The Philippine Power

Industry
Industry Analysis

Glimada, SemShilo L.
Egbus, Julrick C.
Altubar, Pabmel L.
Gregorio, Julie Ann
Waccan, Cristine B.

The Philippine Power Industry

Part I: Introduction
Nature of the Industry
The Philippines practices the geographic area franchise concept which divides the country and
obliges the franchise holders to connect all the households and other potential customers in their
franchise areas, thus creating a transaction of monopoly in each area in the Philippines
(Patalinghug, 2003). This concept has been rationalized by the theory of natural monopoly. It's
an economic term that describes any market situation where the conditions lead to just one
firm supplying a product or service, versus more open competition(Day, 2015). T his
market situation gives the largest supplier in an industry, often the first supplier in a market, an
overwhelming cost advantage over other actual and potential competitors, so a natural monopoly
situation generally leads to an actual monopoly (Perloff, 2012).

The Growing Power Needs of the Philippines

In recent years, the Philippines have proven to be a leading high-growth economy in Southeast
Asia. As many economies faced challenging circumstances, the Philippines continued to prosper
on the heels of strong consumption and growth across sectors (Manabat, 2013). Year-on-year,
the economy grew an annual 7.0 percent in the second quarter of 2016, accelerating from a
downwardly revised 6.8 percent expansion in the previous three months and beating market
consensus of a 6.7 percent growth. It was the strongest expansion since the September quarter

2013 (Husna, 2016). Higher demand for electricity in the Philippines as a result of an expanding
economy is sending the government strong signals to make sure there will be enough power
plants to power households and industries, according to the latest Department of Energy report
(www.gmanetwork.com, 2013).

Part II:

The Electric Industry and Philippine Economy

By 1992, given the rapid increase in population growth of 2.5 percent per annum, electricity
demand quickly exceeded NPC systems capacity with estimates of the unmet demand being
close to 50 percent (Consulting, 2016).According to (Rivera, 2016), the countrys power demand
could double in the next 15 years as the economy continues to grow by at least six percent per
year. Reliable and secure electricity services at competitive rates are essential to improving the
investment climate in a country that has limited fossil fuel reserves and therefore is highly
dependent on renewable and imported energy. The Philippines has some of the most expensive
electricity in Southeast Asia, averaging $0.18 per kilowatt-hour in 2009 because (i) archipelagic
geography makes electricity costly in some areas; (ii) generation, transmission, and distribution
systems are inefficient; and (iii) investment in the sector is low, coupled with the high cost of
investments made during the countrys power crisis in the 1990s (www.adb.org, 2011). The
challenge in the energy sector is to ensure sustainable and reliable supply at reasonable cost. The
Philippines will have nearly 68% of its population living in cities by 2030. Total household
consumption is expected to more than double under current energy policies, while adopting
energy-efficiency standards could shave as much as 9.5% off residential power demand. In its
20092030 Philippine Energy Plan, the Department of Energy (DOE) forecasts average annual

electricity demand growth of 4.6%, which means that the country will need to add 16,550 MW of
generation capacity from 2009 to 2030 (Patalinhug, 2003).

The Philippines remains to have among the most expensive electricity prices in Asia.Here are
data with some breakdown also shown, including the cost of power generation, cost of
grid/transmission, and value added tax (VAT) or gross sales tax (GST). Of the 14 major cities in
North and Southeast Asia plus Australia and New Zealand listed below, Manila has the 3 rd most
expensive electricity prices -- 3rd in overall residential tariff, 3rd in generation cost, 3rd in grid
charges, and 3rd in tax rates

The

Part III:
Industry
Supply

and
Stakeholder
Industry Sectors
The restructured electric power industry is composed of four sectors: generation,
transmission, distribution, and supply (Somani, 2013).

The generation sector is composed of generation companies, co-generation companies, and

independent power producers(Abenica, 2001). The Philippine electric power industry used to be
dominated by the National Power Corporation (NPC) in the generation sector (Sicat, 2002). All
generating plants were owned by NPC and Independent Power Producers (IPPs) were restricted
from directly connecting to the electric distribution utility (Herrin, 1979).

The transmission sector is a regulated common electricity carrier business and subject to the
ratemaking powers of ERC. Presently, the generation and transmission sectors are dominated by
the state-owned National Power Corporation (NPC) (World Bank, 1989).

Distribution of electricity to end-users is a regulated common carrier business. Distribution

utilities are composed of private utilities, electric cooperatives, LGU-operated utilities, and other
duly authorized entities (World Bank, 2002). It can merge, consolidate, integrate, and enter into
management

contract,

bulk

procurement

and

joint

ventures,

subject

to

ERC

guidelines(Patalinhug, 2003). The distribution sector is composed of 17 private investor-owned

electric utilities, 119 electric cooperatives, and 10 local governments owned or operated electric
utilities. MERALCO is the most dominant player in the distribution sector (Armas, 1978).

Supply of electricity to end-users is a competitive and contestable market (Cabrera, 1992). An

electricity supplier has to obtain a license from ERC to engage in the selling, brokering or
marketing of electricity in the competitive or contestable market (Frederiksen, 1985). ERC will
evaluate the performance of the market, and may reduce the threshold level until it reaches the
household demand level (Herrin, 1979). An electricity supplier shall not be required to secure a
national franchise. The prices to be charged by electricity suppliers for the supply of electricity in
a competitive environment are market-driven and shall not be subject to regulation by ERC
(Patalinghug, 2003).

Part IV: Problems of the Industry

Power Shortage
The shortage is part of a decades-old weakness in the Philippine power sector (Moss, 2014).

Source: Platts World Electric Power Plant Database (December 2014 release)
Note: Planned additions reflect projects currently under construction.
As the 12th largest nation in the world, the Philippines has a population of more than 100
million people spread over 7,000 islands, which faces several electricity infrastructure challenges
(Jell, 2015). This could only mean that the countrys concern over resource sufficiency in its
power sector is challenged to add supply quickly enough to keep up with growing demand.

Source: U.S. Energy Information Administration, based on Department of

Energy.

The three main island regions of Luzon, Visayas, and Mindanao each have distinct generation
profiles. In the northern part of the country, Luzons capacity is mainly powered by fossil fuels,
with anticipated capacity additions of more than 500 MW, most of which will be coal-fired.
Visayas, in central Philippines, currently relies heavily on its geothermal resources, but has plans
to add 300 MW of coal capacity by 2017. In the south, Mindanao relies heavily on its
hydropower resources, with plans for both additional hydropower capacity and additional coalfired generation to increase system reliability. (Morris, 2015)
However, one of the problems facing the Philippines Electric Industry is the power shortage.
Instances like dry seasons would reduce the power supply. As Rood (2015) states that,
hydropower and other major gas production facility supplying power plants will be shut down,
so that electricity reserves will be running lower during dry seasons. Moreover, the latest major
power shortage was triggered by a breakdown of several critical power plants in the country
(Ronquillo, 1992). The shutdown of (i) 300-MW Malaya oil thermal unit 1; (ii) 100-Limay Unit
1; (iii) 382-Pagbilao Unit 1 and lastly 264-MW Sta. Rita gas plant module 40 of Luzon power
grid (Olchondra, 2015). Moreover, 6-8 hour outage or known as blackouts plague Mindanao
(Regalado, 2016). Likewise, hundreds of power plants been damaged by natural calamities such

as 1990 killer earthquake and more especially in the powerful typhoon Uring that swept the
Visayas.

Part V: Prospects
The Remedies to the Power Crisis
The nation's power sector has been through years of transformation. One of the pillars under the
ERA of the Aquino Administration is ensuring energy security. This means that the government
is considering and looking at various options that will address the countrys increasing energy
demand (Ricardo, 2016). In Luzon, a total of 2,300 megawatts will be added to the grid from
June this year until September 2019 (De Guzman, 2015). In 2009, 647 cities and towns in the
Philippines and some 15 million Filipinos participated in the Earth Hour, saving 611 megawatthours of electricity during the one-hour period (Alano, 2015). According to (Rappler, 2014),
renewable energy is the best solution to power crisis. Renewable energy can provide a stable
source of electricity at a constant price for years to come (Ibay, Yan, & NG, 2016). This is also a
good solution because the Philippine government would appreciate not having to deal with
constant rolling blackouts (Blaine, 2016).

Source: www.rappler.com
Renewable energy in the Philippines is affordable in long term (Santos, 2013). This would also
lower the amount of money the Philippines would have to pay to get the electricity to power the
country. Besides,Philippines is a good place for renewable energy investment because the
economy is growing quite fast. Then there is also a market, the electricity demand is there
(Jalandoni, 2015). This may not be the best solution to the other countries but it would be a great
help and a good solution for the Philippines.

The Renewable Energy

Renewable

energy

Philippines. Globally,

can
2.3

bring
to

3.5

jobs,

cost

million

savings,
people

may

and
be

money
working

to

the
either

directly/indirectly in renewable. In the Philippines, solar entrepreneurs say that for

each 10 MW plant in the country, they hire 1000 people during construction for 6
months and 100 people full time. Renewable Energy has the technological potential
to contribute more than 50% of the countrys energy by 2020 from geothermal

(28.90%), Hyrdo (22.97%), Wind and solar (2.90%) and Biomass (.73%). Already in
2010, a whopping 42.15% of the countrys total primary energy supply came from
renewable energy resources with geothermal providing the lions share at 22.40%,
modern Biomass 13.59%, Hydro 6.15% and the brand new wind and solar industry
providing 0.1%(Greenpeace, 2013).

Wind
In 1999, the National Renewable Energy Laboratory (NREL) released the Wind Energy
Resource Atlas of the Philippines (Figure 4), which details a national-scale wind-resource
analysis and mapping results for the country. The study claims that the country has 11,055 km2
of windy land estimated to have good-to-excellent wind resource potential. Wind speeds at these
sites range from 6.4 metres per second (m/s) to 10.1 m/s, with wind-power-density values of
3001,250 Watts per square metre (W/m2). The GIS-based technique produces high-resolution
(1 km2) maps of the annual average wind resource. Along with wind resource distribution, the
maps highlight seasonal and diurnal variability and other salient wind characteristics
(www.irena.org, 2012).

The Philippine DOE had awarded 41 wind power contracts under the 2008 renewable energy law
(Republic Act No. 9513), to install 1,887 MW of total generating capacity. According to the
DOE, 87 MW6 of wind capacity has been installed and 900 MW is under construction (Villar,
2008).
Solar

Following the renewable energy law (Republic Act No. 9513), the DOE has more recently
increased the national solar power capacity target to 500 MW, under an amendment in March
2015. The government has awarded 61 solar contracts, aiming for a total capacity of 1,014 MW.
Most solar projects (approx. 700 MW) will be developed in the province of Luzon; the largest of
these is a 100 MW solar PV project in Bataan(Gianvenuti, Fichaux, & Jain, 2014).

Bio-Energy
As of April 2014, 65 biomass projects were awarded, and the total grid-connected installed
capacity was 143 MW. Due to incremental improvements in agricultural production, as well as
changes in crop yields and land cover in the Philippines over the last 10 years, a review of past
resource assessments must be performed(Overend, 2008). This should highlight, in particular,
current land utilization for crops and the economic viability of bio-energy in different parts of the
country. The environmental and socio-economic sustainability of developing different bio-energy
value chains should also be evaluated, taking account of specific local conditions. Statistical and
spatial-explicit evaluations of biomass resources should be reviewed periodically, in order to
examine and update the amounts and geographic distribution of resources available or potentially
available in a region (www.fao.org, 2014).

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