MANILA, 12 October 2017 – The Philippine’s financial sector is massively exposed to the imminent stranding of proposed coal plants in the country, which amount to over 10,000 megawatts or US$21 billion (PHP1.05 trillion at PHP50 to US$1), according to a report released today by the Institute for Energy Economics and Financial Analysis (IEEFA) and the Institute for Climate and Sustainable Cities (ICSC).
“Prudent reform is required to level the playing field in the energy sector and to hold investors accountable for their own investment errors. The Philippines is heavily but needlessly over-dependent on coal, which is a losing gamble. The entire nation could be locked into two decades of paying for coal power it may not end up using,” said IEEFA energy finance analyst Sara Jane Ahmed, co-author with ICSC energy policy advisor Jose Logarta Jr. of “Carving out Coal in the Philippines: Stranded Coal Plant Assets and the Energy Transition.”
According to Ahmed, “retail competition, natural gas, and the cost deflation of renewable energy and its interaction with natural gas and retail competition are factors inexorably disrupting the dominance of coal.”
Current energy policies pass on the costs of financial coal risks to consumers, who would then be forced to shoulder higher electricity bills, IEEFA and ICSC stated in their report. It shows that adding renewables to any electricity system will erode the utilization rates of coal power because clean energy has become the least cost option in many areas.
The report recommends the Energy Regulatory Commission require carve-out clauses in all fossil fuel projects to protect consumers. A carve-out clause, which reduces the amount of power the utility must buy from the power generator, can exempt the distribution utilities from the consequences of reducing contracted capacity from coal plants.
“Meralco had the foresight to put a carve-out clause in its power sector agreements (PSAs), recognizing the inevitability of stranded asset risk and the need to protect ratepayers from stranded assets by shifting stranded costs to the independent power providers and their investors,” Ahmed said.
The report also states investments in renewable energy and liquefied natural gas are more cost-effective and less risky for investors and consumers alike.
“Coal prices soared last year by 60% globally while solar prices fell over 40% over the last six months in the country. It is ironic that we import 75% of our coal supply even though the Philippines is a global leader in geothermal energy and holds a vast potential for other sources of renewables, including wind and hydro,” Ahmed added. ###
- Philippines/ICSC: AC Dimatatac | email@example.com | +63 917 851 4890
- Indonesia/IEEFA: James Lorenz | firstname.lastname@example.org | +61 400 376 021
Notes to the Editor:
The Institute for Energy Economics and Financial Analysis is a US-based international think tank which aims to accelerate the transition to a diverse, sustainable and profitable energy economy. http://www.ieefa.org/
The Institute for Climate and Sustainable Cities is a policy group in the Philippines promoting low-carbon development strategies, sustainable energy solutions and fair climate policy in vulnerable countries. http://icsc.ngo/