“Is it really . . . ?”
Well, yet again, a person of influence made this statement to me on Saturday. Whilst taken literally and out of context the statement has some validity, it is in fact highly misleading, and more dangerously if believed by those whose knowledge of the energy business is scant but who have policy-making power [which includes most of the senior and very important people here in the Philippines], then wrong directions will be taken.
Whilst I am not naive or egotistical enough to believe that most, if any of the senior—and—very—important—people—in—the—Philippines—who—have—scant—knowledge—of the—energy—business, would actually read this column, I do think that I should use this space to put this much bandied about statement into context and hopefully may just stimulate a bit of right thinking—political and subjective considerations aside, of course!
I have been involved in the energy business for a while, about 35 years, and for 25 years of that I was of the strong belief that renewable energy was for wimps. Not something that “real men” would waste their time on. But then I was working for a major oil company involved mostly in exploration and development of oil.
In the later stages of this working relationship I became involved in the natural gas and power business areas. Whilst looking for oil to produce there is no thinking required as to how to sell it, the market being the international spot markets. Producing natural gas to sell is a totally different business because you also have to find and secure a market in order to justify development investment.
Securing markets is difficult which is why the big players also decided to go into power development, only to find the selling electricity on an economic basis similar to the core and long-standing business of oil is very difficult!
There are many different types of renewable energy; it is highly misleading to generalize about the cost. Each type has its own characteristics; hydro [impoundment, pumped storage, and run of river], solar, wind, geothermal, ocean, tidal, biomass, waste to energy, fuel cells and probably more that I can’t bring to mind or which are in the early stages of development.
Impoundment hydro schemes, so long as it keeps raining, can produce very cheap electricity on a very reliable basis [e.g., August in Mindanao at P3/kWh—albeit development costs have long since been fully recovered]. Run of river hydro schemes are generally smaller in capacity and can also produce very reliable power outputs—much more reliable than diesel power generation.
Hydropower schemes are however expensive to develop; lots of civil engineering work to be done usually in inaccessible places, but of course there is no fuel cost, the fuel is free. So hydropower is expensive and time consuming to develop [up to $4Mln/MW capacity], but the developer rather than the consumer bears that risk which then needs to be reflected in the tariff and in contracts with a long enough term to recoup his investment.
Diesel power is cheap to develop [about $500,000/MW capacity]but no developer is going to take the fuel price risk, which becomes a pass through to the consumer often subsidized as in the case of Philippines off-grid areas [at a cost of about P4 to P5 Bln/year]who is then hostage to the international oil price market.
For example, the diesel cost in Palawan is about P14 to P15/kWh requiring a subsidy of P8/kWh whilst run of river hydro is available at a cost of just over P6/kWh requiring no subsidy. The development cost of solar power has reduced dramatically [by about 40 to 50 percent]over the last three or four years but storage costs remain a challenge. Wind power is as reliable as the wind although forecasting technology is improving, but is not too expensive to develop. Ocean power at its current stage of development is a very expensive technology but has the potential for producing big amounts of power.
The Philippines has established feed in tariff rates for on-grid renewable power but for a developer to access these rates requires him to have already almost completed construction before he knows whether or not he would be entitled to the feed in tariff. This is a risk that most developers other than those with heaps of money and an ability to “fix things up” in the Philippines system, would not take. Thus access to the feed in tariff becomes the exclusive prerogative of those with money and power [again, but this is the Philippines after all!] at whatever rates they want to charge.
Anyway, oil-fired power has almost vanished from the Luzon base-load which is now satisfied with natural gas [for a few more years]and coal which lots of people, and for very good reasons, don’t like but then there is not much in the way of alternative options available, and it is reasonably cheap at about P5/kWh.
We do need to be more discriminating over the use of these throw away generalizations though when talking about renewable energy, “please,” important people.
It seems glaringly obvious to me that the place to really give a push for the utilization of renewable energy is in the Philippines off-grid areas, small loads which do not challenge the potential capacity of renewable energy technologies and which will reduce or remove the subsidy. To promote the widespread utilization of renewable energy for the Luzon grid is a step too far for now but what is needed is some intelligent and knowledgeable planning, setting the development and utilization of renewable technologies against the future needs of Luzon.
But alas, that needs an honest and non-politicized assessment of how the economy of the Philippines is really going to develop; OFW remittances, financial trading, “hot money,” buying Pesos to hold their value, and the other tricks which make people like Rolls Royce set up car dealerships here are not going to increase national demand for electricity very much. Again but whilst we have to keep the chimera of spectacular growth and economic miracles alive we can’t hope for too much informed planning.
Mike can be contacted at email@example.com