Renewable energy – the low cost, high-value option for the Philippines

THE week before the ASEAN Summit in Manila, I spoke at a conference for the Philippines electricity sector. The conference explored how and why the country should accelerate its deployment of renewable energy, in part to meet the challenge of climate change, as articulated in the final ASEAN summit communique.

One of the perceptions about renewable energy and the transition to a low-carbon economy is that this technology will impose costs on the Philippines that it cannot afford, particularly in the generation of electricity where coal will have to be replaced by wind and solar power.

In fact, renewable energy will save the Philippines money, make its economy more competitive, and boost living standards and consumer purchasing power. At the conference the chairman of the National Renewable Energy Board presented a study by the Philippine Electricity Market Corporation that showed that far from being a burden on the country, the existing renewable energy programme has reduced the overall cost of electricity.

This is because unlike coal or gas power, the variable cost of production for wind or solar energy is zero. This happens because the fuel – the wind and the sun – is free. This electricity is used first to satisfy customer demand, before the system operator brings on more expensive coal power. The overall effect is to depress the wholesale cost of electricity on the spot market.

By using this wind and solar power, the grid operator avoids the cost of operating the more expensive coal and oil plant. Over the three years of the PEMC study from 2014-2017 this avoided cost was 18.7billion pesos; a very significant sum.

We can see this phenomenon at work in many other countries. In my home, Ireland, we generate most of our electricity from gas imported from the UK, or from wind power. The wind power is subsidised by a feed-in tariff, similar to the scheme that operates in the Philippines. In 2014 that amounted to €300 million, paid for by electricity customers through their bills. The country also spent €5.7billion on imported gas.

As the electricity generated by the wind is despatched first, Ireland avoided importing an additional €500 million in gas, saving the customer a net €200m.

In the Philippines all the customer sees on their bill is the cost of the tariff supporting new wind and solar power. What they don’t see is the overall savings accrued through this reduction in the price of electricity.

Knowing that, despite the cost of the tariff, the introduction of wind and solar power onto the system actually saves the customer money, the government in Ireland continues to support renewable energy, and we now have 22% of our electricity capacity from these two sources of generation.

The Philippines can follow this trajectory and aim to have 25% of its electricity capacity supplied by wind and solar energy in the coming decade. The savings that will accrue to the customer will be considerable. Funds that would otherwise be spent on coal or oil can be invested in other infrastructure. Consumers will have additional spending power. The economy will get an extra boost.

Electricity made from wind and solar does not require any fuel to be bought from abroad. The wind and sun belongs to the country. It will be there forever. It doesn’t matter what external price shocks impact on oil or coal, the wind will blow and the sun will shine and their unit cost will remain at zero.

By moving ahead of its regional ASEAN partners and setting ambitious targets for wind and solar power, the Philippines can also attract investment in the supply chain. Early movers into renewable energy like Brazil, Germany, China and Morocco have created new industries and thousands of new jobs. Why should the Philippines subsidise mining jobs in Australia and Indonesia when it could be building the plant that will supply its own clean energy sectors and those across the region?

In the same week as the ASEAN Summit, delegates from across the world met in Bonn for COP23. One of the initiatives launched at the conference is “Powering Past Coal”, an alliance of over 20 countries, which have seen the potential in renewable energy in reducing emissions and pollution, reducing the cost of energy, and increasing economic growth. The Philippines has an opportunity to take a leadership position across the region by joining this alliance, and by doing so, commit to building an economic future that is powered by low cost, high value renewable energy.