BMI: Coal to remain primary power source

By Victor V. Saulon, Businessworld, Aug 8, 2017

COAL-FIRED power plants will be the primary driver of growth in the country’s power infrastructure segment in the next 10 years, Fitch Group’s BMI Research said in an Aug. 4 report released on Monday.

The research group said coal’s dominance will extend even to the Visayas and Mindanao whose electricity mixes have so far been dominated by renewables, particularly geothermal and hydropower, respectively.

“Growth in the Philippines power infrastructure sector over the next 10 years will be driven by investment in coal-fired generating capacity as companies and the government build a slew of new power plants to support growing electricity demand,” the report read.

Latest available Department of Energy (DoE) data show coal accounting for 47.7% of the country’s power generation sources, renewable energy making up 24.2%; natural gas, 21.9% and oil-based fuels, 6.2% in 2016. In terms of installed generating capacity, coal accounted for 35.3% in Luzon, 32.1% in the Visayas and 33.8% in Mindanao, while renewable energy made up 27.5%, 47.9% and 40%, respectively.

BMI said its project database “has logged more than 7,300 MW (megawatts) worth of power plant capacity currently under, or approved for, construction.”

“Nearly 80% of this upcoming capacity, and nearly 90% of the combined value of upcoming projects, comes from coal-fired generation projects. These projects will support robust investment and construction activity in the power infrastructure segment, in which we expect real growth to average 10.6% annually between 2017 and 2021,” it added.

BMI cited the importance of meeting DoE’s projection that the country will need 12,300 MW more in generating capacity by 2030.

But it said this requirement has implications to the energy and utilities sector.

The first repercussion is sustained growth in fuel imports to feed the growing number of coal-fired power plants as they start operating in five to 10 years.

“As the share of electricity generated from thermal — and especially coal — sources grows from 73% in 2017 to 77% in 2026, the Philippines will have to increase imports of fuels to feed newly built coal-fired power plants,” it said.

It noted that Philippine coal reserves meet just a fraction of requirements, hence, requiring power plants to import 70% of coal from neighbors like Indonesia.

BMI said although its mining team estimates domestic coal production to grow by an annual average of four percent between 2016 and 2020, coal-fired generation is expected to grow by 5.7% annually over the same period.

“With coal prices expected to stabilize in 2017, the fuel will remain more cost-competitive compared to other thermal sources such as liquefied natural gas,” it said.

BMI also cited the “strengthened role” of Chinese and Japanese companies in financing and building power plants, “especially as other foreign sponsors eschew coal projects for environmental reasons.”

“The focus on coal projects will bolster the position of Chinese and Japanese investors, contractors and equipment suppliers in the Philippines’ power sector, as there will be sustained demand for financing, equipment and operating expertise from such companies over our forecast period,” the report read.

“Notably, government-backed financiers such as the China Development Bank, the China Exim Bank, the Japan International Cooperation Agency and the Japan Bank for International Cooperation are among the most prolific supporters of coal power projects worldwide despite the World Bank imposing a ban on backing coal projects.”

Another result of the committed coal-fired power plants is the continued proliferation of coal projects in less-developed Visayas and Mindanao which have historically been dominated by renewable energy sources.

STILL HOPEFUL
Sought for comment on BMI’s view, Reynaldo T. Casas, president of the Confederation of Solar Power Developers of the Philippines, pointed to a paper of the Center for Energy, Ecology and Development that says “while the future seems bleak with more coal on the horizon, hope can be found in the developments unfolding at present.”

Mr. Casas, who is also president of nv vogt Philippines, Inc., pointed to the study’s findings that, increasingly, “renewable energy is drastically becoming cheaper and… the rapid pace of developing renewable energy technology is ushering in a possible era of clean, sustainable energy for all.”

“Solar energy prices in China, India, Brazil and 55 other emerging market economies have dropped to about one third of its price in 2010, owed largely to China’s massive deployment of solar, and the assistance it had provided to other countries financing their own solar projects,” the position paper read.

“Such developments not only pose an end to the debate of whether there can be development without coal, but an opportunity to deliver cheap, reliable energy to places and peoples no coal-powered grid has ever reached,” it added.

Separately, Ma. Theresa C. Capellan, president of the Philippine Solar Power Alliance, said “the economics of generation will dictate the energy mix.”

“The continuous decline in PV (photovoltaic) prices will drive the supply… not coal,” Ms. Capellan said.

“In fact, the government needs to be concerned about and prepare for is the massive stranded cost that utility companies will bear as they contend with long-term coal contracts,” she added, warning further: “Worse, the impact of the long-term contracts and stranded contracts will be carried by taxpayers or rate payers.”

“That is the issue.”