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

BWorld 191, Solar insecurity, energy stability and affordability

* This is my column in BusinessWorld on February 26, 2018.

“When PV Solar rely on up to 67% of revenues from subsidies, the state becomes a counter-party that is critical to sustaining the firm’s financial viability. Vagaries of politics imply constantly changing priorities, making for a fickle advocate.”

— Ricardo Barcelona,

author of Energy Investment: An Adaptive Approach to Profiting from Uncertainties (2017).

This is a lesson and reality that will be hard to appreciate for solar energy advocates and developers, that without politics, without forcing and coercing energy consumers to subsidize, directly or indirectly, solar, wind, and other renewables, their advocacy is a losing proposition.

Last Thursday, Feb. 22, I attended the Energy Policy Development Program (EPDP) lecture at the UP School of Economics (UPSE), my alma mater. The speaker was Mr. Leandro Leviste, president of Solar Philippines and his presentation was “Cheap Electricity for a First World Philippines: The 24/7 Solar-Storage Revolution.”

Mr. Leviste boldly declared in his presentation that “Solar is now the least cost for all peaking, mid-merit and baseload requirements, and will thus comprise the vast majority of additional power generation capacity from hereon in the Philippines.”

This is simply not true. If solar is indeed “least cost,” solar developers should have stopped asking for rising feed-in-tariff (FiT) or guaranteed high price for 20 years under the Renewable Energy (RE) law of 2008.

FIT rates for solar batch 1 (2015 entrants) were P9.68/kWh in 2015, P9.91 in 2016 and P10.26 in 2017. For solar batch 2 (2016 entrants), P8.69/kWh in 2016 and P8.89 in 2017. Solar and wind developers are feasting on billions of pesos of additional, expensive electricity slam-dunked on hapless consumers on top of the 11-12 different charges in their monthly electricity bill.

During the open forum, I asked Mr. Leviste two questions:

(1) Will you support the abolition of RE law of 2008 since your presentation shows plenty of improvements and cost reduction for solar, meaning they can survive without FiT, RPS, other subsidies and mandates?

(2) You advocate large-scale solar development in the Philippines, therefore you advocate large-scale deforestation of the country? You showed a big picture of your solar farm in Batangas, zero tree there, anti-green. Solar hates shades – from clouds and trees.

His response to #1 was Yes, we can abolish the RE law but we should also abolish the EPIRA law of 2001, the pass-through cost provisions. To question #2, he said that there are trees outside the solar farm and there are moves to plant crops under the solar panels.

Meaning his answer to #1 is No. On #2, precisely that trees are allowed only outside the solar farm because solar hates shades from trees. While many environmentalists including Sen. Loren Legarda repeatedly say “Plant trees to save the planet,” solar developers like Leandro Leviste are implicitly saying “remove and kill all trees (in solar farms) to save the planet.” The irony of green environmentalism.

The call for “green, environmentally-sustainable energy” is repeatedly echoed in the Philippines and other countries. And many of these advocates are unaware that in the annual report, “World Energy Trilemma Index” by the World Energy Council (WEC), the Philippines is #1 out of 125 countries for several years now in environmental sustainability.

WEC is a UN-accredited global energy body composed of 3,000+ organizations from 90+ countries (governments, private and state corporations, academe, etc) NGOs, other energy stakeholders). The Trilemma index is composed of three factors, briefly defined as:

Energy security: effective energy supply from domestic and external sources, reliability of 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 energy efficiencies and development of energy supply from renewable and other low-carbon sources (see table).

(The indicators represent economies as follows, from left to right: Singapore, Japan, Hong Kong, South Korea, Malaysia, Thailand, Indonesia, China, Vietnam, and India)

The Philippines is #1 out of 125 countries covered in Environmental Sustainability. There is high reliance on conventional renewables like big hydro and geothermal, plus newly added variable renewables. There is no need to aspire for rank #0.5 worldwide

Ranking 95th, we are low in energy equity because of our expensive electricity, which is 3rd highest in Asia, next to Japan and Hong Kong.

We place 63rd in energy security — in the middle — and we still need to add big conventional plants like coal to give us 24/7 stable, dispatchable energy to meet demand.

To conclude, these words from Ric Barcelona resonate:

“When subsidies are set as the costs differences, the ‘correct’ level is indeterminate. As power prices increase, renewables need lesser subsidies but nevertheless continue to collect. When this happens, consumers would coax regulators to claw back the subsidies because renewables are raking it in at consumers’ expense.”

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See also:

BWorld 188, Estimating electricity price hikes resulting from TRAIN, March 10, 2018. 

BWorld 189, Distortions in TRAIN 1 should be corrected by TRAIN 2, March 14, 2018 

BWorld 190, TRAIN, inflation and the stock market, March 15, 2018

BWorld 173, Energy favoritism under TRAIN

* This is my column in BusinessWorld last December 19, 2017.

The recently approved tax reform for acceleration and inclusion (TRAIN) by the Congressional Bicameral Committee exhibits a number of favoritism for some energy products and players while penalizing others. In particular, among the three fossil fuels, only petroleum products and coal received tax hike while natural gas was not mentioned and hence, not taxed.

In the VAT base expansion, expensive, unstable and intermittent renewable energy (RE) like wind-solar is again exempted (see table).

Here are the possible implications:

1. Since petroleum products are a public good, many goods and services will experience price hikes. Not only fares for jeepneys, buses, taxi, boats, and airplanes but also for agricultural products because most farmers now no longer use carabaos in tilling their farms, they use tractors, big and small; more farmers now also do not use human labor for harvesting rice, they use harvest + threshing combiner machines. Fishermen hardly use manual paddle boats, they use motorboats. Traders no longer use animals in transporting cargo, they use trucks.

2. Since coal power contributes 48% of total electricity production nationwide (2016 data) despite having only 34% of total installed power capacity, electricity prices will further go up, slowly but surely. Most apologists of raising coal taxes cite the “minimal impact” on households consuming 200 kWh/month. This may be true but those households work in factories, malls and hotels, schools and universities, hospitals and residential condos, airports and seaports. These establishments consume hundreds or thousands of MWh per month, not kWh of electricity. The additional cost will be passed on to the consumers.

3. Natural gas is also fossil fuel but it was never slapped with excise taxes. The Malampaya gas royalty is a tax on exploitation of a natural resource, the same way that the price of our imported petroleum and coal already include royalties. There is favoritism in exempting natural gas from excise tax. And there are some connections between some legislators and a known economist who pushed for high coal tax but silent on natural gas tax, with a big energy company whose main product is natural gas power generation.

4. Exempting RE from VAT but retaining VAT for fossil fuels. These REs are enjoying favoritism three times. First, this exemption from a high 12% VAT. Second, they are given guaranteed high prices for 20 years via feed-in-tariff (FiT). Third, they are given priority or mandatory dispatch to the grid even if they are expensive. For instance, FiT for solar1 is P10+/kWh, FiT for wind1 is P9+/kWh, average coal price is P4/kWh, can go down to P1.50/kWh on off-demand hours like midnight.

Soon, REs will be given a fourth privilege via the renewable portfolio standards (RPS), or minimum percentage of REs that electric cooperatives (ECs) and private distribution utilities (DUs) must purchase and distribute to households. REs then can price their electricity output high because these ECs and DUs have no choice, they will be penalized if they will not buy those expensive and intermittent REs.

Meanwhile, the DoF is often quoted as saying that “two million richest Filipino families consume 50% of oil products in the country.” This is one of the reasons why they pushed for high tax hike for oil products.

I have been intrigued by that repeated statement since last year and I am wondering what papers or studies justify this?

There are about 25 million Filipino families now. The DoF refers to the richest 2 million families, so the other 23 million middle class and poorer class Filipinos consume the other 50% of oil products.

The DoF is saying then that anytime in EDSA, NLEx, SLEx, roads in Visayas and Mindanao, etc. on average, about 50% of the cars, buses and trucks there transport the two million rich families and their goods? And that about half of domestic flights and the inter-island boat rides transport the richest two million families? This is absurd.

I think the DoF displayed dishonesty and deception in making that claim to further justify the high oil tax hikes. If such DoF claim has indeed objective basis, I am willing to apologize for this remark. For now, that statement is not backed up by solid numbers and hence, deceptive and opportunist.

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See also:
BWorld 166, US energy trading and implications for Asia and Philippines, November 26, 2017 

BWorld 170, The Habito carbon tax distortion, December 28, 2017 

BWorld 171, Global vs national tax reforms, December 29, 2017 

BWorld 172, Mining and natural disasters, December 30, 2017

Energy 101, Disinformation and fake stories by the watermelon movement

Fake stories and disinformation can be rampant in the energy sector because of the climate alarmism drama and renewables cronyism agenda. A recent example is one published in BWorld last Thursday, The Philippines’ Ill-Advised P1 Trillion New Coal Gamble, October 20, 2017 By Sara Jane Ahmed.

The lady seems to be ignorant of many data before writing their anti-coal drama. Some things she wrote:

1. “High electricity prices are driven by imported fuel and subsidies; electricity surcharges…”

à Wrong. Check Meralco website for customer charges, http://www.meralco.com.ph/consumer-information/rates-archive. Here, October 2017 charges, if one consumes up to 300 kWh, he would pay a total of P2,880, one-half of which is for generation charges and the other half for 11 other charges including taxes and FIT subsidy for mostly wind-solar. 

From the generation charge, about half of which are from Malampaya natgas-using plants in Batangas; there are hydr0, geothermal, coal could be about 40% of Meralco energy mix.

2. “Diesel dependence, much like our growing national coal dependence, is a result of subsidies…”

à Wrong, diesel has no subsidy, or maybe she refers to the current zero excise tax for diesel but under Duterte TRAIN, it will soon be slapped with P6/liter excise tax.

3. “Coal subsidies assure the private sector guaranteed returns…”

à Wrong. Currently coal excise tax is P10/ton but under TRAIN, to rise to P20/ton. Now Dr. Ciel Habito proposes a P600/ton excise and carbon tax for coal. I criticized his proposal here, http://bworldonline.com/carbon-tax-wrong/

4. “Meralco is currently underwriting a solar power supply deal for 85 megawatts (MW) at P2.99 per kWh.”

à True, and that’s the exception, from Solar Philippines of Leandro Leviste, son of Sen. Loren Legarda. Many solar farms here are given the cronyist FIT or guaranteed price for 20 years of P8.69 to P10+/kWh.

5. “Philippine’s financial sector as massively exposed now to the eventual stranding proposed new coal fleet to the tune of more than 10,000 MW in overcapacity and P1.05 trillion in financial risk”.

-> See this: “Countries that have coal consumption of at least 2.1x expansion over the past two decades are also those that experienced fast GDP growth of at least 3x expansion. Prominent examples are China, India, South Korea, Indonesia, Vietnam, Malaysia, Philippines, and even Pakistan.” http://bworldonline.com/high-carbon-tax-irrational/

Finally, the lady is highly disoriented, talking about diesel and coal subsidies when there is none. Yet silent on renewables subsidies, haha. P10B in 2015, P18.5B in 2016, P24.4B this 2017, and P26B next year. The main recipients of this renewables cronyism are the wind farms of the Lopezes/EDC, Ayalas' Caparispisan and Bangui, Phinma, Alternergy/Vince Perez, etc. http://www.bworldonline.com/content.php?section=Opinion&title=why-the-fit-all-is-a-burden-to-consumers&id=145326

The "planet saviours", the renewable cronyism lobbyists, they want more government intervention -- in arm-twisting consumers to pay higher electricity to subsidize renewables; in coercing the grid to prioritize the intermittent, unstable, unreliable, non-dispatchable energy sources; in choking and even killing stable, reliable, dispatchable 24/7 sources like coal, gas and nuke. Watermelons -- green outside, red inside.
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See also:

Energy 98, Wind-lover S. Australia has highest electricity rates in the world, August 14, 2017 

Energy 99, Germany's FDP questioning or ditching Energiewende, October 04, 2017 

Energy 100, Bjorn Lomborg on World energy mix, October 19, 2017

BWorld 128, The quest for more stable and cheaper electricity in the ASEAN

* This is my article in BusinessWorld last April 28, 2017.

High economic growth means high energy demand coming from stable supply and competitively priced energy, not unstable, intermittent, and expensive energy. This is what the Association of Southeast Asian Nations (ASEAN) economies need as their high GDP growth of 4.7% in 2016 is projected to improve to 4.8% this year and 5% in 2018 (ADB data), much faster than the projected growth of other regions and economic blocs.

One week before the ASEAN 50th Summit Meeting, the 7th Annual Meeting of the Nuclear Energy Cooperation Sub-Sector Network (NEC-SSN) hosted by the Department of Energy (DoE) was held. A pre-feasibility study showed that many ASEAN countries are in favor of using nuclear energy for commercial use. The ASEAN Center for Energy (ACE) also sees nuclear energy as a long-term power source for the member-countries.

The intensive infrastructure projects of the Duterte administration require huge amount of energy. The proposed 25-km. subway in Metro Manila by the Japan government alone would require high energy supply for the dozens of trains running simultaneously below the ground plus dozens of train stations below and above ground.

Lots of base-load power plants, those that can run 24-7 all year round except when they are on scheduled shut down for maintenance, will be needed. These baseload plants include coal, natural gas, geothermal, and nuclear. Hydro plants too but only during the rainy season.

How reliable and how costly are the different power generation plants that the Philippines and other ASEAN countries will need? This table will help provide the answer as I have not seen data for the ASEAN yet.

Power reliability is represented by plant capacity factor or actual power output relative to its installed capacity. So unstable, intermittent sources like wind and solar have low capacity factor, not good for manufacturing plants, hotels, hospitals, malls, shops, and houses that require steady electricity supply.

Power cost is represented by the levelized cost of electricity (LCOE), composed of capital expenditures (capex), fixed and regular operation and maintenance (O&M), variable O&M, and transmission investment. CCS means carbon capture and sequestration.

The cost of ancillary services for intermittent sources, the standby power plants if the wind does not blow or if it rains make solar plants temporarily inutile, does not seem to be reflected in the transmission cost though.

ASEAN countries like the Philippines will need those power plants that have (a) high reliability, high capacity factor, (b) low LCOE, and (c) low or zero need for ancillary services.

However, more ASEAN countries are entertaining more solar PV and wind onshore since they were convinced to believe that they need unstable yet expensive electricity to “save the planet.”

During the Energy Policy Development Program (EPDP) lecture last April 20 at the UP School of Economics (UPSE), Ms. Melinda L. Ocampo, president of the Philippine Electricity Market Corp. (PEMC) talked about “Electricity Trading and Pricing in the Philippine WESM.” Ms. Ocampo discussed among others, the new management system where the interval for electricity dispatch has been improved from one hour to only five minutes.

I pointed during the open forum that the imposition of the lousy scheme feed-in-tariff (FiT) or more expensive electricity for favored renewables was unleashed even to consumers in Mindanao, which is not part of WESM, and is not connected to the Luzon-Visayas grids. The FiT-Allowance that is reflected in our monthly electricity bill has risen from 4 centavos/kWh in 2015 to 12.40 centavos in 2016 and this year, we should brace for at least 26 centavos/kWh soon because the 23 centavos petition by Transco starting January 2017 has not been acted by the Energy Regulatory Commission yet.

The issue of stable and affordable energy will be tackled in the forthcoming BusinessWorld Economic Forum this May 19, 2017 at Shangri-La BGC. Session 4 “Fuelling Future Growth”of the conference will have the following speakers: John Eric T. Francia, president & CEO of Ayala Corp. (AC) Energy Holdings, Inc.; Antonio R. Moraza, president & COO of Aboitiz Power Corporation; Josephine Gotianun Yap, president of Filinvest Development Corp., and DoE Secretary Alfonso G. Cusi. Yap and Cusi are still to confirm the invite.

Local energy players will have a big role in ensuring that the Philippines should have stable and competitively priced energy supply today and tomorrow.

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See also: 

BWorld 120, Five myths of solar-wind energy, April 08, 2017

BWorld 125, On the retail competition and open access (RCOA) and EPIRA, May 05, 2017 

BWorld 126, Why mining is appropriate for certain areas and provinces, May 06, 2017 

BWorld 127, Economic freedom in Asia means faster growth, lower prices, May 07, 2017

BWorld 120, Five myths of solar-wind energy

* This is my article in BusinessWorld on March 20, 2017

Variable renewable energy (RE) like wind and solar are far out from giving humanity sufficient, stable, and cheap electricity to sustain growth and fight poverty. For the simple reasons that they are very intermittent and expensive. Below are five of the common myths that we hear and read about wind and solar.

1. Solar, wind, biomass, and other REs will replace fossil fuels as major global energy sources in the near future.

Wrong. From the projections by the two of the world’s biggest oil and gas companies, these REs, which may also include geothermal, will produce only 8.5% of global energy demand (Exxon Mobil data) or 6% (British Petroleum data) by 2025.

2. The share of coal, gas, and nuclear will further decline as the world moves towards implementing the Paris Agreement of 2015.

Wrong. From both EM and BP projections, there is no let up in global use and demand for fossil fuel and nuclear sources in the near future. This is for the simple reason that people anywhere dislike power interruption even for one minute, much more frequent and involuntary outages lasting many hours, daily or weekly.

3. Solar and wind are cheaper than coal now, their overall costs will keep falling.

Wrong. The feed-in-tariff (FiT) rates or guaranteed price for 20 years for solar-wind keep rising, not declining. For first group of solar entrants, their FiT rates in Pesos/kWh were 9.68 in 2015, 9.91 in 2016, and 10.26 in 2017. For second group of solar entrants, their FiT rates were 8.69 in 2016 and 8.89 in 2017.

For wind power first group of entrants, their FiT rates in Pesos/kWh were 8.53 in 2015, 8.90, in 2016 and 9.19 in 2017. For second group of wind entrants, their FiT rates were 7.40 in 2016 and 7.72 in 2017. Only the sun and wind are free but the panels, switchyards, cables, wind turbines, towers, access roads, etc. are not.

Current power prices in Mindanao are only around P2.80/kwh as many new huge coal plants compete with each other along with hydro and geothermal plants. No additional charges.

4. Solar and wind have no social cost (SC) while the SC of coal is very high.

Wrong. Solar and wind are very land-intensive and, as a result, more areas for food, commercial, and forest production are diverted to accommodate more solar and wind farms. To have 1 MW of installed solar power, one will need about 1.5 hectare of land. So to have a 300 MW solar plant, one will need about 450 hectares of land; San Miguel power has a 300-MW coal plant in Mindanao sitting on only 30 hectares of land, or hectare/MW ratio of only 0.1 for coal vs. 1.5 for solar.

Since solar has a low capacity factor, only 18% of its installed capacity -- from 450 hectares of land with installed power of 300 MW -- can actually produce only around 54 MW.

Majestic solar, 66.3 MW in CEZA, Rosario, Cavite is not included here because it is a rooftop facility and hence, does not occupy extra land area.

5. Carbon dioxide (CO2) pollution and emission from coal power plants will further warm the planet.

Wrong. CO2 is not a pollutant or evil gas. It is a useful gas, the gas that we humans and our animals exhale, the gas that our rice, corn, flowers, trees and other plants use to produce their own food via photosynthesis. More CO2 means more plant growth, more food production, more trees regenerating naturally, which have cooling effect on land surface.

The above five myths were among the topics discussed during the World Wildlife Fund (WWF) and Institute for Climate and Sustainable Cities (ICSC) “Roundtable on Philippine Energy Security and Competitiveness” last Friday, March 17 at UPSE in Diliman, Quezon City. The main speaker was Dr. Majah Ravago of UPSE and EPDP and she presented the main EPDP paper, Filipino 2040 Energy. The five reactors included Jose “Viking” Logarta of the ICSC and Dr. Christoph Menke of Trier University of Applied Sciences in Germany. Dr. Menke discussed the GIZ paper criticizing the EPDP paper.

Governments should not create regulations that distort the energy market away from real competition. Insisting on dishonest claims like “carbon pollution” and “renewables to save the planet” only lead to more expensive and unstable energy supply, wasteful use of land and other natural resources.

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See also: 

BWorld 114, Brownouts, ancillary services and transmission charge, March 23, 2017 

BWorld 117, Energy bureaucracy, electric cooperatives and NEA, March 28, 2017 

BWorld 118, Regulate this, prohibit that: bureaucracies in transportation, March 30, 2017 

BWorld 119, Seven myths in the mining debate, April 07, 2017

BWorld 108, Rising feed in tariff (FIT) due to more wind-solar power

* This is my article in BusinessWorld last January 24, 2017.

Cheaper electricity and stable energy supply are among the important components to have fast and sustainable economic growth.

On Jan. 17, the Philippine Electricity Market Corp. (PEMC) sent a press release saying that “effective settlement spot prices (ESSPs) in the wholesale electricity spot market (WESM) plunged to P2.28/kWH for the December 2016 billing period which is the lowest since January 2011. ESSPs refer to the average prices paid by wholesale customers for energy purchased from the spot market.” That is good news as various players using fossil fuel sources like coal, natural gas, and oil, are fiercely competing with each other in generating electricity. WESM was created by EPIRA of 2001.

On the same day, the Department of Energy (DoE) posted a “Request for comments on the draft Department Circular entitled ‘Declaring the launch of WESM in Mindanao’ (on Jan. 26, 2016) and providing for transition arrangements.” Another good news because finally, there will be a formal spot market for power producers and electric cooperatives that will guide a competitive and deregulated market, benefitting the consumers.

Last Dec. 23, 2016, the Energy Regulatory Commission (ERC) posted a request for public comments until Dec. 30 regarding the petition of three wind developers -- Trans-Asia Renewable Energy Corporation (TAREC), Alternergy Wind One Corporation (AWOC), and Petrowind Energy, Inc. (PWEI) -- that their feed in tariff (FiT) or guaranteed price for 20 years of P7.40/kWh be raised to P7.93/kWh, citing various cost escalations. That was bad news because expensive electricity is never a virtue. I sent a letter to ERC Commissioner Salazar arguing that they say No to the petition.

And last Dec. 6, 2016, the ERC published in a newspaper a National Transmission Corp. (TransCo) petition asking for a FiT allowance (FiT-All) of 22.91 centavos/kWh starting January 2017. That’s also bad news because FiT payments by consumers keep rising fast. From an introductory price of only 4 centavos/kWh in 2015, became 12.40 centavos/kWh in 2016, and almost 23 centavos/kWh this year.

Now two factors will raise the FiT-All for 2017 beyond 23 centavos. (1) ERC will not be able to act on this by January or not even February 2017, that means there will be price underrecoveries that must be added to the original requested price. And (2) with low WESM prices the past few months -- P3.19/kWh last September, P2.91/kWh last October, P2.54/kWh last November (data from Meralco), and the P2.28/kWh ESSP last December -- this means that FiT-All will go up. This allowance is the difference between FiT rates (highest prices are solar of P10+/kWh this year due to price escalation, followed by wind, then biomass, cheapest is run of river hydro) and average WESM prices. Or FiT-ALL = FiT rates -- WESM prices

Expensive electricity is the hallmark of renewable energy favoritism anywhere in the world.

Understand that in my previous columns, it was shown that the main beneficiaries of expensive electricity from renewables in the Philippines are not ordinary firms but huge companies: the Lopez group (EDC Burgos wind) and Ayala group (Northern Luzon UPC Caparispisan wind, and Northwind Bangui) who got P8.53/kWh FiT and combined revenues of about P4.3 billion in 2015 alone.

Let us check Germany’s renewables output. The chart below is for the last three months, Oct. 23, 2016 to Jan. 22, 2017.

Last Jan. 8, its total electricity consumption was 57.4 GW and here are the renewables output that day: solar 0.23 GW, onshore wind 1.53 GW, and offshore wind 0.39, or a total output of only 2.15 GW from these three renewables (see chart).

A total of only 2.1 GW was generated by solar-wind sources or only 3.7% of 57.4 GW power demand. If Germany relied solely on wind-solar, that would have meant massive, large-scale, and catastrophic blackouts. Germany of course was saved by the power plants that it wants to banish someday -- fossil fuel sources like coal and natural gas plus nuke power, within Germany and from energy imports from its European neighbors -- and which it kept running. So we did not hear or read such massive blackouts in Europe’s biggest economy.

Aside from expensive direct cost of wind and solar in Germany due to FiT, there is additional indirect cost of higher transmission cost. From a news report, “The Energiewende is running up against its limits” last Oct. 21, 2016 (http://energypost.eu/energiewende-running-limits/)

“German transmission system operator Tennet recently announced an 80% increase in its transmission fees because of the high construction costs of new power lines to accommodate renewable energy. A study of the Düsseldorf Institute for Competition Economics found that by 2025 costs of the Energiewende could exceed €25,000 for an average four-person household.”

The Joint Congressional Power Commission should consider introducing a law in the future that will abolish the RE Act of 2008 (RA 9513). Penalizing the energy consumers to further enrich the favored and crony firms in renewable energy is wrong.

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See also:

BWorld 104, Top 10 positive news in Asian trade, January 14, 2017
BWorld 106, Top 10 projections for Asian economies, January 23, 2017 

BWorld 107, Top 10 myths for oil tax hike, January 28, 2017

BWorld 105, Top 10 energy news of 2016

* This is my article in BusinessWorld last January 6, 2017.

Here is my list of 5 international and 5 national or Philippine important energy issues last year.

INTERNATIONAL

1. Donald Trump and his energy policies.

US president-elect Donald Trump’s energy policies are summarized in his major campaign platform, “Seven actions to protect American workers” and these include:

“FIFTH, I will lift the restrictions on the production of $50 trillion dollars’ worth of job-producing American energy reserves, including shale, oil, natural gas and clean coal... SEVENTH, cancel billions in payments to UN climate change programs and use the money to fix America’s water and environmental infrastructure.”

So far some of Mr. Trump’s Cabinet Secretaries are his fellow skeptics of the anthropogenic or “man-made” climate change claim (climate change is largely cyclical and natural or “nature-made”), or simply pro-oil. These include: (a) Environmental Protection Agency (EPA) head is Scott Pruitt, former attorney general of Oklahoma; (b) DoE Secretary is former Texas Governor Rick Perry who is pro-drilling; and (c) Secretary of State is Rex Tillerson, CEO of the oil giant Exxon Mobil Corp.

2. OPEC cut on oil production.

For eight years, OPEC never cut its oil production despite declining oil prices to protect its global market share under intense pressure from huge shale oil supply from the US. In November 2016, OPEC finally blinked and decided to cut their collective oil output by 1.2 million barrels per day (mbpd) hoping for an increase in oil prices. Non-OPEC countries like Russia and Mexico made an agreement with OPEC to cut output by another 0.56 mbpd, for a total projected output cutback of about 1.8 mbpd. So far, price impact was marginal as oil prices before this OPEC decision was already touching $50 a barrel. But once US shale oil output ramps up, this marginal price increase can easily be reversed.

3. More wind-solar means more expensive electricity in selected countries in Europe.

The numbers below show that countries with expensive electricity (1-5) have zero or little nuclear power, have high wind power (except Belgium and Italy), and high solar capacity (except Spain). And cheaper electricity countries (6-10) have high nuclear power (except UK and Netherlands) and low wind (except Sweden), low solar capacity (see Table 1).

4. By 2040, 46% of global energy demand will come from Asia Pacific.

Based on a recent report by Exxon Mobil which grabbed global energy headlines, it said that it expects China, India, and the rest of Asia Pacific (including Japan, ASEAN, and Australia) will increase its global share of total energy demand from 234 quadrillion British thermal units (BTUS) in 2015 to 322 quadrillion BTUs by 2040. The percentage share of the region will rise from 41% of global demand in 2015 to 46% by 2040. In contrast, the share of EU and the US combined will shrink from 28% in 2015 to only 22% by 2040 (see Table 2). 

5. By 2040, wind, solar, biomass, other renewables will contribute only 11% of total global power generation.

Coal will remain the dominant source in power generation worldwide by 2040 but its share will decline from 44% in 2015 to 34% by 2040. The share of natural gas and nuclear power combined will increase from 38% in 2015 to 45% by 2040. The share of wind, solar, geothermal and other renewables will marginally increase from 6% in 2015 to 11% by 2040, despite all the political noise worldwide that these renewables will get “cheaper than coal” and attain “grid parity” with conventional sources like coal and natural gas.

PHILIPPINES

6. Search for an Independent Market Operator (IMO) of WESM.

In the last Congress, then Sen. Serge Osmeña, Chairman of the Senate Committee on Energy conducted a series of meetings until January 2016 about the absence of an IMO that is supposed to manage the Wholesale Electricity Spot Market (WESM). The Philippine Electricity Market Corporation (PEMC) as market operator of WESM remains weird because (a) PEMC Board is chaired by the DoE Secretary, many board members are government officials; (b) Even the supposed four independent directors plus consumer representative (5 total) are all appointed by the DoE Secretary; and (c) PEMC is regulated by the Energy Regulatory Commission (ERC), which is under the administrative control of the DoE Secretary, who chairs the PEMC that is regulated by ERC.

7. WESM Mindanao, IMEM.

Aside from issues on the new Market Management System (MMS) for WESM rules and the transition to a real IMO, the move to create a WESM in Mindanao via the Interim Mindanao Electricity Market (IMEM) is gaining ground. The Mindanao dispatch protocol will have to be spelled out in detail too.

8. Imposition of Renewable Portfolio Standards (RPS).

In June 2016, the DoE issued a draft Department Circular (DC) on RPS, a provision in the RE Act of 2008 (RA 9513) that “requires electricity suppliers to source an agreed portion of their energy supply from eligible RE resources.” This RPS will result in more expensive electricity because wind, solar, biomass, and small hydro that are not given feed in tariff (FiT) privilege of guaranteed price for 20 years can demand higher price for their energy output because distribution utilities will have zero choice but buy from them otherwise the DoE will penalize them.

The draft DC wanted an initial “2.15% to be applied to the total supply portfolio of the Mandated Participant in each grid.” When asked what will be the projected price implication of such policy, DoE and National Renewable Energy Board (NREB) officials answered that no study on price implications has been made yet. A weird proposal where proponents have no clear idea on the cost of implementation to energy consumers, the DC was shelved.

9. Shift in energy mix from energy source to system capability.

During the administration of DoE Secretaries Petilla and Monsada, the DoE wanted an energy mix based on energy source or technology, 30-30-30-10 for coal-natural gas-RE-oil, respectively. This is highly distortionary because many REs are either seasonal (hydro can be baseload only during the rainy season, biomass can be baseload only if feedstock is available) or intermittent like wind and solar. New DoE Secretary Cusi changed the energy mix based on system capability: 70-20-10 for base load-mid merit-peaking plants, respectively. This is a more rational mixture.

10. Endless demand for expanded, higher feed in tariff (FiT).

As more solar farms and wind farms are constructed nationwide, their developers and owners are lobbying hard for an expanded FiT 2 with guaranteed price for 20 years. Even geothermal developers also lobbied that their new plants should also be given FiT. Currently, three wind developers -- Trans-Asia Renewable Energy Corporation (TAREC), Alternergy Wind One Corporation (AWOC), and Petrowind Energy, Inc. (PWEI) are petitioning the ERC that their FiT rate be raised from P7.40/kWh to P7.93/kWh. Three wind farms were lucky or favored to get P8.53/kWh under the original FiT -- EDC Burgos (Lopez group), Northern Luzon UPC Caparispisan (Ayala group) and Northwind Power Bangui (partly Ayala).

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See also:

BWorld 102, Top 10 news of 2016, January 10, 2017

BWorld 103, How to improve the RORO system, January 11, 2017

BWorld 104, Top 10 positive news in Asian trade, January 14, 2017

Energy 88, Letter to ERC re petition by 3 wind companies for higher FIT

This is my letter to the ERC last month.
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To: re-twg@erc.gov.ph, twg-re@erc.gov.ph

28 December 2016

Hon. Jose Vicente B. Salazar

Chairman

Energy Regulatory Commission

Pasig City

Dear  Chairman Salazar,

In relation to the ERC  invitation for public comments until December 30, 2016 of the petitions by Trans-Asia Renewable Energy Corporation (TAREC), Alternergy Wind One Corporation (AWOC), and Petrowind Energy, Inc. (PWEI) that their FIT rate be raised from P7.40/kWh to P7.93/kWh, may I send the following comments.

Please say NO to their petition. Here are the reasons why.

1. Expensive electricity is never a virtue. Many of the things we do and use now require electricity and therefore, cheap and stable electricity supply should be the aim of energy producers and generating companies.

2. Cost and price dynamics – rising or falling, higher or lower than what was assumed and projected – are part of capitalism and entrepreneurship. This includes the realization by the petitioners that their actual EPC cost, switchyards and transformers, transmission interconnection cost, O&M and other related expenses are much larger than what was assumed by the ERC in its earlier ruling.

3. There is indeed a big difference between the P8.53/kWh received by EDC Burgos (Lopez group),  Northern Luzon UPC Caparispisan (Ayala group) and Northwind Power Bangui (partly Ayala), and the P7.40/kWh received by the petitioners. Then let it be known by the electricity consumers that among the reasons why Philippine electricity prices remain high, why FIT-All keeps rising from 4 centavos/kWh in 2015 to 12.40 in 2016 and up to 23 or even 25 centavos/kWh in 2017, are due to these wind farms  that get high guaranteed and escalating price for 18 more years.

4. When public backlash against more expensive electricity from wind (and solar) will rise proportionate to the rise in FIT-All in the coming years, the three petitioners will somehow be relegated in the background as public attention will be focused on the Ayala and Lopez expensive wind farms, and the big solar farms with higher FIT rates.

The environmental costs of thousands of trees murdered on the ridges and mountain tops of Nabas, Aklan and Pililia, Rizal as PWEI and AWOC constructed wide roads, flattened ridges and built those huge wind towers in the mountains are actually not included in the supposed “environmental benefits” of those wind power plants.

Capitalism and entrepreneurship is about risks and returns, expansion, break even or bankruptcy. Nothing is guaranteed except constant competition and innovation, to cut costs and produce more per unit of input. Thus, the FIT system of guaranteed price for 20 years is abdication of the spirit of capitalism and entrepreneurship, while embracing statism and forever intervention by the state in pricing and output allocation and rationing.

Ultimately, the RE Act of 2008 contradicts the spirit of EPIRA of 2001 and hence, the former should later be significantly amended if not abolished. EPIRA moved things towards competitive, cheaper electricity prices and stable power supply while the RE Act moves towards the opposite, for more expensive electricity and unstable, intermittent and brownouts-friendly power supply.

I hope you will consider the above points.

Thank you very much.

Sincerely yours,

Bienvenido S. Oplas, Jr.

President, Minimal Government Thinkers

Fellow, SEANET and Stratbase-ADRi

Columnist, BusinessWorld

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Meanwhile, look at these news reports and press releases by their respective companies. Phinma says it is earning good money in TAREC.

AWOC is expanding. From the current 54 MW will add 72 MW. Also in its website, it posted,
"On October 23, 2009, Alternergy has been awarded with six exclusive Wind Energy Service Contracts by the Department of Energy based on its financial and technical capabilities. One of which is the "Pililla, Rizal" Wind Energy Service Contract which covers an area of 4,515 hectares. The Project is estimated to generate approximately 40 MW capacity."

Meanwhile, look at the site of PWEI's Nabas wind farm in Aklan overlooking Boracay island. Mountain ridges were flattened and all trees and other vegetation there were removed.

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See also:
Energy 85, Trump transition team questions for US DOE, December 17, 2016 
Energy 86, Germany's RE on a wild ride, December 30, 2016 

Energy 87, Europe's rising electricity prices as more wind and solar are added, January 03, 2016

On October 23, 2009, Alternergy has been awarded with six exclusive Wind Energy Service Contracts by the Department of Energy based on its financial and technical capabilities. One of which is the "Pililla, Rizal" Wind Energy Service Contract which covers an area of 4,515 hectares. The Project is estimated to generate approximately 40 MW capacity.

Energy 87, Europe's rising electricity prices as more wind and solar are added

More wind and solar plants, more expensive electricity. This is shown in Europe (this graph), shown in the PH. Feed in tariff (FIT) rates will rise from 4 centavos/kWh in 2015, 12.40 centavos in 2016, to 23-25 centavos/kWh this year.

Source: http://euanmearns.com/green-mythology-and-the-high-price-of-european-electricity/

Another data from Euan Mearns. Left chart is for industrial customers, right chart for household/residential customers.

Source: http://euanmearns.com/energy-prices-in-europe/

A friend commented that "We should treat the subsidies as state support to explore alternative energy sources."

It is not "state support" but "consumers support". The state, the DOE or Malacanang or Congress have no money of their own. It is ultimately the consumers who pay for more expensive electricity, including those who (a) do not support more subsidies to REs in Luzon-Visayas, and (b) consumers in Mindanao who are not even members/part of WESM because Mindanao grid is not yet connected to Luzon-Visayas grids.

Imagine if only Luzon-Visayas consumers pay for FIT here, the price would have been about 18 centavos/kWh last year and could be 28 centavos/kWh this year. Remember also that these are just "intro prices", first 3 years of FIT implementation with 17 more years for existing RE plants and with with RE plants added to the grid plus FIT price escalation, expect 30, 50 centavos/kWh or more in the coming years, FIT alone. Eh current WESM prices are only about P2.80/kWh, why do we pay P9+, P10+/kWh for wind and solar? Fluctuating pa every minute, every second.

Look at Europe again, the charts above. They have the longest system of subsidies for renewables, perhaps for the past 20 or 30 years. RE prices coming down? No, the opposite happens, (a) prices keep rising, and (b) grid instability rising, they are talking of blackouts soon in UK, Germany, Denmark, etc. because of more wind and solar added to the grid.

Meanwhile, more news reports about RE in Europe.

(1) "The cost of the botched renewable heat incentive (RHI) scheme to the Northern Ireland taxpayer will be £490m." http://www.bbc.com/news/uk-northern-ireland-38414486

(2) "The way the Renewable Heat Incentive (RHI) scheme was set up in Northern Ireland meant the subsidies offered were greater than the cost of the fuel.[The scheme was run by offering £1.40 for every £1 spent on heating.]" http://www.thegwpf.com/renewable-energy-scandal-rocks-britain/

Many "more RE to save the planet" advocates say that REs like wind and solar are attaining "grid parity" and getting cheaper, more competitive. If this is true, subsidies can be cut or removed but when subsidies are cut, those REs shrink. No subsidies, cheaper electricity for consumers mean these REs will die. Case of UK. 

(3) "The U.K.’s renewable and low-carbon energy sector shrank by 8.7 percent last year, partly because of cuts to subsidies. The sector, from wind farms to electric vehicles, turned over 42.2 billion pounds ($52.5 billion) in 2015, provisional figures by the Office for National Statistics showed on Friday. That’s lower than the 46.2 billion pound recorded in 2014." 

https://www.bloomberg.com/news/articles/2016-12-16/u-k-clean-energy-sector-shrinks-after-government-subsidy-cuts

Energy rationing, like food rationing, toilet paper rationing in socialist economies. May soon happen in industrial and former imperial power UK. And the "planet saviours" will jump with joy?

(4) "The British Infrastructure Group, led by former Conservative minister Grant Shapps, warned lights could go out across the country next winter because there is not enough spare capacity in the system to cope with higher demand. There is just 0.1 per cent spare electricity in the current system, a dangerously small amount of headroom in case of emergencies over the winter months, the report warned."

http://www.telegraph.co.uk/news/2016/12/19/electricity-bills-set-rise-30-year-power-rationed-amid-shortage/

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See also:
Energy 84, CCC's anti-coal, anti-fossil fuel lobbying, December 02, 2016 
Energy 85, Trump transition team questions for US DOE, December 17, 2016 
Energy 86, Germany's RE on a wild ride, December 30, 2016

Energy 82, Jarius Bondoc on FIT for renewables

I am reposting the article of Jarius Bondoc in his column in Philippine Star today. My comments and discussions after his paper.

Enough is enough. Developers of renewable energy (RE) must stop making us electricity users subsidize their insolvent solar and wind farms. They’re already wheedling P8 billion a year from us. That windfall, called feed-in tariff (FIT) in our monthly bill, enables their clean energy to compete with cheap but dirty coal. Yet precisely because the FIT is free money for them, they feel no compulsion to improve their output and bring down costs. And now they have the gall to ask for even higher subsidies starting next month.

RE inflicts a double whammy on our monthly electricity bill. The FIT subsidy of 12.4 centavos per kilowatt-hour per se swells the bill by two percent. Worse, RE further inflates the cost of generating electricity to almost 50 percent. That’s because the mix of power sources that go into the generation grid is such that 30 percent must come from the inefficient but favored RE plants.

Why is RE inefficient? That’s for the developers to explain. For decades they’ve been enjoying state subsidies worldwide to improve. Yet solar farms are only 23-percent capable of converting and storing sunlight to power. It even costs more electricity to produce one solar panel than the energy it will produce when laid out under the sun. That production process even uses acids and oxides that emit greenhouse gases and create waste, National Geographic reports. Statistics for wind are worse. The mills even directly kill flocks of birds and bats that fly into the rotors, as well as add to noise pollution. As it is now, RE worsens climate change.

To justify their subsidies, RE developers must point to a bogeyman: coal. Hiding their own bad effects on health and environment, they demonize coal as a killer fuel. They want the Philippines to switch to more RE and lessen coal from the present 39 percent of the generation mix. In truth, however, coal has become cleaner than it was three decades ago. Pollution is basically the result of wasteful processes. But coal plants have tremendously improved efficiencies, and this reduced waste and pollution. That is why Europe, where environment laws are strictest, has coal making up 25 percent of the generation mix.

Cases long have been made against subsidies to certain industries. Congress, controlled in the ‘60s-’70s by sugar barons, allocated billions of pesos a year to subsidize the plantations and central mills. Supposedly it was to enable the hacienderos to compete with foreigners, upgrade their facilities, and uplift their farm workers. The result is well documented. The sacada seasonal workers became poorer than ever, the plantation and mill technologies remained backward, while the hacienderos used the subsidies to buy Rolls Royces and Aston Martins.

That is what’s happening today. FIT subsidies of P8 billion a year are now blocked off for the next two to three decades for the new RE oligarchs. Some of them are relatives of the very politicos who imposed the FIT subsidies. Living off us electricity consumers, they will not improve their technologies or raise salaries of their workers or bring down their costs to below that of their hated coal. Why should they, when that would mean erasing the excuse for their FIT subsidies. Meantime, Filipinos remain poor because electricity cost – the highest in Asia – discourages employment-generating investments and ultimate economic development.  We electricity consumers should not let those RE oligarchs buy up all the luxury condos and executive jets at our expense.

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Many good points by Jarius. May I add the following:

1. Feed in tariff (FIT) Allowance for renewables, especially wind and solar, is not P8 B a year, much larger than that. It's about P11 B in 2015, P20 B this year, and P23 B in 2017.

Source: Transco petition for FIT-All for 2016, ERC CASE NO. 2015-216 RC, p. 10.

2. On solar inefficiency, its capacity factor can range from only 18% (in PH, WESM data) to 23-25% in developed countries like the US.

3. On solar panels "production process even uses acids and oxides that emit greenhouse gases and create waste", more than that, solar farms require zero trees within and near the vicinity. On average, it takes 2 hectares of land to produce 1 MW of installed capacity.

Consider this solar farm in Calatagan, Batangas: 63 MW capacity on 160 hectares of land. Zero tree allowed. The main hindrance to solar power generation is shade -- from clouds and tall trees nearby.

So while many environmentalists say, "Plant trees to save the planet", the solar environmentalists say "Zero tree to save the planet."

4. On "electricity cost – the highest in Asia", more of 2nd highest after Japan. For the ASEAN, here's one data.

Source: M. Ravago, R. Fabella, R. Alonzo, R. Danao, and D. Mapa, “FILIPINO 2040 ENERGY: POWER SECURITY AND COMPETITIVENESS”, EPDP paper, October 2016, p.2.

Nonetheless, it is a good paper. Congrats, Jarius.
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See also:
Energy 79, Germany Energiewende's €520 Billion Cost By 2025, October 17, 2016 
Energy 80, Power outages in 2010, October 21, 2016 
Energy 81, Trump's climate and energy policies, November 12, 2016