The Proper Energy Policy

The recent high energy prices in Europe has exposed the flaws of the market-model of energy which was adopted from the 1990s*.

*The market model, in turn, was caused by Reaganomics shifting policy into corporate stocks in order to solve the 1970’s stagflation. This shift manifested as the mergers and acquisitions of the 1990s, and consequentially, the push for privatization to make those mergers viable as an effect of the “force of capital”. This is because to make those mergers pay off, those corporations pay lobbyists to penetrate profitable ventures such as utilities, healthcare, and insurance. This in turn explains the wave of privatizations from the late 1990s and 2000’s. After all those profitable ventures are occupied, the force of capital resumes to feed off of oil, making oil prices rise. This is how our model correctly predicted the current stagflation many years ahead of time.

Some countries, under US influence, adopted this model, as privatization:

• UK under Thatcher
• West Germany
• Japan
• Philippines (EPIRA of 2001)
• Turkey (Electricity Market Law 3096 of 1984)

The main problem with privatization is that public utilities are a public concern focused on society, but private capital is a private concern focused on the self.

This inherent contradiction naturally leads to failures of the privatized utilities model:

• The UK now has high energy prices
• Germany abandoned its nuclear to switch to gas and is likewise suffering from high energy prices
• Japan privatized TEPCO which led to the neglect that led to Fukushima. This led to its nationalization to solve its cleanup problems
• The Philippines privatized NAPOCOR and Petron which led to consistently high electricity and oil prices. This even led to blackouts in Mindanao as NAPOCOR couldn’t pay Petron for powerplant fuel
• Turkey pioneered Build-Operate-Transfer and has had many failures in wind and geothermal energy investments

The Correct Way

The proper energy policy is to let the government handle energy.

In this way, a public concern is managed by a public organization*. Instead of competition between market forces, the competition is between politicians during elections. Through this, the public interest maintains the public utilities.

Good examples of the direct management of government in energy are:

• France (EDF)
• Singapore (SP Group)
• China (State Grid)
• Vietnam (EVN)

The difference between privatized and state-run energy is evident in the difference between the energy situation of France and that of Germany which follows the free market model.

To get into the profitable utilities business, investors usually highlight how massively indebted state-owned utilities are. They hide the fact that being under massive debts is the nature of such utilities.*

*This is mirrored by the fact that parents are often get into debt in order to fund the education and upkeep of their children. The reverse of this is to make money from one’s children by using them as child labor and neglecting their education. Nationalization does the former, while privatization does the latter.

State-run energy systems have some variations:

• In the French system, the government has control, as a majority stake, in energy production and transmission, allowing the rest to be privately held
• In Singapore, Vietnam, and China, the government owns everything. This leads to low energy prices because the government is supposed to be not-for-profit. This allows energy, as the base of the modern economy, to be really inclusive, as the people paying to maintain each other*

*State-run utilities are maintained by subsidies which are sourced from taxes from everyone. In privatized utilities, the system is reversed: people pay to maintain the lifestyle of the rich investors.

The Problem with State-Run Companies

If state-run companies are in line with the nature of societies and public interest, then why do most countries not have such a system?

Adam Smith explains that running public utilities requires a passion or interest for utilities, manifesting as a specific skillset, just like any industry.

The skillset of a politician usually revolves around the control of people. It is totally different from that of an engineer which usually revolves around machines, math, and science. This is why state-owned corporations usually fail.

Smith’s solution is for the people to work together: the politician should find a skilled engineer who can work for the public interest in exchange for immaterial rewards like titles, honors, and social security.

China does this by getting skilled entrepreneurs to run state-owned corporations. A recent proof is Jack Ma, founder of private Alibaba, being forced to follow the Communist Party.

However, this violates free will, and becomes unsustainable politically – a change in ruling class will likely change the energy managers. This is why our solution is more similar to the French model where the French government owns 84% of EDF as a mega-conglomerate, but with huge variations:

• The engineer-owners can be given private equity in exchange for their services in order to keep skilled talent
• Part of the capital equipment can be ‘financed’ by barter for local produce using long-term contracts in order to reduce the cash strain

We can call this a “social corporation” or “social conglomerate” as opposed to a semi-state-owned corporation or public private partnership.

• “Corporation” emphasizes the share distribution
• “Conglomerate*” emphasizes vertical and horizontal integration to reduce costs instead of raising profits.

*Conglomerate comes from Latin glomerare “form into a ball”

Such measures will reduce the cash strain and make capital improvements cheaper, without sacrificing quality. This hybrid system works well for single land masses like France, China, and Vietnam especially after nuclear fusion is realized. Lastly, it is more or less politically agnostic.

But what about archipelagos where each island is like a feudal kingdom?

Micro-grids as the Model of the Future

For isolated areas, micro-grids can be established in a cooperative basis, as a branch of the social corporation*.

*The social security provided by the social corporation is an important incentive to encourage engineers to go to difficult areas

Micro-grids are not connected to the main grid and must be completely self-sustaining. They can be seeded by long term barter debt by the rural community, paying in crops or fish*, until they can learn to maintain the system themselves. The reduction in the cost of solar panels makes such grids more and more viable.

This also spurs the local industry of the community. It will then be the job of either the social corporation or the local government to find a market for those community products.

*Microgrids will allow refrigeration which will make economic storage and trade of crops and fish viable

The Vision of Fusion

However, renewable energies are unreliable and are therefore only a stopgap measure until true nuclear fusion* is realized. This principle is supported by the natural fact that even wind and solar energy come from the fusion energy of the sun.

Fusion on the Sun --> Wind Energy --> Wind Turbine --> Electrical Energy
Fusion on the Sun --> Solar Energy --> Solar Panel --> Electrical Energy

It would be more efficient to go direct for fusion

Fusion on Earth	 --> Steam Turbine --> Electrical Energy

Renewables on microgrids can then be replaced by “pocket fusion” reactors which can be the size of a large bus.

Overhaul EPIRA

These principles can be applied to any country to fix their energy crisis. For the Philppine context, we suggest the following overhauls to EPIRA:

1. Mandate that 51% of NGCP shares must be sold back to NAPOCOR through gradual purchase. Inspect all Chinese equipment to ensure that the grid cannot be controlled from overseas

2. Allow NAPOCOR to go back into energy production and distribution, focusing on sustainable base load:

• biomass
• hydro
• geothermal
• nuclear

A corollary reform is to allow majority ownership of SPU*s by foreign entities, under the joint regulation of the local government and ERC (and NCIP**). This requires a constitutional change.

*Small Power Utilities

**National Commission on Indigenous Peoples

3. Abolish WESM and revert to hybrid Feed-in-Tariffs and bidding as done in other countries. The WESM* infrastructure can be used by the ERC to predict future shocks and bid electricity 6 months ahead of time. This transfers the burden from WESM onto the ERC

*Wholesale Electricity Spot Market – a junk idea borrowed from the California energy market which caused the Enron scandal

4. Transfer the burden of SPUGs to the local governments, with NAPOCOR, ERC, and DENR as oversight. This reduces the burden of the “universal charge” and is in preparation for a future federal form of governance. This reduces the need for DTI and DOF because barter will be added to help maintain the system especially in tribal areas which are not used to banking. In such areas, NCIP oversight is more important

Policy change 1 and 2 puts back the control of distribution and generation to NAPOCOR.

Policy change 3 puts back the demand management to the ERC, as an attached agency to NAPOCOR.

Policy change 4 puts back control to the local governments which will sort out the mess between rival SPUs.

Works for Europe Too

For the UK and Germany, the solution is to simply to follow the French model:

• Nationalize the energy industry
• Switch to nuclear instead of gas