By Marlon Apanada
Originally published in Business World
AFFORDABLE ENERGY is a precursor to economic growth, which is of particular importance given our country’s current situation: we are facing energy supply challenges while paying for high electricity prices.
Unfortunately, as it stands today, the country is still planning to heavily rely on coal power plants to fill the gap in power supply. According to the Department of Energy (DoE), a whopping 70% of the 5,000 megawatts (MW) of new power plants being built between now and 2020 are coal-based.
Locking our country into coal-based electricity will create heavy baggage for the Philippines, chiefly the price of imported fuel and negative environmental impacts. Earlier this year, a local company offered solar power to Meralco at P2.99 per kilowatt hour (kWh), lower than any fossil-based power, while a geothermal generation bid stood at P3.91 per kWh. In comparison, coal-fired generation costs upwards of P3.80 to 6.53 per kWh, and the true cost of imported diesel-fired power ranges from P15 to P28 per kWh. Why opt for imported fossil fuels that are expensive, and will become even more so?
Facing the situation of fossil fuel dominance in the country’s power mix, how can we instead increase the uptake of renewable energy (RE), a key ingredient to the Philippines having a financially stable, climate-friendly and indigenously fueled power system?
The answer is to empower electricity users — us, the general public, along with larger commercial and industrial users of electricity — to demand the type of electricity that we want: affordable and homegrown, which happens to also be renewable and clean. This is where the national Green Energy Option Program (GEOP) comes in. After a decade of remaining unimplemented, the DoE finally released the GEOP rules in mid-July this year.
The GEOP aims to encourage electricity customers to choose renewables-based electricity sources, whether from solar, wind, hydro, biomass or geothermal, effectively empowering consumers to exercise their right to demand and use green energy.
Thanks to this program, electricity customers are no longer held captive by their local distribution utilities or electric cooperatives. Instead, many electricity end-users, even if they aren’t large “contestable customers,” are now allowed to directly purchase their electricity from a supplier that sells green power. In addition, the GEOP now enables green power generators and suppliers to have a wider set of customers, not only the very large “contestable customers” as was the case without the GEOP. This should in turn stimulate demand and investment of renewable power sources.
However, the GEOP in its current form has a number of gaping holes that the DoE, government regulators, and industry stakeholders should find solutions to.
First, the program does have a strong focus on wheeling green power across the grid, but it provides little direction of how onsite generation of green power can also play a role. It is also rather silent on the role of third-party investors in onsite RE generation.
Rooftop solar systems, localized biogas electricity plants, and other forms of onsite RE generation are an important component of well-built and well-operated electricity systems. They can help to alleviate electricity demand from the main distribution network and increase a grid’s reliability and resilience, all while generating cost-effective green electricity at the site of consumption. The GEOP should facilitate in unlocking their potential, but only if rules in onsite generation are made clearer.
Second, the GEOP lacks important details regarding the participation of smaller electricity customers with a demand below 100 kilowatts. While the program currently provides clear details for the participation of larger commercial and industrial electricity users, much is left to the imagination for small businesses and households. The language of the GEOP needs to be clear enough to ensure that intention can become reality without being mired in bureaucracy resulting from a lack of clarity at the beginning.
Third, the GEOP dictates that renewable energy certificates (RECs) generated from green power projects are kept by the distribution utilities, rather than assigning them to the owners of the green power generation assets — which would have further incentivized investors to structure deals and explore innovative business sub-models. This is of interest to the general public, who may want to invest into green power generation assets themselves. RECs are a new tradeable instrument, essentially a certificate issued by the government to recognize the generation of energy from RE sources; one REC is equivalent to one megawatt-hour.
Lastly, other important details of GEOP continue to be undefined, including clear structures for green power wheeling charges and other add-on costs. Without such details clearly delineated from the beginning, the uncertainty of these extra costs may make green energy more expensive in the future — which is not in the interest of electricity consumers nor the green power suppliers and generators.
The GEOP’s vision of truly empowering electricity consumers to choose and use green power can only be delivered if these outstanding questions are adequately and comprehensively addressed.
Much is at stake: if implemented well, the GEOP could usher in a new business-as-usual scenario — one that no longer leans on fossil fuels, but instead makes renewable, green power the default choice because it is the option that makes economic, environmental, and practical sense.
Marlon Apanada is managing director for the Philippines of Allotrope Partners, a California-headquartered clean energy investment and advisory firm. He completed a course on Sustainable Finance at the University of Oxford’s Smith School of Enterprise and the Environment and is a Green Finance Specialist certified by the Renewables Academy Berlin.