Renewables threaten viability of LNG projects

posted May 05, 2021 at 06:55 pm
by  Alena Mae S. Flores
The growth of renewable energy in the Philippines could leave liquefied natural gas projects worth around $14 billion stranded, according to a report by the Institute for Energy Economics and Financial Analysis.

“As renewables prices continue to drop and global LNG markets tighten to increase fuel costs, LNG-related investments will become increasingly uncompetitive in the Philippines market, especially as smaller electricity consumers become eligible to choose their retail suppliers,” said IEEFA Energy Finance analyst Sam Reynolds.

Energy stakeholders questioned the report, saying the intermittency of renewable energy could not serve the baseload requirements of the grid.

They said that with no new coal projects due to the Department of Energy moratorium, LNG has the strongest potential to easily address the intermittency of RE.

Reynolds said in his report the rapidly declining cost for renewables demonstrated that long-term pricing shifted in favor of renewable energy growth.

“As policies in the Philippines accelerate the transition to clean energy, natural gas-fired power plants reliant on volatile imported fuel prices will realize fewer opportunities for long-term guaranteed returns,” he said.

He said that going forward, investors needed to take on significantly greater market risk.

Reynolds said there was a rapid buildout of LNG import infrastructure because of the anticipated depletion of the Malampaya deepwater development, the country’s only domestic source of natural gas and high gross domestic product growth expected over the next decade.

He said exporting countries and industry players pushed the narrative that natural gas represents a viable transition fuel from coal to renewables.

The United States encouraged legal and regulatory reforms to stimulate LNG demand creation.

“In this context, it is easy to assume that the Philippines’ LNG demand will grow rapidly, and that investments in LNG-fired power plants will face negligible development risks and reap all-but guaranteed returns. But the picture is much more complicated,” said Reynolds.

The report outlines the issues facing LNG-to-power investors, which include legal and regulatory issues, changing power market structures, a lack of existing transmission and distribution infrastructure and plummeting renewable energy prices.

“Many of these impediments will take years to overcome,” he said.

Reynolds estimates the total value of proposed LNG import infrastructure—including power plants, ports, regasification facilities and pipelines—to be $13.6 billion (P653.5 billion), all of which are at risk of being stranded due to the rapidly changing legal and commercial landscape.

He said that as there are no available government-backed power purchase agreements or guarantees, investors in LNG-fired power plants would be highly exposed to market risks arising from changes in the commercial and regulatory landscape.

He cited as example the implementation of Retail Competition and Open Access which allows customers to choose their own retail electricity suppliers, noting that distribution companies would become increasingly wary of locking-in long-term LNG price volatility and infrastructure costs.

IEEFA examines issues related to energy markets, trends and policies. The Institute’s mission is to accelerate the transition to a diverse, sustainable and profitable energy economy.

Topics: IEEFA , renewables , LNG projects , Philippines , Sam Reynolds
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