Philippines Seen from Asia Clean Energy Perspective (2019-2029) by Antonio A. Ver

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.

 

ACEF 2018

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 NusseyMarch 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.

 

Generic Strategy

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?

 

Feasibility

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.

 

Limited Opportunities

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.

Chairman Emeritus Benjamin E. Diokno is Governor of Bangko Sentral ng Pilipinas!

APBest congratulates Chairman Emeritus Benjamin E. Diokno for his appointment as Governor of the Bangko Sentral ng Pilipinas (BSP) and Chairman of the Monetary Board.

Chairman Emeritus Diokno completed his Bachelor’s degree in Public Administration (1968), Masters in Public Administration (1970), and Master of Arts in Economics (1974) from the University of the Philippines Diliman. He also earned a Master of Arts in Political Economy from the Johns Hopkins University in the United States (1976) and a Doctor of Philosophy (PhD) in Economics from the Maxwell School of Citizenship and Public Affairs, Syracuse University (1981).

Former Secretary Diokno served three administrations: first as DBM Undersecretary for former President Corazon Aquino, and eventually as Budget Secretary under President Joseph Estrada and again for President Rodrigo Duterte since 2016.

 

Policy Framework for the Electric Power Industry in the Philippines’ NIC-hood: Quo Vadis?

by Antonio A. Ver[1]

November 19, 2018

 

Introduction

The objective of this Paper is to start a national conversation on the electric power industry in the Philippines with 2018-2029 timeline in mind.

The viewpoint taken here is that of the industry.  “Industry,” refers to the set of firms that satisfy the needs, wants, and expectations of the market and system, nationwide. “Market” peculiarly refers to power industry participants and consumers of electricity. “System” is the enfranchised concession of transmission and sub-transmission assets managed and operated by private sector.  Their ownership to date is with government. (EPIRA, 2001).

The nature of the general problem confronting the industry can be broadly considered as both economic and financial.  Without prejudice to claims by other disciplines to the contrary, it is, generally speaking, an allocation problem (Samuelson) saddled with the intricacies considering the huge amounts involved.

Thus, the threshold issue in energy economics in the Philippines is three-fold: “What to produce? How much to produce? For whom to produce?” (Lipsey & Steiner, Economics). Perforce, policy defined as “guideline for thinking,” must address these major aspects, three-fold, sine qua non.

To paraphrase, the problem can be in terms of: What kinds of power plants (by fuel type) is the country looking at from 2018-2029?  How much electricity production are those plants capable of producing?  For whom consumer type, residential or industrial, and considering environmentalists’ advocacies versus price concerns, do the power generation players produce in 2018-2029?

In recent decades, power generation in the Philippines is an endeavour which mainly the private sector undertakes.  This is in keeping with the thoughts of Adam Smith who held that, “it is only the royal mail (or post office) that deserves government’s attention by way of subsidy.”

Almost always in the recent past, it is the private sector that bears the risks from the time that building a plant is conceptualized, percolating the deal in its Preliminary-Front-End Engineering & Design (Pre-FEED) stage, putting up the early equity, packaging the financing, conferring with suppliers, securing licenses and permits, engineering, procurement, and actual construction (EPC), starting operations, and staying in business.

Consistent with the principle of the risk-return trade off, the higher the risk, therefore, higher returns are required.

Quite the harsh reality that it is, there persists the impression that something similar to the “tragedy of the commons” can be felt emanating from the power generation industry. Quite simply, this means that rational individual behaviour does not necessarily serve the welfare of society as a whole. (Hardin, Garrett, Tragedy of the Commons).

 

The Prospect of Emerging Opportunities

Inexorably, opportunities are emerging within the timeline 2018-2029. This is the reason why the proposed national conversation on power generation is relevant and timely.

Extrapolating from the observed 5.6% average GDP growth for the immediate past decade as mentioned in the Department of Energy website (www.doe.gov.ph), it stands to reason that power generation and GDP must grow in tandem.  Between 2018-2029, it is imperative that new power plants be constructed for two reasons: one is to replace the old plants; another reason is to supply more electricity to make further growth possible.

It must be emphasized that power plants do not grow overnight. They have to be built brick by brick, from scratch usually, over five or more years, before they can produce electricity.  The availability of the grid, its N-1 contingency, is another vital aspect to consider.  In fact, the country’s Transmission Development Plan (TDP) is envisioned to anticipate growth from 2016 through 2040.

In between, every time that the demand for electricity exceeds the available capacity, the dependable capacity, or the installed capacity, the risk of a power shortage emerges.

The Table below presents the computations of the demand for electricity, year by year, for the period from 2018-2029. The starting point of the computations is based on the actual 2017 figures appearing on the 2017 Power Demand and Supply Highlights in the DOE website.

Table I: Projected Peak Demand, 5.6% Annual Increase, and Cumulative 5.6% Increase, 2018-2029, (In Megawatts of Electricity)
                                    Year                        Peak Demand                       5.6% Annual Increase                   Cumulative 5.6% Increase
2017 13,789 835 (actual)
2018 14,561 772 772
2019  15,377 815 1,588
2020  16,238 861 2,449
2021 17,147 909 3,358
2022  18,107 960 4,318
2023 19,121  1,014  5,332
2024 20,192 1,071 6,403
2025 21,323 1,131 7,534
2026 22,517 1,194 8,728
2027 23,778 1,261  9,989
2028  25,109 1,332 11,320
2029 26,515 1,406 12,726

 

 

 

 

 

 

Source of baseline 2017 data: Department of Energy website

 

The above Table projects that demand is expected to increase by 82.10% from 14,561 MW in 2018 to 26,515 MW in 2029, under the assumption of a 5.6 % annual growth, which is a bit lower than the expected growth in GDP.  The cumulative growth in demand (12,726 MW) calls for investment in new plants and maintaining the operating efficiency of the existing power plants. Thus, the opportunity is there to recreate and/or reconfigure the power generation industry.

The Table below presents the computations of the available capacity, dependable capacity, and installed capacity for electricity, year by year, for the period from 2018-2029. The starting point of the computations are from actual 2017 figures from the DOE website.

Table II: Projections for Available Capacity, Dependable Capacity, and Installed Capacity at 5.6% Growth, 2018-2029, (In Megawatts of Electricity)
Year Available Capacity Dependable Capacity Installed Capacity
2017 14,458 20,515 22,730
2018 15,268 21,664 24,003
2019 16,123 22,877 25,347
2020 17,026 24,158 26,766
2021 17,979 25,511 28,265
2022 18,986 26,940 29,848
2023 20,049 28,448 31,520
2024 21,172 30,041 33,285
2025 22,357 31,724 35,149
2026 23,609 33,500 37,117
2027 24,931 35,376 39,196
2028 26,328 37,357 41,391
2029 27,802 39,449 43,709

Source of baseline 2017 data: Department of Energy website

 

The above Table indicates that new installed capacity must rise to 43,709 MW by 2029 from 24,003 MW in 2018.

That represents a target additional investment of at least 19,706 MW newly-installed capacity, assuming that all power plants operating in 2018 are still running in 2029.

In a nutshell, what that means is 82.10% of present installed capacity must be generated in the next eleven years by new plants yet to be constructed. While at the same time, the old power plants must keep on running as efficiently as they do at present.

 

The Prospective Threat

Table III: Concentration Matrix of Power Generation Capacity, By Location (In Levels and Per Cent)
GRID POWER GENERATION CAPACITY (MW) PER CENT SHARE (%)
Installed Dependable Installed Dependable
Luzon 15,128 13,874 70.0 71.0
Visayas 3,352 2,945 15.5 15.1
Mindanao 3,141 2,716 14.5 13.9
Total 21,621 19,536 100.0 100.0

Source: Department of Energy website

 

Table III above indicates that the installed power generation capacity is located 70% in Luzon and 30% elsewhere. On the basis of dependable capacity, 71% is located in Luzon, 15.1% in the Visayas, and 13.9% is located in Mindanao.

Table IV: Concentration Matrix of Power Generation Capacity, By Fuel Type (In Levels and Per Cent)
FUEL TYPE PHILIPPINES
Capacity (MW) Percent Share (%)
Installed Dependable Installed Dependable
Coal 7,569 7,230 35.0 37.0
Renewable Energy 7,038 6,199 32.5 31.7
Hydro 3,637 3,241 16.8 16.6
Geothermal 1,906 1,752 8.8 9.0
Solar 843 663 3.9 3.4
Wind 427 383 2.0 2.0
Biomass 224 160 1.0 0.8
Oil Based 3,584 2,816 16.6 14.4
Natural Gas 3,431 3,291 15.9 16.8
TOTAL 21,621 19,536 100.0 100.0

Source: Department of Energy website

 

Table IV excludes off-grid generators.  It indicates that the share of plants classified as coal, geothermal, and natural gas are the dependable ones.  Their percentage share or contribution to the total dependable grid supply is higher than what their installed capacity indicates.

As in the past, the arrival of power plants into the scene may be described as heuristic or “hit or miss.”  In short, they come almost like accidents that just happen without intelligent design or efficient direction.  However, there is faux pas when there is no power system planning, or study of the impact of a generation plant when injected into the grid or system, the network as a whole.  This is a myriad of a labyrinth, to exaggerate the complexity of electric power.  This is where many would-be developers miserably fail.

Moreover, there is no one who can lay claim to the fame of being responsible for the present portfolio mix of power plants in the Philippines.

Ineluctably, there is no escape from the tough reality that a different mix denotes a different accessible price for electricity consumption.  More specifically, possibly lower electricity prices.

 

Framework’s Areas of Concern

In crafting the framework bounded by the period from 2018-2029, four important areas of concern have been initially identified. These are the structure of incentives and disincentives, strategic choice that underlies policy, the cost variable, and financial intermediation.  All four are just some of the major areas that determine the success or failure of power generation projects.  It is by way of a national conversation that a well-considered national framework can emerge.

 

The Structure of Incentives and Disincentives

For the record, the structure of incentives and disincentives refers to the total package of benefits and detriments that exist in the present energy milieu. As everyone knows, there are benefits (tax breaks, etc.) and regulations existing in the environment that make it rewarding, at times, and inconvenient, at times, to be in the power generation industry.

As everyone expects, the structure of incentives and the structure of disincentives taken as one structure, is an area of concern that should be first on the agenda of the national conversation. Definitely, the rewards must justify the risks.  Or, no risks need be taken by those who are risk-averse.  At the end of the risk-taking, it is only fair that returns commensurate to the risks are being made.  That is a hard reality of business and financial life.  Otherwise, it is expected that investors will shy away. With the kind of money involved running into billions of US dollars, everyone must tread lightly, so as the saying goes, “If it ain’t broke, don’t fix it.”

Without dwelling into the details for now, industry insiders are fully aware of presently existing projects whose operations are in suspense because of regulatory difficulties.  Eventually, the entrepreneurs and the public must bear the costs of such delays.  On the side of the entrepreneurs, they still have to make good on the loan amortizations, even if that means borrowing more.  Whatever happens, the consumers end up footing the bill later, since those costs (next agendum) will be passed-on to no one else but them.

Under the present structure of incentives and disincentives in the energy sector, and in environment, the power generation industry is still surviving well under conditions of perfect competition, in spite of the intense competitive rivalry.  In view of the achievement and business strides that must be made, it is fortunate that huge funds and capital for construction and operations are continually still being raised and the engines of the industry are running with business success.

For this first agendum, the underlying policy question is: What sets of incentives and disincentives are necessary to increase installed capacity by 82.10%?

 

The Strategy That Underlies Policy

For the second agendum, it is about strategy that underlies policy.

In brief recall, Michael Porter is famous for the principle of being “caught in the middle” of two different generic strategies. In his framework, those (generic) strategies include cost leadership, differentiation, and focusing (“niche-ing”).

In the Porter framework, being “caught in the middle” prevents firms from reaping the full benefits that a single-minded strategy has to offer.

At least in the power generation business, the rules of the game arising out of policies hew as close as possible to perfect competition.  Thus, the continuing development of increasingly perfect competition market conditions can be likened to a strategic choice which the power generation players prefer over other possible alternatives.  It is important to stick consistently to that strategy chosen, to make the playground conducive to doing business and in order not to create discontinuities.

But first and foremost, so what is the national strategy that the players can feed on in the national journey towards increasing power generation by 82.10% from 2018-2029?  If there is one, it has to rise to the level of making things happen.

In other countries, their governments provide subsidies and funding support.  For power plant entrepreneurs and developers in the Philippines looking at a period of expansion in demand from 2018-2029, the game could be perfect competition in a free market.  All is fair.

However, there are opinions that too much regulation stifles free markets.  It delays cash flows and the expansion of the industry.  It increases the costs of doing businesses.  Ultimately, those costs get passed-on to consumers.

In short, the structure of disincentives needs to be crafted within the same overarching objective that the structure of incentives is crafted.  To increase power generation capacity by 82.10% from 2018-2029 is not an 11-year undertaking.  The five years required to erect dependable power plants impel everyone to look at the 11 years less five.

 

The Cost Variable

The third agendum in the national conversation is the cost variable.  As always, cost is a valid concern for both ends of the market: the producers and the consumers.

Quite briefly, there are three sub-areas of concern here: variable cost, fixed cost, and marginal cost.

The first one, variable cost varies with output.  For instance, fuel cost. Enough has been said about fuel cost as the culprit to blame for high electricity prices.  Until fuel prices fell and the prices of electricity stubbornly refuse to leave the old neighbourhood.

The second one, fixed cost does not vary with output.  Like the cost of the plant, the salaries of the workers, and the amortizations to the bankers.  They have to be paid on time until hell freezes over.  After all, a business is forever.

In retrospect, the success of the Chinese over the US in doing business is due in no small measure to the fact that whatever their fixed cost is, it can be divided by their population of 1,300,000,000 potential consumers?  Thus, their fixed cost per unit is low; hence, they have a low per unit cost of production.  This phenomenon is explained by the theory behind experience curve pricing. (Go, Josiah. Marketing Mix).

Quite unfortunately, the Filipinos do not have the advantage of having 1.3 billion people or having a centralized economy completely backed by the might and power of its government’s money.  Instead, it has a handful of entrepreneurs with hard-earned money looking at various possibilities.  Thus, fixed costs in the Philippines are relatively higher, by as much as accountants can justify.  After all, rational businessmen are usually risk-averse.  With billions involved just to enter the industry, they are not speculators.  No one can afford to recklessly lose money in the power generation business.

The third one, marginal cost refers to the expenses involved to achieve increasing generating capacity by 1 MW or by 1% or 82.10%.  At the end of 2029, this is the kind of summative cost that matters and the yoke around the Filipino nation to be borne by them from that time.  How much money per kW after the 82.10% increase in generation capacity?  It is drivel talk to avoid answering this kind of question.

Of late, the dust fails to clear.  It will never clear by itself alone. Until that last simple but devastating question gets answered.  And then, enter the motherhood statement called the “least cost” criterion.  It looks like a total stab in the dark.  Nevertheless, the least cost criterion is a valid choice provided it is used for the same cross-section. That is to say, it is time-bound, such that all prices being considered are contemporaneous with each other.  Otherwise, comparison is not merely complicated; it is also odious.

Least cost along the same cross-section, say, costs from 2018-2023, is a valid criterion.  However, least cost as a methodology of analysis is erroneous when different times are involved, say 2018 versus 2020 versus 2025 versus 2029.

Certainly, least cost, as a regulatory strategy, is definitely not plausible when the technologies involved are different (e.g., solar PV versus wind, versus hydropower, renewables versus clean-coal technologies, versus combined-cycle using natural gas or LNG).

Interestingly, the issue of valid comparisons arises with respect to segmentation with different kinds of energy resources procured.  Inasmuch as technologies change, evolve and decay, and as they do; therefore, orientation and context must change.

To emphasize, the issue of least cost is just a result of its two component parts: fixed costs and variable costs.  Indeed, this is for further discussion altogether, in a national conversation. It is interesting to find out if the differences between the two are considered in regulation-setting.

Yet, to insist on the least cost criterion is to espouse hydropower that “has been the leading source of renewable energy across the world, accounting for up to 71% of this supply as of 2016.  This capacity was built up in North America and Europe between 1920 and 1970 when thousands of dams were built. (Emilio F. Moran, et. al., Sustainable Hydropower in the 21st Century).  Otherwise, is thermal power a disservice to genuine least cost?  However, the least cost criterion misses the point of why people spend. People do not buy just the products or services.  Rather, they purchase the entire package of benefits and detriments, also known as “the experience” that those products can deliver.  The buyers’ part with their money for products and services that deliver value: that “favourable customer experience.” That brings us back to dependability with only coal, geothermal, and natural gas power plants as the dependable ones.  (Infra. Table IV, p5).  So, what is their share in the power generation mix at the end of 2018-2029? How do we get there?

 

Marginal Cost

Since dependable power plants take time to build, what is started in 2018 can be expected to operate by 2022-2023 yet. By the same token, the last plant to start operating by 2029 has to start construction by 2024-2025, barring unforeseen circumstances.

In the power generation business, there are rarely any surprises. No novice is expected to be able to conceptualize a power plant, especially a big one, to put everything together, and make it run.

With billions at stake, it takes a bunch of rich fools to even bravely attempt joining the industry.  It takes foresight, some call it vision, the sight of a power plant already running in the entrepreneur’s mind even what are in front of him are just designs and financial plans.

In that manner, industry players know when someone is playing the game of “bluff.”  Like, there is not even a range of firm target prices for electricity from 2018-2029.

Quite appropriately, the policy guideline is marginal cost: the cost of acquiring additional capacity within the relevant time period: the present, not the historical past.  As the Nobel laureate economist George Joseph Stigler puts it, “Prices are sticky downward.” (Stigler, The Theory of Price).

Analytically, the precise tool is marginal cost pricing.  This type of cost refers to the expenses to generate or produce just one more MW of energy, across 2018-2029 and beyond.

When the demand for electricity exceeds supply by, say, 1 kilowatt, the system will keep on tripping every time that the supply is exceeded.  When that happens, there is no way of knowing how many kilowatt hours must be added to the available capacity.  Could it be 1 kilowatt, or 1 MW, or maybe more?  A considerable excess capacity has to be constructed to provide a certain margin of safety to prevent continuing outages.

Thus, the marginal cost of satisfying a 1-kilowatt of shortage can mean constructing an entire 600 MW power plant.  Not at the time of need but way before it happens.  At least five years before it happens, a power plant is indivisible.  Half a power plant does not mean half-capacity; it means no additional capacity until the whole hog is running.

Clearly, the cost that consumers pay cannot be subjected to the least cost criterion. The reason for this is that someone must pay for the margin of safety for the next five years or more. Indeed, marginal cost is also the cost of preventing future inconvenience, years forward before demand overshoots supply.  Thus, it is an optimal price.  Undeniably, there are constraints.  By force of circumstances, dependability is important.  To patronize the engineering profession, cost is the last consideration.

Thus said, it is important to note that textbooks only deal with the quantitative view of marginal cost.  In the power generation industry, as equally important as quantitative marginal cost is qualitative marginal cost: the question of what to spend marginal cost on. The possibilities can include expensive clean-coal technologies and gas-fired combined-cycle power plants, or even nuclear, assuming that urgency is not at issue.  Whatever the choice, each one of them has drawbacks or disadvantages.  Thus, not only is marginal cost paying for the margin of safety in order that power outages are prevented; the marginal cost choice also carries with it the baggage of risks of trading off one power generation possibility versus another.

 

The Financial Intermediation Variable

This fourth major area of concern has to do with facilitating the movement of funds from savers to investors.  In this respect, the third agendum in the national conversation is financial intermediation, which means “financing,” or, “to make funds available.”

Generally, the financing outlook is 70% debt and 30% equity. That reflects the risk-sharing facing the power generation industry.  Already, raising and arranging either debt or equity is a strenuous undertaking that does not need further aggravation.

In spite of it all, albeit left alone, the industry is surviving. Thus, the structure of incentives deserves to be maintained because they are proven to work in terms of delivering dependable power supply.  On the other hand, the structure of disincentives (and regulations) that make it hard to build more power plants deserves attenuation.

Where do we go from here? Quo Vadis?

As Total Quality Management practitioners insist, customers require Quality, Cost, and Delivery.

However, it’s always Quality first. Stable, predictable, and timely delivery at the moment of need must be met.  And, cost is the last consideration among engineers and management experts.

Recently, Board of Investments’ (BOI) November 2018 reports: “Pulangi Hydro Power Corp.’s Php38 billion project sustained the strong performance of the power sector as it is putting up a 250 MW Hydroelectric Power Plant in Bukidnon. The manufacturing segment was bolstered by the approval of Petron Corporation’s Php82 billion investment in the Condensate Processing Complex Project in its refinery in Limay, Bataan; and, the Php62.6 billion Liquefied National Gas (LNG) terminal project of FGEN LNG Corporation in Batangas City with a capacity of 5 million tons per year. “

Curiously, are these projects successful because the proponents are financially strong?  Do these projects make the industry 5-star in Porter’s paradigm? No, the resulting rivalry denies the power industry its 5th star unless players, regulators, and policy-makers in government get together and minimize the effects of that competitive force, maybe, by carving out areas for each of them.

Against all odds, coal remains the fuel-of-choice to balance supply and demand in baseload power that propels the country’s newly industrializing economy.  Yet, there is an obtrusive direction to go merchant market, ostensibly backed by the policy of Competitive Selection Process (CSP). However, CSP impinges on financing that is attuned to the traditional Power Supply Agreement (PSA), the so-called Off-take, that must have “a Financial Model depicting a steady Debt Service Reserve Account (DSRA) and investment-grade Equity Internal Rate of Return (EIRR),” rather than correctly analysing recurring income.

Perforce, the policy question is: Are banks ready for merchant market?  While the Wholesale Electricity Spot Market (WESM) shows stabilizing prices and accessibility to reliable supply, debt-financing for big power plants must have anchor load that is guaranteed.  This is in spite of the fact that PSAs hitherto do not even require Letters of Credit “for every Anniversary Year” to assure security of repayment.

To date, there are a several (at least seven) potential power generation projects that are in the pipeline but are encountering setbacks involving the aforementioned areas of concern, in addition to other aggravations.  Apart from the disadvantages inherent in whatever is their respective chosen type of power plant.

 

Conclusion

At the end of the day, the nation needs to come to terms with a national agenda on power generation, to have a target mix of power generation units for 2018-2029 that is responsive to the needs of a growing economy.

Admittedly, the agenda for the national conversation are bare bones. They are neither complete nor comprehensive. Thus, they make room for improvements and the development of a truly national framework on power generation.

In a graphical sense, as the power generation industry players reach out for the fruit of honest venture, they are aided by the sticks of financial intermediation while they must carefully step on the structure of incentives and disincentives.  The distance that separates the players from the fruit are the costs of doing business.

In no uncertain terms, it cannot be overemphasized that a known national portfolio mix of diversified power plants translates to the ability to predict electricity prices within a probable range in the near future. For sure, that is a prospect that is good both for the producers and the consumers. including the local government jurisdictions where the power plants are situated.

Without injecting value judgments as yet, the Filipino nation needs to come to a consensus on the vision and prospects of power generation from 2018-2029.  The stakeholders of the power generation industry must make things happen by targeting this early what kind of energy to produce, how many power plants, for whom to produce, and what type of technology to deploy; again, with due respect to environmental concerns as well as pricing concerns.

Sadly, on another front, there seems to be a lack of understanding about the dynamics of the Environmental Impact Statement (EIS).  For quite some time now, there are anxious concerns on Climate Change.  But, do Filipinos appreciate the nuances of carbon emissions, air and water quality?  And, is the country’s geology as old as Europe’s vast lands and as ancient as China’s endowed with fossils?

Unless a national conversation starts in earnest in order to galvanize the nation to move with determination towards a focused, correct direction, energy economics and the country’s power industry is expected to amble gingerly in the search for the grail of deeper comprehension.

 

This article was also published in Inquirer.net last November 19, 2018.

[1] Antonio A. Ver is Charter Founder and elected as the first President of Asia Pacific Basin for Energy Strategies in October 2008, an energy and economic think tank that earned its Special Consultative Status with the United Nations Economic and Social Council (UN ECOSOC) in June 2014 to the present.  He was Independent Director from June 2009 to June 2015 of the Philippine Electricity Market Corporation (PEMC) that runs the Wholesale Electricity Spot Market (WESM).

Revisiting the 1987 Constitution of the Philippines: The 1st National Forum and Public Consultation

Awarding of AAA Trophy made by Kublai Millan to Chief Justice Reynato S. Puno (L-R Atty. Jorge V. Sarmiento, Chief Justice Reynato S. Puno, Atty. Roberto Rafael V. Lucila)

MANILA, PHILIPPINES – The Alpha Phi Beta Fraternity, in partnership with the Asia-Pacific Bar Association and the Asia-Pacific Basin for Energy Strategies, hosted the “Revisiting the 1987 Constitution of the Philippines: The 1st National Forum and Public Consultation” (1NFPC) in the Centennial Hall of the Manila Hotel. Former Chief Justice and Consultative Committee to Review the 1987 Constitution Chairperson Reynato S. Puno ’59 was the keynote speaker. He was joined by Philippine Judicial Academy Chancellor Justice Adolfo Azcuna, former Senators Jose Lina Jr. and Heherson Alvarez, Court Administrator Jose Midas Marquez, Dean Pacifico Agabin, Atty. Dennis Habawel, Dr. Temario Rivera, and Atty. Rene Sarmiento who spoke as expert resource persons their respective fields.

The other distinguished speakers include Former IBP President Atty. Roan Libarios, LawAsia Philippines President Atty. Edgar Tarriela, Dr. Victor Abola, DAR USec. Luis Meinradro Pangulayan, CHR Commissioner Atty. Gwendolyn Pimentel-Gana, Dr. Rene Ofreneo, PCC Commissioner Amabelle Asuncion, German Ambassador to the Philippines Dr. Gordon Kricke, French Deputy Head of Mission H.E. Laurent Le Godec, and Dr. Charlotte Justine Diokno-Sicat.

BSP Deputy Governor Diwa Guinginido, Dr. Rosario Manasan, PSE COO Atty. Roel Refran, Dr. Arturo Corpuz, Atty. Roberto Rafael Lucila, and Ms. Bibeth Orteza Siguion-Reyna also shared their views about the proposals of the Committee.

1NFPC served as a forum for the exchange of ideas and positions of all stakeholders on the proposed charter and as a venue for the public consultation of the Consultative Committee before it submits its recommendations to the Office of the President. It was attended by more than 200 participants from the government, private sector, academe, diplomatic offices, among others. The Committee is expected to submit its output to President Rodrigo Duterte on the first week of July, in time for his third State of the Nation Address.

Setting the record straight

This is regarding Dr. Laurence Delina’s commentary, “The case for an Asean Energy Union” (11/14/17).

Asean’s energy sector is well-established through the Asean Centre for Energy (ACE) in 1999. Its vision: “The Centre as catalyst for the economic growth and integration of the Asean region by initiating and facilitating multilateral collaborations as well as joint and collective activities on energy.” The mission: “ACE shall accelerate the integration of energy strategies within Asean by providing relevant information and expertise to ensure the necessary energy policies and programmes are in harmony with the economic growth and the environmental sustainability of the region.”

The 35th Asean Ministers on Energy Meeting (Amem), and Asean Energy Business Forum (AEBF) were held in the Philippines in September 2017. The first-ever in regional electricity was the signing of the Energy Purchase and Wheeling Agreement with Malaysia, Singapore, Thailand and Laos. Soon, a natural gas platform is seen among Indonesia and member-countries. In 18 years, Amem and AEBF have expanded into the Asean Plus Three of China, Japan and South Korea. Moreover, Asean countries, through ACE, have fostered coherent relationships with global energy organizations like the UN Economic and Social Commission for Asia and the Pacific, International Energy Agency, and International Renewable Energy Agency. As early as 2003, Asean was an observer organization in the Brussels-based Energy Charter Conference.

Maybe this letter will be helpful to Dr. Delina in exploring the region’s vast energy field.

ANTONIO A. VER, President and CEO, H&WB Asia Pacific (Pte Ltd) Corp.