Greater push for renewables among tight supply, higher rates

THE Philippines will likely face tight electric supplies and higher energy prices for much of 2020, but a greater focus on renewable energy and the expected arrival of other new generating capacity are likely to dramatically improve conditions in the next few years.

In a January assessment of the 2020 supply situation, the Independent Electricity Market Operator of the Philippines Inc. (IEMOP), the operator of the Wholesale Electricity Spot Market (WESM), warned that electricity market prices would increase again in 2020 after doing so dramatically in 2019 due to tight supplies.

According to WESM data, effective settlement spot prices averaged P5.43 per kilowatt-hour (kWh) last year, which was sharply higher than 2018’s average of P3.69 per kWh. A combination of higher demand – estimated by the Department of Energy (DOE) to be growing at an average of 5.6 percent annually – and slow development of new power plants was cited by IEMOP as the cause of higher electricity prices.

In its briefing, IEMOP said higher spot prices were inevitable as “thinning supply margins as available generation capacities are now unable to adequately support the increasing demand given the heightened occurrence of forced and maintenance outages and insufficient development of new generation capacities.”

IEMOP Chief Operating Officer Robinson Descanzo said that the country would need a total of about 700 megawatts (MW) of new capacity this year to meet the expected demand of 14,191 MW – about 500 MW for Luzon and 200 MW in the Visayas.

However, the only substantial new source of power to be ready this year, the 668-MW GN Power Dinginin coal-fired plant in Mariveles, Bataan, is expected to be online only in June, after the dry months when power supplies are at their most critical.

For its part, the DOE has been even less optimistic – or more conservative, depending on how positively one wishes to view it – in its estimates of power supply growth. In an October 2018 presentation of the power outlook through the year 2040, the DOE’s Power Generation and Supply Development and Monitoring Section forecast no new capacity in 2020, with new plants starting to appear from 2021-2022 onward.

Lack of clean energy plans ‘worrying’

In the face of almost inevitable supply constraints this year, the long-term Philippine Energy Plan (PEP) and associated forecasts have been questioned by some analysts. The most recent was Fitch Solutions Macro Research, which earlier this month said the government’s “lack of focus” on clean energy, including natural gas, liquefied natural gas (LNG) and renewables was “worrying,” particularly since the Malampaya gas field is expected to be exhausted within the next four to five years.

Fitch noted that in spite of statements favoring clean energy, the PEP published in 2017 calls for an increase in coal-fired generation by 20 percent by 2040, while the share of all other sources in the energy mix will decrease.

“While promoting ‘a low carbon future’ remains one of eight strategic directions outlined in the PEP, the plan does not include specific targets for clean energy development. This creates the risk that strategic pillars such as ‘improving energy security’ and ‘expanding energy access’ that are also outlined in the PEP may not necessarily be achieved by stronger gas off-take, particularly in light of cheaper coal,” Fitch said in its report.

Asian Development Bank (ADB), while not being as directly critical of the Philippines’ energy policy, also suggested that a shift to clean energy was vital for the country. In an energy outlook report published in October 2018, ADB highlighted the DOE’s assessment of the country’s energy needs in terms of total primary energy supply (TPES), a measure of the total energy use or need, regardless of the source, expressed in units of million tons of oil equivalent (MTOE).

On the country’s current energy development trajectory, without a greater focus on renewable or clean energy, the Philippines’ total energy requirement will grow at about 4.4 percent annually to reach 148.1 MTOE by 2040. If the Philippines were to follow a clean energy scenario, however – the implication is a ban on new coal plants, replacing existing ones with cleaner alternatives, and prioritizing hybrid and electric vehicles, among other things – the TPES would only grow to 137.8 MTOE in the same amount of time, even though none of the other parameters such as population and economic growth change.

Addressing the shortcomings

The Duterte administration, as a general policy, favors the development of renewable energy, but just as previous governments, struggles to maintain a balance between practicality and ideals. However, a program set to be rolled out by the DOE this year promises to boost investment in green energy.

The Green Energy Tariff Program (GETP) to be introduced sometime later this year has a target of 2,000 MW of new installed renewable energy capacity, a total investment for the generation alone – not counting transmission, distribution, and energy storage – of about P100 billion.

Under the program, the DOE and a Green Energy Allocation Committee appointed by the DOE Secretary will administer a renewable energy auction that will have a price cap. On paper at least, the plan is promising; it prioritizes competition and flexibility in choosing which types of renewable energy are most advantageous for particular areas.

The GETP is also designed to complement the planned expansion of the national grid by the National Grid Corporation of the Philippines (NGCP). With an eye toward facilitating electrification of the entire country, the NGCP has been steadily pursuing grid expansion for several years. One challenge that has been encountered, however, is the shortage of electricity supply in some areas. While this has not necessarily interrupted NGCP’s long-range plans, having new power sources available to connect to the grid means that NGCP can expand more quickly, and better assess future transmission needs.