After Fukushima, Quo Vadis Re


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After Fukushima, Quo Vadis Re

  1. 1. After Fukushima,quo vadis renewable energy?In the aftermath of the Japan nuclear crisis, investor confidence inrenewables rose as the public and investors recoil from nuclear energy.Public perception of events was likely to taint the reputation of nuclearpower and significant investments in nuclear powerare expected to bedelayed or deferred.The tragedy comes on top of the oil price rise because ofindustrialization in China and India, the BP disaster in the Gulf of Mexico,unrest in the Middle East and North Africa - all of which has maderenewables more attractive.But some doubted that the accident would benefit renewables. In heranalysis,Scotiabank economist Patricia Mohr suggested the"more lastingimpact of the incident at the Fukushima-Daiichi Nuclear Power plant...willbe to trigger a re-examination of nuclear safety procedures and reactortechnologies around the world and to slow the development of nuclearpower.”Over the medium-term, Mohr anticipates some shift from nuclearenergy to imported LNG in Japan and natural gas-fired power generation inthe U.S. and parts of Europe,"Wind and solar power (alone) are not viablechoices for large-scale „base-load electricity generation."Japans nuclear disaster will result in nuclear power as politicallyunacceptable and intensify the global race for fossil fuelswith most futureenergy research and development going into nuclear safety.Europeangovernments are stepping up efforts to assess nuclear safety and agreeing inprinciple to a series of "stress tests" for nuclear power stations.It is expectedthat nuclear power may be hit most by rising safety and insurance costsafter Fukushima.On 04 April 2011, the New York Times ran a story about the newpragmatism that is influencing energy policy. The report cited RichardHeinbergs theory of "peak everything," which suggests that the world isrunning short of vital assets like clean water, carbon-free air, some minerals,fish stocks and the cheap fossil fuels that have powered the world economyand helped rein in the price of food. However, alternative energy sources, aswell as renewable energy, are more expensive and would force the world intoa more frugal future according to Heinberg.The 2007-2035 Philippine Energy Plan of the Department of Energy (“DOE”)urged the reconsideration of a nuclear power program amidst rising oilprices. The Philippines has gained a new record, that of having the mostexpensive electricity in Asia as reported by the Manila Electric Companytothe power and energy committee of the Philippine Chamber of Commerceand Industry (“PCCI”) on 03 February 2011. The study had shown that withan average retail rate of electricity of 18.1 US cents per kilowatt/hour, thePhilippines has topped Japan whose rates were at 17.9 US cents perkilowatt/hour.The high cost of electricity is because all costs from producingpower to distribution and taxes are passed on to consumers in the absenceof state subsidies.DOE Secretary Rene Almendras earlier commissioned a study to assess thebenefits of the Bataan Nuclear Power Plant (“BNPP”). For Almendras, the
  2. 2. biggest issue has always been seismic considerations with lessons from thedisaster in Japan to be incorporated into any policy decision.While thedisaster would not stop the ongoing DOE technical study,Malacañang insistsit is standing pat on its decision to sideline the revival of the BNPP.On the RE front, regulators grapple with commercial-viability issuesaffecting the sector, as wind and solar remain prohibitively expensive toproduce. Environmental advocates and RE developers are pushing thegovernment to expedite the implementation of themandated regulations onrenewable portfolio standards (“RPS”) and feed-in tariff (“FiT) rates.Thedevelopers are proposing an installation target totaling 1,482-MW from 442-MMW biomass plants, 420-MW solar power plants, 340-MW for wind powerplants, 30-MW for ocean and 250-MW hydropower plants.The DOE Renewable Energy Management Bureau, however, could onlyconfirm a total of 790-megawatt of total generating capacity from 170-MWrun-of-river hydropower plants, 370-MW biomass, 20-MW solar photovoltaicsystems, 220-MW of wind generating capacity and 10-MW of ocean powergenerating capacity. Powerplant investments targeted for RE projects couldonly go as high as 830 MW for the next three years, as the NationalRenewable Energy Board (“NREB”) set the cap to meet the national grid‟sabsorptive capacity.According to the NREB the approval of the 830-MWinstallation targets was also conditional and could be adjusted depending onthe grid impact study to be submitted by the National Grid Corporation ofthe Philippines.The grid must have enough buffers to absorb and cover thesudden losses of power supply from RE sources, thus the NREB cannotrecommend installation targets that are beyond the grid‟s absorptivecapacity.Power consumers may have to bear an additional charge of 11.38 centavos akilowatt-hour from the use of RE sources once the Energy RegulatoryCommission (“ERC”) approve the proposed FiT rates.The proposed FiTallowance of 11.38 centavos a kWh is actually lower than the industryproposal of 16.45 centavos. Once approved, the FiT-allowance will beimplemented by 2014 when all the expected RE facilities that would generatea combined 830 MW would have started operations.Meanwhile, the ERC is also mulling over the approval of FiT rates for eachRE source separately, some earlier than others, to allow developers to moveforward and get financial closing for their proposed power projects.The FiTmeasure is the most awaited mechanism under the RE Law because it willdetermine the economic and financial viability of RE projects.The FiTs intendto mitigate demand-side risks in the face of inherent production variabilityby ensuring purchase by all grid-connected consumers at a guaranteed long-term fixed price.However, the PCCI urges government to ensure that thecosts of RE will not be too restrictive for consumers.Injecting RE into thegrid could jack up already high electricity prices and further reduce thecountry‟s competitiveness. The PCCI suggested that by careful planning ofthe country‟s RPS, the government should take into consideration thepossible impact of RE on both overall generation and transmission costs, aswell as the high initial cost of putting RE and the associated developmentalcosts.
  3. 3. A high FiT rate will tie consumers for the duration of its implementationwhile the consequence of low FiT rates is that the ERC can fine-tune thepricing in subsequent years. The lack of takers should have no consequenceon power supplysince RE is not expected to be part of baseload. The cost ofRE technologies is expected to decline over time with more efficienttechnologies still to emerge.Perhaps it would be prudent on the part ofregulators not to rushFiT rates or consumers may be facing anotherbacklash similar to the outcome of the take-or-pay provisions entered intoby the Philippine government with independent power producers in the early1990s. In the meantime, environment advocates, RE developers andconsumer groups are eagerly anticipating how the government will addressthe issue.Fernando “Ronnie” Penarroyo is the Managing Partner of Puno and Penarroyo LawOffices( He acquired his Bachelor of Science in Geologyand Bachelor of Laws from the University of the Philippines and Master of Laws fromthe University of Melbourne. He specializes in Energy and Resources Law, ProjectFinance and Business Development.