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HEAVY RELIANCE on imported fossil fuels, high financing costs and uncompetitive market structures have contributed to make electricity prices in the Philippines among the highest in Southeast Asia, according to a report of a global research institute.

“If renewables enter the market, they have the potential to cut wholesale power prices by 30% and could dramatically change the structure of the market,” the Institute for Energy Economics and Financial Analysis (IEEFA) said in a report released on Wednesday.

The report by Sara Jane Ahmed, energy finance analyst at the institute, cited these as among the three key trends in understanding the current outlook of the Philippine power sector and how its prospects have improved for the country’s energy transition.

The trends include legal challenges that have encouraged policies to spur competition through transparent bidding and to reduce electricity prices for consumers and industry may bring real competition.

IEEFA also pointed to Manila Electric Co. (Meralco), the country’s largest power distribution utility, as setting the trend for how it is adapting to market pressures. It said the company, which is also an independent power producer, could emerge as “a big winner or a damaged laggard.”

On electricity prices, it said the Philippines’ electricity cost at P10 per kilowatt-hour (/kWh) has remained relatively high against global standards.

For instance, a 167.4-megawatt (MW) coal-fired power plant was expected to deliver P3.96/kWh based on the agreed price in a 2016 power supply agreement (PSA). But on average, the plant delivered P2/kWh above the agreed price, sometimes reaching P7.11/kWh.

“This variance in price is currently permitted under market rules under the ‘pass-through provision’ which allows fluctuations in fuel price and FX (foreign exchange) rates to be passed onto consumers and industry,” it said.

As a result, from May 2018 to May 2019, the unpredictability of coal prices led to consumers paying more than P788.7 million compared to what was originally estimated.

The entry of renewables could change this situation, the institute said, citing the feed-in-tariff and prioritized dispatch for renewable energy sources at the wholesale electricity spot market that have led to a reduction in prices by P1.47/kWh for consumers.

The reduced prices led to savings or avoided costs of P44.3 billion from November 2014 to October 2015.

“New catalysts for change are coming, not from the marketplace, but from legal challenges which have validated the government’s intention to spur competition through transparent bidding to reduce electricity prices for consumers and industry,” the IEEFA report said.

It said more retail competition is in the cards and the role of grid operators can also be forced to change as they may be barred from passing on fuel price and foreign exchange risk.

“This is as a result of a challenge by consumer groups in 2017 to the Energy Regulatory Commission (ERC) focused on the transparency and competitiveness of the process used to sign PSAs from 30 July 2015 onward,” it said.

On May 6, 2019, the Supreme Court ruled in favor of the consumer groups, effectively voiding all PSAs that were submitted after Nov. 5, 2015, including the 3.5-gigawatt (GW) Meralco coal pipeline, mainly backed by large corporate players including company-owned subsidiaries and affiliates.

IEEFA said the best way to monitor current trends is to track Meralco. It said the company is changing its procurement style to better manage the risk profile of coal plants.

“Meralco has vertically integrated across the power sector, dominating the distribution and retail sectors, and is formally entering the generation sector with three coal power plants in its pipeline through subsidiaries,” it said.

Last month, the company issued three procurement requests to source 2.9 GW of generation capacity through auction using a two-part electricity tariff composed of fixed and variable elements with a minimum of 200 MW per bid with high efficiency, low emission technology.

“These three major trend-setters have the potential to reshape the economics of power in the Philippines,” it said, adding that the timing is highly sensitive because of the financial risk associated with the pipeline of new coal-fired capacity.

“Not only could changing economics impose losses on investors, they could blight the main Luzon grid with stranded assets that would pre-empt market innovation and burden the economy for decades to come,” it said.

It said making smarter policy decisions about the true cost of long-lived power asset investments like Meralco’s coal pipeline could be crucial to the competitive potential of the Philippine economy.

“One important reform would be to analyze the risk profile of take-or-pay imported fuel agreements. They represent fixed long-term obligations that should be balanced against the Philippines’ unique potential to benefit from newer technologies that are just coming to market,” it said.

IEEFA conducts global research and analyses on financial and economic issues related to energy and the environment. It mission is to accelerate the transition to a diverse, sustainable and profitable energy economy.

Separately on Wednesday, Meralco said the PSA signing for contracts to supply its 500 MW of mid-merit capacity is projected to bring total savings to consumers of around P13.86 billion per year, or a rate reduction of P0.41 per kWh.

The contracts take effect on Dec. 26, 2019 for a term of five years.

Ray C. Espinosa, Meralco president and chief executive officer, said that prices resulting from competitive selection are significantly lower than the average generation cost today of around P5.88/kWh, inclusive of value-added tax.

“The contracts’ all-in rate already includes line rental and VAT and the cost of replacement power for all plant outages. The generator companies will also be liable to pay a fine if they are unable to deliver power, which will be used to reduce the generation cost to the consumers,” he said in a statement.

With dropping geothermal power generation capacity from 1,850 MW to about 1,600 MW the Philippines has lost the second place in the Top 10 rankings of countries with geothermal power generation, as recently reported by Power Philippines.

Commenting on the situation, Jeoffrey Aban Caranto, President of National Geothermal Association of the Philippines, described that the initial wave of geothermal development in the 1980s put the country on the world map and as one of the powerhouses of the geothermal energy sector worldwide. Another wave of development happened in the 1990s. Now, the sector is anxiously awaiting a third wave.

“When the renewable energy law was passed in 2008, we were really hoping that it would pave the way to the third wave of geothermal development,” so Caranto.

Some of the factors of growth were the Renewable Energy law, the Electric Power Industry Reform Act. The latter, put geothermal exploration and development into the hands of the private sector, as previously that was managed by the government.

With the high cost of exploration for development, this step to leave development in the hands o the private sector, might have contributed to the slow decline in development.

Other factors also contributed to the slow growth, among them the decrease in tariffs, reduction in oil prices and concerns by indigenous peoples in areas for geothermal development.

So while a lot of industry players have paved the way for exploration of other geothermal areas, there continues to be little development.

Since the introduction of the Renewable Energy law in 2008, only one new project was successfully concluded. The project was the 32 MW Maibarara geothermal power plant, so Caranto.

“Our hope is that the industry will continue to move forward to new resources, especially here in the Philippines,” he said.

Last year, the Department of Energy spearheaded the revival of geothermal explorations as the department aims to increase the country’s energy capacity.

This and much more will likely be part of next month’s 1st Philippines Geothermal Conference of the National Geothermal Association of the Philippines, 2-3 October 2019 in Manila, Philippines.

NUCLEAR POWER CAN BE A VIABLE OPTION TO INCLUDE IN THE PHILIPPINES’S ENERGY MIX AS IT IS A SAFE CHOICE IN CONTRAST WITH THE PUBLIC’S PERCEPTION.

This was what Philippine Nuclear Research Institute (PNRI)  Director Carlo Arcilla said during the panel discussion in this year’s Powertrends on September 3 and 4.

Arcilla noted that nuclear power supplies around 20 percent of the world’s power needs, emitting zero emissions. It is also considered as the most regulated industry in the world.

“From the emissions side, it is better than coal. The big question in nuclear is where do you put the waste?” Arcilla said.

Skeptics of nuclear energy technology points to issues surrounding nuclear power such as the Chernobyl and Fukushima accidents, fuel sourcing, the pending decision on the Bataan Nuclear Power Plant (BNPP), as well as the waste disposal management.

According to EcoWaste’s clean air and renewable energy advocate Rene Pineda, reviving the BNPP might not be a good idea. He said that it is better not to create a “highly toxic problem that our country cannot handle.”

“How do BNPP pushers intend to manage, store and dispose of the tons of highly toxic waste that will be generated when we cannot even effectively deal with our ordinary household discards?” he was quoted as saying.

However, Arcilla believed that the main problem with nuclear power is public perception.

“The big problem with nuclear is perception because when you mention nuclear people start thinking ‘bomb.’ If it is unsafe, why does America have 100 nuclear power plants and will continue having them?” Arcilla said.

He noted that if the government decides to push through with the utilization of nuclear power as an energy source, waste disposal should be a priority.

According to a coursework study, there are methods to properly dispose nuclear waste such as  reprocessing, transmutation, space disposal, and geological disposal.

Reprocessing is a method that includes taking the waste away from the material and separating the useful component. Transmutation is the process of converting a chemical element into another less harmful one.

Space disposal focuses on putting nuclear waste on a space shuttle and launching it into space. However, this might not be a viable option as it poses a problem in terms of practicality.

Arcilla suggested geological disposal as it is the most practiced waste disposal method. It involves burying the radioactive waste deep inside multiple barriers to provide protection.

“You select an isolated island. Then, put the waste there and you put a material called Bentonite,” he said.

“There is a solution. It is important to discuss this issue upfront,” he added.

Aside from waste disposal, sourcing nuclear power’s fuel, which is uranium, is also one of the problems surrounding the installation of a nuclear plant in the Philippines.

Uranium is a metallic element that occurs naturally. It is 500 times more abundant than gold, 25 times more abundant than mercury and about as common as tin.

He added that sourcing for uranium shouldn’t be a problem, as importing the material is easier than coal.

“For Uranium you have, Kazakhstan, Australia, Canada, and the US. The IEA actually put up a fuel repository in Kazakhstan to make sure that it will not be cartelized,” Arcilla explained.

ISSUES WITH BNPP 

The revival of the Bataan Nuclear Power Plant remains an issue as there are issues surrounding the reliability of the plant and other geological issues.

However, Arcilla debunked the myths surrounding BNPP such as the plant being on a fault line.

“You can say many things about the BNPP but number one it is not built on a fault, and I say that as a geologist. Not all geologists will agree. I did my own studies. I have my data and a list of people who don’t believe in it because I can’t believe that the country will spend $2 billion and not check if it’s on a fault or not,” Arcilla said.

As for the impending status of BNPP, National Power Corporation Management Committee Atty. Manuel Luis Plofin said that, “It’s always affected by some external event. At the time that a decision was being made to operate or not to operate, Chernobyl happened.”

Earlier, the Department of Energy Secretary Alfonso Cusi has openly said that the Philippines is “openly considering” to use nuclear power to achieve its energy security goals.

“It is high time we put the framework in place to bring nuclear power into the energy mix. We should learn the lessons from the past and catch up with the missed opportunities,” Cusi was quoted on the International Atomic Energy Agency (IAEA) website

Still, many argued that the Philippines still lack of well-defined policies regarding import and export controls, emergency preparedness and response.

Chairman of Senate Committee on Energy Senator Sherwin Gatchalian agreed that there is still a lot to learn from more advanced countries about nuclear power development.

“All of the gaps in our nuclear energy legal framework would first need to be addressed by passing comprehensive legislation,” Gatchalian said.

Currently, the country has a sole nuclear regulatory body which is the PNRI under the Department of Science and Technology (DOST). PNRI’s responsibilities focus on radiation and nuclear research and development.