WITH the recent oil price shock, where we saw the price of oil going up to around $140 a barrel, the question is whether that is enough political impetus for us to go into renewable energy in a big way.
By a big way, we mean that we make the investments now in “renewables.” The problem is that renewable energy, technology-wise, is still being perfected, so that means it is not yet cheap. But if nobody invests, it will never become cheap because industry holds back on R&D, because there is no demand. So it becomes a chicken and egg situation. Given that the so-called carbon credits from developed countries can pay for up to 10 percent of the cost of the project upfront, it is still not attractive for some.
Enter the Philippine Renewable Energy bill. When passed, it will actually give a lot of incentives to investors to go into renewable energy (RE). Aside from the fact that RE is a good way to contribute to the climate change effort, if the RE bill is passed, it may actually make good financial sense to go into RE. Because right now, the climate change advocates root for the use of renewables but when you talk to the financial folks, they’ll tell you now is not yet the time.
But what is the right time? After the oil crunch of the 70s, we should have gone big time with renewables. But naysayers said at that time, “Now is not the time.” So now the world is slowly realizing that, now is the time. Because if not now, when? When the oil runs out? That will be too late.
If you look at the new version of the RE bill, aside from the typical tax breaks and tax credits, particularly for those who go into the manufacture and installation of RE systems, there will also be new incentives. This includes the lowering of royalties, and even the elimination of charges related to the use of the grid distribution system (also known as wheeling charges).
One of those being contemplated as a new feature of the RE bill is the concept of a Feed-In-Tariff (F-I-T). Feed-In-Tariff was developed in Europe, and was adopted in California, which caused massive amounts of investments in RE.
F-I-T works by requiring the utilities by law to source part (or a percentage) of their power requirements from RE sources. Now if that is implemented, that will not be enough to offset the current higher cost of RE compared with coal, for example. So what F-I-T does is require the utility to pay the RE source at a slightly higher price than what the fossil fuel based power sources sell.
This will then improve the net present value financial calculations for RE investors. You need to give all these incentives, because frankly, renewables are not yet attractive financially as compared to, say, coal or other fossil fuel sources. The utility is then (typically) allowed to pass on the added cost to consumers. Since there are many consumers, it turns out that the public is helping subsidize RE investments.
Now people can argue that this shouldn’t be passed on to the public. But that was the only way they were able to justify RE investments in Europe and the US. Without it, nobody made the investments.
So one can argue that we either move into RE or not. Think of it as investing for our children’s future. After all, when massive investments pour into RE, eventually the prices will drop and future RE plants will be cheaper to build and install.
Arguing that government should foot the bill might work for a certain amount but eventually we should ask where will we get the money?
Another way to look at this issue is now we are paying a foreign currency adjustment fee for oil. If we don’t move into RE now, we will keep paying that foreign currency adjustment. So why not move into a spread out public subsidy for RE, which eventually will mean cheaper power for everyone. We can take part of that oil price adjustment factored into our electricity bills and turn it into a subsidy for RE investments.
What do you think? Should the Philippines still live with the status quo or go into renewable energy in a big way?
(This article was written by the office of the Deputy Executive Director of the Congressional Commission on Science, Technology and Engineering).
11 Feedbacks on "Renewable energy now or later?"
Nick Nichols
Really, guys. If the blog post is going to end with a request to provide our thoughts in response … and you’re going to call this a “blog” … you should really require all posts to have a person’s name. After all, you require commenters to provide a name.
Go read Cluetrain. We are people and we want to interact with people … not some government “Office.”
Vincent Chua
The Philippine should go into renewable energy.
For the pass eight years, dubai have not found or discovered any new oil fields, They knew one day, this resource will be exhausted. That is why they set-up the dubai silicon oasis. They are preparing their economy for the future. Like South america, they too had a hard time of the fuel crisis in the 70’s, but they continue to pursue bioethanol research and look how they were able to cope with the recent jump of oil price.
Michelangelo Du
Dear Sir,
Comment:
I want to just take this point per point, if you don’t mind:
Your statement was:
“The problem is that renewable energy, technology-wise, is still being perfected, so that means it is not yet cheap. But if nobody invests, it will never become cheap because industry holds back on R&D, because there is no demand”
Comment: Let me clarify a few things about how I understand the Renewable technologies today:
1. There are Pie-in-the-sky renewables that require massive research budgets, more study into basic research and are high risk but could be much cheaper in the long run. ( e.g. New Solar Cell technologies, Fusion, Tidal Power, Hydrogen Fuel Cells, Algae to Oil, genetic engineering techniques on microbes for Ethanol / Hydrogen / Green Diesel technologies , Clean Coal Technologies - with Carbon Capture, etc)
2. There are the upcoming renewables that require little new research, but might come out a bit more expensive than Coal (eg Solar Collectors, Wind Energy, Hydropower, Traditional Ethanol Production, Biodiesel)
My statement: If the technology is cheap enough and very viable, we don’t need Pie-in-the sky R and D. We just have to have good relations with these companies to do adoption of their technologies once they are ready. Let the Developed Countries develop first the technology, and then, once ready, we come in.
If it (Any RE technology) doesnt gain popularity (maybe input materials cost skyrocketed in the pilot plant (like the Turkey innards-to-Oil plant in the US), or some other side costs), then waiting for the research from these Research companies was well worth the patience of not jumping to it in the first place. SUNK COST and EQUIPMENT DPERECIATION is forever, and is a very big chunk of a company’s expense.
Your Statement:
“(ON F-I-T) The utility is then (typically) allowed to pass on the added cost to consumers. Since there are many consumers, it turns out that the public is helping subsidize RE investments.
Now people can argue that this shouldn’t be passed on to the public. But that was the only way they were able to justify RE investments in Europe and the US. Without it, nobody made the investments.”
Comment: The decision in Europe and the US to create this Tariff was made with the insistence of the Public, that could afford to sacrifice financially for the good of their environment. Once Congress sees the words ADDED COST TO THE PUBLIC, they will definitely be against it.
What we should do is look at the POTENTIAL cost reductions of these
new renewables, the TIMETABLE it might be reached, and GOVERNMENT INTERVENTION EARLY ON to bring these companies into contact with Businesses Interested in Investing it here, when the cost are comparable to fossil fuel. Don’t rush into it, like all those numerous DOTCOMMER Startups in the US, who lost their shirts back in 2000 because their IT companies didnt have a Real Means for generating positive income.
Use the pull effect. Get these RE Startups to take notice of the Philippines, and then let the Philippine Power Companies collect and select the technology they deem viable, in their own time.
Your Statement:
“when massive investments pour into RE, eventually the prices will drop and future RE plants will be cheaper to build and install.”
Comment: Please take the US Ethanol Industry as a case. Between 2003 to 2006, HUNDREDS of Ethanol Plants sprouted in the US due to the Oil Scare. Most Gasoline stations could not invest in the added pump for 10% Ethanol Mix, and they were still more expensive than ethanol in Brazil. And now Coal-to-Liquid Fuel and Gas-to-Liquids may come out cheaper than these Ethanol Plants. Genetically Engineered Biomass-to- Ethanol Microbes and Enzymes are still being experimented, and those could take years before theyre in the commercial stage, while these US Ethanol Plants might be rendered underutilized, or worse unprofitable.
Brazil is profitable because in Ethanol, it is the lowest cost producer, since labor is cheap, land is still aplenty, CONSIDERING they use Traditional Ethanol production only.
Sir, I hope this comment provides you with some insight, from an Entrepreneur’s perspective.
boyfuture
enough of those politicians, they really dont care, they care more on how they can make money out of it!
This is the time whether that stupid law is pass or not!
We have already seen how oil affects us, it can turn a country’s good economy upside down. And we have heard of the greedy side of OPEC’s decision to cut over production to keep the price above $100 a barrel.
Lets cut our oil dependency by half. Anyway the technology is already there for electric motors to run mass transport systens like mrt, lrt, e-jeep, and electric cars.
joel magsaysay
sirs,
nice intent. i have been studying RE for about 32 years. my cars are on lpg, ethanol and cocodiesel. we heat our water with solar & biomass. we have built-in RE readiness in our structures here on our farm.
but, where are the RE suppliers here in the philippines?? that can supply us?
joel magsaysay
Michelangelo Du
Added comment: I do however think that Tax Incentives would be great for Renewable Energy Companies, as a great enticer to those who can already produce at Fossil Fuel Costs.
Michelangelo Du
Another comment: My Dad, Mr. Demosthenes Du, a veteran in the Agri Industry who has many experiences with Govt, and Industry associations in the Agri-Industry, would like to clarify on my statement of Adoption of Technologies, as he understands it;
>
> Best Options are Liscensing, Transfer, or Joint Venture. The Startups who did the research usually have an add-on cost or a royalty fee for their technology, but at least you are assured the technology is stable and consistent. You may come out late in the game, but you are more in control of your costs.
>
> Or you could do a Dr. William Dar (Head of ICRISAT and Former DA Secretary). He said to us in a seminar here in Cagayan de Oro, having flown all the way from Hyderabad, India, that Industries could reduce their research costs by forming Industry CONSORTIUMS and pay an ANNUAL FEE for the research anc consultancy, which is what they did to Sweet Sorghum for Ethanol Research. Costs are subdivided among the members, making it cheaper per member.
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> But this has to be done with an established Science Institution ( In ICRISATS case, an Agri-Science Park of 108+ Companies in India)
>
>
> The hardest part is getting these startups to prioritize our Power Companies. Its like the courting game; you show you are desperate for the girl, magiging mapresyo siya. Court many startups, be serious about it, then, once they give feelers, select the most suitable technologies for the Philippines.
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> Best Regards,
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> Mike Du
>
D Posadas/COMSTE
Demosthenes, Mike, Joel, Boyfuture - thank you for your comments.
Regarding Mike Du’s comment on renewables, I guess I have to clarify something. Right now, if you talk about using renewables for off-grid barrios or islands (isolated places), that is where renewables make sense because there is no alternative.
The incentives like F-I-T, etc. really kick in when there are fossil fuel alternatives that utilities can pick. For example, utilities are now attracted to clean coal and natural gas, vis a vis solar (for example) which ranges in the $2-4 per Watt range. Since clean coal and natural gas looks cheap, they go with that.
I precisely worded the opinion that way, that we are passing on the costs to the utility consumer, because it is better to be upfront and transparent about what F-I-T could mean.
HOWEVER, I would like to point out that our society needs to make a choice. Do we pick “cheap” fossil fuel based power, or do we pick a slightly more expensive power source that when used widely, could mean a cleaner environment and less dependence on OPEC.
For Mr. Boyfuture, the reason we are doing this is that we want to seek the opinion of the public. I hope we give this venue a chance…
My apologies if I cannot answer most if not all of the questions. I will try my best.
Note that this opinion, including the blog post, is my personal opinion, and not the official stand of any government agency or group.
Sincerely,
Dennis Posadas
Deputy Executive Director
COMSTE
Marc de Piolenc
Why do we have to wait for the existing energy companies to invest in
alternative fuels (voluntarily or coerced)? Did our grandparents wait
for the buggy manufacturers to start making automobiles?
The logical purveyors of new products are new companies. When upstart
renewables companies start eating their lunch, the established players
will come around soon enough.
It’s already happening with coconut-based biodiesel.
Marc de Piolenc
Iligan
Jasper
Hi Dennis,
Great to hear that somebody is looking into the RE bill and into the FIT in particular.
I am responsible for having the Feed in Tariff inserted. If done responsibly, the consumers will benefit in the longer term under a fixed tariff regime because power plants are built to last for at least 25 years and could reach up to 50 years.
Once a coal-fired power plant is put up, for instance, the country will be locked in to that source of power for a while. This means that we will be vulnerable to the increasing price of fossil fuels. However, under a FIT, the price will be predictable and help stabilize the price of electricity over the next several decades.
Arlo
We should develop energy/fuel that is affordable or “free” and not controlled by corporate greeds.
We should not let these corporations supply us. We should supply ourselves.
I hope this day will come…
Arretez l’avarice!
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