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New Energy Nexus “Accelerate Energy Series” Statement by Deputy Speaker Loren Legarda CVF Thematic Ambassador for Parliaments Manila, 21 October 2020

October 23, 2020

I wish to thank the New Energy Nexus team for inviting me to this kick-off event. I am pleased to be here as an advocate for high shares of renewable energy and as the Climate Vulnerable Forum (CVF) Ambassador for Parliaments. The CVF represents 48 developing countries including the Philippines and I hope the New Energy Nexus helps members of the CVF accelerate progress towards the CVF’s unique 100% renewable energy vision, and with it, create job opportunities and improve cost competitiveness.

The COVID-19 pandemic has created an opportunity for power sector planners and stakeholders to reset energy development policy to enable more renewable absorption by grid systems and redirect resources to support economic fundamentals and energy price stability.

The Philippine Department of Energy (DOE) revealed that during the COVID-19 induced economic lockdown, electricity demand in our three major island systems fell–by 30% in Luzon, 17% in the Visayas, and 25% in Mindanao. This spelled trouble for many smaller islands and isolated power systems that did not have the negotiating power to risk share with power providers. Without contractual protection and risk sharing, the electricity prices would have increased by 15% in Luzon and 5% in the Visayas. Prior to COVID-19, the Philippines already had one of the most expensive electricity prices in Asia. 

Parliaments have done a lot to move climate action in countries.  They also can spark new ambition and implementation in climate action in the run up to the global recovery and prosperity. Through my role as Deputy Speaker of the House of Representatives and as CVF Ambassador for Parliaments, I am hopeful that we can improve and build on existing policies to open the space for innovation by empowering entrepreneurs to accelerate the energy transition.

Modular domestic and localized renewable energy and green grid investments can ensure energy access and reduce overall system cost while improving domestic energy security and resilience by reducing exposure to international volatility and supply chain risk. Efficient use of power and renewable energy brings cost-competitiveness and has been an important job creator. There have been record-breaking deflationary prices of renewable energy and storage. In April 2020, global levelized cost of energy benchmarks for utility-scale batteries with a four-hour duration including charging costs were cost-competitive with fossil gas peaker plants. Moreover, there have been examples of solar plants providing grid services at commercial rates while performing better than fast fossil gas-turbine technologies.

However, we are not on track to limiting warming in line with the Paris Agreement goal of 1.5 degrees Centigrade and over 350 million people across the CVF countries still lack access to energy. In the Philippines alone, over 2 million people lack access to power and tens of millions more do not have reliable access to electricity.

The off-grid and community-scale areas in the Philippines powered by diesel generators using imported oil represents a high degree of exposure to ill-prepared supply chains, lack of digitization, and volatile commodity prices. As a result, only 14% of the off-grid areas have access to 24 hours of electricity while the rest remain underserved or unserved. This, while renewable energy is already less than two-thirds the cost of imported oil. Access to 24 hours of electricity is important, especially in times of crisis such as storing medical and food supplies.

The current power system lock-in is unsustainable and built on the false premise that fossil fuel is cheap and reliable. If it was either of those things, why is it costing the world 3.1 trillion US dollars in subsidies per year? This is over 20 times the level of support to renewable energy. It is time to drive investment for low-cost renewable energy.

Power sector planners often assumed that a system bias toward baseload fossil fuel generators would deliver benefits from scale. This planning norm is likely now being reconsidered in light of evidence that too high of a fossil fuel mix results in system lock-in due to inflexible contractual obligations that require baseload dispatch, even when new lower cost renewables can reduce system prices.

Unfortunately, this lock-in problem is worse for countries that import coal, such as Vietnam, the Philippines, or Bangladesh, due to exposure to price volatility and negative effects on the trade balance. This lock-in problem rings true for fossil gas (i.e. natural gas), which requires a large infrastructure build of regasification units, associated pipelines, retail connections, and storage units.

Because fossil gas is neither incremental nor economical without scale, it will require the same capital recovery guarantees as coal- and oil-fired generation. Moreover, taking into consideration the financial lessons learned from the COVID-19 pandemic, power sector planners may wish to enable investment in greater domestic energy security and system flexibility, as well as take advantage of the deflationary price trajectory of renewable energy and storage.

In addition to a cost-competitive and resilient power system, it is important to highlight the role of financial regulators, investors, and bankers. Specifically, financial regulators have a responsibility to safeguard the financial system from the evolving material risks, including nonperforming stranded-asset risk, and responsible managers in investment companies and banks have a fiduciary duty to factor in known financial risks.

Signals from financial regulators such as our Central Bank and the Securities and Exchange Commission (SEC), and corporations, to ensure that finance increases social and infrastructure resilience to new risks and opportunities are part of the forward-looking leadership needed to keep pace with innovation and support sustainable growth. Future signals from power sector policymakers, regulators and stakeholders including innovators from the New Energy Nexus can rapidly support these gains by improving the design of the power market to ensure system flexibility and encourage energy security through domestic renewable energy.

We must begin reallocating capital and enable investments in renewable energy. Decisive leadership by countries together is key to shifting the market structure and economies towards a high renewable energy future.  

Providing international support to buy down the cost of capital is urgently needed to unlock more renewable energy installation projects given the large proportion of upfront capital needed for renewables compared with other energy investments. The Vulnerable 20 (V-20) finance ministers of the CVF have developed a unique initiative called the “Accelerated Financing Mechanism” (AFM) to scale-up blended financing for overcoming high capital costs for renewable energy and we call for international funding and support to help it succeed.  

We need a renewable energy system to leverage home-grown power from our domestic renewable energy resources, that makes energy affordable to everyone, and so makes energy also universally accessible, reliable, and resilient to disasters.  Renewables offer all of this. And so we look to robust initiatives such as the New Energy Nexus and international partnerships to follow through.

In the Philippines, new catalysts for change are coming as a result of our Electric Power Industry Reform law (EPIRA). This also validates the Philippines government’s intention to spur competition through transparent bidding to reduce electricity prices for consumers and industry. More retail competition and open access is in the cards for the Philippines and its interaction with deflationary renewable energy means faster access to lower cost renewable energy. I encourage the New Energy Nexus and its entrepreneurs to engage in accelerating retail competition and open access to deliver low cost power prices to consumers and industry.

I would also like to take this opportunity to invite the New Energy Nexus, investors and technology providers here today to interface with the CVF on our Climate Prosperity Plans to drive climate solutions in vulnerable countries towards climate prosperity.

 As we urge a better normal at the global level, equipping countries and communities with affordable, accessible and reliable power will be key to helping embrace new opportunities for prosperity that would bring about resilience and stability, especially for small businesses and vulnerable populations.

 Thank you very much.

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