Honeyman: Renewable Energy

Monday, October 24, 2011

LAST week’s visit to Negros Occidental by 18 German and Swiss delegates from the Thomas Lloyd Investments Group is very much welcomed.

Hosted by Jose Ma. Zabaleta, Chairman of Bronzeoak Philippines and San Carlos BioPower, the Thomas Lloyd delegates were here to investigate the viability of generating electricity from biomass.

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There are two Republic Acts designed to encourage the Renewable Energy industry. These are the Biofuels Act 2006, and the Renewable Energy Act. 2008.

Biofuels

The Biofuels Act has the explicit purpose of enabling a domestic bioethanol industry to be created. The Act mandates the use of ethanol in vehicle fuel, initially 5% but rising to the current level of 10%. This means that 400 million liters of ethanol are required annually.

In 2007, as a result of the Biofuels Act, Bronzeoak made a substantial investment, reportedly P3 billion, to create San Carlos Bioenergy Inc (SCBI). SCBI produced ethanol from sugarcane.

By October 2010, however, the high cost of sugarcane meant that SCBI could no longer produce ethanol as cheaply as ethanol imported from Brazil. The oil industry lobby was able to persuade the government, contrary to the spirit of the Biofuels Act, to import Brazilian ethanol with a tariff of only 1%. SCBI’s ethanol production was curtailed and it manufactured sugar syrup instead. Since Roxol, associated with the Sugar Centrals of La Carlota and Don Pedro, and the only other major bioethanol producer in the Philippines, also stopped production of bioethanol. This meant that, temporarily at least, the creation of a domestic bioethanol industry failed.

Our concern about mandating 10% ethanol in vehicle fuel is that the effects of this mixture are not necessarily helpful. The facts are: (a) Ethanol produces 34% less energy per liter than gasoline; (b) ethanol has a different burn rate than gasoline; (c) ethanol has a high ability to absorb water.

It is disturbing that when oil companies buy ‘anhydrous’ ethanol from their suppliers, this does not mean that the ethanol contains 0% water. It means, apparently, that the ethanol contains around 0.7% water.

We believe that the Department of Energy (with the help of the Department of Science and Technology if necessary) should analyze random samples of vehicle fuel being sold at filling stations. This analysis would determine the proportions of gasoline, ethanol and water. We should know what we are buying.

Reliable fuel consumption data is not available, but we believe that vehicle fuel containing 10% ethanol delivers less kilometers per liter than 100% gasoline.

Mandating 10% ethanol in vehicle fuel is bossy, perhaps representative of the previous administration. We believe it would be more compatible with Liberal Party ideology if, as in many countries, the use of ethanol in vehicle fuel were made voluntary rather than mandatory.

For example, in Germany, the motorist is able to buy ‘E10’, that is gasoline containing 10% ethanol, on a voluntary basis. He is not forced. The German motor industry recommends that E10 is only purchased for vehicles manufactured since 2005, when engines were developed which could handle the mixture. Most vehicles in the Philippines are older, and are not well-suited to cope with the gasoline/ethanol mixture.

Bioenergy

The Renewable Energy Act of 2008 is designed to encourage the use of solar, wind, biomass, and hydro particularly as ways to produce electricity. The key element of the Act is the concept of ‘feed-in tariffs’ to provide support to fledgling renewable energy industries.

However, the feed-in tariffs were only mentioned in qualitative terms. Quantification has come later via the National Renewable Energy
Board (NREB). Headed by Pedro ‘Pete’ Maniego, NREB has submitted a petition paper to the Energy Regulatory Commission (ERC) which specifies the proposed terms and conditions under which renewable energy entities may supply electricity. These are that the feed-in tariffs for solar, wind biomass and hydro be P16.95, P12.15, P7.00, and P6.15 per KWH respectively. The proposal is that these amounts be increased according to inflation over the next 20 years.

Reactions have been mixed, and recently have turned largely negative because implementing feed-in tariffs would cause electricity prices to rise somewhat. Since electricity costs have already increased sharply this year, this is not the time to introduce policies which would cause costs to rise still further, say many.

Not so, retorts NREB’s chairman Pete Maniego. Look at Panay Energy Development Corp which is now selling electricity to Panay Electric at P8.30 per KWH. This is a deal which will cause Iloilo residents to pay around P12 per KWH, thereby ensuring that they regain the unenviable mantle of buying the most expensive electricity in the world.

The SCBI/ Thomas Lloyd decision to press ahead with producing electricity from biomass, without waiting for the interminable discussions about feed-in tariffs to be concluded, is to be commended.

‘When the exogenous variables get tough, the tough will adjust’ seems to be SCBI’s motto.