From Where We Sit

Toward the renewable energy transition

Mhycke Gallego
By:
Mhycke Gallego
Contents

In April 2021, the Philippines committed to a 75% reduction in greenhouse gas (GHG) emissions from its 2020 numbers as part of the Paris Agreement. It also aimed to increase renewable energy (“RE” or “renewables”) usage to 35% to enable this goal. Plans are still in motion for the country’s RE transition, but as far as progress is concerned, Southeast Asia’s Green Economy 2022 Report found the Philippines to be a laggard in the race for green energy. According to the report, this slow pace is due to a lack of concrete implementation to accompany our loftier plans, so high hopes rest on the incoming administration to catch up and make good on our commitment to GHG reduction.

In this socio-political climate, however, the administration is not the only one facing scrutiny to bridge their sustainability intentions with proper action. Companies and the private sector are likewise expected to move from the “planning stage” to tangible contributions to protect the environment, beginning with their own wide-scale transition to RE. Questions abound for this transition, and I will provide my own insight on them in the following segments.

Is RE a good investment?

I have previously covered ways for businesses to finance their sustainability agendas without sacrificing profit. Likewise, there are programs in place to offset the initial investment cost of transitioning to RE, and the World Economic Forum places RE transition returns to be three or eight times higher than the investment.

Speaking solely to their levelized cost of energy, or the average lifetime cost of generating electricity at a plant, RE is cheaper. RE costs were already on a downward trend in 2019 when estimates put solar at Php. 3.85 per kilowatt-hour (kWh) and wind at Php. 5 per kWh compared to coal’s P5.35 per kWh, and the estimates are likely lower today.

Additionally, the recent fluctuations in oil and gas prices might make a stronger case for businesses to transition to renewable energy, especially considering how RE Power Purchase Agreements (PPAs) work. PPAs and Corporate PPAs (CPPAs) allow businesses to sign long-term contracts with energy suppliers at a fixed cost, protecting them from future price hikes in the industry caused by disruption.

The only caveat to the RE transition is that, whether businesses choose to finance their own RE-generating assets or buy/rent from a third-party lease or CPPA, there are additional costs for equipment, operations and maintenance, and regulation that must be accounted for. Hopefully, a greater focus on the Clean Energy Finance and Investment Mobilisation (CEFIM) Program and similar financing schemes would enable more businesses to make the switch.

What are the benefits of RE?

Besides providing a cost-effective strategy in the face of rising electricity and commodity prices, RE promises stability. The greatest issue facing the energy sector today is the expected depletion of the Malampaya gas fields, which analysts suggest could lead to debilitating rotational power outages by 2024. For businesses, this means possible loss of productivity and revenue at the least and having backup energy supplies ready would be necessary for continued and seamless operations.

Even supporting the energy sector to allow RE electrification for consumers could be a boon for businesses. The widespread adoption of RE could cut 30% off of consumers’ electricity bills, and so providing them with low-cost energy options could revitalize the economy and provide better profit margins for businesses of all sizes.

What can be expected from RE going forward?

The development of the renewables industry in the country depends a lot on regulatory advancements and corporate participation. The European Union (EU) notably includes CPPA promotion in their carbon reduction proposals for good reason, as corporate purchasing and procurement trends benefit the scale and impact of RE overall.

More companies signing CPPAs provide guaranteed revenue for energy developers and suppliers, introducing additionality to the industry and accelerating the creation of new renewable plants and projects. With battery prices getting significantly lower, more companies are also focusing on clean energy storage, in addition to generation, and are opening a conversation on the possibility of resilient 24/7 renewable energy in the future.

The idea of a mature RE industry in the country is an appealing one. Especially considering our own vulnerability to climate change, and the loss and damages that result from its effects, Filipino businesses should be among the first to prioritize GHG reduction. To do so, we must move beyond corporate social responsibility and understand where in our processes we can be greener. The RE transition is just one of the more impactful changes we can do, and it is time we implement it.

 

As published The Manila Times, dated 13 July 2022

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