Balancing price fluctuations, meeting the economy’s growing demand

Atty. Hannah Viola, Energy Fellow of the Stratbase ADR Institute and Convenor of CitizenWatch Philippines

The inflation rate has made a considerable jump this year from 3.8% in January to 5.7% this July. This brings inflation beyond the upper end of the 2 to 4% target of the Bangko Sentral ng Pilipinas (BSP) and already within the full-year forecast of the Development Budget Coordination Committee (DBCC) at 4.5%.

Based on the latest analysis of the Department of Finance (DoF), the leading driver of inflation in July was electricity, gas, and other fuels. For consumers in Metro Manila and neighboring areas, the higher price of electricity represents a combination of the higher feed-in-tariff (FIT) allowance rate and the upward adjustment in the generation charge due to the depreciation of the peso. Prices of household fuels also increased. Private vehicle users faced higher pump prices of diesel and gasoline, which cost P14.30 and P11.60 per liter more, respectively, compared to July of last year.

For the month of August, the prices of goods are expected to rise anew with a projected inflation rate of 5.9%. The prices of electricity, gas and other fuels are estimated to jump the highest among major commodities.

As electricity, gas, and fuels remain to be the major contributors to this uptrend, the Philippine power sector lies at a critical juncture as the challenge to ensure affordable, reliable, and accessible power lies at the heart of balancing price fluctuations, in view of the increasing inflation rates and meeting the economy’s growing demand.

SUPPLY MUST KEEP UP WITH GROWING DEMAND

Based on the Department of Energy’s latest list of committed power projects in Luzon, additional installed capacity in Luzon grew by 4.3% from 15,745 megawatts (MW) in 2017 to 16,426 MW in the first half of 2018. However, this growth was still lower compared to the 8.2% increase in demand from 10,054 MW in 2017 to 10,876 MW in the first half of 2018.

As a result, there have been seven (7) instances of yellow alerts in Luzon in the first half of 2018 compared to only three (3) during the same period last year, based on the group CitizenWatch Philippines’ advocacy called Power Plant Watch, which monitors the performance of power plants and their scheduled shutdowns. The first “yellow alert” happened on Feb. 26, which was a cause for concern for all electricity consumers considering that the tight supply situation occurred before the summer months of March to May when the usual demand for electricity spikes at increasing rates.

A “yellow alert” is declared when the total of all available reserves is less than the capacity of the largest plant online, which, for the Luzon grid, is 647 MW.

EFFORTS TO REDUCE ELECTRICITY RATES

Rising electricity prices have become a source of frustration. Based on the recent Ulat ng Bayan Survey of Pulse Asia, a majority of Filipino adults, at 60% of the respondents, are dissatisfied with the price of their electricity. Dissatisfaction is highest in the National Capital Region at 84%, even if the survey was conducted on June 15 to 21, a week after the Manila Electric Co. (Meralco) announced lower rates that month.

While the electricity rates of Meralco still rank the fourth highest in Asia due to the lack of government subsidies, the latest study of the International Energy Consultants (IEC), an Australia-based consulting firm specializing in Asian power markets, shows that current Meralco residential rates (P/kWh) have in fact decreased by 18% while the overall consumer price index (CPI) climbed up by 19% since 2012. Meralco’s tariff reductions were due to competitively priced power supply agreements (PSA) in their generation portfolio since 2013.

While the decrease in power rates is encouraging, the rising inflation and the concomitant price hike of consumer goods, however, is putting heavy pressure, especially on the poor.

Streamlining of permit process, increasing investments in power generation and resolving regulatory delays

To lower the cost of electricity, regulatory issues and the delay in energy projects in the pipeline must be immediately resolved. Investments in the power sector, especially in generation, must be encouraged and market competition must likewise be promoted.

Creating a more stable environment and increased confidence for generation investment requires the assurance of reliable supply of electricity. As such, ineffective bureaucratic policies that drive away investors can be resolved by fast-tracking and streamlining the permit process. A pertinent legislative measure is Senate Bill 1439, or the Energy Virtual One Stop Shop (EVOSS) Act of 2017, which aims to remove red tape in the permitting process of new power generation projects.

Furthermore, to address the lack of quorum in the Energy Regulatory Commission (ERC), another Commissioner must be appointed to replace the vacancy of retired ERC commissioner Alfredo Non. As we write, only ERC Chairperson Agnes Devanadera and recently appointed Commissioner Atty. Alexis M. Lumbatan are in office in view of the suspension of other incumbent ERC commissioners Josefina Patricia Magpale-Asirit and Geronimo Sta. Ana. As such, the regulatory agency is still paralyzed to adopt any ruling, order, resolution, decision or other acts in the exercise of its quasi-judicial and quasi-legislative functions.

Energy security is crucial for the success of the Duterte government’s economic agenda. This can be met by encouraging investment in infrastructure that could expand access and provide affordable and reliable energy for all. Taking into consideration the market forces at play, it is critical that regulators and legislators should focus on facilitating investment in new generation now to meet rapid demand growth and promote competition at the retail level.

 

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