War and summer — a double whammy for energy markets

By Alexander Ablaza

A MAJOR Middle East crisis intensifies just as the La Niña ends, paving the way for the hottest months in the Philippines.

Separately, both conditions severely choke energy supply. The ongoing military escalation between the United States, Israel, and Iran has triggered a significant global energy shock by disrupting production and closing major shipping arteries, thereby causing Brent crude prices to surge beyond $100 per barrel. For the upcoming summer, I believe the heat index rise will once again bump up the demand for more cooling, which will easily strain our grids with an additional requirement of 3,340 megawatts of peaking generation, transmission, and distribution capacities.

When they coincide however, the “double whammy” compounds the upward pressure on energy prices, while further tightening fuel and electricity markets. As we are now experiencing gas pump prices surges and gas station queues, the global oil supply shocks are most certainly affecting the transport sector more immediately and intensely than they are the power sector. That said, electricity prices will have to follow suit. We need to remember that off-grid areas are still electrified through about an aggregate 400 megawatts of diesel power generation, and that the grid continues to draw peaking power from gas turbines and diesel generators. Imported LNG prices have likewise surged due to disruptions in global production and critical shipping routes. Additionally, all on-grid power transmission and distribution utilities consume oil-based fuel for their maintenance and operational transport fleets.

The downstream effect of surging energy prices on inflation is a chain reaction where rising fuel and gas costs permeate every sector of the economy. The costs of housing, transport, food, and manufacturing will rise in successive waves and the rising cost of imported energy and demand for dollars will certainly depreciate the Philippine Peso to exchange rates above the P60 threshold.

The “double whammy,” scary as it might seem, unexpectedly poses a silver lining — it forces the country to quickly tap another often-overlooked indigenous resource. Energy efficiency and energy conservation are not just climate and decarbonization strategies — they should be deployed as front-line defenses against geopolitical energy shocks. For the Philippines, where imported oil drives both transport and electricity costs, efficiency measures can soften the blow of imported energy deficits, stabilize the economy, and protect households from sudden price surges. Much more pronounced during times of energy market uncertainty, energy efficiency and conservation are and should always be prioritized as the most reliable “first fuel.” The non-profit Philippine Energy Efficiency Alliance (PE2) estimates that a progressive implementation of energy efficiency deployment through 2040 can actually reduce our economy’s final energy demand by as much as 182 million tons of oil equivalent and defer up to 45,900 megawatts in fuel and electricity production and distribution infrastructure upgrades.

Energy markets that are net importers of energy (such as Singapore and the Philippines) see the most urgent need to build energy price resiliency through accelerated and sustained mobilization of energy efficiency technologies and capital across all energy end-use sectors, whether they be households, MSMEs, larger businesses, or government facilities.

Energy efficiency can be relied upon to quickly reduce vulnerability of local energy markets by decoupling economic growth from the importation of oil, gas, and other fossil fuels. By lowering overall fuel and electricity demand, energy efficiency reduces the pressure on energy infrastructure and mitigates the impact of sudden disruptions in global supply chains. Aggressive energy efficiency investments in the demand-side of energy markets will also serve to dampen the rise in fuel and electricity prices, because of its ability to defer the need for investments to upgrade energy infrastructure in the local fuel market or grids.

It is assuring to see the Philippine Government, through the Inter-Agency Energy Efficiency and Conservation Committee (IAEECC) and the Department of Energy (DoE), quick to push energy efficiency and conservation in the public sector through accelerated implementation of the Government Energy Management Program (GEMP). Government, nationally through the executive and legislative branches and locally through the LGUs, has always been convinced that it should lead by example.

The President through the IAEECC and DoE has been very quick to tighten GEMP enforcement and increase the awareness of no-cost measures such as the mandatory 10% reduction in energy consumption and the setting of minimum thermostat settings of 24° Centigrade for air conditioning systems. Malacañang is even contemplating a four-day workweek for selected government entities.

Private sector and civil society should be collaborating to tap the “first fuel” to cushion the impacts of the volatile oil and gas markets. In meetings with other industry associations, I cited the need to broaden the awareness and enforcement of Republic Act 11285, more popularly known as the Energy Efficiency and Conservation Act, especially for the MSMEs now captured by the reduced consumption threshold of designated establishments. I likewise sought to increase the awareness and capacities for larger designated establishments on the opportunity to accelerate energy efficiency upgrades through the energy service company (ESCO) performance contracting model, especially to significantly improve efficiency of air conditioning systems. PE2 likewise suggested efforts to build a culture of energy monitoring even among households and small businesses.

The “double whammy” is an urgent call for action. Every energy end-user, from the smallest household to the largest industrial facility and transport fleets, will have to be part of a new “war” against energy waste and losses through immediate no-cost behavioral change and forced obsolescence of low-efficiency appliances, machinery, and vehicles from our energy market.

Alexander Ablaza founded and currently leads the Asia-Pacific ESCO Industry Alliance (APEIA), the Philippine Energy Efficiency Alliance (PE2), and Climargy, the world’s pioneer private super-ESCO.

aablaza@live.com