Can PHL wean itself off coal?

By Rea Cu, Business Mirror

Note: This article was originally published last October 13, 2017 as the conclusion of a three-part series in Business Mirror.

A REPORT for educational and informational purposes by the Institute for Energy Economics and Financial Analysis (IEEFA) and the Institute for Climate and Sustainable Cities (ICSC) provides an overview of the country’s coal sector.

“The 10,423 megawatts [MW] of coal-fired power plants in the current pipeline is emblematic of the Philippines’s growing dependence on imported coal,” the report titled “Carving out Coal in the Philippines: Stranded Coal Plant Assets and the Energy Transition,” said.

The report, penned by IEEFA energy financial analyst Sara Jane Ahmed and ICSC energy policy advisor Jose Logarta Jr., said the Philippines imports 15 million tons of coal per year. This amount represents 80 percent of the country’s coal requirements. The majority of the imports—95 percent—come from Indonesia, “a source that has not always been reliable.”  The Philippines’s average coal inventory is 30 to 40 days.

“Should a ban on coal exports from any supplier nation be declared, the Philippines would experience coal-supply issues in about a month,” Ahmed and Logarta wrote. The authors named Australia, South Africa and Russia as the other nations the Philippines imports coal from.

Production

ACCORDING to the report, which was released this month, the Philippines imported more than $1 billion (P50 billion) of coal last year at a cost increase of 140.3 percent from 2015.

Coal prices doubled between May 2016 and December 2016, from $51.20 to $ 100.69, citing Delft, The Netherlands-based Van der Schaar Investments B.V.

“Such fluctuations can be worrisome for consumers and businesses alike,” the authors wrote. The report said the Philippines’s coal production is minimal—an average of 8 million tons in the last six years—despite the country being a significant consumer of coal.

“Because the country produces only low-quality coal—which must be burned in larger amounts than higher-quality coal for the same energy output— and because most of its coal-fired power plants are built for imported coal, the country must continue to import from other countries for its coal needs,” the report said.

As of March, the Philippine government indicated 10,423 MW of upcoming coal-capacity expansion, with 4,476 MW of that total under construction, the report said.

“The Philippines already has a total of 7,419 MW of coal-fired capacity and indeed has a coal-fired capacity surplus in some areas, including Mindanao, home to roughly one-fifth of the population.”

Challenge

ACCORDING to the IEEFA-ICSC report, electricity-generation trends show institutions “are moving away from coal and toward cheaper fuel sources.” Solar-powered electricity costs have fallen by 99 percent since 1976 and by 90 percent since 2009, while the cost of
wind-powered generation has fallen 50
percent since 2009, the report revealed. The Philippines has almost 1 gigawatt (GW) of installed solar PV (photovoltaics) with over 2 GW of pending solar applications. It leads Southeast Asia in installed wind energy capacity with 400 MW in operation and 1,600 MW of capacity to be added over the next two to three years, the report added.

The IEEFA report noted the viability of solar, wind or other renewable energy was not considered during a public consultation for the review of the environmental compliance certificate (ECC) of the Atimonan coal-fired power plant.

The Department of Energy (DoE), the authors wrote, responded to this omission by reasoning that the “renewables are only intermittent sources of energy” and the Philippines “needs a stable source of energy.”

Meanwhile, Atimonan’s developers argued that “the cost of solar energy is double the price of coal.” “Neither assertion is correct,” Ahmed and Logarta said.

Taxation

A strategy the government is mulling over is applying more tax on fossil fuels to wean the industry from dependence on coal.

A coal tax has yet to be announced but the Department of Finance (DOF) earlier pointed out that it is studying to put taxes on coal as part of its fifth package for the Comprehensive Tax Reform Program. This package aims to tackle taxes on health, environment and luxury items, among others.

Prior to the fifth package, there’s Senate Bill 1592, which is pushing for the amendment of Section 151 of the National Internal Revenue Code to increase the excise tax on coal from P10 per metric ton to P20 per metric ton.

“We are very aware of the coal situation and we are preparing for it and you know we would not like to make proposals that we are not ready,” Finance Secretary Carlos G. Dominguez III said at a hearing of the Senate finance committee.

Senator Loren B. Legarda pointed out that the law exempting the payment of excise taxes from coal products have not been touched since 1974. “[That is a] source of energy; that is a necessity and indigenous resources,” Legarda said.

Welcome

THE DOF has welcomed the endorsement by the Senate Ways and Means Committee for the plenary approval of SB 1592.

Dominguez himself lauded the panel for its prompt action and expressed hopes Congress could soon pass its final version in time for the initial tax-reform package’s planned implementation by January next year.

According to the finance chief, the DOF was looking forward to working with the Senate panel in coming up with “a measure that would deliver the most benefits to the Filipino people at the soonest possible time.”

The DOF expects the Senate to pass the bill before Congress goes on recess mid-October, thereby enabling the bicameral conference committee to likely hammer out by November a final congressional version of the Tax Reform for Acceleration and Inclusion Act (Train), which President Duterte could then sign into law by mid-December.

Surplus

FOR the IEEFA and ICSC, the Philippines has to do more than tax fossil fuel.

“The long-term resilience of the Philippine economy depends on finding a more practical energy model—one that will shield consumers and businesses from price, as well as exchange-risk shocks,” the groups said in its report.

The report noted that coal prices soared last year by 60 percent, offering a stark example of how coal-import electricity economies are at the mercy of price volatility and uncertainty.

Philippine power generation surged 9 percent in 2016, from 82.6 terawatt hours (TWh) in 2015 to 89.9 TWh, with most of this increase coming from coal-fired plants. Electricity consumption grew from 74.8 TWh in 2015 to 81.8 TWh in 2016. Ahmed and Logarta attributed this trend to a 12.7-percent growth in residential consumption due to unusually hot weather that drove up use of cooling systems, to activity related local and national elections and to increased production capacity due to strong economic growth.

“While advocates of more coal-fired generation argue that it is needed to secure baseload power, the Philippines, if it builds out its coal-generation capacity as proposed, will have a significant surplus of coal-fired generation,” the authors wrote. “Such a scenario would lead to the underutilization of coal-fired assets.”

Tags: