There are four problem areas of priority concern that a new government administration should give attention to. They are priority because wrong action or inaction will have dire consequences to the whole country, perhaps irreversibly, and because any decision to solve the problem does take some lead time for execution. And when we really feel the ill consequences, it may be just too late to act.
These problem areas of concern are adequate nationwide power supply, adequate water supply, food security; and transportation infrastructure.
Some might dispute these choices but these are, I think, the more immediate concerns that need good hard decisions now, and in which the national government must take the lead. In today’s column, I shall just deal with power supply.
An Economic Intelligence Unit report in May 2015 said: “The Philippines’s electricity consumption is poised to expand by an average 5.7 percent a year in 2015 to 2020. Over the same period, however, generation will lag slightly at an average of 5.3 percent.” What are we doing about this?
Intermittent power outages, such occurs in Mindanao, are simply not acceptable because of their disruptive effects to business and many other productive activities, translating to losses in productivity, income and even employment. In fact, if we recall, only recently in 2014-2015, the country was faced with a power-supply shortage, threatening the possibility of staggered blackouts nationwide. In response, President Aquino then asked Congress for a resolution granting him emergency powers to allow the government to provide additional supply and prevent a power shortage in 2015. It was an
imminent emergency!
Congress debated and delayed and did not give the President the emergency power he asked for. Mercifully, the power shortage did not happen, the President admitting the plan was not feasible.
The Interruptible Load Program was, instead, applied to the Luzon power Grid, under which large electricity consumers, e.g., malls and industrial companies, would voluntarily disconnect from the national grid and switch to their own generators when a power outage was anticipated.
KPMG’s “The Energy Report, Philippines 2013-2014 Edition” points to the Philippine Energy Plan 2012-2030 announced by the Department of Energy in December 2012. This is a road map for future demand and capacity addition plans.
In 2012 the country’s installed generating capacity was 16,250 megawatt. It had increased to 17,944 MW by 2014. It is expected to grow by 60 percent to 25,800 MW in 2030. Against this capacity is the projected demand of 29,330 MW in 2030. That’s 3,530 MW short! More investments in power generation are needed—ahead of time. Probably $25 billion, estimates KPMG.
Parenthetically, of the expected capacity additions to 2030, only 13,000 MW are reported to have been
committed.
Obstacles to investments in the power sector have been cited, e.g., issues on the privatization of government-owned land on which power plants for privatization are built, and the opposition of environmentalists to coal-fired plants, which are the cheaper projects. Coal represents 31.8 percent (5,708 MW) of installed capacity and expected investments are predominantly in coal, so if environmentalists have their way, there could be, in the least, delays in adding capacity.
It is generally acknowledged that the country’s power-generation infrastructures are outdated or insufficient.
But the investments required are not just for power generation but also to provide connectivity of grids between Luzon, the Visayas and Mindanao.
The expenditures are going to be large, and the recovery of investments is a critical consideration. Here is where the regulatory authority, the Energy Regulatory Board, plays a significant role, because it regulates the rates that may be charged, balancing the interests of investors who demand a fair return on their huge investments and consumers who require reasonable rates.
Recognizing the possible gap between supply and demand, projecting a compounded average growth rate of 3.6 percent to 3.7 percent annually in its electricity sales in its franchise area, Manila Electric Company has contracted recently 3,551 MW through seven power supply agreements, to assure future
power supply.
Where are we going to source our power supply? Based on 2014 records, Oil-based generating capacity represents about 19.4 percent and similarly does hydro power at 19.7 percent. Natural gas is 16 percent, but how much longer is this a viable source? The Malampaya gas field that cost around $3 billion to develop was great news, but no other significant investment has been made in developing our indigenous oil and gas resources.
The cost of exploration is too high and legislating incentives has been unsuccessful. Meantime, explorations under existing contracts have not resulted in discoveries.
Moreover, ambiguity in tax treatment is hampering new investments in this particular energy subsector.
We could increase geothermal as a resource, now supplying 10 percent of capacity. After all we are the second largest producer of geothermal power worldwide. Other renewable-energy sources (solar, wind, hydro, biomass) could be developed. How fast can we move?
The government has introduced the feed-in tariff scheme that provides subsidized (higher) rates for renewable-energy projects for an initial subsidy period, but will this be encouragement enough for would-be investors?
We are already, in a manner of speaking, in a state of approaching emergency that summons us to make adequate immediate action now.
The severe power outages we experienced in the period 1989-1993 are too painful to recall and unforgivable to repeat.