Energy Trilemma Index 2016

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

bw1

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.

energy-081117The 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).

opinion-Table-768x251

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.

Advertisements

Wind-lover S. Australia has highest electricity rates in the world

Reposting some recent news here, will have only one-sentence comment at the bottom.

http://www.abc.net.au/news/2017-06-28/sa-has-most-expensive-power-prices-in-the-world/8658434

sa

http://www.abc.net.au/news/2017-06-16/origin-follows-agl-in-announcing-energy-price-hike/8624348

sa2

http://www.abc.net.au/news/2017-06-27/sa-recycling-business-power-bills-rise-causing-closure/8654638

sa3

Power Prices in Wind ‘Powered’ South Australia Double the Price of Power in Nuclear Powered France

Power Prices in Wind ‘Powered’ South Australia Double the Price of Power in Nuclear Powered France

sa-highest-power-costs-table

Governments should step back from energy cronyism and climate alarmism, picking “winners” like wind companies while penalizing energy consumers.

Energy agenda of China’s Belt and Road Initiative

* This is my article in BusinessWorld on July 21, 2017.

bw

In a presentation during the Asia Pacific Pathways to Progress Foundation, Inc. (APPFI) round table discussion on China Belt and Road Initiative (BRI) last July 11 at Astoria Plaza, Ortigas, APPFI president Dr. Aileen Baviera said that BRI is China’s new international development strategy. It will link China to the larger Asian region, Europe, and Africa through connectivity of policy coordination, facilities/infrastructure, trade/markets, finance (investments, loans, grants, AIIB), and people.

The Silk Road Economic Belt will span China, Central Asia, Russia, Europe while the 21st century Maritime Silk Road will span eastern China, South China Sea, Indian Ocean, Mediterranean, North Africa, Europe) + SCS-South Pacific and China-Europe via Arctic, covering 65 countries, 3 international organizations, 4.4 billion people and $21 trillion of trade.

Why is China doing this? Aileen said there are three main reasons.

(1) Economic — put excess local production capacity and funds to profitable use, help develop Western China, and access to markets and resources.

(2) Political — shore up domestic support for Xi (amid anti-corruption drive ad slowing economy), build platform for China to take leadership in the provision of global public goods, counter the China Threat Theory.

(3) Strategic — avoid Malacca dilemma, make the South China Sea irrelevant in developing transport and trading links in the region, access to ports and airports reduces need for overseas air and naval bases, and compete with the US influence and perceived containment efforts against China.

This is incisive analysis from a local scholar. She also showed maps of the Silk Road Beltway, the Maritime Road covering the three continents of Asia, Europe and Africa, and the Pan-Asia railway network.

In many discussions on China’s BRI, often left out is China’s energy agenda that spans practically the same continents and countries. Here are just three of several reports on this aspect.

(1) From NY Times, July 1: “When China halted plans for more than 100 new coal-fired power plants this year… China’s energy companies will make up nearly half of the new coal generation expected to go online in the next decade.

These Chinese corporations are building or planning to build more than 700 new coal plants at home and around the world, some in countries that today burn little or no coal, according to tallies compiled by Urgewald.”

(2) From China Dialogue, May 5: “Global Environment Institute (GEI) figures show that between 2001 and 2016 China was involved in 240 coal power projects in BRI countries, with a total generating capacity of 251 gigawatts. The top five countries for Chinese involvement were India, Indonesia, Mongolia, Vietnam and Turkey.”

(3) From Financial Times, March 31, 2016: “China’s proposed investments in long-distance, ultra-high voltage (UHV) power transmission lines will pave the way for power exports as far as Germany… Exporting power to central Asia and beyond falls into China’s ‘one belt, one road’ ambitions to export industrial overcapacity and engineering expertise as it faces slowing growth at home.”

Europe’s problem is that they are committing sort of energy mini-suicide by relying more on intermittent wind-solar and closing down many of their reliable and big nuclear and coal power plants. So here comes China with huge domestic coal supply capacity plus additional coal plants in countries along the BRI route. It will have the capacity to augment Europe’s energy needs via those UHV transmission lines and power sources are several thousand kilometers away (see table).

bw2

Source: BP Statistical Review of World Energy, June 2017
* Less than 0.05.

Notice the huge discrepancy between installed capacity of wind-solar and China, and the very small actual electricity output from them.

In a forum on “The Framework Code of Conduct, One Year After Arbitration” organized by Stratbase-Albert del Rosario Institute (ADRi) last July 12 at the Manila Polo Club, among the speakers were Roilo A. Golez, former National Security adviser; Antonio T. Carpio, senior associate Justice, Supreme Court of the Philippines, and Dr. Jay Batongbacal, director of UP Institute for Maritime Affairs and Law of the Sea.

Justice Carpio highlighted the energy aspect of China’s occupation of shoals and creation of artificial islands in the South China Sea or West Philippine Sea, and the huge implication for the Philippines if China will occupy areas near Malampaya, currently the source of about 3,000 MW of natural gas plants based in Batangas. Malampaya natural gas is expected to be exhausted around 2024 or less than a decade from now. We shall have massive, daily blackouts for many hours daily if no new gas is discovered or new gas facility is created.

China has a different agenda in its massive BRI project, some are useful, some are harmful to their partner countries. The Philippines should craft foreign affairs and energy policies that will secure the country’s economic needs, not China’s needs.

Bienvenido S. Oplas, Jr. is the head of Minimal Government Thinkers and a Fellow of SEANET and Stratbase-ADRi.

Coal power and economic development

* This is my article in BusinessWorld on July 12, 2017.

bw2

Cheaper and stable energy means cheaper production costs for the industrial, agricultural, and services sectors of the economy. Cheaper energy also results in increased convenience for consumers too as many activities now are impossible without stable electricity supply.

In the modern history of Asian economies’ rapid growth, the use of coal power is an important contributor for their economic expansion.

o1big_071217

These numbers show three important things:

(1) Countries that have high and fast coal consumption are also those that experienced faster economic expansion (at least three times expansion of GDP size). Most especially China, India, South Korea, Indonesia, Vietnam, Malaysia, and Philippines.

(2) Countries with declining coal use are also those with slow economic expansion (below three times expansion of GDP size). Most notable are the US, Russia, Germany, and UK.

(3) Philippines’ coal use is actually small compared to its neighbors; its 2016 use is just nearly 1/2 of Malaysia and Vietnam’s consumption, just 1/3 of Taiwan’s and almost 1/5 of Indonesia’s. South Korea, Japan, India, and China’s consumption are many times bigger than the Philippines’.

Recently, groups have suddenly scored seven coal power plants that entered into power supply agreements (PSA) with Meralco last year. These coal projects are (1) Atimonan One Energy (A1E) 1,200 MW, (2) Global Luzon (GLEDC) 600 MW, (3) Central Luzon Premiere (CLPPC) 528 MW, (4) Mariveles Power (MPGC) 528 MW, (5) St. Raphael Power (SRPGC) 400 MW, (6) Redondo Peninsula (RPE) 225 MW, and (7) Panay Energy (PEDC) 70 MW.

This covers a total of 3,550 MW of stable and affordable energy that can lead to cheaper and reliable electricity supply for more than 20 million people in Metro Manila, Bulacan, Rizal, Cavite, Laguna, and parts of Batangas and Quezon provinces.

These groups — Center for Energy, Ecology, and Development (CEED), Philippine Movement for Climate Justice (PMCJ), Sanlakas, Freedom from Debt Coalition (FDC), Koalisyong Pabahay ng Pilipinas (KPP), Power for People (P4P) member organizations, others — argue that coal plants are detrimental for the people’s health and livelihood as well as bad for the environment.

They are wrong.

What is bad for the people’s health and livelihood are more candles and noisy gensets running on diesel when there are frequent brownouts coming from intermittent, unreliable renewables like solar and wind. Candles are among the major causes of fires in houses and communities.

What is bad for people’s health and security are dark streets at night that contribute to more road accidents, more street robberies, abduction and rapes, murders and other crimes. Many LGUs reduce costs of street lighting when electricity prices are high (ever-rising feed-in-tariff or FiT for renewables, more expensive oil peaking plants are used during peak hours, etc.). Expensive and unstable electricity can kill people today, not 100 years from now.

Seeking to disenfranchise some 3,550 MW of stable and cheaper energy supply from seven coal plants is suspicious. There are no big hydro, geothermal, and biomass plants coming in. Wind and solar are limited by their intermittent nature, have low capacity factors, high capital expenditures, and often are located far away from the main grid. The only beneficiaries of disenfranchising big capacity coal plants then would be the owners of new natural gas plants.

Are natural gas cheaper than coal power? From the recent experience of Mindanao where many big coal plants were commissioned almost simultaneously, the answer seems to be No. The generation price in Mindanao has gone down to below P3/kWh, on certain days even below P2.50/kWh. Which means coal power has big leeway for lower price if competition becomes tighter. This cannot be said of natural gas plants here.

Consumer groups and NGOs should bat for cheaper, stable electricity. If they fight for something else like intermittent and expensive renewables, or more expensive gas plants, then they abdicate their role as representatives of consumer interests. Pathetic.

Bienvenido S. Oplas, Jr. is the head of Minimal Government Thinkers and a Fellow of SEANET, both are members of Economic Freedom Network (EFN) Asia.

Solar can replace coal power in the PH?

There is a funny claim by the President of Solar Philippines, also son of Sen. Loren Legarda, Leandro Leviste. Reported in BWorld today.

solar
Look at his claim: solar at P5.39/kWh vs average generation cost from different sources at P8.17/kWh.

These numbers seem like jokes. Here’s why.

1. The average generation charges of Meralco were P4.85/kWh in May and P4.37/kWh in June 2017, which already includes the more expensive peaking plants. These are almost half of Mr. Leviste’s P8.17/kWh data. Where did he get that number, perhaps from one of the inefficient electric cooperatives in the country?

See table below. These power plants are mostly coal and natural gas. #7 “Others” are mostly peaking plants from TMO, Panay, Toledo and 1590 Energy Corp., see their low dispatch rate of 13.3% and low energy share of only 1.4% of total, meaning they run only during peak hours, few hours a day.

mer gen
Source: http://corporate-downloadables-rates-archive-generation.s3.amazonaws.com/1498532289.cc4df9f40e1e8a8e42127b9ad1c5f0de.pdf

2. Mr. Leviste’s P5.39/kWh solar price is cool, if true. Because solar feed in tariff (FIT) or guaranteed price for 20 years is almost double that price. Solar plants that were granted FIT in 2015 would be getting P10.26/kWh this 2017.

fit
3. Solar has low capacity factor, only about 18% (about 36% day time, zero at night time). When it’s day time but cloudy and raining, solar output will be low, capacity factor below 30%. If the solar plant will divert part of this for storage in battery so that it can produce power at night, then the already low solar output will become even lower. Plus the cost of huge batteries, they can quickly raise the price of solar to perhaps 2x of what Mr. Leviste claims.

So to answer the question in the title, the quick answer is NO. Intermittent, expensive solar energy can not replace stable, predictable and cheaper energy like coal and natgas.

Government should step back from price control in energy via assured, guaranteed high price for solar-wind-biomass-ror hydro. Also step back from priority and mandatory feed of variable renewables like wind-solar in the grid that contributes to grid instability due to intermittent, easy-come-easy-go energy sources.

Reducing system loss, Part 2

* This is my article in BusinessWorld last Wednesday.

bw

This is a follow up to a previous piece entitled, “Rule of law in Distribution system loss cap (June 7).” This sequel is prompted by three recent developments: (a) “NEA seeks expanded authority over electricity distributors (BusinessWorld, June 20),” (b) “DoE official backs NEA control over power distributors (BusinessWorld, June 21),” and (c) public hearing early this month by the Energy Regulatory Commission (ERC) to reduce the system loss cap of all distribution utilities (DUs).

The ERC plans to allow higher cap (maximum rate of system loss) for electric cooperatives (ECs) compared to private DUs.

In particular, the ERC plan is to impose a technical loss cap of 3.25% to 7.0% for three clusters of ECs but only 2.75% cap for private DUs and a non-technical loss cap of 4.5% of energy input for all ECs but only 1.25% cap for private DUs.

The message is that the proposed new ERC regulation is to favor ECs, all under the supervision of the National Electrification Administration (NEA), which has the effect of allowing them to incur higher wastes that can be passed on to electricity consumers while forcing private DUs to spend more on higher capex so that their system losses are reduced to the barest minimum.

The NEA and the various provincial ECs are not exactly doing well in consistently reducing the distribution system loss and raising the overall electrification rate in the country.

As of 2013, only 87.5% of all households in the country have electricity, and not all of them have 24/7 electricity, many still suffer from frequent “Earth Hours” — that is to say power outages — daily. (See table.)

o2_062817

The Philippines’ archipelagic geography is a contributor of course for the rather low electrification rate as many households in far away islands are off-grid and rely on generation sets administered by Napocor-SPUG and small private electricity sellers. More off-grid areas are now using solar.

Still, the absence of 24/7 electricity in many areas covered by ECs as administered by NEA is a problem. When there are frequent brownouts, people use two things: candles and generation sets. Candles are among the major causes of fires in houses and communities while gensets are noisy and are running on more expensive fuel, diesel oil.

The Philippines’ low electricity generation compared to its neighbors in the region (column 4 of the table) is a result of combination of many factors, like the huge bureaucracies face by generation companies putting up new power plants, and rigidities in the electricity distribution system.

Protecting the electricity consumers via lower distribution charge, lower system loss charge, and lower incidence of brownouts can be done via the following measures.

One, both the ERC and the NEA should identify which are the most inefficient, lowest-rating ECs or DUs, push them to be corporatized (not exactly “privatized” because ECs are already private entities). These agencies, in turn, should serve notice to these ECs that if they fail to make their operations more efficient, then they will be corporatized. With these measures, these ECs will be forced to improve their systems loss, collection efficiency, employee-customer ratio, etc.

Two, the government should remove differences in caps of systems losses between DUs and ECs. The ERC has to determine the increase in rates so that DUs can comply with their systems loss cap since they need to put up more expensive equipment to decrease technical systems loss. Having a different system loss cap for ECs and DUs means the ERC will not exactly be protecting the consumers but more of protecting ECs so that their inefficient if not outright wasteful operations are tolerated and rewarded with higher profit.

Three, NEA should not aspire to supervise all DUs including private corporations. It is not exactly good at instilling financial discipline on all ECs as a number of them are inefficient and therefore lose money while charging high costs to their consumers (See “NEA offers P1.7-B loan window for distressed power cooperatives,” BusinessWorld, April 12). NEA in fact should step back and give more supervisory functions to the Securities and Exchange Commission (SEC) via ECs that were corporatized. After all, the SEC has more transparent, more universal corporate rules than NEA.

Bienvenido S. Oplas, Jr. is a Fellow of SEANET and President of Minimal Government Thinkers. Both are members of Economic Freedom Network (EFN) Asia.

 

 

EPIRA is 16 years old and it is working

Reposting this nice article today by a friend, Orly Oxales.

orly

It was 16 years ago when Congress enacted Republic Act No. 9136, or the Electricity Power Industry Reform Act. The law was envisioned to make the local power supply reliable and affordable by fostering competition in the industry. Broadly speaking, anyone who is old enough to remember the blackout-laden years of the 1990s would perhaps agree that Epira achieved its minimum goal of at least bringing some semblance of stability into an otherwise volatile industry.

By a stroke of coincidence, this June saw a record decrease in electricity rates, perhaps a testament to Epira’s general effectiveness. After a P0.29-per-kWh reduction in May, distribution utility firm Manila Electric Co. announced an additional P1.43 of decrease for June, effectively bringing down the rate to P8.17 per kWh, the lowest in nearly eight years, since December of 2009. For a typical residential household consuming 200 kWh, this translates to a P285 decrease in electricity bill.

The June rate also reflects the refund of Meralco’s over-recovery on pass-through charges amounting to P6.9 billion from 2014 to 2016. Meralco successfully petitioned the implementation of the refund with the Energy Regulatory Commission, which granted the request on May 11.

To many, that current retail rates are the same eight years ago, combined with evidently improved distribution efficiency (systems loss at an all-time low), record low outages, and increased innovation, demonstrate that Epira was achieving its intended vision for the power sector. It has let the market work as it should, foremost of which was successfully allowing private sector investments to drive strong load growth.

Indeed, many stakeholders believe that it is private sector involvement—the much-needed lifeline to the then ailing, notoriously corrupt state-controlled energy bureaucracy—that has proven to be Epira’s most vital legacy. After all, the series of big-ticket investments in the power sector could not have been possible without the landmark law.

“Epira came in June 2001. Maybe, from the start, it was going slow. But from my personal observation, there’s a lot of power projects that came on stream for the last three or four years, [and] a lot of capacity still coming on stream. Not bad at all, because it takes years to put to bed a power project,” Emmanuel de Dios, GE Philippines CEO and formerly Department of Energy undersecretary, told Business Mirror.

Among others, this requirement for long-term big-ticket investments is the wisdom behind Epira’s market-driven stance. It had the foresight to anticipate burgeoning domestic demand for energy, which some estimates say will triple by 2040. It thus recognizes the pivotal role that a stable energy supply plays in economic development, an area where a vibrant, competitive investment market is non-negotiable.

Another of Epira’s innovations, the Wholesale Electricity Spot Market (WESM), has, as envisioned, become a venue for market competition, resulting in fair and competitive power prices. In fact, overall generation charge has decreased this June by P1.0253 per kWh, from P4.88 in May to P3.86 this month. A crucial factor here is the P1.25-decrease in power sourced from WESM. It is important to note that this became possible despite the expected higher power demand in Luzon in the summer months, in addition to fewer plant outages.

In the last two summers, we thankfully did not see a repeat of the power price hikes of 2013. Brown-outs were minimal. This is encouraging but one or two breakdowns from base load power plants will quickly cause debilitating outages. To sustain economic momentum, we need to encourage more investments in power plants that use the newest technologies and operate with the highest efficiency. These power plants will ensure reliable supply at the most affordable prices while at the same time being compliant with environmental regulations.

Environmentally friendly renewable energy, about which there is much hype, is still an expensive and unstable source that threatens to further burden all consumers with another move to increase rates. It is a policy that needs serious re-thinking and merits a congressional investigation on how much and where all the Feed In Tariff—which by now might be in the billions­—was spent.

At the end of the day, it is the consumers—from individual households to multi-billion-peso industries—that ultimately benefit from an energized power sector. Stable prices lead to savings. Increased operational efficiency of generation companies lessen blackouts. No one is exempt. Now on its 16th year, the Epira is by no means a perfect piece of legislation—domestic power rates remain one of the most expensive in the region—but it has successfully laid the groundwork for a buoyant energy sector.