The quest for more stable and cheaper electricity in the ASEAN

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

bw

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.

o4big_042817

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.

Eliminate red tape in the energy sector

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

opinion

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.

table1

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.

table2

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.
————

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