Opinion: Is Meralco heeding the global call to exit coal?

By Rene E. Ofreneo December 17, 2020
https://businessmirror.com.ph/2020/12/17/is-meralco-heeding-the-global-call-to-exit-coal/

The global trend is unmistakable. Majority of the UN Member States who have signed on to the Paris Agreement of 2015 are racing to fulfill their commitment to become zero carbon emitters in order to stop the rise of global temperature by 1.5 degrees above the pre-industrial levels. The United Kingdom and France, in partnership with Chile and Italy, convened this month a Climate Ambition Summit to highlight the progress they have made in the twin areas of mitigation and adaptation to climate change.

In Asia, Japan, South Korea, China and a number of Southeast Asian countries are making historic announcements on how they are exiting from the business of burning coal, the leading contributor to global warming. Japan’s legislature recently declared a climate emergency, paving the way for the complete phasing out of coal plants in a country long dependent on imported fuel materials. Earlier, some big Japanese funders of coal, such as Mizuho and Sumitomo Mitsui, had announced their withdrawal from coal financing.

South Korea’s President Moon Jae-in is even more daring in coming up with policies to combat climate change. His Green New Deal includes zero emission targets by 2050, carbon tax and phase-out of domestic and overseas coal financing by public institutions such as the Korean Import-Export Bank.

In Southeast Asia, Malaysian and Singaporean financial institutions have been leading the exit from the coal business since 2019. In the Philippines, RCBC just announced a similar withdrawal. RCBC’s President Eugene Acevedo puts it dramatically as follows: “…all our loans for energy projects will be non-coal, it will be 100 percent non-coal.”

The RCBC no-coal business announcement followed an earlier declaration by the Department of Energy for a moratorium on the registration and establishment of new or “greenfield” coal plants. The DOE affirms that the thrust is to go renewable. The policy shift pronouncement is buttressed by studies indicating that extreme reliance on coal exposes the country to major outages because coal plants require minimum stable demand, which can collapse when there is a crisis as what happened this year due to the Covid pandemic. In short, coal does not give the country flexibility and security in energy planning and governance.

Is coal then on its death throes in the Philippines?

The answer is not yet. First, the share of coal in the country’s energy mix is still a hefty 52 percent, while the renewables (geothermal, wind, solar and hydro) account for only 22 percent, per study by Greenpeace Philippines. The irony is that the policy in favor of a shift to the renewables was officially adopted by the government in 2008 when the Renewable Energy Act was passed. This was made seven years before the Paris Agreement of 2015! The irony on the slow progress of the country in becoming fully renewable is accentuated further by the fact that renewables are now much cheaper than coal and gas.

And then there is Meralco, the country’s biggest distribution utility and, naturally, the country’s biggest buyer of power generated by the different power-generating plants of the gencos. It appears that Meralco is not prepared to give up on coal despite its media releases that it is embracing the global battle against global warming and is actively supporting the Paris Agreement of 2015.

Last year, Meralco came up with a Sustainability Report where Chairman Manny Pangilinan and President Ray Espinosa openly declared that “business as usual is no longer a viable option” in the power business and that the company is fully committed to a holistic program of sustainability. On energy procurement, Meralco declared its support for the “transition to clean energy” such as sourcing from “renewable energy-generating partners,” building its own “renewable energy plants,” and generating “own energy with High Efficiency, Low Emission (HELE) technology.” Meralco reported the following breakdown in 2019 on its electric energy procurement: 40 percent natural gas, 32 percent coal, and 27 percent from multiple sources.

However, a new study by Avril de Torres of the Center for Energy, Ecology and Development indicates that Meralco is not exiting from the coal business. Worse, if the new procurement “tender” submitted by Meralco to DOE and the Energy Regulatory Commission is analyzed, the bulk of Meralco purchases in the next 20 years or so will come from the coal plants, should the coal producers win in the bidding process. This, according to CEED, is a likely scenario because the “terms of reference” for the tender give advantage to the big coal and gas gencos, not the smaller renewable players.

Torres wrote: “With a high minimum capacity offer per bidder, two-part tariff structure, and other unfavorable terms, renewable energy technologies are already at a huge disadvantage against the several greenfield coal plants that are expected to bid.” Torres argues that the TOR deviates from the guidelines on competitive selection process (CSP) being promoted by both the DOE and ERC. Hence, the two government institutions should come in.

Torres has a set of recommendations on what DOE can do, namely:
Abandon the so-called technology neutral policy, which, in practice simply means allowing Meralco to procure power from any genco. The government policy is to go renewable; hence, selection of power supplier should be limited among the renewable generating suppliers.
Remove or reduce the minimum capacity offers per bidder. The explanation here is obvious: help the renewable firms, which are smaller compared to the coal and gas producers. And if one may add, Meralco should develop productive and fruitful partnership with the smaller firms so that they can develop the capacity to supply all the energy requirements of the country while Meralco is able to enjoy cheaper power produced by the renewables.

Other proposals to DOE advanced by the Torres study: Imposition of a second cap on contract capacity in unsolicited proposals, mandating straight energy pricing instead of the two-part tariff structure (and letting the gencos assume fluctuation risks in fuel cost and currency exchange), mandating 100 percent guaranteed power availability, mandating automatic carve-out clause (essentially to protect consumers from unutilized electricity), and prohibition of cross-ownership between distribution companies and generation companies.

On the last item, cross-ownership, it should be noted that Meralco has its own generation companies. There were instances in the past that the sole winner or winners are Meralco’s own gencos. This is bad for the so-called open competitive energy market. And yes, bad for the consumers.

Now Meralco PowerGen Corp. is proudly announcing that its new coal plants in Mauban and Atimonan use “HELE technology” to produce “clean coal” through a super-efficient process. The questions: Is this the reason why Meralco has come up with the above Terms of Reference that tend to favor the coal producers? Is this consistent with the pronouncement by the Meralco officials that they are embracing the goals of the Paris Agreement of 2015? And if coal can be made clean and green, why are the developed countries, including China, abandoning it?