The Philippines' energy sector works to unify electricity grids in order to yield downstream benefits

With territory dispersed across more than 7000 islands, the nationwide provision of affordable power has long posed a major challenge for the Philippines. To alleviate that burden, the government has envisioned the unification of its separate energy networks into a single, national grid, which will facilitate the sharing of electricity reserves among the country’s island groups, and improve efficiency in the commercial and residential distribution of electricity.

Recent & Near-term Developments 

Overseen by the National Economic and Development Authority, the Philippine Development Plan 2017-22 is helping to address shortfalls in the sector by prioritising several power generation infrastructure projects. In addition, Executive Order No. 30 (EO 30), issued by President Rodrigo Duterte in 2017, is helping to fast-track investments and the implementation of new project proposals. The order, which intends “to ensure a continuous, adequate and economic supply of energy”, founded the Energy Investment Coordinating Council (EICC) and authorised it to issue certifications for Energy Project of National Significance (EPNS). Once the EICC confers EPNS status on a project, EO 30 mandates that government agencies act within a 30-day period on applications for the project tenders, though such a designation does not guarantee that permitting agents will take favourable action regarding the proposal. In the event that the relevant authorities do not come to a decision within the specified time frame, the application is automatically approved.

These efforts aim to foster competition and drive down consumer electricity costs, which weigh on household incomes and corporate overheads. Major components of the plan to lower prices include the interconnection of the separate grids installed across the Philippine archipelago, as well as the development of off-grid networks and a more efficient transmission of electricity to various load centres.

At the forefront of these plans is the Visayas-Mindanao Interconnection Project (VMIP), which will link together the distribution networks of the island groups of Visayas and Mindanao. The project is scheduled to create a nationwide distribution network in late 2020, as the Visayas grid is already connected to that of Luzon. The VMIP was the first project to be declared an EPNS, in light of its substantial potential to decrease power costs and support industrial and economic expansion.

Transmission Management 

The national power transmission network is operated and managed by the National Transmission Corporation (TransCo), a state-owned enterprise headquartered in Quezon City, near Manila, while the grid is managed on a day-to-day basis by the National Grid Corporation of the Philippines (NGCP). TransCo was founded by the Electric Power Industry Reform Act (EPIRA) of 2001 and is charged with selling sub-transmission assets to electricity distributors, as well as administering feed-in-tariff subsidies to renewable power generators. EPIRA initially created TransCo as part of the National Power Corporation, though the bodies were separated in 2003. TransCo’s transmission lines link various facilities, including power plants, distribution utilities – such as the equipment of Meralco – and electric cooperatives.

In 2007 the Monte Oro Grid Resources consortium, consisting of the State Grid Corporation of China and Calaca High Power, won an auction conducted by the Power Sector Assets and Liabilities Management Corporation for a 25-year licence to run the Philippine power grid, which included the privatisation and management of TransCo. With a $4bn offer, the consortium outbid San Miguel Energy. In 2008 Congress approved the franchising of the NGCP and allowed it to manage and operate transmission facilities nationwide. TransCo turned over the operations, maintenance and management of the transmission system to NGCP in 2009, though the grid was still owned by TransCo as of July 2019.

EPNS 

Broadly speaking, the power sector’s longterm performance will depend on the ability of policymakers and investors to utilise EPNS certificates to implement projects in a timely manner. As of April 30, 2019 the EICC had accepted 281 of 352 applications for EPNS certifications, designating the remaining 71 as non-compliant with form and documentary requirements. Roughly half of the received applications were for oil and gas projects, while renewable energy tenders comprised another 20% of proposals.

As of June 2019 EPNS status had been awarded to a total of 29 NGCP transmission projects with a combined investment cost of P90.3bn ($1.7bn). Among the approved projects, the Hermosa-San Jose Transmission Line will add a 500-KV corridor for new and old bulk generation capacities in the Central Luzon provinces of Bataan and Zambales; the Navotas-Dona Imelda 230-KV Transmission Line and substation will increase grid efficiency in Metro Manila and the surrounding provinces; and the Pagbilao 500-KV Substation and the Pagbilao-Tayabas 500-KV Transmission Line will together transmit around 3370 MW of additional capacity from incoming plants in Quezon province.

Game Changer 

Valued at some P52bn ($967.2m), the VMIP is the largest transmission undertaking in the country’s history and has been hailed as a critical measure for improving transmission capacity. First proposed by the Japan International Cooperation Agency in the 1980s, the VMIP remained on the backburner until March 2011, when the Department of Energy directed the NGCP to conduct a feasibility study on grid interconnection. Following a series of assessments, as well as the issuance of EO 30, the EICC granted EPNS status to the VMIP in 2017. Construction began in mid-2018, and the project is due for completion by December 2020, when it will link Mindanao to the existing Luzon-Visayas grid.

According to the NGCP, the VMIP’s development entails the deployment of diverse transmission technologies, including a 92-km, 350-KV, high-voltage direct current (HVDC) submarine cable. It will also include the installation of a 50-km, 350-KV, HVDC overhead transmission line (OHTL) from cable terminal stations (CTS) in the municipality of Santander to converter stations in the municipality of Sibonga, both in Cebu province, as well as the establishment of a 135-km, HVDC OHTL from Dapitan CTS to the New Aurora converter station in Mindanao.

In Mindanao, new converter stations, including associated electrode stations and electrode lines, are scheduled to be constructed in Sibonga, Cebu and Aurora. Other key developments include a new substation and new extensions of associated transmission lines in Umapad, a city district in Cebu, while existing substations in Magdugo, another urban neighbourhood in Cebu, and Aurora will be expanded.

While it is difficult to quantify the multiplier effect of the VMIP, the project’s importance is undeniable. By allowing power to be shared between the Philippines’ main islands, the reliability and stability of the national grid will improve. In turn, this should encourage greater industrial output and a more resilient economy. For Mindanao – the region with the highest incidence of poverty in the country – the VMIP has the potential to drive economic activity and narrow the island’s social imbalances. Furthermore, by allowing the Visayas to draw electricity from hydro energy resources in Mindanao, a more cost-effective electricity market should be created.

According to an NGCP simulation conducted in 2017, up to 435 MW could be drawn from Mindanao to address the power deficiency in Visayas. Linking the grids would ultimately promote resource optimisation and greater flexibility in the sharing of reserve capacity. According to the NGCP’s request to the Energy Regulatory Commission (ERC) for the establishment of the unified electricity market, “The implementation of the project would create a more liberalised, robust and competitive market.”

Although the project has run relatively smoothly thus far, not all of its stakeholders are satisfied. In mid-2018 TransCo filed a motion with the ERC, stating that it would be best if TransCo itself undertook the VMIP so that expenses incurred from the project are not passed on to consumers. Despite the appeal, the project remains under the purview of the NGCP and is on track to be completed by December 2020.

Although the execution of the VMIP and other transmission projects should help to bolster the efficiency of national grid transmission, more could be done in terms of lowering the prices for end users. “Lower costs can be achieved by regulating the number of producers to ensure maximum utilisation,” Edgardo Bautista, vice-president of domestic electricity distributor Cepalco, told OBG. “Without maximum utilisation, the fixed costs of each producer places upward pressure on final consumer prices.”

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