The year of the Horse saw the renewable energy subsector gallop to many milestones while other subsectors lagged behind or ran in circles.
Without fanfare, the Energy Regulatory Commission (ERC) earlier approved templates for the renewable energy payment agreement, or Repa, and the renewable energy supply agreement, or Resa, paving the way for the collection of the feed-in tariff (FIT) of P0.0406 per kilowatt-hour starting January 2015.
The Repa is between the state administrator of the FIT fund and the eligible plant operators while the Resa is between plant operators and distribution utilities outside the areas covered by the Wholesale Electricity Spot Market (WESM).
In the renewable energy subsector, solar power made the most strides, prompting authorities to raise the installation target for FIT-eligible projects. Wind developers also flexed their muscles and authorities are now considering expanding the FIT target for them as well while run-of-river hydro and biomass are taking a steady pace.
Keeping up
The breakneck speed of renewable energy buildup got authorities wondering whether the transmission and WESM systems could keep up.
“I think we are the most aggressive among Asean countries when it comes to RE (renewable energy). We are preparing for more projects in 2015 but we have to slow down a bit for NGCP (transmission superhighway operator National Grid Corp. of the Philippines) and system integration to catch up,” Energy Secretary Carlos Jericho L. Petilla said in an interview.
Besides solar farms, Petilla said solar rooftop projects (where systems are installed for free and suppliers get paid on power generation volume), which were tested in schools this year, would likely spread more quickly as more institutions seek savings and join the “green” bandwagon.
“Solar farms and rooftop-installed projects spread so fast. We are just watching where the bottlenecks are but we’ll continue going strong on RE,” Petilla said.
Jose Maria P. Zabaleta Jr., president of the trailblazing San Carlos Solar Energy, Inc. (SaCaSol) that has signed a Repa with the FIT fund administrator National Transmission Corp., is understandably happy with what had happened in 2014.
“I think the investment climate now is a lot more positive than the past years. With all the support that the government gave, the final components of the RE law are now in place with the finalization of the FIT-All (allowance) and the approval of the purchase agreements. I think everyone is looking forward to next year,” Zabaleta said.
“One thing to push is for the country to have sufficient power with projects of all kinds, RE and otherwise. We need power reserves to sustain our economic growth. The last thing we want is to see the kind of blackouts that we saw 20 years ago.”
Running out of time
There was a dearth of new major power plants in 2014 and authorities are now scraping for additional power capacity among other ways to ease demand from the Luzon grid come summer 2015.
The 30-day Malampaya gas platform shutdown (power plants shifting from Malampaya gas to other fuel may register less output), lower production from hydroelectric power plants, and higher demand for electricity as consumer turn up airconditioning units to cope with the heat are seen making power demand outpace supply. Another likely factor that may put pressure on power supply is the forced or unexpected outages of power plants, both new and old.
A copy of a joint ILP list of the Department of Energy (DOE) and Manila Electric Co. (Meralco) shows that 605.55 megawatts of power had been committed by institutions with generator sets and more were being negotiated under the voluntary Interruptible Load Program or ILP.
So far, there is uncommitted power of about 100MW or more but DOE officials insist that counting capacity from institutions that have not formally signed up may only set the public up for disappointment when the power outages come.
“You know the summer supply is a matter of scenarios,” said Oscar S. Reyes, president of Meralco, whose customers in Metro Manila and surrounding provinces contribute a combined 50 percent of the Philippines’ gross domestic production.
“It is going to be a tight summer. We are hopeful that the measures that are being taken, including the ILP and the initiatives to keep power plants running will work.”
The House of Representatives has authorized emergency powers for President Aquino to deal with the power crisis via ILP, faster processing of power plant permits, and an information campaigns on energy savings, among other measures.
However, Senator Sergio Osmena III has expressed doubt that the Senate would sign the bill granting the President such special powers.
Petilla said the government was preparing for “all eventualities” including not having such powers from legislators, but said that having authority was better because it would at least ensure that it would be the government that would shoulder the cost of dealing with the crisis instead of the consumers.
Petilla said the ILP alone was not enough to guarantee “zero brownouts” during the summer months of 2015. Although the department has been seeking more ILP participants, the program will only be part of the answer to the looming power shortage next summer.
Bursts and busts
While Filipinos are all concerned about electricity these days, the industry that could change the game for energy generation in the country is keeping up its steady pace with buy-sell activities in existing projects and the auction of new ones under the 5th Philippine Energy Contracting Round (PECR5).
Investors do come and go, as Otto Energy Ltd. took over the oil and gas venture Service Contract 55 (SC55) off Palawan and after the exit of former operator BHP Billiton Petroleum (Philippines) Corp. Otto exited oil exploration block SC 69 in offshore Visayas (now led by local firm Frontier Oil Corp.) and is finalizing the sale of its own stake in the Galoc oil field Service Contract 14C1 in northwest Palawan to Nido Petroleum Ltd., which is now a step closer to becoming the new operator of the Philippines’ only productive oil project.
Nido and its partners have stopped oil exploration at the Baragatan-1A well prospect site under Service Contract 63 off southwest Palawan due to lack of resources, shortly after the entry of United Arab Emirates-based Dragon Oil. Newly listed Trans-Asia Petroleum Corp. (Tapet) of the Phinma Group acquired a minority stake in gas-rich Service Contract 50 (SC50) in offshore Palawan island from Frontier Oil. That’s just a few of all the buying and selling activity while explorers raise to find the “next Galoc” and the “next Malampaya.”
Remaining small
Analysts say the Philippines will likely remain a small producer of oil and gas and a net importer of crude oil and refined products as consumption continues to outpace production. Gas is a growing market but will not burst to development without infrastructure investment.
In the downstream segment, fuel prices are going down amid sustained oversupply and weak demand from industrialized economies. The setbacks are hurting even the big fuel refiners and retailers such that some are thinking about stockpiling.
Domestically, pre-Christmas price rollbacks brought the total year-to-date net decrease in major fuel products’ prices to P11.84 per liter for gasoline and P13.48 per liter for diesel. Oil prices have gone down more than 25 times since the early 2014 for gasoline and more than 30 times for diesel.
Internationally, crude prices started about $100 per barrel in the beginning of the year and were now below $70 per barrel. Some analysts say this could bottom out at $45 per barrel, while others would not hazard a guess unless the United States shale boom slows or oil exporting countries in the Middle East finally agree to cut output to defend prices.
Independent Philippines Petroleum Companies Association (IPPCA) and Eastern Petroleum Corp. president Fernando Martinez said oil players were looking into strategies of minimizing margin losses, including stockpiling, as prices keep going down. There are also concerns that once prices hit the bottom, they would recoil and result in a series of price surges that would hurt company incomes further.
On company incomes, Martinez said lower prices might shrink margins of oil companies but there was also the benefit of lower cost of doing business.
Energy Undersecretary Zenaida Monsada said the low price regime was just a part of a cycle and that there would be a recovery in years to come. “I just hope investors take a long-term view that investments in both oil exploration and fuel distribution as well as the retail side will pay off in the long-term when prices recover,” she said.
E-vehicles track in circles
There had been much hype about electric vehicles such as
e-trikes since the start of the year about charging ahead but the e-vehicle program suffered setback after setback, most notably, the rebidding of the e-trike project under the DOE and the Asian Development Bank (ADB).
The DOE decided to rebid the project to give way to more “thorough” preparations, an official said. The rebidding set on Jan. 5 , 2015, had been reset to Jan. 15, Energy Undersecretary Donato D. Marcos said. It is likely the DOE will not be able to deploy the 100,000 units initially targeted by 2016. About half of the initial units were to be distributed to LGUss and cooperatives in 2016, Marcos said.
The announcement of the winning bidders was originally expected to be announced in December 2013 which was moved to January 2014 and eventually canceled later. This was because some local government units or LGUS—the loan beneficiaries of the ADB funding for the project— failed to pass the requirements due to marred procurement and/or credit histories. With less LGUs qualified to buy e-trikes, the cost per unit increased and the government decided to abandon negotiations with companies that passed the qualifying process and had presented technical plans and price quotes. Marcos said he was hoping to participate in the rebidding, along with other companies that have also taken interest in the e-trike business in the Philippines.
Four out of the 28 companies that bought bid documents participated in the original e-trike auction on Aug. 22, 2013. The four were Lirica Rising Sun & Shoyo-Terra Group (Japan), Uzushio Electric Co. Ltd. (Japan), Eco One Co. (Korea), Teco Electric & Machinery Co. Ltd. (Taiwan).
There are about 3.5 million trikes (tricycles) and 3.88 million motorcycles on Philippine roads and the country seeks to curb this number to help ease dependence on petrol-based products (which traditional vehicles use).
While not all subsectors made strides in 2014, Petilla said he hopes the “energy family” will be able to hurdle the challenges in 2015 such as tight power supply and that it would be on track for more successes, as in the case of RE.
“Investors are always wary of snags but we’ve shown them success stories especially in RE. It’s a very strong start going to next year,” Petilla said.