Philippines’ focus on supply security and growth-
The Philippines is keenly looking at solutions to resolve issues hampering the growth of its power sector. Lack of competition, overdependence on fossil fuels, high electricity tariffs, depleting domestic fuel reserves, and inadequate grid connectivity are some of the pressing issues. Further, power generation capacity has failed to keep pace with demand, leading to frequent outages and blackouts. Despite it being over 15 years since power sector reforms were implemented in the Philippines, the country continues to face these challenges.
The process of privatising and restructuring the electricity sector began in the Philippines in 2001, with the enactment of the Electric Power Industry Reform Act. Before the act, electricity generation, transmission and distribution were controlled by the state-owned monopoly National Power Corporation. By the end of 2011, the government had successfully privatised 79.56 per cent of the country’s generating plants (adding up to over 4,100 MW of capacity). The National Grid Corporation of the Philippines (NGCP), a consortium of the Monte Oro Grid Resources Corporation, Calaca High Power Corporation, and State Grid Corporation of China, was awarded the 25-year concession contract to maintain and operate the transmission assets of the National Transmission Corporation in January 2009. The electricity distribution sector was also restructured and today, distribution is in the hands of private investor-owned utilities, local government-owned utilities, multi-purpose cooperatives and electric cooperatives.
The Philippines government has recently outlined several policy initiatives to overhaul the power sector in the Philippines Development Plan [PDP] 2017-2022, which was released in February 2017. Southeast Asia Infrastructure presents an account of issues plaguing the country’s power sector and initiatives outlined by the government in the PDP
Generation
The Philippines has added only about 5.6 MW of generation capacity since 2006, taking its total installed capacity base to 21.4 GW in 2016. The dependable capacity during the year was even lower at about 19 GW. Peak demand for electricity in the Philippines has increased at a compound annual growth rate of about 3.6 per cent in the past decade. Fuel supply concerns and low level of competition are some of the issues plaguing power generation. In order to encourage greater participation and investment in the segment, the Department of Energy has decided to categorise certain power projects as “nationally significant”. These projects will receive express grant of business permits and licences to operate. Such projects will also be exempted from time- and resource-intensive taxes and levies such as property tax, local taxes, etc.
Further, the country relies heavily on coal- and oil-based power to meet its electricity demand. Coal- and oil-based power together account for a share of over 51 per cent in the total installed capacity base. The country’s total primary energy supply stood at 50.4 metric tonnes of oil equivalent (mtoe), of which oil accounted for a 32.2 per cent share (2015). In order to avoid overdependence on a particular fuel source and to ensure energy security, the country is looking to achieve a balance in its overall energy mix by being technology- and resource-neutral.
To achieve an optimal energy mix, it plans to undertake a study that takes into consideration the resulting electricity cost, externalities, and technical limitations based on appropriate allocation of fuel sources. Besides, the government plans to expedite the implementation of various policy mechanisms such as renewable portfolio standards under the Renewable Energy Act of 2008 to encourage development of renewable energy capacity in the country. As of 2016, the total renewable energy capacity in the country stood at 6,958 MW, comprising 3,618 MW of hydro, 1,916 MW of geothermal, and 1,424 MW of solar, wind and biomass power. To accelerate the deployment of renewable energy in the country, the World Bank approved the Philippines Renewable Energy Project (PhRED) and Access to Sustainable Energy Project (ASEP) in 2016. The projects aim to help the country set up 15,304 MW of renewable energy capacity and achieve full electrification by the 2020s. The World Bank approved a grant of $44 million for the PhRED and a $23 million grant for the ASEP.
Further, the United States Agency for International Development and the National Renewable Energy Laboratory are implementing the Greening the Grid project in the Philippines. The project will involve concerned agencies like the DOE, NGCP, Grid Manage-ment Committee and Philippine Electricity Market Corporation (PEMC), which will work together to conduct a collaborative study. The study will develop a production cost model, which is needed to conduct the economic analysis required for flexible generation and transmission infrastructure. The work on the project is currently under way. 
Transmission
The Philippines’ high voltage transmission network has three main grids – the Luzon grid, the Visayas grid and the Mindanao grid. The Luzon and Visayas grids are interlinked but the Mindanao grid continues to operate in isolation, which hampers the transfer of power. The development of infrastructure such as lines and substation is plagued by issues of right of way, lack of security and non-resilience to natural calamities. As per the World Risk Report 2016, the Philippines is the third-most-vulnerable country to natural disasters in the world and reducing disaster risks for the power sector is necessary.
In order to expand the transmission network, a series of projects will be undertaken in all three grids. The transmission network in Luzon will be strengthened to support power generation capacity additions in the Quezon, Bataan and Zambales areas. This will also complement the establishment of a transmission loop with additional substations in Metro Manila. Furthermore, the Mindoro Island’s power grid will be interconnected to the Luzon grid through Batangas. Key projects in the Luzon grid include the 500 kV Calaca-Dasmariñas transmission line project, the Las Piñas substation expansion project, and the Tuguegarao-Lal-lo transmission line project.
In Visayas, the 230 kV Cebu-Negros-Panay backbone project is being implemented to ensure complete dispatch of power from conventional and renewable energy-based plants. In addition, there is a plan to connect the Cebu and Bohol grids, which will increase transmission capacity as well as improve the reliability of supply to Bohol Island.
For Mindanao, the 230 kV Mindanao transmission backbone project from Lanao del Sur in the north to Davao del Sur in the south is proposed to be fast-tracked. Besides, the Visayas-Mindanao interconnection is under way to enable capacity sharing of power reserves during periods of shortfall. During 2016, the NGCP undertook a hydrographic survey to identify the most viable route to link Visayas and Mindanao. It has finalised the route, beginning in Cebu and terminating in Dipolog, to connect the Visayas and Mindanao grids. It is now expected to commence survey works for the overhead transmission line component, which will connect the southern part of Cebu to Naga (central part of Cebu). In addition to the overhead component, the project will include a 92 km long submarine cable and overhead lines spanning 214 km. The project work is expected to be completed by December 2020.
Tariffs
A key concern for Filipinos is the high cost of power – the tariffs in the country are among the highest in Asia. This is because of high dependence on oil (diesel)-based plants for electricity generation. Further, the state does not provide any subsidy on power tariff for power generated by private players; consumers are required to pay the feed-in tariff, universal charges, value added tax (VAT), as well as charges due to system loss in transmission and generation.
In order to bring down tariffs, the government is taking steps to encourage competition in the retail power supply market. Towards this end, it plans to accelerate the evaluation of retail electricity supplier licence applications to broaden the list of suppliers in the market. Further, the selection process to secure bilateral power supply contracts will be strengthened to ensure that competitive prices are discovered. It also plans to remove VAT on system loss charges. Besides, measures will be taken to revise the rules on cross-ownership between retail electricity suppliers and generation companies or distribution utilities to foster transparency and promote competition.
Further, PEMC expects to commence commercial operations of the wholesale electricity spot market in Mindanao by June 2017. This will help in reducing electricity prices in the Mindanao region.
Fuel
On the fuel side, about 70 per cent of the Philippines’ coal imports are sourced from Indonesia, but the latter has placed a moratorium on coal shipments owing to the threat of piracy in the West Philippine Sea. In order to reduce dependence on imports, the country plans to increase domestic coal production by issuing new mining permits, monitoring mine development and production activities, checking unauthorised coal usage, and conducting resource assessment. The country has set a short-term coal production target of 23 million tonnes (mt) by 2018, increasing to 52 mt by 2022 and further to 282 mt by 2040.
Apart from coal issues, the Philippines’ natural gas supply is also gradually declining due to the depletion of the Malampaya natural gas field, which accounts for 23 per cent of the Luzon grid’s dependable capacity. In addition, the expiry of the gas supply purchase agreement between Shell Philippines Exploration and its customers is a cause of concern.
To counter these issues, the government is focusing on accelerating upstream development activities as well as on creating pipeline infrastructure to transport imported liquefied natural gas (LNG). The 121 km Batangas-Manila gas pipeline project is proposed to be developed, which will be the first natural gas pipeline in the country. It will supply natural gas to Batangas, Laguna, Cavite and Metro Manila. Moreover, LNG terminals are proposed to be constructed in Quezon, Batangas and Bataan.
The way forward
As per the Ambisyon 2040, the long-term development plan of the Philippines government, the country needs about 43,000 MW of additional capacity to meet the needs of its growing infrastructure by 2040. Of this capacity, 17,300 MW will be required by 2030 and the rest by 2040. Further, the country targets to achieve 100 per cent electrification by 2022 vis-à-vis 89.7 per cent as of 2016. The expansion of the transmission and distribution network will be synchronised with the generation targets. Although the power sector has certain challenges, it presents a massive opportunity for investors within the country as well as those in the ASEAN region. On the whole, the timely implementation of the policy initiatives announced by the Philippines government in the PDP 2017-2022 is crucial to attract investment for the sector’s expansion.
