April 4, 2021 | 10:35 pm
Introspective by Romeo
L. Bernardo
PCH.VECTOR/ FREEPIK
In
my column a decade ago, “Renewable energy – reality check”
(https://www.fef.org.ph/fef/renewable-energy-reality-check/) I chided the
private proponents of new renewable energy (RE) technologies (solar, wind, and
biomass), the National Renewable Energy Board (NREB), and multilateral
institutions for pushing an expensive Feed in Tariff (FIT) program on the
Philippines on the grounds that we need to do this as our contribution to
averting a climate change catastrophe. This notwithstanding our global carbon
emission contribution being a rounding error (0.3 of 1%), and our RE mix then
at 42% of total power generation capacity, is four times the global average.
I
noted in my article then that this would have burdened us with 20-year supply
contracts with power costs that were equivalent to P10 to P25 per kWh, twice to
five times avoided cost. This is not even counting the cost of ancillary power
standby to cover for RE intermittency (when there is no wind or when it is
cloudy) and their needed transmission and distribution infrastructure.
Thanks
to the advocacy on behalf of consumers and taxpayers by the Foundation for
Economic Freedom, the PCCI, and the wise intervention of then-Senate Energy
Committee Chair Serge Osmena, the final FIT rates were negotiated down
substantially.
Fast
forward 10 years to today, and we find that just counting the direct cost of
FIT subsidy payments to RE providers now runs at P20 billion annually. For
perspective, this is the equivalent to conditional cash transfer social
assistance for 10 million poorest people in 2019, and is around the annual
budgets of each of the following executive departments: Environment and Natural
Resources, Finance, Foreign Affairs, Justice, and Science and Technology. And
P20 billion is an annual number; for the long run cost, multiply this by 20
years, the contract period.
Since
then the prices for solar, especially of solar panels, have dropped; is it now
time to embrace them unqualifiedly? And should government mandate them through
quotas like Renewable Portfolio Standards (RPS), excise taxes like the recent
coal tax insertions in TRAIN 1 (see my column
https://www.bworldonline.com/gravy-train-leaving-common-sense-isnt/), or
restrictions on building new fossil plants?
Consider:
if indeed the drop in RE prices and technology improvements now make them
commercially competitive with fossil fuels as contended by their champions,
there should be no need for more subsidies, direct or hidden: No FIT, no quotas
and no taxes and bans on coal. (Riding on this lobby are the advocates of
natural gas, passing it off as green and renewable, even while gas has half the
carbon footprint of coal, and is not renewable.)
Precisely
because such non-technology neutral government interventions are an override on
market competition, they have the effect of raising the cost of power, particularly
immiserating for a country like the Philippines that has yet to develop a
manufacturing base to absorb the millions of jobless. Manufacturing requires
base load plants which today, setting aside controversial nuclear plants, can
only be driven by fossil fuels.
How
high is that cost burden now? To illustrate further, compare the current FIT
rates for solar and wind of P8 to P10 per kWh for 20 years versus the
competitively bidded cost of P4.15/P4.26 per kwh in the recent CSP bidding of
Meralco. (“SMC units submit lowest bids for 1,800 MW Meralco supply deal,” Feb.
20).
And
what have we got to show for this heavy cost? Very little. This conclusion is
validated by a study of Dr. Josef Yap, “Evaluating the Feed-in Tariff Policy in
the Philippines” (https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3520401)
that even with energy subsidized through the FIT, end users still face a net
higher cost, despite this so-called merit order effect of RE. (Any power supply
contract with lower marginal cost than peaking plants will have identical
effect, and is not unique to RE).
Moreover,
solar and wind generation together only account for 2.4% of total generation.
The bulk of our RE still comes from traditional renewables, hydro and
geothermal (20%) that do not enjoy, nor lobby for, such subsidies or quota
mandates.
This
heavy public cost of supporting such expensive RE is mirrored at the global
level in states and countries that embraced such policies versus those who
didn’t.
Electricity
prices in RE-supportive California rose five times more than the rest of the
US. German electricity prices rose 51% from 2006-2018, and now stands at twice
the level of France which is mostly nuclear powered. In Fact, Germany now
depends on France to stabilize their RE-heavy and thus unstable grid.
Don’t
get me wrong about RE. It has a role in energy provision for the Philippines –
it already does! But poorly designed public policies to promote RE can have
damaging effects on how our energy markets work, and that has led to higher
prices for Filipinos, poor use of public funds, and misinformation about the
necessary role thermal energy has in powering this country’s economy. If the
government wants to play a role, just be sure to do so only where it is needed,
and follow the Hippocratic oath of our caring doctors and nurses when designing
public policy: “Do no harm”
Climate
Change Adaptation Vs Mitigation
On
the point about “only where it is needed” let’s consider adaptation versus
mitigation, and what makes sense for the Philippines. In Paris in 2015, the
Aquino administration committed our country to reduce our greenhouse gas
emissions by 70% by 2030, an ambitious, costly and unrealistic target. The
Climate Change Commission said the country needs to spend $12 billion to $15
billion, or P584 billion to P730 billion, to reduce up to 70% of its emissions.
A staggeringly large number equivalent to 3.25% to 4% of our GDP.
This
likely does not even fully reflect the higher cost of power and the cost of
managing intermittency discussed earlier. And as I argued, THIS yields very
little for the country and our people. (Maybe except green bragging rights? But
that is like asking a poor man to wear an Armani suit which he cannot afford
and which is inappropriate for his tropical climate just so he can look
fashionable in the eyes of the world.)
I
have been following the FaceBook page of Finance Secretary Sonny Dominguez,
newly designated chairman of the Climate Change Commission. An astute fiscal
manager of our country’s scarce resources who deeply cares for our people, he
quickly pivoted away from the climate change mitigation chorus and into
grounded actionable climate change adaptation programs.
And
I quote:
“Why
does the Philippines focus more on climate adaptation rather than mitigation?
“Despite
the Philippines being one of the lowest contributors to global GreenHouse Gas
Emissions (GHGs) at around 0.3%, we are still one of the most vulnerable
countries to the effects of climate change.
“This
is why our climate action efforts focus more on climate adaptation rather than
mitigation. We need to adapt and be prepared for the harmful effects of natural
disasters (e.g., typhoons, drought, rising ocean temperatures, etc.) brought
about by climate change.” ( Source: Department of Finance FaceBook page .)
Amen!
The
Climate Change Commission may have reaffirmed, even strengthened, its 2015
commitments, perhaps before Secretary Dominguez assumed its chairmanship. My
appeal: please review and align with your most recent sound pronouncements,
Secretary Sonny?
(Part
2 of this column will discuss the energy trilemma, the need to balance energy
security, energy equity/affordability, and energy sustainability using the
World Economic Forum framework, regulatory philosophy and practice under EPIRA,
and a suggested RE transition roadmap for the Philippines).
Romeo
L. Bernardo was finance undersecretary during the Cory Aquino and Fidel Ramos
Administrations. He is currently GlobalSource Partners Philippine Adviser
(globalsourcepartners.com). He is also an independent director in the largest
renewable energy company in the Philippines.
