[OPINION] Moving Through the Dark Tunnel

By Engr. Edward Joseph Maguindayao  -  

Last March 16, 2020, President Rodrigo Duterte placed the entire mainland and contiguous islands of Luzon under Enhanced Community Quarantine (ECQ), effectively placing more than 50 million Filipinos under lockdown permitting only the most essential travel and workers to travel in order to control the spread of the coronavirus disease or COVID-19 [1]. This move came after the Department of Health (DOH) raised the alert level to the maximum of Code Red Sublevel 2, and after the World Health Organization (WHO) declared COVID-19 as a pandemic [2]. With all movements barred either by land, sea, or air, except skeleton workforces, medical workers, and other workers allowed outside residence, the economy was in a virtual standstill leaving thousands without jobs.

Among those entities allowed to operate at full capacity includes the power and energy sectors [3]. Despite this, major power and energy industry players have early on braced for the impact of COVID-19 on their finances because of the decline in demand. Several distribution utilities including the Manila Electric Company (MERALCO) and Cebu-based Vivant Corp. through its subsidiaries saw demand and prices going down. Oher power companies downplayed the impact on their day-to-day operations as they can be operated with minimal personnel as in the case of First Gen Corporation. Semirara Mining and Power Corporation and Pilipinas Shell Petroleum Corporation hoped that operations will remain normal because of government assurance that energy services will not be impeded. While San Miguel Corporation and Phoenix Petroleum Philippines Inc. both expected lower demand because of less travel [4]. 

But since the coronavirus is a pandemic, which according to the WHO occurs “when a new influenza virus emerges and spreads around the world and most people do not have immunity” [5], lockdowns were also implemented across countries most especially developed economies, and cross-country flights were banned. As a consequence of travel restrictions, there was a sudden drop in demand for oil that caused the West Texas Intermediate (WTI) futures to plunge to as low as -$40.32 a barrel in mid-April, even as the Organization of Petroleum Exporting Countries (OPEC) cut production. The steep fall means that oil producers had to pay buyers for the storage of excess oil [6]. With the WTI being the bellwether of oil prices, its unprecedented drop sent shockwaves across the world, giving a clear picture of the reliance of oil markets on demand which the pandemic brought to its knees. 

The COVID-19 pandemic and its devastating effects across all sectors shook the world to the ground – that is, they are unprecedented. Academe is replete with papers, articles, policy analyses, and outlooks of the power and energy sector considering factors such as population growth, load density, historical load data, development plans, land use, weather, and geographical factors. These factors are crucial in determining future demand, where to source the energy to fill the demand, how raw materials will be transported, what future technology should be developed, and ways to deal with emissions and waste produced. But no one could have prepared the world for a pandemic. We went into uncharted territory that not even academic papers can imagine, hence, a gap in the field. How should the energy and power sector go about during and after an overwhelming pandemic?

In an article entitled “Navigating the Clean Energy Transition in the COVID-19 Crisis,” the authors discussed and emphasized how the pandemic disrupted the increased impetus of governments to implement climate and energy policies. In the European Union (EU) and the United States, a green deal which deals with a package of laws on the climate and energy are expected this year. In China, the first epicenter of the coronavirus, carbonization measures are being discussed in preparation for a medium-term plan.  However, hope is not all lost as energy and climate policies can be recalibrated with the new normal. Acceptance of these policies may now be different as the pandemic took a hit on economies, and more so in the political landscape of countries (that is, how governments responded to the pandemic and how the general public received these policies) [7]. 

The authors proposed three horizons on  how climate and energy policies should proceed: short-term, medium-term, and long-term. In the short-term horizon, which is months into and after the pandemic, energy policymakers should prioritize and evaluate energy policies which need to be modified and implemented in the medium- and long-term. 

Since the priority in the short-term is a crisis response, that is, strengthening healthcare and social protection to aid those who lost their sources of income, the authors caution against intentionally delaying measures pushing for greener energy policies [8].

For the medium-term, a gradual yet major shift in the macroeconomic and political environments is seen. As countries try to recover from the loss of jobs, closure of businesses, interrupted value chains, and less demand for goods and services, countries would have to respond drastically to pump prime the economy. These are a combination of fiscal (as in the form of an economic stimulus) and monetary (as in the case of lower interest rates) policies to attract or keep investors and pour money into the economy [7]. Here at home, there must be clear policy directions as to how these schemes will be put in place, and make sure that they are funded.  Motherhood statements proclaiming that help is on its way when they cannot be enforced through stimulus packages and the General Appropriations Act (GAA) should be out of the playbook. Moreover, there is a need to scrutinize spending plans as they can be deceiving, especially when the alphabet soup of acronyms gets mixed up in news reports.

Furthermore, the authors recommend that the energy sector take advantage of these measures to pursue low-carbon technologies and build the infrastructures implementing the same. Interested parties in the private sector can take advantage of low interest rates to build up infrastructure for low-carbon sources of energy such as wind power and solar power [7]. These energy sources, as compared to crude oil, coal, and natural gas do not rely on production, supply chains, transport, and shipping. As for geothermal sources, geothermal power plants are usually running near their sources. 

One barrier, however, is that while oil prices have recovered, they will remain low – at least for the medium-term because of low demand (as compared to pre-COVID-10 levels). As of this writing, both the WTI crude and Brent crude are trading above the $40 level, way below the price at the start of the year, although it is seeing an uptick because of developments of COVID-19 vaccines. This could pose a challenge in the diffusion of electric vehicles (EVs) because internal combustion engine vehicles (ICEV) would be favored. An opposite view on this is that renewable energy projects can get a boost because of the volatility and unpredictability of oil markets [9]. The focus should not be lost despite the big setback the pandemic has wrought on the economy. It must not be a reason to take a step back on our goals to a more sustainable energy sector.

Finally, the long-term horizon should be on how to make the energy sector shock-proof from future economic hiccups or crises. These include having a comprehensive plan on each kind of disaster, which is abundant in a country like the Philippines; using “hybrid instruments” such as taxes and caps; and ensuring that sectors of society who are most vulnerable to crises are protected [8]. 

Focusing on the last recommendation for the long-term horizon, one of the problems that unfolded immediately after restrictions were eased was the spike in electricity bills, which even prompted the Energy Regulatory Commission (ERC) to ask MERALCO to explain [10], [11]. Safety nets should be in place to help consumers pay their bills. A long-term solution would be the use of smart meters as part of a bigger smart grid implementation that can be slowly rolled out to automate meter reading and billing. 

All told, the recovery of the economy and the energy sector are intertwined. The pandemic should not be a barrier to the thrusts we have put in place in the pursuit of cleaner sources of energy. Carefully planning our sources and means of energy conversion can spell the difference between containing future pandemic, and other man-made and natural calamities. In going through this dark tunnel in our midst, we must not lose sight of the light at the end of the tunnel and the process by which we get there. The end does not justify the means.

Engr. Maguindayao is a Master of Science in Electrical Engineering Student at the University of the Philippines Diliman.

References:

1. TOMACRUZ, S. (2020). Duterte places Luzon on lockdown to battle coronavirus.
2. WORLD HEALTH ORGANIZATION. (2020). WHO Director-General’s opening remarks at the media briefing on COVID-19 – 11 March 2020.
3. YUMOL, D.T. (2020). DTI issues list of allowed sectors to work during ECQ and GCQ.
4. DOMINGO, R.W. (2020). Energy firms brace for decline in demand.
5. WORLD HEALTH ORGANIZATION. (2010). What is a pandemic.
6. SARDANA, S. (2020). Oil plunges 321% into negative territory for the first time ever as demand evaporates.
7. STEFFEN, B., EGLI, F., PAHLE, M., & SCHMIDT, T.S. (2020). Navigating the Clean Energy Transition in the COVID-19 Crisis, Joule. 
8. DE VERA-RUIZ, E. (2020). Air quality in Metro Manila during ECQ improves; levels rise in some provinces.
9. HOSSEINI, S.E. (2020). An outlook on the Global Development of Renewable and Sustainable Energy at the time of Covid-19. Energy Research & Social Science.
10. CNN PHILIPPINES. (2020). Meralco explains high electricity bills for May.
11. ENERGY REGULATORY COMMISSION. (2020). Advisory.
12. KELLEY, N. & OSTERHOLM, M. (2008). Pandemic influenza, electricity, and the coal supply chain: addressing crucial preparedness gaps in the United States. Technical report – Center for Infectious Disease Research & Policy. University of Minnesota, Minnesota, United States of America