APBest Chairman Jorge V. Sarmiento awards Plaque to DPWH Undersecretary for Planning & PPP, Hon. Ma. Catalina E. Cabral, PhD during the 2nd Global Forum on Infrastructure Investment, Philippine Series held on December 03, 2019 at The Tent at Solaire, Solaire Resort & Casino, Philippines.
There is a Duterte legacy a.k.a. “Build-Build-Build.”
BBB’s impact is on the faster movement of men, machines, and merchandise. Not to be left behind, the faster movement of money is trying to keep pace with “BBB” in order to invigorate the Duterte legacy.
Many days ago, was suddenly a QRPh or an official Quick Response code standard adopted by the Bangko Sentral headed by Gov. Benjamin Diokno, and five other banks (AUB, China Bank, LBP, RCBC, Union Bank), and PayMaya, under the National Retail Payment System (“NRPS”).
With that said, it becomes clearer that Fintech opportunities can help leapfrog the Philippines, perhaps, closer to “developed country status.” [From Newly-Industrialized-Country (“NIC”) albeit, yet, a developing economy]. (As of October 2, 2019, Human Development Index (HDI), a Third World country).
In addition to the legacies of “BBB” and “NRPS,” the qualifying dimension of Philippines’ economic development is the “anime” moves of private, local angel investors, specifically, those in the power business and energy sector. Without them investing several years ahead of entrepreneurs in the other industries, (Marginal cost versus Least-cost), Philippines’ economic development needs to wait until the power and energy required become accessible to the final consumers way down to the last mile of the service areas.
Moving forward with the thought that what we do today is what we will owe history tomorrow (“Let history woe unto us”), the final and determining dimensions of Philippines’ economic development is what all of us will do from now on:
Shall we become predominantly Fintech in the way we conduct business, or will we stay in our comfort zones and remain predominantly brick-and-mortar players?
Earlier, I wrote that about 4-5% of GNP goes to electricity (generation, transmission, distribution). Which means that to the other (expected) 199 guests (in this Forum) go the remaining 95-96% of GNP.
(“Policy Framework for the Electric Power Industry in the Philippines’ NIC-hood: Quo Vadis?” Read more: https://opinion.inquirer.net/117570/policy-framework-for-the-electric-power-industry-in-the-philippines-nic-hood)
(“The Real Price of Electricity in the Philippines, 2018-2029,” Antonio A. Ver – @inquirerdotnet January 02, 2019. Read more: https://opinion.inquirer.net/118590/the-real-price-of-electricity-in-the-philippines-2018-2029
100% GNP divided by 200 guests means each guest collecting 1/2% of GNP, on average. Not accurate of course, but just food for thought.
Yet, the electric power industry and energy business are the “angel investors” because electricity (power) needs to be there before any subsequent investment can prosper.
Thus, the power sector may not be the determining dimension of development. However, it is a dissatisfier or qualifying dimension of development. When absent, GNP increases cannot be sustained. When present, GNP increases will depend on the other 199 guests or so.
We must come together and pull in one direction. But power and energy must come first. Or, should we say, “power and BBB can happen together?”
The forum was hosted by Asia Pacific Basin for Energy Strategies (APBest).
Part I. ACEF
The forthcoming Asia Clean Energy Forum (ACEF) in June at the ADB has the theme: “Partnering for Impact.”
“The Asia Clean Energy Forum is one of the leading clean energy events in the Asia region, and it focuses on bringing together practitioners and implementers to identify, discuss and address the key clean energy challenges we face in the region.” httpstimes/acef
This year’s edition has a menu of five thematic tracks with Energy as overarch: 1. Energy and livable cities; 2. Energy and water sustainability; 3. Energy and rural and poverty; 4. Energy and innovation finance; and, 5. Clean energy trends and directions. These serve as guidelines for Regional conversations on energy in Asia. Subsequently, it is expected that the outputs will serve as fodder for Asia’s energy strategy and directions in the years to come.
Compared with last year’s four thematic tracks, this year’s tracks are more focused yet evolved from past ACEF discussions, which are supposed to reflect the best and the brightest sense of the international community representatives and energy stakeholders who agree to come to a conference on energy in order to resolve conflicts of principles.
Definitely, exchanges of ideas at the ACEF affect both present and future developments in the field of energy generation. By way of review, here is a quick rundown of the major headings in 2018 ACEF forum:
In the area of energy efficiency, the sub-areas covered were: 1. Benchmarks and best practices; 2. Multiple benefits from minimizing air pollution; 3. Energy efficiency, specifically on cooling; 4. Electrification of the transport sector; and, 5. Digital transformation and innovation.
In renewable energy, the sub-areas included: 1. Government policy and regulatory design; 2. Business model innovation; 3. Sustainable urban energy solutions; and, 4. Decentralized power grid implications for utilities and consumers.
The area of energy access included: 1. Urban poor; 2. Clean cooking and heating; 3. Challenges and barriers of energy access; and, 4. Transformative technology solutions for energy access.
Future energy trends were: 1. Digital Darwinism and its impact on Energy Systems; 2. Shared economy versus asset ownership; 3. Tools and products (GIS mapping, big data, digitalization); and, 4. New energy systems and solutions.
Part II. Renewable Energy
In the words of the late Jim Rogers, retired CEO of utility giant Duke Energy said, “It’s time for the power industry to become a technology business again.” (Bill Nussey, March 10, 2019; retrieved from https://www.freeingenergy.com/why-does-the-cost-of-renewable-energy-continue-to-get-cheaper-and-cheaper/).
Philippines Fast Facts as at March 2019
The single most important fast fact about the Philippines is that its gross domestic product is expected to hover above 6%. The Philippines is expected to be the fastest growing economy in the world. Thus, the best rational economic choice of destination for investments, bar none at this time.
Of much interest is the second fast fact that the demand for electricity is expected to grow pari passu with national income. Earlier projections made by this author indicated a doubling of generation capacity, assuming, that the structure of the industry remains the same. With greater reliance on renewable energy, the installed capacity must increase by more than 6% because renewable energy is less dependable than conventional sources like coal, hydro, and natural gas. However, transmission adequacy and distribution constraints need to ramp up, and quickly, to be at pace with power plant planning. On the low side, economic growth is officially estimated by the DOE to be around 5.6% a year. However, on the high-side, the official economic growth estimate of the Development Budget Coordination Committee (DBCC) is within the range of 7-8%.
The third important fast fact is that population growth is projected to grow by 1.5% a year, while inflation is expected to hover around 2-4%. Thus, the mitigating factors of future growth are well within the expected GDP growth estimates, even under the worst-case scenario. This makes investing in the Philippines even more attractive, even for those who are risk-averse.
The fourth important fast fact is that electricity prices are expected to lag from inflation. It is a fact that CPI inflation outpaced EPI inflation by about 0.8% over the last 12-13 years and this trend is expected to continue in the next 12-13 years or so. With CPI inflation at 4.4% in January 2019 and expected inflation at 3% (between 2% and 4%) this year, the upper boundaries of EPI inflation are thus set. However, there is a rate-of-return base provision that allows for a nominal rate of return up to 10%, which against which adverse future events can feed on.
The fifth important fast fact is from the viewpoint of total energy consumption concentration ratios. The transport sector accounts for 38.2% of total energy consumption. The industry sector accounts for 25.8% of total energy consumption and is expected to show a 5.8% annual growth. The residential sector accounts for 24.2% of total energy consumption and is estimated to grow by 3.33% a year, in the face of an estimated 1.7% increase in the number of households, whose number is expected to reach 35.1M HH by 2040. The commercial sector accounts for around 10.7% of total energy consumption and is estimated to have a 3.5% annual growth. The Agriculture, Fishery, and Forestry sector accounts for only 1.1% of total energy consumption. The implication here is that money can be made conveniently in the cities, where most of the opportunities are.
Changes in the Macroenvironment
Among the most relevant sociological changes in the macroenvironment that affect the environment, or industry, is the increased awareness of issues involving: 1. climate change, 2. sustainable development, and 3. green environment create opportunities towards conformance with the three. However, it also creates potential threats on the viability and desirability of technologies that are not in conformance.
Another sociological change is that population growth rates continue to increase but at decreasing rates, which invokes the threat that demand increases tend to be less with respect to existing products in the market place. It is the electrification backlogs in the so-called “missionary areas,” my “frontier energy,” that can provide additional areas of opportunity.
In the realm of technological changes, the plot thickens overall as new, green technologies, even clean coal and carbon sequestration are being developed to meet the triple concerns of climate change, sustainable development, and green environment. In the arena of renewable energy, developments in harnessing energy from tidal and solar sources deserve to be watched. This quite apart from the observed downward trend in the cost of producing green energy. Overall, technological developments create positive opportunities for industry stakeholders as they are expected to continue forward into time.
On the economic arena, the estimated size of the Philippines market on the basis of Gross Domestic Product is US$ 313.60 billion in 2017 and US$ 333.0432 billion in 2018. In between the two years, the growth rate is 6.2% or US$ 19.4432- billion. The latter absolute growth is expected to persist in the near future.
Based on official survey, the average household spends about 4.800195% of its income on electricity. That comes up to US$ 15,986,723,030 a year in electricity billings. About 48% of that goes to power generation, almost US$ 7.673627056 billion. In Philippines Peso, that’s anywhere between PhP 399,028,606,934.63 and PhP 406,702,233,991.07, along the range of the 52-53 exchange rate.
Still on the economic front, moving away from zero-lower-bound interest rate regime leads to increasing interest rates; thus, raising costs and decreasing profits, making innovation and greater efficiency necessary. The possibilities of economic slowdown in China (down to 6%), UK (3.3%), and in the US (1.5%). Trade war between China and the US not counting, the closure of 3,500 retail stores, marked by the build-up of unsold inventory and talks of a possible US recession, and the exit of Honda from the UK, are developments that provide fair reason to take a serious look on investing in the Philippines.
On fair ground as it were, the risks of leverage, or the judicious use of debt to increase profits by a greater percentage than the increase in sales, take to the front and center with the petition to rehabilitate the Philippines-based shipbuilder Hanjin, which has allegedly clean loans in five banks (PhP 7B in RCBC alone). Though it may be up-to-date in payments, leverage risks are nevertheless underlined, in view of the vagaries of international trade. This runs in favor of investing in the Philippines, where there is an infrastructure “Build Build Build” binge.
Still on the economic front, increased liquidity in the financial system contemplated to countervail possible ill effects of additional tax measures known as TRAIN-2 are in the pipeline via potential lowering of the reserve requirement in order to increase the liquidity of the financial system when the time is right. With that, the fair judgement is that prudent economic management is expected to continue to support the drive towards more economic growth, which is acknowledged to be consumer-driven and therefore based on strong premises, supported by overseas foreign workers’ remittances exceeding US$ 30 B annually.
Finally, historical changes in the politico-legal sphere have the potential of changing the industry. For one, the 2019 mid-term elections with Charter change in the offing, loom as open-ended factors since they can give rise to new opportunities and threats, depending on the results. Meanwhile, the ERC continues to use the “least-cost” criterion, which can hasten automation to cut costs, thereby affecting wages and employment. Thus, this also open-ended, in terms of creating opportunities and threats. Earlier, Energy Secretary Cusi publicly said that he wants to know the “trade secrets” of the oil industry. This can create new opportunities and threats, too. Rather recently, waste disposal become prominent as tons of waste were shipped back to source (South Korea). That, too, impacts on opportunities and threats, regionally, as green environment becomes a cause for concern. On balance, the worst expectation is that developments in this sphere are potential mitigating factors. What stands out is that the Philippines is a good place to be around these days.
Demand Opportunities for increased electricity generation (2019-2029):
In terms of visibility and awareness, the typical firm in the renewal energy business can be viewed as a solar power plant. The new opportunities occasioned by the expected rising demand for increased electricity generation it faces can be approached from the position of strength or from the position of weakness.
On the basis of official power statistics dated 30 April 2018, solar accounts for 3.41421% or 700 MW out of the total reliable capacity of 20,515 MW in 2017. This denotes a putative share of US$ 33,820,315.84 in the electricity revenues at the delivered-to-the-customer level, US$ 261,834,703.35 at the generation industry, and a share of US$ 16,233,751.61 in the annual growth rate. Thus, solar has been short in its impact despite its avowed progress in the country.
For the solar firm with the internal capabilities needed, the most effective response from the position of strength is the development of competitive advantage. This means that firms must be able to deliver benefits that consumers value and which the competition cannot deliver. This can range from better service, prompt response, prevention of power outages, and even lower prices.
However, for the solar firm that lacks strength or internal capabilities to develop competitive advantage, the bare-minimum effective responses from the position of weakness is developing strategic alliances with suppliers, fellow competitors, and even customers and using resources which are bountiful; and, hence can be bought cheaply and improving ways of doing things by technology.
Increased Pricing Opportunities (2019-2040)
In the long-run and even in the medium-term, the trend towards higher nominal price of electricity (2018-2029) remains as a fact of life. The march of history, marked by increasingly lower purchasing power of the Peso as time goes by, will not make lower prices happen within the foreseeable future.
For the typical firm with the internal capabilities needed, the best response(s) that are possible from the position of strength is to find ways of increasing revenues by upsizing consumption during non-peak hours, i.e., working on the volume side of the demand equation. Another possible response is cost-cutting on expenditure items that rise faster than the rate of change of the electricity price index, which may mean laying-off workers and letting technology take over. However, the social consequences are simply not acceptable yet, so changes like these won’t happen soon.
For the typical firm that lack the internal capability to exploit pricing opportunities, the bare-minimum best responses from the position of weakness center on minimizing system downtime and scheduling maintenance on a coordinated basis, detailed planning policies like “hoshin kanri,” which can pinpoint flashpoints when intervention is necessary. Retooling and retraining can be resorted to, but with respect to the inability to marshal resources, there are no two ways to it: ways must be found and men, machine, materials, have to be sourced probably by long-term contracts and the development of alliances with stakeholders, even competitors.
The Threat of Higher Interest Rates means Higher Costs
For the typical firm which has the internal capability needed, the best response(s) from the position of strength is to go for higher levels of prudent leverage. Since debt is cheaper than equity (Modigliani-Miller proposition II), the search for lower cost-of-funds means going more for debt financing, using minimal equity. Higher debt costs always mean ineluctably higher equity costs.
For the typical firm with no internal capability for high finance, the possible response(s) from the position of weakness is still, invariantly, to aim for lower cost-of-funds. It serves the weak firms well to search for financial partnership with congeneric or subsidiaries of universal banks or for the universal banks themselves to get into power generation through their subsidiaries and/or affiliates.
The Threat of Inflation
It is a characteristic of the Philippines economy that inflation sets in after every election and continues well into the next year thereafter. Thus, tighter credit measures to stem inflation can be expected after the elections in 2019, 2022, 2025, and 2028, which will continue into 2020, 2023,2026, and 2029. In simplistic terms, inflation only means that the firm must earn more, that is, turn in an excess of profits over costs, that beats the inflation rate.
With inflation targets between 2-4%, the allowed rate of return base of 10% becomes a mere 6-8% real return. At the risk of pun, it can be said that the risk is real when this happens.
For the typical firm with the internal ability that is needed, the best response from the position of strength is to sell more, at lower cost at every turn. Productivity can be increased by using less of inputs. That requires finding better ways of doing things thus, innovation. Productivity can also be raised by using better inputs, e.g., investment in new technology. When prices of inputs are low, it is propitious to go for long-term contracts.
For the typical firm that lacks the internal abilities needed, the best response from the position of weakness is still to spend less. While “profits are a requirement for doing business” (Drucker), decreasing total costs is a continuing concern, especially for firms with weaknesses or limited abilities. The expenditures on men, machines, and materials must always be kept as low as possible by avoiding waste. To use what Total Quality Management intervenors insist on, “cut on the muda (waste).”
Logic of the Energy Generation Business
To answer the question of how the electricity generation industry makes money, one must grapple with the following unwritten rules of the game: 1. To make very thin spreads at a consistently very high turnover, e.g., no brownouts; and, 2. To make funds available in order to match the maturities of receivables, e.g., prompt collections.
Dimensions of Competition
For a typical firm, the dimensions of competition are costs and reach. The first dimension and source of competitive advantage is cost, starting with the cost of capital. The second dimension is reach because reach determines revenues and profits.
There are at least three generic strategy options for the typical renewable energy firm. The first is niching, which calls for focusing on a small segment of the market, one that is not attractive to the big boys, serving it well so that the others can come in. In more specific terms, venturing into the “missionary areas” or unserved places partakes of niching.
The second is differentiation, which calls for creating an “image” of a uniqueness even when none exists, with the aid of publicity, advertisements, and good corporate communications. Of course, that would raise costs and thus lower profits, so the revenues must justify the venture. Forward into time, the regulators can be expected to see through the costs of advertising and public relations as the aim for lower electricity prices gets more serious.
The third is cost leadership, which calls for “highest delivered value to the customer at the lowest delivered cost.”
While each generic strategy option can be a valid match depending on the target market of the typical firm, it is important to stick to just one generic strategy and to avoid shifting from one generic strategy to another, in order to benefit the most. For instance, it is difficult to justify spending for advertisements when the typical firm is just serving a small area (or “niche”) or when the strategy calls for “lowest delivered cost.”
Part III. Moving Forward: Inputs 2019 ACEF Thematic Tracks
Energy and livable cities
In the present Philippines setting, the prospects for the promotion of renewable energy are beset by only a few factors, namely: (1) from the viewpoint of the users, there is the lack of urgency in the adoption of renewable energy technology; (2) from the viewpoint of the early equity providers, the feasibility of adopting renewable energy in the face of competitive offerings in the market place for energy; and, (3) from the viewpoint of the entrepreneur who puts everything together, the limited opportunities for the adoption of renewable energy, e.g., land reform and tribal issues, interconnection, and RE portfolio standards (RPS). To top it all, from the viewpoint of the government regulatory Department of Energy, there is yet the issue of social acceptability of renewable energy that has to be resolved until way into 2040, as indicated in the renewable energy roadmap of the DOE.
Lack of Urgency
Despite the thinning gap between the supply and demand for electricity, there is no sense of urgency in the minds of the consumers to adopt renewable energy like solar. True, there is awareness and maybe interest up to the point of desire, but the level of actionable desire on a national scale is yet to be breached. True, the Calatagan solar provides a proof-of-concept for solar energy and a few promote the installation of solar energy panels in individual homes, but widespread action has yet to gain traction, in absence of proof of benefits pointing towards a favorable experience. Hence, there is a need to find solutions on how to develop that sense of urgency, more so, for utility-scale plants. Perhaps, part of the hurdle is to find an open area with enough land to build a solar PV power plant, which requires as much as one hectare-per-MW. Yet, how near is it to a Utility or to the national Grid? How about irradiation?
From the point of feasibility, the key factors of success come down to the age-old inventory of men, money, and machines to deliver the key results in the adoption and purchases of renewable energy products and services.
Evidently, there are not enough men on the ground to promote, implement, and support the adoption of renewable energy technology in the Philippines. Money is not flowing from early equity investors to tap whatever financing is available or forthcoming. “Shovel-ready” mentality does not help hasten pre-feasibility activities that are the roots of determining project feasibility. Machines and technology may be within reach, but point-men who can take charge are unable to effectively and efficiently address the nagging question of: “How do we get there?”
In terms of its harshest reality, a 75 MWac of solar power can be delivered on a reliable basis by a 90 MWp solar Pv plant; however, if it were to match a 60 MW power plant fueled by coal, the latter can stymie the former. That is because irradiance cannot be 24/7 that the way to deliver 75 MW of electricity is for a bigger capacity harvesting solar power while the sun shines sans battery storage.
Unavoidably, that situation raises investment requirements, fixed costs per unit, depreciation, and interest payment for loans. In short, it’s a whole new paradigm unfolding that takes getting used to. To emphasize, ways must be found to address the perceived drawbacks and hesitancy of businessmen who are capable of “putting it all together.”
That being the case, it is important for renewable energy proponents to be there at the very start of the planning stage for housing projects and condominium projects. Absence can mean that the right plans and the most appropriate infrastructure for expansion cannot be ensured, resulting in waste of resources down the timeline.
In this respect, there is yet no known proof of concept pointing to the feasibility of renewal energy adoption at the utility scale, where proof of concept is defined as “evidence, typically derived from an experiment or pilot project, which demonstrates that a design concept, business proposal, etc., is feasible.” Definitely, providing such proof of concept can be a major boost towards the adoption of renewable energy, e.g., in solar power.
So far, there is no known community model or pilot residential area that uses solar, or any tidal, anywhere in the Philippines, even on a partial basis. Thus, there is no known deployment at the community level of a solar project such that rises to the level of a demonstrable selling proposition or “proof of the benefit.” From the marketing viewpoint, “selling the favorable experience” finds no validation at the local level.”
At present, the renewable energy community’s believers include a few settlers and way much fewer pioneers. Thus, the name of the marketing game is skimming pricing, which does not encourage early adoption of the new technology.
Without a doubt, early promoters can enjoy a heyday charging the equivalent of US$ 10,000 for equipping a home with solar power, provided, capable of slashing electricity bills by half. But knowing price to be a discriminating variable, it stands to reason that substantial price slash-offs can make the technology affordable to many more households. Until the technology is shared to the point that solar panels can be installed and replaced as a “do-it-yourself” (DIY) activity, much like the way the Swedish IKEA sells its furniture, mass adoption might remain just another pipe dream. So, solutions are needed to promote renewable technology by producing modular parts that can be assembled and, preferably dismantled, in situ.
Behind all these development factors, and all those paradigm shifts to alleviate barriers, issues on land and indigenous peoples’ rights are for the longest time unsolvable. Imagine a utility-scale 100 MWp Solar Pv built in 6 months, ceteris paribus. Cruelly to developers, it can take two years to settle land re-classification, another two or more years to understand agrarian non-coverage clearance, and another two or more years to relocate peace-loving tribes, or even informal dwellers. The risks of time and the risks of process in geothermal and hydro power plants can be more grueling.
Thus, for livable cities, it is important to have a community model or pilot residential area as proof of concept and proof of the benefit to establish a linkage with renewable energy. So far, there could be a proof concept in solar plants in Negros Occidental in Western Visayas; however, proof of the benefit or the demonstrable selling proposition of a favorable customer experience is the room for improvement in the thematic track of energy and livable cities.
Energy and water sustainability
The role of renewable energy in water sustainability remains to be firmly established, then validated. Since the issue of energy and water sustainability straddles the domains of potable drinking water and irrigation water, therefore, the role of renewable energy in both deserves to be firmly established then validated.
Lately, there is news about the use of solar power in irrigating the central plain of the main island Luzon, but there is no further feedback on the matter. Even then, the bigger event is clarifying the role of energy in providing sustainable potable water.
With respect to regulations for water-quality testing, the matter is governed by DENR Administrative Order No. 26-A series of 1994. Otherwise known as the “Philippine National Standards for Drinking Water of 1993,” the PNSDW AO stands as a revision and as an update to the “1978 National Standards for Drinking Water.” It was designed to implement the provisions of Section 9, otherwise known as the “Prescribed Standards and Procedures of Chapter ll of the Code on Sanitation of the Philippines,” under PD 856; lately, the PNSDW, as contained in the DOH Administrative Order No.10, Series of 2017. With that, two government agencies are in-charge of the national standards for water: DENR and DOH.
Quite apart from potential of Hydrogen (pH value), turbidity, color, odor, organic and inorganic constituents, the single most important “make-or-break” factor is taste of preference. This matter is widely-known among operators of water stations as well as regular consumers of bottled water.
“Basically, the pH value is a good indicator of whether water is hard or soft. The pH of pure water is 7. In general, water with a pH lower than 7 is considered acidic, and with a pH greater than 7 is considered basic. The normal range for pH in surface water systems is 6.5 to 8.5, and the pH range for groundwater systems is between 6 to 8.5. Alkalinity is a measure of the capacity of the water to resist a change in pH that would tend to make the water more acidic. The measurement of alkalinity and pH is needed to determine the corrosiveness of the water.” (The Philippine Star, Sept. 6 ,2015).
As such, drinking water broadly spans both acidic and basic, the former being more stable and the latter being more corrosive. In terms of what works on the ground, the pH value of common bottled water is between 6.5 (acidic or basic) and 7.5 (alkalinic). https://theberkey.com/blogs/water-filter/why-ph-level-in-your-water-matters.
Above all, since taste matters, it stands on fair ground to insist that foraying into drinking water is quite a tricky business, where there are no fast-and-tight rules, except to tread lightly. Thus, this can explain the hesitancy of entrepreneurs in venturing into the renewable energy-potable water connection. Indeed, water is not only a tricky business matter. At the bare minimum, the water business demands reliability of the process and the results.
Nowhere else is energy and water sustainability starker than in the case of the La Mesa reservoir and irrigation.
In the case of the La Mesa reservoir, it was built in 1929 to supply potable water for the nearby urban areas then populated by only 2-million people. Today, it is now serving the needs of 12-million people. How long before a serious water crisis emerges is anybody’s guess when. But it does not take a genius to figure out that such a crisis is slowly but surely rising from the level of a mere possibility towards becoming a distinct probability. In no uncertain terms, harvesting potable water from that reservoir cannot be sustainable indefinitely. Investments in new sources are necessary as early as possible.
At face value, fresh water from the Angat-Umiray flowing into the Pacific Ocean is an apparent source of potable water, according to Rep. Danilo Suarez of Quezon Province.
Invariantly, the same goes for irrigation water for planting rice. In more specific terms, there is a need to impound irrigation water during the rainy season, especially during bouts of La Niña. For two reasons: one, to mitigate flooding; and, two, to draw irrigation water for planting rice from the dam (or lake) when summer, drought, or when the El Niño swings in.
At present, the connection between energy and water sustainability is visible in the role that the former plays in the latter. “President Duterte has committed PhP41 billion for the establishment of solar-powered irrigation system in the Philippines in the next three years,” Agriculture Secretary Emmanuel Piñol said. “The idea of providing water by big irrigation system is actually an aged-old idea. What we need are small irrigation systems because we have small landholdings,” he told participants of Food Security Summit for the Visayas regions. Piñol said right now there is an ongoing construction of 169 small river systems in various parts of the country as they looked forward to irrigating 500,000 hectares of new rice farms.
The construction of the Kaliwa Dam, a new water reservoir, is certain to grab the headlines, as the Chinese try to outmaneuver the Japanese to finally clinch the deal. When the victor rises from the din of maneuvers, that signals the perfect time for the connection between renewable energy and the dam to come into the picture.
Thus, in water sustainability, the link of renewable energy to potable water has to be established then validated, while the link of energy to irrigation water has to be validated.
Energy and rural and poverty
The role of energy with rural and poverty alleviation can be broken down into the role of energy in the rural areas and the role of poverty in both urban and rural areas.
Traditionally, it is considered common sense for people to take matters in to their own hands to resolve the urban-versus-rural dualism. At first, the workers simply move from rural to urban areas, whether locally or internationally. Then, they bring their families with them after they think they are ready.
Thus, the migration of people from areas without electricity into those areas that already have electricity are considered as efficient responses akin to the classic “make-or-buy” decision. Why wait for rural electrification when simply moving to the city will result in the enjoyment of the benefits of electricity, as soon as one steps into the ports of the big city? Why invest in having one’s own solar facility at home when one can just move out of the rural area into the urban centers? Needless to say, the resources of the cities become strained. Yet, one cannot blame human coping mechanism at work. Thus, works rational consumer behavior. Hence, has there been individual investment, or village investment in electricity in rural areas?
Nevertheless, the role of renewable energy in poverty alleviation also suffers from the absence of a proof of concept and proof of benefit.
Energy and innovation finance
So far, the connection between energy and innovation finance is unidirectional. The finance people make funds available after early equity has been invested. Lending will happen in accordance with a script that the finance people are comfortable with. Usually, the script involves the size relationship between the loan and the equity, as well as the size relationship between the cash flows that the project generates in relation to the periodic loan amortizations. But without early equity, no project lending follows.
It is difficult to change traditional frames of reference like that. While financing covers both equity and debt, not debt alone, the opportunity is in extending financing services to early equity.
For universal banks, it is possible to invest in nonbanking enterprises, but investing in energy generation, or even financing the trading of electricity, is yet to happen in the near future.
To conclude, just like in the three preceding thematic tracks, the link between renewable energy and innovation finance also suffers from the absence of a proof of concept and a demonstrable selling proposition or “proof of the benefit.”
Clean energy trends and directions
Under the best assumptions of extrapolation, there is a standing claim that the price of solar photovoltaic modules tends to drop 20 percent for every doubling of cumulative shipped volume. At present rates, there is a standing observation that costs halve about every 10 years. Of course, the above are somewhat self-serving, coming as it does from Richard Swanson, the founder of SunPower Corporation, a solar panel manufacturer.
At present, there are at least seven coal power plants in the making. There are more in the pipeline. While the tack of renewable energy proponents is to wage battle in the hearts and minds of consumers, the deciding factors are renewable energy’s costs and, is it base load?
The word “efficiency” summarizes the picture in one word. The present higher cost of renewable energy can mean that its proponents have to approach the efficiency level of the traditional sources of energy. Going by the aforementioned observations of Swanson, the optimistic claim is that it can happen within 20-30 years under conditions of increasing production efficiency, economics of scale in production, and reduced prices of raw materials. (Bill Hussey, March 10, 2019).
In short, the favorable trend depends on how much it will cost the consumer to use electricity, regardless of where it comes from, whether it is green energy or not. The reality is that consumers always pay for “effective” results accessible to them at the lowest price. After all, what they need is just the electricity. The quality of being clean and green is a clear advantage: certainly desirable, but not essential from hindsight.
When effectiveness comes with efficiency, then acceptability is the result. Failure in low pricing reflects a failure in efficiency. Failure in efficiency equals failure in acceptability.
At the risk of a fifth repetition, to establish the link between renewable energy and clean energy trends and directions, what stands out is the absence of a proof of concept and proof of the benefit that Swanson’s law holds valid in the Philippines setting and that the price of solar energy can become competitive with traditional sources within a predictable time table.
Part IV. Conclusion
Within and across the five thematic tracks of ACEF 2019, what stands out is the absence of established and validated model projects, or proof of concept and demonstrable selling proposition, or proof of the benefit, in the role or connection between renewable energy (specifically, solar power) and livable cities, potable water sustainability, rural and poverty alleviation, innovative finance, and trends and directions. Thus, in concrete terms, the rooms for improvement inexorably point towards that direction.
With respect to corporate strategic direction, the marching orders for clean and green energy stakeholders are clear as day: It is important to stick consistently to a single-minded strategic direction; provided, it leads towards increasingly lowest delivered value to the customers.
In no uncertain terms, the increasing acceptability of renewable energy is a matter of economics. In short, it is a matter of price: how much it will cost the customer to enjoy electricity.
Recalling to mind the theme of APEC 2019, “Partnering for Impact,” now it can be said at this point of departure: It is in that matter of price where impact is required; consequently, it is there where partnering for impact matters.