Making Philippine energy affordable

Making Philippine energy affordable

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.

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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.

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Ref:
http://www.bworldonline.com/content.php?section=Opinion&title=making-philipp
ine-energy-affordable&id=133421

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John Diecker
APT Consulting Group Co., Ltd.

www.aptthailand.com