OPINION: Renewables and energy security redux

Originally published in Business World on 30 August 2017 

By Viking Logarta

SENATOR Sherwin Gatchalian discussed his idea of energy security over breakfast with renewable energy advocates earlier this month. A controversial concept, much like food security, the chair of the Senate energy committee acknowledged. (Most economists would say that income security rather than secure access to any specific necessities, including electricity, would be a sounder goal).

But his low-hanging fruits for security were geothermal and hydro energy. Those are even more controversial, because these two energy resources are generally going to be more expensive than wind and solar. In any case, energy security is a concept that has to be handled with care.

The fact that Senator Gatchalian is willing to consider longer-term and nonfinancial considerations in the country’s power mix is refreshing, and runs counter to Energy Secretary Alfonso Cusi’s obsession with the cheapest short-run electricity prices, no matter what the cost, in terms of mortality and morbidity effects on local populations exposed to air pollution, and to global impacts from greenhouse gas emissions from thermal, mainly coal plants.

Moreover, the cheapest short-run electricity costs might burden the Filipino people in the future. As a result of the falling power prices of solar and wind driven by the deflationary nature of renewables and accelerating policies on competition, the electricity transition towards renewables is taking root in countries around the world. It is attracting large investors. The Philippines cannot afford to be left behind, not this time.

Back in the days when there was a real power development plan, before the Electric Power Industry Restructuring Act or EPIRA, the National Power Corporation (NPC) regularly conducted least-cost planning exercises to determine the electric power capacity additions year by year to deliver electricity to ratepayers. It would generally make a forecast of peak and energy demand based on a top-to-bottom approach, using forecast GDP growth and an estimate of electricity demand growth with respect to GDP growth. Back then, NPC’s plans were real plans because it had the most important control levers, the investment budget and the power to contract with independent power producers, as a monopoly.

Reviewing former Energy Secretary Geronimo Z. Velasco’s Trailblazing, a history of his role in the energy sector, cum memoir, during the Marcos dictatorship, I am reminded that he made good and bad bets in terms of policy. He and his team helped the country wean itself away from an overdependence on fossil fuels, but bet incorrectly on nuclear power, whose stranded costs took taxpayers over two decades to pay. That plant was sold as a matter of energy security, too.

My own recollections of interactions with the NPC planning management and staff is that certain technologies were favored because these were thought to enhance energy security and self-reliance (two terms used interchangeably). In planning parlance, certain power plants were “forced” into the solution or taken as given, thereby giving them status in a “constrained” optimum.

I also recall debates in the early 1990s when the tariff reduction program for imported coal was being considered, from 20% then to the low single digits now. Back then, I argued for imported low-sulfur, low-ash, high heating value imported coal, over local coal with the opposite attributes.

I asked what energy security threats were posed by imported coal as there was no coal cartel then, and there is no cartel now. Local coal mines, I argued, could be mothballed and mobilized in case of an international coal supply crisis.

The point is that energy security may be a valid and popular concern. But policy makers need to be careful as well, as this concept can also be easily hijacked by vested interests that have sunk costs and want to avoid stranded assets, much like local coal producers then, and those dependent on coal imports now.

Any criterion that does not lead to easy monetization needs to be more clearly defined in the public sphere. Many equate energy security with energy independence. Others equate it with reliability and low cost. The debate can easily get muddled.

Urgent reforms are clearly needed in the power sector that consider local and global responsibilities right now. But how can we determine what is politically feasible, in a dysfunctional democracy, dominated by oligarchic politics?

The ball is clearly in this administration’s court.

Viking Logarta is the Energy Policy Advisor of the Institute for Climate and Sustainable Cities.