Making Philippine energy affordable

Posted on September 14, 2016
http://www.bworldonline.com/content.php?section=Opinion&title=making-philippine-energy-affordable&id=133421

RECENTLY, the Luzon grid’s thin reserves have left the island, home to the country’s National Capital Region, either on the brink of a shortage or saddled with rotational brownouts. The result is billions of pesos in potential economic losses from wasted man-hours and investments. By some estimates, the power outage could cost the country about P3.3 billion in lost economic productivity per hour.

The situation has not only led to inconvenience among consumers but also raised electricity costs. Studies show that power rates in the Philippines are already significantly higher than elsewhere in the region, including in Taiwan, South Korea, Malaysia, Indonesia, and Thailand. There were also incidents of spikes in prices when supply was particularly low, leading to fears of collusion among power producers.

The situation is so critical that among the first acts of the newly elected members of the Philippine Senate was an investigation into the power situation. In the lead-up to the inquiry, Senator Sherwin Gatchalian, Chairman of the Committee on Energy, said the body would look into possible price rigging by the power producers during a recent power shortage. He cited a spike in power prices in the Wholesale Electricity Spot Market (WESM) to P20 per kilowatt-hour during the shortage, five times the average cost per kilowatt-hour over the last month.

The recent incident was reminiscent of a record-high price hike in 2013, when power generators were accused of colluding to manipulate electricity prices. This came when the Malampaya-powered plants were temporarily shut down and nine other base load power plants suddenly announced unscheduled maintenance, forcing distribution utilities to purchase their supply from the WESM, where prices had already reached the market bid cap of P62.00/kWh.

Although collusion was not proven in 2013, and the incident from earlier this year is still being investigated by the Department of Energy (DoE), the correlation between the price of electricity and the supply situation just emphasizes the need for more investments into base load generation plants that can produce affordable energy.

Base load plants are those that can produce continuous, reliable, and efficient power at low costs and can run at all times throughout the year.

To attract investments into these much needed projects, the government should make it easier for investors to come in and build these plants.

As things stand, potential investors are supposedly required to secure over a hundred signatures from several government agencies before being allowed to start operating. Understandably, the cumbersome process discourages many potential investors and contributes to delays in the completion projects already in the pipeline.

The government should also consider reviewing the current tax system in the energy sector, particularly pass-on charges like value-added tax (VAT), feed-in tariff rates, universal charges and royalties, all of which are shouldered by the consumer. These fees account for about 10% of a consumer’s electric bill; at the very least, the government could consider reducing the tax rates during periods when supply is tight and prices tend to go up. It could also look into the compounding effect of VAT on an “unbundled” power sector and the possibility of using government’s share of royalties from natural gas to reduce power cost.

Furthermore, the government should also look into indigenous and alternative sources of electricity.

During the same senate probe, Gatchalian said: “We need to redouble our efforts to explore and exploit new indigenous energy resources.” He cited the potential natural gas reserve in Reed Bank, which could be even larger than Malampaya’s. Having an indigenous source for fuel could save power plants from having to buy and import fuel, like coal and petroleum, to run the power plants.

As it stands, generation costs account for up to 60% of a consumer’s electric bill. If cheaper indigenous resources were discovered, it would surely go a long way in reducing generation costs charged to consumers.

Energy Secretary Alfonso Cusi floated another option worth looking at: reviving the mothballed Bataan Nuclear Power Plant (BNPP). It is, after all, a viable and cheap way to generate power and has greater longevity than natural gas and coal.

As electrification and demand increase, the need for more generation will only grow. Between now and 2030, the DoE forecasts that the country will need more than 12,000 MW of additional generation because of increased demand and anticipated economic growth.

The country is already feeling the harbingers of a crippling energy crisis that could derail economic growth. To avoid a full-on crisis, the government must have a clear and strong energy agenda built around increasing reliable supply, which is only possible with the addition of base load generation and ensuring affordable electricity prices.

Paco Pangalangan is an energy fellow at the Stratbase-ADR Institute and a convenor of consumer group CitizenWatch.