Is coal dying, or dead, in the Philippines?

More from author

DOTr suspends distance easing in PUVs amid Covid risk debate

THE Department of Transportation (DOTr) on Thursday suspended the implementation of its controversial policy relaxing the physical...

PBA returns on October 9

THE  Philippine Basketball Association (PBA) announced on Thursday night that it will resume the 45th Season in...

Quiapo Church prepares for downscaled Traslacion 2021

Quiapo Church is now preparing for a downscaled Traslacion next year after it failed to enforce physical...

By Viking Logarta & Sara Jane Ahmed


Yes to the first, and a nuanced no to the second.

President Duterte said in his State of the Nation Address last year: “We recognize the urgent need to ensure the sustainability and availability of resources, and the development of alternative ones. In this regard, I trust that Secretary Cusi shall fast-track also the development of renewable-energy sources, and reduce dependence on the traditional energy sources, such as coal.”

The Department of Energy (DOE) is not only aware of this growing dependence and growing grid instability as a result, but also welcome support to help address challenges of the rapidly developing power sector terrain.

The DOE has determined that there is already an excess of coal plant capacity (and of other so-called base load capacity) in the grids, causing instability. It is not just coal, however, as Energy Undersecretary Felix William Fuentebella has emphasized to us, but also fossil (natural) gas and geothermal. Because of the excess capacity, at current levels of demand, the coal and other generators are contributing too much in the market, displacing mid-merit and peaking plants that are more capable of balancing supply with demand.

It is clear that the power market is evolving into one that requires more system flexibility and reliability of the network. Currently, the Luzon-Visayas grid has significant surges and drops in variable energy generation, mainly solar. It is right for the DOE to aim for sufficient flexibility to enable the absorption of more VRE.

The New Energy Outlook 2019 report published by Bloomberg New Energy Finance (BNEF) forecasted that the last coal power capacity addition to the Philippine power grid would be in 2023, likely the 1,200-megawatt Atimonan plant, if it is built at all. Moreover, coal capacity utilization would peak in 2034, resulting in a 16-percent generation share by 2050, down from 55 percent today.

The DOE values the BNEF forecasts because their reports are addressed to investors who need the best available information to be able to manage risk-return prospects, and avoid stranded costs.

Fuentebella opines that other forecasts are tainted by politics, driven by supplier interests. For example, the International Energy Agency, which came out with a Southeast Asia Outlook, models 4 gigawatts per annum of coal installation in 2018, but final investment decisions dropped from 8 GW in 2014 to below 2 GW in 2018, and well below that in 2019.

Global capital is fleeing the thermal coal sector in terms of financing, insuring or investing. So far, over 100 banks and insurers/reinsurers, with assets under management or loans outstanding in excess of $10 billion, now have formal coal exit policies. Included in the exit are 40 percent of the top 40 global banks and 20 globally significant insurers. Momentum-wise, every two weeks, a bank, insurer or lender announces new restrictions on coal.

The lenders of last resort in Asia seem to be China, Japan and South Korea, providing capital subsidies for new coal plants via their export credit agencies. This means future liability on the side of the Philippines and the public balance sheets of China, Japan and South Korea, should they be left with stranded assets.

The ultimate question is whether or not these costs should be and can be shared between ratepayers, taxpayers or investors. Before reaching this answer, the government should decide where responsibility ultimately lies in a liberalized power market while taking into account the spirit of the Electric Power Industry Reform Act of 2001, which prescribes that outcomes of wrong decisions should not be passed on to ratepayers.

Is there also a case for taxpayers and investors to share some of the burden, however small, as their contribution to climate-change mitigation—given the magnitude of climate impacts? We think so. However, government needs to determine who is in the best position to manage or afford the burden of transition risk, and more important, whether there are other sectors where this share is taken on by ratepayers and taxpayers, or simply absorbed by investors.

Whether coal is dying or dead is immaterial; there is no “might” about this. Investors are fleeing the sector at an increasing rate and systematic management of this known transition risk must be undertaken with dispatch.


Viking Logarta is energy policy advisor of the Institute for Climate and Sustainable Cities. Sara Jane Ahmed is energy finance analyst of the Institute for Energy Economics and Financial Analysis.

- Advertisement -

LEAVE A REPLY

Please enter your comment!
Please enter your name here

More updates

- Advertisement -

Editorial: Madness and character

There are two quotes that are particularly applicable to 2020 and all that has happened. The first is from the German philosopher Friedrich Nietzsche. He died in 1900 and has had an amazing impact on late 20th and early 21st century thinking. At age 44, he suffered a...

Dispatch from Bicol: The canceled feast

Not in my lifetime, I told myself. Not in my lifetime that the biggest, most important festival in the Bikol region would be canceled. When acquaintances asked some weeks back if it was possible for them to travel to Naga so they could attend the Peñafrancia fiesta,...

Amal Clooney: The world’s Most Fascinating Person

I was intrigued when I received my invitation to join the 18th MAP International CEO Web Conference 2020 the other week. The theme of the conference sounded interesting enough, “A Whole New World: Reigniting the Stalled Global Economy,” but I was more allured by the name of...

ARISE, not CREATE!

Bayanihan to Recover as One Act, Part 2 (Bayanihan 2) was signed by the President on September 11, 2020. Many businessmen, non-government organizations and progressive legislators find the allotted P165.5 billion of the law too trifle and small in comparison to the earlier act passed by the...
- Advertisement -

In case you missed it