Long-term growth and energy supply


The 11.8% growth in gross domestic product (GDP) in the second quarter (Q2) of 2021 has been celebrated with fanfare by the government and the ruling political party as “proof” that they are doing what it takes to get out. the economy of a prolonged recession. But that’s not a good way to look at it.

One, there is the base effect. The contraction in GDP in the second quarter of 2020 has been so deep, -17%, that any small increase this year can lead to a large percentage increase.

Second, the real level of GDP at constant 2018 prices: Q2 2018, 4 72 trillion pesos; Q2 2019, P4.999 billion; Q2 2020, P4.14 trillion; Q2 2021, P4.63 trillion. Thus, the real flow of goods and services in the second quarter of 2021 is still lower than that of the second quarter of 2018.

Third, the level of GDP by semester 1: the first semester of 2021, 8,886 billion pesos, is still lower than the 8,936 billion pesos in the first half of 2018. And household consumption, which represents 74% of total GDP, and investments, which represent 19% of GDP, suffered sharp contractions in value (see table 1).

On June 30, it was reported in Business world that “ERC changes the trigger basis for price caps to an average of 72 hours” or only five to three days. As regular readers of this column note, price controls, price caps, price dictatorships are some of the policies that turn me off. The goods and services available at varying prices and qualities are ideal for a very pro-consumer clientele. Products that are cheap but unavailable are anti-consumer.

The Energy Regulatory Commission (ERC) is misguided in keeping the ceiling on secondary prices low so that new peak power plants will be difficult to build. They also added regional high voltage direct current (HVDC) secondary caps.

The ERC estimated that despite the low cap on secondary prices, there were still thousands of megawatts (MW) of committed and indicative power plants. and even a rotating blackout in fact on June 1st. This means that the supply capacity is thin and inadequate.

Ensuring the long-term sustainability of growth in the country needs sufficient energy supply (see table 2).

The good thing about the projects started until 2027 is that coal will always play a dominant role because it is cheap and readily available. Natural gas then comes in the form of imported liquefied natural gas (LNG) and it is also good, provided no favoritism is given to it such as the mandatory supply of Malampaya gas offtake.

For indicative projects, while there are 4,449 MW of coal and 4,700 MW of natural gas, most of the increase will actually come from solar, hydro and wind.

And this is where big problems will arise one day. Intermittent and unstable energy that will require cheap batteries aspiring to be the dominant energy source in the country will drive up electricity generation prices and transmission prices as the grid operator has to obtain more ancillary services .

Market-based electricity supply and demand has been distorted by various programs. But some provisions such as retail competition and open access under the Electricity Industry Reform Act (better known as EPIRA) RA 9136 and the Option Program for the Green energy under the Renewable Energy Act RA 9513 also result in this high demand for intermittent. As long as people follow the talk and pay more without asking for subsidies from the rest of the electricity consumers, everything will be fine.

Bienvenido S. Oplas, Jr. is the Director of Communications and Corporate Affairs, Alas Oplas & Co. CPAs



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