The subsidy in the form of Universal Charge for Missionary Electrification (UC-ME) shouldered by Filipino consumers for electricity services rendered in off-grid areas is expected to balloon to P28.373 billion by the end of 2021.
“Based on the current policy of uniform subsidy per kilowatt-hour of electricity consumption in off-grid areas, the total annual UC-ME requirements is estimated to increase from the 2011 level of P7.784 billion to P28.373 billion by end of 2021,” said the Department of Energy (DOE) in a notice.
As a universal levy, the UC-ME is being collected from all electricity consumers in the country, including the average households and poor household consumers in the main grids of Luzon, Visayas and Mindanao, and in off-grid areas.
However, the existing subsidy policy involves uniform pricing, such that the same level of subsidy per kilowatt-hour is being provided to residential, commercial and other electricity consumers in off-grid areas.
In effect, poor electricity consumers in the main grids are also paying for the UC-ME to subsidize the electricity consumption of large commercial and even industrial consumers in off-grid areas.
The DOE noted that “this inequity must be immediately addressed.”
One way to cushion this is to formulate a “new well-targeted and efficient subsidy policy for off-grid areas,” said the agency.
An earlier proposal from the DOE was to remove the UC-ME. But the agency, in its notice, said this could not be done without appropriate safety nets to mitigate the effect of the rationalization to the household consumers in off-grid areas.
Instead, the DOE notice proposed the following strategies for the new subsidy rationalization policy:
Replacement of diesel and bunker fuel-fired power plants with low-cost, clean, indigenous and renewable power system in off-grid areas. Phasing out of traditional diesel power plants with renewable plants, which can significantly reduce the cost of generation in off-grid areas, thus, immediately resulting in lower UC-ME subsidy.
Efficient and least-cost dispatch of power plants. Improving system operation in off-grid areas and dispatch of power plants according to least-cost order are expected to lower actual cost of generation, even without replacement.
Modernization of small grids and distribution systems.
Efficient targeting of UC-ME subsidy for poor electricity consumers in off-grid areas. The DOE explained that if subsidies are still necessary despite the above-mentioned mechanisms, the poor and eligible households would continue to receive UC-ME subsidy as safety net.
Removal of automatic subsidies to commercial and industrial customers in the off-grid areas. The DOE said this will address the current situation where poor electric consumers in the main grid are also paying UC-ME that subsidizes the power bills of commercial and industrial customers of ECs in off-grid areas, such as the first-class cities and municipalities of Palawan and Mindoro.
Provision of government funds in the form of electricity subsidies to economic activities and services that contribute to the integrated and inclusive development of off-grid areas within the limits of their carrying capacity.
Intra-connection of existing contiguous small grids and micro-grids is expected to result in optimal system operation and eventually in lowering of cost of generation.
Interconnection of small grids into the main grid.
The agency scheduled a series of public consultations next month.