Electricity sector in the Philippines


The electricity sector in the Philippines provides electricity through power generation, transmission, and distribution to many parts of the Philippines. The Philippines is divided into three electrical grids, one each for Luzon, the Visayas and Mindanao. As of June 2016, the total installed capacity in the Philippines was 20,055 megawatts, of which 14,348 MW was on the Luzon grid. As of June, 2016, the all-time peak demand on Luzon was 9,726 MW at 2:00 P.M. on May 2, 2016; on Visayas was 1,878 MW at 2:00 P.M. on May 11, 2016; and on Mindanao was 1,593 MW at 1:35 P.M. on June 8, 2016. However, about 12% of Filipinos have no access to electricity. The Philippines is also one of the countries in the world that has a fully functioning electricity market since 2006 called the Philippine Wholesale Electricity Spot Market and is operated by an independent market operator.

History

Manila

La Electricista

, founded in 1892, was the very first electric company to provide electricity in Manila. It built the first electric generating plant in the country, the Central Power Plant, on Calle San Sebastian in Manila City.

Meralco

was established as the Manila Electric Railroad and Light Company in 1903. It was created to provide light and an electric railway system to Manila.
During World War II the transportation infrastructure of Meralco was destroyed and instead of rebuilding the railway, the company focused its efforts onto its electric services.
During the 1960s a group of Filipino investors led by Eugenio Lopez Sr. bought Meralco from the American investors. Meralco proceeded to expand during this time period, it was also during this period that Meralco became the very first billion peso company in the Philippines.
During the 1970s the Philippine government made it a state policy to nationalize major power generation facilities. Meralco sold all of its generating plants to the National Power Corporation and, thus, electric distribution became its core business, until the deregulation of the electric power market in 2001.

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 Regulatory Commission who must issue a certificate of compliance to interested parties to ensure that the standards set forth in the Electric Power Industry Reform Act of 2001 are followed. The ERC is also responsible for determining any power abuse or anti-competitive behavior.
Electricity in the Philippines is produced from various sources such as coal, oil, natural gas, biomass, hydroelectric, solar, wind, and geothermal sources. The allocation of electricity production can be seen in the table below, according to data from the Department of Energy Power Statistics:
Table 1. Power generation by source as of 2014
Table 2. Number of operational power plants in the Philippines

Fossil Fuels

Coal, oil, and natural gas are the most abundant fossil fuels in the Philippines.

Coal

has the largest reserve and is often the cheapest fossil fuel. There is therefore a high demand for coal around the globe. Throughout the years the demand for it has become steady despite the growing environmental concerns. Coal has the highest contribution to the power generation mix but the local demand for it is not limited to power generation. The Philippines has a vast potential for coal resources. According to Energy Global, there is potentially an approximate of 270 billion tons of coal resources.

Oil and natural gas

In June 2011, the Philippine Department of Energy estimated a total of 27.9 billion cubic feet of oil and a total of 53.9 trillion cubic feet of gas. The estimated total oil production in June 2011 in the Philippines was 63 million barrels.

Renewable resources

The government has approved feed-in-tariff rates for renewable energy in 2014 for wind, solar, hydroelectric and biomass energy at a rate lower than those asked for by renewable energy developers. Hydroelectric, geothermal, biomass, wind power and solar plants operate in the Philippines.

Geothermal power

Geothermal power is the dominant renewable energy resource in the Philippines. According to DOE, the Philippines is second largest geothermal power producer in the world behind the United States of America. DOE estimates a total potential of untapped geothermal resource is about 2,600 MW.

Hydroelectric power

Hydropower is the second dominant renewable energy resource in the Philippines. There are various hydropower plants spread out across the country. Large hydropower plants are connected directly to the main transmission grid whereas small and mini hydropower plants are connected to local distribution systems.

Biomass power

The Philippines has an abundant supply of biomass resources including agricultural crop residues, forest residues, animal wastes, agro-industrial wastes, municipal solid wastes and aquatic biomass. The most common agricultural wastes are rice hull, bagasse, coconut shell/husk and coconut coir.
According to DOE, based on the information from Department of Agriculture and the Department of Environment and Natural Resources, the Philippines could produce substantial volumes of residue which could be used as fuel.

Wind power

The Philippines being situated on the fringes of the Asia-Pacific monsoon belt, exhibits a promising potential for wind energy. Wind power plants are the third most operated renewable energy source in the country.

Power transmission

in the Philippines is a common carrier business. It is regulated by the ERC who has rate-making powers and the final say in the valuation of transmission assets. Pursuant to the Electric Power Industry Reform Act and the Transmission Development Plan or TDP, maintenance and operations of the nationwide transmission system was subjected to competitive public bidding conducted by the Power Sector Assets and Liabilities Management. The National Grid Corporation of the Philippines was the highest bidder. It assumed control of the national transmission system from the National Transmission Corporation, whom assumed the same function from the now defunct National Power Corporation, by way of RA 9511 its congressional franchise of 25 years renewable for another 25 years for a total of 50 years. Assuming it secures a renewal, NGCP's franchise will end on December 1, 2058. Unlike outright sale, the concession agreement allowed the Philippine government to keep ownership of the transmission assets through TransCo, in accordance with Section 8 of EPIRA which states that no entity, company, or person other than TransCo who shall own any transmission facilities. TransCo is also responsible for making sure that NGCP complies with the standards set by its congressional franchise.

Grids

The Philippine transmission system is composed of three grids, the Luzon Grid, Visayas Grid, and Mindanao Grid. One characteristic of the grids is that most bulk generation sites are found far from the load centers, necessitating use of long-distance transmission lines. Major power lines of the Luzon Grid are the overhead Sucat–Araneta–Balintawak and Hermosa–Duhat–Balintawak transmission lines which both serve the Metro Manila area, with the latter also serving the Central Luzon provinces of Bataan, Pampanga, and Bulacan and has been in service since 2000 and June 1994, respectively. The Luzon Grid is interconnected with the Visayas Grid through HVDC Leyte-Luzon, a high voltage direct current transmission line and submarine cable with a transfer capacity of 440 MW between Naga and Ormoc. The Visayas Grid is composed of five small grids connected with submarine cables, but arranged in a radial configuration, that may disconnect one sub-grid in case a fault develop on one submarine cable interconnection. The Mindanao Grid is composed of 138,000 volt lines for long-distance transmission, and primarily relies on hydropower, usually from Agus Hydroelectric Power Plant in Iligan and Pulangi IV Hydroelectric Power Plant in Bukidnon. The National Grid Corporation of the Philippines placed proposals for submarine cable links between Visayas and Mindanao, to unify the three principal grids, and between off-grid Mindoro and Luzon, to increase power reliability in the off-grid island. While the three main grids encompass each island group, many islands still remain off-grid, relying on localized power plants or power barges for supply.

Resiliency and security

The Philippines transmission grids are prone to natural disasters, aging that causes the steel and wood towers to corrode or decay, and grid security is compromised by squatters and insurgent groups. Squatters, or "informal settlers", pose a danger to transmission lines and a hindrance to line maintenance, especially in Metro Manila. The Mindanao Grid is prone to sabotage, led by insurgent groups and unknown assailants, and many transmission towers have been damaged or collapsed from consecutive bombings, that may cause a cascading failure of the grid. Damage to several power plants and a transmission line after the April 2017 earthquake swarm in Batangas reflected the need of power resiliency, resulting the Department of Energy to draft a policy to improve power supply resiliency. Also, most transmission infrastructure are aging, having a service lifespan of over 20 years without life extension maintenance such as painting lattice towers, steel poles, and portal towers with aluminum paint. Wood poles remain in use, especially in the 69,000 volt systems, but are prone to decay and natural disasters, especially typhoons and earthquakes, and many are being replaced with more stable steel or concrete poles or a newer wood pole in some places.

National Grid Corporation of the Philippines

The National Grid Corporation of the Philippines is the transmission system operator for three grids constituting the Philippine grid and as a franchise holder, it is in charge of operating, maintaining, and developing the country's state-owned power grid.

National Transmission Corporation

The National Transmission Corporation is a government-owned and controlled corporation which is an owner of the country's power grid that is being operated, maintained, and developed by the National Grid Corporation of the Philippines. As owner of the transmission facilities, it assumed all of National Power Corporation's substation and transmission assets.

Power distribution

The circulation of electricity to end-users is a controlled common carrier business requiring a national franchise. The power to grant national franchises is exclusively vested to the Congress of the Philippines. Distribution of electric power to all end-users or consumers of electricity may be handled by private distribution utilities, cooperatives, local government units presently undertaking this function and other duly authorized entities, under the regulation of the ERC.
A distribution utility has the task to provide distribution services and connections to its system for any end-user within its franchise area, as there are different distribution utilities available for different areas, consistent with the distribution code. They are required to provide open and non-discriminatory access to its distribution system to all users.
Retail rates charged by distribution utilities are subject to regulation of the ERC under the principle of full recovery. Under full recovery, distribution utilities subdivide their retail rate into two distinct categories, namely pass through charges and wheeling charges. Pass through charge follows the principle of full economic recovery where a distribution utility may pass on all the charges it incurred in the distribution of power such as the price of the power, transmission charge, systems loss charge, etc. to its customers. The wheeling charge is an additional premium charged to the customer akin to a mark-up on the cost of power acquired by the distribution utility. The wheeling charge follows the principle of reasonable return on base which allows the distribution utility to operate viably as determined by the ERC.
According to the National Electrification Administration, the distribution sector is composed of 119 electric cooperatives, 16 privately owned utilities and six local government-owned utilities as of 2009. These distribution utilities may acquire electricity from generation companies through Power Supply Agreements or the Philippine Wholesale Electricity Spot Market, when certified as the distribution of electricity requires a national franchise, for distribution to residential, commercial, industrial and other users. NEA, the government agency in charge of implementing programs to reinforce the technical capability and financial viability of rural electric cooperatives, may act as guarantor for purchases of electricity in the WESM by any electric cooperative or small distribution utility to support their credit standing. These distribution utilities can either be a Direct WESM member or an Indirect WESM member. Direct WESM members may trade electricity directly from the WESM and pay it at the prevailing spot price. These Direct Members are required to provide security deposit. Indirect WESM members can trade through a generation company and are not required to provide security deposit.
Currently, Meralco is the Philippines' largest distribution utility with a franchise area of 9,337 square kilometers covering Metro Manila, the entire provinces of Bulacan, Rizal and Cavite, parts of the provinces of Laguna, Quezon and Batangas, and 17 barangays in Pampanga. The franchise area is home to 23 million people, roughly a quarter of the entire Philippine population of 89 million.
Power distribution outside the Metro Manila area is handled by private distribution utilities and electric cooperatives.

Electric Cooperatives">Electric cooperatives of the Philippines">Electric Cooperatives (ECs)

Electric Cooperatives are entities owned by the member-consumers within the vicinity covered by the said entity. These are controlled by a Board of Directors elected by member-consumers and their management and operations supervised by the National Electrification Administration. As of 2012, there are 121 coops recognized by the NEA and ERC.

Private Distribution Utilities (PDUs)

Private Distribution Utilities are electric distribution companies that are owned by private entities. As of 2012, there are 24 private-investor owned electric distribution companies in the Philippines.
MUs are entities that are owned by the local government. The local government officials, who are elected by the end-users within the municipality, regulates, controls, and manages the utilities. As of 2012, only one municipal utility is recognised by the ERC: Olongapo City.

Supply sector

The supply sector are suppliers of electricity to the contestable market. Pursuant to EPIRA, the implementation of retail competition and open access allows for the establishment of a contestable market. The contestable market can be serviced by any interested party even without a national franchise. However, they must be licensed by the ERC. As the supply sector is not considered a public utility activity, the ERC does not regulate rate-making. However, the ERC still monitors and determines anti-competitive behavior.
The contestable market are end-users with an average monthly peak demand of 750 kilowatts. The ERC plans to reduce this level until it reaches average household demand.

Power Supply Shortage 2014-2015

According to several articles and news sites, the Philippines faced a power supply shortage leading to rolling blackouts across the country during the years 2014-2015. In late 2014, President Aquino requested the Congress to pass a resolution giving him emergency power to allow the government to provide additional supply and prevent a power shortage in 2015. However, the passing of the resolution was delayed and Aquino admitted that his original plan was no longer feasible. His proposal was tweaked and the Interruptible Load Program was recommended for use in the Luzon power grid instead. The ILP essentially enrolls large establishments, including government owned and controlled corporations, with their own generators to voluntarily disconnect from the main grid and switch to their generators instead when a power outage was predicted. Their rationale was that a power outage would cause these establishments to run on generators anyway so it is more beneficial for them to run their generators in an organized fashion.

Malampaya Shortage

According to several articles such as from Rappler, the Malampaya gas facility shortage is responsible for 40-45 percent of Luzon's grid in terms of electricity consumption. Glitches and pipe leaks play a big role in the shortage of electricity as it affects the gas flow restriction for safe operations in the deep water gas-to-power project. The restrictions placed in the Malampaya gas supply greatly impacts the power reserves and the power consumption of the end-users or the households in the Philippines. Although the facility can be restored to normal operations, there never is an assurance of the incident not happening again. There is no guarantee that the Malampaya gas facility will operate perfectly which is why it is advised to practice energy efficiency and conservation mainly because of power shortage and rate hikes.

National Power Corporation

According to several articles, EPIRA introduced reforms, including the restructuring of the power sector leaving a heavy dent on the states budget because of the high cost of maintenance. Menandro Abanes, a researcher on Southeast Asian issues, said, “To meet the predicted demand, 5,000 megawatts was needed, translating to necessary government infusion of approximately P38 billion annually into the development of the power industry to curb the shortfall, without which another power crisis reminiscent of the 1980s and 1990s was expected." The government, however, was unable to infuse funds into because of a budget deficit that hit P145 billion at the time. Furthermore, by December 2000, NPC has accumulated a debt of 900 billion pesos, which at that time was nearly half the government's total debt of 2.179 trillion pesos. To resolve this issue, the government ignored other options and chose to rely on the option of privatization of the power industry.
One of the solutions implemented by the government is the inclusion of the universal charge in the end consumer's bill. The universal charge is used to pay part of the stranded costs of the NPC. Stranded costs are incurred when the selling price of a good is less than the cost to produce it, this usually results in a net loss to the company. The universal charge is also used to pay part of the NPC's long term debt obligations.
Philippine Wholesale Electricity Spot Market
The WESM was developed in order to establish a competitive, efficient, transparent and reliable market for electricity where a level playing field exists among WESM Participants and prices are governed as far as practicable by commercial and market forces. The WESM was created by virtue of Section 30 of Republic Act No. 9136, otherwise known as the Electric Power Industry Reform Act of 2001. WESM is where the generators sell their excess capacities not covered by contracts and where the customers buy additional capacities on top of their contracts. WESM encourages efficiency of the electricity supply through competition. it currently operates in Luzon and Visayas. However, plans are underway to operate it also in Mindanao. WESM is a precursor in the implementation of the Retail Competition and Open Access.
Trading in the WESM is bounded by the . The WESM Rules set forth the trading mechanism and the Price Determination Methodology which is approved by the ERC. WESM trading happens every hour 24x7. All the Generators in Luzon and Visayas submit offers to be scheduled and thereby provide electricity to the Grid. The offers are ranked from the cheapest to the most expensive offer until the forecasted demand for the hour by the Independent Market Operator is met. Where the intersection of supply and demand meets, then that becomes the system marginal price. However the prices are further adjusted for losses or congestion price for each location in the Grid represented by a market trading noe. This price is what is known as the Locational Marginal Price. At the end of the month, all the hourly schedules of the trading participants, measured through their electricity meters, are accounted for, for settlement. The generators, on a daily basis, submits to the IMO the bilateral contract quantity such that the IMO will know how much of the electricity volume will be settled based on the spot price and how much BCQ volume will be netted out of the market settlement. This BCQ volume will then be settled by the Genco and his counterparty DU based ont he ERC approved contract price.
The WESM is currently operated by the . IEMOP is responsible for WESM operations by performing the following functions:
- Registers WESM participants, maintains and publishes a registry of the registry of WESM participants
- Manages the optimization engine
- Prepares the dispatch schedules to be transmitted to the System Operator, including the schedules resulting from the Week Ahead Projection, the Day Ahead Projection, the ex-ante, and the real-time ex-post
- Manages the Market Management System, which is the infrastructure that supports the WESM, and the ancillary IS/IT facilities used for WESM operations
- Manages access to the WESM website and ensures the operation of all interfaces across all sub-systems.
- Prepares daily market reports and manages the historical database
- Conducts market evaluations and studies for use of the WESM participants
- Handles billing and settlements, which includes calculation of trading amounts and preparation of settlement statements
- Performs accounts management, handling of settlement disputes, and metering data processing, editing and validation for settlement purposes
- Manages the WESM electronic fund transfer facility
- Monitors the sufficiency of the WESM participants’ prudential requirements
- Offers other WESM participant services, including training and help desk services
Central to WESM operations is the Market Management System, the infrastructure that supports the WESM. The MMS encompasses all the functionalities needed to operate it. It uses state of the art technology and interfaces with different systems including the WESM Billing and Settlement System, an internal market system for bilateral contract declaration and settlements, the Energy Management System of the System Operator, and that of the Metering Service Providers, Electronic Fund Transfer Facility Provider, as well as the Trading Participants and other WESM members.
After completion of the ongoing software audit, IEMOP will shift to the New Market Management System, which it procured in July 2015 to implement the enhanced WESM design. The NMMS will allow for the shorter trading interval of five minutes and for a more efficient and reliable scheduling and pricing in the market. The NMMS will be complemented by other market systems that IEMOP will deploy, such as the Central Registration and Settlement System and Accounts Management System for greater efficiency and transparency in operating the WESM.
IEMOP also provides access to Participant List, System Operations Reports. It publishes regular reports relevant to the results of the commercial operations of WESM in Luzon and Visayas, as well as other market-related reports such as the Daily Market Update, Significant Variations Report, Weekly and Monthly Summary Reports, Metering Service Providers Performance Report, Variable Renewable Energy Forecast Performance Report, the Market Network Model, and Merit Order Table, among others.
IEMOP facilitates the fulfilment of one of EPIRA’s main goals – competition at the retail level
The reforms instituted in Republic Act No. 9136 culminate in Retail Competition and Open Access. RCOA grants electricity end-users, starting with those having demands of 1 MW or higher, the power of choice of electricity supplier.  With such power of choice, they can contract with retail electricity suppliers rather than be supplied by distribution utilities as part of the captive market. With more and more retail electricity suppliers signifying interest in serving these contestable customers and as the contestability threshold is further lowered from 1 MW to 750 kW, at which level aggregation will already be allowed, and thereafter further lowered to 500 kW, robust competition will be sustained and enhanced, both at the retail and wholesale levels.
IEMOP, as the Central Registration Body for RCOA, is determined to cater to the needs of the ever expanding retail market.  It is committed also to pursue and support all initiatives to further refine the existing retail market rules and processes as part of its mandate to promote further transparency, efficiency, and competition in the WESM.

Footnotes

Primary sources

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