The policy trends set out for debates and implementation this year and even those that came earlier will help define the energy future of our country – as well as globally.

The entire sector has seen many of them on “collision course” – like the push for green energy as a rational response to abating climate change risks versus perceptions that fossil fuels (primarily “King Coal” and “Big Oil”) lording over in the mix for several decades more; or the unrelenting food-versus-fuel debate when the sector started tapping into biofuels as alternative. Nonetheless all these will become critical components of the transition phase that will bring the world into what is being aspired for as “low carbon future.”

What will not change in the industry’s landscape, according to experts, will be the wrangles over costs and prices along with political issues that are out to bedevil investments or policy gains the sector may have been achieving.

Investment match-ups

Notwithstanding the politically-charged nature of the industry, its allure at attracting investments is evident. Especially in the power sector, haven’t we noticed the business tycoons jostling their way just to corner a portion of the industry’s investment pie?

Although they are already labeled lord and master in their own business domains, it remains to be seen if their foray in the energy will thrive as formidable match-up to the firepower of existing players. Among the considerably cash-rich “newcomers” in the industry are businessman Manuel V. Pangilinan who bought into Manila Electric Company’s equity; and Ramon S. Ang, president of San Miguel Corporation (SMC) who spearheaded acquisitions in Meralco, power plant assets and contracts (Limay, Sual and san Roque assets) as well as in leading oil firm Petron Corporation. Other newbies in the list are the Razons into the concession deal for the National Transmission Corporation and the Consunji group for the Calaca coal plant.

Certainly, these industry newcomers have a lot to prove in terms of overpowering, or even measuring up with the more experienced and well-entrenched players in the industry – either the likes of the Lopez and Aboitiz groups or the deep-pocketed foreign investors which already lived through the industry’s travails since the last decade’s independent power producers’ (IPP) contracting regime.

Sitting on roughly $4.0 billion war chest for acquisitions, Mr. Ang noted that his company’s diversification sight is primarily fixed on whatever prospects are available in the energy sector.
Pangilinan, for his part, is counting on feasible synergies that his Philippine Long Distance Company’s (PLDT) alliance with the Lopez group would bring in – such as technology convergence for broadband over power lines, intelligent metering or smart grid, among others.

Capacity contracting

As far as the power industry is concerned, the next battlefronts will be addressing supply shortages dilemma in the Visayas grid; future capacity additions for Mindanao, and in 3 to 4 years time, it will be for Luzon grid’s requirement.

Power investors articulated that forthcoming challenges will range from plant siting; getting sufficient contracts to satisfy lenders requirement for capital infusion; setting appropriate pace and timeframe of project implementation as well as the propounded integration of the Wholesale Electricity Spot Markets (WESM) in Luzon and Visayas to provide alternative market for capacity additions.

Aboitiz Power senior vice president Luis Miguel Aboitiz sounded off that “right now, the buyers (off-takers) of power are cautious, so they are only buying power of terms of 3 years or less.”

Mr. Ernesto Pantangco, executive vice president of Lopez-controlled Energy Development Corporation, opined that “it is not difficult to corner long term contracts provided that the proponent has a portfolio of reasonably-priced power sources” like a good mix of hydro, geothermal, coal and renewable sources.

Both power executives acknowledged that merchant market will be a requirement in the deregulated power industry because this will serve as alternate source or market of available power or demand, and it is also anticipated to cover ancillary services (spinning and regulating reserves) required by the grid.

Green bubble

The passage of the Renewable Energy Act last year and the subsequent approval of its implementing rules and regulations (IRR) further stirred up green energy effervescence.

The Department of Energy (DoE) was thrilled at declaring that it cornered more than 100 applications for RE projects. Having approved already around 30 of these prospective projects, Energy Secretary Angelo T. Reyes indicated that succeeding assessment and review works will focus on the other 60 project applications lined up for approval.

If the estimated initial $1.0 billion worth of investments for RE projects will indeed add up to the country’s power capacity – that remains to be seen as implementation success rates for unconventional RE sources like wind and solar still pale in comparison to conventional sources, such as geothermal and hydro (although the latter is also an intermittent energy source).

The emerging lowdown in RE policy, as some industry players observe, is the sprouting of what appears like a ‘cottage industry’ of would-be industry players. For instance, some new entrants despite not having a single megawatt of capacity to back up track record,could easily bluster about a billion-dollar investment – a touch seen too ambitious in contrast to the more cautious approach of the industry’s well-established players. Some may not howl or make a big deal out of such pronouncement, but when carefully assessed, it portends false hopes especially when these investments fail to materialize within a predictable timeframe.

While there is much hype for renewables and biofuels-driven energy future, pundits concur that this remains a utopian dream – and that the real shift from fossil fuel-dominated economy to green options look set to take a lot longer, perhaps 15 to 20 years down the road. Additionally, RE is still an expensive option, especially when these are not underpinned by subsidies.

Amid forecasts of continued ‘doom and gloom in the oil industry’, the share of biofuels (i.e ethanol as blend to gasoline and biodiesel) will stay marginal, experts concur until after the industry finds technological way out in bringing second to fourth-generation feedstocks (such as cellulosic ethanol or algae) into commercial scale.

While it may take time for RE sources or biofuels to become truly competitive in the market chain, the DoE is setting expectations that with the continuous up-trend in fossil fuel prices (primarily oil and coal), such alternatives would eventually thrive a viable match-up to traditional energy sources. “The price of fossil fuels may have no other way to go but up. We might as well work towards transformational efforts making alternative fuels, technologies and resources more accessible and affordable if not cheaper,” energy chief Reyes said.