Sufficiency

This has to be good news. The Energy Regulatory Commission (ERC), after many months of delay, finally approved the power supply agreements (PSAs) of seven major power plants. Any further delay would have compromised our energy security. The possible shortages further delay might have caused would have pushed up power costs in open market energy trading, even force rotating brownouts.

The seven generating plants cleared to proceed will provide 3,551 MW of new baseload power. That will meet the power needs of over five million consumers over the next three to five years.

New baseload power coming into the grid, because it ensures sufficient supply, will help bring down power costs. That will help make our economy more competitive. Over the past few decades, our industrial core hollowed out because power costs here were simply too high.

The new PSAs approved by the ERC use new coal technologies. These are, by far, the cheapest energy possible for baseload plants. That will help bring down the cost structure for domestic energy.

Among the new plants cleared to proceed are Redondo Peninsula Energy, St, Raphael Power Generation, Atimonan One Energy and Panay Energy Development. All four hold contracts with Meralco.

The records show that the abovementioned PSAs will charge significantly lower tariff. That will translate into substantially lower generation charges passed on to the consumers.

The delay in approval happened because of petitions filed by United Filipino Consumers and Commuters and Freedom from Debt Coalition. The petitions were junked by the ERC for late filing as well as for having no personality to file. These were, in a sense, nuisance petitions intending to hold up the approval process and endangering our energy security in the process.

There is, of course, that contrived debate about using coal plants instead of those run on renewable energy. Some have argued, against the evidence, that renewable energy could prove cheaper in the long run. The bottom line, however, is that no renewable energy plant (other than the old hydroelectric facilities) could supply our grid with baseload capacity.

Supply

Information gathered from the DOE indicates that from July 2016 to June 2017, 1,125 MW of installed generating capacity was added to the Luzon grid. Of that new capacity, 96 percent generates power using coal and natural gas.

Because of the added capacity, there were only three yellow alerts in the Luzon grid from Jan. 1 to Aug. 29 this year. By comparison, there were 19 yellow alerts for the same period in the preceding year.

A yellow alert indicates tightness of supply. This happens when a generating plant conks out. If supply tightens further, there could be outages.

On Aug. 30, Luzon was placed on yellow alert due to tripping of high voltage transmission lines. On that day, Malaya 2, the grid’s security plant, was also on emergency shutdown.

On Sept. 9, Luzon was again put on yellow alert after both units of GN Power (600 MW) experienced forced outage. On Sept. 16, another yellow alert was issued on the Luzon grid after Sual unit 1 and both units of GN Power experienced forced outage, depriving the grid of 1,200 MW of power.

Clearly, our power supply is still vulnerable. The newly approved PSAs will add to our reserve margin. As the economy grows at a faster clip, electricity demand in the Luzon grid now exceeds 10,000 MW.

Obviously, we need all the generating capacity we could put online. The ERC’s approval of the seven PSAs could not have come any later. Otherwise our economic expansion will hit an energy ceiling.

Carbon tax

Whatever price advantages our consumers might gain from the use of modern coal plants might be negated by the imposition of a specific tax on coal. Such a tax is being considered to help improve the national government’s fiscal position and fund the Build, Build, Build infra program.

The Senate ways and means committee chaired by Senator Sonny Angara is contemplating increasing the excise tax on coal to make up for the revenue shortfalls caused by the reduction in the tax measures originally proposed by the Department of Finance. The Senate version of the Tax Reform for Acceleration and Inclusion (TRAIN) passed the committee and will be deliberated in plenary the coming weeks.

Coal is our biggest, most reliable, most stable and cheapest energy source. Additional excise taxes on coal will immediately reflect in rising electricity prices, negating whatever gains we have made in bringing down power costs. That will have the strategic effect of discouraging new investments in industry we rely on to produce inclusive growth.

The better option, according to industry experts, is to replace the excise tax on coal with a carbon tax similar to what has been applied elsewhere. A carbon tax, apart from simplicity in administration and execution, encourages firms for lower emissions. It will likewise encourage consumer behavior away from practices that increase the peril of global warming.

Because of its simplicity, government may even earmark revenue from a carbon tax to fund environmental programs. Money generated from this tax for instance, may be used for “resilience-building” in communities most vulnerable to effects of climate change. Generation companies, for their part, may mitigate their carbon tax due by investing in commercial forestry. This is pretty much how the Kyoto Protocol works.

Our legislators, eager to support government’s expansionary economic strategy might want to look as the carbon tax as a more effective instrument not only for raising revenues but also for encouraging more environmentally sensitive behavior.