Friday, June 18, 2021

Algo: How to achieve low-cost electricity for Filipinos

AMID the Covid-19 pandemic and bill shocks, consumers in Metro Manila and neighboring provinces must brace themselves for another electricity price hike. Meralco announced an upcoming increase of P0.12 per kilowatt-hour within the month, citing higher generation charges as the gradual reopening of the economy has led to an increase in electricity demand and a tighter supply. A main factor cited for higher charges is a combination of issues with recent power generation, including forced outages and scheduled shutdowns of coal-fired power plants.

Even if bill payment deadlines are extended further, many end-users would still be incapable of completing their existing payments. Considering the anomalies associated with the bill shocks still remain unresolved, how unfair is it to consumers to shoulder yet another burden in the midst of a global crisis?

This also encapsulates a long-running problem in the country's energy planning: the assumption that relying on "cheap" fossil fuels, especially coal, would result in long-term energy security for the Philippines. The "least-cost" energy system planners were hoping for has instead led to one of the highest electricity rates in the Asia-Pacific.

For decades, coal has been favored as the dominant source of electricity in the Philippines. The Department of Energy (DOE) reasons as the basis for this trend its "technology neutral" policy, which favors energy technologies and power supply agreements with the least cost. This has created a perception of "base load" generation being the most reliable among all options.

The Covid-19 pandemic has exposed a major flaw in this policy direction. The power generation of coal-fired power plants usually remains constant to reduce operational costs. However, this makes energy systems reliant on said facilities inflexible in responding to drastic changes in electricity demand.

Such is the case observed in Luzon, as the grid was hit by a "yellow alert" last June, signifying a limited power supply. This does not indicate a lack of capacity and an excuse to construct more coal plants; it rather indicates an excessive dependence on these facilities that can undergo forced shutdowns, leading to a lack of adequate reserves that can respond to changes in demand.

This is one of the many flaws in the Philippine power sector and governance that contributes to high electricity rates. Other factors include the failure of current assessments of "least cost" to account for externalities such as the social costs of environmental pollution and global warming, and the reality of importing large quantities of fossil fuels that makes its cost vulnerable to changes in foreign exchange rates.

All of these can result in an increased burden for consumers, which is exactly what is happening today. As the distribution utility firm, Meralco selected where it sources its electricity. Yet as the pandemic arrives and the facilities and contracts associated with its partnered power producers fail to adapt, Filipino consumers are now the ones bearing the brunt, with charges being unjustly passed on to them.

Despite this reality, the national government plans to increase the country's dependence on coal under the proposed Philippine Energy Plan. This could only lead to a future energy sector characterized with grid inflexibility, price volatility, and higher vulnerability to system shocks that could have a similar degree to the current pandemic.

It has become apparent that the "base load"-centric mentality is outdated. Energy planners must recognize the problem does not lie with a shortage in quantity of supply, but a lack of quality in the systems encompassing the Philippines's power sector.

Increasing the flexibility of the country's power systems does not mean increasing base load options by adding more coal-fired power plants. It involves promoting the development of more cost-effective, cleaner energy sources to create reliable grids that can adequately respond to changes in demand on different time scales.

The development of renewable energy (RE) in the Philippines is necessary to ensure a diverse mix of power generation types, manage peak demand, and provide reliable electricity during times of system stress. The declining costs of solar and wind, along with heightened risk of coal as stranded assets, creates an opportunity for the country to transition to a more sustainable energy sector. Unfortunately, it has lagged way behind current global market trends, which must be remedied by policymakers.

The DOE must redefine its approaches towards consumer-oriented energy security. After more than a decade of delays, this year marks the first time that all mechanisms are finally in place to fully implement the Renewable Energy Act of 2008. The pressure is on DOE to ensure these mechanisms will be swiftly and properly implemented.

One key opportunity involves the enforcement of the Green Energy Tariff program, an auctioning process that promotes market competition and flexibility in selecting most suitable RE technologies for specific areas in the country. This policy would help facilitate compliance with Renewable Portfolio Standards, which mandates power producers and distribution utilities such as Meralco to source a minimum portion of energy from RE.

The department must also attract more investments in measures designed to enhance energy efficiency, develop and install modular RE systems in off-grid areas, and modernize grids to minimize costly losses. Current subsidies for coal should also be phased out, while mechanisms must be established to impose taxes on coal-power producers, reflecting the externalities from their operations, without them passing on these costs to consumers.

No matter what lens we use, it is clear that the best direction for the Philippines's energy future does not point towards outdated, pollutive, and costly systems. Energy governance must operate with the following mentality: a resilient energy sector is characterized by sustainable systems that protects the rights of consumers and ensures them affordable and reliable electricity.


John Leo is the program manager of Living Laudato Si' Philippines and Climate Action for Sustainability Initiative (Kasali). He has been a citizen journalist since 2016.


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