Energy gets a paltry $60 million out of the $1.336 billion World Bank funding of RP development projects

Ten development projects for the Philippines totaling a combined cost of $1.336 billion have been proposed by the multi-lateral lender World Bank as part of its commitment to the country.

Of these, the biggest funding goes to the proposed $682 million Light Railway Transit (LRT) Line 1 South Extension project which will be implemented by The Light Rail transit Authority (LRTA).  This is followed by the $180 million Cavite-Laguna North-South Highway project to be implemented by the Department of Public Works and Highways.

The energy sector gets a paltry total of $60 million which consists of two projects: one, $40 million is allotted for Additional Financing for Rural Power project which is unspecified, but emphasizes renewable energy and mining and to be implemented by the Department of Energy; and two, the Ethanol Plant Wastewater Biogas project which is to be implemented by Roxol Bioenergy Corp, a private company.

Why, the seemingly lopsided bias against the energy sector?

The energy sector is one of the least developed infrastructures of the country which ought to receive considerable attention from out policy makers.  This underdevelopment is starkly manifested by a not so robust generation and transmission infrastructure and high cost of electricity which is the highest in the region next only to Japan.

The World Bank and other multi-lateral financial institutions count on the host country to provide the necessary input for them to fund the required development projects.

If so, are our energy policy makers blind to the needs of the energy sector?

Off the head, one can recite a litany of projects in the energy sector that demand attention and funding:

·         Energy policy: We have just passed the Renewable Energy Law, yet the implementing rules and regulations as well as associated legislation have yet to be worked out. These are not easy projects. For example, putting in place a viable feed-in tariff or a renewable portfolio standards cannot be made overnight; much research and analysis need to be made. What about net metering and planning a distributed grid?

·         Wind energy: We don’t even have a reliable wind energy map. Shall we just depend on a study of the U.S. National Renewable Energy Laboratory (NREL) to guide us in developing our wind energy resources? A more detailed wind energy map would go a long way towards encouraging private investors to put up wind farms. What about local research?

·         Solar energy: Again, a map of the solar energy distribution in the country is at best, sketchy. What about the development of low-cost solar panels? How about helping the struggling researchers at Ateneo and U.P.?

·         Geothermal energy: While we take pride in being the second in geothermal power production worldwide and having produced local talent, these competitive advantages would easily vaporize into thin air without a sustained effort at continuously studying and developing these indigenous resources.

·         Energy efficiency: We only have a nascent energy efficiency movement.

And so on.

The World Bank cannot be blamed for putting dimes and nickels to our energy sector. We are more to blame of not getting enough financial support if we cannot articulate what needs to be done in the sector.

Are we ready for CDM?

Kreditanstalt fur Wiederaufbau (KfW), the German Development Bank, is opening doors for Philippine companies to tap financing for Clean Development Mechanism projects under the Kyoto Protocol during a presentation at a seminar held August 19, 2008 at the Renaissance Hotel in Makati.

Karin Sittler, vice president of the KfW Carbon Fund, said the financing modes could include direct loans, equity investments, assistance in the project preparation or even in helping consolidate small CDM projects.

The latter is required for small projects taken individually which may not qualify under the mechanism.

CDM is a mechanism under the Kyoto Protocol whereby countries that have committed to reduce their greenhouse emissions, but are unable to immediately do so, may buy so-called carbon credits generated by green energy and environmental projects in other countries.
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The Bangui Bay wind project:

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However, Environment and Natural Resources Undersecretary Manuel Gerochi's opening remarks which stressed the need to ensure that such CDM projects truly benefit the developing country and his distrust over the eventual beneficiaries of the Certified Emissions Reduction (CER) credits underscore the general lack of understanding by our policy makers

“Don’t look at it as an economic good to be traded,” Gerochi said, as quoted by the Philippine Star, adding that such endeavors “must be mutually beneficial to us.”

To put it at a right perspective, the United States, the most industrialized country on earth as well as the United Kingdom, I believe, did not ratify the Kyoto Protocol. This is understandable as the U.S. is responsible for some 22% of greenhouse gases (GHG) emissions worldwide. Despite the reluctance of the federal government to ratify the treaty, many individual states have forged ahead with their green projects initiatives in the energy sector.

The offsetting of GHG emissions is premised on global warming, which means that no matter where the GHG are emitted, these could contribute to climate change. The countries who have ratified the protocol have committed to reduce their GHG emissions by 5.2% p.a. from a baseline level in 1990 until 2012.

The CDM is not a permanent fixture; it is a stopgap measure which arose from a practical realization that GHG emission cannot be done overnight. All the CER certificates generated from such projects will be retired by then.

The CDM allows financing of green projects such as solar, wind, geothermal, or even reforestation, which must be Gerochi's concern, which otherwise would have been prohibitive without it.

The resulting carbon trading offers an upside for the financing entities--that is, it allows them to recover part of the cost of money used in financing. Many of the financing institutions such as the Asian Development Bank or the International Finance Corporation of the World Bank, as well as private Carbon Funds usually arrange to buy the carbon credits generated from these green projects.

The prices of these tradable financial instruments have been rapidly increasing during the past two years owing to increased demand.

That Germany takes a lead in carbon financing is hardly surprising. It pioneered in putting in place renewable energy initiatives starting 1n 1990 which resulted in the explosive growth of solar and wind energy systems in that country.

The report also indicates Gerochi shares the concern the technology for such projects has to be acquired at a substantial cost from the developed countries who themselves do not or are not willing to incur the cost to reduce their own emissions.

We are not sure what the technology Gerochi is talking about. Examples of local projects qualified under the CDM are the 24.75 MW Bangui Bay wind project in northern Philippines, the 20-MW geothermal project of Energy Development Corporation in Negros Oriental and the various small biomass projects at various stages of developments--projects that hardly need expensive technologies. For the case of geothermal, the technology relies on local expertise.

If Gerochi is typical of our policy makers, then it underlines our general lack of appreciation of, and readiness to embrace the CDM and the resulting growth in carbon trading both at the regulated and the voluntary (over-the-counter, or OTC) markets.

Sittler could have merely scratched her head in disbelief.