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MEETING THE ENERGY CRISIS

In Partial Fulfillment of the Requirements for the


Degree of Masters in Engineering
Major in Electrical Engineering
on Environmental, Energy

and Technology Management


(MEng-ECE C508)

Submitted to:

ALEX C. LUIS, MSCE

Chief, Environmental Monitoring

and Enforcement Division EMB-CAR

Submitted by:

CESAR PAOLO L. GEMINO


Saint Louis University
Baguio City
Philippines

MAY 2016

MEETING THE ENERGY CRISIS: PROBLEMS AND SOLUTIONS


GEMINO, CESAR PAOLO L.

Saint Louis University, Baguio City, Philippines


ABSTRACT

The energy crisis is the concern that the worlds demands on the limited natural
resources that are used to power industrial society are diminishing as the demand rises.
These natural resources are in limited supply. While they do occur naturally, it can take
hundreds of thousands of years to replenish the stores. Governments and concerned
individuals are working to make the use of renewable resources a priority, and to lessen
the irresponsible use of natural supplies through increased conservation.

The energy crisis is a broad and complex topic. Most people dont feel connected
to its reality unless the price of gas at the pump goes up or there are lines at the gas
station. The energy crisis is something that is ongoing and getting worse, despite many
efforts. The reason for this is that there is not a broad understanding of the complex
causes and solutions for the energy crisis that will allow for an effort to happen that will
resolve it.
INTRODUCTION

About 15 years ago the country has experienced an energy crisis. Sufficient
power supply is important to move forward. Mindanao has been suffering from the lack
of electricity. Other provinces like Occidental Mindoro and Palawan are suffering from
long hours of blackout. The Luzon grid has had its fair share of power shortages mostly
when the power plants stop to work. It may have taken some time, but the Department
of Energy (DOE) said that new power facilities will be up and running beginning 2015. In
Luzon, a total of 2,300 megawatts will be added to the grid from June this year until
September 2019. The Visayas grid will also be augmented by about 442-megawatts,
while Mindanao which has endured power shortages for many years now will get
an additional 2,000 megawatts. Based on the Energy Department's 5-year outlook, the
additional capacity in Luzon and Mindanao will mean there will be no blackouts until
2020. Supply will remain stable in the Visayas until 2018, as data shows there will be
more demand by that year. With the fast-paced growth of the economy, both
government and the private sector must work fast to keep up with the growing demand
for power. For a country growing faster than most of its neighbors, there's no room to
play catch up in the quest for stable power.

Legal Framework regarding Energy Supplies


Republic Act no. 9513
-

Known as renewable energy act of 2008


An act promoting the development, utilization and commercialization of
renewable energy resources and for other purposes

Republic Act no. 9136


-

Known as Electric Power Industry Reform Act of 2001


The act allows end-use consumers belonging to the contestable market to
obtain power from independent suppliers who are licensed by the ERC.

Two types of Energy Sources

a) Renewable Energy Sources


- Energy sources that do not have an upper limit on the total quantity to be
used. Such resources are renewable on a regular basis and the renewable
rate is rapid enough to consider availability over an indefinite time.
b) Non-renewable energy sources
- Energy sources that do not renew itself at a sufficient rate for sustainable
economic extraction in meaningful human timeframes. Such resources that
will run out or will not be replenished in our lifetimes. Coal, oil, Natural Gas,
Nuclear

Power generation in the Philippines is not considered as a public utility operation,


which means interested parties do not need to secure a congressional franchise to
operate a power generation company. However, power generation is regulated by the
Energy Regulation Commission (ERC) who must issue a certificate of compliance to
interested parties to ensure that the standards set forth in the Electric Power Industry
Reform Act of 2011 (EPIRA) are followed. The ERC is also responsible for determining
any power abuse or anti-competitive behavior. Power generation is a value added tax
zero-rated (i.e. not subject to 12% VAT) to ensure lower rates for end-users.
Electricity in the Philippines is produced from various sources such as coal, oil,
natural gas, and renewable sources. The allocation of electricity production can be seen
in the table below, according to data from the Department of Energy Power Statistics:

Source

Percentage

Coal

42.8%

Oil-Based

7.4%

Natural Gas

24.2%

Hydro

11.8%

Geothermal

13.3%

Other Renewable Sources (Wind, Solar, Biomass) 0.5%


Table 1. Power generation by source as of 2014

Source

Operational

Hydroelectirc

29

Geothermal

11

Solar/Photovoltaic 2
Wind

Coal

11

Diesel

Natural Gas

Oil

Table 2. Number of operational power plants in the Philippines

Power is one of the main drivers of sustainable economic growth. Available


power supply determines the level of production which a country is capable of
supporting.
Projected Supply And Demand

Historically, demand has outpaced supply. There is currently a tight demand-supply


balance. The Philippines is subdivided into the Luzon, Visayas and Mindanao power
grids, each with distinct power supply to support the regional demand. The Luzon and
the Visayas grids are interconnected; any excess in one grid can be exported to cover
for any power deficiency in the other. The Mindanao grid however, remains isolated and
stands alone.

Power supply should be able to cover for (i) peak demand and (ii) reserve requirements.
Peak demand represents the highest power requirement registered during the peak
hours in between 11 a.m. and 2 p.m. and typically at the highest during the summer
months. Reserve requirements are stand-by power in the event of unexpected forced
shutdown of key power plant facilities.
Total peak demand for the Philippines was registered at 11,800 Megawatts (MW) as of
end 2014 and is projected to reach 18,600MW by 2025. However, the peak demand
profile and reserve requirement substantially varies per grid.

The Luzon Grid historically comprises over 70% of the Philippines peak demand and in
2014, Luzon Grid peak demand reached 8,700MW and is projected to grow to
13,200MW by 2025, with power reserve requirement of 1,800MW. As of 2014, the
Luzon Grid has adequate capacity at 11,600MW and is projected to reach 17,000MW
by 2025.
However, when considering the reduction in energy to be sourced from hydropower
plants, especially during the summer as well as from wind and solar power, which are
considered as intermittent sources of energy, available power from the Luzon Grid may
be sufficient to cover peak demand but will not be able to account for reserve power.

The Visayas Grid shows almost the same profile, with a peak demand of 1,600MW in
2014, and is projected to reach 2,700MW by 2025, with reserve power requirement of
400MW. Total available power for the Visayas Grid reached 2,100MW as of 2014 and is
forecasted to grow to 3,300MW by 2025, ideally sufficient to cover peak demand and
reserve requirements. However, reduced capacity from wind, solar and hydro (during
summer months) might be able to cover peak demand, but with very tight reserve
power.
The Mindanao Grid is projected to remain stable until 2025, with projected peak
demand of 2,700MW and reserves of 400MW to be supported by 3,500MW of supply.
Even with reduced capacities from intermittent power sources, available power is
expected to be more than adequate to cover the energy requirements, with significant
coal projects in the pipeline supporting the energy supply.
Power Resources

At present, coal power plants comprised over 35% or 5,200MW of total available
capacity in the Philippines. Growth in coal is driven by relatively lower electricity price
and stable electricity supply generated by coal, being a base load power plant.
Renewable energy resources, such as wind and solar in general carry higher breakeven prices due to the power plant utilization in relation to the resource but is expected
to grow with government support such as the Feed-in-Tariff systems (FIT) which allow
renewable energy developers to be paid at premium from market electricity rates, for
energy generated by power sources such as wind, solar, run-of-river hydro and biomass
plants.
Coal is expected to continue driving the growth in total installed capacity in the
Philippines and is followed by renewable energy, Gas plants and oil.
Cost Competitiveness

In terms of costing, diesel plants have highest cost with coal the lowest. Among the
REs, wind and solar are highest, while hydro and geothermal the lowest. While Capex
for solar is also expected to decrease substantially in the future.

Bankers Perspective

Demand-supply outlooks are vital as generally, one of the main concerns of investors
and banks, financing power projects is the market risk that there will be an abundant
supply of electricity such that a power plant will not be able to get guaranteed buyers of
electricity produced whereby the power plant might have to resort to sell at the open
market at a price below break-even.
More power plants are needed. Banking sector support to finance power projects is
critical to ensure that overall power requirements are addressed. Banks, however,
should be mindful to proceed with caution as any slowdown in market demand could
lead to an oversupply. Power plants to be financed need to provide an acceptable
Business plan on addressing market risks. Power costs remain to be one of highest in
Asia. If power cost can be further reduced, we can expect the Philippines to be even
more attractive for business.
Philippines Energy Portfolio
Energy Sources

The economys 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
geothermalwhich ranked third in terms of the economys power generationand
wind, solar and biomass increased by 15% during the same year. On the other hand,
hydropower plants, ranked fourth out of the economys total power generation,
experienced a decline of 7% from the 8 387 GWh of electricity generated in 2009. Oilbased thermal plants, which provided 10.5% of the economys 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 Philippines energy portfolio is quite unique in the region in that domestically,
it has few of its own fossil fuel resources, its 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%.

Reliance

In 2010, to help meet the economys 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.
Extend 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 economys 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 Luzons was recorded at 99.87% and Mindanaos 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.
Capacity Concerns

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.
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.
1. Hydro

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.
2. Wind energy

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.
3. Solar energy

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.

4. Biofuels

The Philippines is said to be one of the largest producers of coconut products,


where approximately 26% of the countrys 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 greensource 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.
5. Geothermal energy

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 economys vast
geothermal energy potential.
Energy Efficiency
Power savings

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 sectors 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.
Ownership

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.
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 privatization of generation assets held by the National Power
Corporation (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 privatized 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 privatized 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 authorized to collect wheeling charges and other fees, as
approved by the ERC.

Energy Framework

National Renewable Energy Program (NREP)

Under the states 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.

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

These policy objectives are supported by specific quantifiable targets to be


achieved by the end of 2030, the most prominent of which include:

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 phaseout 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 economys 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 program 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
economys 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.
Energy Debates

The obstacle to the countrys 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 Laws 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 groundbreaking 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.
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 utilization,
in addition to the distribution and conservation of energy sources and power.
Government Agencies

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 NonGovernmental Organizations.

Energy Procedure

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

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
organizations 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

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 nonfiscal 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.

Regulatory Roles

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 anticompetitive 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.
Energy Regulation Role

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.
Regulatory Barriers

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.
Electric power transmission

Electric power transmission is the bulk movement of electrical energy from a


generating site, such as a power plant, to an electrical substation. The interconnected
lines which facilitate this movement are known as a transmission network. This is
distinct from the local wiring between high-voltage substations and customers, which is
typically referred to as electric power distribution. The combined transmission and
distribution network is known as the "power grid".

Causes of the Energy Crisis

It would be easy to point a finger at one practice or industry and lay the blame for the
entire energy crisis at their door, but that would be a very naive and unrealistic
interpretation of the cause of the crisis.

1. Overconsumption: The energy crisis is a result of many different strains on our


natural resources, not just one. There is a strain on fossil fuels such as oil, gas and coal
due to overconsumption which then in turn can put a strain on our water and oxygen
resources by causing pollution.
2. Overpopulation: Another cause of the crisis has been the steady increase in the
worlds population and its demands for fuel and products. No matter what type of food
or products you choose to use from fair trade and organic to those made from
petroleum products in a sweatshop not one of them is made or transported without a
significant drain on our energy resources.

3. Poor Infrastructure: Aging infrastructure of power generating equipment is yet another


reason for energy shortage. Most of the energy producing firms keep on using outdated
equipment that restricts the production of energy. It is the responsibility of utilities to
keep on upgrading the infrastructure and set a high standard of performance.
4. Unexplored Renewable Energy Options: Renewable energy still remains unused is
most of the countries. Most of the energy comes from non-renewable sources like coal.

It still remains the top choice to produce energy. Unless we give renewable energy a
serious thought, the problem of energy crisis cannot be solved. Renewable energy
sources can reduce our dependance on fossil fuelsand also helps to reduce
greenhouse gas emissions.

5. Delay in Commissioning of Power Plants: In few countries, there is a significant delay


in commissioning of new power plants that can fill the gap between demand and supply
of energy. The result is that old plants come under huge stress to meet the daily
demand for power. When supply doesnt matches demand, it results in load shedding
and breakdown.

6. Wastage of Energy: In most parts of the world, people do not realize the importance
of conserving energy. It is only limited to books, internet, newspaper ads, lip service and
seminars. Unless we give it a serious thought, things are not going to change anytime
sooner. Simple things like switching off fans and lights when not in use, using maximum
daylight, walking instead of driving for short distances, using CFL instead of traditional
bulbs, proper insulation for leakage of energy can go a long way in saving energy. Read
here about 151 ways of saving energy.
7. Poor Distribution System: Frequent tripping and breakdown are result of a poor
distribution system.

8. Major Accidents and Natural Calamities: Major accidents like pipeline burst and
natural calamities like eruption of volcanoes, floods, earthquakes can also cause
interruptions to energy supplies. The huge gap between supply and demand of energy
can raise the price of essential items which can give rise to inflation.

9. Wars and Attacks: Wars between countries can also hamper supply of energy
especially if it happens in Middle East countries like Saudi Arabia, Iraq, Iran, Kuwait,
UAE or Qatar. Thats what happened during 1990 Gulf war when price of oil reached its
peak causing global shortages and created major problem for energy consumers.
10. Miscellaneous Factors: Tax hikes, strikes, military coup, political events, severe hot
summers or cold winters can cause sudden increase in demand of energy and can
choke supply. A strike by unions in an oil producing firm can definitely cause an energy
crisis.
In the Philippines

Increase in Energy Demand


The typhoon Yolanda, known internationally as Haiyan, left a trail of destruction
in its wake on the island nation of the Philippines in November, 2013. As a result of this
destruction, there were repeated power outages of several hours duration. Moreover,
aside from the impact of various environmental disasters, the strong economic growth in

the Philippines has led to an increased energy demand and the highest electricity costs
in Southeast Asia.
A Devastating Effect on the Economy and Population
According to Energy Minister Carlos Jericho Petilla, the expected power outages
are likely to far surpass previous emergencies. Companies and business people will be
forced into work interruptions of several days duration which could lead to layoffs and
economic constraints. Ordinary citizens will suffer from the energy crisis as well. For
example, water shortages in the hot summer months due to failure of the electrical
water pumps, the cancellation of train transportation due to irregular power supplies,
and other doomsday scenarios are conceivable.
Renewable Energy as the Key to the Future
The government, however, has recognized these bleak future prospects and has
been actively seeking solutions for some years. According to the Department of Energy,
the Philippines comes out very far ahead in an international comparison with 40 percent
of its energy secured from renewable energy sources such as wind, water and solar
energy.
In 2008, former senator Loren Legarda stated that renewable energy will be the
primary issue of the future more important than war, famine, financial crises, and
even more important than the collapse of human civilization (Manila Bulletin, 2008).
Private Solar Energy Supplies
Solar energy plays a particularly important role in the Philippines in addition to
energy generation through wind and water power. A mere 0.01% of the available
sunlight would be sufficient to meet the worlds energy needs, even on cloudy days. The
use of solar energy is emissions-free and noiseless and does not pollute the water or
air.
Photovoltaic systems render the suns energy usable and can be easily and
conveniently mounted on almost any type of roof. Gain independence from external
power providers, and use the electricity you produce for your own use, or benefit from
the feed-in tariff. A solar energy system preserves the environment, is easy on your
wallet, and protects you from the energy crisis.

Solutions for the Energy Crisis in the Philippines


1. Interruptible Load Program (ILP)

Under the ILP, customers with large power requirements, like commercial
establishments, will be asked to operate their own generator sets if the grid operator
projects a need to augment generation capacity in the Luzon grid. Through this, the
demand for power from the system will be reduced to a more manageable level. But the
problem with this is it is voluntary.
2. Build more environmental-friendly plants

In the Wallace Business Forums Quarterly Roundtable, the Department of


Energy (DOE) pointed out that 165 signatures were needed to get the permits to build
plants. This red tape entangled all over the countrys future power infrastructure is
jeopardizing its potential growth. There is enough interest to build plants in the country,
but building a power plant takes at least three to five years. Many times it is longer than
that to even get approval to get started.
3. Improve governance, efficiency and management of the power sector

Not enough new power plants are being built as fast as the increase in the
demand for power, as projected reserves are noticeably thinner than needed for the
whole Philippines.

The generally accepted level of reserves is at least 20 percent. Thus, reserves


should be at least 1,900 MW for Luzon, 400 MW for the Visayas and 300 MW for
Mindanao in 2014. But currently they are only about 800 MW (8 percent), 540 MW (26
percent) and 80 MW (5 percent), respectively.
4. Reduce power demand

By reducing ones power demands, by turning off unused lights and appliances
for example, it can greatly reduce the consumption of power when practiced by many
people on a large scale.
Emergency powers

With no assurance from the private sector, the energy chief said the government
has no choice but to step in.
states:

He asked President Benigno Aquino III to invoke Section 71 of EPIRA, which

Upon the determination by the President of the Philippines of an imminent


shortage of the supply of electricity, Congress may authorize, through a joint resolution,

the establishment of additional generating capacity under such terms and conditions as
it may approve.

Prior to EPIRAs passage, the government, through the National Power


Corporation (Napocor), had monopoly over power generation and transmission in the
country. However, mismanagement and corruption caused the state power firm to bleed
dry. Its debts and the high costs of maintaining its assets were a heavy burden on state
coffers and consumers.
EPIRA was passed to put an end to this. It introduced sweeping reforms, among
them the privatization of most of Napocors power assets and the breakdown of the
industry into different privatized segments. The reforms were meant to encourage
competition among power players and eventually reduce electricity prices in the
Philippines, now among the highest in the world.
Essentially, the law barred the government from putting up additional generating
capacity and the private sector was left to do all the work.

Private sector investments took a while, however, and this is where it got
problematic. To begin with, Petilla acknowledged there are 160 plus steps for approving
a new power plant, which takes years to build. Investors, for their part, played it safe by
waiting for how the reforms under EPIRA would play out. They refused to pour in their
billions unless they were certain of demand.
Giving the President emergency powers will allow the government to contract
new power capacities.
This proposal is backed by several lawmakers, among them Senator Sergio
Osmea III, chairman of the Senate committee on energy.
Backup system

With these thin reserves, a breakdown of just one or two plants will result in
brownouts. Given that 21 percent (3,182 MW) of the countrys total dependable capacity
comes from plants more than 30 years old, breakdowns will occur. It would be wise for
anyone who must have continuous power to have a backup system.
Aside from addressing thin reserves, the countrys power transmission system
also needs rehabilitation and expansion for it to handle congestion in the grid and to be
able to support the growing demand for power and the entry of new generators. With a
good delivery system, the reliability and quality of power are improved.
Full interconnection

Also needed is for the archipelago to be fully interconnected and for loop
systems to be developed.

National Grid Corp. of the Philippines (NGCP), the countrys grid operator, plans
to build a 500-kilovolt (kV) backbone loop system for Luzon.

It also plans to develop new transmission lines and new 500-kV and 230-kV
substations in Metro Manila, which currently accounts for 53 percent of the total load in
the Luzon grid and 40 percent of the total load of the country.
NGCP will establish a 230-kV Cebu-Negros-Panay line in the Visayas grid to
strengthen the backbone since the current radial configuration is very long, making it
prone to grid failure by any incident along the line.

For the Mindanao grid, NGCP plans to upgrade old substations that need
immediate attention. Although Mindanao looks to have a stable power situation in the
next four years, it badly needs additional transmission facilities.

A major transmission project that the government has been eyeing for over 30
years is the Leyte-Mindanao Interconnection Project (LMIP). This 400-kilometer project
would connect the Mindanao and the Visayas grids. But it still remains (30 years
remember) under study.
ERC

Which of the two routes to take may be submitted to the Energy Regulatory
Commission (ERC) by end-2014 or early 2015. Heaven alone knows how long the ERC
will then take to decide.
But why does it take the government 30 years to decide, let alone construct a
transmission line and approve the construction of a power plant in more than three
years?

In the Wallace Business Forums Quarterly Roundtable, the Department of


Energy (DOE) pointed out that 165 signatures were needed to get the permits to build
plants!

Yes, you read it right: 165. This red tape entangled all over the countrys future
power infrastructure is jeopardizing its potential growth. There is enough interest to build
plants in the country, but building a power plant takes at least three to five years. Many
times it is longer than that to even get approval to get started.
Another problem is the inconsistency in the decisions made at the local
government unit (LGU) level brought about by frequent changes in leadership
(governors and mayors), with different interests or priorities. As Petilla said, We need
full-time jobs working in LGUs (to handle power projects).
Independent unit

What is needed is a specialized independent unit at the local level composed of


professionals who can handle approvals and monitor construction.

Is the Philippine power infrastructure system on par with its neighbor countries?

In terms of capacity and cost, it is not. In terms of management or governance, it


is also a resounding no.
Looking at countries similar to the Philippines in terms of economic and
geographic profile is revealing.

Indonesia has the cheapest electricity with an average of $0.09/kWh, while


Malaysia has an average of $0.12/kWh and the Philippines, $0.22/kWh. Indonesia is an
archipelagic country like the Philippines, so its costs should be similar.
The Department of Trade and Industry wants to revive the manufacturing sector
but with these cost differentials and the current status of power infrastructure how can
that be possible? Power is a major cost for a factory.
The Electric Power Industry Reform Act of 2001 (Epira) has covered the
important elements in reforming the countrys power sector. The law has five main
objectives:
Privatization of power assets
Improving competition in the power sector
Widening the scope of electrification
Lowering of electricity rates
Increasing power supply and reliability of the sector

Of these five, lowering electricity rates and increasing supply and reliability of
power seem to be the most difficult for the governing bodies to implement.
Geography

Petilla has mentioned that balancing reserves (which consequently lowers power
rates) is difficult because of our geographic profile. The balancing of reserves is a
common problem in other countries, too. But the advantage of other countries is their
geographical location.
Thailand, for example, is a landlocked country so it can easily import needed
power from other landlocked countries like Laos and Myanmar. Location is also one of
the reasons behind the high power rates in the Philippines.

The countrys geographic location cannot be changed but what can be done is to
improve the implementation of Epira. It does not need an amendment, contrary to what
some sectors are clamoring, just full implementation by removing bottlenecks in the
implementation of power projects.
NGCP and Manila Electric Co. (Meralco) have plans for upgrading the supply
and reliability of power but the main bottleneck is at the local levelin getting permits
and approvals.

References:

http://www.reegle.info/policy-and-regulatory-overviews/PH

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2014
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at:http://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/Documents/e
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DLA Piper (2012): Renewable Energy in the Asia Pacific: A Legal Overview Available
athttp://www.dlapiper.com/files/Publication/707b8063-0e73-4bc8-9e814ada0d0a5ad0/Presentation/PublicationAttachment/481bba6f-c011-4e5b-9a710609d6327f50/renewable-energy-asia-pacific-abridged.pdf Accessed 14th March 2014