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Government ends energy neutrality, favors renewables ahead of boom

Government ends energy neutrality, favors renewables ahead of boom

MANILA, Philippines — The Duterte administration will no longer accept proposals to construct new coal power plants, a dramatic shift in energy policy that counts on declining costs of renewables to attract clean power investments.

The moratorium was announced in tandem with the relaxation on foreign ownership limits in geothermal energy, doubling down on the slow transition to clean power seen as a long-term fix to the Philippines’ supply problems and now even sky-high power costs.

“While we have initially embraced a technology neutral policy, our periodic assessment of our country’s energy requirements is paving the way for innovative adaptations in our policy direction,” Energy Secretary Alfonso Cusi said in a speech on Tuesday.

When President Rodrigo Duterte took office in 2016, his government abandoned a policy of his predecessor that prioritized renewables in favor of one that disregarded the energy source so long as it improves the country’s baseload capacity to meet the demand of a growing economy.

As a result, by 2017, the latest period on which data is available, coal projects proliferated, eating up a larger pie of the country’s energy mix at 26.7%. This happened while the share of renewables declined to just 39% in the same year from as much as 46.1% in 2006. 

At the time, coal and other fossil fuels were still deemed cheaper than renewables even though 15.8% of the former were being imported and therefore translated to import costs passed on to consumers. But times have changed and Sara Ahmed, energy finance analyst at Institute for Energy Economics and Financial Analysis, a think tank, said the government’s energy shift is very timely.

“The costs trajectory and the current costs of renewable energy, per kilowatt energy when generated domestically is getting cheaper than imported coal and imported gas,” Ahmed said in a phone interview.

“The constraints we previously thought we have, we don’t actually have,” she added.

RE boom preparations

Indeed, Energy Undersecretary Felix William Fuentebella said one factor for the decision was for the Philippines to get ahead of a renewable energy boom. “There is a need to prepare for the influx of RE…Hence, the need for more flexibility,” he said in a message relayed through the public information office.

While future filings for coal plants will no longer be entertained, Fuentebella said pending applications before the department will be discussed with investors because “we don’t want them investing in something that is not good for them.” He said it may result into an excess supply of “inflexible plants.” It is unclear as of this posting how many coal applications are currently being processed.

“The country’s 80% baseload capacity are inflexible…meaning, you can’t turn it on and off like a tap. You can’t actually reduce the supply when you use it. If you reduce what you’re using, they deteriorate,” Ahmed explained.

As of 2017, the bulk of renewables were in geothermal at 15.2% share of energy mix. Ahmed said easing foreign ownership restrictions first on this segment before the rest of renewables was also strategic. “This has to do with access to low cost international capital,” she explained.

“Geothermal has some exploration risk, but if you take a portfolio approach, it’s actually quite a good strategy,” she said. Portfolio approach means exploring the possibility of constructing more than one plant.

“This is definitely a welcome progress,” she said.