MANILA, 24 August 2020 – Energy policy experts today affirmed an energy transition is well underway in the Philippines, thanks to bold moves from the Department of Energy (DOE) and the country’s largest utility, Meralco.
“Debates on pandemic-related power bills are far from resolved but we also believe it’s important to share our view that power sector managers have been making the right moves to protect consumer interests for the long haul,” said Alberto Dalusung III, energy transition advisor of the Institute for Climate and Sustainable Cities or ICSC at an online briefing held today. “At a time when the public is dealing with so much daily bad news, it’s critical to point to acts of leadership from government and businesses like Meralco.”
“Meralco followed the DOE’s lead dropping the onerous automatic pass-through provision in its new power contracts so that its customers are protected from fuel price volatility and foreign exchange fluctuations. Instead, their generation tenders are now based on fixed price systems, because doing so moves the risks to investors and banks still foolish enough to bankroll fossil fuels like coal,” said Sara Jane Ahmed of the US-based think tank Institute for Energy Economics and Financial Analysis or IEEFA.
Ahmed pointed to “Meralco’s foresight in integrating a carve out provision in its power contracts, which curtails its purchase of expensive coal even from its own subsidiaries when cheaper power is available from other companies.” She added, “DOE has done well in accelerating its implementation of green auctions, which is expected to bring prices down considerably the way as over 40 countries who have implemented similar programs have experienced.”
Dalusung said regulators and other power industry players must take the DOE’s lead in prioritizing genuine competition and the public interest in response to rising electricity prices and external shocks such as COVID-19 and climate change impacts.
Recent outages in the Luzon grid have been attributed to excess coal capacity. and encouraging the uptake of renewable energy, but the Energy Regulatory Commission needs to help level the playing field to hasten the country’s energy transition, according to two energy experts.
Ahmed and Dalusung co-wrote an opinion piece published in BusinessMirror last August 15, asking if the “DOE [is] at the tip of the energy transition spear?”. In the piece, Ahmed and Dalusung stated the pandemic has highlighted the great and growing risks of over-dependence on inflexible and imported coal-fired power. As they said in the briefing, this has translated into high tariffs for consumers that can only temporarily be tempered under certain force majeure conditions.
“If Meralco had not invoked force majeure clauses in its supply contracts in response to the Covid-19 crisis, consumers would have been punished by a 15-percent increase in per-kilowatt rates in Luzon. In contrast, electric cooperatives have been largely unable to trigger force majeure negotiations because of their small size, lack of negotiating power, and reliance on non-standardized contracts,” Ahmed and Dalusung wrote.
Ahmed and Dalusung also argued against nuclear power as well as retrofitting coal plants to address flexibility issues, calling both measures uneconomic.
“I believe the energy transition is already underway, from our small island grids to our main grids, where coal utilization is going down and renewable energy is on the rise. Government and regulators need to get in front of this to help the country navigate this transition,” Ahmed said. She added that coal projects have the potential of USD 10 billion in stranded risk with a broader risk equivalent to USD 20 billion over the long-term – the costs of which will be covered by consumers or investors, including local Philippine banks.
“The pandemic is almost a dress rehearsal for the climate crisis. The energy sector most assuredly shows renewable energy will play a huge role in making this country more resilient and not just to external shocks but also to help our economy thrive, to help modernize our economy,” said ICSC executive director Renato Redentor Constantino, who moderated the briefing.
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