Saddled with a legacy of heavy dependence on foreign oil to meet its primary energy needs, the Philippines has a long history of developing alternatives to serve as import substitution so as to counter the escalating cost of energy. In the past these efforts have included demand reduction through increased efficiency, adding greater incentives to attract coal, oil and gas prospectors, and encouraging a greater usage of alternative energy. The latter of these has been gaining significant traction in recent years through the introduction of new renewable energy incentive programmes, including greater synergy with the country’s largest employer, agriculture.
What makes bioenergy unique among other renewable energy technologies such as wind, solar, hydro and geothermal is that biomass can be used as fuel for use in both electricity-producing power plants and the transport sector through its conversion into biofuels. These dual applications, along with the vast, underutilised and relatively inexpensive potential of Philippine agricultural land, make biomass an attractive opportunity for both energy producers and a government bent on diversifying the sector.
From Field To Pump
The usage of crop-based bioethanol and biodiesel in automobile fuel is not a new concept, but the implementation of a mandatory blending quota as a result of the 2006 Biofuels Act kicked demand for the alternative fuel into high gear. Since being implemented in 2007, mandatory blending requirements, with some exemptions for certain fuel grades, have risen incrementally, starting from a minimum 1% biodiesel blend (B1) and 5% bioethanol (E5) blend by volume in all diesel and gasoline fuels, respectively. The ensuing mandated increase bumped up the minimum bioethanol mandate to 5% in 2009 and generated enough new demand to create a second major market for sugarcane and its refined by-product, molasses, in the country almost overnight. The most recent blending increase was approved in July 2013, bringing biodiesel blending up to 5% (B5) along with 10% ethanol (E10) requirement. According to the National Biofuels Plan 2013-30, implementation of B5 and E10 standards was targeted to displace the consumption of 382m litres of diesel and 535m litres of gasoline in the transport sector when they came into effect in 2015. However, as of September 2015, the government was awaiting results of a study before implementing the B5 blend, and in June 2015 the authorities temporarily relaxed the E10 requirement due to a shortage supplies.
As blending requirements are increased over time – 10% by 2020 rising to 20% by 2030 for diesel and 20% for gasoline by 2020, remaining constant through 2030 – these savings are projected to rise to 2.29bn litres of diesel and 2.52bn of gasoline by 2030. Compliance with the mandate has been mixed since its implementation, with biodiesel running at a surplus, while domestic ethanol production has lagged due to feedstock challenges.
To protect the domestic market from harsh fuel shocks and allow domestic sugar producers and ethanol distillers to ratchet up production, imported bioethanol was used almost exclusively to meet the government mandate in 2007. This was followed up in 2008 by the first domestic producer, Leyte Agri Corporation, which pumped out just 420,000 litres of bioethanol compared to 12.56m litres of imported fuel for the year, according to the Sugar Regulatory Administration (SRA).
New ethanol plants and capacity have been steadily added since then with San Carlos Bioenergy, now owned by Roxas Holdings, opening a plant with capacity of 40m litres per annum (LPA) in 2009. As of 2014 a total of eight bioethanol plants were operating in the Philippines with a total combined capacity of 222.12m LPA, according to SRA figures. These facilities produced roughly double the output produced the previous year by four operating bioethanol distilleries with a combined theoretical capacity of 133m litres.
This capacity is expected to be further bolstered in 2016 with the addition of the new Lobo Lobo biorefinery plant in Magallanes, Cavite, which will add another 130,000 litres per day of output for a maximum of 41m LPA. The plant is operated by integrated bioenergy company Bioeq Energy, which acquired a 90% interest in Cavite Biofuel Producers in April 2014. The firm is also in the process of constructing a 9-MW co-generation biomass power plant to be fuelled by sugarcane waste.
Yet even with the rapid expansion of the industry, domestic consumption of biofuels continues to outstrip demand due to insufficient capacity and a lack of feedstock. Sales from domestically produced bioethanol of 118.9m litres in 2014 accounted for just 26.9% of total consumption in the country, leaving imported ethanol to cover the outstanding balance, according to SRA figures. This disparity is primarily the result of a lack of feedstock rather than a dearth of distillery capacity. The 2014 production run of just under 120m litres, for instance, was the highest ever for the country, but still represented only 53.5% capacity utilisation. This is largely the result to two factors: regulations barring ethanol plants from using imported feedstock unless all domestic sources are exhausted, and competition for food usage.
While the policy has provided ample incentives to boost domestic ethanol and feedstock output and support the sugar industry, it has also created a significant market distortion in prices between international and domestic markets. This situation came to a head in 2010 and dealt the industry a severe blow when sugar prices skyrocketed as a result of a worldwide deficit in supply. The high prices crippled the local bioethanol industry just as it was trying to gain its footing, with sales from domestic production falling off to 9.17m litres in 2010 compared to 23.11m litres in 2009, according to SRA figures. It would take years for the price to stabilise enough for the industry to recover, and domestic output stagnated in 2011 at 2.87m litres before bouncing back to 63.2m litres by 2013. Domestic mill site wholesale sugar prices averaged P1585 ($35.19) per 50-kg bag as of March 2014, compared to an average world price of P831 ($18.45) per bag, according to the US Department of Agriculture.
In addition to the growing biofuels market, the introduction of renewable power generation incentives has also created an uptick in investment in biomass-powered electricity production. The Renewable Energy Act of 2008 and its implementing rules and regulations incentivised biomass power plants with a feed-in tariff (FIT) of P6.63 ($0.15) per KWh granted to all eligible biomass power plants up to the first 250 MW, provided the project meets requirements.
These incentives have been proven effective to date, with a total of 191.55 MW of FIT-approved biomass capacity as of October 2015, including municipal waste-to-gas projects, according to the Department of Energy. This is a modest increase over the 176.28 MW installed as of April 2013, although the potential capacity of the sector has increased substantially over the past two years with dozens of new companies in various stages of development in the building of new power plants.
The majority of this development has taken place at sugar mills, which have been able to utilise previously discarded cellulosic material left over from the extraction of juice from sugarcane to fuel on-site power plants. Around 80% this energy has been dedicated to powering nearby industrial operations. However, the FIT should now push developers to turn to grid-connected biomass plants.
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