Hannah Viola, Energy Fellow of the Stratbase ADR Institute and Convenor of CitizenWatch Philippines
The greatest Christmas gift that all consumers could get is affordable electricity prices. As the Christmas shopping season reaches its peak, consumers would much rather spend their hard-earned bonuses on their loved ones rather than on increased electricity bills.
Last month, electricity rates increased due to higher charges in the Wholesale Electricity Spot Market (WESM) attributable to an uptick in power demand coupled with an increase in Malampaya gas prices. This December, it is still uncertain whether the gift of lower electricity prices will materialize or remain a wish.
To manage power rates, the increasing power demand must be complemented with substantial increases in available and dependable power supply.
The Department of Energy (DOE) forecasts a tight power supply in 2019 as the power demand is expected to peak at 11.2 gigawatts (GW) in Luzon, which is nearly 4 percent higher than the 10.8 GW for 2018.
Meanwhile, the biggest growth in power demand is expected in Mindanao, estimated at 2.2 GW, a significant increase at 10 percent from the expected 2 GW this year. In the Visayas, peak demand is estimated at 2.3 GW in 2019, which translates to an increase of 9.5 percent this year. The DOE said this tightness in supply stresses the need for a Luzon-Visayas interconnection.
The importance of this link was similarly highlighted by the Asian Development Bank (ADB) in its report, “Energy Sector Assessment, Strategy, and Road Map of Philippines.” While the Luzon and the Visayas grids are presently interconnected, there is a need to address the insufficient transmission capacity caused by regional supply–demand mismatches.
“The overcapacity dynamic in Western Visayas has led to significant trapped capacity behind the Negros–Cebu interconnection, and the short-run cost of energy and managing grid stability would arguably be lower if sufficient interconnection capacity were in place to alleviate grid congestion. While there are plans for the Negros–Cebu interconnection to be expanded, the implementation time line is unclear and contingent on approval by the Energy Regulatory Commission (ERC).”
Notably, a more ambitious yet important project is the Php 52-billion Mindanao-Visayas Interconnection Project (MVIP), which would link the Mindanao grid to the Visayas grid. This interconnection will carry about 450 megawatts of power between the two grids and ultimately result in a single, unified national grid.
Another challenge in terms of lowering power rates is the timely approval of power supply agreements. Last month, the House of Representative passed Resolution No. 00155 entitled, “Urging the Energy Regulatory Commission (ERC) to Immediately Resolve the Seven (7) Power Supply Agreement Applications of the Manila Electric Company (Meralco),” which seeks to lessen the unexpected shutdowns and power interruptions.
Despite this legislative initiative, issues regarding the extension of the competitive selection process deadline for awarding new generation contracts are marred with regulatory and legal delays. While these issues are properly threshed out as it seeks to ensure that supply is bought and passed on to consumers at the least possible cost, it is important to note that this reflects the timing and certainty of a significant tranche of the new capacities that were expected to go online by 2021–2023.
Increased energy production and output could lead to the expansion of industries, increased investments and employment, which is why making sure that there is adequate supply of affordable and reliable energy continues to be a government priority. In fact, the Philippine Development Plan 2017-2022 stresses the importance of achieving a more affordable and adequate supply of electricity to improve the competitiveness of the country’s economy.
While there are many factors contributing to the increase of electricity prices such as the lack of competition in the industry, the absence of state subsidy and the potential manipulation of market prices, one of the largest drivers of cost is the disruptions in power supply in the form of power outages.
To address this seemingly perennial price problem, the government must not be overwhelmed by the simultaneous reforms that need to be done. Calculated steps are better than making insignificant leaps. Consequently, a step towards reforming the power sector can be made by addressing the thinning supply by increasing power capacities and providing efficient grid interconnectivity. So, will we get even just a little lowering of electricity rates this Christmas season? Well, maybe we should just keep on wishing.
This article was originally published in BusinessWorld.