Be careful what you wish for

Electricity prices in the Philippines have a real risk of rising even further without additional or expanded coal plants in the near term. Why? It is all about going to the next best option for more baseload power, which in this case is gas or nuclear energy.

Power demand is projected to grow by over 5% annually, and this needs to be met by a growing pie of dispatchable capacities like coal, gas, and/or nuclear. As the whole energy pie expands, phasing out coal immediately deprives us of today’s most viable and more affordable option for continuous power reliability.

Less coal and more gas in the baseload will be more expensive for electricity users. Looking at some of Meralco’s recent competitive selection process, the lowest of two winning bids for a 600-megawatt baseload power requirement was P5.6015/kWh from a coal plant. Had Meralco sourced that requirement from the spot market instead, consumers would have spent about P9.9 billion more. In comparison, in a separate bid for a capacity of 1,200 megawatts, a natural gas plant won at P7.0718/kWh. Gas was more expensive by P1.47/kWh.

On the other hand, with nuclear, the investment risk is still high, and there is a hefty price tag for high risks even if it is high reward. For one, there is yet to be a policy framework for nuclear power generation in the Philippines. Second, touted small- and medium-sized modular reactors are “first-of-a-kind” uncommercialized technologies that might put initial investors at a first mover disadvantage. Third, considering the existing bottlenecks in the Philippine energy sector, it is still quite difficult to assure investors that nuclear projects can progress on budget and on time. We needed the additional baseload power yesterday and we still need them now.

“But what about solar and wind power?” one might ask. “Aren’t they getting cheaper? Isn’t battery storage getting cheaper as well?”

While solar and wind projects can be scaled, their power generation isn’t consistent and reliable, much less dispatchable, and can’t be baseload power. The power generation of these variable renewable energy capacities swings depending on the weather or the time of day (no sun at night), requiring a “firming” resource like battery storage or dispatchable capacities. While coupling battery storage to solar and wind can address the intermittency, the resulting cost simply isn’t economically viable.

J.P . Morgan’s 13th annual energy paper cited an analysis from Rice University which computed the total system cost if just one source plus storage served 95% of total demand in Texas. It was found that onshore wind + storage was at $131/MWh, solar PV + storage was at $177/MWh, while coal was just at $72/MWh. Coal has less need of support from a firming source and, relatively, renewable energy plus storage could be twice more expensive.

We all want more indigenous renewable energy in our power mix. But, as shown by a slew of recent articles on local banks ceasing coal financing, it isn’t clear to some of us how without additional coal, we risk higher power prices. The economics of fossil fuels are more equitable right now than the economics of rushing into net zero or, worse for lower income earners, the phasing out of coal power plants entirely from the power mix.

We should be comfortable with the fact that one can co-exist with the other. Maximizing all sources of energy leads to cheap power, which benefits all — from the rich to the poor — and fuels businesses and jobs in the economy.

Putting all our eggs in the emissions reduction basket will have very little effect on the total stock of greenhouse gas emissions but will have a sizable negative impact on Philippine economy and society. Equity demands not rushing into a more expensive energy system that will further burden those with low to modest incomes (see: “The pressing needs of Filipinos” and “Push for renewable energy should be balanced with pressing needs of people”).

We need dispatchable coal power until such time that there is a more economic baseload alternative. No more coal would mean haphazardly expanding our baseload exposure to gas, which is more expensive, or to nuclear like small- and medium-sized modular reactors, which are still risky and yet to be commercially available. Nuclear energization is not even likely to happen in the near term, so this doesn’t address the baseload power that we need now and into the rest of the 2020s.

Meanwhile, variable renewable energy like solar and wind aren’t baseload sources to begin with and become expensive when coupled with battery storage.

Timely and strategic exposures, or a well-calculated, flexible, and balanced energy mix, as articulated by the Philippine Energy Plan, is the way to go. And coal still has a role to play in the future of the Philippine energy mix.

To naysayers, be careful what you wish for.