DOE to scrap off-grid subsidies for commercial, industrial users

Published June 20, 2019, 10:00 PM By Myrna M. Velasco
https://business.mb.com.ph/2019/06/20/doe-to-scrap-off-grid-subsidies-for-commercial-industrial-users/

The Department of Energy (DOE) is advancing policy steps on the removal of subsidies for commercial and industrial end-users operating in island-grids; and will just confine the grant of subsidies to poor or marginalized end-users.

“This will address the current situation that poor electric consumers in the main grid are also paying UCME (universal charge for missionary electrification) that subsidizes the power bills of commercial and industrial customers of electric cooperatives in off-grid areas such as the first-class cities and municipalities of Palawan and Mindoro,” the energy department has emphasized.

UCME is a subsidy mechanism instituted under the Electric Power Industry Reform Act (EPIRA) especially funneled to off-grid areas. And this is a cost per-kilowatt hour collected from all on-grid ratepayers based on the tariffs approved by the Energy Regulatory Commission.

As estimated by the DOE, the level of subsidies for the off-grid domains will go up to P28.373 billion by the end of 2021, but with the mandated phase-out of subsidies for the big-ticket consumers, such cost can be significantly reduced.

The department added that there is prevailing “social inequity” in the collection of the subsidies because even the poor consumers from Luzon, Visayas and Mindanao are shouldering these in their electric bills based on the dictum of “uniform pricing” on the pass-on scheme of power rates.

“In effect, poor electricity consumers in the main grids are also paying for the UCME to subsidize the electricity consumption of large commercial and even industrial consumers in off-grid areas,” the DOE opined.

Hence, it noted that “this inequity must be immediately addressed,” and the remedial measure being pushed by the department shall be the scrapping of subsidies for commercial and industrial end-users in off-grid jurisdictions. The proposed Circular of the DoE is still up for public consultation.

“If subsidies are still necessary despite the above-mentioned mechanisms, the poor and eligible households will continue to receive UCME subsidy as a safety net,” the DOE stressed.

But to continually attract investments and business activities in the affected areas, the DOE said the government will explore and design a “new mechanism” to incentivize capital flows in these domains, including reduction of taxes.

And for selected sectors that are promoting economic activities and basic services, such as the operations of the National Power Corporation, agriculture, fishing, health, education and preservation of heritage arts and tourism, they “can still be supported by subsidies through the General Appropriations Act subject to preconditions.”

Further, with the constantly evolving advancement in energy technologies and energy resource developments, the DOE is also aggressively pushing for power capacity installations that will bear cheaper electricity rates for the off-grid segment of end-users.

“Fast-tracking of the modernization and expansion of existing small grids and facilities in off-grid areas will result in greater capability to transmit power with minimal losses,” the DOE said.

It further noted “this will maximize the use of existing generation facilities and enable the entry of low-cost and locally compatible renewable power systems whose resources are often located in areas far from the load centers.”