An Assessment of the Philippine Power Sector Policy Landscape

An Assessment of the
Philippine Power Sector
Policy Landscape
Ruperto P. Alonzo, Teresa Ira Maris P.
Guanzon, and Peter Paul Taton
Background and Context
Late 1980s to Early 1990s
• Marcos’s Ministry of Energy downgraded to
Aquino’s Office of Energy Affairs
• Chernobyl Catastrophe aftermath-- mothballing
of 621-MW Bataan nuclear power plant
• Slow decision-making on new plants
• Severe power crisis in 1989-1993
• 8- to 12-hour blackouts and power rationing
• 6% drop in GDP in 1989-1991
Early 1990s to year 2000
• Republic Act No. 7648
• Department of Energy resurrected
• Emergency powers given to the President
• Take-or-pay PPAs
• More high-cost IPP contracts than necessary
due to:
• Projections of high electricity demand
• Optimistic GDP growth projections
• High income elasticity of demand of 1.528; an
independent estimate then showed only 1.180
to 1.366 (Alonzo 1993)
• NPC’s heavy financial losses
Electricity Demand and Supply Profile in the 1990s
Source: Perez (2002)
The Electric Power Industry Reform
Act of 2001 (EPIRA)
• to ensure the quality, reliability, security, and
affordability of the supply of electric power
• to make sure that transparent and reasonable
prices of electricity prevail in a regime of free and
fair competition, and full public accountability
• to promote the utilization of indigenous and new
and renewable energy resources in power
generation in order to reduce dependence on
imported energy
• to accelerate the total electrification of the
country
EPIRA’s Main Features
• Unbundling of electricity sector into separate
generation, transmission, distribution, and
retail supply entities
• Generation and supply are deregulated;
transmission (a private monopoly) and
distribution remain regulated
• Energy Regulatory Commission (ERC) is the
regulator
• Ultimate market structure: retail competition
and open access
14 Years after EPIRA
Highest residential electricity tariff in ASEAN (2011)
Country
PHILIPPINES
Cambodia
Indonesia
Malaysia
Thailand
Vietnam
US cents/kwh
24.83
15.85
14.74
11.46
9.90
9.17
Source:: JICA-IEEJ (2013) as cited by del Mundo (2014).
High % of population uses biomass for cooking (2012)
Country
PHILIPPINES
Cambodia
Indonesia
Malaysia
Thailand
Vietnam
National
electrification rate
70%
34%
76%
100%
99%
96%
Traditional use of
biomass for cooking
49%
89%
42%
0%
24%
51%
Source: International Energy Agency, World Energy Outlook 2014
Low quality of electricity supply
(2007-2014)
Survey Question: How would you assess the quality of the electricity supply in your
country (lack of interruptions and lack of voltage fluctuations)?
1 = insufficient and suffers frequent interruptions; 7 = sufficient and reliable
Country
PHILIPPINES
Cambodia
Indonesia
Malaysia
Thailand
Vietnam
Total surveyed
2007-2008
Rank Score
82
4.2
117
2.5
92
3.9
31
5.8
43
5.5
104
3.2
134
2009-2010
Rank Score
101
3.4
112
3.1
97
3.6
40
5.7
42
5.7
98
3.6
139
\
2011-2012
Rank Score
98
3.7
105
3.6
93
3.9
35
5.9
44
5.5
112
3.1
144
2013-2014
Rank Score
87
4.2
110
3.0
84
4.3
39
5.7
58
5.1
88
4.2
144
Source: World Economic Forum, Global Competitiveness Report, various years.
Comparative Price Situation before
and after EPIRA, ASEAN 5
Relative Residential Tariffs, ASEAN 5
(PHL = 1.000)
Country
1996
2011
Indonesia
0.493
0.594
Malaysia
0.579
0.462
Philippines
1.000
1.000
Singapore
0.778
0.796
Thailand
0.623
0.399
The Renewable Energy Act of 2008
• Objectives
• Accelerate development of renewable energy
(RE) resources and thereby minimize the
country's exposure to price fluctuations in
• the international markets
• Encourage use of RE to prevent or reduce
harmful emissions & protect the environment
• Main instrument: Feed-in Tariff (FIT) System
• For run-of-river hydro, biomass, wind, solar, and
ocean current technologies
• Take-or-pay 20-year contracts at FIT rates
Prevailing FIT Rates and
Installation Targets
RE Resource
Installation Target FIT Rate
2011
2015
2012
Run-of-river
250
250
5.90
Biomass
250
250
6.63
Wind
200
400
8.53
Solar
50
500
9.68
Dgression Rate
0.5% after year 2
from FIT effectivity
0.5% after year 2
from FIT effectivity
0.5% after year 2
from FIT effectivity
6.0% after year 1
from FIT effectivity
Study’s Objectives
1. Examine the fit between the goals
and the policy instruments
2. Identify substantive and
administrative policy gaps and needs
Research Questions
1.
2.
What are the goals and objectives
based on EPIRA and RE law?
Are the plans, programs, and policies
appropriate to achieve
a. economic efficiency?
b. inclusive growth and equity?
c. enhanced environmental quality?
3.
4.
What factors constrain their
effectiveness and proper
implementation?
What gaps and inconsistencies remain?
Methodology
Scope
Assessment of current policy landscape
Sources of data
• Secondary sources from
• Government
• Development Partners
• Civil Society Groups
• Dialogues (“Key Informant Approach”)
• Government
• Generation, Transmission, Distribution
stakeholders
• Policy Forum
Preliminary Findings
Current Power Sector Policy Landscape
Source: PDP 2011-2016 and PEP 2012-2030
Key Plans, Programs, and Strategies
• Power Development Plan
• Intensify RE and environment-friendly resources
and technologies
• Diversify power sources, esp. in Mindanao
• Implement Transmission Development Plan
• Pursue rural electrification
• Other Programs
• Establish Mindanao Spot Market
• Mandate competitive selection process
• Roll out Retail Competition and Open Access (RCOA)
fully
A. Energy Security
….is the uninterrupted availability of energy
sources at an affordable price.
Long-term energy security deals with timely
investments to supply energy in line with
economic developments and environmental
needs.
Short-term energy security focuses on the ability
of the energy system to react promptly to
sudden changes in the supply-demand balance.
Source: International Energy Agency (2015)
A. Energy Security
Demand-Supply Outlook for 2015-2020
• Luzon
•
•
Capacity sufficient to meet projected demand (PD)
Capacity insufficient to meet projected required
dispatchable reserve (DR)
• Visayas
•
•
Capacity insufficient to meet PD
Capacity insufficient to meet DR
• Mindanao
•
•
Capacity sufficient to meet PD
Capacity sufficient to meet DR
Capacity = existing available capacity + committed capacity as of 2015
Source: DOE (2015)
A.1. Fossil Fuel Dependence
• 34% coal in 2015 dependable capacity
fuel mix
• Majority of committed projects are
coal-fired plants
• What about
• RE Law ?
• DC2015-07-0014: maintaining at least a
30% RE share in total power generation
capacity ?
A.2. Challenges In Attracting New
Capacity
• Lack of clear and stable energy policy
• Approval and construction bottlenecks
• No. of required permits varies depending
on plant type and location
• E.g., coal-fired plant in protected area: 77
permits from > 40 offices
• Proposed solution: House Bill on projects
of national significance
• Small demand of ECs
• Solution: aggregation
A.3. Limitations of Transmission
Grid
• Luzon Grid
• No augmentation since 1999
• Metro Manila: 40% of country’s total load
• Loop system
• As alternate route for north and south
Luzon generators
• To accommodate additional generation
from:
• Coal additions in Bataan and
Zambales
• Expansion of Pagbilao, Quezon
A.3. Limitations of Transmission
Grid
• Visayas Grid
• Panay with excess supply but only
one cable to Negros
• Two developments
• Cebu-Negros-Panay 230 kV
backbone
• Cebu-Bohol link: crucial because
• Bohol has high demand but no plants
• Cebu has high generation
A.3. Limitations of Transmission
Grid
• Mindanao Grid
• Necessary to connect to Visayas to
export excess supply in near future
• Leyte-Surigao interconnection not
feasible due to unexploded
ammunition and underwater
volcanoes
• Negros-Cebu-Zamboanga
interconnection being studied
A.3. Limitations of Transmission
Grid
• Other challenges faced by NGCP
• Shallow connection charging policy
• generator pays only for equipment to
connect to the grid, not for reinforcement
• Difference in incentives between NGCP
and generators
• Generators choose sites that minimize
production costs, disregarding distance to
the grid
• Timing and coordination issues
Other issues to be addressed:
B.
Optimal Energy Pricing
1. Overburdened Regulator
2. Question of Least Cost
3. Taxes and Subsidies
C.
Sustainable Energy Plan
1. Coordination Issues
2. Integrating WESM and RCOA
B. Optimal Energy Pricing
• Overburdened Regulator -- ERC’s
mandate:
• Promote competition
• Monitor the market
• Encourage market development
• Ensure customer choice
• Penalize abuse of market power
• For its functions, ERC is understaffed
and under-budgeted
ERC’s Major Tasks:
Generation
 Certificate of Compliance
 Generation tariffs (Bilateral PSA)
 SPUG (Missionary
Electrification)
WESM monitoring
Competition Rules
Supply
 Suppliers’ licenses
 Issuance of needed rules
 for retail competition
Declaration of open access
 and retail competition
Competitive
Cebu City 10 July
Transmission
 Tariffs of NGCP TRANSCO
 Philippine Grid Code
 CAPEX plans
 Ancillary services
Distribution
Spot inspections/
audits
 Bilateral PSAs
 CAPEX plans
 Enforcement of
Magna Carta and
DSOAR
enforcement
Natural Monopolies
*Loan
Condonation
Tariffs of DUs
 Lifeline rates
 Stranded
contract costs
 Systems losses
 CPCNs

B. Optimal Energy Pricing
• VAT and other Taxes
• Proposals to remove VAT and other taxes on
electricity to reduce tariffs
• Problem: may have dire macro, fiscal implications
• Effects of taxes on commodity prices are actually
mitigated by input VAT deductibility
• Equity effects not much, with lifeline rates
• Feed-In Tariffs as Subsidies
• Considered by many as distortive and likely to
raise tariffs even more
• Suggestions to replace FIT system with carbon
taxes instead
C. Sustainable Energy Plan
• Push sustainable fuels for transport
• Strengthen programs on alternative fuels (auto-LPG,
CNG, biofuels) and technologies (e-vehicles)
• Make energy efficiency a way of life
• Achieve 10 percent energy savings by 2030 through
IEC campaigns, energy labeling, energy management
• Climate-proof the energy sector
• Conduct sector vulnerability assessment, adjust
standards and design guidelines
• Promote more responsive geographic plans
• Assist LGUs in energy planning, support inclusion of
energy in land use classification
Thank You!