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Indonesia coal ban highlights risk to PH energy security

IN an alarming move over the weekend, the Indonesian energy ministry imposed a ban on exports of coal from the country for the month of January, citing a supply deficit for its own power plants. Due to the Philippines' heavy reliance on Indonesian coal, the potential threat this poses to our energy supply cannot be overlooked and must be addressed by our government.

Nearly half of the Philippines' electricity is generated by coal-fired power plants. Domestic mines supply about 25 percent of the coal required, with the remaining 75 percent being imported; of the latter, nearly 97 percent is imported from Indonesia, one of the world's biggest exporters.

The reason for the export ban is that under Indonesian law, coal producers in the country are required to sell 25 percent of their annual output to state utility Perusahaan Listrik Negara (PLN) at a maximum price of $70 per metric ton under a Domestic Market Obligation (DMO). As this is well below the prevailing rate on the world market, most miners avoided the requirement throughout 2021, presumably waiting for prices to drop. That did not happen, and thus, the miners were caught out at year-end by having failed to meet their annual obligation.

In the meantime, the energy ministry reported, coal supplies at Indonesia's power plants have dwindled to dangerously low levels. Without intervention, the government said, approximately 10,850 megawatts of electricity supply to the country of 277 million people would go off-line within days or weeks, leading to widespread blackouts.

To be clear, the situation in Indonesia does not pose an immediate threat to the Philippines, as most of our own coal-fired plants reportedly have abundant stockpiles of fuel at present. The Indonesian energy ministry also said it would reevaluate the temporary export ban this week in order to determine how long it would have to be kept in place, implying that it hoped to limit its duration as much as possible.

However, our government should take the export ban for what it is, a clear warning about the insecure state of the Philippines' energy supply chain. Should the Indonesian coal export ban be extended for a longer period of time, the supply stockpiles for our own plants could be exhausted. Coal plant operators would either have to replace their supplies with higher-priced coal from elsewhere (probably Australia), or in a worst-case scenario, reduce their output to stretch fuel supplies, leading to large-scale power outages.

Given the timing of the Indonesian export ban, the supply pinch here — if the ban were extended for several weeks or months — would likely happen just when electricity demand typically puts a strain on supply, between April and June. Again, it does not appear that will happen this time, but as the Philippines is in no position to compel Indonesia or any country to supply our coal needs, the country's energy managers must take steps to prevent it from happening in the future.

The first and more immediate step our government can take is to assess domestic coal supply to existing power plants and those that are expected to come online within the next couple of years. A rather drastic policy such as Indonesia's DMO may not be necessary or desirable here, but measures should be taken to maximize the available supply so as to reduce reliance on imported coal.

The second, longer-term and more sustainable step, of course, is to prioritize and ramp up the country's progress toward eliminating coal power in favor of cleaner alternatives. This is already a key part of the country's energy policy, but efforts to implement it have only recently begun, and have so far been modest in scope. Most of the new energy supply anticipated within the next couple of years will in fact be coal-powered; despite a moratorium on new coal power projects announced in late 2020, more than a dozen planned plants already in the project pipeline will be going ahead. This will extend the insecurity risk highlighted by Indonesia's export ban far into the future, unless something is done to address the potential problem now.

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