Factoring social costs in the energy mix

The author, Edgar O. Chua, of Shell companies in the Philippines

Economic growth, population growth and urbanization all contribute to a heightened demand for energy in the country.

While the ideal source of all our requirements is renewable energy such as hydro, geothermal, biomass, solar and wind, there are limits on what can be harnessed at this time given geography, weather patterns, availability and cost.  As such, the country needs a mix of various sources of energy which will also include coal, natural gas and petroleum products.

The Philippines currently has 14 coal plants, which comprise about 35 percent of total power generation capacity for the country (almost 50 percent of the power generation mix in Luzon, 36 percent in the Visayas and 10 percent in Mindanao). Currently, most of the new generation capacity that is planned or announced is coal because from a power generation cost point of view, coal is one of the cheapest.   Note that the country already has one of the highest cost of electricity in the region.  As such, industry analysts forecast that if left alone, coal could make up at least 70 percent of total generation capacity by 2030.

However, when looking at the cost of energy specifically electricity, one should not only look at the cost of generating it but the social costs as well.  In 2011, researchers from the Harvard Medical School found that coal power generation results in economically quantifiable costs to society amounting to anywhere from P4 per kwh to as high as P11 per kwh due to health impacts and climate damages by coal emissions.   One can therefore see that the implications go far beyond the prices paid for electricity generated by coal.

It is for these reasons that the World Bank, the European Investment Bank and the European Bank for Reconstruction and Development have all decided to put forward energy policies that seek to end or severely limit financing for coal-fired power generation. This is significant because they are three of the top 10 sources of international public finance for the coal industry, globally accounting for over $8.6 billion over the past five years.

Shell is working with the Department of Energy to come up with solutions to address the increasing demand for power with the end view of balancing growth and competitiveness, health and environmental sustainability and energy security.

One solution we see is in increasing the supply of natural gas, the cleanest-burning fossil fuel, to help the Philippines meet its growing energy requirements with less cost and less impact on the environment.

One of the major advantages of LNG-fired power lies in the lower upfront capital cost and shorter build time of the ultra-efficient combined cycle gas turbine power plants.

A gas-fired plant is two times less capital intensive than coal and can be built in 24 to 28 months. Coal plants take 52 to 58 months. The speed-gap widens if you take into account issues like the lengthy process to get a permit for coal plants, and the likely protests against them.  Given the high growth of our economy, speed to put in place power plants is essential to sustain the growth momentum.

Gas emits 50 percent less carbon dioxide than coal when burned for power generation. It also emits less of the sulfur oxide, nitrogen oxide, and small particles polluting the air of many Asian cities. This is truly a significant feature. According to the World Health Organization, one person dies every second from diseases related to air quality. For these reasons, there is less resistance to building gas plants closer to demand centers, hence requiring less costly transmission infrastructure.

To make LNG a reality, there is a need for the government to come up with policies to encourage investments along the LNG value chain.

First, a clear energy mix which spells out the contribution of LNG, coal, renewables and oil to the country’s power generation.  This will ensure that as demand grows, each energy source grows proportionately and the balance of cost, environment and health considerations is also maintained.

Second, the government should support and encourage the development of an LNG infrastructure such as import terminal and gas pipelines to allow more customers access to natural gas.

Third, enforcing air emission regulations in the power sector will ensure the best available technologies are chosen such that power demand is met in a sustainable way without detriment to the air quality, ensuring a firm foundation for a livable society.

Climate change is very real as we have all seen with Typhoon Yolanda.  We need to make our own contribution to address this for the future of our children and our country.