Philippines: The Green Path – Part 1

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How the Philippines, an archipelagic nation in the Pacific, strives to advocate renewable energy

Introduction

The nexus between economy and energy has been widely established, with economic growth acting as one of the primary drivers for increasing energy demand, and vice versa [1]. Therefore, it is vital for a developing country to have a reliable, secure, and affordable energy source as it pushes forward its growth.

The Philippines is an archipelagic nation in Southeast Asia, which is projected to remain one of the fastest-growing economies in the ASEAN region [2]. In terms of energy, the country is endowed with considerable coal reserves, hydropower, and geothermal resources. Natural gas is wholly provided domestically by two (2) natural gas fields, while oil-based fuel is overshadowed by imports from the Middle East [3]. Utility-scale solar PV, biomass, and wind power are becoming competitive in the power sector through prioritization and incentive schemes endorsed through the Renewable Energy (RE Law) Act of 2008.

This first installment of a three-part series aims to introduce the Philippines and its current energy landscape. It serves as a foundation for the following segments which focus on the key drivers for increased renewable energy penetration, and the green outlook of the country.

Electricity Supply Mix

The Philippines has a diverse mix of energy supply but is still mostly dominated by fossil fuel power generation (Figure 1). In terms of capacity, coal-fired power generation accounts for 35% or 8.05GW installed capacity in 2017. Oil-based power generation comes second with a capacity of 4.15 GW, followed by gas-fired power generation at 3.45GW.

Hydropower and geothermal, the two baseload renewable energy sources, account for an aggregate capacity of 5.6GW. The balance of the 22.76GW total installed capacity is attributed to solar PV generation at 0.89GW, on-shore wind at 0.40 GW, and biomass & waste at 0.22GW. In terms of energy generated, a total of 94.4 GWh was generated and supplied to the country in the year 2017.

Demand and Growth Forecast

As a growing economy, the electricity demand in the Philippines is expected to increase annually. The Department of Energy forecasts an average annual peak demand growth of 4.78% in Luzon, 6.85% in the Visayas, and 7.54% in Mindanao from 2016 to 2040. This translates to an aggregate peak demand of 49GW by the year 2040.

In terms of energy consumption, ADB (2017) projected that 230,000 GWh of electricity will be required by the year 2040, and 400,000 GWh in 2050 (Figure 2).

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Figure 2: Projected increase in electricity consumption of the Philippines [5]

Currently, the near to medium-term committed power projects seem to satisfy the projected growth in demand. However, a looming concern is related to the potential shortage of supply in the early 2020s with the dwindling natural gas reserve of Malampaya, which may prompt either an increase in gas imports or massive switch to other energy generation technology to address the growing demand.

Structure of the Philippine Electricity Industry

The power generation sector in the Philippines has undergone major changes through the enactment of the Electric Power Industrial Reform Act (EPIRA) of 2001, as summarized in Figure 2 (Asian Development Bank, 2017). Key changes are the introduction of a wholesale electricity spot market and privatization of power generation and transmission previously owned by the government through the National Power Corporation (NPC). Generation is now dominated by private energy companies, while the transmission network is still state-owned and regulated, but operated and maintained by a private company National Grid Corporation of the Philippines (NGCP). Distribution utilities are privately-owned corporations or local co-operatives. 

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Figure 3: Structure of the Philippine Electricity Industry [5]

In terms of the grid, the northern island called Luzon, and the group of islands called the Visayas are interconnected. However, the southern island of Mindanao is separated and has low power supply reliability. The Philippine Energy Plan (PEP) for 2016-2030 stated that by 2020, an interconnection to Mindanao will be made to address the periodic blackout experienced by consumers in the last few years [6].

Key Players in the Energy Industry

Through the privatization of power generation, several independent power producers (IPPs) emerged with major players holding significant market shares such as First Philippines Holdings Corporation, Aboitiz Power, SMC Global Power, and AC Energy. The majority of the key players are part of large conglomerates in the country. With the onset of solar PV and wind power development, a significant number of small to medium-sized IPPs become active in the Philippine power generation scene. It should be noted, however, that despite the majority share of the above-mentioned firms, the EPIRA law limits any IPP and its subsidiary to own and operate only up to 30% of the installed capacity of a regional grid, and an aggregate of 25% of the national installed generation capacity. According to a report done by ADB [7], the coal-fired power producer Global Business Power Corporation, and First Philippines Holdings Corporation’s Energy Development Corporation, a key player in the renewable energy generation in the country, essentially reached their respective 30% limit in the Visayas grid.

On the transmission segment, the National Grid Corporation of the Philippines is a privately-owned firm mandated to operate and maintain the state-owned national grid. The distribution system has several localized players, which can either be a private utility company or an electric power cooperative. Manila Electric Company (MERALCO), which serves the National Capital Region and other neighboring provinces, is the largest distribution utility in terms of the franchise area and the number of served customers.

Electricity Rates

Philippines has one of the highest electricity rates in the South East Asian region according to market studies done by The Lantau Group (LTG) in 2013 [8], and International Energy Consultants (IEC) in 2016 [9]. Figure 4 was derived from the LTG study in 2013. Despite it being an old report, the relatively higher electricity tariff in the Philippines compared to other Asian countries shown in the graph still holds true. Manila, the Capital of the Philippines, has a rate that is closer to the tariff in European cities and other developed nations. The report by IEC (2016) explained that the high generation cost and the absence of consumer subsidy in electricity made the Philippines’ rate higher than its neighboring countries [9].

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Figure 4: Electricity tariff of various countries in 2013, in SG$ [8]

Author’s Info:

Claris Canta

  • Six years of working for a renewable energy developer in the Philippines
  • Received a Master’s degree in Energy Systems from the University of Melbourne, 2018

Feel free to leave a comment, and make sure to check out parts 2 and 3 of this comprehensive series coming out in the following days. Don’t forget to read our other articles and interviews on our homepage, or continue the discussion on our Facebook and Twitter pages.

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