Ensuring energy security and affordability

As the economy and population grow, the demand for reliable and affordable power becomes urgent. There are concerns about potential shortages; the Malampaya gas field, supplying 20 percent of Luzon’s energy, is projected to be depleted by 2027.

Investors and consumers are also concerned about the affordability of power. An Asian Institute of Management study in 2018 found that power and fuel costs are top concerns of foreign investors. As of September 2024, electricity and fuel contributed 14 percent to inflation.

Among the biggest challenges in the sector preventing the deployment of power projects and reducing the country’s attractiveness to investors are delays in transmission projects. Around four million Filipinos are unserved or underserved by Philippine power grids. Even if there is a high volume of energy available, it is imperative for grids to have the capacity to take on this additional power supply. The National Grid Corp. of the Philippines (NGCP) is reportedly delayed by about three to five years in providing needed grids to absorb the additional supply from new or expanded power projects. According to Bangko Sentral ng Pilipinas Monetary Board member Romeo Bernardo: “On average, transmission lines are three to four years delayed in their implementation. Without certainty in transmission, generators are unable to build new power plants.”

The NGCP cites right-of-way issues and lengthy permitting as the main delays in building transmission grids. For instance, Semimara Mining and Power Corp.’s 700-megawatt coal plant was paused due to right-of-way problems preventing its connection to the grid.

High-power costs. In January 2022, the Philippine Center for Investigative Journalism cited that the price of electricity in the Philippines is the second highest in the Association of Southeast Asian Nations (Asean) next to Singapore. Below are electricity prices across Asean: Singapore, P10.15 per kilowatt-hour; Philippines, P9.86/kWh; Thailand, P7.25/kWh; Indonesia, P5.94/kWh; and Vietnam, 4.17/kWh. Malaysia has the cheapest power among Asean-6 at P1.42/KWh.

Other than socialized pricing for low-income households, the Philippines does not subsidize electricity, leading to higher price difference. In contrast, Malaysia heavily subsidizes power, reducing monthly bills of P3,000 to P10,000 to just P160 to P420. Meanwhile, the Thailand government has set a price ceiling of 3.99 baht/kWh or almost P7. Vietnam and Indonesia also subsidize its power.

Ease of doing business. The permitting process for a hydropower plant requires 359 signatures from 74 different agencies and takes about 1,340 days to complete. This was supposed to be addressed by the Energy Virtual One-Stop Shop (EVOSS) Act signed in 2019 that created an online system to monitor energy applications and serves as a repository of project-related information and permits issued. However, the EVOSS system is yet to be fully operationalized. As of September 2024, only 56 out of 103 energy-related processes have been integrated into EVOSS.

More power players should be allowed to build transmission facilities. The Department of Energy issued an invitation to bid on the construction, installation, and maintenance and operations of microgrids to speed up full electrification of the country. Microgrids are smaller power grids ideal for remote areas. The final bids are due on Dec. 27, 2024.

The full integration of energy project permits must be accelerated.

Legislative action. The government should consider further expanding existing power incentives under CREATE MORE (recently expanded from 50 percent to 100 percent deduction from gross income). Thailand offers investors double deductions from taxable income for the cost of transportation, electricity, and water supply for 10 years. To be at par, increasing the deduction to 200 percent can be considered in the near future or with improved fiscal space, the government may also consider partially subsidizing power to lower prices both for investors and consumers.

Accelerate right-of-way reforms to help NGCP build its grids faster and reduce delays of power projects. The right-of-way reform recommendations include establishing fair market prices for lands, crops, and trees, as well as clearer guidelines/plans for those who will be displaced. House Bill No. 6571 has already passed the Lower House and is being deliberated upon in the Senate.

As the Philippines targets to become an upper-middle-income country by 2025, addressing issues surrounding the reliability and affordability of power is crucial. This will be beneficial for ordinary Filipinos to help ensure that the people have access to affordable power and encourage more investors to choose the Philippines as their investment destination.

It is, therefore, important for the government to continuously address these concerns by improving the ease of doing business, removing bottlenecks in the completion of power projects, improving energy infrastructure, and considering increasing power incentives and/or subsidies to the public to lower power costs.

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Gary B. Teves served as finance secretary under the Arroyo administration.