payment. International NGOs and corporate foundations will slowly take the tab.

Health spending will also slowly move from rich country governments' donation to national governments of the poorer countries, national and local, plus various NGOs, corporate healthcare providers, charity organizations, private health insurance and out of pocket (OOP) spending.

What this means is that global healthcare will slowly move from heavy "government responsibility" to more "personal and civil society responsibility." We will watch future data to see if this hypothesis will hold.
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See also:
Health Spending 1: Wastes in US health spending, June 23, 2011
Health Spendng 2: DOH, Public Health Budget, June 18, 2012
Health Spending 3: Obamacare and Huge Tax Hikes, June 30, 2012

Weekend fun 21: Humor in global financial turmoil

(This is my article yesterday in thelobbyist.biz with original title, Economic and humor contagion)

The economic and financial uncertainties primarily caused by public debt burden (ie, high fiscal irresponsibility) in the US and Europe is continuing. Heavy turmoil last week, extended up to this week, and most likely until the next few weeks and months.

Here is another refresher how the current global financial turmoil started – on the big debate what to do with the federal debt limit.

Source: Mercatus Center, 30 Years of Bipartisan Debt Ceiling Raises, August 16, 2011

The rise in debt ceiling has become more frequent and each rise is becoming more steep. The recent rise in debt limit for instance was $2.3 trillion, from $14.3 to $16.6 trillion. And such high debt limit is expected to be reached in less than two years. That is how fiscal irresponsibility can trigger government failure with bitter global consequences.

Some sectors have analyzed the recent and on-going financial turmoil not via graphs, jargons and equations. Instead, they turn to exaggeration with humor to depict the current and future condition of the US and global economy. Below are some of those witty comments, gathered from different sources. I have also contributed or invented 3 of them here 

How bad is the situation in the United States? It's sooo bad, that…

- My neighbor got a pre-declined credit card in the mail.
- CEOs are now playing miniature golf.
- Exxon-Mobil laid off 25 congressmen.
- I saw a Mormon with only one wife.
- If the bank returns your check marked "Insufficient Funds," you call them and ask if they meant you or them.
- McDonald's is selling the 1/4 ouncer.
- Angelina Jolie adopted a child from America.
- Parents in Beverly Hills fired their nannies and learned their children's names.
- A man had an exorcism but couldn't afford to pay for it, and they re-possessed him.
- A truckload of Americans was caught sneaking into Mexico.
- A picture is now only worth 200 words.
- The Treasure Island casino in Las Vegas is now managed by Somali pirates.
- GM and Ford are now manufacturing jeepneys and tricycles.
- Starbucks is now selling 3-in-1 coffee in sachets.
- Delta airlines now flying cheap standing only tickets.
- S&P forecast chapter for the US economy: Chapter 11.
- President Obama's economic policies will create millions of new jobs, but they are all for Iraqi and Afghani soldiers.
- The Debt Ceiling debate is a mess because Al Qaeda is trying to take credit for it.
- It’s good that gas prices have fallen because people can now afford to drive the cars they're living in.

My favorite is a quip from a friend who said that the US may need technical assistance from the Philippines on how to handle their public debt problem. I added that USAID and WB will jointly fund that project of Philippine technical assistance to the US how to (a) move from AA to BB rating, and (b) handle the debt problem while getting more new loans to save the planet, save the poor, save the economy, save the bureaucracy.

Market failure often opens up opportunities for market solutions. But government failure opens up opportunities for more government intervention, taxation and regulation. And that explains why the economic turmoil can easily jump from one big economy to another down to the smaller economies. Huge public debt and fiscal irresponsibility by the governments of those economies are the main facilitators of such contagion.
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See also Fiscal irresponsibility 12: More on US debt default, July 28, 2011

Foreign Aid 2: Circuitous and Leaky Process

Official Development Assistance (ODA), or more popularly known as "foreign aid", is government to government; more specifically, resource transfer from rich country governments to poor country governments. The aid or assistance is in the forms of technical assistance, grants and loans. The first two forms of aid are small compared to foreign loans.

The biggest aid-giving bodies are the multilateral institutions -- the United Nations (UN) through its various agencies (UNDP, FAO, UNICEF, WHO,...), the World Bank (WB), the International Monetary Fund (IMF), and the regional development banks like the Asian Development Bank (ADB), European and African Development Banks. Some bilateral institutions like the US Agency for International Development (USAID) and Japan Bank for International Cooperation (JBIC) are also big lenders to many poor country governments. Except for the IMF which gives out loans to countries experiencing balance of payment crisis like hemorrhaging foreign debt and downward spiralling currency depreciation, the above foreign aid banks and institutions are mainly engaged in project financing, mostly in physical and social infrastructure projects.

Citizens of rich countries finance those foreign aid institutions in the form of high taxes. The target beneficiaries are supposedly the citizens of poor countries. This does not happen all the time. Before foreign aid money reaches the poor in the developing countries, the money passes through several layers of bureaucracies first. These are (a) the legislators and Foreign Affairs Ministry of donor countries, (b) the personnel and consultants of multilateral and bilateral aid institutions, (c) the presidents and legislators of poor country governments who prepare and appropriate budgets, and (d) the local politicians and national bureaucrats of poor country governments who implement the projects.

This circuitous process often results in a number of wastes, if not outright theft by corrupt and irresponsible government leaders, and high spending on salaries and perks of consultants, from economists to engineers, from physicians to agriculturists, and so on. So that while American taxpayers shoulder some $16 billion per year of foreign aid to many governments around the world through the UN, WB, IMF, ADB and other regional development banks, and its own US Agency for International Development (USAID), only a fraction (often a small fraction) of this money really reach the poor in developing countries in the form of roads and medicines for malaria.

What is noticeable in these foreign aid institutions is that while their existence, including the salaries and perks of their personnel and consultants, are 100% financed by taxes, said people are not subject to income taxes; their importations like vehicles are not subject to import tax and possibly, other consumption taxes like or excise tax and value-added tax.

Foreign loans almost always require counterpart funds. Hence, taxes by citizens of rich countries should be matched by taxes of citizens of poor countries. Often, the ratio of foreign loans to counterpart funds is 50-50. This partly explains why leaders and consultants of foreign aid institutions and banks are either silent if not outrightly supporting tax hikes in poor countries. The case of expanded and hike in value added tax (VAT) in the Philippines is one example. The WB's country director is very vocal in supporting the VAT expansion and hike, along with a number of local consultants who have regular consulting work with foreign aid institutions and government agencies.

If foreign aid is circuitous and leaky, what are the alternatives?

Cut taxes in both rich and poor countries, let the citizens spend their own money on things and services they deem important. If citizens of rich countries experience income tax cuts, they will not burn the savings. They will use the money to buy more products and services from other countries, including poor countries, from mangos and bananas to hiring more nurses and food shop waiters. Or they will use the money to visit more tropical beaches and mountain resorts in the poor countries, which expands employment opportunities in the developing world. The money transfer here is more direct from rich country citizens to poor country citizens. The middlemen under "more foreign aid" framework -- the politicians and bureaucrats in both donor and borrowing countries, the consultants and bureaucrats in foreign aid institutions -- will not go hungry because many of them are talented enough to find other jobs, to shift to entrepreneurship under a regime of low taxes, small bureaucracy economy.