Obama chooses Nobel laureate physicist as energy secretary

US President-elect Barack Obama announced on December 15 his choice, the Nobel Prize winning physicist Steven Chu as his energy secretary to head the Energy Department.

Chu, 60, who is currently the director of the Lawrence Berkeley National Laboratory in California, would be the first Asian-American to lead the department.

His 1985 work on laser trapping of atoms at ultra-low temperatures of a millionth degree above absolute zero, led to his being a co-winner of the Nobel Prize in physics in 1997. That seminal work, together with other techniques like magnetic cooling, laid the foundation for achieving one of the holy grails of statistical physics in 1995; the so-called Bose-Einstein condensation which demonstrates a new form of matter.

The phenomenon was predicted by none other than the great physicist Albert Einstein and then-young Indian physicist S. N. Bose in 1926. Those who achieved the goal in 1995 were awarded the Nobel Prize in 2001.

But will he make a good energy secretary?

Chu is no dyed-in-the-wool, ivory-tower type physicist. He is also one of America’s effective advocates for scientific solutions to global warming and the need for carbon-neutral renewable sources of energy. In this regard, he fits perfectly well into Obama’s green energy agenda which the latter has eloquently espoused during the heated electoral campaign. The new presidency aims for a low-carbon society by building more wind, solar, geothermal, biomass and hydro facilities.

Obama understands that crafting a viable energy policy could make or break his presidency. He also understands that the process is complex and requires the brightest minds to help him steer his energy ship to the right direction. His choice of Chu reflects the importance he gives to energy issues.

In his numerous forays around the globe, Chu has delivered a consistent message centered on “stronger storms, shrinking glaciers, prolonged droughts and rising sea levels” in apparent reference to the dire consequences of global warming.

Since assuming the directorship of Berkeley Lab in August, 2004, Chu has marshaled the Laboratory’s considerable scientific resources on energy security and global climate change, the production of new fuels and electricity from sunlight through non-food plant materials and artificial photosynthesis, energy-efficient technologies and climate science.

University of California Chancellor Robert Birgeneau who has known Chu for decades has this to say about the character of the man: “Steve Chu has been relentless about addressing the technical challenges of renewable energy in a deep way. We will now have an energy policy that can mean the U.S. will have a chance of obtaining energy self-sufficiency through new technology.”

Among other things, Chu was credited with helping establish the Joint BioEnergy Institute (JBEI), a $135 million DOE-funded bioenergy research center and the Energy Biosciences Institute (EBI), which was bankrolled by a $ 500 million grant from British Petroleum.

“Steve Chu has been an incredible visionary and true leader, particularly in the area of energy,” said Jay Keasling, who heads JBEI. “Now the country and the world will benefit from that vision and leadership."

He will be missing the ensconced academic life. But LBL’s loss will be America’s gain when the physicist-energy advocate brings his scientific talent, vision and passion for energy and the environment into the highest chambers of national energy policy.

How we wish that such inspired choice to head a very important government agency would be translated to our local situation!
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Note added, December 19, 2008: The papers reported today that the powerful senate Commission on Appointments bypassed the confirmation of Department of Energy Secretary Angelo Reyes and Department of the Environment and Natural Resources (DENR) Secretary Lito Atienza along with three other cabinet members. The most vocal critics of Reyes are energy committee chairperson Senator Miriam Defensor-Santiago and Senator Jinggoy Estrada, whose father was ousted in 2001 and under which Reyes served as Army Chief of Staff. Defensor-Santiago simply said that Reyes is unfit to be an energy secretary.

President Arroyo signs renewable energy bill into law. Will they come?

If you build it, they will come.

This is probably the hope of this government and our energy policy makers when President Gloria Macapagal-Arroyo signed on Tuesday the Renewable Energy Bill into law nearly two decades after the first semblance of a bill was filed.

As usual, the President herself and her energy minions are quick to take credits and wax eloquent that a flood of new renewable energy investments is just around the corner.

The President claimed the new law is the “first and most comprehensive renewable energy in Southeast Asia” that she hopes could corner a chunk of billions of dollars of energy investment money floating around the world. Her energy secretary, Angelo Reyes, thinks that “it will foster sustainable growth, energy independence and economic security for the country.”

Republic Act 9513, as the new law is officially known, provides for various fiscal and non-fiscal incentives for renewable energy—which includes solar, wind, geothermal, biomass, hydro and ocean energy—developers. Some of the fiscal incentives include the usual tax credits on domestic capital equipment and services, special realty tax rates, duty-free importation of essential equipment and income tax holidays, among others.

The non-fiscal incentives essentially consist of developing the necessary policy infrastructure that supports the growth of renewable energy. Parts of this infrastructure which has been credited with explosive growth in wind and solar energies in more developed countries include: (1) establishment of a renewable portfolio standards (RPS) which would require electricity distributors to include a certain percentage of their supply from renewable energy sources; (2) a feed-in tariff system—which was still absent in the bill’s version passed by the Lower House—which could help renewable energy projects become viable; (3) a green energy option, wherein users can in theory choose energy from green sources to avail of some incentives; (4) net metering, wherein (mainly) large users and independent producers will only be billed on the net usage of power from the grid and can sell their excess power to the grid; and (5) establishment of a renewable energy market wherein green energy credits are validated and certified and wherein these credits can be traded.

For a change, critics of government energy policies are one in heaping praises for the signing of the law. Catherine Maceda of the Renewable Energy Coalition which has been campaigning for the law’s passage, says “it will usher in an era of cleaner energy use in the country” while environmental campaigner Greenpeace Southeast Asia Executive Director Von Hernandez welcomed the development saying it helps addressing climate change.

“The passage of the bill is expected to attract more investors to the industry, and help cement plans of investors who had been waiting for the bill’s approval,” Reyes added.

Not quite.

While the law is grandiose in words and the intentions seem highly noble, nothing in the law aside from the promise of monetary incentives could precipitate energy investors to immediately jump into the renewable energy pool. For one, no firm numbers have been attached to, say to the renewable portfolio standard as to the percentages required, or the feed-in tariff amount that could be used for feasibility studies for green projects. The other major provisions—renewable energy market, green energy option and net metering—are nothing more than plans with no concrete guideposts as to how and when these would established.

Worse, the National Renewable Energy Board, which is specifically created under this law and will put in the numbers, is still to be constituted and convened.

The law can only be really operational when the adjunct implementing rules and regulations (IRR) are in place, and judging by the pace our policy makers create such important documents, it would take time before wee see its light. By this time—or even long before the signing of the bill—draft IRR, or at least well-researched white papers discussing the possible contents of the IRR, should have been floated in public for discussion and debate.

Without demeaning the lofty ideals of the law, we believe the hard work to make the law viable has only just begun.

Petron now in play—but where are the players?

Petron Corporation (PSE: PCOR) is now officially in play.

That is the investment jargon when a company is in the middle of ownership transition.

On Monday last week, San Miguel Corporation (PSE: SMC) said it is eyeing Ashmore Investments’ 50.1% interest in Petron. That sent PCOR shares flying which made it the top gainer among the listed stocks. It surged by more than a fifth to settle at P5.30 a share by Friday.

The sentiment is up on Petron since San Miguel is perceived to be a big and experienced company that could reverse the fortune of Petron which has been buffeted by intense competition in an industry where margins are razor-thin.

At the same time, Petron announced that it would likely be in the red this year to the tune of P 2 billion owing to falling oil prices. Petron, as well as other oil retailers, also groaned under rising oil prices early this year. That it suffers under which way oil prices are going is not entirely illogical; it is part of the nature of the business. Because oil is a politically- sensitive commodity, retailers cannot easily adjust pump prices in response to oil price movements.

When prices are falling and there is loud clamor for rollback, slow-footed refiners and retailers like Petron are saddled with inventory purchased at higher prices. Likewise, in a regime of rising prices, increases in pump prices cannot be easily implemented owing to political pressures. It is reported that among the major oil players Petron has the largest inventory and the slowest turnover. If so, its present inventories have been purchased at higher prices than current.

In this business, the lean and nimble has a greater chance to survive going forward.

It used to be that the industry is perceived to be lucrative to the big three in oil (Shell, Petron and Chevron) when the scene was like a cartel. With the liberalization of the industry, new players have grabbed a chunk of the pie and the nimblest, most efficient and deep-pocketed among them are continuously making inroads into the turf of the big three.

Among the most aggressive of the new players is Total—which is not exactly a small fry. In the global market, it is considered among the majors. Amidst the gloom brought about by the lingering financial crisis, it has announced a massive expansion of its outlets especially in Luzon and the Visayas. And it can rely upon its mother firm to supply it with enough financial firepower in case of an all-out war which seems to be already unfolding.

In the hinterlands of Mindanao and parts of the Visayas where the tentacles of the big three have tenuous hold, independent player Phoenix Petroleum (PSE: PNX) has spread its wings, slowly increasing its reach.

When it recently signed up boxing hero Manny Pacquiao as its main endorser, it is sending signals to its competitors that it is ready to climb up the oil’s boxing arena for a long fight. It is also reported that Pacquiao will be operating one of Phoenix’ service centers in General Santos City.

If SMC ultimately gains majority ownership of Petron, it would be up against formidable opposition. True, SMC has considerable marketing clout—which is why investors seem to cheer at its entry—but it is becoming more like a lumbering brontosaurus than a springy springbok, even in the food business.

Which is probably why it has announced that it will ultimately get out of its core food business.

In the process, investors have punished SMC since it announced that it is entering businesses like energy, telecoms and infrastructure where it has limited experience. In energy, it has acquired 27% of electricity retailer Meralco (PSE: MER), but failed at getting Transco and geothermal developer Energy Development Corporation (PSE:EDC) which ended up in the hands of the Lopezes. It tried to grab Indonesian coal miner Bumi Resources but apparently bowed out to local interests.

SMC’s erratic moves have not escaped notice from credit ratings agencies. Moody’s Investor Service has downgraded SMC’s local currency rating to negative from stable after it bares its plan to acquire majority control of Petron.

In a statement, the global credit watcher warned of a rating downgrade if San Miguel pursues the investment plan, which it said could hamper the group’s ability to service its debts.

Now it is partnering with—of all companies—Qatar Telecoms for joint projects. Why not any other of the major telecom players?

Now, why is Ashmore selling to SMC when it has exercised it right to acquire the government shares?

Ashmore is about to end up with 90% ownership of Petron after it has indicated that it is exercising its right of first refusal when the government has put up its 40% interest up for grabs. By relinquishing management to a perceived knowledgeable entity in retail, it feels it has a better chance of recovering its investments (with some profits of course). In the first place it is an investment fund, not a management company.

More importantly, it is paving its exit from Petron. By selling a majority block to SMC it can extract concessions from the buyer. Like for example, it can require the buyer to purchase its remaining shares at a later date once it decides to divest completely from the refiner.

We have already considered this scenario in a previous blog entry; only the numbers are somewhat different.

The struggle for Petron ought to be exciting were it not for the circumstances under which it is played as outlined above.

No wonder other players are nowhere in sight.

Regulator reduces systems loss cap—but only in January 2010

The Energy Regulatory Commission (ERC), the government body which regulates the electricity business, has recently issued an order lowering the cap on electricity system loss to 8.5% down from the present mandated 9.5%--but only starting January 2010. In the same order, the limit for electric cooperatives is reduced to 13% from 14%.

The systems loss, which includes electricity lost to pilferage, antiquated equipment, design faults, administrative inefficiency and actual physical losses in the conductors, is currently passed on to the customers as added cost by distribution utilities at the allowed rate.

Charging of systems loss to the users has been under attack as being unfair from consumer groups, businesses and some government officials.

The recovery of a portion of systems loss by power utilities is allowed under Republic Act 7832 which also penalizes electricity theft.

In a statement, the ERC is also “reviewing other existing policies pertaining to rate-setting, including efficiency models [and] lifeline components of other distribution utilities and the different cost-recovery adjustment mechanisms”.

Republic Act 7832 or the law penalizing electricity theft allows power utilities to recover a portion of their system losses from consumers.

The current loss cap of 9.5% for private utilities and 14% limit for electric cooperatives have been implemented since 1999 and 2000, respectively, without adjustment.

This corner has maintained that a systems cap loss of 7% is fair, achievable and already generous under present inefficiencies, and distribution companies should strive for a systems loss of only 5%. The former figure is the average systems loss in EU countries, which is already high because it is inflated by the inefficient utilities in new member countries from Eastern Europe.

Some distribution companies in the Visayas and one or two cooperatives have actually claimed that they have achieved systems loss of below the mandated 9.5%.

The reduced cap for electric cooperatives is more of a token gesture than a real attempt at forcing more efficiency on these energy dodos. The cap for them should be ultimately aligned with those of the private distribution utilities. A viable option would be to require them to have a systems loss reduction by 1% every year until they achieve parity with the private sector. That could be done in four or five years. A carrot in terms of tax breaks and incentives for equipment upgrade should also be dangled to them.

In summary, the proposed reduction is systems loss cap that could be passed on to consumers is way too high and would unlikely to be felt by the average consumer.

GMA signing of Transco franchise bill into law heralds new era in grid operation

Philippine President Gloria Macapagal-Arroyo signed on Dec 1 the TransCo Franchise Bill into law that would transfer the operations of the national power grid under a private group, the National Grid Corporation of the Philippines (NGCP), which won the bidding for the rights earlier.

The franchise bill is officially known as Republic Act No. 9511 or "An Act Granting the National Grid Corp. of the Philippines (NGCP) a Franchise to Engage in the Business of Conveying or Transmitting Electricity through High Voltage Back-Bone System of Interconnected Transmission Lines, Substations and Related Facilities, and for Other Purposes."

The signing of the bill culminated years of attempts by the government to privatize the national electricity transmission grid as mandated by the Electric Power Reform Act (EPIRA) of 2001 amidst opposition by nationalist groups and well-meaning individuals to the sale.

The NGCP is composed of Calaca High Power Corp., the Monte Oro Grid Resources Corp., and the State Grid Corp. of China.

The NGCP was granted the franchise "to operate, manage and maintain, and in connection therewith, to engage in the business of conveying or transmitting electricity through high-voltage back-bone system of interconnected transmission lines, substations and related facilities, system operations, and other activities that are necessary to support the safe and reliable operation of a transmission system, to construct, install, finance, manage, improve, expand, operate, maintain, rehabilitate, repair and refurbish the present nationwide transmission system of the Republic of the Philippines."

The franchise is good for 50 years but may be repealed or amended by Congress "when the common good so requires," the law said.

What is significant in the signing is that operating the transmission grid, which is traditionally viewed as a natural monopoly of the state, is now in the hands of the private sector. The grid operations will now be subject to more to economic forces than the previous setup. This is why traditional nationalists, who usually view big business with jaundiced eyes, see danger to security and higher prices for end users due to added profit motives of the new operators. Some of them have gone to the extent of trying to reverse the privatization process.

But this is a short-sighted view.

Grids around the world are increasingly operated by the private sector with better results than the previous state operation. This is to be expected since electricity transmission is not just about connecting power from generators to retail distribution facilities. It is also about efficient and cost effective operation. Increasingly, it is relying more on new technologies and materials.

A state monopoly does not have the nimbleness or savvy to operate in this competitive new world.

Take for example the traditional view that the flow of electrons is just one way: from the generators to the grid lines, to the distribution companies and finally to the user. No longer.

Advanced countries are now moving towards a two-way transmission and distribution systems wherein users who have excess capacity can actually sell it back to the grid. This is made possible by deploying so-called smart meters which could regulate which way electricity is flowing.

Fans of the successful transfer of operations to the private sector see more improved services. For example, they hope that the gridlock (pardon the pun) in transmission which occurred recently as a result of a breakdown in a critical transmission node would no longer recur.

But can the new operator hurdle inconveniences such as the recent court ruling dismantling a major transmission line as a result of a vanity complaint by residents of a plush village in Makati?

The bottom line is, the new grid operator has been given a great responsibility to improve the electricity transmission system of the country. It should not view the franchise awarded as a license to mint money quickly at the expense of the population.

Everybody will be watching you, the new grid operator.

Science loses in court ruling over power line dispute

Onli in da Pilipins.

 A Makati regional court ordered the National Transmission Corp. to effectively dismantle the 230-kilovolt Sucat-Araneta-Balintawak line, on the strength of a Supreme Court ruling favoring Dasmarinas Village in Makati in its petition against the power transmission lines passing near the village.

 The well-heeled residents of the Village probably saw an eyesore on the overhead lines, but they could not just petition for their removal without an emotional and hopefully convincing reason. They have found it in anecdotal stories of the supposedly harmful effects of electromagnetic fields (others use the dreaded word radiation which is not applicable here) on health which our esteemed judges apparently agree.

The Trade department warned on hurting the country’s attractiveness as a result of the dismantling of the lines which supply power to large portion of the Makati Business District itself, most of Manila and Quezon City, Bulacan, parts of Caloocan City, and the whole of Novaliches, Malabon and Valenzuela. The Energy department meanwhile worries about the effect on the industry and businesses.

 But nobody shows concern regarding a very fundamental worrying trend in local jurisprudence: disregard of science over technicalities, legalities or influence of powerful groups?

 Electromagnetic fields comprise of electric (E) and magnetic (H) waves, traveling together at the speed of light and are characterized by a frequency and a wavelength. The frequency, which is the number of oscillations per second is measured in hertz (1 hertz = I cycle per second) while the wavelength is the distance traveled by the wave in one cycle. What is dealt here is extremely low frequency (ELF) fields which are defined as those having frequencies up to 300 Hz. The electrical cycle we use is 50/60 Hz.

 At these low frequencies, the wavelengths are very long; 6000 km at 50 Hz and 5000 km at 60 Hz. For all intents and purposes, the electric and magnetic fields are independent from each other and can be discussed separately in the present context.

 The electric and field strength is measured in volts per meter (V/m) or kV/m. Magnetic field strength on the other hand is measured in millitesla (mT) or microtesla (uT). The magnetic field itself is created by current flow.

 Naturally occurring 50/60 Hz electromagnetic fields have extremely low values of the order of 0.0001 V/m and 0.00001 uT. Underneath transmission lines, the field can be as high as 12 kV/m and 30 uT and around a generating station the values could reach 16 kV/m and 270 uT.

 After reviewing all available studies, the World Health Organization found no conclusive evidence linking extremely low frequency (ELF) electromagnetic fields which are found in transmission lines, to any of the purported health effects. The Australian Radiation Protection and Nuclear Safety Agency (ARPANSA) is blunter,saying the scientific evidence does not indicate that exposure to 50 Hz EMFs found around the home, the office or near power lines is a hazard to human health.

 Available evidence suggests that the effects electric field strength of up to 20 kV/m are innocuous, while in animals exposed to 100 kV/m over a prolonged time have no deleterious effects on their reproductive cycles. A health effects study on a community which has been in place for at least 10 years under a 400 kV DC Pacific Intertie power line in California shows no significant or consistent relationships between exposure to the high voltage line and the perceived ill health effects (Haupt and Nolte, 1984).

 The line is almost double in voltage than in Dasma, and in addition, the DC line is in corona; which means it is generating ions in the vicinity of the conductors that affect the magnitude of surrounding electric fields and ion concentrations.

On magnetic effects, a WHO study which exposed volunteers for several hours to ELF strength of up to 5000 uT (more than 20 times the value in generating stations) show negligible effect on blood changes, ECG, heart rate, blood pressure and body temperature.

 For a more detailed discussion on health effects of EMFs, see the ARPANSA website.

 The bottom line is the magnitude of the ELF fields in the environment produce current that is less than the currents naturally produced by the body.

 So, our judges and lawyers should at least learn enough science or at least consult those with appropriate knowledge before promulgating far-reaching judicial pronouncements.

Since they are terrified of modern conveniences, the Dasma residents should have their electrical supply disconnected for their peace of mind. Then they could celebrate their court victory around a bonfire, much like the victory celebration of Sitting Bull over General Custer at Little Big Horn.  They could also have their dinner under candle lights, which is far more romantic than under fluorescent lamps.

They should also refrain from using their high-end 3G phones which are supposed to emit emf waves at much higher frequencies.

The real loser here is science.

 Reference:

R. C. Haupt & J. R. Nolte. (1984) The effects of high voltage transmission lines on the health of adjacent resident populations. Am. J. Public Health, 74, 76-78.

Aboitiz Power on the prowl; raises P3 billion

 Looks like Aboitiz Power Corporation (PSE:AP) is on the prowl again for more acquisitions after its Board approved the issuance of P3 billion worth of peso-denominated bonds through a private placement. Proceeds of the fund-raising exercise will become part of its war chest for acquisitions of power assets.

 In a disclosure to the Philippine Stock exchange, it said it may increase the issue size depending on the market appetite. The offering is handled by BDO Capital & Investment Corp., BPI Capital Corp., First Metro Investment Corp. and ING Bank N.V. and will run up to the end of the year.

 That such a fund-raising campaign is conducted in the middle of a raging financial crisis speaks well of the company. Lesser companies in times like this would rather seal the hatches and ride the storm rather than venture out into the open capital markets.

 But it is precisely these times when energy demand is expected to slow down that one should start top build up the necessary infrastructure. The best time to invest is when there is so much blood in the streets; just ask Warren Buffett, the legendary investor.

 In the past few years, the Aboitiz group has been actively adding power assets to its portfolio by buying assets from the government or other investors. In July, it bested Energy Development Corporation (PSE:EDC) in acquiring the Tiwi-Makban complex, the first geothermal asset sold by PSALM, the government arm tasked to privatize power assets. It is also the first geothermal asset held by the Aboitiz group.

 In a joint venture with SN Power of Norway, Aboitiz Power has taken over the operations of the Ambuklao and Binga hydro plants in Benguet in the middle of the year. Earlier in 2006, it has acquired a significant chunk of ownership in the 232-MW STEAG coal plant in Mindanao.

 Aboitiz Power has a large pool of government assets it can cast its net into. Among the assets scheduled for disposal by the government in 2009 include: 

• the 116-MW Subic and 620-MW Limay diesel plants, both to be sold in January;
• the 246-MW Angat hydroelectric plant, in February;
• the 310-MW Navotas I and II diesel plants, and the 197.8-MW Naga gas and diesel plants, in April
• the 192.5-MW Palinpinon geothermal plant, in July
• the 850-MW decommissioned Sucat and the 112.5-MW Tongonan geothermal plant, in August
• the 150-MW Bacon-Manito geothermal complex, in September and
• the 54-MW decommissioned Cebu diesel plant, in October

  In the first nine months of the year, the company reported a P3.17 billion net income, a 35% net income growth year-on-year on the back of the continued expansion of its power generation business. However, it is likely that the overall income for the whole year will be tempered owing to the costs in acquiring the new assets Tiwi-Makban and Ambuklao-Binga.

 While the Aboitiz group belongs to an old, well established business clan, its power business is run by a new generation descendant in Luis Miguel Aboitiz, who is young, dynamic and has the required academic and business credentials to run a difficult business in trying times.

 Aboitiz Power is one energy company worth watching by investors, consumers and by the energy community at large.

(Disclaimer: The author does not hold any shares in any of the Aboitiz companies and does not intend to invest in them in the near future. He is not connected with the Aboitiz group, and is not tasked to write about them)