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Philippines’ coal ‘over-dependence’ could lead to massive power rate hike, groups say

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By Alanah Torralba

Environmental think tank groups are warning of massive power rate hikes due to imminent financial losses resulting from stranded assets of new coal-powered plants, amid rising competition in other energy sources, cost deflation of renewable energy and natural gas.

“The Philippines is heavily but needlessly over-dependent on coal, which is a losing gamble. The entire nation could be locked into two decades of paying for coal power it may not end up using,” said Institute of Energy Economics and Financial Analysis (IEEFA) energy finance analyst Sara Jane Ahmed.

‘STRANDED COAL PLANT ASSETS’
The IEEFA and the Institute of Climate and Sustainable Cities (ICSC) recently released a report detailing huge losses the financial and power sector might incur due to stranded assets-risk of new coal-powered plants – worth $21 billion. Stranded assets-risk refers to the hazard of assets not delivering projected economic returns due to devaluation, unanticipated write-down, or conversion to liability.

In the case of the coal power industry, this can be caused by several factors such as coal and its technology becoming obsolete, excess generation of electricity due to inaccurate demand forecasts, and operational inefficiency of the power plant.

MOST EXPENSIVE ELECTRICITY RATES IN SOUTHEAST ASIA
The Philippines already has the most expensive electricity rates in Southeast Asia, with P7.49 per kilowatt-hour (kWH) for commercial users and P8.90 kwH for households, according to the Department of Energy (DOE).

With projected stranding of assets, losses incurred by coal-fired plants will most likely be shouldered by energy consumers, says the study.

When a surplus of energy is created, distribution utilities are forced to buy previously agreed capacities despite a mismatch between demand and supply. These costs will be most likely passed on to consumers, thereby hiking energy rates, the report adds.

MINDANAO’S UNDERUTILIZATION LOSS
Mindanao is already experiencing stranding of coal plant assets due to an oversupply of 700 MW of coal and hydropower, the study says.

Owing to a lack of national connectivity, Mindanao has seen an energy surplus generated by coal-fired plants that cannot be sold or repurposed to other distribution facilities.

From 2014 to 2016, underutilization loss has been estimated at P3 billion ($60 million), the study says.

“But for as long as the most viable fuel is coal and cheapest so that the power can also be delivered the energy to the people at a much lower price, then we’ll have no other alternative except to upgrade the technology to its fullest – to limit,” President Rodrigo R. Duterte said during a visit to Sarangani for the groundbreaking of the coal plant of Alsons Consolidated Resources Corp.

Duterte has repeatedly backed coal as a cheap and reliable source of energy.

As of February 2016, the country has 17 operational coal plants, with 29 more new plants approved by the DOE.

Meanwhile, the Philippines is a signatory to the Paris Agreement of 2015, a global consensus to limit the rise of global temperature to 2 degrees Celsius.

Among the measures recommended in the agreement is to promote renewable energy and abandon fossil fuels for power generation. It remains to be seen if the present administration will enact measures to strengthen its renewable energy sector.

IMPORTING 75% OF THE COUNTRY’S COAL NEEDS
The country imports 75% of its coal supply from neighboring countries such as Indonesia since locally sourced coal cannot be used in power plants due to its poor quality.

Dependence on imported coal exposes the Philippine power system to currency fluctuations and instability of international coal prices.

Despite the financial risks of imported coal, it accounted for 48% of the Philippine energy mix in 2016.

Meanwhile, use of coal power plants has been declining globally. The Philippines, despite its renewable energy resources and the Renewable Energy Act, has seen an upswing in coal power.

RENEWABLE ENERGY: POWER INDUSTRY ‘DISRUPTOR’
Renato Redentor Constantino, executive director of the ICSC, believes that the renewable energy sector will be a power industry ‘disruptor.’

Solar-powered electricity costs, for example, have fallen by 90% since 2009, while wind has dropped by 50%. Solar panels are also becoming cheaper as more international companies invest in them, Constantino said.

The deflation of the cost of renewable energy is forthcoming, the IEEFA-ICSC report says.

The DOE argues that renewable energies are only an intermittent power source, while coal’s stability will be instrumental in fulfilling the 12,300 MW power capacity need of the nation by 2030.

The IEEFA-ICSC disagrees with this claim, arguing that the Philippine electricity grid is ripe for modernization. “Grid modernization in this day and age means renewables,” the groups add.

THE HIGH COST OF COAL
Senator Sherwin Gatchalian, in August, questioned the Energy Regulatory Commission’s imminent approval of Meralco’s 20-year power-supply agreements with coal-fired plants. He stressed that there are cheaper sources of renewable energy such as solar power, which costs P3/kwH compared to the P6/kWH of coal, according to a Meralco contract he saw.

Coal-fired plants have also been linked to a rise in respiratory and cardiac ailments, especially in communities near where one is built.

A study by Greenpeace Southeast Asia in 2016 notes that there have been 960 premature deaths due to strokes, cardiovascular and respiratory diseases linked to coal-related pollution in the country. The number is expected to rise to 2,410, following the construction of more coal-powered plants.

President Duterte, however, remains unfazed by the high cost of coal.

“At this time, whoever is the president of the Philippines would always contend with coal. There’s so much coal still that can be utilized by civilization for the next 50 to 70 years. And to be worrying about pollution, well, we just have to come to terms with that in our time, in our generation, it is really what it is. There is nothing you can do about it,” he said.

Alanah Torralba is a freelance journalist.

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