Our energy future

Those responsible for planning our energy future must start with the reality of climate change as a major factor. And it is not as easy as issuing a press release saying no more coal power plants. We need to know how we should transition to cleaner fuels.

My friend Ernie Pantangco, who chairs the energy committee of the Management Association of the Philippines, observed that we need a long-term power development plan for the next two to three decades. He lamented shifting priorities of every administration, confusing everyone, specially investors.

It is also easy to say that we will shift to renewable energy. But that makes us dependent on energy sources like solar, hydro, and wind – which are increasingly undependable in this era of climate change.

Still, with fast developments in technology, solar has become more promising than before. But for grid reliability, not yet quite there.

Hydro has long been used as a power source, specially in Mindanao, but it is highly susceptible to the effects of climate change. Long droughts and issues with indigenous peoples have been limiting what hydro can contribute to our power source mix.

Wind power is, at this time, all air in our country. Like solar, its dependability is also affected by climate change.

Our one big hope for a transition fuel is natural gas. Unfortunately, we only have one Malampaya and it is nearing the point of depletion. They should have started drilling step-out wells five years ago to see if there are other sizable deposits nearby.

But, as I explained last week, Duterte’s energy people decided to favor a crony instead of granting Shell an extension of its contract. Shell knows the area best and has the financial and technical means to discover and develop new reserves in nearby fields. Duterte’s favored crony doesn’t.

Natural gas is an ideal transition fuel. Though still a fossil fuel, it emits up to 60 percent less carbon dioxide than coal.

Natural gas plants are able to respond quickly to any increase in demand or drop in supply, as fast as 15 minutes. It can provide good support for solar and other renewable energy that are being developed to feed power grids.

That is why First Gen is investing in the development of an LNG terminal that will introduce reliable, flexible, and cost-competitive LNG to the Philippines beyond Malampaya.

To the credit of First Gen, it pioneered the use of natural gas as a power source some decades ago when the government asked the private sector to create a market for Malampaya gas.

First Gen owns and operates four natural gas-fired power plants in Batangas. Together with the 1200 MW Ilijan plant of Kepco/NPC, Malampaya gas accounts for about 33 percent of Meralco’s supply.

There are questions now on whether Ilijan’s output can be sustained because the Kepco BOT contract with NPC is expiring. Also expiring is the supply contract with the Malampaya consortium by mid 2022 and no negotiation for supply has even started.

San Miguel, the administrator of Ilijan, is also in the midst of a P22 billion dispute with PSALM that is now in court. San Miguel has expressed confidence in winning the case, but until then, there is a big question mark on Ilijan’s future.

The Luzon Grid cannot afford to lose 1200 MW given the precarious supply and demand balance. The last time I asked Ramon Ang, he gave the impression that he will not let this happen. He said they may even use diesel fuel if a new natural gas supply contract is not agreed upon on time.

LNG will play a crucial role in accelerating the phase-out of coal-fired power plants and in fighting adverse climate change. A First Gas official told an industry group that LNG’s role in the transition period would be temporary.

“It should be used only for so long as it performs a positive role in displacing coal and supporting renewables. In due course, gas or LNG must also be decarbonized or phased down, and the option to utilize green hydrogen remains a possibility,” according to Jonathan Russell, First Gen EVP during the 26th Conference of the Electricity Power Supply Industry.

The First Gas executive proposed the creation of a multi-sectoral group to address challenges during the transition to clean energy like coal retirement; the restructuring of the local energy-based power market; and the adoption of policy and market mechanisms that encourage storage, and allow long-term purchase commitments of LNG.

“While we share the belief that LNG is the best transition fuel in achieving 100 percent renewable energy, it does not come without challenges, specially in the Philippines.

“We must find a way to value gas for some time and increase its capability for back-up rather than continuous supply. And this means having a regulatory framework that supports making plans to have enough fuel in stock for when it is needed.”

Russell believes the only way for the country to benefit from LNG at the most competitive prices and be protected from wild spot price swings is to have the ability to contract medium and long-term supply with LNG suppliers.

That’s possible only, Russell explained, if LNG users, such as the gas-fired power plants, have predictable volumes of projected consumption over the mid-term, say five years or the long-term, say 10 to 15 years, under their own offtake agreements with utilities and other customers.

“Otherwise, LNG would need to be contracted on a short-term basis, which would mean that competitive prices and availability of LNG at times when it is needed cannot be assured,” he said.

A report of the Institute of Energy Economics and Financial Analysis observed that “the Philippines has a long history of incomplete LNG import projects...

“The issues facing LNG-to-power investors include nascent legal and regulatory regimes, rapidly changing power market structures, a lack of existing transmission and distribution infrastructure, and plummeting renewable energy price trajectories.”

So many things to think about, so many things to do. The next energy secretary will have his plate full on day one.

Boo Chanco’s email address is [email protected]. Follow him on Twitter @boochanco