Almost two decades after its implementation, does EPIRA pose as a hurdle for the Philippines in achieving a “clean” economy?
On Wednesday, September 23, President Duterte urged the signatories of the Paris Agreement, in his speech before the United Nations General Assembly (UNGA) 2020, to comply with its terms as well as to address climate change with the same vigor needed in combating the COVID-19 pandemic.
“We call on all parties to strengthen communities and peoples for preparedness and resilience. We are talking about mankind and Earth, our one and only home,” he emphasized.
Meanwhile, Senator Gatchalian sounded the alarm on the nation’s energy security when he reported to the senate on September 19, about the dwindling gas reserves of Malampaya Gas Field, an offshore natural gas reservoir just 65 kilometers northwest of Palawan. Unfortunately, the prospects of Philippine exploration in the West Philippine Sea are hounded with China’s militarization and political intimidation, leaving our country’s intention to phase-out coal-fired power plants the soonest, far from being achieved.
Duterte, although initially against the Paris Agreement in 2016 due to provisions that he deemed against the industrial development of the country, committed a year later to slash carbon emissions of the country. But with the recurring problems of the energy sector in keeping up with the demands of the household and commercial sector, the administration is left with the problem of how to be faithful with the agreement while securing the country’s power industry to bolster our plunging economy.
As the country faces the threats of debilitating power outages that could cripple economic activities, the government has yet to act and review existing policies surrounding the energy sector and promote state interventions which will pave the way for sustainable energy resources requirements of the future economy.
Power sector at a glance
According to the 2019 Energy Report of the Department of Energy (DOE), the country was able to generate and consume 106,041 Gigawatts hour (GWh) of electricity, a 6.3% increase from 99,765 GWh of 2018, despite a 0.3% decrease in Gross Domestic Product (GDP) from 6.3% in 2018 to 6.0% in 2019—the lowest yet in 8 years as data for 2020 is expected to show significant contraction in relation to the Philippines entering into recession amid the pandemic. The residential sector remained the biggest consumer comprising 34.2% of the total consumption followed by the commercial and industrial sector at 28.6% and 27.4% respectively.
Meanwhile, coal-fired power plants remained the top supplier of power and even significantly expanded their operation as their installed capacity, the potential production under ideal conditions, increased roughly by 17.8% from 8,844 Megawatts (MW) in 2018 to 10,417 MW in 2019. But due to the wear and tear of some of the generators, the actual dependable capacity is at 9,743 MW in 2019.
The combined capacity of renewable forms of energy surprisingly places at the second just before natural-gas and oil-based power plants, with a dependable capacity of 6,691 MW. But its expansion compared to coal-fired power plants is far from being superior, posting only a 1.5% increase from 6,592 MW in 2018.
Coal, being the country’s main energy source, comprises approximately 42.85% of the energy mix in terms of dependable capacity, while renewable energy, oil, and natural gas complete the mix by 29.43%, 13.26%, and 14.45% respectively.
Without viable cheaper options in-sight and slow development of renewable energy technologies coupled with increasing electricity prices due to excise tax on petroleum under the Tax Reform for Acceleration and Inclusion (TRAIN) Law, coal-fired power plants serve as the go-to choice of the government and investors alike in meeting the energy needs of the economy. It is worth noting that Duterte inaugurated the third coal-fired power plant—the San Buenaventura Power Facility—in Quezon Province back in October 2019, despite the growing clamor of locals and civic organizations, specifically the Power for People (P4P) Coalition, against this project.
Despite expressing its intention to divest in “dirty” energy, the Asian Development Bank (ADB) remains one of the biggest development partners of coal technologies in the Philippines and elsewhere in the Asia Pacific region, having financed $2.06 billion for coal-fired power plants from 2009 to 2019.
Amidst these scenarios, one would wonder about the policies and realities preventing our government from nationalizing our energy sector and adhering to the country’s covenants on decarbonization and climate change mitigation.
The energy sector in itself is a natural monopoly due to its significant barriers to entry such as capital requirements, infrastructure cost, and more so the economies of scale in the industry that necessitates large-scale operation. But just like any other national economic activities handled by the state, the government chose to devolve its operations towards the private sector due to recurring problems of corruption, mismanagement, and bankruptcy. Unfortunately, the privatization of energy generation, transmission, and distribution channels has not lived to the promises of the market-based system—improving competition to bring down the price level.
The Philippines, specifically Luzon and Mindanao in the 1990s, suffered widespread eight to ten hours of rotating blackouts. Under the Aquino administration, the country experienced a severe energy shortage due to the fact that El Niño season was on full effect and President Aquino did not allow new coal-fired power plants to be built and the Bataan Nuclear Power Plant to operate, thus forcing the National Power Corporation (NPC) to rehabilitate its aging generators which eventually broke down. NPC was also starting to accrue losses due to its unregulated borrowing.
The Ramos administration, in an attempt to taper off the power crisis, rolled out Republic Act (R.A.) 6957 or the Build Operate Transfer (BOT) Law—a form of Public-Private Partnership (PPP)—which eventually paved the way for onerous contracts with Independent Power Producers (IPP). According to a report from the Philippine Center for Investigative Journalism (PCIJ) dated 2002, Ramos signed most of the expensive contracts with IPPs wherein NPC was made to pay P700 billion every year for electricity it generated, whether or not it was used. NPC in turn passed the burden to consumers in the form of purchased power adjustment (PPA) which inadvertently increased electricity bills.
While Filipinos are still bearing the brunt of the BOT Law, Republic Act (RA) 9136 or the Electric Power Industry Reform Act (EPIRA) was enacted in 2001 by then President Arroyo in the hopes of “delivering affordable and reliable electricity to the country”. This law signaled for the total devolution of the energy sector from the state as most of its vertical supply chain are now privatized and deregulated.
Prior to EPIRA, NPC was the sole generator and distributor of electricity, controlling 90% of the industry. Despite showing promising revenue as the main power producer and enjoying subsidies and incentives from the government, NPC’s recorded loss in 2000 amounted to almost Php 12 billion and acquired an “enormous debt burden—roughly $3.7 billion out of a total of US$6.7 billion in 2001.” Under EPIRA, its assets are now being privatized and their main task now is to provide electricity in secluded areas.
According to Ibon, an independent research think tank, “residential power rates have risen by 68% from P5.76 per kilowatt-hour (kWh) in 2001 to P9.68 in 2015.” EPIRA also ushered in the monopolization of the energy sector, with San Miguel Energy Corporation, Aboitiz Power, and First Gen dominating the market share in power generation accounting to almost 65%, according to the same report.
It also dictated electricity consumers to shoulder stranded contract costs and debts of NPC with IPPs in the 1990s, in the form of universal charge (UC).
As the energy sector continues to be beleaguered by liberalization, high generation costs due to the monopolistic environment and problems concerning transmission and distribution to end-consumers serve as a mask to justify the arbitrary electricity price hike in the spot market. This scenario will only incentivize most if not all IPPs to expand their operations with cheaper options, more specifically coal, under the guise of taming the market price of electricity while maximizing their profit at the expense of environmental exploitation.
It is without a doubt that EPIRA has failed to improve the welfare of electricity consumers as problems regarding alleged price rigging in the Wholesale Electricity Spot Market (WESM) and widespread power interruptions due to grid maintenance continue to persist. It also has no power in dictating investors to finance renewable energy technologies rather than the conventional coal-fired power plants.
The government, if it is really keen on protecting the consumers and the environment alike, should in the meantime assert for the unbundling of electricity cost and lobby for levying carbon emissions and incentivizing sustainable technologies. In the long-run, the government has the capacity to reinstate the energy sector as a state-owned industry as liberalization, as what history and its economic behavior has proven, is not mutually exclusive in pursuing national interests
Unless EPIRA is reviewed, under these circumstances the country will not be able to create a genuine roadmap that will exit coal-dependency. The challenge now is for Duterte to honor his own words and the future of the next generation [P]
Photo from Southern Tagalog Exposure
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