meeting the energy crisis

8/16/2019 Meeting the Energy Crisis

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MEETING THE ENERGY CRISIS

In Partial Fulfillment of the Requirements for the

Degree of Masters in Engineering

Major in Electrical Engineering

on Environmental, Energy

and Technology Management

(MEng-ECE C508)

Submitted to:

ALEX C. LUIS, MSCE

Chief, Environmental Monitoring

and Enforcement Division EMB-CAR

Submitted by:

CESAR PAOLO L. GEMINO

Saint Louis University

Baguio City

Philippines

MAY 2016


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MEETING THE ENERGY CRISIS: PROBLEMS AND SOLUTIONS

GEMINO, CESAR PAOLO L.

Saint Louis University, Baguio City, Philippines

ABSTRACT

The energy crisis is the concern that the world’s demands on the limited natural

resources that are used to power industrial society are diminishing as the demand rises.These natural resources are in limited supply. While they do occur naturally, it can take

hundreds of thousands of years to replenish the stores. Governments and concerned

individuals are working to make the use of renewable resources a priority, and to lessenthe irresponsible use of natural supplies through increased conservation.

The energy crisis is a broad and complex topic. Most people don’t feel connected

to its reality unless the price of gas at the pump goes up or there are lines at the gasstation. The energy crisis is something that is ongoing and getting worse, despite many

efforts. The reason for this is that there is not a broad understanding of the complex

causes and solutions for the energy crisis that will allow for an effort to happen that willresolve it.

INTRODUCTION

About 15 years ago the country has experienced an energy crisis. Sufficient

power supply is important to move forward. Mindanao has been suffering from the lack

of electricity. Other provinces like Occidental Mindoro and Palawan are suffering from

long hours of blackout. The Luzon grid has had its fair share of power shortages mostlywhen the power plants stop to work. It may have taken some time, but the Department

of Energy (DOE) said that new power facilities will be up and running beginning 2015. In

Luzon, a total of 2,300 megawatts will be added to the grid from June this year until

September 2019. The Visayas grid will also be augmented by about 442-megawatts,while Mindanao — which has endured power shortages for many years now — will get

an additional 2,000 megawatts. Based on the Energy Department's 5-year outlook, the

additional capacity in Luzon and Mindanao will mean there will be no blackouts until2020. Supply will remain stable in the Visayas until 2018, as data shows there will be

more demand by that year. With the fast-paced growth of the economy, both

government and the private sector must work fast to keep up with the growing demandfor power. For a country growing faster than most of its neighbors, there's no room toplay catch up in the quest for stable power.


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Legal Framework regarding Energy Supplies

Republic Act no. 9513

- Known as “renewable energy act of 2008”

- An act promoting the development, utilization and commercialization of

renewable energy resources and for other purposes

Republic Act no. 9136

- Known as “Electric Power Industry Reform Act of 2001”

- The act allows end-use consumers belonging to the contestable market toobtain power from independent suppliers who are licensed by the ERC.

Two types of Energy Sources

a) Renewable Energy Sources

- Energy sources that do not have an upper limit on the total quantity to be

used. Such resources are renewable on a regular basis and the renewablerate is rapid enough to consider availability over an indefinite time.

b) Non-renewable energy sources

- Energy sources that do not renew itself at a sufficient rate for sustainable

economic extraction in meaningful human timeframes. Such resources that

will run out or will not be replenished in our lifetimes. Coal, oil, Natural Gas,Nuclear

Power generation in the Philippines is not considered as a public utility operation,which means interested parties do not need to secure a congressional franchise to

operate a power generation company. However, power generation is regulated by the

Energy Regulation Commission (ERC) who must issue a certificate of compliance tointerested parties to ensure that the standards set forth in the Electric Power Industry

Reform Act of 2011 (EPIRA) are followed. The ERC is also responsible for determining

any power abuse or anti-competitive behavior. Power generation is a value added taxzero-rated (i.e. not subject to 12% VAT) to ensure lower rates for end-users.

Electricity in the Philippines is produced from various sources such as coal, oil,

natural gas, and renewable sources. The allocation of electricity production can be seenin the table below, according to data from the Department of Energy Power Statistics:


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Source Percentage

Coal 42.8%

Oil-Based 7.4%

Natural Gas 24.2%

Hydro 11.8%

Geothermal 13.3%

Other Renewable Sources (Wind, Solar, Biomass) 0.5%

Table 1. Power generation by source as of 2014


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Source Operational

Hydroelectirc 29

Geothermal 11

Solar/Photovoltaic 2

Wind 4

Coal 11

Diesel 5

Natural Gas 3

Oil 1

Table 2. Number of operational power plants in the Philippines

Power is one of the main drivers of sustainable economic growth. Available

power supply determines the level of production which a country is capable ofsupporting.

Projected Supply And Demand

Historically, demand has outpaced supply. There is currently a tight demand-supply

balance. The Philippines is subdivided into the Luzon, Visayas and Mindanao power

grids, each with distinct power supply to support the regional demand. The Luzon andthe Visayas grids are interconnected; any excess in one grid can be exported to cover

for any power deficiency in the other. The Mindanao grid however, remains isolated andstands alone.

Power supply should be able to cover for (i) peak demand and (ii) reserve requirements.Peak demand represents the highest power requirement registered during the peak

hours in between 11 a.m. and 2 p.m. and typically at the highest during the summer

months. Reserve requirements are stand-by power in the event of unexpected forcedshutdown of key power plant facilities.

Total peak demand for the Philippines was registered at 11,800 Megawatts (MW) as of

end 2014 and is projected to reach 18,600MW by 2025. However, the peak demandprofile and reserve requirement substantially varies per grid.


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The Luzon Grid historically comprises over 70% of the Philippine’s peak demand and in

2014, Luzon Grid peak demand reached 8,700MW and is projected to grow to

13,200MW by 2025, with power reserve requirement of 1,800MW. As of 2014, theLuzon Grid has adequate capacity at 11,600MW and is projected to reach 17,000MWby 2025.

However, when considering the reduction in energy to be sourced from hydropower

plants, especially during the summer as well as from wind and solar power, which areconsidered as intermittent sources of energy, available power from the Luzon Grid maybe sufficient to cover peak demand but will not be able to account for reserve power.

The Visayas Grid shows almost the same profile, with a peak demand of 1,600MW in2014, and is projected to reach 2,700MW by 2025, with reserve power requirement of

400MW. Total available power for the Visayas Grid reached 2,100MW as of 2014 and is

forecasted to grow to 3,300MW by 2025, ideally sufficient to cover peak demand and

reserve requirements. However, reduced capacity from wind, solar and hydro (during

summer months) might be able to cover peak demand, but with very tight reservepower.

The Mindanao Grid is projected to remain stable until 2025, with projected peak

demand of 2,700MW and reserves of 400MW to be supported by 3,500MW of supply.

Even with reduced capacities from intermittent power sources, available power isexpected to be more than adequate to cover the energy requirements, with significantcoal projects in the pipeline supporting the energy supply.

Power Resources

At present, coal power plants comprised over 35% or 5,200MW of total available

capacity in the Philippines. Growth in coal is driven by relatively lower electricity priceand stable electricity supply generated by coal, being a base load power plant.

Renewable energy resources, such as wind and solar in general carry higher break-even prices due to the power plant utilization in relation to the resource but is expected

to grow with government support such as the Feed-in-Tariff systems (FIT) which allow

renewable energy developers to be paid at premium from market electricity rates, forenergy generated by power sources such as wind, solar, run-of-river hydro and biomassplants.

Coal is expected to continue driving the growth in total installed capacity in thePhilippines and is followed by renewable energy, Gas plants and oil.

Cost Competitiveness

In terms of costing, diesel plants have highest cost with coal the lowest. Among the

REs, wind and solar are highest, while hydro and geothermal the lowest. While Capexfor solar is also expected to decrease substantially in the future.


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Banker’s Perspective

Demand-supply outlooks are vital as generally, one of the main concerns of investors

and banks, financing power projects is the market risk that there will be an abundant

supply of electricity such that a power plant will not be able to get guaranteed buyers of

electricity produced whereby the power plant might have to resort to sell at the openmarket at a price below break-even.

More power plants are needed. Banking sector support to finance power projects iscritical to ensure that overall power requirements are addressed. Banks, however,

should be mindful to proceed with caution as any slowdown in market demand could

lead to an oversupply. Power plants to be financed need to provide an acceptableBusiness plan on addressing market risks. Power costs remain to be one of highest in

Asia. If power cost can be further reduced, we can expect the Philippines to be evenmore attractive for business.

Philippines Energy Portfolio

Energy Sources

The economy’s total electricity generation in 2010 was 67,742 GWh, a 9.4%

increase from 61,922 GWh in 2009. Its power requirements for 2010 were sourced

primarily from coal-fired and natural gas-fired power plants, with shares of 34% and29%, respectively. Electricity generated from other renewable sources, including

geothermal—which ranked third in terms of the economy’s power generation—and

wind, solar and biomass increased by 15% during the same year. On the other hand,hydropower plants, ranked fourth out of the economy’s total power generation,

experienced a decline of 7% from the 8 387 GWh of electricity generated in 2009. Oil-

based thermal plants, which provided 10.5% of the economy’s total powerrequirements, increased by 16% in 2010.

Total primary energy supply in 2010 reached 40 730 kilotonnes of oil equivalent

(ktoe), a 3.2% increase from the 2009 supply level of 39 457 ktoe. Of this total, 57.5%

was contributed by indigenous sources; the remainder was imported. Geothermal and

other renewable energy resources accounted for 39.5% of the total primary energy

supply, while oil and coal, which are largely imported, contributed 36% and 17.4%,respectively.

The Philippine’s energy portfolio is quite unique in the region in that domestically,

it has few of its own fossil fuel resources, it’s energy mix already includes a highcapacity of renewable energy and, in terms of pricing, the Philippines has the 2ndhighest electricity rates in Asia and the 4th highest in the world. The high cost of

electricity is partly attributed to high costs related to importing fossil fuels. As far as

renewable energy sources, the Department of Energy reported that 40.6% of theprimary energy mix was contributed by renewable energy sources in 2011, primarilycomposed of geothermal at 21.7%, followed by biomass at 12.4%and hydro at 6%.


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Reliance

In 2010, to help meet the economy’s fuel requirements, the Philippines imports

42.5% of its total energy supply. Net imported fuels were mainly comprised of oil and oil

and products (79.1%), coal (20.3%) and biofuels (0.6%). Levels of net imported energy

were 8.5% higher than the 2009 level of 15,970 ktoe.Extend Network

The Philippines consists of several islands, the larger of which are the islands of

Luzon, mainland Mindanao, and the six largest islands in the Visayas (Cebu, Negros,Panay, Bohol, Leyte, and Samar). These eight dominant islands constitute the majorelectrical systems of the country with a combined power demand of around 7,000 MW.

At present, the main islands in the Visayas are interconnected to each other with

limited transfer capacity. The interconnected grid is linked with the Luzon grid toeffectively share the reserve capacity of the system. The Mindanao grid remained

isolated from the rest of the system until 2004, when a 500 MW, 436 km HVDCconnector was constructed between Leyte and Mindanao.

The economy’s barangay (a village, district or ward, i.e. the basic political unit)

electrification level rose from 99.85% in June 2010 to 99.89% as of end of December2010.

Among the major islands, in 2010 Visayas had already reached the 100%electrification level, while Luzon’s was recorded at 99.87% and Mindanao’s at 99.82%for the same period.

In view of the Philippines’ complex geographical system, the economy faces a

continuing challenge in attempting to achieve 100% household electrification. Hence,the government, through the DOE and other energy stakeholders, spearheads the

development of various innovative service delivery mechanisms designed to increaseaccess to electricity services.

Capacity Concerns

Currently, about 75% of fossil fuel demand is met by imports. Therefore, the

Philippines’ energy policy agenda should consider ensuring the security of energysupply as important.

Renewable EnergyOn the whole, achievements in increasing renewable energy capacity have been

modest. As of end-2011, the share of new and emergent renewable energy plants in the

country increased by only 0.60% from 2007 (to 0.72%), even as imported oil and coalplants maintained their share in the energy mix (at 49%) over the same period.

1. Hydro


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The Philippines derives 3,367 MWh from its hydro resources, partly through five

mini-hydro power contracts. Eleven hydro-power plants with a total capacity of 300 MW

are being developed. The abundance of water resources makes hydropower animportant part of the energy sector. However, the large up-front investments, long

construction periods and related environmental concerns have tarnished some of its

attraction. Hence, the government focuses on small hydro. The Department of Energy(DOE) estimates the potential for small hydro is roughly 1,300 MW. Plans from the DOE

estimate an increase in hydropower capacity to 5,468 MW, an increase which isexpected to provide 7.7 TWh of additional electricity generation per year, equivalent to a

fuel oil displacement of 12.9 million barrels of fuel-oil equivalent (MMBFOE). The

potential for utilisation of wave/OTEC power sources has been assessed by theMindanao State University, with a theoretical potential of 170,000 MW to be found within

the archipelago's significant ocean territory.

2. Wind energy

Despite minimal use of wind energy in the Philippines, potential is strong. A windmapping survey estimated that the Philippines could potentially generate 70,000 MW

from the available wind resource. The survey identified 47 provinces, with the potentialto generate at least 1,000 MW each. Average wind power density across the country is

estimated at 31 W/m2. The wind resource is greatest in the north and north-east of the

country. Areas that face east towards the coast from Luzon to Samar also represent

good-to-excellent wind resources for utility-scale, and excellent wind resources for

village-scale, applications. Less potential exists in the south and south-west of thearchipelago. Existing use of wind generation includes a 10 kW stand-alone system that

provides electricity to 25 households. Batangas Province has a 25 kW stand-alone

system with six different loads. A 3 kW wind-diesel system is also in use for atelecommunications relay station. A 25 MW wind farm was inaugurated in June 2005 at

Bangui Bay, Ilocos Norte, which is the first wind farm to be fully operational in thePhilippines, and the largest in South-East Asia.

3. Solar energy

The Philippines has one of the longest histories with PV systems in Asia. The

majority of its programs have been aid-driven, with mixed results. Whilst the technical

potential is present, prohibitive costs and grid extension of conventional electricityhinders the commercial potential of solar home systems. Average insolation across the

country ranges from 4.5 to 5.5 kWh/m2/day. Current utilisation is low, however, due tofactor, including low public image of the technology, as well as lack of technical andmaintenance capacity. Installed capacity in 2000 amounted to 567 kW. Stimulus was

received for the technology in 2004, with the opening of the Sunpower Solar Wafer

Fabrication Plant, which was expected to provide 30% of its supply to local markets,driving down prices for PV significantly.


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4. Biofuels

The Philippines is said to be one of the largest producers of coconut products,

where approximately 26% of the country’s agricultural land (or 3.56 Million hectares, by

2010) is planted with coconut trees. The country has indeed further wisely utilized thisresource to produce a “green”source of fuel-the coco-biodiesel. The Philippines has

started producing coco-biodiesel, or coconut methyl ester (CME), as an effort forcleaning our air and energizing our economy. Coco-biodiesel is a type of bio-fuel

derived from coconut oil, and can be used alone, or blended with petro-diesel, to run

diesel engines.

5. Geothermal energy

Geothermal continues to be the major indigenous resource of the economy, with

a 22.5% share of its total indigenous primary energy supply in 2009. It is used solely for

power generation. With a total installed capacity of 1958 MW, the Philippines is thesecond largest producer of geothermal energy in the world. The economy aims to bethe number one producer, and the government continues to encourage greater private

sector involvement in the exploration and development of the economy’s vastgeothermal energy potential.

Energy Efficiency

Power savings

By sector, the power sector has the biggest energy savings potential at 5.3 Mtoe

in 2035, followed by the transport sector (2.5 Mtoe), the residential and commercial

sectors (2.4 Mtoe), and the industry sector (1.2 Mtoe).

The power sector’s energy savings come mainly from the electricity demandsavings from the industry and residential and commercial sectors, and resulting lower

input fuel requirements. Thermal efficiency improvements in power generation will

account for about 15% of total savings.

Ownership

The Philippines was one of the first Southeast Asian countries to allow IPPs with

the first IPP contract signed in 1989. In 2001, about 41% of electricity is produced by

the IPPs and the rest by the National Power Corporation (NAPOCOR) in thePhilippines.

Competition

The Philippines has had a very strong history of successful independent power

producers (IPPs) implementations. The country started seeing private sector


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participation in power since the early 90s. One of the first successful IPPs was the 735

MW Pagbilao coal-fired plant in Quezon. The formation of the Public-Private Partnership

(PPP) framework under the Build-Operate-Transfer (BOT) Law enacted amid the powercrisis in the early 90s led to a number of IPPs being set up to meet the power demand

in the country. This resulted to investments from foreign companies (AES, Tokyo

Electric, and Marubeni) as well as development of domestic power companies (Aboitiz, Ayala, Energy Development Corporation, Mirant, Meralco, SMC Global Power, etc.).

The big push for privatization and restructuring in the Philippine power sector

came in the wake of a 1994 World Bank study proposing radical reforms in the industry.

Pursuant to the Electric Power Reform Act 2001 (EPIRA), Power Sector Assets and

Liabilities Management Corporation (PSALM) was mandated to reform and restructure

the sector. Since its formation, PSALM has successfully privatized 26 generating plantsand the National Grid Corporation of the Philippines (NGCP) through a 25-year

concession while it appointed IPP administrators for five generating plants. Thus, by

liquidating all of the financial obligations of the National Power Corporation (NPC), the

stage is now set for the introduction of a competitive power market in the country.

With the privatization of generation assets held by the National Power

Corporation (NPC), the generation sector can be considered competitive as more

investors from the private sector are engaging in the business of producing and sellingelectricity in the market. NPC, in the meantime, continues to generate its own electricity

and buys electricity from Independent Power Producers (IPPs). The capacity producedby IPPs is also in the process of being privatized and assigned to IPP administratorstrading in the market on behalf of NPC.

A number of bodies distribute electricity throughout the Philippines, including

investor-owned utilities such as the Manila Electric Company (Meralco), localgovernment-owned utilities and consumer-owned electricity cooperatives. Both the

investor-owned utilities and electricity co-operatives operate under a rate-setting

regime, whilst the investor-owned utilities operate on a performance-based scheme,which is slightly modified in approach and implementation for electricity co-operatives.

The transmission assets held by NPC were transferred by EPIRA to the National

Transmission Corporation (TransCo). The operation, maintenance and upgrade of theassets, on the other hand, was privatized by way of concession contract undertaken by

the Power Sector Assets and Liabilities Management Corporation (PSALM). PSALM

then awarded the 25-year concession contract to the National Grid Corporation of thePhilippines (NGCP). As concessionaire, NGCP is required to prepare the Transmission

Development Plan and is authorized to collect wheeling charges and other fees, asapproved by the ERC.


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Energy Framework

National Renewable Energy Program (NREP)

Under the state’s National Renewable Energy Program (NREP), the DOE seeks

to increase the RE-power based capacity of the country to 15,304 MW by year 2030, or

three times the 2010 capacity-level. On a per technology basis, the NREP seeks a 75%increase in geothermal capacity, 160% increase in hydropower capacity, 277 MW

additional capacity in biomass power, wind power “grid parity” with the commissioning of2,345 MW additional wind capacity, an additional 248 MW of solar power capacity (plus

an “aspirational” solar target of 1,528 MW of additional capacity), and to developing the

first ocean energy facility for the country. As a critical milestone to meeting thesetargets, 2,155 MW of additional capacity must be installed by 2015, according to theNREP.

Energy Plan 2012-2030

The Energy Plan 2012-2030, which the DOE launched in December 2012, laysdown the roadmap for future demand and capacity addition plans. As per the plan, the

current installed capacity in the country of about 16,250 MW is expected to go up to

25,800 MW (an increase of about 60% by 2030). Specifically, the objectives of the Planare as follows:

- expand energy access

- promote a low-carbon economy

- climate-proof the energy sector

- develop regional energy plans

- promote investments in the energy sector

- identify and implement energy sector reforms.

These policy objectives are supported by specific quantifiable targets to beachieved by the end of 2030, the most prominent of which include:

- triple renewable energy capacity by 2030;

- achieve 90% household electrification by 2017 and 100% energisation at

“sitio” level (an administrative-territorial category in the Philippines) by 2015;

- have 30% of all public utility vehicles running on alternative fuels;

- implement a higher blend of biofuels; and,

- achieve 10% energy savings on total energy demand

The Philippines Department of Energy has put forward long-term energy plan

targets through its National Renewable Energy Program, aiming to triple its renewable

energy capacity base to 15,304 MW by 2030. More specifically, these targets aredifferentiated by technology, and include hydro (8,724 MW), geothermal (3,461 MW)

and wind (2,378 MW). This would signify an increase in renewable energy capacity of 9,

865.3 MW, increasing the total shares of hydro by 5,394.1 MW, geothermal by 1,495MW, and wind by 2,345 MW, based on 2010 figures.


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The Philippines has implemented minimum energy performance standards for air

conditioners, compact fluorescent lamps, and linear fluorescent lamps, and plans to

expand the capacities for testing laboratories for televisions, washing machines, andrefrigerating equipment. Various initiatives related to energy savings in the residential

and commercial sectors have been successful; examples include the ADB-led phase-

out of incandescent lamps, the IFC-supported efficient lighting initiative program, theGEF/UNDP-supported efficient lighting market transformation program, and thegovernment energy management program.

The passage of the Biofuels Act of 2006 (RA 9367), was a major policy leaptoward harnessing the economy’s domestic alternative energy resources.

The introduction of alternative fuels in the Philippines provides a feasible option

for minimizing the effects of continuous increases in the price of crude oil in the world

market, and of worsening environmental conditions. In implementing the Act, the DOE,

under its Biofuels Programme, accredited a total of 13 biofuel producers (nine for

biodiesel and four for bioethanol) in 2011.

The biofuels program of the Philippines hopes to create market awareness for

alternative energy projects in collaboration with various industry stakeholders. In

addition, as the transport sector accounts for the greatest share of demand in the

economy’s total consumption, it plans to pursue efforts to forge partnerships withacademic and research institutions to conduct on-road performance and durability testsfor a higher biofuels blend for vehicles.

Energy Debates

The obstacle to the country’s fully realizing the benefits of renewable energy

through the installation of RE generation capacity is not the lack of investor interest inthe sector. On the contrary, from 2008 (the year of the RE Law’s passage) to end-2012,

a total of 300 service contracts for projects totalling more than 5,600 MW of capacitywere applied for and awarded by the DOE. A further 193 were pending approval as of

the end of 2012. One of the key problems has been regulatory delay and the

accompanying uncertainty in respect to the nature and extent of the economic and otherrisks developers will have to assume in building and operating their power plants.

A case in point is the delay in implementation of the FIT scheme, a ground-

breaking renewable energy policy under which an eligible RE plant shall be entitled to a

guaranteed payment of a fixed rate called the feed-in tariff (which varies only amongtypes of resource) for each kilowatt-hour of energy it supplies to the relevant grid.

Payment of the FIT is funded from collections of a uniform charge called the FIT

Allowance or FIT-All that shall be payable by all electricity consumers. As a guaranteedrate, the FIT is an effective measure to mitigate market and price volatility risks for

investors and thus make RE power plant development economically feasible (evenattractive) and financeable.


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However, implementing regulations on the FIT were issued by the Energy

Regulatory Commission (ERC) only on 12 July 2010, or almost two years after the

passage of its enabling law. It took another two years for the ERC to establish in July2012 the FIT rates applicable to each type of renewable energy resource covered by

the RE Law. In addition, some of these ERC-established rates, for wind and solar, for

example, were significantly lower than those applied for by the National RenewableEnergy Board (NREB). The ERC has yet to commence the consultative process for

approval of the FIT-All rate, which is essential to the full implementation of the FITscheme.

Energy Studies

The Philippines is also a member of the Association of South-east Asian Nations

(ASEAN), and is involved in the regional integration of power networks and energysector development afforded under the organisation.

The ASEAN Plan of Action for Energy Cooperation (APAEC) 2010-2015 is the third of aseries of regional energy implementation plans. It covers the energy component of the

ASEAN Economic Blueprint 2015 and aims to enhance energy security, accessibility

and sustainability for the ASEAN region to accelerate implementation plans of thefollowing program areas:

- ASEAN Power Grid (APG)

- Trans-ASEAN Gas Pipeline (TAGP)

- Coal and Clean Coal Technology

- Renewable Energy

- Energy Efficiency and Conservation

- Regional Energy Policy and PlanningRole of Government

The Philippine Department of Energy (DOE, www.doe.gov.ph) sets overall policy

goals in the energy industry. Under the Department of Energy Act 1992, the DOE ismandated to prepare, implement and supervise all plans relating to the energy sector,

including the exploration and development of new energy sources and their utilization,in addition to the distribution and conservation of energy sources and power.

Government Agencies

The NREB is primarily a consultative and recommendatory body created byvirtue of the Renewable Energy Act 2008 to facilitate the implementation of the

mechanisms under the Act. To ensure participation and consultation of all key

stakeholders, the board is composed of one Chairman and 14 board members comingfrom both the private and public sectors. There are one representative each from the

following sectors: Renewable Energy Developers, Government Financial Institutions,

Private Distribution Utilities, Electric Cooperatives, Electricity Suppliers and Non-Governmental Organizations.


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Energy Procedure

The Renewable Energy Bill that, after pending in Philippine Congress for more

than 18 years, was passed by the Senate in 2008 and contains a set of initiatives to

attract renewable energy developers to invest in the country. Dubbed as the Renewable

Energy Act of 2008, it gives incentives to investors and energy producers to buildrenewable energy power plants instead of fossil fuel-based systems. The legislation

aims to accelerate the development and use of the nation's vast renewable energyresources through fiscal and non-fiscal incentives for investors. It also assures investors

in wind, solar, ocean, run-of-river hydro power and biomass a secure market in

electricity generated from these clean sources through feed-in tariffs. Other incentives

include duty-free importation of equipment, tax credit on domestic capital equipment

and services, special realty tax rates, income tax holidays, net operating loss carry-over,accelerated depreciation and exemption from the universal charge and wheeling

charges. The bill also seeks to institutionalise a Renewable Portfolio Standard requiring

the country's electric utilities to obtain a certain portion of their electricity from clean,

home-grown renewable energy sources. The DOE signed the implementing rules andregulations (IRR) just five months after the law was passed. With the signing, the DOE

expects to further boost investments in the sector and double power production from thesector to 9,000 MW by 2013.

Aiming to build on the success of the NRE Sources Development Program, and

the 100% electrification of barangays in the country in 2009, the NEA constructed the2010 Medium-term Development Plan, aiming at 100% electrification of Sitios, the next

geo-political unit of society, as well as a line enhancement program to improve the

electricity access of the newly-powered barangays.

In November 2009, the Philippine Government, in agreement with the AsianDevelopment Bank (ADB), the International Bank for Reconstruction and Development,

and the International Finance Corporation developed a business plan. The plan is called

the Clean Technology Fund (CTF) Country Investment Plan (CIP). The CIP is aproposal to use the CTF resources in the Philippines, and includes a potential pipeline

of projects and required resources.The sectors considered for using the CTF fall into three subsectors:

- energy efficiency

- renewable energy

- urban transport

However, the programs proposed for CTF financing do not involve new

technology. Rather, they involve technology that is readily available to the Philippines,but that faces institutional, regulatory, or cost barriers (especially upfront investmentcost barriers) which must be overcome for replication and up-scaling.

Energy Regulator


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The Energy Regulatory Commission (ERC, www.erc.gov.ph) is charged with

regulating the electricity sector. The ERC was established June 2001 through the

Electric Power Industry Reform Act of 2001. The Act abolished the Energy RegulatoryBoard (ERB) and created the ERC, which is an independent regulatory body performing

the combined quasi-judicial, quasi-legislative and administrative functions in the electric

industry. With the EPIRA, the ERC has been reconfiguring itself to be a competent,“strong, independent and professional regulator, to transform the electric industry andbalance the interests of all stakeholders.”

Degree of Independence

Appointments to the Commission are the sole prerogative of the President, andthere is no transparent process. The incumbent ERC Chairman and his immediate

predecessor are both former Congressmen. Other members of the Commission often

come from the regulated industry players. The Board of the Commission consists offive members, a Chairperson and four Commissioners.

There is perception from academics in economics, as well as from industry

players, that tariff setting is influenced by the populist political stance of the Presidency,

resulting in low tariffs. On the other hand, there is also the perception from civil society

organizations that, given the background of many ERC members, the ERC is prey toregulatory capture by influential industry players.

Financing for the Commission is allocated from the national budget.

Regulatory Framework

In 2008, the Philippines signed the Renewable Energy Act which became

effective 6 months later and provides the legal basis for renewable energy developmentand promotion in the country. The Act is very comprehensive, and puts forward a

number of fiscal and non-fiscal incentive mechanisms to encourage renewable energydevelopment. The two major non-fiscal mechanisms for encouraging generation ofrenewable energy resources are the Feed-in Tariff and Net Metering.

To supplement these mechanisms, the law also provides for the following non-fiscal mechanisms: Renewable Portfolio Standards (RPS), Green Energy Option, and a

Renewable Energy Market. Other fiscal incentives include an income tax holiday, a

lower corporate tax rate of 10% for new and existing renewable energy developers, taxand duty free importation, zero percent VAT rate, and payment of transmission charges,

among others.

Unfortunately, of the non-fiscal mechanism, only the feed-in tariffs has been

finalized and approved, which has not come as an easy process. The Philippines

Energy Regulatory Commission (ERC) finally approved feed-in tariff rates in July 2012,

4 years after first being proposed in the Renewable Energy Act of 2008, which directedthe government to set rates for wind, solar, run-of-river hydro, biomass and oceanthermal energy.


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Regulatory Roles

In preparing the electricity market for open access and competition, the ERC has

been developing and promulgating a number of rules and regulations and has identified

seven pillars for building a vibrant electricity market:

i. Business Separation Guidelines directs distribution utilities (DUs) to have a

clear separation of accounts for their regulated and non-regulated activities, and nocross-subsidies between their business activities;

ii. Competition Rules to guard against the abuse of market power and anti-

competitive agreements resulting from mergers and acquisitions between marketparticipants;

iii. Distribution Services and Open Access Rules for interface between the DUsand all users of the distribution system, including retail electricity suppliers (RES);

iv. Guidelines for the Issuance of Licenses to RES prescribe the criteria,procedures for securing a license, as well as the general obligations of a RES;

v. the Code of Conduct for Competitive Market Participants establishesstandards of behaviour for marketing electricity to contestable customers;

vi. Guidelines for the Supplier of Last Resort (SOLR) prescribes the conditionsand procedures for SOLR service, the rates, the terms of service, etc.;

vii. Uniform Business Practices (UBP) - rules relating to customer enrolment,switching and exchange of information between retail market participants.

Energy Regulation Role

Despite being an independent agency, the President of the Philippines directly

appoints commissioners of the ERC. Under the provisions of the Electric Power Industry

Reform Act, the ERC is given exclusive authority to issue regulations pertinent to the

electricity sector. No other government department takes an active role in energyregulation, after the deregulation of the downstream oil market of the country in 1998.

Regulatory Barriers

In the Philippines, renewable energy development is burdened by a lack of

coordination among involved authorities in permitting procedures. According to anNREB official, there is a need to establish a One-Stop Shop to handle and streamline all

renewable energy applications. The long and convoluted process to incorporate the

company, apply for service contracts, secure the permits and licenses, and deal with somany government offices discourages many possible investors and delays the projects.

The Market Service Centre (MSC) was set up in the Philippines as a one-stop shop to


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remove barriers to renewable energy development in the Philippines and the DOEsREMB has integrated several of the functions of the MSC.

Electric power transmission

Electric power transmission is the bulk movement of electrical energy from a

generating site, such as a power plant, to an electrical substation. The interconnectedlines which facilitate this movement are known as a transmission network. This is

distinct from the local wiring between high-voltage substations and customers, which istypically referred to as electric power distribution. The combined transmission anddistribution network is known as the "power grid".

Causes of the Energy Crisis

It would be easy to point a finger at one practice or industry and lay the blame for the

entire energy crisis at their door, but that would be a very naive and unrealistic

interpretation of the cause of the crisis.1. Overconsumption: The energy crisis is a result of many different strains on our

natural resources, not just one. There is a strain on fossil fuels such as oil, gas and coal

due to overconsumption – which then in turn can put a strain on our water and oxygenresources by causing pollution.

2. Overpopulation: Another cause of the crisis has been the steady increase in the

world’s population and its demands for fuel and products. No matter what type of foodor products you choose to use – from fair trade and organic to those made from

petroleum products in a sweatshop – not one of them is made or transported without a

significant drain on our energy resources.3. Poor Infrastructure: Aging infrastructure of power generating equipment is yet anotherreason for energy shortage. Most of the energy producing firms keep on using outdated

equipment that restricts the production of energy. It is the responsibility of utilities tokeep on upgrading the infrastructure and set a high standard of performance.

4. Unexplored Renewable Energy Options: Renewable energy still remains unused is

most of the countries. Most of the energy comes from non-renewable sources like coal.


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It still remains the top choice to produce energy. Unless we give renewable energy a

serious thought, the problem of energy crisis cannot be solved. Renewable energy

sources can reduce our dependance on fossil fuelsand also helps to reducegreenhouse gas emissions.

5. Delay in Commissioning of Power Plants: In few countries, there is a significant delayin commissioning of new power plants that can fill the gap between demand and supply

of energy. The result is that old plants come under huge stress to meet the dailydemand for power. When supply doesn’t matches demand, it results in load sheddingand breakdown.

6. Wastage of Energy: In most parts of the world, people do not realize the importanceof conserving energy. It is only limited to books, internet, newspaper ads, lip service and

seminars. Unless we give it a serious thought, things are not going to change anytime

sooner. Simple things like switching off fans and lights when not in use, using maximum

daylight, walking instead of driving for short distances, using CFL instead of traditional

bulbs, proper insulation for leakage of energy can go a long way in saving energy. Readhere about 151 ways of saving energy.

7. Poor Distribution System: Frequent tripping and breakdown are result of a poordistribution system.

8. Major Accidents and Natural Calamities: Major accidents like pipeline burst and

natural calamities like eruption of volcanoes, floods, earthquakes can also cause

interruptions to energy supplies. The huge gap between supply and demand of energycan raise the price of essential items which can give rise to inflation.

9. Wars and Attacks: Wars between countries can also hamper supply of energy

especially if it happens in Middle East countries like Saudi Arabia, Iraq, Iran, Kuwait,UAE or Qatar. That’s what happened during 1990 Gulf war when price of oil reached itspeak causing global shortages and created major problem for energy consumers.

10. Miscellaneous Factors: Tax hikes, strikes, military coup, political events, severe hot

summers or cold winters can cause sudden increase in demand of energy and can

choke supply. A strike by unions in an oil producing firm can definitely cause an energycrisis.

In the Philippines

Increase in Energy Demand

The typhoon Yolanda, known internationally as Haiyan, left a trail of destruction

in its wake on the island nation of the Philippines in November, 2013. As a result of this

destruction, there were repeated power outages of several hours duration. Moreover,

aside from the impact of various environmental disasters, the strong economic growth in


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the Philippines has led to an increased energy demand and the highest electricity costs

in Southeast Asia.

A Devastating Effect on the Economy and Population

According to Energy Minister Carlos Jericho Petilla, the expected power outages

are likely to far surpass previous emergencies. Companies and business people will be

forced into work interruptions of several days duration which could lead to layoffs and

economic constraints. Ordinary citizens will suffer from the energy crisis as well. For

example, water shortages in the hot summer months due to failure of the electrical

water pumps, the cancellation of train transportation due to irregular power supplies,

and other doomsday scenarios are conceivable.

Renewable Energy as the Key to the Future

The government, however, has recognized these bleak future prospects and has

been actively seeking solutions for some years. According to the Department of Energy,

the Philippines comes out very far ahead in an international comparison with 40 percent

of its energy secured from renewable energy sources such as wind, water and solar

energy.

In 2008, former senator Loren Legarda stated that renewable energy will be the

primary issue of the future… more important than war, famine, financial crises, and

even more important than the collapse of human civilization (Manila Bulletin, 2008).

Private Solar Energy Supplies

Solar energy plays a particularly important role in the Philippines in addition to

energy generation through wind and water power. A mere 0.01% of the available

sunlight would be sufficient to meet the world’s energy needs, even on cloudy days. The

use of solar energy is emissions-free and noiseless and does not pollute the water or

air.

Photovoltaic systems render the sun’s energy usable and can be easily and

conveniently mounted on almost any type of roof. Gain independence from externalpower providers, and use the electricity you produce for your own use, or benefit from

the feed-in tariff. A solar energy system preserves the environment, is easy on your

wallet, and protects you from the energy crisis.


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Solutions for the Energy Crisis in the Philippines

1. Interruptible Load Program (ILP)

Under the ILP, customers with large power requirements, like commercial

establishments, will be asked to operate their own generator sets if the grid operator

projects a need to augment generation capacity in the Luzon grid. Through this, thedemand for power from the system will be reduced to a more manageable level. But theproblem with this is it is voluntary.

2. Build more environmental-friendly plants

In the Wallace Business Forum’s Quarterly Roundtable, the Department ofEnergy (DOE) pointed out that 165 signatures were needed to get the permits to build

plants. This red tape entangled all over the country’s future power infrastructure is

jeopardizing its potential growth. There is enough interest to build plants in the country,

but building a power plant takes at least three to five years. Many times it is longer than

that to even get approval to get started.

3. Improve governance, efficiency and management of the power sector

Not enough new power plants are being built as fast as the increase in the

demand for power, as projected reserves are noticeably thinner than needed for thewhole Philippines.

The generally accepted level of reserves is at least 20 percent. Thus, reserves

should be at least 1,900 MW for Luzon, 400 MW for the Visayas and 300 MW for

Mindanao in 2014. But currently they are only about 800 MW (8 percent), 540 MW (26percent) and 80 MW (5 percent), respectively.

4. Reduce power demand

By reducing ones power demands, by turning off unused lights and appliances

for example, it can greatly reduce the consumption of power when practiced by manypeople on a large scale.

Emergency powers

With no assurance from the private sector, the energy chief said the government

has no choice but to step in.

He asked President Benigno Aquino III to invoke Section 71 of EPIRA, whichstates:

“Upon the determination by the President of the Philippines of an imminent

shortage of the supply of electricity, Congress may authorize, through a joint resolution,


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the establishment of additional generating capacity under such terms and conditions asit may approve.”

Prior to EPIRA’s passage, the government, through the National Power

Corporation (Napocor), had monopoly over power generation and transmission in the

country. However, mismanagement and corruption caused the state power firm to bleeddry. Its debts and the high costs of maintaining its assets were a heavy burden on statecoffers and consumers.

EPIRA was passed to put an end to this. It introduced sweeping reforms, among

them the privatization of most of Napocor’s power assets and the breakdown of the

industry into different privatized segments. The reforms were meant to encouragecompetition among power players and eventually reduce electricity prices in thePhilippines, now among the highest in the world.

Essentially, the law barred the government from putting up additional generatingcapacity and the private sector was left to do all the work.

Private sector investments took a while, however, and this is where it got

problematic. To begin with, Petilla acknowledged there are 160 plus steps for approving

a new power plant, which takes years to build. Investors, for their part, played it safe bywaiting for how the reforms under EPIRA would play out. They refused to pour in theirbillions unless they were certain of demand.

Giving the President emergency powers will allow the government to contractnew power capacities.

This proposal is backed by several lawmakers, among them Senator Sergio

Osmeña III, chairman of the Senate committee on energy.Backup system

With these thin reserves, a breakdown of just one or two plants will result in

brownouts. Given that 21 percent (3,182 MW) of the country’s total dependable capacitycomes from plants more than 30 years old, breakdowns will occur. It would be wise foranyone who must have continuous power to have a backup system.

Aside from addressing thin reserves, the country’s power transmission system

also needs rehabilitation and expansion for it to handle congestion in the grid and to beable to support the growing demand for power and the entry of new generators. With a

good delivery system, the reliability and quality of power are improved.

Full interconnection

Also needed is for the archipelago to be fully interconnected and for loopsystems to be developed.

National Grid Corp. of the Philippines (NGCP), the country’s grid operator, plansto build a 500-kilovolt (kV) backbone loop system for Luzon.


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It also plans to develop new transmission lines and new 500-kV and 230-kV

substations in Metro Manila, which currently accounts for 53 percent of the total load inthe Luzon grid and 40 percent of the total load of the country.

NGCP will establish a 230-kV Cebu-Negros-Panay line in the Visayas grid to

strengthen the backbone since the current radial configuration is very long, making itprone to grid failure by any incident along the line.

For the Mindanao grid, NGCP plans to upgrade old substations that needimmediate attention. Although Mindanao looks to have a stable power situation in thenext four years, it badly needs additional transmission facilities.

A major transmission project that the government has been eyeing for over 30

years is the Leyte-Mindanao Interconnection Project (LMIP). This 400-kilometer projectwould connect the Mindanao and the Visayas grids. But it still remains (30 yearsremember) under study.

ERC

Which of the two routes to take may be submitted to the Energy RegulatoryCommission (ERC) by end-2014 or early 2015. Heaven alone knows how long the ERCwill then take to decide.

But why does it take the government 30 years to decide, let alone construct a

transmission line and approve the construction of a power plant in more than threeyears?

In the Wallace Business Forum’s Quarterly Roundtable, the Department of

Energy (DOE) pointed out that 165 signatures were needed to get the permits to build

plants!

Yes, you read it right: 165. This red tape entangled all over the country’s future

power infrastructure is jeopardizing its potential growth. There is enough interest to build

plants in the country, but building a power plant takes at least three to five years. Manytimes it is longer than that to even get approval to get started.

Another problem is the inconsistency in the decisions made at the local

government unit (LGU) level brought about by frequent changes in leadership

(governors and mayors), with different interests or priorities. As Petilla said, “We needfull-time jobs working in LGUs (to handle power projects).”

Independent unit

What is needed is a specialized independent unit at the local level composed ofprofessionals who can handle approvals and monitor construction.

Is the Philippine power infrastructure system on par with its neighbor countries?


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In terms of capacity and cost, it is not. In terms of management or governance, itis also a resounding “no.”

Looking at countries similar to the Philippines in terms of economic andgeographic profile is revealing.

Indonesia has the cheapest electricity with an average of $0.09/kWh, whileMalaysia has an average of $0.12/kWh and the Philippines, $0.22/kWh. Indonesia is anarchipelagic country like the Philippines, so its costs should be similar.

The Department of Trade and Industry wants to revive the manufacturing sectorbut with these cost differentials and the current status of power infrastructure how canthat be possible? Power is a major cost for a factory.

The Electric Power Industry Reform Act of 2001 (Epira) has covered the

important elements in reforming the country’s power sector. The law has five mainobjectives:

Privatization of power assets

Improving competition in the power sectorWidening the scope of electrification

Lowering of electricity ratesIncreasing power supply and reliability of the sector

Of these five, lowering electricity rates and increasing supply and reliability ofpower seem to be the most difficult for the governing bodies to implement.

Geography

Petilla has mentioned that balancing reserves (which consequently lowers powerrates) is difficult because of our geographic profile. The balancing of reserves is a

common problem in other countries, too. But the advantage of other countries is theirgeographical location.

Thailand, for example, is a landlocked country so it can easily import needed

power from other landlocked countries like Laos and Myanmar. Location is also one ofthe reasons behind the high power rates in the Philippines.

The country’s geographic location cannot be changed but what can be done is to

improve the implementation of Epira. It does not need an amendment, contrary to what

some sectors are clamoring, just full implementation by removing bottlenecks in theimplementation of power projects.

NGCP and Manila Electric Co. (Meralco) have plans for upgrading the supply

and reliability of power but the main bottleneck is at the local level—in getting permitsand approvals.


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References:

http://www.reegle.info/policy-and-regulatory-overviews/PH

WWF & World Energy Institute (2013): Meeting Renewable Energy Targets: Global

Lessons from the Road to Implementation Available

at:http://awsassets.panda.org/downloads/meeting_renewable_energy_targets__low_res _.pdf Accessed 16th February 2014

Wu, Yanrui (2012): Chapter 4: Electricity Market Integration: Global Trends and

Implications for the EAS Region Available at: http://www.eria.org/Chapter%204-Electricity%20Market%20Integration-

Global%20Trends%20and%20Implications%20for%20the%20EAS%20Region.pdf Accessed 14th February 2014

IP Community (2012): Available at: http://www.training- jpo.go.jp/en/uploads/ipfrends/community/IPCommunityNo15.pdf Accessed 11 February

2014

Greenpeace (2013): Energy (R)evolution - A Sustainable ASEAN Energy Outlook Available

at:http://www.greenpeace.org/seasia/id/PageFiles/547260/ASEAN%20Energi%20%5BR%5Devolution.pdf Accessed 13th February 2014

KPMG (2013): The Energy Report: Philippines Availableat:http://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/Documents/energy-report-philippines.pdf Accessed 12th March 2014

APEC (2013) Energy Overview 2012 Available

at:http://aperc.ieej.or.jp/file/2013/6/28/APEC_Energy_Overview_2012.pdf . Accessed13th March 2014

DLA Piper (2012): Renewable Energy in the Asia Pacific: A Legal Overview Available

athttp://www.dlapiper.com/files/Publication/707b8063-0e73-4bc8-9e81-4ada0d0a5ad0/Presentation/PublicationAttachment/481bba6f-c011-4e5b-9a71-0609d6327f50/renewable-energy-asia-pacific-abridged.pdf Accessed 14th March 2014