Cronyism in Renewable energy, gas sectors?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Energy Trilemma Index 2016

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

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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).

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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.

Coal power and economic development

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

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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.

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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.

Developing Asia’s love affair with coal

Energy precedes development, not vice versa. Developing countries cannot sustain growth without cheap and stable energy supply.

I am reposting some recent reports about efforts by many developing Asian countries to grow fast via cheaper energy from coal power. Enjoy.
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“Pakistan’s Water and Power Ministry… investment project with China, it’s committed to spending $15 billion on as many as 12 new coal power plants over the next 15 years…

To anyone who would criticize the move, Piyush Goyal, India’s power minister, had this to say: “India is not a polluter,” he told the Financial Times. “It’s America and the western world that has to first stop polluting.” There’s a grain of truth to that: America and Europe did a lot of coal burning during their development, and now have strong economies to leverage in order to clean up their acts.” – May 3, 2017, https://www.technologyreview.com/s/604323/india-and-pakistans-continued-love-affair-with-coal/

“$54 billion China Pakistan Economic Corridor (CPEC), which includes spending of about $33 billion on a total of 19 energy projects, including coal-fired and renewable power plants, transmission lines, and other infrastructure.

Combined, the projects will eventually generate 16,000 megawatts (MW) of electricity, which the government says is urgently needed. About three-quarters of the newly generated power will come from coal-powered plants, and the government insists that these will be fitted with the latest technology to reduce pollution and climate-changing emissions.” – May 2, 2017, http://www.reuters.com/article/us-pakistan-energy-coal-idUSKBN17Z019

“China’s production of electricity from coal stayed at elevated levels post the northern hemisphere winter after reaching a high of 423.6 billion kWh in December – and the highest level recorded based on available data going back to January 2010.

And electricity production from coal in March 2017 rebounded strongly following the Lunar New Year lull in February, rising 7.7% year on year to 396.1 billion kWh, according to the National Bureau of Statistics data.” – May 2, 2017, http://blogs.platts.com/2017/05/02/china-coal-fired-power-generation-surprises-naysayers/

“India is heavily reliant on coal for its electricity, more than three-quarters of which was generated by its 132 coal-fired power stations in 2014-15, according to the most recent data from the central electricity authority. However, while it is the world’s third-biggest emitter of greenhouse gases in absolute terms, its per capita emissions are a fraction of many other nations’, at just 1.59 metric tonnes a year, compared with 7.55 for China and 16.39 for the US.” – May 3, 2017, https://www.ft.com/content/18268438-2e3e-11e7-9555-23ef563ecf9a

“A MoneySuperMarket report listed Mozambique, Ethiopia and Zimbabwe as having “the most environmentally friendly people in the world,” while ranking Americans as being some of the least eco-friendly people on the planet. That may not be a bad thing, though, given the greenest countries also tend to be poor and run by authoritarian regimes.” – April 22, 2017, http://dailycaller.com/2017/04/22/worlds-greenest-people-live-in-ridiculously-poor-authoritarian-regimes-graph/

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“America was built on cheap and abundant coal. Fossil fuels powered the U.S. into the industrial age and replaced inefficient windmills and woodburning as the primary sources of electricity. America currently has access to 500 years’ worth of coal — far more than any other nation. Even despite the last decade’s war on coal during the Obama years, the U.S. still derives about one third of our power from coal — second only to natural gas.” – April 17, 2017, https://spectator.org/coals-colossal-comeback/

“China’s fundamental demand for coal and natural gas has improved alongside better-than-expected economic growth in the first quarter,” Tian Miao, an analyst at North Square Blue Oak Ltd. in Beijing, said by phone. “The government’s investment in infrastructure has boosted power consumption while the move to replace coal with gas to fight pollution is also gaining some traction for gas demand.” – April 17, 2017, https://www.bloomberg.com/news/articles/2017-04-17/china-coal-production-rises-as-government-avoids-output-limits

“Coal conversion has become profitable in China because of an unusual combination of low coal prices relative to state-set gas or petrol prices.  Coal-to-liquids projects normally make economic sense only when oil prices are high or supply is limited. The technology was first developed in Nazi Germany, and commercialised in apartheid-era South Africa.” https://www.ft.com/content/02931290-1d94-11e7-a454-ab04428977f9

“despite a huge workforce of almost 400,000 solar workers (about 20 percent of electric power payrolls in 2016), that sector produced an insignificant share, less than 1 percent, of the electric power generated in the United States last year (EIA data here).

coal3In contrast, it took about the same number of natural gas workers (398,235) last year to produce more than one-third of U.S. electric power, or 37 times more electricity than solar’s minuscule share of 0.90 percent. And with only 160,000 coal workers (less than half the number of workers in either solar or gas), that sector produced nearly one-third (almost as much as gas) of U.S. electricity last year.” – May 3, 2017, http://www.washingtonexaminer.com/todays-most-productive-energy-workers-are-in-coal-and-gas-not-solar/article/2622029

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“According to a recent International Energy Agency (IEA) report, Japan’s 600 MW Isogo plant in Yokohama is probably the best in the world. It is an ultra-supercritical HELE plant, with emission levels comparable to a natural gas combined cycle (NGCC) power plant.” — April 18, 2017, https://dddusmma.wordpress.com/2017/04/18/japan-and-china-remarkably-clean-coal/

“The Petra Nova carbon capture system was installed in the W.A. Parish generation station. This is the largest and cleanest fossil fuel generaton station in the United States.” — April 18, 2017, https://wattsupwiththat.com/2017/04/18/clean-coal-carbon-capture-and-enhanced-oil-recovery/

India’s “plans to build nearly 370 coal-fired power plants… The construction of 65 gigawatts worth of coal-burning generation with an additional 178 gigawatts in the planning stages would make it nearly impossible for India to meet those climate promises, the researchers say.” — April 25, 2017, https://wattsupwiththat.com/2017/04/25/india-wont-be-able-to-meet-paris-climate-agreement-commitments-due-to-expanding-coal-power-plants/

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Two other useful sources here,

  1. http://www.jcoal.or.jp/eng/
  2. GWPF, “THE PARIS AGREEMENT and the Fifth Carbon Budget” by David Campbell, http://www.thegwpf.org/content/uploads/2016/09/Campbell.pdf  (13 pages long)

Bottomline: more environmentalism, more UN, more government renewables cronyism are bad for developing economies that want cheaper energy for them to develop faster and sustain growth.

Economic and energy policies of the Duterte administration

* This is my article in BusinessWorld last October 07, 2016.

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The new administration of President Rodrigo Duterte will turn 100 days old this week. The basis for its assessment is still sketchy and raw, so one way to further assess it later is to see some baseline figures when it assumed office.

Stratbase-Albert del Rosario Institute (ADRi) conducted a forum last Sept. 28 on “Raising the Next Tiger: The New Administration’s Economic Priorities” at The Tower Club in Makati. The main speakers were Mr. Aekapol Chongvilaivan, Country Economist, Philippines Country Office, Asian Development Bank (ADB); Department of Budget and Management (DBM) Secretary Ben Diokno; and Bangko Sentral ng Pilipinas (BSP) Deputy Governor for Monetary Stability Sector, Diwa Guinigundo.

The various reactors and discussants included Mr. George Barcelon, president of the Philippine Chamber of Commerce and Industry (PCCI); Mr. Calixto Chikiamco, president of the Foundation for Economic Freedom (FEF); Ambassador Donald Dee, president of the Employers Confederation of the Philippines (ECOP); and Mr. George Chua, president of the Financial Executives of the Philippines (FINEX).

These four reactors particularly mentioned the high prices and limited capacity of the Philippine’s energy sector. They pointed out that this factor, among others, reduces the country’s competitiveness compared to our ASEAN neighbors. Mr. Chikiamco and Mr. Chua in particular mentioned the problem of pushing more renewables wind and solar into the national grid as contributing to rising electricity prices and even affecting the grid stability.

Below are some numbers presented during the forum. I added the data on electricity generation (in terawatt hours) to further contextualize the points made by the four mentioned discussants (see Table 1).

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Sec. Diokno did not give comparative data for some ASEAN countries, only the Philippines’ fiscal data. He only emphasized the bigger focus of Duterte administration to expand and improve the country’s infrastructure to address the Philippines’ low rank in global competitiveness surveys.

Public spending by the national government for infrastructure are as follows: P165B in 2010, P175B in 2011, P216B in 2012, P307B in 2013, P346B in 2014, P576B in 2015, P756B in 2016, and P861B proposed in 2017. These numbers indicate a sustained increase in infrastructure spending from 2015 until next year.

So as baseline data: First, the Philippine economy has been growing rather fast until 2015 and the challenge is how to sustain this expansion. Second, overall global competitiveness is good enough but ranking in infrastructure quality is low. And third, growth of our power generation remained low, only 46% after one decade. In contrast, Indonesia’s power capacity has expanded nearly twice after a decade while Vietnam’s has expanded more than three times.

The big challenge therefore is to allocate more public resources for infrastructure development.

To get the additional funds, the new government will have to discontinue — or at least significantly cut the budgets — of some programs and projects that have questionable impact on poverty alleviation. These funds should then be reallocated to help bankroll more infrastructure projects.

Second, attract more private players and investors in coal and natural gas power generation, in road tollways, in seaports and airports, in rail-based urban transportation. This process is non-burdensome to taxpayers because these public goods are funded via user-pay principle.

For instance, only those who regularly use NLEx and SLEx pay for the capital expenditure and maintenance of those roads, not taxpayers who live far away who hardly ever use these roads.

It is also good that the President has explicitly declared that we cannot turn our back in using cheaper and stable energy from fossil fuels like coal and natural because of our fast rising energy demand that require 24/7 power. It is not possible to sustain fast growth without cheaper and stable electricity supply. Energy precedes economic development, it is not vice versa.

In the presentation by Mr. Guinigundo, he showed important reform measures from 1993 to 2016. I will show here some, especially those referring to enhancing more economic competition, liberalization and deregulation (see Table 2).

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If we remove the uncertainties of murders and disrespect for due process related to the ongoing “war on drugs,” the Duterte administration is starting on good and relatively stable macroeconomic platform. It just needs to sustain the momentum while hastening development and expansion of public infrastructure, especially in roads and energy.

Eliminate red tape in the energy sector

* This is my article in BusinessWorld last September 15, 2016.

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Which is more realistic and beneficial for consumers in reducing energy prices: removing the VAT (value-added tax) on electricity or removing the red tape and bureaucracy that stall construction of new power plants which will increase competition among players?

This is the question that Dr. Ramon Clarete, faculty member, former Dean of the UP School of Economics (UPSE) and Fellow of the Energy Policy Development Program (EPDP), tried to answer during the EPDP lecture last week at UPSE.

Dr. Clarete made various simulations and his econometric analysis showed the following:

If VAT is removed, tax collection (2009 to 2021) goes down by 3.4% of total or P212B or P16.3B/year.

If VAT is retained but red tape is eliminated, tax revenues increase by P21.9B or P1.7B/year.

If red tape and VAT are out, the economy loses revenues P197.7B or P15.2B/year.

Conclusion: Better eliminate red tape and unnecessary bureaucracies involved in issuing energy permits than abolish VAT on electricity. And electricity consumers will be better off with lower prices.

The paper is still undergoing further revisions. Once finalized, EPDP will publish it on its Web site.

I support the recommendation for two reasons.

One, for the rule of law to be more effective and respectable, a tax or subsidy should apply to all sectors, no exemption. Thus, it is wrong to impose VAT on food, clothing, and medicine purchases but not on electricity and other goods and services.

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Second, government has been expanding all these years such that its seeming purpose has been to further entrench and expand itself, endlessly. So instead of two or three agencies giving business permits, there are now 15 to 30 agencies involved; and instead of just one or two permits and signatures per agency, there are now three or more permits per agency.

How bad is the situation in the Philippines’ energy sector? Here is one such study covering the hydro power sector.

Under the Duterte administration, there are now moves by the Departments of Energy and Finance and other agencies to reduce the 160 or so government permits which take energy companies five years to comply with. Hopefully this can be reduced to at most 50 permits and require at most two years to comply with.

The problem with government is that for every regulation that it can shrink or abolish, it also creates two or more new regulations.

In the energy sector, there is a new DENR order that new coal power plants being proposed will also require getting the approval of the Climate Change Commission (CCC).

This doesn’t bode well because for the CCC, coal power is tantamount to an evil-demon resource that should be controlled and disallowed whenever possible, and only new renewables like wind and solar should be allowed with various subsidies and price guarantee for two decades.

This thinking is highly faulty and anomalous because coal power remains among the cheapest and most reliable energy sources worldwide. Blackouts and darkness have many social and economic costs to the people. There are more robberies, rape, murders and other crimes, more road accidents if streets are dark at night.

See the comparative levelized cost of electricity (LCOE) per energy resource in the US based on a recent study by the Institute for Energy Research (IER) last July. They used the US government’s Energy Information Administration (EIA) assumption for 2020 capacity factor to derive the numbers.

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So the cost per kWh of coal and natural gas — two important fossil fuel sources — is only about 1/3 the cost of wind and solar. Plus the fact that coal and gas are reliable, available 24/7 except under maintenance shutdown, and dispatchable upon demand changes (increase or decrease).

The lobbying of certain sectors to discontinue the use of coal power in the Philippines before the end of their economic lives, and that any new energy demand should be supplied only by the intermittent sources, is unwise and dangerous.

The Philippines used 82.6 terawatt hours or 82.6 billion kilowatt hours of electricity in 2015.

If all of this were generated from solar PV power plants and if the cost is the same as the US where solar price is 10 cents or P4.70 (at P47/$) per kWh more expensive than coal, then Philippine-based consumers should have paid P388B (= 82.6B kWh x P4.70/kWh extra cost) in extra cost or more expensive electricity in 2015.

If divided among the 101 million Filipinos that year, this means that each Filipino, newly-born babies and oldies alike, would have paid an additional P3,843 per head, on top of what they paid in electricity consumption in 2015.

Expensive electricity is simply wrong. Intermittent, weather-dependent and unreliable electricity supply makes it doubly wrong. Government should step back from more bureaucracies, more regulations of new power capacity additions. And more importantly, government should step back from favoritism and cronyism of expensive, unreliable renewables like wind and solar.
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Bienvenido S. Oplas, Jr. is the head of Minimal Government Thinkers, a Fellow of SEANET and Stratbase-ADRi.

* This is my article in SPARK by ADRi last July 4, 2016.

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The emergence of a first ever President of the Philippines coming from Mindanao has produced ample business opportunities to that big island and its many provinces in the south. After the elections last month for instance, Davao City in particular experienced huge boost in business and tourism.

Overcoming energy poverty or insufficient supply of power and electricity for the people should be among the priorities of the new government. For instance, our average electricity consumption of 672 kWh per capita in 2012 was lower than that of Indonesia, nearly ½ that of Vietnam, nearly ¼ that of Thailand, nearly 1/7 that of Malaysia and almost 1/12 that of Singapore.

There are no comparative data for 2015 so this paper makes its computation, shown in the last column in this table below.

Table 1. Electric power consumption (kWh per capita)

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Sources: Columns 2-5: WB, World Development Indicators,http://data.worldbank.org/indicator/EG.USE.ELEC.KH.PC;
Columns 6-7: BP, Statistical Review of World Energy, June 2016;
Column 8: IMF, World Economic Outlook, April 2016;
Column 9: computation by this paper

Estimating energy poverty in Mindanao

The combined population of regions 9 to 13 plus ARMM in the census August 2015 was 24.136 million (source: Philippine Statistics Authority (PSA)). Gross electricity generation in Mindanao in 2015 was 9,282 GWh (source: DOE)

This means that average electricity consumption in Mindanao last year was only 384.6 kWh per capita. This is less than half that of the national average of 809 kWh per capita, and this may be equivalent to that of Cambodia (207 kWh per capita in 2012).

Existing capacity in Mindanao, 2015

As of 2015, Mindanao grid has a total installed capacity of 2,414 MW. The major energy sources are hydro (44%), oil-based (33%) and coal (16%). Geothermal, biomass and solar constitute the remaining 7%.

In terms of actual power generation in 2015, the 17 generating companies (gencos) and 39 distribution utilities (DUs) in Mindanao has produced and distributed 9,282 GWh of electricity, mainly coming from hydro (39%), oil-based (33%) and coal (20%). Geothermal contributed 8% while biomass and solar contribution was negligible.

Capacity addition in Mindanao, 2016-2019

The biggest addition was Therma South Inc. (TSI) of Aboitiz Power with 300 MW. Unit 1 (150 MW) started operation in September 2015 while Unit 2 (also 150 MW) began operation in January 2016.

Coming this year will be Saranggani (by Alsons), San Miguel Davao (by SMEC) and FDC (by Filinvest), all coal plants. Next year, GN Power will further add a huge coal power plant.

Table 2. Committed Power Projects in Mindanao, 2016-2019, as of May 2016

m2Source: DOE.

These will result in temporary power oversupply by 2017 and significantly raise the kWh per capita use in Mindanao. But such oversupply will be short-term because demand will simply adjust and rise quickly. Again, note the low per capita electricity consumption in Mindanao compared to the national average, and much lower compared to those in Vietnam, Thailand, Malaysia and other developed Asian economies.

Here are the indicative projects for Mindanao grid. Coal plants will still dominate the field. Once the Wholesale Electricity Spot Market (WESM) operates in Mindanao, it will be a dynamic market for both power producers and consumers.

Table 3. Indicative Power Projects in Mindanao, 2016-2021, as of May 2016

m3

With these initiatives at big power addition in Mindanao, among the policy measures that needed to be put in place are the following.

One, ensure the transmission link between the Mindanao and Visayas grids soon. This will significantly complement WESM operation in Mindanao.

Two, do not reverse many coal capacity additions with anti-coal pronouncements that might possibly come from the DENR and the Climate Change Commission (CCC). Check again table 1 above, the Philippines’ coal consumption even until 2015 is small compared to the coal capacity of our neighbors in the region.

Three, renewable energy development in Mindanao should focus on hydro power, development of new ones and rehabilitation and capacity expansion of existing ones under PSALM, and less on new renewables like wind and solar that require huge FIT allowance and more expensive electricity.

The stance of the new DENR Secretary against mining has an indirect adverse impact against coal power plants. The worst that can happen is a stop in granting DENR’s environmental clearance certificate (ECC) for new coal plants while a mild version is to further bureaucratize and delay for years the granting of ECC and various environmental permits. Both actions will adversely affect power development in the country and prolong energy poverty. This should not happen.

With six years in power of the first Mindanaoan President of the Philippines, the looming finalization of peace agreement with the MILF and even with the CPP-NPA, business expansion under the ASEAN Economic Community (AEC) and the 16-nations Regional Comprehensive Economic Partnership (RCCEP), and continued destabilization in many Muslim countries in the Middle East, many big investments and businesses will be coming to Mindanao. What appears as power oversupply by 2017 can become undersupply the next year when high demand from existing and new consumers – household, commercial and industrial – will kick in.

Bienvenido S. Oplas, Jr. is a Fellow of Stratbase-ADRi, a columnist in BusinessWorld, and President of Minimal Government Thinkers.