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The Noynoy Aquino Presidency – Its Character and Overall Plan

July 3rd, 2010 Posted in energy technology expert

The Noynoy Aquino Presidency – Its Character and Overall Plan

(This report is in power point format.  It is supported by an excel file complete with energy data and government economic statistics. Printed copies of this discussion paper were sent to President-Elect Noynoy Aquino and Sec. Butch Abad about a month ago during the canvass of the presidential and national elections held last May 2010. It is my fervent wish that the problem identification, analysis, findings & conclusions, alternative solutions and recommendations will be looked into by the new cabinet and President Noynoy so that an intelligent discussion may be held in this proposed conference on Energy & Climate Change to be held at the ADB this end of July 2010 would be meaningful and an action plan would be drawn up by the participants for transmittal and endorsement to the new administration of President Noynoy Aquino.  A program schedule is being prepared together with the topics and suggested speakers. Interested speakers and participants may email me for an advanced copy of the proposed program. Cheers. Marcial Ocampo)

Expectations

  • •Your Presidency for the next 6 years is a new dawn and a great beginning in our country’s journey of change – seize the moment
  • •You need to understand the problems facing the country – climate change, energy and food security, and pricing
  • •You need to implement doable programs and lay down framework for continuity beyond your term – deliverables
  • •You need to present your action plans and implement them – with full transparency
  • •You will save the country from a “Greek Tragedy” – when you promote predictable revenues, reduce tax leakages and utilize resources efficiently (reduce corruption) to deliver your promises (food, education, health, security, infrastructure)

New Sustainable Energy Plan

  • •Improved Regulatory Oversight – Governance

a) Transparent contracting of new capacity

b) Competitive and optimal load dispatch

c) Oil and power price oversight

  • •Fiscal Strength – Avoid Greek Financial Meltdown

a) Collect all fees, permits, licenses, taxes

b) Strengthen predictable energy taxes

  • •Sustainable Development – Address Climate Change

a) Promote low carbon economy

b) Evaluate all power generation technologies

c) Consider all factors – safety, security of supply, environmental, economics, social development

Total Government Revenues (table)

Predictable Energy Taxes (table)

New Approach is needed

  • •The problems the country is facing is a result of many years of failure problem analysis, priority setting, solution formulation and program implementation
  • •It encompasses many Presidencies and will require a “new approach” from a great and discerning leader
  • •It will require a competent team to advice the “New President” to assist him formulate a comprehensive action plan (analysis, priority, solution, implementation)
  • •It will require a great leader to communicate your action plan and lead the country and its peoples
  • •But it will also require a scientific approach in developing a comprehensive action plan, and political will to implement the plan

What are the Problems?

  • •Poor and corrupt leadership from the top to the lower levels of government bureaucracy
  • •Traditional approach to social, economic and energy planning is fragmented, politically sensitive and not resource oriented
  • •Need for resource-wide, river-basin wide approach to problem solving, priority setting, solution formulation and program implementation (“master plans”)
  • •Lack of scientific, economic and financial skills in truly understanding and solving the problems
  • •Our neighboring countries are leaving the Philippines behind in overall development because of their scientific approach in creating their “master plans”

Proposed Solutions

  • •The New President shall lead the country in full transparency for the whole bureaucracy to follow and emulate – eliminate corruption, efficient use of resources
  • •A “master plan” crafted by scientists, sociologists, economists, financial experts and energy experts shall be developed on a resource-based, river-basin approach to solve food, water, energy (fuel, power) and raw material requirements of people, commerce and industry
  • •It will primarily address issue of global warming and climate change as a way forward to sustainable development – not addressing this is fatal to the country
  • •With action plans addressing foremost climate change issues, the other problems of security in food, water, energy (fuel, power) and raw material supplies will likewise be fully addressed

What are the benefits?

  • •A “master plan” or any action plan that addresses climate change and global warming issues is a “low carbon” economy development model
  • •Scientists have opined that a “low carbon” economy model is sustainable and results in long-term benefits
  • •It promotes judicious use of resources and avoids drastic weather changes (“El Nino” drought, “La Nina” flood)
  • •It ensures affordable and secure supplies for food, water, energy and power (biomass, biogas, hydro, geothermal, local coal) and raw materials for industry
  • •The country may avail of Clean Development Mechanism (CDM) incentives under the Kyoto Protocal for undertaking carbon emission reduction (CER) activities – reforestration, energy efficiency, land fill methane gas removal, carbon sequestration, renewable energy (biomass, biogas, land fill, mini-hydro, wind, solar PV, ocean thermal energy conversion or OTEC)

Specific Action Plans – Scenarios

  • •If we do the usual master planning exercise (Philippine Energy Plan, Power Development Plan) – business as usual case : high carbon foot print, high prices, erratic weather changes, non-secure supply of food, water, energy and raw materials
  • •Aggressive renewable energy (RE) scenario – thru incentives such as feed-in tariff (FiT) support to encourage RE projects (FiT is higher than grid rate)
  • •Keeping the nuclear power option scenario – it provides cheapest P/kWh tariff – after addressing issues relating plant location (geologic faults, earthquakes), plant safety (nuclear melt down), and waste disposal and storage
  • •Combining the RE and nuclear option is the 4th scenario that will truly provide the “low carbon” economy model for the country – it will address climate change issues, provide secure energy supplies, and ensures an optimal energy mix that is cheaper in terms of Pesos per kWh

Deliverables

  • •A “master plan” or action plan that clearly identifies and analyzes the problems, sets correct priorities, proposes alternative solutions, calculates impacts of each alternative such as carbon emission intensity (mt CO2 per MWh), carbon emission (mt CO2 per year), power supply (MW capacity), power consumption (MWh per year) and power cost (PhP/kWh)
  • •A seminar/workshop on Power Generation Technology and Climate Change will be held as soon as the new President takes his oath of office to enable all stakeholders to debate the pros and cons of the 4 scenarios to be analyzed by the country’s experts
  • •The President will keynote this seminar/workshop to emphasize the importance of this scientific and economic debate
  • •The country’s political leadership will then analyze the overall desirability of each scenario, fine tune or propose changes, and communicate the “draft master plan” to the Filipino people
  • •In the end, the final decision will lie with the Executive as the President will lead in its adoption, implementation and monitoring to ensure that it attains its goal of promoting a sustainable “low carbon” economy

End Result

  • •During the 6-year term of President Noynoy, a well-crafted “master plan” for a low carbon Philippine Economy is in place
  • •All the sectors of Philippine Society is aware of the “master plan” and their roles and responsibilities in ensuring its success
  • •During his term, the forecasted energy and power crisis that will hit the country by 2014-2016 will not materialize because it has been adequately addressed early in his term
  • •Sufficient power reserves using indigenous fuels (coal, natural gas, biomass) and energy (geothermal, wind, solar PV, OTEC) are in place to augment hydro power which is clearly absent during severe drought as demonstrated in Mindanao
  • •Energy and power prices are stable and predictable resulting in affordable prices and coherent government and business planning

End Game

  • •Predictable sources of government revenues (personal and corporate income tax, VAT, and energy taxes such as specific and excise tax and royalties) are continually expanded and strengthened to ensure that the government’s budget deficit does not worsen than the current 3-4% of GDP in order to avoid the “Greek Tragedy” financial meltdown (deficit of 13% of GDP)
  • •The country will also win acclaim for pursuing climate change initiatives in spite of resistance from the developed countries and likewise receives CDM funding for the carbon emission reduction activities
  • •The Noynoy Presidency will leave a legacy to the next Presidents to come for having prevented both financial meltdown and energy crisis and putting in place a sustainable development framework for the country in the years to come

Oil Price Formula – absolute pump price

CIF = FOB + FRT + INS

SUB1 = CIF + WFG + BOE + OCN + DOC + DMR + DUT + SPE

VAT1 = SUB1 x 12%

DPLC, $/bbl = SUB1 + VAT1

DPLC, P/L = (DPLC, $/bbl) x (48 P/$) / (158.9868 L/bbl)

SUB2 = OCGM + BIOFUEL + DEPOT + DM + HF + TS

VAT2 = SUB2 x 12%

LOCAL COSTS = SUB2 + VAT2

PUMP PRICE, P/L = DPLC + LOCAL COSTS

NOTE: Exchange rate = 48 P/$

42 gallons/bbl x 3.7854 liters/gallon = 158.9868

Oil Price Formula – incremental price adjustment between period 2 and period 1

ADJ = Change in DPLC + Change in LOCAL COSTS

ADJ = { [ FOB(2) x FOREX(2) – FOB(1) x FOREX(1) + (FOREX(2) – FOREX(1)) x FRT ] x (1 + 0.05%) x (1+ 0.10% + 0.50% + 0.15% + 3.00%) + ((FOREX(2) – FOREX(1)) x WHARFAGE } 1.12 / 158.9868 x (1 + % OIL COMPANY MARGIN x 1.12)

How to Calculate Oil Pump Price (spreadsheet)

How to Optimize Load Dispatch

  • •Obtain power plant information on rated (dependable) plant capacity, minimum stable load, capacity factor, plant heat rate or efficiency, fuel cost, variable O&M and fixed O&M, other costs, take-or-pay contractual obligations
  • •Obtain market demand (peak load, average load), define renewable energy mix (% RE in demand to be supplied by hydro, geothermal, biomass, wind, solar, ocean thermal)
  • •Define objective = minimize variable costs (fuel, O&M, other costs)
  • •Define constraints:
  • •1) energy balance (gross generation, own use, net sales)
  • •2) meet maximum demand (average, peak)
  • •3) meet minimum renewable energy mix
  • •4) meet maximum dependable capacity dispatch of each plant
  • •5) meet minimum take-or-pay contractual obligations of each plant
  • •6) meet minimum dependable capacity dispatch of each plant
  • •7) transmission line constraints (congestion in grid)
  • •8) other constraints such as ramp-up rate (respond to load changes)

“Best New Entrant” levelized first year tariff of  Thermal Technologies (spreadsheet)

Why Optimize Load Dispatch?

  • •Meet load (demand) at any given hour using the most economic combination of power generating plants
  • •Optimal dispatch means generation mix has lowest incremental generation cost (fuel, variable O&M, other costs)
  • •Lowest incremental generation cost leads to least price offer to the spot market (WESM) and direct consumers
  • •Optimal dispatch also indirectly minimizes outflow of foreign exchange for imported fossil fuels, leading further to lower GHG emissions
  • •Optimal dispatch leads to lowest supply cost to distribution utilities (DUs) which in turn leads to lowest selling price to end consumers (usually captive accounts)
  • •Optimal dispatch is used during actual plant operation; however, “best new entrant” approach is applied during the planning phase of the Philippine Energy Plan wherein new capacity is vetted to the least cost alternative (best entrant).

Revenues, Expenditures & Deficit (table)

Total Government Revenues (table)

Energy Taxes – P138.7 Billion (table)

Predictable Energy Taxes (table)

New Energy Plan to Consider

  • •Smart Grid (see REPORT)
  • •Distributed Generation (see REPORT)
  • •De-Carbonizing the economy (see REPORT)
  • •Renewable Energy Feed-in Tariff (see REPORT)
  • •Scenario Building – determine impact of energy plan on supply risk, price and GHG emission potential

Case A – Business as Usual

Case B – Aggressive RE with FiT

Case C – Nuclear Energy Option

Case D – RE + FiT plus Nuclear

Low Carbon Economy Scenario

  • •Extensive use of Renewable Energy (RE)
  • •Include or expand nuclear power generation
  • •Adoption of CO2 capture or sequestration technologies
  • •End result is lower CO2 emissions
  • •Secure energy and power supplies
  • •But energy and power costs may rise
  • •Citizenry willing to pay for higher costs in exchange for an environment that mitigates global warming and avoides severe climatic changes
  • •Impact can only be predicted by sophisticated mathematical models available only from the advanced countries
  • •A technical working group (TWG) of energy and environmental experts may be needed to produce a similar but simplified model for the country

CO2 Emissions from Energy Use and its impact on power cost of each scenario  (tables)

Next Steps

  • •Conduct a high-level seminar workshop on “Review of Power Generation Technologies and Climate Change”
  • •Over 100 decision makers will meet at ADB to have hands-on training on forecasting energy supply and calculating oil and electricity pricing, GHG emission intensity and emissions calculations
  • •Develop scenarios for projecting capacity, energy consumption, supply risk, price and GHG emission emissions (business as usual, aggressive renewable energy development, nuclear energy, RE + nuclear)
  • •A technical working group (TWG) will analyze further each scenario and quantify its impact on supply risks, price and climate change
  • •Recommend action plan to the Philippine Commission on Climate Change (PCCC) for discussion in a plenary where experts and discussants will analyze and debate the merits of various scenarios in order to arrive at a consensus for the Philippine response to the energy crisis and climate change.

Basis and Assumptions

  • •Exchange Rate = 47.36 PhP/US$
  • •Fuel Oil (18,400 Btu/lb, 0.920 kg/L) = 17.90 PhP/L
  • •Diesel Oil (19,650 Btu/lb, 0.820 kg/L) = 25.45 PhP/L
  • •Natural Gas = 6.00 $/mmBtu
  • •Coal (11,630 Btu/lb) = 85.00 $/mt
  • •Nuclear (3,900 GJ/kg, 360,000 kWh/kg) = 765 $/kg
  • •Biomass (3,591 Btu/lb) = 7.84 $/mt

Thank You

Prepared by:

Marcial T. Ocampo

B.S.Ch.E, M.S.Ch.E

M.S. Combustion and Energy

Energy & Business Development Consultant

Former Executive Director, PCIERD-DOST

6 Responses to “The Noynoy Aquino Presidency – Its Character and Overall Plan”

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    I really enjoyed this gorgeous write-up. You should keep them coming. Cheers! !!!



  2. admin Says:

    Hi Chandrika, Thanks again for your wonderful comment. Yes, I will keep writing. Marcial



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