Can COVID-19 give new wind to renewable energy?
(First of two parts)
Kicking the fossil-fuel habit completely was hard for AC Energy, the energy arm of Philippine industry giant Ayala Corp., to do overnight even if it had been investing in renewable energy (RE) in Southeast Asia for nearly a decade. But the new coronavirus gave it new impetus for the energy transition, as societies examine alternatives to economic and consumption patterns that have fed many of the world’s shared crises, from health emergencies like the COVID-19 pandemic to pollution and climate change.
AC Energy announced in April that it would make a full exit from coal investments by 2030—an unconventional move in a region that remains coal-dependent.
In fact, Southeast Asia’s coal demand is seen to grow by more than 5 percent a year through 2024, compared to a 1.1-percent global increase in 2018, says the “Coal 2019” report by the Paris-based International Energy Agency (IEA).
While some countries in Europe and Latin America have been moving toward carbon neutrality, the picture is different in Southeast Asia.
The region has the third highest number of coal power plants in the pipeline after China and India, per the United Nations-backed Sustainable Energy for All. It adds that the Philippines, Vietnam and Indonesia have the largest coal-plant pipeline in the region, reflecting their reliance on coal to fuel economic growth.
With this reality, can a global shock like COVID-19 make less harmful ways of energy production a stronger business and investment reality for Southeast Asia? Is a transition once hard to imagine taking deeper root as a goal not only desired and needed but also financially sound?
Tilting the balance
The impact of AC Energy’s decision remains to be seen, but it is showing how this shift has become much more conceivable. “Ayala’s decision will make a difference in the Philippine energy mix if they will really invest more on renewables. It will tilt the balance toward RE because it is a market signal,” said Gerry Arances, convenor of Power for People Coalition.
Given the trends toward cleaner energy and lower carbon footprints amid the impacts of climate change, a shift such as Ayala’s divestment of coal assets is “bound to happen,” he said.In 2016, First Gen Corp., a subsidiary of the conglomerate First Philippine Holdings, said it would no longer invest in or build coal-fired power plants and would instead push the development of geothermal plants and renewable sources.
“There are many reasons why [Asean governments] should utilize renewable energy when the pandemic is over,” said Iqlima Fuqoha and Rika Safrina, experts who wrote about the impact of COVID-19 on the region’s RE sector for the ASEAN Centre for Energy.
Communities in polluted environments are facing more challenges because of the pandemic, they said, adding: “Investing in the renewable energy industry as one of the climate mitigation efforts should be prioritized, before another climate-induced disease or global economic recession caused by climate change happens again.”
While the pandemic has affected our economies and way of life, it is an opportunity “to ensure that any revival of the economy to provide power should be in favor of renewables,” Arances said.
He explained: “I’m not saying COVID-19 is positive—it’s there already and it’s what we’re facing. But it has also opened up a rethinking for a more systematic approach in the way we live and consume electricity and the way we’ve set up our power industry.”
Bucking the trend
Through the years, AC Energy had been selling off some of its coal assets. But a confluence of factors in recent years made feasible its full decision in April to drop coal: global developments in the renewables industry and its falling costs, the company’s regional expansion and its intent to go big on RE from the start.
“We made the explicit announcement only now because we could not commit back then that we will get out of coal. Our convictions weren’t high yet at that time,” AC Energy president and CEO John Eric Francia said in an interview.
Renewables make up half of AC Energy’s mix of investments in Southeast Asia, with solar energy accounting for 590 megawatts and wind energy 312 MW of its attributable capacity.
The Philippines takes up 479 MW of this portfolio; Vietnam, 379 MW; and Indonesia, 184 MW. AC Energy operates eight solar, wind, geothermal and biomass plants in the Philippines, two solar plants in Vietnam, and a geothermal plant and wind plant in Indonesia.
The company plans to scale up its renewables profile to over 5,000 MW by 2025, aiming to become the largest listed RE platform in Southeast Asia, Francia said.
Unlike AC Energy, which has Southeast Asia for a market, domestically focused energy players will find it tough to abandon coal because the Philippine market relies heavily on fossil fuels. Just 20.8 percent of its energy came from renewables as of 2019, per the Department of Energy. Coal accounts for 54.6 percent in terms of source of power generation.
“Unless you go regional, how can you say that you will get out of coal and focus on renewables when you aspire to be the No. 1 or 2 player in the Philippines? You cannot,” Francia said.
Altering the landscape
Just in July, Germany passed legislation to phase out coal-fired power stations by 2038. Elsewhere, Costa Rica aims to end fossil fuel use by 2050 and be a carbon-neutral economy.
Changes are emerging in East Asia, too. Japanese banks Mizuho Financial Group and Sumitomo Mitsui Financial Group, which are among the biggest financiers of coal power projects, said in April that they would no longer back new fossil fuel projects. The ruling party in South Korea, the world’s seventh-largest carbon emitter, has expressed support to a Green New Deal that aims for net zero carbon emissions by 2050.
Ayala’s move may “alter the landscape for investment and determine how other corporations [in the region] will map out their development pathways in the near to midterm future,” said Chuck Baclagon, Asia digital campaigner for the global climate movement 350.org.
“What was unthinkable a decade ago is now taking place,” Red Constantino, executive director of the Institute of Climate and Sustainable Cities, said, adding that major banks, insurers and reinsurers had been pursuing coal exit policies.
When AC Energy entered the market in 2011, it was hardly a robust environment for renewables even if the Philippine government had committed to raising to 50 percent the RE share of its electricity-generating capacity by 2030. In fact, the 35-percent share of renewables in the energy mix then—including geothermal, wind, solar and biomass—dropped in the succeeding years.
“An early managed transition to renewables would mean a more flexible, reliable and modern power system, with modular power supply options that are cost-competitive and that will generate far more job opportunities,” Constantino said.He said COVID-19 and climate responses could go hand in hand: “Pandemic stimulus will prove critical to massively upgrading key areas of the economy that have long required resilience and modernization, such as urban services, medical and food supply chains, clean energy infrastructure that favors decentralized power, and transport systems that prioritize moving people instead of cars.”
Southeast Asia’s demand for energy has grown by more than 80 percent since 2000, and is projected to grow by 60 percent to 2040, says the IEA. Electricity demand in what was, until the pandemic, a region of high growth rates has been growing at 6 percent a year.
There is some concern about the impact of supply-chain disruptions on the construction of RE projects, as well as whether countries will opt for what they deem cheaper electricity sources, with dipping demand during the economic slowdown.
But in its report on Southeast Asia, IEA is confident that the global trend, where RE costs are declining and worries about carbon emissions and pollution are growing, will continue to “alter the balance of future additions to the power mix.”Its Global Energy Review in April says that renewable electricity generation, from solar, wind and hydro power, is still projected to rise by nearly 5 percent in 2020.
But in Southeast Asia, “only a few countries have included the RE sector in their economic recovery response as of now,” says the ASEAN Centre for Energy brief. Its authors suggest that governments in the region give green stimulus packages for RE markets.
Amid the pandemic, Malaysia plans to spend $2.9 billion in the installation of rooftop solar panels and to invite investments for a 1,400-MW solar project, the authors say.
Vietnam has been extending time frames for solar and wind energy initiatives in the current uncertain environment, they add. In April, Vietnam launched a new tariff scheme for solar projects as part of a strategy to achieve national energy security in 2021 and source 20 percent of power from RE by 2030. INQ
(To be concluded)
This feature is part of the Reporting ASEAN Sustainability Series.
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