Costliest Featured


Our economic managers fully intend to move our economy to a higher growth plane between now and 2040. From 2017 onwards, we intend to maintain a GDP growth rate of 7% or more.

On a sustained 7% growth rate, the Duterte administration committed to bringing down the poverty rate from the current 26.5% to just 17% by 2022. We expect to see a shift from consumption-led to investment-led growth, driven by low inflation and interest rate.

Investment-led growth means more manufacturing activity. In turn, more manufacturing means a larger power requirement – probably more than we have planned for.

For our manufacturing to be competitive, we need to bring down power costs. The long regime of high power costs, after all, was the culprit for the hallowing out of our industrial sector years ago. Our industries, laboring under a regime of expensive electricity, simply cannot survive the onslaught of cheaper imports.

We still have among the costliest power in Asia. That is not a factor that will enhance the strategy of high, investments-led growth the Duterte administration has embarked on.

A clear policy will have to be adopted on lowering the cost of power. This is unavoidably controversial.

For the sake of energy security, our power sources must be ample, reliable and cheap. Unfortunately, it cannot be all of those any time soon.

On the one hand, there are groups that insist we use more renewable energy moving forward. There is merit in their demand. Although the Philippines is among the least polluting countries in Asia, due largely to our leadership role in the use of renewable energy since the 1990s, we can still contribute to averting global warming by further lowering our carbon emissions.

On the other hand, the higher cost of renewable energy alternatives will maintain the costly power regime than hampers manufacturing growth. Renewable energy generation costs are sometimes three times higher than coal-powered generation.

At present, we have maintained what seems to be a workable an energy mix. A third of our power uses coal. Another third uses natural gas. The last third uses various renewable sources ranging from hydro to solar.

It is not an ideal mix if we look at it entirely from the perspective of power costs – simply because we still have the costliest power in Asia. It is certainly not ideal from the point of view of clean energy lovers because a third of our energy still uses coal.

The situation is certainly not ideal from the consumer’s point of view. We are not only paying for high generation costs. In addition, we are asked to pay for the Feed-in Tariff (FIT) that is some sort of subsidy handed out to renewable energy producers to offset their higher costs.

It is a subsidy entirely paid for by the consumers, by itself anomalous. While paying for FIT, consumers have no say over how it is handed out. The process, involving billions, has not been fully transparent.

There is no bulletin issued identifying the beneficiaries of FIT subsidies. Many of the renewable energy generators make a lot of profit – and only because of FIT.

No one I have asked really seems to know if the handing out of FIT money is covered or exempted by the Freedom of Information decree. In all likelihood, there is a FIT cartel out there composed of investors in renewable energy production who never bother about the efficiency of their plants or the cost of their power production. FIT will always be there to cover all business risks and assure any and all investors profitability.

Lately, there have been persistent reports about a lobby pushing to increase the FIT collected from consumers from the current 12 centavos per KwH to 20 centavos. That might seem a small punishment for consumers to take, but it will push FIT collections to the tens of billions.

It’s not clear what the justification is for forcing consumers to contribute more FIT. If our energy mix remains the same, then the cross-subsidies should suffice.

Besides, the prices of renewable energy technologies are dropping dramatically. The price of solar panels, for instance, dropped 80% over the past five years.

Increasing FIT subsidies to renewable energy producers will, of course, create incentives for installing more “clean” generation capacity. But it will keep our cost of power high.

Expensive electricity will, in turn, inhibit investments in power-intensive industries. That could prevent our transition to investment-led growth. Eventually, that could prevent our entire economy from achieving the 7% GDP growth rate essential to bring down the volume of poverty.

It is a choice we hopefully did not have to make: cheap power and high growth on one hand, clean energy and massive poverty on the other.

Unfortunately, we do not have the best of all possible worlds. If we want to bring down our power costs, we will have to delay transition to a primarily renewable energy sourcing.

If we rely entirely on coal plants, we might cut our power costs by half. The only other possible source that is cheaper is nuclear power – although this will involve a polarizing public debate.

If we are to somehow moderate our power costs while maintaining the current share of renewable energy sources, then the additional FIT will have to be rejected. That will be a clear signal that we intend to bring down power costs to encourage investment-led, job-generating economic growth.

At the moment, renewable energy is not only unreliable, it is far too expensive – and also a hindrance to poverty reduction.
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