Special Report: New wave of confidence in local energy sector

First of two parts

The time for scrutiny and investigation of past blunders is over. With windows of opportunity opening up, concrete action must now be taken to realize the ambitious goals for the energy sector.

Energy Secretary Carlos Jericho L. Petilla, in the few media briefings he has conducted since his appointment in late October 2012, has committed to move forward the programs and policies laid out by his predecessor to help achieve the targets of the Aquino administration, primarily those concerning the power generation and downstream oil sectors.

“We will follow what [Cabinet Secretary Jose Rene D.] Almendras has started because if I reinvent the entire wheel, it will take me months again of setting the directions. The directions are there, all we have to do is carry them out and improve them if we can,” he said in his first media briefing on November 5.

Renewed interest

Notably, the Aquino administration was able to usher in a new wave of investor confidence for the country. This benefited all sectors, including energy.

The optimism resulting from this resurgence in investor interest—most notably from globally renowned energy firms—has since fueled numerous proposals for projects covering the exploration and development of the country’s indigenous fuel and power sources, renewable energy generation, traditional fossil fuel generation, alternative fuels, natural gas and the downstream oil industry.

Existing energy players in the country have likewise moved forward their once-stalled projects in support of the government’s target to diversify energy sources and to ensure long-term energy security.

Among the more notable projects that materialized in 2012 were the $1-billion additional investment for phases 2 and 3 of the Malampaya gas field project off Palawan to ensure sustained production over the next decade, Royal Dutch Shell’s move to study the feasibility of putting up a floating liquefied natural gas facility in Batangas to the tune of $1 billion and the upgrading of its 110,000-barrel-a-day refinery located in the same province, worth an estimated $150 million.

A publicly listed investor group from Dubai is also looking to pour in huge investments to set up what could be a refinery or a petroleum facility inside an industrial park in Bataan to serve as its hub in the region, while Petroleum National Brunei is keen on putting up an LNG facility in Mindanao.

Renewable energy developers are now battling for a share in the limited 760-megawatt installation target set by the government, while other firms are proceeding with their respective projects, even without the benefit of the feed-in-tariff (FIT) rates, which could have assured them of fixed cash flows over the next 20 years.

There is also a more aggressive push to complete natural gas projects, 13 of which have been deemed as priority projects that must be put in place by 2030, as these are expected to encourage more widespread use of natural gas for the power and transport sectors.

Of these projects, the first that may become reality is the $2.1-billion, 105-kilometer Batangas-Manila (BatMan 1) pipeline, which is targeted for completion by 2017.

Milestones

On the part of the government, certain milestones have also been achieved.

For one, the much-awaited FIT rates were issued by the Energy Regulatory Commission, a development seen to finally move forward the local renewable energy industry, while contracts to explore and develop coal blocks under the Philippine Energy Contracting Round 4 are set to be awarded.

Also, more renewable energy service contracts were awarded last year. As of Nov. 2012, the government has awarded 325 contracts for projects that can generate close to 5,700 MW. There are 190 pending applications for roughly 2,500 MW in additional capacity.

The government was also able to secure a $300-million loan from multilateral lender Asian Development Bank, as well as a $100-million loan and a $5-million grant from the Clean Technology Fund, to finance the rollout of 100,000 energy-efficient and environment-friendly electric tricycles across the country.

Despite these developments, critics say that efforts are still not enough.

For instance, the issuance of the FIT rates, some said, was merely the first step as there are a number of hurdles that have yet to be threshed out such as the oversubscription to the limited installation target and the FIT-allowance (a universal levy to be collected among all power consumers using electricity generated from RE sources) as well as its collection, administration and disbursement.

Other mechanisms under the Renewable Energy Law such as net metering and renewable portfolio standards have yet to be implemented.

The DOE has yet to address the regulatory deficiencies hounding the implementation of open access, which will allow large power users to choose their suppliers. The final rules, which will provide the legal ground, have yet to be issued.

It was noted that the commencement date of Dec. 26 only meant the start of a transition period. One full year will be needed to complete the transition, finalize commercial arrangements among parties, and lay down the necessary infrastructure. Full implementation is expected by December 2013.

The allocation of money from the Clean Technology Fund for the e-trike project also drew flak from certain civil groups as they claim that the amount was originally set aside for solar-power projects.

No immediate relief is in sight for Mindanao power consumers, who continue to bear with power interruptions. They may even endure longer outages by summer this year because of the projected supply deficit of 200 MW.

Petilla said that the DOE was banking primarily on the private sector to help ease this shortfall, as the agency’s earlier plan to privatize and transfer the three 32-MW diesel fired power barges from Visayas to Mindanao did not materialize.

The DOE also plans to encourage large commercial firms in Mindanao like the SM group and Dole Philippines to run their respective fuel-fired generator sets at certain times, instead of acquiring their needed capacities from the Mindanao grid.

This way, the capacities they will give up can be used to power up other areas in Mindanao. At the same time, these companies that will voluntarily give up their loads will be compensated under the Interim Mindanao Electricity Market (IMEM).

State-run Power Sector Assets and Liabilities Management Corp. also failed to dispose of government-owned power assets and contracted capacities this year. But it was able to secure a favorable decision from the Supreme Court, which declared as legal and valid the sale in 2010 of the 246-megawatt Angat hydropower facility to Korea Water Resources Corp. (K-Water), the leading water resources and power firm in South Korea.

To be continued