Future-proofing energy security
The Department of Energy (DoE) says it will no longer give permits for the construction of new coal-fired power plants. And, perhaps signaling preference for more renewable energy projects in the future, energy officials are also now allowing foreign investors to fully own big geothermal plant projects in the country.
Energy officials have noted the need for a “more flexible” power supply mix. The aim is to build “a more sustainable power system that will be resilient in the face of structural changes in demand and will be flexible enough to accommodate the entry of new, cleaner, and indigenous technological innovations,” Energy Secretary Alfonso Cusi told a virtual conference on Tuesday.
The ongoing shift away from “traditional” energy sources like coal and oil is perhaps likewise indicated by the recent decision of Pilipinas Shell Petroleum Corp. to shut down its oil refinery in Batangas. Meanwhile, Petron Corp. says it is also considering eventually closing its refinery in Bataan. And when it does, the Philippines will become mainly an importer of gasoline and diesel.
Secretary Cusi points to the goal of “sustainable growth” as the main driver for transitioning from fossil fuel-based energy like coal and oil to “cleaner energy sources.” The ban on coal, energy officials say, will be in effect until there is a significant increase in demand for power, and prevailing supply will be insufficient. In short, the ban is not forever.
The “temporary ban” or the moratorium on new approvals has several consequences, unintended or otherwise. One, it favors those who are already invested in coal and are efficiently and profitably operating coal plants, and have access to cheap coal. The ban poses a barrier or a limitation to entry for those who intend to compete in this field in the future.
Two, it may place on the backburner all planned but still-unpermitted coal projects and forces energy investors to look for alternatives. Those with capital, but not the technology to pursue “cleaner” energy projects, will be prompted to either divest, diversify, or venture with clean-energy investors. This indirectly pushes capital towards renewable projects in the pipeline.
Three, the ban favors those already invested in renewables, even those operating at not-so-efficient or not-so-profitable levels. By putting an end to investments, even temporarily, on coal energy, then existing players can be given temporary relief from the drop in energy demand because of COVID-19. But this also puts them in a position to sell or supply more, and thus achieve optimization or profitability, as demand rises in the future.
Four, the ban, in a way, protects and favors existing players, including coal-fired plants, if it has the twin effect of deterring further competition from coal — even temporarily — and, paving the way for a longer gestation period for new “clean energy” projects to materialize. If power supply will be indirectly capped meantime, existing players can cut losses or better recoup investments as soon as demand rises again.
Note that the ban on endorsing new coal-fired power plants will reportedly not affect those already given prior endorsements. In Luzon alone, there are reportedly 3,436 megawatts (MW) of coal-fired power projects already committed. Then, we have another 135 MW in Visayas, and another 420 MW in Mindanao. The “one we need to sort out,” according to an Energy official, covers about 10,000 MW of “indicative” coal-fired power plant projects across the country.
It is also unclear to me where the pursuit of cleaner energy puts the “nuclear” initiative. And given pronouncements previously that tend to support the consideration of the nuclear option, I am uncertain now whether this is still something that is going to be pursued. In this line, it will be very interesting how the government’s 20-year Philippine Energy Plan will look like.
As for allowing foreigners to fully own large-scale geothermal exploration, development, and utilization projects, or those requiring an initial investment cost of about $50 million or more, this signals a couple of things: that there is not enough capital in the country interested in such projects; or, that there is not enough technical expertise; or, both; or, that there is foreign group interested to come in but only if they can fully own and control the venture.
Frankly, it makes no difference to me if foreigners are allowed 100% ownership of large-scale renewable energy projects. The risks associated with such I deem relatively low for us. After all, it is not as if foreign investors can simply pack up the big power projects and repatriate them lock, stock, and barrel. Neither can they “pilfer” local production and then send them home.
And it is highly unlikely for foreign military agents or saboteurs to invest at least $50 million in a local energy project just to get the chance to “sabotage” our energy security in the future. It will be simpler and cheaper for them to just fund a foreign military team in the future to infiltrate and bomb existing power installations in the Philippines.
It is a different story if foreigners destructively mined our minerals and just sent raw ore abroad; or foreign poachers harvested fish from our seas; or foreign farmers are allowed to own and use our land to grow food mainly for their use. Foreigners producing solar, geothermal, or hydropower or natural gas power in the country cannot “steal” and take home what they produce.
Also, at this point, solar is said to be at its cheapest in terms of installation and cost of production worldwide. This is abundant energy at reasonable cost, and produced in a way that is renewable and sustainable. This situation benefits both people and the environment, as long as we also consider the recycling of waste generated by the replacement of old panels.
The writing is on the wall even for fossil fuels. And I think Shell and Petron know this. Land travel and air travel are currently down, thus also the demand for their fossil fuel. But with newer hybrid technology and electric cars coming out, industries and consumers are also looking for cheaper and more energy-efficient ways to run factories and homes, and to move cargo and people from one point to another. Many may opt to shift away from gasoline and diesel.
Reducing power industry demand particularly for fossil fuel like bunker and coal further insulates us from external factors like supply bottlenecks and geopolitics that impact on the prices of imported fuel. Shifting to renewables and electric alternatives might actually make oil refineries in the country irrelevant, eventually.
I believe the Energy department is on the right track. While government policy calibrations will always have industry winners and industry losers, overall, the winner should be the consumer and the country. But even power and fuel are products that need to be sold at a profit. Lower energy and fuel prices benefit consumers and producers, but this should not be at the expense of those producing them nor the environment. I believe clean energy is a win-win for both.
Marvin Tort is a former managing editor of BusinessWorld, and a former chairman of the Philippines Press Council
