On the surface, coal power makes for a compelling business proposition.
It is the cheapest fossil fuel in terms of energy content. It is relatively abundant, and relies on proven technology to generate electricity that is safe to operate and efficient. It is also reliable, with coal-fired plants having the ability to provide so-called baseload power—the minimum amount of electricity needed to be supplied to a grid at any given time.
Because of these reasons, power generation firms were partial to building coal-fired plants for a long time. And in the Philippines, where the cost of electricity is a sensitive sociopolitical issue, the cheap power provided by this fossil fuel made it a no-brainer for public opinion-sensitive energy firms.
Unfortunately for coal, consensus is now building that its long-term costs—especially to the environment—far outweigh the advantages brought about by short-term cost savings. And that public opinion that once supported it is now slowly but surely being eroded in favor of renewable energy (RE).But wanting to satisfy public opinion alone is not enough to explain the ongoing pivot among giant corporations to slowly abandon the lucrative business of coal-fired power plants and turn to cleaner forms of energy.
For many, the trigger was the palpable shift in the trajectory of the overall economics of the power business: more and more, banks have begun to signal that the cost of financing old style “dirty” energy projects will start rising to the point of becoming more expensive than loans for clean power.
Economics of power business
And more importantly, more and more banks are saying they will phase out—either gradually or abruptly—financing for new coal power plants.
One of the first major financial institutions in the Philippines to commit to this course of action is Rizal Commercial Banking Corp. (RCBC) whose president made a bold declaration late last year that the Yuchengco-controlled bank would stop financing coal power projects.
“No more coal,” RCBC president Eugene Acevedo told reporters in December 2020, shortly after the Department of Energy declared a moratorium on approvals for new coal-fired power plants.
He said the bank would henceforth focus on lending to cleaner energy undertakings such as gas-fired plants and renewable energy.
Another such financial institution is the Ayala-led Bank of the Philippine Islands (BPI), which aims to phase out by 2033 all lending to coal-fired power projects—which form 45 percent of its current power generation portfolio—and channel more funds to renewable energy projects moving forward.
Teodoro Limcaoco, president of BPI, said while BPI’s original commitment was to halve coal financing by 2026 and go down to zero by 2037, it may be possible to totally phase out all remaining coal lending by 2033.“We believe energy is still an important component and a big need of this country,” he said. “My belief is renewable power is getting cheaper and cheaper to produce, getting more economically feasible and I think storage technology will improve very rapidly.”
The others like the Philippine National Bank (PNB) are moving in the same direction on a broader scale, recognizing that sustainability—or more specifically, emphasizing doing business with undertakings that will be more sustainable for the environment and the rest of society —will be a major issue for the industry in coming years.”
Recently, close to 500 participants from 143 companies gathered for an online sustainable finance conference hosted by PNB for its institutional clients and partners.
No longer about just making money
Wick Veloso, president and CEO of PNB, said the bank brought together known sustainability experts from institutional customers and partners for them to share insights on how their companies were driving sustainability and making it work for business.
“In the new normal, business is no longer about just making money, it’s about making people’s lives better for the future.”
—Wick Veloso, president and CEO of PNB
Aligned with the sustainable finance framework it submitted to its regulators last year, PNB has been embedding sustainability principles into its governance framework, risk management systems and strategic objectives, consistent with the risk profile and complexity of its operations. PNB’s sustainability policy and three-year transition plan set the tone and parameters in managing its environmental and social risks associated with supporting businesses, projects, or industry sectors.
“Taking care of our environment is our responsibility to ensure the future of our children and grandchildren,” Veloso said. Banks are drawing strength from a similar shift at the regulatory level, with no less than the Bangko Sentral ng Pilipinas (BSP) advocating a sustainable finance framework after acknowledging that environmental problems caused by climate change—which are, in turn, aggravated by dirty sources of energy—pose a long-term threat to the economy.
The central bank believes the local financial system will become more stable as banks’ adoption of “green finance” principles will lead to better management of climate and other environment-related risks.
In particular, BSP Governor Benjamin Diokno said the agency’s Sustainable Finance Framework would also promote the stability of individual financial institutions and added that the scheme will allow banks to better mobilize funds toward green or sustainable projects.
“Sustainable finance creates a positive disruption into how financial markets work as it incorporates the environmental, social and governance lens when investors assess the value, performance, and long-term growth of an asset. This supports the financial system’s ability to fund productive activities in the new and low carbon economy.”
—BSP Governor Benjamin Diokno
Diokno said the BSP would study the grant of potential regulatory incentives to banks to accelerate the adoption of sustainable principles—meaning that, eventually, it will become cheaper to finance clean energy projects over coal, not just when taking the long view, but also in the most immediate sense.This new financing reality is not lost on the company’s power producers, including one of the largest which recently committed to shift away from coal, San Miguel Corp. (SMC).
SMC said it would move toward cleaner energy sources, including a plan to build a 1,300-MW liquefied natural gas (LNG) plant in Batangas City, which would provide clean and stable power to Meralco over the next 20 years, beginning 2024.
The facility will provide power at a very competitive price, cheaper than what modern coal plants in the country offer.SMC is also set to build small-scale LNG plants in eight to 10 islands in the Visayas and Mindanao to boost rural electrification. It has also lined up several hydroelectric power plants in Luzon.
For now, the Philippines still relies on coal for nearly two-thirds of its total energy needs, while renewables accounting for only 21 percent.
But with the growing number of banks starting to adopt principles of sustainable finance, and with local tycoons seeing that it makes more economic sense to shift to clean energy in the future, that current energy mix will soon change.
This story was first published in the August 27, 2021 issue of the Philippine Daily Inquirer’s Road to Clean Energy special report.