DESPITE some progress in developing policies to attract more investment in geothermal energy, the Philippines is still wasting the opportunity to take advantage of its vast resources, a number of recent assessments of the energy sector have concluded.
Geothermal energy is a renewable form of energy that uses steam extracted from natural underground reservoirs to drive turbines that produce electricity. Although geothermal poses some technical challenges, if properly designed and managed, it is a practically infinite source of energy, one that produces no emissions and has only minor environmental impacts otherwise.
The biggest advantage to geothermal energy, at least for countries like the Philippines that are fortunate to be able to tap it, is that unlike most other forms of renewable energy, it is constant and can be relied on to provide so-called "baseload power." Solar and wind power are unavoidably variable because of the weather, and even hydroelectric power, although more reliable, can fluctuate due to environmental conditions.
The Philippines, thanks to its volcanic geology, has one of the highest potential geothermal energy reserves in the world, estimated by an old Department of Energy (DoE) study, published in 2012 and still largely forming the basis for geothermal energy targets, at about 4,500 megawatts (MW) or roughly one-fourth of the country's electricity demand. Currently, the Philippines meets about 12 percent of its demand - just under 2,000 MW - with geothermal, making it the third-largest producer of geothermal energy in the world after the United States and Indonesia.
Under the "Philippine Energy Plan 2016-2030," the DoE targets geothermal to account for 40 percent of all renewable energy by 2030, with overall geothermal capacity to increase to 4,000 MW by 2040. On the occasion of the opening of five geothermal "predetermined areas" (PDAs) for competitive bidding at the beginning of this year, the DoE stated that "all policies to support the market for renewable energy are now in place and implemented," including the Renewable Portfolio Standards (RPS), the Green Energy Option Program (GEOP), the Enhanced Net Metering program and the establishment of the Renewable Energy Market. In addition, Energy Secretary Alfonso Cusi announced in October last year that 100-percent foreign ownership would be allowed for large-scale (those with an initial investment of $50 million or more) geothermal projects in an effort to attract more investors to the sector.
The consensus among energy sector analysts and potential investors, however, is that while the DoE's recent policy moves are positive, these do not go nearly far enough to make the Philippines' geothermal sector attractive enough to make the DoE's 2030 and 2040 targets realistic.
There are too many issues that are seen as obstacles to the Philippines' realizing its geothermal potential. The first is the disconnect between the government's stated aspirations and its glacial pace of planning developments, exemplified by the recent tender of the five geothermal PDAs, which together total only 87 MW of potential capacity. Renewable energy investors - not just in geothermal but in other sectors as well - have long complained about apparently arbitrary limits on expansion, which in turn limits investment opportunities.
The second issue is that potential geothermal investors see the "all policies to support the market for renewable energy" as side-stepping the biggest challenge (and admittedly the biggest drawback) to geothermal development - its comparatively high start-up costs. More so than most other forms of renewable energy, the payoff from geothermal only comes in the long term, although when it does the return on investment is quite high.
According to the US Department of Energy, the rule of thumb is that installation costs for geothermal range from $2.5 million to $5 million per MW, not including exploration and development costs. Without substantial up-front financial incentives - whether these are in the form of feed-in tariffs, other tax incentives, subsidized power rates, or even just access to competitive loans - many potential investors will hesitate to enter the Philippine market, or worse, be lured away to other countries (such as Indonesia) that do offer worthwhile incentives.
While the DoE deserves credit for what it has done so far, it should recognize that its policymaking job with respect to geothermal development is far from over.