A rude awakening for Duterte

Brexit was a popular move against what their future will be if no changes happen. It’s a historic event that echoed the current sentiment around the world to change the status quo. 

This was evident during the US primaries, being dissatisfied with what is referred to as the establishment. Duterte’s campaign was about changes to do what the people want especially in his adopted homeland, Mindanao. 

For instance, the Mindanao brownouts will be dealt with by dumping lots of coal plants. That will make the Mindanaoans feel better but do they really know what this will bring to their economic future?

The former mayor must have known about some new coal plants being built in Mindanao. But now as the President, he will see the enormity of the additional capacities from a regional and likewise national views.

Tons of coal. And more tons of coal. Some are already in and others coming to Mindanao in the near future.

A rude awakening that should give Duterte a pause to think for a moment. Do we really need all that new coal power? (READ: Energy chief to Gina Lopez: Find balance between coal, renewables)

According to the Department of Energy, 3,010 MWs for the next three years or around mid-2019, will power Mindanao’s projected users. This will more than double the current Mindanao’s installed generating capacity. 

Capacity is one thing but it will also represent up to 3,010 MW worth of additional daily coal burning. It will account for about 62.5% of Mindanao’s energy mix because there are no other significant energy sources that will be tapped. In perspective terms, today Mindanao has only 15.9% while Luzon has 34.5% and the world in 2014 has 39% of the energy mix in coal.

Do the Mindanaoans really know what’s coming to them?

The good, the bad

With the new capacities providing plenty of base load 24/7 power, brownouts will finally end. Since coal is less expensive than oil, it can potentially lower the composite levelized cost of electricity (LCOE), if done properly. Over capacity will result in inefficiencies and low utilization which will drive the composite LCOE up.

Now, what about bad side?

Three things quickly come to mind.

First of all, since coal prices fluctuate, there’ll be potentially twice as much cost vulnerability from coal in the Mindanao’s energy mix compared to that of Luzon’s. This goes both ways depending on the long-term contracted coal prices.

Another is the spike in GHG emissions that comes with coal burning and the public health risks from ash leachates that cause groundwater and aquifer contamination. From a long-term outlook, there’s the potential for another public health risk associated with the pollutant-laden smog. 

Lastly, the world’s cheapest of all fossil fuels is natural gas. Why have we not taken advantage of that?

In 2012, why was the golden opportunity missed by the DOE’s inaction on Brunei Darussalam’s proposed LNG (liquefied natural gas) facility in Macajalar Bay in Misamis Oriental? That included a 300 MW combined-cycle plant as the anchor load, based on the feasibility study conducted by the Canadian Gas Service International hired by the World Bank.

Since fuel contracts are long-term, Mindanao will be locked into using a more expensive fuel in coal for a long time. Could we be hit with a double-whammy since the levelized cost of electricity (LCOE) from coal plants today is already more expensive than that from the combined-cycle plants?

Big rush to coal

We don’t know the details of the future demand that created this rather huge jump in capacity.

Duterte should once again take a pause and focus on what the previous team had in mind in approving these new capacities. What were they thinking? Are we putting all our new eggs in one basket again? The days of expensive oil and intermittently available hydros that eventually brought us the brownouts should stay in the rear-view mirror.

And the big picture question he should ask is, “what is this all about?” 

We can see that these new capacities are owned by the same big players including the Luzon power oligarchs. This would be expected as they approach their regional capacity limits in Luzon but would also bring the Luzon pricing scheme and unfair competition to Mindanao.

Another thing is, who’s watching the national capacity limit?  Is it too much of a research to unravel the complex web of layers of corporations, conglomerates and foreign tycoons spun together, to determine if limits are being exceeded?

What if turned out that there are not enough off-takers for the new capacities?

One option would be to run at lower loads though inefficient, driving the LCOE up. Another is to not run at all, the worst case because idle investment is more costly.

We cannot ignore one more option. Should Mindanao be interconnected to the L-V grids by 2019-2020, power can be wheeled over to Luzon or the Visayas. In such a case, prime land will be occupied with all the adverse environmental impacts with no benefits to Mindanaoans.

What to do

We could be wrong but he’s never been known to panic. He’s a “sets his goals and does it” kind of a leader.

Out of the 3,010 MWs, 1,610 are already committed or “done deal”. He can forget about that but the remaining 1,400 can still be scrutinized for potential bad consequences. Those future projects can be derailed due to inadequate funding, incomplete plant site acquisition, inadequate off-taker contracts and unsecured long-term fuel contracts. Duterte can evaluate on a project by project basis and delay such projects.

It not difficult to justify the cheaper combined-cycle plants against the remaining planned coal capacities. However, what was moving a molehill back in 2012 to introduce natural gas, will now be moving a mountain. 

But if there’s anybody who can do it, we’ll put all our bets on Duterte.

He can re-invite Brunei or any foreign investors to introduce natural gas not only for its lower LCOE against coal but also for the needed diversity in energy sources.

What about if Duterte looks into a model initiative that includes transforming the energy mix based mainly coal and gas which are reliable sources available 24/7 and some of the existing renewables? Since the LCOE from natural gas is 38% lower than from coal, that will drastically drop down the composite cost and will attract more foreign direct investments (FDI)

Low-cost power will spur sustained fast-track industrialization. Infrastructure building will get started from roads to bridges to airports and rail systems. More jobseekers from Luzon will gravitate to the long-term opportunities which will also alleviate traffic congestion in Metro Manila.

As more jobs are created including in the ARRM, peace and order will improve and political stability will be established.

Why wouldn’t such model initiative succeed? This is where the rubber meets the road.

Modularly-constructed combine-cycle plants will save on plant design costs, impact studies, permitting and O&M (operation and maintenance) training. Plant site locations in the northern part of Zamboanga with strategically located LNG terminals will ensure ease of docking and unloading from LNG transport vessels coming from the South China Sea. 

The modularly-built plants will cost significantly lower than coal plants, will occupy much less land area, emit half GHG from coal with no risks of groundwater contamination and will produce zero smog.

As an option, an LNG terminal could also represent a separate business endeavor for Mindanaoans that can be expanded in the future to distribute piped-gas to residential, business and industrial users.

Ownership partnering with the FDIs, will come from the local small IPPs, business communities, consumer groups and other associations.

For Duterte, the peace and order alone that will come with a robust economic growth and record low unemployment would be worth the challenge. His actions will make it a well-deserved rude awakening. – Rappler.com

 

Herminio R.S. Calalang holds a BSME and a BSEE and has extensive experience in the power industry. Danilo V. Sarmiento holds a BSEE and an MBA and has extensive experience in the non-power and power industries.