Government Investment News Analysis

Running out of energy – quest for more power

Like its deficiencies in physical infrastructure, roads, ports, airports, and the inadequacies of its IT services, the country’s struggling power output is yet another burden to industry and a drag on the Philippine economy. And if GDP is to grow by between 6% and 7% – it increased 6.9% in the first quarter of this year – it’s going to need a shot in the arm, according to some industry insiders, of a minimum US$20 billion from now until 2030.

Presently, there is an installed capacity of 16,000MW with demand for 12,000MW. But that demand could double over the next 15 years. Last year, the government approved the construction of 25 new coal-fired power plants, for just that reason. The cash infusion would built extra plant capacity to generate a further 10,000MW – in other words, the government needs to spend US$2 million for each additional megawatt.

No one would disagree that the country is woefully undersupplied by electricity – despite the 4,000MW “reserve,” which doesn’t seem to prevent the habitual brownouts and rotating outages during summer months. Nor would anyone disagree that the price of electricity is too high.

Electricity costs to consumers in the Philippines are the highest in Asia and the fifth highest in the world. Part of the reason for that is that it is a net importer of the coal, oil and gas needed to feed the respective generating plants which between them supply more than 70% of the country’s power. Hydro and geothermal, produced from its own geological resources, deliver around 13.3% and 12.7% of electricity, respectively. (The Philippines is home to three of the world’s 10 largest geothermal power plants).

The other reason for the astronomically high electricity bills is the long tradition of successive governments’ failed energy policies, and their historic lack of investment in the industry. But the cost to business of starving the sector of cash has been to issue another deterrent to anyone wanting to set-up shop in the Philippines. Electricity payments can account for as much as 25% of a company’s overhead. Costs in Thailand are about half those in the Philippines; Indonesia’s are one fifth the price. For any investor, electricity charges are a big item.

Certainly, President Rodrigo Duterte doesn’t have any problem with burning fossil fuels. He supports the previous administration’s decision to build more coal-fired plants and that programme will be likely implemented by his Energy Secretary, Alfonso Cusi. Duterte wants to get the country properly on its feet and to do that one of the things he needs is a steep climb in foreign direct investment; and to make that happen he needs to make the country attractive for foreign cash inflows. The old, tired Philippine energy sector then can expected to be jolted from its torpor to find cost-effective and innovative solutions.

His Philippines-economy-first approach will also mean that he will not be browbeaten by outside agencies – be it from the United Nations or green groups – to phase out coal in favour of renewables.

While the sun and the wind bless the Philippines throughout most of the year and in a renewable-energy sense are gifts from God, the cost of converting these elements into electricity comes with a very high price tag. One that would need to be paid for almost entirely by inward investment, given the demands for government cash from a host of other sectors. Renewable energy supply, however, is an area that attracts overseas investors – Foreign investors flock to Green City – and they will continue to be accommdated.

Duterte doesn’t have a problem with renewables, he has a problem being told by much larger carbon emitters than the Philippines that the country needs to be mindful of its carbon footprint. He also has a problem with the costs or renewable energy to the end user. In the near term, then, it looks unlikely that sun, wind and biofuels will figure large in the government’s energy policy. They won’t be replacing coal in the next six years, though their tiny contribution to the national grid should certainly increase.