The Philippines is experiencing fast-growing demand for electricity. The government projects a 6.5 to 7.5% increase in peak demand in 2024, and 6.5 to 8% from 2025 to 2028. The Luzon grid alone is estimated to have a peak demand of 13,917 megawatts in 2024, compared to 12,550 MW in 2023.
Between 2020 and 2040, meeting these yearly peak power requirements stays perilous if we were to factor in the economic prospects expected by the International Monetary Fund (IMF). This year, the Philippine economy is forecasted to be at P26.55 trillion which, if achieved, would make it the world’s 32nd largest by nominal GDP and 13th largest in Asia according to the IMF.
Most analysts that Vantage Point has spoken to blame power supply issues, which could possibly throw a monkey wrench into the economy from fully blossoming. The Institute for Climate and Sustainable Cities (ICSC) believes that the threat of power supply deficiency has always been a major concern during the dry season when the El Niño weather phenomenon triggers higher-than-usual temperatures. ICSC says this weather disturbance negatively affects hydropower capacity across the country.
The most affected is Luzon, where hydroelectric dispatch has been projected to decline by 22% during the first quarter of the year compared with the same period last year. Consequently, the government through the Department of Energy (DOE) will conduct within August of this year the Third Round of the Green Energy Auction (GEA-3) for hydropower and geothermal projects having a total power of 4,399 megawatts (MW). It is hoped that the green energy auctions will boost the development of renewables as the country aims to reach 35% renewables share by 2030.
Analysts point out that the Philippines cannot completely take off economically due to the instability of the country’s power supply — and the unreasonable electricity costs.
In a March 2024 report, global management consulting firm McKinsey & Company also projected that the Philippines’ power output and electricity generation and distribution are expected to increase by 7% year-on-year (YoY) in 2024. It pinpointed gas, renewables, and transmission development as potential growth drivers. McKinsey also said that the Philippines could aim to generate 50% of its energy from renewables by 2040, taking advantage of its high renewable energy potential and the declining production costs.
According to the report, the country could ensure energy security through the importation of liquified natural gas (LNG), noting that the Malampaya gas reserve will soon be depleted. LNG is positioned to be a transitional fuel given the country’s moratorium on coal. “High global inflation and the fact that the Philippines is a net fuel importer are impacting electricity prices and the build-out of planned renewable energy projects,” the report read, remarking how recent regulatory moves to remove foreign ownership limits on exploration, development, and utilization of renewable energy resources could accelerate growth in the country’s energy and power sector.
Favoritism?
The importation of LNG as a way to mitigate power crisis has led some sectors to question the virtual monopoly of the Manila Electric Company (Meralco) in the National Capital Region (NCR). The NCR — the country’s economic hub — has for years, been reliant on a single power distribution company.
The recent red and yellow alerts which signify power supply shortages have impelled Meralco to procure up to 3,000MW of additional electricity. Critics say that by the very nature of its business, Meralco is required to buy power through the competitive selection process (CSP) with the end view of getting the lowest costs.
At least 2,400 MW out of 3,000 MW went to power plants that run on natural gas, but the caveat, critics argue, is that the winning bidders operate on imported, instead of local LNG. Those operating on local gas were left empty-handed.
The argument put forth by critics is that the terms of reference (TOR) are tilted in favor of plants using imported LNG. Under the TOR, qualified bidders are those which are operating for less than 10 years. Therefore, newer plants which run on imported LNG are the only ones qualified. This apparent bias, they claim, will hurt consumers because imported LNG costs more.
One of the winning bidders, for instance, was a power plant that runs on imported LNG which declared a P7 per kilowatt hour (kWh) cost. In reality, however, the cost would be no lower than P8 per kWh. Because the gap between declared and actual prices is simply undisclosed or not obvious to a layperson, and constitute what are called hidden fees.
More troubling, according to critics, is the attempt by some vested interests to paint local gas as the more expensive type of fuel, which to them, is an outright falsehood. They cite reports showing that a significant portion of the awarded power contracts were granted to plants running on imported LNG rather than those tapping into the local indigenous gas reserves of the Malampaya field.
The bias for imported LNG concerns them the most when cost implications are considered. Importing LNG, they say, incurs additional expenses, such as shipping and conversion costs, which significantly inflate the actual cost of electricity production.
LNG over indigenous Malampaya gas
Joe Zaldarriaga, Meralco vice president and head of corporate communications, told Vantage Point in a Viber message that all the bidding rules were complied with and the lowest bidder won. He also stated that:
• Conducting a bidding that requires power plants operating for less than 10 years is in no way discriminatory. On the contrary, it is consistent with the policy objective of the competitive selection process (CSP) rules to “encourage the development of greenfield power projects to provide additional power generation capacity.”
• It is a baseless accusation that stem from the interest of those who favor certain generation facilities to continue getting long-term contracts.
• Santa Rita and San Lorenzo are the two plants that have been supplying Meralco’s requirements for the past years. Even if no limitation to greenfield projects was defined in the TOR, they were not qualified to join the 1,800MW and 1,200MW CSPs because they are still fully contracted with Meralco until August 2025 and October 2027, respectively, on the delivery date requirement for the 1,800MW CSP.
• While First NatGas Power Corporation (FNPC), another plant that uses Malampaya gas, joined the bidding for 1,800 MW capacity, its offer of P8.45 per kWh did not comply with the reserve price set by CSP. Not only was the offer significantly higher than the winning bid of P7 per kWh, which was all-in with no hidden charges, it was even higher than FNPC’s own cost under its earlier power supply agreement (PSA) with Meralco.
• Another point worth emphasizing is that, for the Santa Rita plant, which is still contracted with Meralco, the Malampaya owners raised its gas price by around 10% when they renewed the Gas Sale and Purchase Agreement (GSPA) in January 2024. This increase in the cost of the indigenous fuel is currently being reviewed by the Energy Regulatory commission (ERC).
• Meanwhile, the old GSPA with the San Lorenzo plant also expired last July. Meralco will have to check the next billing to see if a similar increase in the Malampaya cost will be imposed under their new GSPA.
Zaldarriaga pointed out that Meralco’s mandate is to award the contract to least-cost offers because doing otherwise just to accommodate a particular energy source would not make sense. He said that, if plants using indigenous gas could indeed offer cheaper supply, then they should be able to submit the best offers. Claims that the effective rate of local LNG in March 2024 was only P5 per kWh, compared to P6 per kWh of the imported LNG, should have enabled plants using Malampaya gas to offer such a competitive rate during the actual bidding.
“To say that Meralco’s TOR discriminates is just plain malicious,” Zaldarriaga declared. He mentioned that, consistent with government policies, certain CSP TORs of Meralco particularly cite that “pursuant to the DOE Advisory dated October 11, 2023, power suppliers with natural-gas fired power plants are highly encouraged to participate in the Bidding and prioritize the use of indigenous natural gas.”
He added that another bidding is underway, and plants using natural gas will have the opportunity to submit their best offers. – Rappler.com