I bumped into Fernando (Nani) Roxas, a dear friend whose research interest involves energy. Since it is the season of lights and he has just recently written about our options concerning making sure the Philippines does not again plunge into darkness, I thought it would make sense to give this space for an article he wrote on energy options for the Philippines.
Energy Options for the Philippines
By the middle of October 2010, no less than Secretary Almendras of the Energy Department announced that Luzon may run into a power shortage of about 300 MW next year. The worse part is that department officials are still trying to find solutions to Southern Mindanao’s problem of 8 to 11 hours of blackouts since early this year. I shudder at the thought of next year’s sweltering summer without air conditioning in our offices during the day and, bereft of even an electric fan trying to sleep at night.
According to the analysis of the data gathered by the department for the latest Power Development Program, Luzon would require around 300 MW, while Visayas and Mindanao will need about 80 MW each, per year, in order to keep up with the current level of demand. This amount of capacity would require funding of between $900 million to $ 1 trillion each year just to keep the “lights open”. A resurgence of activity in manufacturing would require more rapid capacity build up.
In September 2010, the World Energy Council held its 21st Congress in Montreal, Canada. Energy professionals from over 100 countries attended the conference to discuss the myriad challenges facing our planet. In the face of the world’s energy issues, the problems we face pale by comparison only in magnitude but not in significance. In fact, we will be able to appreciate our options better if we view our situation within the larger global context.
All economies will need larger and larger investments to expand their energy infrastructure. It would require $1.1 trillion per year up to 2030, to meet the global energy demand growth. An additional $10.5 trillion will be required to keep global temperatures from rising more than 2 degrees Celsius because of Green House Gas (GHG) emission levels. From this perspective, the $1 billion we need looks small. However, what this implies is that the competition for investible funds will be intense. We would need very attractive risk and return profiles to pull money into the country.
The Energy Regulatory Commission recently approved Feed-In-Tariffs of P12 to P15/kWh for wind and P25/kWh for solar. FIT programs offers long-term and fixed payments to off-set technological cost disadvantages, lowers risks and cost of capital for Renewable Energy investors. More than 40 countries rely on similar schemes to jump start their own RE programs and reduce their carbon footprints. However, FIT schemes impose burdens on governments and consumers, encourages over-investment and may result to unsustainable investments. Germany’s FIT program, widely thought to be one of the more successful initiatives, provides a guaranteed rate for 15 to 30 years. In 2009 alone, German customers paid $8.2 billion to support the program.
Reducing our reliance on fossil fuels and mitigating the harmful effects of GHG on the environment sounds like the most responsible thing to do. And it is. We have actually done much better than other economies in grooming and environmentally friendly energy supply portfolio. Today, the share of RE in our total primary energy supply (for simplicity, think of the fuels we use) is 43 percent. Thanks to our investments in hydro and geothermal energy, none of our neighbors can boast of a similar portfolio. World-wide, the average RE component is 7 percent i.e., 3 percent hydro and 4 percent biomass. The Philippines therefore, already excels in terms of environmental impact mitigation.
The weaknesses in our energy infrastructure are in terms of supply adequacy and cost. The priority is to be able to add 300 MW in Luzon and 80 MW in Mindanao, year after year. Filipino consumers are already paying one of the most expensive electricity tariffs in Asia. Thinning reserves, because of a lack in new capacity will move pricing higher-closer to scarcity levels. Neither wind nor solar will improve supply adequacy at the warranted scale in Luzon, maybe to some extent, in Mindanao. But FIT enabled generation will certainly not make average tariffs cheaper.
We should actually be looking for options which address the supply adequacy and cost considerations without necessarily forsaking the gains achieved in environmental impact mitigation. To those who were already in college during the 70s, the answer would be counter-intuitive -- go nuclear. Nuclear technology is enjoying a renaissance due to environmental concerns. Nuclear power plants do not contribute to GHG emission levels.
(To be continued next week)
Fernando Y. Roxas is a member of the faculty of the Asian Institute of Management. You can email Maya at integrations_manila@yahoo.com. Or visit her site at http://www.mayaherrera.com.
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