Customers of the Manila Electric Co. (Meralco) should expect another bump in their electricity bills this month, the latest in price increases that the utility firm announced this year.
A household consuming 200 kilowatt-hours (kWH) will be seeing a P100 increase in their next bill due to a price increase of P0.50/kwh in “generation charge.”
Meralco cited two reasons for this: higher fuel prices and the peso’s depreciation against the dollar.
A Filipino consumer may ask: What does the dollar have to do with it?
Heavy reliance on imported fuel
In the Philippines, generation charges account for around 55% of Filipinos’ electricity bills, according to Jephraim Manansala, chief data scientist of the Institute for Climate and Sustainable Cities (ICSC).
Generation charges are fees paid by distribution utilities to power suppliers.
Meralco pays generation charges to independent power producers (IPPs), power producers with which it has power supply agreements (PSAs), and for power purchased at the Wholesale Electricity Spot Market.
Dollar’s ups and downs affect electricity prices because more than 50% of the country’s power plants use imported fuel, according to the latest data from the Department of Energy (DOE).
The country imported its first shipment of liquefied natural gas (LNG) from the United Arab Emirates in April this year. This was used to power San Miguel Corp.’s 1,200-megawatt Ilijan plant in Batangas province – the country’s largest and the first to run on LNG.
This cost around $51.77 million. It was followed by another shipment in July worth $35.87 million, according to the US-based think tank Institute for Energy Economics and Financial Analysis (IEEFA).
The cost of imported fuel has seen a series of increases recently especially when the supply of coal or natural gas in the world market became limited. When Russia cut off gas supplies to Europe in 2022, in response to economic sanctions imposed by Western countries over its invasion of Ukraine, the impact was immediate. Electricity prices soared as European countries competed for the world supply.
When the Philippine peso is weak, power generation companies also have to pay much more than they may have previously done to ensure supply.
These power plants supply distribution utilities such as Meralco (Metro Manila and several provinces in Luzon), Visayan Electric. Co. Inc (the Visayas); and Davao Light and Power Co. (Davao region). These utility firms use a mix of coal, gas, and some renewable energy.
To ensure supply, the utility firms usually hold public bidding to find the lowest-priced and most reliable electricity supplier for their franchise area customers.
The PSAs between power plants and utility firms usually carry certain clauses that would allow the latter to “pass on” increases in supply costs to consumers. This has long been questioned by critics.
RE makes sense
These are the reasons why environmentalists say renewable energy (RE) makes sense in the Philippines. It comes from naturally occuring sources such as wind, sunlight and water, which the country has an abundant supply of.
Renewable energy will not only secure the country’s energy resource amid world supply challenges, according to experts. It can also bring down electricity rates.
A 2018 IEEFA study showed that greater adoption of renewable energy sources in the Philippines could translate to a 30% discount in electricity prices.
President Ferdinand Marcos Jr. aggressively promoted renewable energy in his first year in office. In his presidential campaign, he prominently flaunted Ilocos Norte’s windmills in his TV commercials.
Energy Secretary Rafael “Popo” Lotilla, during his first-ever press conference, promised to prioritize “indigenous” energy sources. For a while, that’s what his office did. It issued policies that would encourage investments in the RE sector — from allowing foreign investors to fully own renewable energy power plants, to increasing the renewable portfolio standards for greater adoption of the energy source.
At the moment, 21% of the country’s power supply comes from RE sources. The DOE aims to raise this to 35% by 2030 and 50% by 2040.
However, certain DOE pronouncements appear to contradict its push for renewable energy.
In August, the energy department released a draft circular that, if eventually passed, would require distribution utilities to source a percentage of their demand from natural gas-fired power generation facilities.
An IEEFA analysis called it “puzzling” even as Lotilla had publicly recognized that LNG imports would increase the cost of power.
“While some natural gas may be necessary to continue operating the country’s existing fleet of gas plants, a rapid expansion of LNG-to-power facilities is not aligned with energy security and affordability goals,” said Sam Reynolds, an energy finance analyst with IEEFA.
Unlike RE, natural gas does not have an unlimited amount. Experts have cautioned that LNG is also as volatile in pricing as coal.
Amid all this, the DOE is set to unveil the Philippine Energy Plan (PEP) this month. The PEP is touted as the government’s energy blueprint in the next 27 years.
NGCP’s shortcomings
The National Grid Corporation of the Philippines (NGCP) has also been blamed by critics to be responsible for the high cost of electricity in the country.
NGCP operates, maintains, and expands the country’s transmission network. Imagine the power grid as a road system. NGCP’s transmission lines are like expressways that carry electric energy for long distances across the country. Electricity then gets passed onto the distribution system similar to roads and streets leading to homes and businesses.
But NGCP’s current infrastructure does not have enough roads or lines to connect a growing number of energy suppliers a – including renewable energy producers — to distribution utility firms and households.
These shortcomings have meant lost savings for Filipinos. Analysts said connecting more energy sources to the grid would mean lower prices for Filipinos. It would also put a stop to regular threats of power shortage, which results in even higher electricity prices, especially during summer.
NGCP has 68 delayed grid interconnection projects as of July this year. The Energy Regulatory Commission issued a show cause order against the firm to explain the delays – which ranged from 21 to 2,561 days.
The DOE also blamed NGCP for the lukewarm participation of companies in the latest auction of renewable energy capacities.
DOE opened the second round of the Green Energy Auction Program (GEA-2) in July 2022 to increase the percentage of RE in the power mix. The agency auctioned 11,600 MW for different RE plant generators, but only about 30% or 3,580 MW was committed.
Before any developer can build a power plant, NGCP must approve its SIS. It’s a certification that the plant would not affect the power grid’s stability. RE developers said that the approval of their System Impact Study (SIS) has reached a bottleneck at NGCP.
The delays in interconnection projects have long-term impacts. RE power plants, once built, may be left to curtail their energy supply for years as the grid remains unmodernized for new technologies. This means that a 2-MW RE power plant, for example, may be allowed to supply only half of its capacity, or risk overloading the grid. The DOE said bidders were also concerned about these delays.
In his State of the Nation Address in July, Marcos announced that his administration would conduct a performance review of the NGCP.
“We look to NGCP to complete all of its deliverables, starting with the vital Mindanao-Visayas and the Cebu-Negros-Panay interconnections,” Marcos said in his address.
The Mindanao-Visayas Interconnection Project (MVIP) is critical to ensuring sufficient and cheaper energy supply in the Visayas and in the whole country. It will connect the Mindanao grid to the Visayas grid with a high-voltage direct current system.
MVIP can initially allow as much as 450 megawatts of energy to transmit from Mindanao, which as of the end of 2021, sources a third of its power from renewable energy sources.
“The implication of the completion of the MVIP is not just reliability of power, but sufficiency of power supply,” former Socioeconomic Planning Undersecretary Adoracion Navarro said in a previous interview. “It will ensure that any surplus in the region can be used nationwide.” END