Energy reforms could spell much-needed competition for Filipino utilities

A report suggests reforms that will enable a level playing field for renewable power generators and reduce taxpayer costs.
Published: Tue 23 May 2017

The Philippines could save in excess of US$20m (PHP10bn) annually if renewables replace diesel generation in off-grid areas. This is according to the Institute for Energy Economics and Financial Analysis (IEEFA) and Institute for Climate and Sustainable Cities (ICSC).

IEEFA’s report, “Electricity-Sector Opportunities in the Philippines: The Case for Wind- and Solar-Powered Small Island Grids”, suggests reforms that will require electric cooperatives and private distribution utilities to optimise procurement.

Philippine’s energy: time for change

While the country has ramped up its support of renewable energy development, with projects and investors lining up in response, there are still major obstacles standing in the way of further development. Coal-fired power generation is still the country’s preferred source of energy when it comes to meeting its energy needs which are driven by strong economic growth. However, the lower costs and sustainability that renewable energy offers is becoming harder to ignore.

Pete Maniego, former National Renewables Energy Board (NREB) director, says that the abolition of pass-through costs for fossil fuels, the scrapping of the “first to operate, first to bid” policy for energy developers and moving towards competitive selection are the key policy changes that the Philippines must undertake to help improve the renewables sector and Philippine energy situation.

“The Department of Energy should direct the National Power Corp’s Small Power Utilities Group to speed up the hybridisation of its plants and install as much renewable energy-powered plants in new sites identified for electrification,” said IEEFA analyst Sara Jane Ahmed in a statement. “Moreover, the National Electrification Administration should direct electric cooperatives to be technology-neutral in the procurement of power,” she added.

It is these much-needed reforms that will finally create a level playing field for renewable power generators and reduce taxpayer costs by phasing out subsidies for imported diesel fuel, according to the IEEFA report.  

The high costs of diesel

Currently, the country’s small islands receive their electricity from mini-grids which are powered by generators fuelled by imported diesel and bunker oil. As a result of grid instability, inadequate generation capacity and lack of subsidised fuel, these islands suffer from blackouts and unplanned power outages.

The report states that power for the islands costs over US$120m (PHP60bn) in subsidies despite only accounting for 6% and 0.49% of total generation. Despite these high subsidies, some islands have yet to enjoy round-the-clock electricity access. Only 22 of 233 areas have 24/7 electricity, with over 70%  having less than eight hours per day of electricity.

“Currently, Philippine taxpayers are footing a huge bill by subsidising expensive imported diesel to provide dirty and unreliable power for the small islands,” Ahmed said.

With solar-powered electricity costs falling by 99% since 1976 and 90% since 2009, and with the cost of wind-powered generation dropping by 50% since 2009, renewable energy makes financial sense for small islands which are unable to link to mainland electricity grids, the ICSC said.

Opportunities in renewables development

According to Ahmed, small islands in the Philippines are “placed perfectly to benefit from dramatically reduced costs of renewable energy.” She adds that “simple” reforms can lead to cleaner, cheaper and more reliable energy for over 800,000 of the poorest Filipinos.

According to the report, investment opportunities in Philippine small island renewables are worth at least $1bn to private developers in the country.

What do the reforms mean for utilities?

According to the IEFFA report, under the current system there are no incentives for electric cooperatives to procure cheaper sources and reduce costs.

But, the reforms will change this stagnant state that the industry finds itself in.

By enabling a level playing field for renewable power producers, utilities will find themselves in a very competitive environment. The country’s tariffs are extremely high -according to the US Energy Information Administration, the country has the 5th highest electricity costs in the world. Lower tariffs will certainly incentivise customers to search for a lower tariff. This is especially true for manufacturing companies who struggle to remain competitive in the global marketplace.  Companies are moving their operations to China for instance where electricity rates are nearly a third of the Philippines, says the Manila Times.

But with transformation comes opportunities. For the utilities that embrace these reforms, the potential is endless. Cheaper tariffs will attract new customers and help retain existing ones. Utilities can look forward to playing a key role in a transformed decentralised, prosumer-driven energy system. The most successful will be the utilities that think out of the box and offer customers new (and cost effective) services.