YEARENDER
MANILA, Philippines — The COVID-19 pandemic may have negatively impacted the energy sector but it has opened up a window of opportunity to reset and realign the sector.
Both demand in electricity and petroleum have dropped significantly as economic activity came to a halt since the COVID-19 lockdown started.
The lockdown also halted private and public transport, effectively reducing fuel demand and resulting in the closure of some retail stations.
Data from the Department of Energy (DOE) showed oil demand decreased by 22.9 percent from 14 million liters in the first half of 2019 to 10.8 billion liters in the same period in 2020. Moreover, at least 10 percent of fuel retailers, particularly in areas that are not on main roads, have closed down.
“Demand for oil dropped because our people are not able to move,” Energy Secretary Alfonso Cusi said.
In April, US oil prices traded in negative territory for the first time ever – hitting up to minus $37 per barrel – as the COVID-19 pandemic continued to induce a supply glut globally.
Phl loses refineries
With fluctuating oil prices coupled with the drop in demand and weak refining margins, the country’s only two refiners – Pilipinas Shell Petroleum Corp. and Petron Corp. – decided to close down their refineries and import fuel instead.
Shell’s Tabangao refinery, which was put up in 1960, has been shut down since May 24 and was permanently closed down in August to help insulate the firm from further deterioration of refining margins, and aid in its cash preservation efforts.
On the other hand, Petron’s Bataan refinery will be on economic plant shutdown beginning the second half of January 2021. It will resume commercial operations if the economy and margins improve.
Petron said there would be no supply disruption since it has healthy inventory and it will be importing finished products.
Cusi said the DOE respects the business decision of the two oil companies to adapt to the existing market and economic situations.
As of the first half of 2020, oil demand declined 22.9 percent to 10.8 billion liters versus 14 billion in the same period a year ago.
So far, oil demand has picked up, but not at the same level as that in 2019, Cusi said.
“Whether it will go back to the 2019 level, it’s very difficult to say. If our population will be vaccinated, we’ll see demand increase. Also, we’ve opened up the transportation sector, where even the provincial buses are allowed to operate, so there will be an increase in demand in petroleum,” Cusi said.
Moody’s Investors Service earlier said the sharp drop in demand for oil products globally – as economies shut down in March and April due to the COVID-19 pandemic – has knocked oil markets severely off-balance, sending oil prices into a dramatic plunge.
In its June report, Moody’s said it expects global oil prices to recover in 2021 as the sector rebalances for the remainder of 2020 due to the impact of the COVID-19 outbreak.
However, it reduced its medium-term oil price assumption to $45-65 per barrel from its previous projection of $50-70 per barrel as it expects an uneven and prolonged rebalancing of the oil market.
Unprecedented times
At the onset of the enhanced community quarantine (ECQ), the DOE said Luzon’s electricity consumption dropped by around 30 percent year-on-year.
This, as commercial and industrial sectors were closed down and people were ordered to stay inside their homes to prevent spreading the virus.
Aboitiz Power Corp. president and CEO Emmanuel Rubio said the power sector was impacted by the pandemic as seen in the significant decline in energy demand and consumption with the imposition of COVID-related lockdowns.
“Due to the decline in energy demand and consumption, our generation and distribution businesses were impacted,” he said.
AboitizPower is currently one of the largest electricity distributors in the Philippines with ownership interests in seven distribution utilities including the second and third largest in the country.
While commercial and industrial demand plunged, the residential sector drove electricity consumption as most people stayed at home and companies implemented work-from-home arrangements.
Manila Electric Co. (Meralco), the country’s largest power distributor, estimated around one million residential customers were stuck working from home during the quarantine period.
The power distributor’s franchise area – which covers Metro Manila, Bulacan, Cavite and Rizal, as well as certain areas in Batangas, Laguna, Pampanga and Quezon – felt the full effect of the government imposed quarantine in Luzon which started mid-March.
During the summer period, several residential areas within the Meralco franchise area experienced isolated power interruptions lasting for a few minutes to hours as distribution facilities succumbed to extremely hot weather and a surge in demand from families forced to stay indoors.
Meralco spokesperson Joe Zaldarriaga said the situation is something new for Meralco as this is the first time Filipinos are forced to stay home during summer.
With increasing temperature, locked down households used their air-conditioning units and fans for extended hours to cool themselves down.
“At home, the behavior is more power consumption and usage by turning on household appliances especially cooling devices like air-conditioning units and electric fans at almost the same time and at longer duration,” Zaldarriaga said.
Meralco and other power distributors also faced the challenge of meter readings while customers experience bill shock due to the pandemic.
With strict quarantine protocols, power distributors were forced to estimate the consumption of customers, which led to the bill shock.
Customers were billed during March to May based on their average consumption from December to February as actual meter readings were not conducted due to the implementation of the ECQ. This has caused confusion and led to multiple complaints, even Congressional inquiries.
The ECQ was implemented during the summer months, when electricity prices normally increase due to higher demand and temperature.
In a normal situation, Filipinos tend to go out on weekends and go on vacation during the summer period while some also spend more time in the office than at home on weekdays. But with the implementation of the ECQ, people were unable to go about their normal ways and were forced to stay at home, thereby increasing their electricity consumption which reflected in their power bills.
“Under a lockdown situation, all of the customers’ behavior and activities are done at home. You are working at home, compared to what you should have utilized at the office. You can’t go to malls. You can’t go on vacations when some go for international or domestic travel, especially during Holy Week. And other activities you usually do under a normal period,” Zaldarriaga said.
Amid the bill shock and confusion, Sen. Sherwin Gatchalian – chairman of the Senate committee on energy – said the pandemic has placed the spotlight on digital solutions.
“Due to the inability of meter readers to go around communities due to travel restrictions and local lockdowns, distribution utilities had to resort to estimated billings which led to voluminous complaints from consumers all over the country especially in the Meralco franchise. This situation could have been prevented had there been smart meters installed thus doing away with the physical meter reading,” he said.
The prepaid meter system allows customers to monitor their electricity consumption, allowing them to budget their consumption and expenses. It will also enable them to monitor their electricity consumption as it happens.
As the country’s largest power distributor, Meralco has been actually rolling out its smart meter program since 2015, starting with prepaid meters within its franchise area. This is part of automating its massive distribution network.
However, the deployment of its smart meters slowed down because some of its applications are still pending with the Energy Regulatory Commission (ERC).
Under its applications, Meralco had asked for approval to roll out a million smart meters. However, in 2019, the ERC said it needed to conduct a thorough cost evaluation on Meralco’s advanced metering infrastructure (AMI) project.
With the economy slowly opening up, demand has started to pick up somehow.
Gatchalian said he does not expect the pandemic to have long-term effects on the power sector insofar as demand is concerned.
“System peak demand forecast with COVID is just a little bit lower than the forecast without COVID for the years 2021 to 2027. Yet, the demand estimate with COVID will eventually surpass the one without COVID from 2030 onwards,” he said.
The private sector, however, will tip toe in its investments to avoid an oversupply in the market.
AC Energy Inc. president and CEO Eric Francia said companies have become more cautious on investments as the pandemic delayed timelines of power projects and bidding activities.
“Given uncertainties on when and how strong demand recovery is, and given the delays in power investments, we need to be nimble in responding and ensuring a healthy supply-demand balance,” he said.
But definitely, power demand will increase once the economy opens up fully.
“I’ve always been saying, this pandemic, as far as energy supply is concerned, is both a problem and an opportunity. It’s an opportunity for us to do catch up work in really boosting our supply,” Cusi said.
Rebalancing in the power sector
This year is a pivotal year for the power industry as the country decided to shun new coal power developments in the future.
From advocating a no-cap energy mix policy in 2016, the DOE said it would stop endorsing greenfield coal power plants.
In the Association of Southeast Asian Nations (ASEAN) region, coal is an unchallenged power source as it remains as the cheapest source of power.
And in the Philippines, the dominant fuel source for baseload or 24/7 power is coal, which has seen a significant growth in terms of installed capacity from 7,419 MW in 2016 to 10,417 MW in 2019. In terms of percentage, coal’s share in the energy mix rose from 34.6 percent to 40.8 percent.
In terms of energy mix, coal corners 35 percent of the country’s baseload power as of end-June 2017. In terms of power generation, coal covers roughly 50 percent of the total.
The moratorium on endorsements for greenfield coal power plants was due to the recent assessment of the country’s energy requirements, which revealed the need for the country to shift to a more flexible power supply mix, Cusi said.
Gatchalian said the pandemic highlighted the need for flexible power systems in the country because of technical and economic reasons.
Since coal plants are inflexible, coal plants were the losers during the pandemic.
“Just to illustrate, coal accounted for 56.5 percent of the 2020 pre-ECQ energy mix but its share dropped to 49.2 percent during the ECQ with natural gas (a more flexible fuel) increasing from 22.9 percent pre-ECQ to 27.1 percent during the ECQ,” the lawmaker said.
Apart from the moratorium on coal development, the Philippine energy sector will undergo a transformation to achieve a low carbon future by pursuing other clean energy technologies, the DOE said.
The government is looking to bring the share of renewable energy (RE) back to the 35 percent level as it reviews the National Renewable Energy Program (NREP) 2011-2030. Under the new targets under NREP 2020-2040, around 34,000 megawatts (MW) of RE installations are set to be developed by 2040.
AboitizPower, one of the country’s major power players, has thrown its full support for the DOE’s push for RE development.
“We fully support the government’s efforts to promote renewable energy, hence the continued expansion of our Cleanergy portfolio, so we can serve the growing demand for renewables,” Rubio said.
In charting its 10-year plan, AboitizPower intends to grow its capacity from 4,432 MW this year to 9,300 MW by 2029. The 10-year plan will trigger a major shift in its energy mix almost 1:1 thermal to Cleanergy.
The Ayala group, a recent entrant in the country’s power industry, has charted its plan to divest from coal investments by 2030, which was viewed as a sound business strategy to trigger a major shift in the country’s energy mix.
The group’s power arm, AC Energy Inc., launched an Environment and Social Policy (E&S), which aims to transition to a low carbon portfolio by 2030.
“We are making a commitment to transition to a lower carbon portfolio by rebalancing our generation portfolio to grow our renewable energy assets,” AC Energy chairman Fernando Zobel de Ayala said.
The energy transition also includes the inclusion of nuclear in the country’s energy mix.
The Nuclear Energy Program Inter-Agency Committee (NEP-IAC) – which was created through Executive Order (EO) 116 last July – has already sought President Duterte’s approval to include nuclear power in the country’s energy mix. EO 116 supports the Philippine nuclear energy program.
The NEP-IAC is chaired by the DOE, which has been pushing for the inclusion of nuclear in the country’s energy mix since 2017.
The Philippines was one of the first Southeast Asian countries to embark on a nuclear power program with the creation of the Philippine Atomic Energy Commission in 1958.
The 620-MW Bataan Nuclear Power Plant (BNPP) was built during the Marcos administration to supply additional power by replacing ageing power plants. Various issues hounded the project, which led to its non-operation to date.
The DOE’s push for a low carbon scenario would also include energy efficiency and conservation measures, which would slow down the growth of total primary energy supply.
The Energy Efficiency and Conservation (EE&C) Act, which was signed into law in April 2019, is seen to unlock a capacity of 45,900 MW until 2040 through energy efficiency adoption and investments.
It was a plus for the energy and conservation sector that the the pandemic did not delay the DOE’s aggressive momentum to churn out more specific guidelines under the IRR of the EE&C law, Philippine Energy Efficiency Alliance (PE2) president Alexander Ablaza said.
However, more specific guidelines and policy issuances will be needed to be crafted, consulted and approved to make RA 11285 fully enforceable through 2021 and beyond, he said.
Investors in the sector are pushing for long term certainty through fiscal incentives.
“The COVID-19 economic contraction should not distract the market from the developmental mission to make up for lost time in the long-term objective of mobilizing over P 12 trillion in energy efficiency capital to meet DOE’s 2040 roadmap targets for energy efficiency and conservation,” Ablaza said.
“The government should, however, enable enough fiscal policies that would enable such investment decisions to be made for a new energy asset class, distinctly apart from those intended for renewable energy, and through innovative business models that would flow capital through new players and new risk regimes,” he said.