WBF Roundtable Presentation of Hon. ALFONSO CUSI Secretary, - - PDF document

1

WBF Roundtable Presentation of Hon. ALFONSO CUSI

Secretary, Department of Energy (DOE) Makati Shangri La, 27 April 2017

The Department of Energy’s priority is to protect consumer interest. Every Filipino deserves access to basic electricity. It’s also important that their supply of electricity is affordable. Finally, the DOE wants to ensure that there is reliable and uninterrupted supply of energy. The Philippine energy sector has achieved significant milestones. It is among the sectors where infrastructure needs are not lagging. The implementation of EPIRA (Electric Power Industry Rationalization Act) in 2001 saw the private sector stepping up and building more power plants. It showed the public‐ private partnership can work in the energy sector. Moreover, the success hasn’t been limited to just power

• generation. The Philippines has also shown that energy demand can be met while safeguarding

environmental standards, with the mix of non‐renewable energy at 30%, one of the highest in the ASEAN and at par with the developed world. But there are still challenges that we must face. The most notable of these is that 10 million or 1 out of 10 Filipinos still lack access to basic electricity. At the same time, the cost of electricity remains high – 700% higher than Indonesia, 18% more than Singapore. However, the Filipinos pay the true cost of power, electricity is not subsidized. But the cost also reflects inefficiencies in the system, the most notable of which is that the energy mix is not optimal. Finally, there is the challenge of meeting future energy demand. The country will need additional capacity

• f 43,765 megawatts by 2040. Past 2021, supply will be short of the 25% reserve requirement. The Duterte

administration has an ambition of growing the economy by 6‐8% annually, and more energy will be needed to power this economic growth. These are the key policy initiatives of the DOE to address these challenges:  Technology‐neutral approach in energy sourcing, focusing on reliability, efficiency and cost‐ effectiveness in developing an optimal mix of baseload, mid‐merit and peaking capacity. The priority is to have enough baseload plants, accounting for 70% of the mix.  25% reserve requirement, up from the thin reserve of 13% presently  Streamlining the development of generation and transmission projects, institutionalizing an integrated generation and transmission development plan to avoid generators having to advance the cost of building transmission lines.  Reforms that encourage healthy competition, specifically on power generation and distribution. In generation, the technology‐neutral approach and the 25% reserve requirement will support this

• initiative. In distribution, this will be done through the retail competition open access (RCOA).

 Raising the minimum efficiency and technology standards. The actions will focus on supervising old and naturally degrading coal power plants, mandatory reforestation, and phase‐out and replacement

• f old generating plants.

2 The DOE priority projects are the fast‐tracking of the interconnectivity of the grids, especially the Visayas‐ Mindanao interconnection; the establishment of the country’s Liquid Natural Gas (LNG) Terminal Plant; and, development of a mine mouth coal power plant in Antique to supply Mindoro through a 20‐kilometer submarine cable.

Questions and Answers

 Question: What is your opinion on nuclear power? Might we have it in the future, not necessarily the Bataan plant itself, but a new plant, or both. Answer: The DOE is working to determine if the Bataan Nuclear Power Plant (BNPP) project is still

• useful. It takes 19 steps to establish a nuclear power plant project, whether BNPP or a new one. The

first step, though, is having a policy on nuclear power. I am in favour of nuclear power plants, of

• pening the BNPP. Not opening the BNPP in the late 1970’s or 1980’s did injustice to the Filipino, to

the economy. But we have to go through the process.  Question: How do you make sure that the 25% reserves can occur economically, or get the people to pay for them? Answer: It would be less costly for the people to pay for the reserves than to pay for the cost of power interruptions which are being passed on to the people. Reliability and security have a price but it is still cheaper than having blackouts.  Question: How will the growth in electric cars impact on the demand for electricity in the Philippines? Answer: The Philippines has a program for the development of e‐vehicles. Charging stations are being

• prepared. But as to how much charging capacity is required, it’s not established yet. It is still being

studied.  Question: Are there developments within ASEAN on energy flow, say from Indonesia or Malaysia to the Philippines using underground cables? Answer: Discussions are going on at the Senior Ministers Level, including energy connectivity led by Singapore and Indonesia. We dream of connectivity of the Philippines with Malaysia, but nothing definite has been agreed upon.  Question: How would you reconcile the technology‐neutral approach with the climate change commitment of gradually lowering the CO2 emissions? Nothing was also mentioned on energy efficiency measures when it comes to manufacturing and building smarter, so you don’t consume as much energy. Answer: We are adopting technology‐neutral approach to address our energy needs now. If it has to be coal, it must be clean coal technology. The Philippines is one of the lowest emitters of carbon, and is adopting multi‐pronged approach in carbon sequestration, such as requiring the planting of trees

3 while building power plants, reducing emission in other areas like transportation, and promoting e‐ vehicles/e‐trikes. The DOE has a program for energy efficiency. It is 2‐pronged: demand management program on the efficient use of appliances and equipment; and marking the energy efficiency of appliances. The Philippines has among the least per capita energy consumption at 700 KW, yet its gross domestic product (GDP) is one of the fastest‐growing. Why is that? We are studying if efficient use of energy is a factor.  Question: In 2024, we will run out of natural gas from Malampaya. That would mean we’ll lose 2,700 MW of power. We need to explore further offshore for gas, but China is blocking access to areas that are actually ours. What can we do, and are we looking at the alternative of shipping natural gas into the country? Answer: Exploration at the West Philippine Sea or South China Sea is still suspended. The Department

• f Foreign Affairs (DFA) is the lead department in resolving this issue. The DOE has the LNG Terminal

Project in Batangas to enable the country to receive and store up to 3,200 MW equivalent of natural gas from other sources in case Malampaya is depleted.  Question: If you look back at the previous energy group, they could be remembered as the coal group as they were pushing for coal power plants. How would you like us to look back at your 6 years as head of energy in 2022? Answer: I just want to see the Philippines being competitive, with the energy sector supporting the developments in infrastructure, making the Philippines an industrialized country and a choice destination for investors.  Question: How would exploration and pipeline projects skew in terms energy sources to achieve technology neutrality? On the 25% reserve requirement, will the government consider going into actual production and contracting this output to the private sector? The PEMC (Philippine Electricity Market Corp.) is not in place yet; what are the plans to make this happen so there’s an independent entity working with independent market operators as provided for in the EPIRA? Recent developments bringing the Energy Regulatory Commission (ERC) back into the ambit of DOE might again politicize energy pricing and prevent the markets from working. Answer: I need information, feedback and assistance from the private sector to move forward, especially in addressing the problem of market interference in energy pricing. I would prefer the DOE to only exercise administrative supervision over ERC to enable the department to support the infrastructure component of the Philippine Development Plan. On the 25% reserve, the DOE is inviting the establishment of merchant plants. Presently, 10% is already traded, so only a little more is needed. But if there will be difficulty in finding investors by 2021/2022, the government might opt for a PPP arrangement for merchant plants. The government is still deciding if PEMC should be a truly private sector, independent market operator, which will be resolved in due time.  Question: Isn’t it simpler to ask NGCP (National Power Grid Corp.) to contract for auxiliary power and let the private sector respond to them in keeping with the spirit of EPIRA?

4 Answer: The DOE has been talking with NGCP on contingency regulating reserves and dispatchable reserves, but the problem is there’s no one to get them from. They will just be competing with what are already contracted for the reserves.  Question: On the technology‐neutral generation sources presented, there’s only coal. Is there no emphasis on the renewable or on the clean sources of power generation? Answer: Renewables are already 32% of the energy mix. The DOE is encouraging the establishment

• f renewables like solar and wind in the island provinces or SPUG areas, where they would be more

useful, but they would like to be on the grid.  Question: The 30% share of renewables is today. But what about 10 years from now, it will just be 10%. It drops because the new generation sources are coal. Are there no plans for more solar or more wind? Answer: The market will make things happen for renewables. When prices of renewables come down and become almost competitive with coal and gas, it will happen, we will see the penetration of solar energy storage and wind and DOE will fully support it.  Question: What is the latest requirement for companies to go into retail distribution? Answer: The principles that need to be espoused are as follows: (1) leave the freedom of choice to the consumers – don’t force consumers to be mandated, to be contestable, to avoid them from becoming captive of retailers or gentailers (generator retailers) and for them to be able to get attractive prices from the retailers and gentailers; (2) have as much competition as long as the players are capable and competitive.  Question: What would probably complete the picture is a program to manage the consumption of electricity, starting with a focus on government agencies in promoting more efficient use of energy in government offices. Answer: As I’ve said, the Philippines has one of the lowest consumption per capita of energy. Studies have shown that ordinary households manage their electricity consumption efficiently, such as waiting for everybody to be home before putting the TV on. But as also mentioned earlier, there’s a demand‐side program and we tell the people about that program, and at the same time we are rating the energy efficiency of appliances including light bulbs. Consumption management is very different here in the country, that’s why life‐liners (households at barely subsistence level of income) for example prefer radios to TVs.