Our energy mix (up)

THE PHILIPPINES’ energy mix story had never been so much about climate change as about energy security. When we started developing our renewable energy sources decades ago, from hydroelectric to geothermal, it was motivated by the need to reduce our great vulnerability to the volatile price of petroleum, which we almost entirely need to import. We needed sources of power that were both indigenous and inexpensive.

Iceland is a country that exemplifies how indigenous energy resources can be used to great advantage. Its hydroelectric and geothermal resources make up about 98 percent of its energy mix. Power consumers pay about $0.04 per kilowatt-hour, or less than P2/kWh. It has achieved the three Cs in power generation that all nations aspire for: cheap, consistent, clean. But Iceland is an island-nation about the size of Mindanao, with a much smaller population. It does not have to worry about interisland connectivity. It has melting glaciers that provide more than enough hydroelectric power. But Iceland demonstrates how things can be if a nation need not depend on imported fossil fuels.

The Philippine government has been branded as hypocritical for approving so many coal-fired plants even as it calls for reduced carbon emissions. The Philippines, after all, is blessed with a variety of renewable energy resources that can be developed to fill its power needs. We have traditionally depended on hydroelectric power. We also have ample geothermal resources, and most of our existing renewable energy mix comes from these two sources. The International Renewable Energy Agency cites the Philippines as having “good-to-excellent wind availability throughout the country,” ample solar radiation, and considerable biomass potential from agricultural waste. Wind farms and solar plants are on the rise. Biomass energy has been in use for many years. To climate change advocates, it is inconsistent for us to keep approving coal power projects, knowing how burning more fossil fuels aggravates climate change, to which the Philippines is extremely vulnerable. Furthermore, the country had just pledged to the United Nations a rather aggressive target of 70-percent reduction in carbon emissions by 2030.

Hydroelectric power, which dominates the power generation mix of Mindanao, is what has traditionally kept electricity prices low on the island. When the Agus-Pulangi hydroelectric power facilities were exempted from privatization in 2013, the estimated generation cost from these plants was less than P1/kWh, considerably lower than the cheapest available alternatives in the market. With good watershed management, these plants can be a reliable source of cheap power over the long term. But unlike the plants driven by melting glaciers in Iceland, the river-run hydroelectric plants in the Philippines are susceptible to droughts induced by El Niño, which appears to have come at greater frequency and intensity with climate change. Hence, their total dependable capacity drops significantly during dry spells, and the Mindanao power grid needs to turn to other energy sources. It’s noteworthy that the P5.90/kWh feed-in-tariff (FIT), or guaranteed price, that the Energy Regulatory Commission has provided for hydropower does not reflect the true (lower) cost of generation from the Agus-Pulangi assets.

We have also begun massive solar and wind developments. But these sources are more expensive, site-specific, and unsuitable for baseload power because of unstable capacity. The FIT rate of the first solar projects was set at P9.68/kWh. Wind at P8.53/kWh and biomass at P6.63/kWh are also well above the current generation rate of thermal and natural gas plants, which falls below P5/kWh. Increasing the share of these FIT-covered energy sources will thus bring the electricity cost up. Areas with good wind ideal for power generation are limited. Cloudy days will come when solar plants cannot generate their installed capacity, and using batteries to store solar energy would drive costs even higher. These renewable energy sources may be “clean,” but they are not “cheap” and “consistent.” They may be good for fulfilling peak load requirements when baseload is not enough, but they cannot always be relied upon.

Geothermal can potentially compete with coal as it’s less susceptible to the seasons, and a well-managed mature geothermal development should be able to keep its generation price at par with coal and natural gas plants. But operating a geothermal field is more complex than operating a natural gas or coal plant. The cost of geothermal development comes up front. Development risk is greater, the rate of return is slower, and the capital investment higher. With coal as alternative, any power investor would hesitate to develop a geothermal resource, especially since it is not covered by FIT.

Our traditional, fossil-fuel-based power sources are cheaper and consistent and have obvious economic advantages in the short term, but imply future costs that our children and their children will incur. We have some limited natural gas resources, but these will not be able to keep up with our rising power demands. And as the world shifts away from coal toward cleaner natural gas, natural gas import prices will rise. Coal plants are quicker to put up, and the dropping demand for the fuel promises an oversupply and even lower prices in the coming years. For now, then, coal does make great economic sense for baseload plants.

With all these, we will inevitably continue to be mixed up about what our energy mix ought to be. It’s a complex and difficult question that has no easy answers.

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