US energy policies and implications in Asia and Philippines

* This is my article in BusinessWorld last October 31, 2017.

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Energy means development. It is not possible to have fast growth in all sectors — agriculture, manufacturing and services — and sustain it without ample supply of affordable and stable energy and electricity.

The US remains the world’s biggest economy in terms of nominal or current values of gross domestic product (GDP). But in purchasing power parity (PPP) valuation of GDP, China has tied the US economic size in 2013, both with $16.7 trillion, and in 2014, China ($18.2T) overtook the US ($17.4T).

US ENERGY POLICIES UNDER EX-PRESIDENT OBAMA

The energy policies of the previous administration can be summarized as follows: (1) drastic reduction of coal use, (2) steady use and consumption of nuclear and hydroelectricity, (3) relative encouragement of natural gas and oil, and (4) massive support and subsidies for variable renewable energies (VREs) especially wind-solar.

In contrast, other giant economies in the world have the following energy policies:

Germany: (1) mild reduction in coal, oil and nuclear, (2) relative encouragement of natural gas, and (3) massive support and subsidies for VREs.

Japan: (1) increased use of coal and natural gas, (2) decreased use of oil and nuclear, and (3) big support for solar.

China and India: uniform increase in coal, oil, natural gas and VRE. Which is the right thing to do, to improve energy capacity as big and as stable as possible to hasten their economic development (see table).

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The US energy transition from coal to VREs like wind-solar has affected its long-term energy stability and competitiveness and punch some holes on the budget and ordinary consumers’ pockets.

US ENERGY POLICIES UNDER PRESIDENT TRUMP

Recognizing the long-term threat of this trend, President Donald Trump issued a series of policies reversing the Obama policy. Among them are the following:

(1) Appointed an Anthropogenic global warming (AGW) skeptic, Scott Pruitt as head of the Environmental Protection Agency (EPA). EPA in the previous administration has issued lots of regulations that explicitly or implicitly restrict new coal power plants while putting existing coal plants.

(2) Issued America Energy Independence policy in March 2017, targeting to reverse among others, the Clean Power Plan (CPP) projected to cost the US economy up to $39 billion a year and increase electricity prices in 41 States by at least 10%. A follow up Executive Order (EO) “Implementing an America-First Offshore Energy Strategy” was issued in April 2017.

(3) Exit from the Paris Agreement and the multi-trillion dollars possible liabilities in legal and environmental challenges.

These policies will reverberate to Asia and the rest of the world in terms of higher US production of coal, oil and gas. Higher supply means lower or stable prices for these energy sources.

On a related note, an America First Energy Conference (http://americafirstenergy.org/) will be held in Houston, Texas this coming Nov. 9, to be sponsored by the Heartland Institute. Being organized by an NGO, speakers and moderators (41 so far) are all from nongovernment entities except one, from the US Department of Interior.

HUGE COAL POWER IN SOUTHEAST ASIA (SEA)

Last week, the International Energy Agency (IEA) reported that about 100 GW of new coal-fired power generation capacity is expected to come online in SEA alone by 2040, increasing the region’s installed capacity to about 160 GW and more than doubling the region’s current coal power capacity. Global coal-fired generation capacity to grow by nearly 50% over today’s levels.

Coal as fuel is preferred because it is cheaper than natural gas and coal plants are in many cases less costly than the capex needs of gas plants, the IEA admits.

The Philippines will be among the big SEA nations that is investing big amount of resources in expanding its coal capacity. And rightly so. In 2016, coal constituted 34% of PH total installed power capacity but contributed 48% of actual electricity production.

Cheap, stable, and dispatchable electricity upon demand, that is the kind of power sources that people the developing world need. Governments must step back from climate and renewables alarmism and cronyism and go for least-cost, reliable energy.

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Alex Magno on REs and the anti-coal activists

I just saw this article by Alex Magno, published last July, reposting here.

alex magno

There is a hidden agenda here, to be sure. The known pawns of oligarchic interests are all in play.

It is an agenda pursued even if our energy security is compromised. It is an agenda thinly veiled under the cloak of environmental protection, seeking to protect unjust cross-subsidies through the feed-in tariffs (FIT) that guarantee the profits of a few companies while penalizing all consumers.

If there is any real anomaly in the fact that Filipino consumers still pay among the highest electricity rates in Asia, it has to be the cross-subsidies consumers are forced to cough up to eliminate the business risks of those who invest in so-called “renewable energy” (RE) that does not provide baseload power and is sometimes not even dispatched to the distribution utilities.

No one disagrees with the use of RE – except that, at its technological infancy, it is neither cheap nor reliable. With the exception of hydroelectric plants, RE is an expensive adornment hung around the neck of consumers. It makes rich environmentalists happy and consumers miserable.

No one disagrees with increasing the proportion of RE in our energy profile – as long as it is not subsidized to the extent of making investments risk-free. This is like robbing the consumers in broad daylight.

We will also have to agree that we need coal plants. By the sheer volume of our rising power demand, we need cheap and reliable sources of power to provide us a stable baseload generating capacity. That will insulate us from shortages and prevent speculators from playing the wholesale electricity spot market every time reserves become thin.

Coal is not the cleanest way to generate electricity. That is sure, although new technologies have immensely improved adverse impact on the environment. Some even describe these new technologies “clean coal.”

But there is no need to demonize coal. If we do not use available coal-fired plants using cleaner technologies, our power costs will spike sky-high. If we close the coal-fired plants today, we will not only be paying an arm and a leg for the electricity we need. We will have to deal with power shortages that will cripple our economy and bring misery to the poorest of the poor.

Remember that time during the late eighties when then President Cory Aquino mothballed the nuclear power plant and abolished the Ministry of Energy. The whole country was thrown into darkness. Our already shrinking economy shrunk even more. Misery multiplied.

In the name of fighting climate change, oligarchic interests have mounted a campaign to demonize coal, block the construction of critically needed generating capacity and bring down power costs. We need to examine the hidden agenda in this campaign with a sharper analytical eye.

Obsession

A number of leftist groups have made demonizing coal plants a cottage industry of sorts even if that crusade can only harm the national economy.

A few days ago, Bayan Muna Rep. Carlos Zarate hastily convened a press conference where he angrily condemned the ERC’s decision to allow a power generator to construct a P1.7 billion transmission line to deliver its power production. His obedient militants stormed the ERC offices in Ortigas, protesting what they allege is “self-dealing” between Meralco and its power generating subsidiary. They described the investment in a new transmission line as an additional burden on the pockets of consumers.

But how did they expect the power produced to be delivered to the market? Electricity can only be delivered through power lines.

If they decry transmission lines as a “burden” to consumers, how do they intend to bring the electricity to the end-users? Investment in transmission capacity is an investment in infrastructure. They might as well argue against any new investment in generating capacity because this will “burden” consumers.

They might as well, for that matter, argue against investing in modern mass transport because consumers will end up paying for them. This is exactly the argument of Bayan Muna’s ideological cousins opposing phasing out the jeepneys.

This sort of argument is jaundiced. It does not take into account the benefits greater efficiency (or greater power generation capacity) brings to the national economy.

Bayan Muna’s ideological fellow traveler Sanlakas for its part staged a protest action at the Supreme Court to support a petition for continuing Mandamus with Temporary Environmental Protection Order against the construction of coal plants. They criticize the Duterte administration for allowing the construction of coal plants to meet rising energy demand.

Their own public statements, however, reveal the real agenda behind their supposedly environmental clamor. In decrying power supply agreements they call “midnight deals” and in denouncing the approval of coal-fired baseload plants, they say that government should only allow renewable energy plants.

In an ideal universe, it would of course be preferential to have only clean energy. But ours is not an ideal universe. If we shift to exclusively renewable energy sources, we will basically triple the costs of power. If we do that, our industries will not be competitive. We will wallow in an economic depression, cutting down our forests to cook food and slaughtering mammals to make candles.

They want us to burn down our homes to produce firewood – and call that “environmentalism.” The positions taken by these leftist groups have no roots in either science or economics.  They do not even have roots in common sense.

Nothing, however, reveals the puppeteer behind this anti-coal campaign more than the fact that the protestors are attacking only the seven power supply agreements they associate with Meralco and not the 80 others awaiting ERC approval.

Why a carbon tax is wrong

* This is my article in BusinessWorld last week.

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Coal power produced nearly 48% of Philippines’ actual electricity generation in 2016 despite having only 34.6% share in the country’s installed power capacity of 21,400 MW or 21.4 GW, Department of Energy (DoE) figures show.

Renewables (hydro, geothermal, wind, solar, biomass) produced 24.2% of total power generation in 2016 despite having 32.5% of installed power capacity. In particular, wind + solar combined contributed a small 2.3% of total power generation.

At a forum organized by the Energy Policy Development Program (EPDP) at the UP School of Economics last Oct. 5, the speaker Dr. Francisco Viray, former DoE secretary and now president and CEO of PhinMa Energy Corp., showed in his presentation a screen shot of Dr. Ciel Habito’s article, “Let’s get the carbon tax right.” Ciel was arguing among others, that the carbon tax for coal power should be raised from the current P10/ton to P600/ton and not P20/ton as contained in Senate bill No. 1592 of Sen. Angara.

I commented during the open forum that Ciel’s article in reality has a wrong title, it should have been “A carbon tax is wrong.” And here are the reasons why.

One, as mentioned above, coal power was responsible for nearly 48% of total electricity generation nationwide in 2016 and it is wrong to restrict its supply and/or make its price become more expensive. Kill coal or even drastic cut in coal power would mean massive, large-scale, and nationwide blackouts for several hours a day, something that consumers wouldn’t want to endure. After all, even a one minute brownout can already cause widespread disappointment.

Two, the Philippines’ overall coal consumption – in absolute amount and in per capita level – is small compared to the consumption of its neighbors in Asia (see table).

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The Philippines has only 100 kilos or 0.1 ton per head per year of coal, the smallest in the region. There is no basis to suggest restricting further coal use given the fast demand for electricity nationwide.

Three, it is wrong to advocate more expensive electricity via high carbon tax given that subsidies to renewables via feed-in-tariff (FiT), among others, are already adding upward price pressure. A higher carbon tax may be more acceptable to the consumers if the FiT scheme is discontinued and ultimately abolished. If this is not done, better to keep coal excise tax as low as possible.

The proposed P600/ton excise tax on coal power would translate to P0.24/kWh hike in power generation charge. Using Ciel’s numbers, one ton of coal can generate 2,519 kWh electricity on average. So P600/2,519 kWh = P0.24/kWh. That is equivalent to FiT-Allowance that each electricity consumer from Luzon to Mindanao must pay monthly for many years to come.

Four, it is wrong to demonize and over-regulate carbon dioxide (CO2) as a pollutant because it is not. CO2 is invisible, colorless, and odorless unlike those dark smoke coming from vehicles and chimneys of old manufacturing plants.

CO2 is the gas that humans and animals exhale, the gas that flowers, trees, rice and other crops use to produce their own food via photosynthesis. More CO2 means more plant growth, faster greening of the planet. CO2 therefore is a useful gas, not a pollutant gas that the UN, Al Gore, and other groups and individuals would portray it.

While the hike in coal excise tax from P10 to P20/ton as contained in the Senate version is somehow acceptable, there is danger that the P600/ton proposal will spring out of nowhere during the bicameral meeting of the House and Senate leaders. This should not be allowed to happen.

Continued demonization of coal and rising favoritism of variable renewables like wind-solar would mean more expensive electricity, more unstable grid, and darker streets at night. Dark streets would mean more road accidents, more robbery, more abduction and rapes, more murders as criminals benefit from anonymity provided by darkness.

Energy irrationality can kill more people today, not 40 or 100 years from now. The irrationality and insensitivity of rising government taxes should be restricted and limited.

The quest for more stable and cheaper electricity in the ASEAN

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

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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.

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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.

Coal imports in East Asia

I saw these interesting charts from Index Mundi. Data until 2013 only but useful nonetheless. Source is US EIA. The medium-users in East Asia — MY, TH and PH.

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https://www.indexmundi.com/energy/?country=ph&product=coal&graph=imports

The medium users, TW and HK. VN is a small user but there was a huge uptick in importation starting 2005.

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And the big coal users in East Asia — China, Japan and S.Korea.

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So claims like “East Asia coal use has declined” are not true.
And even “South Asia coal use has declined” is also not true.

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Asia needs cheap and stable electricity supply. To grow faster, more sustainably, and uplift hundreds of millions of people from poverty.

Asia retains big coal use

There are many reports now saying that “Asia moving away from coal” or “Asia embracing more renewables, ditching coal” and similar stories. These claims are half-truths and hence, generally not correct. See these reports and stats below.

http://thediplomat.com/2017/02/why-is-asia-returning-to-coal/
Why Is Asia Returning to Coal?
The fossil fuel is undergoing an unexpected renaissance in the region.
By Grace Guo
February 17, 2017

“For Japan, coal has emerged as the best alternative to replacing its 54 nuclear reactors, which are deeply unpopular with the population and seen as symbols of devastation after the Fukushima Daiichi nuclear disaster six years ago…

But why did Abe go with coal and not renewables or, say, natural gas? After Fukushima, Japan initially ramped up its imports of liquefied natural gas, but realized that LNG would be prohibitively expensive in the long-term…. Coal power already made up 31 percent of Japan’s energy mix in 2015 but under the current plan, the fossil fuel will become the country’s primary power source by 2019.”

http://oilprice.com/Energy/Coal/US-Coal-Miners-Find-A-New-Buyer-In-Asia.html
U.S. Coal Miners Find A New Buyer In Asia 
By Dave Forest – Mar 23, 2017, 10:41 AM CDT

An Important shift is now underway in global coal trade. With a completely new export route opening up for U.S. producers over the last few weeks.

To South Korea.

Platts reported yesterday that coal buyers in Korea have seen a surge of bookings for U.S. thermal coal. With sources telling the news service that 1.5 million tonnes of total U.S. supply have now been arranged for delivery between July and September.

https://www.bloomberg.com/…/coal-addiction-spreads-as

“Pakistan has begun to dig up one of the world’s largest deposits of low-grade, brown, dirty coal to fuel new power stations that could revolutionize the country’s economy.

The project is one of the most expensive among an array of ambitious energy developments that China is helping the country to build as part of a $55 billion economic partnership. A $3.5 billion joint venture between the neighbors will extract coal to generate 1.3 gigawatts of electricity that will be sent across the country on a new $3 billion transmission network.”

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In China, there were many reports of “China’s coal consumption has fallen for 3 years straight.” That is true, but not mentioned on those reports is the fact that China’s coal consumption is already at a very high level, almost 2 billion million tonnes oil equivalent (MTOE)/year from 2013-2016. Data below from 1966-2015. Basic data taken from BP’s Statistical Review of World Energy (annual report).

ch coal (1)Source: https://ycharts.com/indicators/china_coal_consumption

India keeps ramping up its coal consumption. Data from 1965-2014.

in coalSource: https://ycharts.com/indicators/india_coal_consumption

Asia needs cheap electricity and stable energy sources. Governments should respect this consumer demand and aspiration — industrial, commercial, residential consumers. It’s good that many Asian governments and private sector players realize this. The endless lobbying to “kill coal to save the planet” will never prosper. Asia’s many developed and emerging economies cannot afford frequent blackouts and expensive energy that can make their manufacturing and service sectors become less competitive, less reliable.

Five myths of solar-wind energy

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

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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.

  1. 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.

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  1. 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.

  1. 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.

  1. 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.

201703201e1b5Governments 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.