Full steam ahead for Philippine geothermal energy

by
Wednesday, 28 September 2011

I recently chaired a session on geothermal energy at the Clean Power Asia 2011 Conference in Bangkok, Thailand. In the forum, I also presented a Philippine country update on behalf of the International Geothermal Association (IGA), a non-political, non-profit, non-governmental organization that promotes the development, research and use of geothermal energy. The association, of which I am an elected director, was founded in 1988 and has more than 5,200 members in 65 countries. The IGA operates in a special consultative status to the Economic and Social Council of the United Nations and to the European Union.

While the host country is a minor player in geothermal energy development, Southeast Asia particularly the Philippines and Indonesia, are powerhouses in this renewable energy resource. The Philippines and Indonesia are currently the second and third top geothermal electricity producers respectively according to the International Energy Agency.

Indonesia, estimated to have an estimated 29,000 MW of geothermal generating potential with an installed capacity of 1,189 MW, has the largest potential for geothermal electricity in the world. The Indonesian government has set the ambitious short-term goal of 3,977 MW of new geothermal installation by 2014 despite the fact that the regulations that will impact on private sector geothermal power projects as well as the decentralized structure for the tender process are new and untested.

The Philippine geothermal electricity industry will not be outdone. Having an installed capacity of 1,936 MW in 2010 according to data from the Department of Energy (DOE), the country aims to be the number one geothermal energy producer in the world with an additional 1,475 MW capacity overtaking the U.S. in the process.

The Philippine government has initiated major structural reforms in the geothermal industry sector. Under the provisions of the Electric Power Industry Reform Act of 2001, the government has undertaken the privatization of National Power Corporation’s geothermal generating assets such as the Makban Geothermal Steamfield and Power Plants in Laguna/Batangas, Tiwi Geothermal Steamfield and Power Plants in Albay, Palipinon I and II Geothermal Power Plant in Negros Oriental, and Tongonan I Geothermal Power Plant in Leyte. The Unified Leyte geothermal plants and the Mt. Apo 1 and 2 plants will likewise be put on the auction block.

The government also divested its interests in PNOC-Energy Development Corporation, the national geothermal development company, to the First Gen group of the Lopezes in late 2007 paving the way for the entry of new players in the geothermal industry. EDC, the country’s largest geothermal producer is reportedly considering applying for concessions in Chile and exporting its expertise to other countries. To spur the speedy development of one of the country’s geothermal prospects, the DOE made the assurance that the Maibarara geothermal power project of PetroEnergy Resources Corp. will add 20 MW to the Luzon grid by 2013.

The passage of Renewable Energy Act of 2008 and its implementing rules and regulations established the open and competitive selection process for geothermal exploration projects. More importantly, geothermal was defined under the law as a mineral resource opening the way for the entry of 100% foreign-owned corporation in geothermal exploration, development and utilization. Fiscal incentives were enhanced when the geothermal industry was declared a priority investment sector that will regularly form part of the Philippine investment priority plan. On the regulatory aspect, the environmental compliance certificate process was streamlined with the issuance devolved to the DENR-EMB regional offices. Local government share on existing and new geothermal development projects was institutionalized which addresses the opposition by local government units to resource development projects.

Aside from having low greenhouse gas emissions, geothermal plants provide base-load generation, are safe and reliable because they are immune from weather effects and seasonal variation, and can be dispatched and used for meeting peak power demand. Direct geothermal use can also be tapped for the benefit of host communities including space heating, heated pools and other industrial and agricultural applications.

High-temperature conventional geothermal energy resource remains the low-hanging fruit compared to new technologies like enhanced geothermal systems and low enthalpy. While some conventional resources are competitive to fossil fuel-fired power plants, emerging geothermal technologies that are currently more expensive than fossil plants may be less expensive compared to solar and wind. The Foundation for Economic Freedom estimated that the consumer subsidies for solar and wind plus the cost of additional reserves and transmission facilities needed to support these projects justify that the selection of RE projects having access to feed-in-tariffs should be based on comparative costs rather than on specific technologies. Some unconventional geothermal technologies have yet to be developed and tested commercially so public-private partnerships must foster private sector investments in new technologies particularly in the field of research. Development of more competitive drilling technology must also be undertaken to bring the down the cost of exploration and development.

Government regulators must develop guidelines for the inclusion of non-conventional geothermal technologies in the setting up of feed-in tariff rates. The DOE should also develop publicly available database protocols and tools for geothermal resource assessments to facilitate access by developers to risk capital. It is noteworthy that the Philippine Stock Exchange is relaxing the rules for RE firms seeking to list on the local bourse to fund the development of their expansion by proposing rules, which were drafted with the DOE. Presently, the exchange does not implement a specific and separate set of listing requirements and reporting standards applicable for RE companies similar to the Philippine Mineral Reporting Code for mining companies. Multilateral bank funding can also be tapped for project development as well as bilateral development banks that are also an important source of development finance. In Europe, geological risk mitigation instruments like risk guarantee schemes and geologic risk insurance have been introduced to encourage geothermal exploration.

While the Philippines still has to prove its worth as a prolific petroleum producer and at the same time traverse the maze of its complicated mineral resource permitting process, the country can look forward with prudent optimism to the huge potential of its geothermal energy industry. Companies with energy-intensive mining operations can likewise consider geothermal plants as power sources since prospects are also located in highly mineralized areas and exploration is somewhat similar in nature. In the meantime, the geothermal regulatory framework should be long-term, transparent, predictable and independently administered. Economic and financial incentives are deemed appropriate for new geothermal technologies while costs are not able to compete with fossil fuel plants.

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Fernando “Ronnie” Peñarroyo (photo taken at the Geysers geothermal field in Northern California) is the Managing Partner of Puno and Peñarroyo Law Offices (www.punopenalaw.com). He specializes in Energy and Resources Law, Project Finance and Business Development.

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