Degree of reliance on imported energy:
In 2010, to help meet the economy’s fuel requirements, the Philippines imports 42.5% of its total energy supply. Net imported fuels were mainly comprised of oil and oil and products (79.1%), coal (20.3%) and biofuels (0.6%). Levels of net imported energy were 8.5% higher than the 2009 level of 15,970 ktoe.
Main sources of Energy:
The economy’s total electricity generation in 2010 was 67,742 GWh, a 9.4% increase from 61,922 GWh in 2009. Its power requirements for 2010 were sourced primarily from coal-fired and natural gas-fired power plants, with shares of 34% and 29%, respectively. Electricity generated from other renewable sources, including geothermal—which ranked third in terms of the economy’s power generation—and wind, solar and biomass increased by 15% during the same year. On the other hand, hydropower plants, ranked fourth out of the economy’s total power generation, experienced a decline of 7% from the 8 387 GWh of electricity generated in 2009. Oil-based thermal plants, which provided 10.5% of the economy’s total power requirements, increased by 16% in 2010.
Total primary energy supply in 2010 reached 40 730 kilotonnes of oil equivalent (ktoe), a 3.2% increase from the 2009 supply level of 39 457 ktoe. Of this total, 57.5% was contributed by indigenous sources; the remainder was imported. Geothermal and other renewable energy resources accounted for 39.5% of the total primary energy supply, while oil and coal, which are largely imported, contributed 36% and 17.4%, respectively.
The Philippine’s energy portfolio is quite unique in the region in that domestically, it has few of its own fossil fuel resources, it’s energy mix already includes a high capacity of renewable energy and, in terms of pricing, the Philippines has the 2nd highest electricity rates in Asia and the 4th highest in the world. The high cost of electricity is partly attributed to high costs related to importing fossil fuels. As far as renewable energy sources, the Department of Energy reported that 40.6% of the primary energy mix was contributed by renewable energy sources in 2011, primarily composed of geothermal at 21.7%, followed by biomass at 12.4%and hydro at 6%.
Extent of the network:
The Philippines consists of several islands, the larger of which are the islands of Luzon, mainland Mindanao, and the six largest islands in the Visayas (Cebu, Negros, Panay, Bohol, Leyte, and Samar). These eight dominant islands constitute the major electrical systems of the country with a combined power demand of around 7,000 MW.
At present, the main islands in the Visayas are interconnected to each other with limited transfer capacity. The interconnected grid is linked with the Luzon grid to effectively share the reserve capacity of the system. The Mindanao grid remained isolated from the rest of the system until 2004, when a 500 MW, 436 km HVDC connector was constructed between Leyte and Mindanao.
The economy’s barangay (a village, district or ward, i.e. the basic political unit) electrification level rose from 99.85% in June 2010 to 99.89% as of end of December 2010.
Among the major islands, in 2010 Visayas had already reached the 100% electrification level, while Luzon’s was recorded at 99.87% and Mindanao’s at 99.82% for the same period.
In view of the Philippines’ complex geographical system, the economy faces a continuing challenge in attempting to achieve 100% household electrification. Hence, the government, through the DOE and other energy stakeholders, spearheads the development of various innovative service delivery mechanisms designed to increase access to electricity services.
Currently, about 75% of fossil fuel demand is met by imports. Therefore, the Philippines’ energy policy agenda should consider ensuring the security of energy supply as important.
Potential for Renewable Energy:
On the whole, achievements in increasing renewable energy capacity have been modest. As of end-2011, the share of new and emergent renewable energy plants in the country increased by only 0.60% from 2007 (to 0.72%), even as imported oil and coal plants maintained their share in the energy mix (at 49%) over the same period.
The Philippines derives 3,367 MWh from its hydro resources, partly through five mini-hydro power contracts. Eleven hydro-power plants with a total capacity of 300 MW are being developed. The abundance of water resources makes hydropower an important part of the energy sector. However, the large up-front investments, long construction periods and related environmental concerns have tarnished some of its attraction. Hence, the government focuses on small hydro. The Department of Energy (DOE) estimates the potential for small hydro is roughly 1,300 MW. Plans from the DOE estimate an increase in hydropower capacity to 5,468 MW, an increase which is expected to provide 7.7 TWh of additional electricity generation per year, equivalent to a fuel oil displacement of 12.9 million barrels of fuel-oil equivalent (MMBFOE). The potential for utilisation of wave/OTEC power sources has been assessed by the Mindanao State University, with a theoretical potential of 170,000 MW to be found within the archipelago's significant ocean territory.
Despite minimal use of wind energy in the Philippines, potential is strong. A wind mapping survey estimated that the Philippines could potentially generate 70,000 MW from the available wind resource. The survey identified 47 provinces, with the potential to generate at least 1,000 MW each. Average wind power density across the country is estimated at 31 W/m2. The wind resource is greatest in the north and north-east of the country. Areas that face east towards the coast from Luzon to Samar also represent good-to-excellent wind resources for utility-scale, and excellent wind resources for village-scale, applications. Less potential exists in the south and south-west of the archipelago. Existing use of wind generation includes a 10 kW stand-alone system that provides electricity to 25 households. Batangas Province has a 25 kW stand-alone system with six different loads. A 3 kW wind-diesel system is also in use for a telecommunications relay station. A 25 MW wind farm was inaugurated in June 2005 at Bangui Bay, Ilocos Norte, which is the first wind farm to be fully operational in the Philippines, and the largest in South-East Asia.
The Philippines has one of the longest histories with PV systems in Asia. The majority of its programs have been aid-driven, with mixed results. Whilst the technical potential is present, prohibitive costs and grid extension of conventional electricity hinders the commercial potential of solar home systems. Average insolation across the country ranges from 4.5 to 5.5 kWh/m2/day. Current utilisation is low, however, due to factor, including low public image of the technology, as well as lack of technical and maintenance capacity. Installed capacity in 2000 amounted to 567 kW. Stimulus was received for the technology in 2004, with the opening of the Sunpower Solar Wafer Fabrication Plant, which was expected to provide 30% of its supply to local markets, driving down prices for PV significantly.
The Philippines is said to be one of the largest producers of coconut products, where approximately 26% of the country’s agricultural land (or 3.56 Million hectares, by 2010) is planted with coconut trees. The country has indeed further wisely utilized this resource to produce a “green”source of fuel-the coco-biodiesel. The Philippines has started producing coco-biodiesel, or coconut methyl ester (CME), as an effort for cleaning our air and energizing our economy. Coco-biodiesel is a type of bio-fuel derived from coconut oil, and can be used alone, or blended with petro-diesel, to run diesel engines.
Geothermal continues to be the major indigenous resource of the economy, with a 22.5% share of its total indigenous primary energy supply in 2009. It is used solely for power generation. With a total installed capacity of 1958 MW, the Philippines is the second largest producer of geothermal energy in the world. The economy aims to be the number one producer, and the government continues to encourage greater private sector involvement in the exploration and development of the economy’s vast geothermal energy potential.
Potential for Energy Efficiency:
By sector, the power sector has the biggest energy savings potential at 5.3 Mtoe in 2035, followed by the transport sector (2.5 Mtoe), the residential and commercial sectors (2.4 Mtoe), and the industry sector (1.2 Mtoe).
The power sector’s energy savings come mainly from the electricity demand savings from the industry and residential and commercial sectors, and resulting lower input fuel requirements. Thermal efficiency improvements in power generation will account for about 15% of total savings.
The Philippines was one of the first Southeast Asian countries to allow IPPs with the first IPP contract signed in 1989. In 2001, about 41% of electricity is produced by the IPPs and the rest by the National Power Corporation (NAPOCOR) in the Philippines.
Structure / extent of competition:
The Philippines has had a very strong history of successful independent power producers (IPPs) implementations. The country started seeing private sector participation in power since the early 90s. One of the first successful IPPs was the 735 MW Pagbilao coal-fired plant in Quezon. The formation of the Public-Private Partnership (PPP) framework under the Build-Operate-Transfer (BOT) Law enacted amid the power crisis in the early 90s led to a number of IPPs being set up to meet the power demand in the country. This resulted to investments from foreign companies (AES, Tokyo Electric, and Marubeni) as well as development of domestic power companies (Aboitiz, Ayala, Energy Development Corporation, Mirant, Meralco, SMC Global Power, etc.).
The big push for privatization and restructuring in the Philippine power sector came in the wake of a 1994 World Bank study proposing radical reforms in the industry. Pursuant to the Electric Power Reform Act 2001 (EPIRA), Power Sector Assets and Liabilities Management Corporation (PSALM) was mandated to reform and restructure the sector. Since its formation, PSALM has successfully privatized 26 generating plants and the National Grid Corporation of the Philippines (NGCP) through a 25-year concession while it appointed IPP administrators for five generating plants. Thus, by liquidating all of the financial obligations of the National Power Corporation (NPC), the stage is now set for the introduction of a competitive power market in the country.
With the privatisation of generation assets held by the National PowerCorporation (NPC), the generation sector can be considered competitive as more investors from the private sector are engaging in the business of producing and selling electricity in the market. NPC, in the meantime, continues to generate its own electricity and buys electricity from Independent Power Producers (IPPs). The capacity produced by IPPs is also in the process of being privatised and assigned to IPP administrators trading in the market on behalf of NPC.
A number of bodies distribute electricity throughout the Philippines, including investor-owned utilities such as the Manila Electric Company (Meralco), local government-owned utilities and consumer-owned electricity cooperatives. Both the investor-owned utilities and electricity co-operatives operate under a rate-setting regime, whilst the investor-owned utilities operate on a performance-based scheme, which is slightly modified in approach and implementation for electricity co-operatives.
The transmission assets held by NPC were transferred by EPIRA to the National Transmission Corporation (TransCo). The operation, maintenance and upgrade of the assets, on the other hand, was privatised by way of concession contract undertaken by the Power Sector Assets and Liabilities Management Corporation (PSALM). PSALM then awarded the 25-year concession contract to the National Grid Corporation of the Philippines (NGCP). As concessionaire, NGCP is required to prepare the Transmission Development Plan and is authorised to collect wheeling charges and other fees, as approved by the ERC.
Existence of an energy framework and programmes to promote sustainable energy:
National Renewable Energy Program (NREP)
Under the state’s National Renewable Energy Program (NREP), the DOE seeks to increase the RE-power based capacity of the country to 15,304 MW by year 2030, or three times the 2010 capacity-level. On a per technology basis, the NREP seeks a 75% increase in geothermal capacity, 160% increase in hydropower capacity, 277 MW additional capacity in biomass power, wind power “grid parity” with the commissioning of 2,345 MW additional wind capacity, an additional 248 MW of solar power capacity (plus an “aspirational” solar target of 1,528 MW of additional capacity), and to developing the first ocean energy facility for the country. As a critical milestone to meeting these targets, 2,155 MW of additional capacity must be installed by 2015, according to the NREP.
Energy Plan 2012-2030
The Energy Plan 2012-2030, which the DOE launched in December 2012, lays down the roadmap for future demand and capacity addition plans. As per the plan, the current installed capacity in the country of about 16,250 MW is expected to go up to 25,800 MW (an increase of about 60% by 2030). Specifically, the objectives of the Plan are as follows:
- expand energy access
- promote a low-carbon economy
- climate-proof the energy sector
- develop regional energy plans
- promote investments in the energy sector
- identify and implement energy sector reforms.
These policy objectives are supported by specific quantifiable targets to be achieved by the end of 2030, the most prominent of which include:
- triple renewable energy capacity by 2030;
- achieve 90% household electrification by 2017 and 100% energisation at “sitio” level (an administrative-territorial category in the Philippines) by 2015;
- have 30% of all public utility vehicles running on alternative fuels;
- implement a higher blend of biofuels; and,
- achieve 10% energy savings on total energy demand
The Philippines Department of Energy has put forward long-term energy plan targets through its National Renewable Energy Program, aiming to triple its renewable energy capacity base to 15,304 MW by 2030. More specifically, these targets are differentiated by technology, and include hydro (8,724 MW), geothermal (3,461 MW) and wind (2,378 MW). This would signify an increase in renewable energy capacity of 9, 865.3 MW, increasing the total shares of hydro by 5,394.1 MW, geothermal by 1,495 MW, and wind by 2,345 MW, based on 2010 figures.
The Philippines has implemented minimum energy performance standards for air conditioners, compact fluorescent lamps, and linear fluorescent lamps, and plans to expand the capacities for testing laboratories for televisions, washing machines, and refrigerating equipment. Various initiatives related to energy savings in the residential and commercial sectors have been successful; examples include the ADB-led phase-out of incandescent lamps, the IFC-supported efficient lighting initiative program, the GEF/UNDP-supported efficient lighting market transformation program, and the government energy management program.
The passage of the Biofuels Act of 2006 (RA 9367), was a major policy leap toward harnessing the economy’s domestic alternative energy resources.
The introduction of alternative fuels in the Philippines provides a feasible option for minimizing the effects of continuous increases in the price of crude oil in the world market, and of worsening environmental conditions. In implementing the Act, the DOE, under its Biofuels Programme, accredited a total of 13 biofuel producers (nine for biodiesel and four for bioethanol) in 2011.
The biofuels programme of the Philippines hopes to create market awareness for alternative energy projects in collaboration with various industry stakeholders. In addition, as the transport sector accounts for the greatest share of demand in the economy’s total consumption, it plans to pursue efforts to forge partnerships with academic and research institutions to conduct on-road performance and durability tests for a higher biofuels blend for vehicles.
Current energy debates or legislation:
The obstacle to the country’s fully realizing the benefits of renewable energy through the installation of RE generation capacity is not the lack of investor interest in the sector. On the contrary, from 2008 (the year of the RE Law’s passage) to end-2012, a total of 300 service contracts for projects totalling more than 5,600 MW of capacity were applied for and awarded by the DOE. A further 193 were pending approval as of the end of 2012. One of the key problems has been regulatory delay and the accompanying uncertainty in respect to the nature and extent of the economic and other risks developers will have to assume in building and operating their power plants.
A case in point is the delay in implementation of the FIT scheme, a ground-breaking renewable energy policy under which an eligible RE plant shall be entitled to a guaranteed payment of a fixed rate called the feed-in tariff (which varies only among types of resource) for each kilowatt-hour of energy it supplies to the relevant grid. Payment of the FIT is funded from collections of a uniform charge called the FIT Allowance or FIT-All that shall be payable by all electricity consumers. As a guaranteed rate, the FIT is an effective measure to mitigate market and price volatility risks for investors and thus make RE power plant development economically feasible (even attractive) and financeable.
However, implementing regulations on the FIT were issued by the Energy Regulatory Commission (ERC) only on 12 July 2010, or almost two years after the passage of its enabling law. It took another two years for the ERC to establish in July 2012 the FIT rates applicable to each type of renewable energy resource covered by the RE Law. In addition, some of these ERC-established rates, for wind and solar, for example, were significantly lower than those applied for by the National Renewable Energy Board (NREB). The ERC has yet to commence the consultative process for approval of the FIT-All rate, which is essential to the full implementation of the FIT scheme.
Major energy studies:
The Philippines is also a member of the Association of South-east Asian Nations (ASEAN), and is involved in the regional integration of power networks and energy sector development afforded under the organisation.
The ASEAN Plan of Action for Energy Cooperation (APAEC) 2010-2015 is the third of a series of regional energy implementation plans. It covers the energy component of the ASEAN Economic Blueprint 2015 and aims to enhance energy security, accessibility and sustainability for the ASEAN region to accelerate implementation plans of the following program areas:
- ASEAN Power Grid (APG)
- Trans-ASEAN Gas Pipeline (TAGP)
- Coal and Clean Coal Technology
- Renewable Energy
- Energy Efficiency and Conservation
Regional Energy Policy and Planning
Role of government:
The Philippine Department of Energy (DOE, www.doe.gov.ph) sets overall policy goals in the energy industry. Under the Department of Energy Act 1992, the DOE is mandated to prepare, implement and supervise all plans relating to the energy sector, including the exploration and development of new energy sources and their utilisation, in addition to the distribution and conservation of energy sources and power.
Government agencies in sustainable energy:
The NREB is primarily a consultative and recommendatory body created by virtue of the Renewable Energy Act 2008 to facilitate the implementation of the mechanisms under the Act. To ensure participation and consultation of all key stakeholders, the board is composed of one Chairman and 14 board members coming from both the private and public sectors. There are one representative each from the following sectors: Renewable Energy Developers, Government Financial Institutions, Private Distribution Utilities, Electric Cooperatives, Electricity Suppliers and Non-Governmental Organizations.
Energy planning procedures:
The Renewable Energy Bill that, after pending in Philippine Congress for more than 18 years, was passed by the Senate in 2008 and contains a set of initiatives to attract renewable energy developers to invest in the country. Dubbed as the Renewable Energy Act of 2008, it gives incentives to investors and energy producers to build renewable energy power plants instead of fossil fuel-based systems. The legislation aims to accelerate the development and use of the nation's vast renewable energy resources through fiscal and non-fiscal incentives for investors. It also assures investors in wind, solar, ocean, run-of-river hydro power and biomass a secure market in electricity generated from these clean sources through feed-in tariffs. Other incentives include duty-free importation of equipment, tax credit on domestic capital equipment and services, special realty tax rates, income tax holidays, net operating loss carry-over, accelerated depreciation and exemption from the universal charge and wheeling charges. The bill also seeks to institutionalise a Renewable Portfolio Standard requiring the country's electric utilities to obtain a certain portion of their electricity from clean, home-grown renewable energy sources. The DOE signed the implementing rules and regulations (IRR) just five months after the law was passed. With the signing, the DOE expects to further boost investments in the sector and double power production from the sector to 9,000 MW by 2013.
Aiming to build on the success of the NRE Sources Development Program, and the 100% electrification of barangays in the country in 2009, the NEA constructed the 2010 Medium-term Development Plan, aiming at 100% electrification of Sitios, the next geo-political unit of society, as well as a line enhancement program to improve the electricity access of the newly-powered barangays.
In November 2009, the Philippine Government, in agreement with the Asian Development Bank (ADB), the International Bank for Reconstruction and Development, and the International Finance Corporation developed a business plan. The plan is called the Clean Technology Fund (CTF) Country Investment Plan (CIP). The CIP is a proposal to use the CTF resources in the Philippines, and includes a potential pipeline of projects and required resources.
The sectors considered for using the CTF fall into three subsectors:
- energy efficiency
- renewable energy
- urban transport.
However, the programs proposed for CTF financing do not involve new technology. Rather, they involve technology that is readily available to the Philippines, but that faces institutional, regulatory, or cost barriers (especially upfront investment cost barriers) which must be overcome for replication and up-scaling.
Energy regulator Date of creation:
The Energy Regulatory Commission (ERC, www.erc.gov.ph) is charged with regulating the electricity sector. The ERC was established June 2001 through the Electric Power Industry Reform Act of 2001. The Act abolished the Energy Regulatory Board (ERB) and created the ERC, which is an independent regulatory body performing the combined quasi-judicial, quasi-legislative and administrative functions in the electric industry. With the EPIRA, the ERC has been reconfiguring itself to be a competent, “strong, independent and professional regulator, to transform the electric industry and balance the interests of all stakeholders.”
Degree of independence:
Appointments to the Commission are the sole prerogative of the President, and there is no transparent process. The incumbent ERC Chairman and his immediate predecessor are both former Congressmen. Other members of the Commission often come from the regulated industry players. The Board of the Commission consists of five members, a Chairperson and four Commissioners.
There is perception from academics in economics, as well as from industry players, that tariff setting is influenced by the populist political stance of the Presidency, resulting in low tariffs. On the other hand, there is also the perception from civil society organisations that, given the background of many ERC members, the ERC is prey to regulatory capture by influential industry players.
Financing for the Commission is allocated from the national budget.
Regulatory framework for sustainable energy:
In 2008, the Philippines signed the Renewable Energy Act which became effective 6 months later and provides the legal basis for renewable energy development and promotion in the country. The Act is very comprehensive, and puts forward a number of fiscal and non-fiscal incentive mechanisms to encourage renewable energy development. The two major non-fiscal mechanisms for encouraging generation of renewable energy resources are the Feed-in Tariff and Net Metering.
To supplement these mechanisms, the law also provides for the following non- fiscal mechanisms: Renewable Portfolio Standards (RPS), Green Energy Option, and a Renewable Energy Market. Other fiscal incentives include an income tax holiday, a lower corporate tax rate of 10% for new and existing renewable energy developers, tax and duty free importation, zero percent VAT rate, and payment of transmission charges, among others.
Unfortunately, of the non-fiscal mechanism, only the feed-in tariffs has been finalized and approved, which has not come as an easy process. The Philippines Energy Regulatory Commission (ERC) finally approved feed-in tariff rates in July 2012, 4 years after first being proposed in the Renewable Energy Act of 2008, which directed the government to set rates for wind, solar, run-of-river hydro, biomass and ocean thermal energy.
In preparing the electricity market for open access and competition, the ERC has been developing and promulgating a number of rules and regulations and has identified seven pillars for building a vibrant electricity market:
i. Business Separation Guidelines directs distribution utilities (DUs) to have a clear separation of accounts for their regulated and non-regulated activities, and no cross-subsidies between their business activities;
ii. Competition Rules to guard against the abuse of market power and anti-competitive agreements resulting from mergers and acquisitions between market participants;
iii. Distribution Services and Open Access Rules for interface between the DUs and all users of the distribution system, including retail electricity suppliers (RES);
iv. Guidelines for the Issuance of Licenses to RES prescribe the criteria, procedures for securing a license, as well as the general obligations of a RES;
v. the Code of Conduct for Competitive Market Participants establishes standards of behaviour for marketing electricity to contestable customers;
vi. Guidelines for the Supplier of Last Resort (SOLR) prescribes the conditions and procedures for SOLR service, the rates, the terms of service, etc.;
vii. Uniform Business Practices (UBP) - rules relating to customer enrolment, switching and exchange of information between retail market participants.
Role of government department in energy regulation:
Despite being an independent agency, the President of the Philippines directly appoints commissioners of the ERC. Under the provisions of the Electric Power Industry Reform Act, the ERC is given exclusive authority to issue regulations pertinent to the electricity sector. No other government department takes an active role in energy regulation, after the deregulation of the downstream oil market of the country in 1998.
In the Philippines, renewable energy development is burdened by a lack of coordination among involved authorities in permitting procedures. According to an NREB official, there is a need to establish a One-Stop Shop to handle and streamline all renewable energy applications. The long and convoluted process to incorporate the company, apply for service contracts, secure the permits and licenses, and deal with so many government offices discourages many possible investors and delays the projects. The Market Service Centre (MSC) was set up in the Philippines as a one-stop shop to remove barriers to renewable energy development in the Philippines and the DOEs REMB has integrated several of the functions of the MSC.
WWF & World Energy Institute (2013): Meeting Renewable Energy Targets: Global Lessons from the Road to Implementation Available at: http://awsassets.panda.org/downloads/meeting_renewable_energy_targets__low_res_.pdf Accessed 16th February 2014
Wu, Yanrui (2012): Chapter 4: Electricity Market Integration: Global Trends and Implications for the EAS Region Available at: http://www.eria.org/Chapter%204-Electricity%20Market%20Integration-Global%20Trends%20and%20Implications%20for%20the%20EAS%20Region.pdf Accessed 14th February 2014
IP Community (2012): Available at: http://www.training-jpo.go.jp/en/uploads/ipfrends/community/IPCommunityNo15.pdf Accessed 11 February 2014
Greenpeace (2013): Energy (R)evolution - A Sustainable ASEAN Energy Outlook Available at: http://www.greenpeace.org/seasia/id/PageFiles/547260/ASEAN%20Energi%20%5BR%5Devolution.pdf Accessed 13th February 2014
KPMG (2013): The Energy Report: Philippines Available at: http://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/Documents/energy-report-philippines.pdf Accessed 12th March 2014
APEC (2013) Energy Overview 2012 Available at: http://aperc.ieej.or.jp/file/2013/6/28/APEC_Energy_Overview_2012.pdf. Accessed 13th March 2014
DLA Piper (2012): Renewable Energy in the Asia Pacific: A Legal Overview Available at http://www.dlapiper.com/files/Publication/707b8063-0e73-4bc8-9e81-4ada0d0a5ad0/Presentation/PublicationAttachment/481bba6f-c011-4e5b-9a71-0609d6327f50/renewable-energy-asia-pacific-abridged.pdf Accessed 14th March 2014