IN the developed economies of the world—Canada, USA, Japan and Western Europe—demand for electricity grows at about 1 percent or 2 percent a year maximum and in some cases reduces over time due to more efficient end-user practices—energy-saving light bulbs, for example. In developing economies such as China, India and Latin America, demand grows at a faster rate (up to 3 percent or 4 percent per year) on the assumption that economic development will include industrial development as well as generating employment and higher incomes for people to, for example, increase the number of those who can afford to buy and use refrigerators and air-con units. Development forecasts for South Africa, for example, indicate that if household income increases from $500/month to $1500/month, then twice as many people would be able to afford refrigerators, thus boosting demand for electricity.
The Philippines has maintained for some years a forecast demand growth rate of about 4.6 percent which, even by developing country standards, is high. Planning for additional power generation is based on this assumption, and sometimes regionally on much higher forecast growth numbers. Annual electricity demand per capita in the Philippines is about 650 kWh compared to 8,404 kWh in Singapore, 1,073 in Vietnam, 4,246 in Malaysia, 3,298 in China and 1,577 in Mongolia—the USA consumes 13,246 kWh per capita.
Given such a low per capita demand in the Philippines, there may be some justification for forecasting a higher than normal rate of annual demand growth. Any high forecast would need to be supported by real increases in employment and salary levels as well as by investment in electricity-consuming heavy industry, such as glass-making, steel factories, cement-making facilities. Economic growth in the Philippines, high though the published figures may be, is not due to higher levels of employment and real salary levels, nor to the development of heavy industrial facilities; it is based mostly on the development of land and trading, neither of which are significant employment generators nor electricity consumers. In addition, it is becoming increasingly difficult to find “old-fashioned” inefficient light bulbs (which are cheaper and, to my mind, preferable), thus demand-side management is operating, which will tend to further reduce supply side needs along with the cost of electricity, which has risen by about twice the rate of inflation since the introduction of EPIRA (Electric Power Industry Reform Act) in 2001, thus further depressing demand.
There are, however, some very old and some very inefficient power generation plants serving the grids (Caliraya, the Agus facilities in Mindanao) and these need to be replaced in order that the very low demand which exists can at least be met reliably.
There are also a lot of transmission and distribution problems—the ERC [Energy Regulatory Commission] allows downtime in electricity delivery to customers of 2,700 minutes a year of outage times over 20 occurrences, which is worth comparing with the EU regulations allowing 23 to 100 minutes a year over 0.5 to 2 occurrences after which penalties are applied.
Modernization of the whole national system is required as well as a regulatory system which genuinely protects the interests of the consumers. In the California electricity crisis of 2000/2001 in which, as a result of market manipulation and other sharp practice by power generators, electricity costs shot up by about ten times, it was the distribution utilities, the Meralco equivalents who bore the increase and, in one notable case, went bankrupt as consumer prices were capped by the regulator.
Here in the Philippines, it is the consumer who pays for any spikes in prices brought about by whatever reasons. The distribution utilities are protected. And the same applies to upgrading and modernizing the complete power system, including contracting in additional power to meet the political pressure for increases in generation capacity which will likely not occur. Rest assured it will be the electricity consumers who will bear the cost of getting more unnecessary power generation, 80 percent of which is already controlled by Philippine big businesses, and who are probably the only ones who will invest more to satisfy political needs regardless of the real market situation.
If future power needs are based on unreal forecasts and there is insistence that the supposed needs are met, then there will be lots of power generation facilities sitting around unable to sell enough power to produce an acceptable investment return. The investors, of course, know this and will ensure that their contracts for the sale of power provide in some way for an assured return on their investment, with the result, in this “pass through” regulatory system, that the cost of electricity to the consumer will rise even more. Better perhaps to get a grip on this and seriously enforce high-quality delivery from the players in the Philippine power sector, provided that all their existing contracts do actually contain real sanctions!
It may also be wise, after adopting a realistic electricity demand growth forecast, to re-examine the case for getting a foreign investor to put up a nuclear facility, on a suitable site which would produce cheap reliable long-term electricity for all, replace some of the old coal plants which could be finally pensioned off, and reduce the nation’s dependency on coal imports from volatile and possibly captive markets.
Mike can be contacted at email@example.com.