Ric Barcelona on energy investment and subsidies

I am reposting an article by a friend, Ricardo “Ric” Barcelona, published in the Inquirer last November 27, 2017. I attended the book launching of Ric’s book, “Energy Investment: An Adaptive Approach to Profiting from Uncertainties” last November 22, 2017 at Shangrila Hotel Makati. Good work and congrats again, Ric.
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Why do subsidies often fail?

In writing my new book, I came face to face with three energy investment paradoxes. All trace their roots to generous subsidies.

Counter-intuitively, generous subsidies did not result in wide scale deployment of renewables, more so with solar as subsidies’ poster kid.

Innovation is the second paradox. Advocates argue that as increasing renewables capacity is installed, their costs would fall.

Ironically, when subsidies are too generous, the costs decline more slowly than in markets without subsidies.

The third paradox blasted the notion that growth and profitability go hand in hand.

With solar installation’s “frenzied” growth, albeit from a low base, I struggled to find beneficiaries of this boom that profited financially, much less achieving value-creating returns.

Perhaps, not surprisingly, we come across contradictory reports on renewables’ progress from the business press.

One sunny morning in 2013, leading journalists herald the dawn of renewables’ new era. Solar is sold at a price lower than coal, so the headline says. As analysts scramble to validate their financial models, most could only scratch their heads and were at a loss for answers. The next batch of headlines came to their rescue. Investors and advocates of “competitive” solar power were up in arms. The cause? Governments in Europe cut renewables’ subsidies drastically. Within weeks, “high growth” solar companies filed for bankruptcies, with wind struggling to make ends meet while barely remaining afloat albeit financially moribund.

In The Atlantic’s November 2015 issue, which I quoted William Gates, Microsoft’s founder, provided an answer as to where the problem lies.

By succinctly arguing how costs comparisons become a disservice to the environmental cause, Gates observed: “Photovoltaic solar is not economical. Its intermittency is a major problem. When environmental enthusiasts point to photovoltaic solar as having a similar cost to hydrocarbons, what they mean is that at noon in Arizona that may be the case. However, solar does not come at night. So the fact that at one moment you reach parity, so what? Distinguishing a real solution from a false one is actually very complicated”.

Economics of subsidies

The economic cost of energy equates to their life cycle cost of energy. This is a simple addition of the recovery of its normalized fixed assets costs, variable operating expenses, and fuel costs. Embedded within the fixed costs are its implied return on assets and a depreciation expense, while variable and fuel costs are inflation adjusted, with fuel prices accounting for most of the volatilities. Renewables tend to have stable costs.

Philippine coal-fired power’s economic costs would be about P7.29/kWh, while PV Solar would be about P9.09/kWh. Financial costs based on acquisition prices would be about P3.00/kWh to P4.50/kWh. This compares with PV Solar’s feed-in tariff (FiT) of P8.50/kWh. With PV Solar equipment costs having fallen sharply, its economic cost is below the feed-in tariffs. While the learning curves effects favor PV Solar’s improved costs competitiveness, fuel and power prices from coal-fired and gas-fired power fell from peak of P8.00/kWh to its present levels of P2.00 to P3.00/kWh. The FiT subsidies actually widened to P5.50 to P6.50/kWh, or up to two thirds of revenues.

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

Paradox One: Generous subsidies do not result in wide scale renewables deployment. Highly dependent on subsidies, changing government priorities that cut subsidies turn secure revenues, into the very source of uncertainty that bankrupt the venture.

Innovation paradox

Learning curves suggest that with each doubling of renewables’ capacity, its costs would decline by about 20 percent. Enthusiasts present this as evidence that success is a fait accompli.

PV Solar exceeded what the theory prescribes. The learning curves, however, could stall or even reverse its decline. For example, US wind turbines costs declined from about $4,500/kW in 1997 to $1,200/kW in 2001. When subsidies were made more generous in 2004, the rush to build wind farms clogged the production lines that saw wind turbine prices spiked to $2,400/kW in 2010 before settling at $1,500/kW in 2015.

Rapid declines in renewables’ costs impact producers’ revenues, where exponential volume expansion is subdued by accelerated price declines. In effect, innovations that lead to rapid costs decline may be curtailed when subsidies buffer the need for aggressive costs competition.

Project proponents act as mechanisms to channel subsidies from the state to producers. A quick mental calculation would convince proponents that the cost of postponing investments has its value.

If it becomes certain that tomorrow’s equipment costs would be substantially lower, and the technological cycle is shortened significantly, the cost of waiting in terms of foregone revenues could be lower than the equipment costs savings.

This is where PV Solar’s fate is sealed. Unlike hydro or geothermal power’s utilization rate of up to 95 percent, PV Solar at best is 22 percent. The foregone revenues are a fifth of those lost from alternative technologies. Worse, after five years of operation, PV Solar’s utilization rates could fall to 12 percent to 15 percent. This comparison makes developers more inclined to wait rather than to rush in to invest—unless of course the subsidies are generous.

What happened to the early movers—an advantage that strategy would suggest they reap the benefits for being decisive? Ironically, as future equipment costs fall farther, the early movers are stuck with obsolescing assets that are stranded as they lose competitiveness. Worse, their valor and decisiveness to be the first to invest leaves them to do the heavy lifting to lower costs that ultimately benefit the latecomers to profit from their labor.

Paradox Two: Subsidies blunt the need to accelerate costs reduction. Waiting to invest could prove lucrative where the latecomers profit from “early movers” follies.

High growth, expanding losses

Simple arithmetic tells us that for as long as revenues falls lag the rate of costs reductions, firms could expand cash operating margins. Solar equipment and panel producers are trapped in vicious cycles.

To remain competitive, they continually innovate that costs money while reducing costs (and prices). Competitors push the technology frontier that renders obsolete any incumbents’ offerings. As competition intensifies, rising costs and falling revenues or market shares could only lead to bankruptcies.

Within the PV Solar waiting game, in bypassing one generation of technology, and wait the more cost effective innovation, the shorter waiting period could prove lucrative for developers. However, for PV Solar producers, the waiting game could only exacerbate the pressure on operating margins.

Paradox Three: Accelerated volume expansion and rapidly declining prices erode cash operating margins, where the firm loses more the more it grows.

In my academic sojourn, what was presented as simple and readily understood formulation for calculating the “correct” subsidies turns out to be nuanced and complex. Under dynamic markets, where energy prices vary daily, fixing the subsidies becomes an indeterminate exercise. There are many possible answers for a given time that does not hold true once the prices change.

When PV Solar rely on up to 67 percent of revenues from subsidies, the state becomes a counter-party that is critical to sustaining the firm’s financial viability.

Vagaries of politics imply constantly changing priorities, making for a fickle advocate.

Contrary to popular belief, subsidies are far from a source of secure income. As governments renege, subsidies (or its loss) become a major credit risk.

My short prescription: Treat renewables, coal and gas as one supply portfolio. Their different costs structures provide physical hedges against rising energy prices, potentially increasing portfolio returns.

We may take William “Bill” Gates’ advice to heart: “Distinguishing a real solution from a false one is actually very complicated.” Understanding how business work, and applying the same rigor to renewables and our energy supply portfolios may just lead us to offering a real solution to meeting our future energy needs.

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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.

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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.

Energy 101, Disinformation and fake stories by the watermelon movement

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

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

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

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

meralco bill

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

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

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

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

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

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

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

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

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

Finally, the lady is highly disoriented, talking about diesel and coal subsidies when there is none. Yet silent on renewables subsidies, haha. P10B in 2015, P18.5B in 2016, P24.4B this 2017, and P26B next year. The main recipients of this renewables cronyism are the wind farms of the Lopezes/EDC, Ayalas’ Caparispisan and Bangui, Phinma, Alternergy/Vince Perez, etc. http://www.bworldonline.com/content.php?section=Opinion&title=why-the-fit-all-is-a-burden-to-consumers&id=145326
The “planet saviours”, the renewable cronyism lobbyists, they want more government intervention — in arm-twisting the consumers to pay higher electricity to subsidize renewables; in coercing the grid to prioritize the intermittent, unstable, unreliable, non-dispatchable energy sources; in choking and even killing stable, reliable, dispatchable 24/7 sources like coal, gas and nuke. Watermelons — green outside, red inside.

Alex Magno on FIT and renewables

Reposting an article today by Alex Magno in Philippine Star.

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A businessman-friend sent me a message the other day, railing about how the P18 billion raised through Feed-in Tariffs (FIT) charged electricity consumers could have been used to build a chain of recharging stations in the metropolitan area. Instead, as intended by our corrupt policies, FIT collections went to political cronies who claim they are saving the environment by investing in renewable energy.

With a chain of recharging stations in place, we could leapfrog the jeepney modernization program to use electric, not just Euro-4 compliant, vehicles. The technology is there. The recharging stations are not.

The environmental impact of clearing out the dirty diesel engines and putting in electric vehicles will be dramatic. The death toll from polluted air should drop remarkably.

FIT collects billions from consumers, keeping our power price regime high therefore depleting our manufacturing. In 2015, total FIT collections amounted to P10.22 billion. In 2016, with adjustments in the FIT rate, total collections ballooned to P18.54 billion. Estimated FIT collections for 2017 is placed at P24.44 billion.

Not a single peso from FIT collections goes to improvement of infrastructure. All the billions shelled out by poor electricity consumers via FIT go to offsetting business risks and ensuring profits for those who set up renewable energy facilities. The cronies who benefit from this have pulled off a massive scam by wrapping their enterprise with the cloak of political correctness.

It is not too late to scuttle this scam. We have much to learn from the experience of Australia on this matter.

As demand nears supply, Australians now realize that renewable energy is not a dependable source. It cannot provide the baseload capacity an economy needs to achieve energy security. Subsidizing renewable energy merely raises electricity prices, undercutting an economy’s ability to compete.

Renewable energy is well and good if consumers are not forced to subside them. In our case, the subsidies are better used to modernize mass transport systems.

Our backward and inefficient public transport system is, after all, the biggest contributor to the degradation of air quality in the urban centers where most of our people now live.

The cult of political correctness has misled many environmental activists otherwise acting in good faith. They ended up justifying FIT subsidies and, at the behest of cronies, demonizing coal power generation. They gloss over the fact that new technologies for coal power generation have made the iconic black smokestacks a thing of the past.

Those who make profits without assuming business risks by using FIT had the gall to demand even higher rates of subsidies from consumers. Fortunately, Energy Secretary Al Cusi has a clearer grasp of things. He rejected demands to further raise FIT rates.

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.

Why the FiT-All is a burden to consumers

* This is my article in BusinessWorld today.

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Last May 15, Transmission Corp. of the Philippines (Transco) presented at the Energy Regulatory Commission (ERC) its petition of Feed-in-Tariff Allowance (FiT-All) for 2017 of 26 centavos/kWh. Very fast adjustments from 4.06 centavos/kWh in 2015, rose to 12.40 centavos in 2016, and soon 26 centavos starting mid-2017, all “to save the planet.”

The ERC still has to conduct public hearings in Visayas and Mindanao until early June and likely to make an order by late June, to be reflected in our monthly electricity bills starting July 2017.

The feed-in-tariff (FiT) provision in the Renewable Energy (RE) Act of 2008 (RA 9513) is very anomalous on the following grounds: (1) guaranteed price locked in for 20 years despite technology improving very fast these days, (2) the FiT rates are rising (see table below) yearly due to inflation and forex adjustments, (3) FiT rates of P8+ to P10+ per kWh for wind-solar are way high compared to current Wholesale Electricity Spot Market (WESM) average prices of P2-P3/kWh, (4) current capacity installations for wind and solar are higher than what was allotted, and (5) even consumers in Mindanao who are not part of WESM, not connected to the Luzon-Visayas grids, are paying for this.

The total forecast cost revenue of FiT-eligible plants would be (in P Billion): 10.22 in 2012-2015, 18.54 in 2016, 24.44 in 2017, and 26.14 2018. The bulk of this will go to wind and solar plants.

(a) Wind: 6.32 in 2012-2015, 8.00 in 2016, 9.20 in 2017, 9.20 in 2018.
(b) Solar: 1.50 in 2012-2015, 5.88 in 2016, 7.03 in 2017, 7.00 in 2018
(c) Biomass: 1.86 (2012-2015), 3.95 (2016), 6.69 (2017), 6.79 (2018)
Hydro is small, only 1.52 in 2017 and 3.15 in 2018.
(Source: ERC, Case No. 2016-192 RC, Docketed April 27, 2017, Table 4)

Below are the beneficiaries of expensive electricity via FiT scheme by virtue of their hugeness and higher FiT rates.

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Many renewable firms were not able to snatch the limited FiT eligibility but they can still make money from expensive electricity via the renewable portfolio standards (RPS) provision of the RE law. The RPS coerces and forces distribution utilities (DUs) like electric cooperatives and Meralco to purchase a minimum percentage of their electricity supply from these expensive renewables, the price differential with cheaper conventional sources they will pass to the consumers. If DUs will not do this, they will be penalized and the cost of penalty they will still pass on to the consumers.

fitThe government should step back from price intervention and price control, grid prioritization of intermittent and unstable energy sources via legislation. Consumer interest of cheaper and stable electricity should be higher than corporate interest of guaranteed pricing for 20 years, lots of fiscal incentives and other privileges that are marks of cronyism. RA 9513 is anti-consumers, anti-industrialization and hence, it should be abolished soon.

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.