Fitch Solutions estimatesthat EWC lng hub/power plant will be in...

Fitch Solutions estimatesthat EWC lng hub/power plant will be in commercial operations in 2019.

https://asian-power.com/power-utility/in-focus/philippine-utilities-boost-gas-and-renewables-share-in-energy-mix

6 March 2019

Philippine utilities boost gas and renewables' sharein energy mix

But regulatory risks andimplementation pose a threat to investment potential spurred by population andeconomic growth.

The race to build a groundbreakingliquefied natural gas (LNG) terminal in the Philippines is heating up as thecountry faces the anticipated drop in production at the Malampaya gas field by2024. The government also eyes ramping up the exploration of renewable energysources, with solar photovoltaic (PV) systems looking particularly attractive,to address an expected surge in energy demand and currently one of the mostexpensive electricity rates in Southeast Asia.

In early December, Japan’s Tokyo Gassigned a joint development agreement with the Philippine-listed First GenCorporation to build an LNG terminal in the province of Batangas. The Japanesenatural gas producer and supplier will take a 20% participating interest in theproject.

The Philippine National Oil Co. andthe China National Offshore Oil Corp. (CNOOC) were also weighing thepossibility of building and operating an LNG import terminal in the country.Fitch Solutions, in a report in late 2018, noted that the outlook for thePhilippines’ second LNG project has considerably improved in recent months, withthe introduction of the Tanglawan Philippines LNG Inc., a joint venture betweenCNOOC and independent oil firm Phoenix Petroleum.

“After multiple calls for tendersand plenty of expressions of interest from a vast array of domestic and foreignfirms, the keys to the Philippines’ second LNG development appears to be heldby Tanglawan LNG, which is reportedly winning the race to be the Department ofEnergy’s (DOE) choice to lead the project,” the research firm said.

The partners are given six months tofulfil requirements for their plan to build an integrated LNG-to-power projectin Batangas, which would include a regasification terminal with a capacity of 5MTPA and gas-fired power generation capacity of 1-2 GW with a cost of about $1bto $2b. Fitch Solutions said, “Tanglawan LNG’s case for the project is strong,not least due to ample funding and an assured market for imported gas.”

Source: Department of Energy

Improved gas outlook
The Philippines’ desire for a second LNG project stems from the fact that thePagbilao LNG — an LNG-to-power project in Quezon being developed by HongKong-based Energy World Corporation (EWC) — will only be able to meet some 83%of the 4.9 bcm that is expected to be needed to support the government’s gaspower expansion plans. The Pagbilao LNG project is comprised of a 4.1 bcmimport terminal and a 650MW LNG-fired power plant and is part of plans tosecure replacement gas as the giant Malampaya gas field loses steam.

“From a price standpoint, the nextfew quarters will be an opportune time for the Philippines to commence LNGimports, with global LNG prices set to be mostly anchored over 2019 to 2020,next to accelerating supply growth and liquefaction capacity additions acrossthe globe,” said Fitch Solutions. “The Philippines has yet to enter into anyLNG supply contracts for its terminals and as such, will have plenty ofcontracting opportunities amid a positive backdrop of competitive spot pricesand a wave of new supplies emerging from the US, Russia and Asia.”

Despite the clear need for more gasin the Philippines, the Pagbilao LNG has faced multiple delays due to volatileLNG prices, regulatory obstacles, uncertainty surrounding transmissionarrangements, and, most recently, setbacks in securing government clearance toconnect to the local grid. It secured certification from the DOE as an “energyproject of national significance” in November.

“The certification paves the way forit to benefit from a host of provisions set out under Executive Order 30, whichwas issued in 2017 to streamline approval processes, reduce red tape andprovide administrative and technical support for projects deemed to help the developmentand security of the Philippines. This likely puts the project on track to be incommercial operations within 2019, eight years after it broke ground,” FitchSolutions said.

Aside from LNG, solar PV and otherrenewables have been attracting more attention from analysts that believe thesecould provide the country with considerable opportunities, especially amid anexpected spike in demand. Bloomberg New Energy Finance’s (BNEF) Climatescopeproject ranked the Philippines as the sixth most attractive emerging market inthe world for clean energy investment particularly for the power sector’sstructure and regulations.

Setting the renewables path
However, a key roadblock has been in the feed-in tariff (FIT), which is paid onthe basis of actual production. Climatescope project director Ethan Zindlernoted that it was a “losing proposition” for many investors, with currentlyabout 360MW of commissioned solar intended to receive the FIT missing cut toclaim its benefits.

On the upside, financing is highly available,as seen by developer support from local and global sources. In July 2018,Mordor Intelligence said the country is well-positioned to produce solar energyand holds “considerable” potential to take advantage of investments and jobsthat can be generated from future solar power installations. The government isaiming to boost solar PV installations to 3GW of utility solar in 2022, and theresearch firm said that the cumulative solar installation in the Philippines isexpected to hit 8.7GW by the end of 2030, with solar rooftops comprising 35% ofthe total installations.

Ville Rimali, business development manager at Wärtsilä Philippines, however,argued that the Philippines is still on the opposite side of the fence when itcomes to making the leap to renewables. In the DOE’s power development plan for2016- 2040, the new generation capacity mix by 2030 is expected to comprise ofthe following: 7,800MW baseload, 700MW peaking, and 4,100MW mid-merit.

“Where are the renewables? They areinside the peaking segment. So inside the smaller segments, they have includedthe wind and solar and that’s a tiny number. I think it would make sense to buildmuch much more than the mid-merit segment,” Rimali said in a September 2018conference. The prices in the Philippines’ wholesale electricity market arefollowing the same trend everywhere and should drive renewables investments inthe country, but, he said, “The plan that DOE is promoting is totally differentfrom what is happening in other countries.”

“Luckily, industrial players/IPPsare looking at renewables and they are looking the big numbers because they seethat’s the future and that’s the way to get lower cost of power for Filipinos.But still, it’s important that the DOE is also driving towards the samedirection,” he added.

Solar PV potential
“Solar energy provides an immediate solution to the country’s growing energyneeds. With steadily falling costs of solar power equipment and the shortduration of time needed to install and commission solar power projects, solarPV systems are increasingly becoming popular amongst consumers and industriesacross the Philippines,” Mordor Intelligence said, citing the commissioning ofthe Cadiz solar power plant, the largest of its kind in Southeast Asia, as oneof the signs of a rapidly emerging solar power market.

The National Renewable EnergyLaboratory reckoned that the Philippines’ average solar radiation ranges from128-203 W per sqm, whilst its annual average potential is estimated at 5.1 kWhper sqm per day. Keen to take advantage of the burgeoning sector, Pure EnergyHoldings Corporation in January acquired a 60% stake in three solar parks inthe Philippines with a combined capacity of more than 13.8MW.

Other major solar players in thecountry include Equis Energy, PetroEnergy Resource Corporation, San Carlos SunPower Inc., and Solar Philippines. Whilst rooftop solar holds strong potentialfor development in the Philippines, analysts cite an array of challenges thatare weighing on the sector.

Mordor Intelligence warned that thePhilippines is being held back by an “extremely inefficient” gridinfrastructure, one characterized by very high transmission and distributionlosses estimated at around 15% of total output. “Investment into the gridsystem has been the government’s focus. However, due to recovery effortsfollowing the November 2013 typhoon, progress in the modernisation of thenetwork has been delayed,” the research firm said.

“Rooftop solar in the Philippinescan contribute significantly to enhancing national electricity supply whilstfacilitating and creating financing for a growing share of new generationcapacity requirements and lowering electricity costs,” said Sara Jane Ahmed,energy finance analyst at the Institute for Energy Economics and FinancialAnalysis, noting that a shift towards rooftop solar will reduce the need forimported coal and diesel power. The Philippines, which has some of thehighest-priced electricity in the ASEAN, could save up to $2.2b annually in itscurrent account deficits as well as $200m per year.

“A combination of cumbersomeexisting regulation, outdated administrative practices, and a lack ofaffordable and accessible financing are hindering the broad adoption of rooftopsolar,” warned Ahmed. To bolster deployment of rooftop solar, she recommendeddeveloping cost-effective net metering government policies, easing approvalprocesses, strengthening access to financing, and rolling out cheaperbehind-the-meter integrated lithium-ion battery storage.