There is an English idiom; “don’t look a gift horse in the mouth.” It’s an old one, from St Jerome in about AD 400 and still much used today. It’s about appreciation; it’s not polite to inspect closely a gift looking for faults in it. It reflects a “middle class western value” [the things that the Chinese government are now insisting that their citizens do not adopt]. In the less developed world this idiom has minimal relevance as practicality rules, but then there should still be appreciation for a gift shouldn’t be there?
Renewable energy developers provide gifts for the Philippines. Renewable energy development removes risk from Philippines electricity consumers because the developers take on the risk themselves. To make statements such as “renewable energy is expensive,” which we hear so often and made by important people, is grossly misleading.
One of the primary objectives of the Renewable Energy Law was to reduce the dependency of the Philippines on imported fossil fuel and the volatility of the international markets. This to be achieved by utilizing indigenous energy sources which are produced by nature; water power, wind power, solar power thus requiring no imported or other fossil fuel. The Philippines is not well off in indigenous fossil fuel; coal and oil albeit it does have some natural gas but that will run out in the foreseeable future and in any event its cost is linked to international oil prices.
For a nation of over 100 Million people to have to depend on international fuel markets brings about significant risk and here in the Philippines that risk is carried by every consumer. Whatever procurement procedures are used they will not beat OPEC’s price fixing.
The price of renewable energy is specifically not subject to international market forces. The fuel, in the case of wind, water and sunlight is free of charge. Biomass fuel is not free of charge but it is usually indigenous.
To put up a diesel fuelled power plant costs about $500,000/MW. A small hydro power plant costs about $ 4,000,000/MW. The hydro developer as well as the wind and solar developers don’t get paid if the weather doesn’t cooperate, they will fail to get a return on their investment. Returns on investment for fossil fuelled power plants are guaranteed, and the consumers will just pay the fuel cost at whatever level international markets dictate. So who has the best deal? The renewable energy developer takes a big risk which would be difficult to get financed which is why the multilaterals make guarantees available in order to encourage the development of renewable energy.
As I have said, wind, solar and run of river hydro are subject to the weather, no wind = no electricity etc, which is why they are termed intermittent generators. It is not wise to plan for base-load using power sources which the weather may not allow to operate when you need them, thus these forms of energy are best utilized as money savers, for the electricity produced can be as low as half the cost of fossil fuel. Because of this a solar, wind or run of river hydropower developer will take its investment risk as well as the weather risk, so long as he is sure that when the renewable facility does produce electricity, that it will be used and paid for, thus “must dispatch.” When it is available you must use it, aside from that single legally mandated offtaker commitment the developer takes all the risks.
All of the above may appear quite rational and logical; alas it does not seem to be well understood by many of the players in the power sector, let alone politicians, banks and the general public. The developer of intermittent renewable energy is the giver of a gift to the electricity consumers of the Philippines, he takes away the fuel price risk and he assumes the risk that the weather will cooperate. It is such a shame that these gifts are not only not appreciated but strenuously objected to by those tasked to purchase electricity from generators and provide it to consumers. At best after fighting to have the gift accepted it may be examined in minute detail in order to ensure that its quality is much better [a thoroughbred racing horse]than that provided by old inefficient fossil fuel plants [the old nags]from which the electricity produced costing at least twice as much, and over which there is no control of its cost!
Things don’t always happen as you would expect in the Philippines . . .
Mike can be contacted at email@example.com