The Philippines is at a crossroads in its energy transition. The Philippine government looks to import liquefied natural gas (LNG), while renewable energy sources are abundant in the country.
Listen as Sam Reynolds, energy finance analyst of the Institute for Energy Economics and Financial Analysis (IEEFA), discusses the risks of locking into a new form of imported fossil fuel that will unlikely reduce household or business power bills and the challenges of transitioning to cheaper forms of renewable energy resources.
Read the full transcript:
Cherry Salazar, PCIJ multimedia reporter: Hello, and welcome to the Philippine Center for Investigative Journalism’s “On the Record” podcast.
In this episode, we will be talking about energy transition: How the influx of investments for imported liquefied natural gas, or LNG, as a replacement to the dwindling supply of the Malampaya gas field may not be a good thing; and what is keeping renewable energy in the Philippines at bay?
In October 2022, PCIJ spoke with Sam Reynolds, energy finance analyst of the Institute for Energy Economics and Financial Analysis, or IEEFA.
Here are excerpts from that interview.
Sam Reynolds, IEEFA: Southeast Asia is dealing with a lot of very unique problems compared to the rest of the world. It’s still considered to be one of the largest growth markets for coal. But countries are looking to transition to more affordable, cheaper forms of domestic renewable energy resources in light of the global push for decarbonization, but also because of the economic incentive to do so.
Now, in that transition, there’s a key switch that happens from large centralized baseload power plants that you typically think of like your coal or your natural gas plants, compared to variable intermittent renewable energy sources. And so, Southeast Asia and in particular, the Philippines is dealing with that challenge of how to transition from this philosophy of energy sector planning around fossil fuels and baseload power, to cheaper forms of variable, renewable energy.
Think about incorporating greater amounts of renewable variable renewable energy. You think of solar and wind, right? When the sun is not out, your solar plant may not be working. When the wind is not blowing, your wind plant may not be working. And so you need other sources of energy that are going to be able to ramp up and down very quickly to accommodate those changes in in variable renewables.
Now, coal is traditionally thought of as inflexible, meaning, that it’s not really suitable for accommodating greater volumes of renewable energy. Natural gas, on the other hand, is typically viewed as a more flexible resource, meaning the plants can ramp up and down when the sun isn’t shining or the wind isn’t blowing.
The problem, though, is that natural gas is still a highly polluting, highly potent greenhouse gas. Methane is the main component. It’s very environmentally harmful and harmful for the climate. And so there is a question about how to do this transition to flexible cheaper forms of variable renewables while also trying to keep the role for natural gas as short as possible. And I think that’s one of the main challenges; it’s how to transition to renewables without simply just locking yourself into a long term future of natural gas.
The Philippines has five existing natural gas plants. These plants still play a critical role in providing energy to the Philippines. They provide about 25% of electricity generated for the Luzon grid. There is still a need to supply gas in order to continue to run those power plants. The problem as I see it, though, is that the Philippines is not simply aiming to run those power plants. It also has a huge pipeline of proposed natural gas facilities in the works. We’re talking LNG, liquefied natural gas import terminals, as well as about 30 gigawatts of new natural gas plants.
And so there is really a significant risk that the Philippines just is simply locking itself into a new form of imported fossil fuel that is not going to reduce household power bills or business power bills. And it’s not really going to improve the electricity supply security that the Philippines needs.
There’s a huge expected uptick in demand for liquefied natural gas. And that’s based on several reasons. The first, of course, is that the population of Southeast Asia is expected to continue to grow. You’re going to need to provide electricity to a greater population. At the same time, you have declining domestic natural gas production.
And in the Philippines, that domestic production comes from the Malampaya offshore gas development. That Malampaya field is expected to run dry by sometime in the mid-2020s. And so the Philippines is going to have to increase dependence on imported liquefied natural gas in order to continue to use its existing gas infrastructure.
The transition to liquefied natural gas is not simply just replacing one form of gas or another. It’s not as simple as just replacing domestic gas for imported gas. Really, what we’re talking about is a huge increase in prices and exposure to volatility in global commodity markets. And that adds a lot more supply insecurity. I mean, it’s as simple as saying, “Look, we’re producing our own natural gas that comes to us just from right off our shores, to relying on natural gas that has to be put into a ship cooled down to minus 160 degrees Celsius and shipped halfway around the world.” You’re obviously going to have a much more complicated supply chain.
There needs to be a key focus on how to really keep that role to a minimum and transfer to renewable energy as quickly as possible.
Before the current administration, right, there was a clear lack of political commitment towards green goals. The Philippines was the only country in Asean to have not declared a net zero goal. You also had very limited planning around this Green Energy Auction Program, which is a centralized procurement mechanism for buying more green sourcing. That program had been delayed for many, many years and it (has) successfully resulted in contracts for two gigawatts of new renewable energy supply.
Now, I think more can be done on this front, there can be more transparency around the scheduling of that program. There can be more transparency around planning for transmission and distribution infrastructure for potential sites involved in that auction.
Now, I think there are still other barriers. You know, credit ratings of smaller independent power producers may still not be high enough to attract financing. And generally, there seems to be a limited knowledge of really how to get these renewable energy projects off the ground. You still have very long lead times for financial arrangements for renewable energy projects.
And so, what we’ve seen in the current administration in the Philippines is really not just a push to develop RE. But we’ve seen a huge push towards domestic resources, and that includes domestic reserves of oil and natural gas. We’ve seen some measures to kind of pave the way for new oil and gas exploration. We’ve seen some measures to kind of ease tensions with China over natural gas developments in the Reed are the Recto Bank.
It remains to be seen how these how these recent moves are going to start to transition.
When we’re talking about renewable energy growth in the Philippines, we’re not just talking about large utility scale plants. As an archipelagic nation, the Philippines has to start to focus on smaller forms of renewables, on rooftops, on microgrids, ways of accessing of providing power to households in very remote areas.
I think we are headed, and not just my opinion, I think a lot of global investors are looking at the Philippines, and seeing a high degree of potential for renewable energy boom going forward.
Cherry Salazar, PCIJ multimedia reporter: That was Sam Reynolds, energy finance analyst at IEEFA.
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This has been Cherry Salazar. Thank you for listening.