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Power demand contraction and natural gas cronyism

Based on average power demand in the Luzon-Visayas grids for January and February, the Philippines’ first quarter 2021 GDP seems to point to a -5% contraction with a -6.7% power demand contraction in January and a -4.8% contraction in February.

Data from the Independent Electricity Market Operator of the Philippines (IEMOP) further shows that electricity prices at the Wholesale Electricity Spot Market, the customer effective spot settlement price (ESSP) and load-weighted average price (LWAP) remain low in January and February, reflecting low demand relative to supply (see Table 1).

The indefinite lockdown policy of the government, turning exactly one year this coming March 15, remains the single biggest source of business uncertainties and economic contraction.

Last week, a Congress bill was discussed and reported in BusinessWorld, “House committee approves downstream natural gas bill” (March 3). It says that “the committee approved the draft substitute bill replacing House Bill No. 3031 or the proposed Downstream Natural Gas Industry Development Act.”

I checked the substitute bill and these three sections are highly suspicious:

“Sec. 38. Natural gas Share in the Philippine Energy Plan… required share of natural gas, in the form of a fuel mix, portfolio standard, and/or some other policy… be fully implemented.”

“Sec. 39. Off-take Support and Security… required to underpin investments in PDNGI shall be adopted.”

“Sec. 40. Capacity and Reserve Markets…. leverage reserve capacities of natural gas-fueled power generating plants… shall be established.”

Sec. 38 is about mandatory minimum share of natgas, Sec. 39 is about mandatory take or pay of natgas, and Sec. 40 is about mandatory reserve capacities of natgas. These are favoritism and cronyism for gas companies — horrible.

Three and a half years ago, this column (“Cronyism in Renewable energy, gas sectors?,” Sept. 7, 2017, https://www.bworldonline.com/cronyism-renewable-energy-gas-sectors/) wrote about the lecture in UPSE of FirstGen President and COO Giles Puno, where he lobbied for LNG — “1.) Holistic and defined energy mix, 2.) fiscal and non-fiscal policies, 3.) Secure LNG Off-take, similar to how Malampaya was underpinned.”

These three points are about the same as Sections 38, 39, and 40 of the Substitute bill — wow.

In a Viber interview with Lawrence Fernandez, Meralco Vice-President and Head of Utility Economics, he made an interesting observation that “Electricity consumers have been saddled for years by various subsidies and mandates to support (a.) renewable energy (RE) via Feed-in Tariff Allowance (FIT-All) and Renewable Portfolio Standards (RPS), b.) remote area electrification via Universal Charge Missionary Electrification (UCME), c.) off-grid RE development via RE Cash Incentive, and, d.) Malampaya gas via take-or-pay provision.”

These endless attacks to ease out or kill coal power in the Philippines and replace it with more intermittent RE and natgas which is also fossil fuel, are inconsistent with global energy realities.

Many countries are able to sustain their development needs and fast growth by relying on cheap, stable coal energy. Examples are China, India, South Africa, South Korea, Indonesia, Australia, Malaysia, Turkey, Taiwan, Vietnam, Poland, and the Philippines. The rich countries that developed fast many decades ago did so by relying on cheap, stable coal energy. Examples of these as of 1985 are the US, Germany, the UK and Spain (see Table 2).

China, India and Indonesia, which constitute 48% or nearly half of the total world population, were 63%-73% coal-dependent in 2019. Among rich countries in 2019, Taiwan, South Korea and Australia were 41%-56% coal dependent. And the much richer US, Japan, and Germany were 24%-32% coal dependent.

If gas power is given priority or mandatory dispatch to the grid, there is little or zero incentive for the gas companies to bring down their prices and thus, ignore two important rules: the “least cost” mandate of distribution utilities (DUs) provision of the EPIRA law of 2001 (RA 9136), and Competitive Selection Process (CSP). The end result is more expensive electricity for consumers.

The Department of Energy, Energy Regulatory Commission, Philippine Competition Commission, and business organizations should warn Congress of the dangers to energy consumers and businesses when natgas cronyism becomes a law.

 

Bienvenido S. Oplas, Jr. is the president of Minimal Government Thinkers

minimalgovernment@gmail.com

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