In October 2020, the Department of Energy (DoE) said it would no longer give permits for the construction of new coal-fired power plants. At the same time, it said it would allow foreign investors to fully own big geothermal plant projects in the country, noting the need for a “more flexible” power supply mix.
Then Energy Secretary Alfonso Cusi told the media it was his department’s aim to build “a more sustainable power system that will be resilient in the face of structural changes in demand and will be flexible enough to accommodate the entry of new, cleaner, and indigenous technological innovations.” And this will be done by shifting away from “traditional” energy sources like coal and oil.
I am unsure how things have worked out for the Energy department since then, but Energy Secretary Raphael Lotilla targets to increase the share of renewable energy in the power generation mix to 35% by 2030, and to 50% by 2040. He also said Chinese firms were looking into conventional nuclear energy and modular nuclear energy locally.
While I agree with the plan to shift to renewable, a ban on coal even temporarily can impact power prices significantly. Households are already burdened by high inflation and big hikes in consumer prices since 2022. Food and fuel costs have gone up significantly in a year’s time. Power costs have also been high, not just for residences but businesses as well.
The thing is, some industries require a lot more power than others. Mineral processors, for instance, such as copper and nickel smelters, require a lot of power. Even glass makers that operate furnaces, and manufacturers of consumer durables like cars and appliances. Power is one of their major production inputs, and among their biggest production costs.
In this line, I am uncertain whether increasing the share of renewable in the power supply mix will also meet the demand and need, particularly of the power-intensive manufacturing industry. Industries like cement, petrochemical, and plastic manufacturing are all power-hungry. Even food processing and manufacturing require a lot of electricity — and not the kind that can just be generated by solar panels on top of the plant.
Government policy calibrations will always have industry winners and industry losers. But, overall, the winner should be power consumers and the country. Lower energy and fuel prices benefit consumers and producers. But, also allowing producers the benefit of lower power prices will redound to consumers as well through lower prices of consumer goods.
Admittedly, power generation is a business. And, for those producing power, they should be able to sell their products at a profit. But how does one now balance the interest of those who are in the business of producing power, those who need a lot of power in their businesses, and consumers who also have their own power needs.
Straight out, power producers cannot be denied their return on investment. And consumers should have access to consistent, affordable, and reliable power supply. Profit vs affordability.
Caught in between are businesses that need lots of power as a production input. They should be able to produce efficiently to allow themselves a reasonable return on their investment, but at the same time keep their products affordable for consumers.
And this is where Secretary Lotilla and his team comes in. The importance of their policies cannot be overemphasized. Energy security is of paramount importance, next only to food security. Energy security, according to the Organization for Security and Cooperation in Europe, means “having stable access to energy sources on a timely, sustainable, and affordable basis.”
It is of prime importance precisely because “access to energy is not only crucial in supporting the provision of basic needs — such as food, lighting, water, and essential healthcare — but it is first and foremost a precondition to economic growth, political stability and prosperity,” the group said. Simply put, energy security and human development go hand in hand.
While Secretary Lotilla’s team works on power supply, the others in the President’s economic team should be working on inflation. Power supply can be stable and affordable as long as the situation allows or encourages more investments in power generation. The Return on Rate Base formula still works, as long as the rates set are reasonable for all concerned.
Power prices will never go down significantly, as it is unlikely that investments in generation — and in new power supply — will significantly exceed the demands of a growing population and economy. As long as supply is sufficient, then this should be good enough. No-shortage is easier to achieve than over-supply.
But power price increases can be slowed down as long as inflation is kept in check. As long as fuel prices — as inputs to power production — are in check. Shifting to renewables is a step in the right direction. Since Return on Rate, a formula allowing a fixed percentage of profit for power producers, works only if producers’ costs are also stable. Again, inflation plays a part here.
Ultimately, what is crucial is how Secretary Lotilla’s team provide for an environment conducive for more investments in power generation. At the same time, how his team can work with others in government to lower the costs of power producers. This is the only way for power generators to consistently produce affordable and reliable power supply.
In doing so, the government also provides for an environment that gives industries and businesses access to stable, reliable, and affordable power. In turn, producers and retailers can provide for the basic needs of consumers without having to significantly raise their prices on account of expensive electricity. Consumers also benefit from lower electricity prices at home.
Marvin Tort is a former managing editor of BusinessWorld, and a former chairman of the Philippine Press Council