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PH now allows foreign ownership of geothermal projects

by Marcelle P. Villegas - December 21, 2020

Department of Energy (DoE) announced that the Philippines now allows foreign companies to fully own large-scale geothermal projects in the Philippines. This decision was made to further promote renewable energy and to shift away from coal as an energy source. [1]

DoE signed the circular on the guidelines for the third Open and Competitive Selection Process (OCSP3) in the granting of renewable energy service contracts. DoE Secretary, Alfonso Cusi signed it on 20 October 2020.

He stated, “From an investment perspective, OCSP3 allows for 100% foreign ownership in large-scale geothermal exploration, development and utilization projects.”

Geothermal projects are considered large-scale if it has an initial investment cost of about $50 million and approved through a financial and technical assistance agreement. From CNN PH report, “The project is entered into between the Philippine government and the foreign contractors.” [1] This requires the signature of the President.

The Philippine Constitution requires 60% of a public utility to be Filipino-owned. However, DoE said that 100% foreign ownership is now allowed in the renewable energy sector. In 2019, DoE also reportedly allowed foreign companies to fully operate and own biomass power plants.

DoE also released a moratorium on endorsement for greenfield coal power plants for sites that have not been used for commercial development or exploration. DoE’s objective it “to further brighten the prospects of our Renewable Energy landscape”.

Secretary Cusi also aims for faster implementation of the Philippines’ national renewable energy program, hopefully generating 20,000 megawatts of renewable energy by 2040.

Is geothermal energy the best energy source option we have to prevent an energy crisis from happening in the future? How about solar energy?

According to a recent article published by Popular Mechanics Magazine, "It's Official: Solar Is the Cheapest Electricity in History" by writer and researcher Caroline Delbert, “Solar is now the cheapest form of electricity for utility companies to build.” This is based on the report of the International Energy Agency (IEA). Although the report mentioned that the reduction in cost of solar energy is based on the risk-reducing financial policies around the world, “it applies to locations with both the most favorable policies and the easiest to access to financing.”

“IEA’s recommendations include similar projections and calculations for all renewables as well as nuclear.” Moreover, IEA forecasts that solar energy is well positioned to blow up in the next 10 years, “because right now it is in the sweet spot to lower cost and increasing availability… And while the news is very good for solar [power], it is still pretty good for all the other renewables as well as nuclear, the IEA says.”

Why is solar power lower in cost of capital? According to Delbert, it depends on many factors. For renewable energy, she wrote, “There are a few low-hanging factors… As people and companies see more successful projects like Elon Musk’s South Australia solar battery farm, their investment confidence grows.”

How did this year’s COVID-19 pandemic affect the global development of renewable energy? Last May 2020, IEA gave a market update and analysis on the impact of COVID-19 on renewable energy deployment in 2020 and 2021. They reported that “COVID-19 crisis is hurting but not halting global renewable energy growth.”

“Half a year later, the pandemic continues to affect the global economy and daily life. However, renewable markets, especially electricity-generating technologies, have already shown their resilience to the crisis.”

As a review of IEA’s analysis for 2020, they reported that global geothermal capacity additions are projected to amount to 0.3 GW in 2020, which is one-third of 2019’s level, which was the highest ever recorded. [3] “This year, Indonesia is again expected to lead new development, with 145 MV of capacity added (90 MV from the Rantau Dedap plant and 45 MW at the Sorik Marapi plant), followed by Turkey (+70 MV). These two countries are expected to account for more than two-thirds of new capacity additions in 2020, while the Philippines, the United States and Bolivia are responsible for most of the rest.”

IEA also noted that this year, due to the COVID-19 crisis, a number of projects have been delayed by disruptions to the global supply chain for machinery and materials and by deferrals of strategic decisions, such as decisions in financing. In effect, several small and medium-sized projects originally scheduled to come online in 2020 are expected to be commissioned in 2021 instead. [3]

In Turkey, the 10-year FiT scheme for new plants (originally scheduled to end at the end of 2020) has been extended until mid-2021 in order to cover projects affected by delays caused by the pandemic.

(FiT or FIT refers to feed-in tariff. It is a policy mechanism designed to encourage and speed up investment in renewable energy technologies by offering long-term contracts to the producers of renewable energy.)

“Global cumulative geothermal capacity is forecast to increase 7% to 16.5 GW by 2022, with Indonesia, Kenya, Turkey and the Philippines responsible for two-thirds of this growth.”

IEA also reported that in Indonesia, the state-owned company PT Geo Dipa Energi (GDE) has received a USD 300-million loan from the Asian Development Bank for the 110-MW expansion of the Dieng and Patuha plants, expected to be carried out during 2020 – 2023.

“Beyond 2022, Indonesia, Kenya and Turkey continue to lead capacity additions, which are projected to exceed 0.8 GW per year globally on average.”

“The Indonesian government recently prepared a roadmap for geothermal energy, with the goal of having 8 GW of installed capacity by 2030 (up from 2.1 GW in 2019). However, wider exploitation of the country’s considerable geothermal potential will require the resolution of a number of challenges, including low energy prices, limited local electricity demand, a lack of capital investments, and environmental and social issues.” [3]

In relation to this, the Indonesian government plans to conduct exploration and drilling in 20 geothermal areas during 2020 until 2024. Their view is to reduce development risks for future auction plans. They are also focusing on coming up with policies with the objective of providing better economic incentives to geothermal projects. If Indonesia overcomes the obstacles, they could match up with the accumulated installed capacity of the United States by 2025.

In conclusion, IEA said that geothermal power is also receiving greater interest from oil companies. Most oil companies are open to opportunities to diversify their activities while capitalizing on their drilling expertise. [3]

The International Energy Agency is an autonomous intergovernmental organization that is based in Paris, France. It was established in the framework of the Organization for Economic Co-operation and Development (OECD) in 1974 in the wake of the 1973 oil crisis. IEA is a reliable source of information and statistics about the international oil market and other energy sectors. IEA also acts as a policy adviser to its member countries and also with non-member countries like China, India and Russia. IEA’s mandate is focused on effective energy policies related with energy security, economic development and environmental protection. The Agency also promotes alternate energy sources such as renewable energy.

Reference:

[1] CNN Philippines Staff (27 October 2020). CNN Philippines. “PH now allows 100% foreign ownership in large-scale geothermal projects”.

Retrieved from - https://www.cnnphilippines.com/news/2020/10/27/renewable-energy-philippines-foreign-ownership.html?fbclid#.X5jn8RFncGQ.linkedin

[2] Delbert, Caroline (22 October 2020). Popular Mechanics. "It's Official: Solar Is the Cheapest Electricity in History". Retrieved from - https://www.popularmechanics.com/science/a34372005/solar-cheapest-energy-ever/?fbclid=IwAR2SZ1K5JZH6XHDqztP8-DfnY7X2lURKK4OCDxtSf0UFzKA59sC2XgBaLUg

[3] International Energy Agency website. Retrieved from - https://www.iea.org/reports/renewables-2020 and Geothermal abstract

Photo source: Philippine Geothermal Production Company, Inc. - https://www.pgpc.com.ph/


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Industry

Abe Almirol - June 23, 2021

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Mining

Philippine Resources - June 22, 2021

DENR studies possible lifting of ban on open-pit mining

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Construction

Philippine Resources - June 21, 2021

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