Striking a Balance in the Energy Mix

Dindo Manhit, President, Stratbase-ADRi

The projected power crisis last summer highlighted the precarious energy situation in the Philippines. Just one unscheduled power plant shutdown would have refreshed our memories of the 90’s where nationwide rotating brown outs forced people to address the lack of energy supply on their own. Fortunately, the government was spared of a major headache when demand was not as high as projected; because of the cooler-than-expected weather, unscheduled shutdowns were nil.

But what will happen this summer, or the summer next year, or the summer five or ten years down the road? Can we be sure that the country has enough supply of energy? Or, at least, that it has geared itself towards obtaining adequate supply? We should be projecting even higher demand given prolonged and more intense dry spells due to climate change.

The energy situation gets even more complicated when economic development is factored in. The upward economic trajectory that our country is enjoying puts more pressure on the supply of reliable energy and growth will stagnate once this need is not met. Added to the equation is the environmentalists’ hardline call that the country dump coal power for renewable energy. As it is, the country is already playing catch up in putting up much needed power plants. Without clear direction and concrete action plans, however, there is less optimism that the Philippines will be able to achieve energy security amidst a constantly rising energy demand due to economic development, rapid population growth, and, to some extent, climate change.

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Image Source: The Philippine Star

The lack of long-term solutions to such a persistent and complex problem is evident when the government came out with only the Interruptible Load Program (ILP) to mitigate energy deficiency while waiting for new power plants to come online. Triggered by a looming energy crisis, discussed earlier, the ILP was a stop-gap measure, the success of which hinged on the private sector, not really one to faciltitate creation of more reliable and afforadable energy supply in the long run.

Sadly, even those running to succeed this administration apparently do not have concrete energy security proposals. When the issue came about during the second Presidential debates organized by the COMELEC, the exchanges showed that the candidates did not have a clear grasp of the energy problem and how to go about solving it.

Dr. Carlos Primo David, ADRI Trustee and one of the authors in Thinking Beyond Politics, opines that energy security is not just about adequate power supply, but also includes energy reliability, quality, acceptability of fuel source, and competitive cost to both industry and consumers. In line with this, Dr. David, in the chapter “Striking a Balanced Energy Mix, Ensuring Security and Affordability”, lays down concrete policy recommendations:

1. Facilitate a more competitive power sector;
2. Review and reduce the cost of power;
3. Empower electric coops; and
4. Continue to develop indigenous and renewable sources of energy.

Facilitating a More Competitive Power Sector
To increase competition, Dr. David espouses the development of a one-stop-shop for investments to speed up the permitting process for prospective power developers. In the current setup, potential investors are required to secure practically over a hundred permits from several government agencies, both national and local. Dr. David observes that the bureaucracy discourages many possible investors and, consequently, derails the energy projects that can address the current base load shortages. Moreover, Dr. David believes that the Wholesale Electricity Spot Market (WESM) must play a larger role because it is said to contribute only 10%, at most, of the total power requirement. For Dr. David, operational rules of the WESM can be further improved, like the determination of power cost through the system marginal price rule.

Review and Reduction of the Cost of Power
Because taxes contribute to 10% of a consumer’s electric bill, Dr. David argues that the government should particularly review the Value Added Tax (VAT), the Energy Tax, and Royalties, all of which are passed on to the consumer. Also, Dr. David calls for the proper implementation of the Competitive Selection Process (CSP), which, instead of bringing down electricity prices, might have the opposite effect given the inabundance of power supply among other present conditions in the market.

Empowering Electric Cooperatives
Dr. David believes that empowering electric cooperatives is the key to energy security in the countryside and the growing urban centers outside Metro Manila because many coops are able to reduce the price of electricity within their jurisdiction through technical training, adopting a transparent competitive process in power supply bidding, and designing the power supply contract advantageous to their respective requirements. According to Dr. David, the role of strong electric cooperatives becomes even more crucial in island power development because such presents an opportunity to plan carefully the right electricity source balance, exploiting indigenous sources such as mini hydropower, wind and even solar that fit perfectly to these off-grid islands given their smaller electricity demands.

Continuing to Develop Indigenous and Renewable Sources of Energy
Citing the Energy Regulatory Commission (ERC) policy allowing electricity end users to feed excess electricity from renewable energy sources back to the national grid, Dr. David supports the initiative to incentivize the public’s investment in RE for home and light industry consumption. In establishing a Renewable Portfolio Standards (RPS), Dr. David advances the proposition that the government should adopt the “Least Cost Mix” principle, which refers to the delivery of energy through a blend of sources and efficiency measures that take into account not only the reliability and the price of these sources but also the public’s willingness to include cleaner, if more expensive, renewable energy sources. Further, Dr. David is for the implementation of the Biofuels Act of 2006, but for him, there should be a comprehensive program to address the biofuel supply shortage. Lastly, he is also for the full implementation of the Retail Competition and Open Access (RCOA) under the EPIRA Law in developing a true open market.

To read the entirety of “Striking a Balanced Energy Mix, Ensuring Security and Affordability”, click here.

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