David Celestra Tan, MSK
1 May 2017
One of the most critical functions of the Department of Energy is to provide a prescient Energy Mix strategy for power supply development. And one of the expensive lessons learned since the power sector was privatized and deregulated under the EPIRA Law of 2001 is that the private sector cannot be counted upon to develop a holistic energy mix power supply that will provide energy security, competitive power, and environmental protection for the country.
Left to themselves, the private generators naturally will gravitate towards the low risk and most profitable technologies like coal. A recent case in point is the signing by Meralco with its sister company Meralco PowerGen more than 4,000mw of power supply, all coal. And this after its Chairman is supposed to have egged the DOE “to provide the energy mix policy direction and the private sector will follow.”
While we as a country are talking about concerns for climate change, the reality is that most of the base load power supply are now coal. Mindanao has become coal country after having been clean hydro (and low cost power) island for generations. Visayas is also dominated by coal. And here comes Meralco, the largest distribution utility in the country at 62% market share committing their future power supply to coal.
Diversifying Energy Mix a Tough Challenge
Diversifying the country’s energy reliance is a critical strategy for energy security. It cannot rely too much on one fuel like coal. Most of our coal comes from Indonesia and Australia. Something happens to those countries and the country will pay through the nose. Indigenous coal like Semirara does not provide Filipinos with price leverage because even this local coal is price-indexed to foreign coal prices. We need to balance it with natural gas, geothermal, hydro, and a sensible renewable energy program.
The private sector is justifying all these by saying coal is the only option if the country is to have cheap power. Gas generation is similarly in the same cost level but the infrastructure for LNG supply has not been sufficiently developed. And it is not going to happen without a resolute and sustained push from the DOE.
Surely it will take sustained effort for 3 to 6 years but the DOE’s leadership historically had not stayed long enough in their jobs to make meaningful direction to the diversification of our power technologies.
Clean energy options like hydro, solar, wind, and biomass are reaching grid parity with coal. Nationally it seems coal generation rate will be in the P5.00 to 5.50 per kwh range. Meralco’s claimed rates of P3.60 per kwh for their new contracts with Meralco PowerGen are based on low coal prices. And when world coal prices kick up we will see its real price. But clean energy is not as easy as coal which can also be developed at large scales of 300 to 1200mw compared to renewable energy which is 10 to 100mw in each location.
Our power cost is high because low power cost is not really a national policy. We only pay lip service to it. We buy into the line of the power generators that “the most expensive power is shortage of power”. Assuring sufficient supply and attaining least cost power must always go together. When the government only talks about assuring adequate supply and the need for renewable energy, you know that price is not a consideration which means it is going to be non-competitive and expensive.
Energy mix also need to define whether we are pursuing centralized power for our archipelagic country or are we decentralizing our power supply by encouraging bite sized power plants on each island? Should we aspire for N-1 power reliability in each island?
We mostly talk about base load supply and renewable energy. Energy Mix includes developing intermediate, reserve, and ancillary services power. The rise of intermittent renewable energies, like wind and solar, make development of ancillary services power even more exigent.
What is the role of hydro projects? Should they be sources of cleaner and cheaper power as in the pre-EPIRA days before 2001 at P2.10 per kwh or should they be reserve and ancillary services power as the new private owners have converted them to be at WESM prices of P6.00 per kwh. Along these lines would depend the role of the Agus hydro complex in Mindanao. Should they be privatized and turned into ancillary services power as they did in Luzon or should they be rehabilitated and restored to being a source of lower cost power for the people of Mindanao? On the role of hydro in the energy mix will also depend whether the Laiban dam project in Quezon will be encouraged or not.
The Department of Energy is mandated by RA 7638 (Department of Energy Act of 1992) to prepare, integrate, coordinate, supervise and control all plans, programs, projects and activities of the Government relative to energy exploration, development, utilization, distribution and conservation. Its mandate however was made more specific by the Epira Law of 2001 to include the following under Section 37.
(a) Formulate policies for the planning and implementation of a comprehensive program for the efficient supply and economical use of energy consistent with the approved national economic plan and with the policies on environmental protection and conservation and maintenance of ecological balance, and provide a mechanism for the integration, rationalization, and coordination of the various energy programs of the Government;
(b) Develop and update annually the existing Philippine Energy Plan, hereinafter referred to as ‘The Plan’, which shall provide for an integrated and comprehensive exploration, development, utilization, distribution, and conservation of energy resources, with preferential bias for environment-friendly, indigenous, and low-cost sources of energy. The plan shall include a policy direction towards the privatization of government agencies related to energy, deregulation of the power and energy industry, and reduction of dependency on oil-fired plants
(c) Develop policies and procedures and, as appropriate, promote a system of energy development incentives to enable and encourage electric power industry participants to provide adequate capacity to meet demand including, among others, reserve requirements;
(d) Monitor private sector activities relative to energy projects in order to attain the goals of the restructuring , privatization, and modernization of the electric power sector as provided for under existing laws: Provided, That the Department shall endeavor to provide for an environment conducive to free and active private sector participation and investment in all energy activities;
We are not saying setting up a policy guideline on Energy Mix would be politically easy. Every mix the DOE pushes will have detractors because sectors have their own agenda. And implementation is another matter. The DOE has been considered toothless in implementing power development strategy. Its Philippine Energy Plan is considered nothing but a tally sheet of power projects being determined and developed by the private sector. The CSP reform is the one that is giving DOE enforcement teeth for an energy mix policy.
Let us hope the DOE comes up with a prescient Energy Mix policy soon. We have not had a President with the true political will to do what is right for the country. The term of President Rodrigo Roa Duterte is an opportunity to reform the power industry and create an Energy Mix for the country. Let us not miss this chance.
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