YELLOW PAD
By Roberto Verzola
A previous piece showed that our greenhouse gas reduction commitment to the Paris climate treaty meant a gradual 2.02% annual reduction in fossil-based electricity generation, for a total reduction of 23.3% by 2030 compared to 2017 levels. The annual reduction required by this low-carbon path is only half the 4% natural attrition rate of coal plants, if they are retired at the end of their 25-year useful life. This provides the country with some flexibility.
Our commitment gives the Duterte administration a fossil-based generation ceiling of around 64,280 GWh by 2022, which was our level of fossil-based generation in mid-2016. Thus, if the Duterte administration, by the end of its term, brings down our fossil-based generation to the same level as the level when it assumed office, we can meet our Paris commitment.
WHAT ABOUT OUR GROWING ELECTRICITY REQUIREMENTS? We definitely do not want to sacrifice national development and our power needs for the sake of meeting our Paris commitment. So, the real question is: if we took the low-carbon path and reduced our fossil-based generation by 2% per year, can renewable energy (RE) and energy efficiency cover the balance?
This piece will show that as of 2017, enough RE projects have already been approved by the DoE to cover the balance, with a few years to spare.
Thus, with the right policies, we can meet our growing electricity requirements and our Paris commitment too.
Let us first determine what this balance is.
Using the DoE’s load factor method in the DoE’s Power Development Plan 2016-2040, we estimate the DoE generation target to be around 118,000 GWh by 2022 and 182,000 GWh by 2030. Since a low-carbon scenario limits the Duterte administration to at most 64,280 GWh (54%) of fossil-based generation by 2022, this means that the balance of 53,720 GWh (46%) must be covered by RE.
CAN THE DUTERTE ADMINISTRATION PRODUCE 53,720 GWH FROM RE BY 2022? As of end-2017, some 1,075 private sector RE projects had been submitted to the DoE. Of these, 869 projects had been approved (Table 1), while 206 were still pending.
The approved projects totaled 23,760 MW, good for an annual generation of more than 58,000 GWh based on very conservative capacity factor assumptions (35% hydro, 35% OTEC, 63% geothermal, 23% wind, 14% solar, and 27% biomass). As long as all approved RE projects as of 2017 are implemented on time, we can generate more than enough electricity for our national development goals and exceed our Paris commitment at the same time, with several years to spare.
Including the 206 RE projects still awaiting approval raises the potential annual generation to 68,000 GWh, far exceeding our low-carbon target of 53,720 GWh RE by 2022. Remember that these are just RE projects approved as of 2017. The Duterte administration has four more years to exceed its low-carbon targets.
With a further 10% reduction in electricity demand through energy efficiency, subsequent administrations can go for even more ambitious carbon cuts or GDP growth rates in the future.
OTHER BENEFITS OF A LOW-CARBON PATH This low-carbon path will also 1) help the Philippines access climate-related international grants and financing; 2) reduce local pollution; 3) pull down the price of electricity as solar, wind and battery prices decline steadily; 4) open the country’s industrialization program to sunrise industries offering green investments and green jobs; 5) democratize the electricity sector as more rooftops are solarized; 6) improve the resilience as well as efficiency of our energy infrastructure through distributed generation; and 7) reduce financial and project risk through expansion in smaller increments.
RE PROJECT DELAYS DUE TO ENERGY SPECULATION AND RED TAPE Sadly, some RE developers have dilly-dallied in finishing their projects. They are apparently more interested in reselling their service contracts to latecomers.
Worse, some of these speculators are also building coal plants, whose outputs are contracted out to electric utilities through long-term power supply agreements. And these plants are completed with little delay, especially today, with DoE’s EO 30 fast-tracking “projects of national significance.” Thus, RE projects are locked out of potential markets, while we are locked in for the next decade or more to coal plants which cause global warming, local pollution, volatile prices and other problems.
To foil these energy speculators, the DoE must insist on iron-clad contracts, clear milestones, performance bonds, and hefty penalties for delays in RE projects.
The red-tape problem, a common complaint, can be solved: the DoE should do the pre-feasibility studies and project specifications, collect all the necessary signatures, and package the projects itself. It can then auction off the packaged projects to the most qualified bidders who bid to finish them on time at the lowest cost.
DISMAL RESULTS FROM THE RE ACT The Renewable Energy Act of 2008 is ten years old this year. Its implementation has been dismal.
The feed-in-tariff (FIT) system for big players was hobbled from the beginning by an ill-conceived high-risk “race-to-finish” approach which required developers to finish their RE project first before they can learn if they qualify for FIT or not. FIT participants regularly complain of delayed payments.
The net metering provision for small players was recast by electric utilities into an unattractive net billing system and saddled with barriers like permitting requirements, impact studies and unnecessary charges.
Other provisions like the renewable portfolio standards, renewable energy certificates and green energy options have languished, unimplemented after ten years.
Pres. Duterte should step in to ensure that Filipinos are not denied the full benefits from renewable technologies that are increasingly enjoyed by people in countries with better pro-RE policies.
Roberto Verzola is a Senior Fellow of Action for Economic Reforms. The German foundation Friedrich Ebert Stiftung published in 2017 his book Crossing Over: The Energy Transition to Renewable Electricity (second edition, PDF is online). He is currently president of the non-profit Center for Renewable Energy and Sustainable Technology (CREST).
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