Bridging the Energy Gap

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The Philippines has been facing some of the highest energy costs in the region for some time now – a fact any industrialist will attest to. It seems, however, that looming power shortages could possibly be averted as a result of the ongoing economic turmoil; thus giving the government and private sector precious time to boost domestic production. As it stands, the country relies heavily on outside sources of energy, which account for roughly 65% of its energy needs. However, despite slowing industrial demand for power, some industry insiders still believe the country could face a power shortage of 3000 MW by 2012.

Decreased demand in energy-intensive electronic manufacturing, along with other affected industries, should alleviate at least part of the country's excess energy demand in the short term. Although such a scenario is not regarded as an ideal solution, it will certainly provide a much-needed break as the country continues to upgrade its facilities.

Severe power shortages throughout the 1990s stifled industry, forcing the government to reform its beleaguered energy sector. In order to boost electricity generation capabilities and efficiency, the privatisation process began in 2001, under the Electric Power Industry Reform Act (EPIRA).

EPIRA was designed to immediately lower costs, while increasing competitiveness and efficiency. The primary catalyst for achieving these goals was the privatisation and sale of the state-owned power generator, the National Power Corporation (NPC), through the state-owned holding firm Power Sector Assets & Liabilities Corporation (PSALM).

According to the PSALM president and CEO, Jose C Ibazeta, "So far, 57% of all NPC's generation assets have been sold and we anticipate achieving the 70% target set by EPIRA by the first quarter of 2010."

Commenting on the progress that has been achieved through privatisation he added, "In many cases the inefficiencies that plagued NPC's power generation facilities are being corrected by the privatisation process. While this may cause a slight increase in prices in the short term resulting from the additional investment into those facilities, open market forces should quickly reassume control." Indeed, the real challenge appears finally within reach – to repeat the successful upgrade of facilities all over the country in a financially viable manner.

The most identifiable areas lacking adequate electricity supply are the Mindanao and Visayas regions. Cebu, the country's second-largest city, located in the Visayas, is already suffering from power outages during peak hours. Three new coal-fired plants, each with a capacity of 82 MW, are set to come on-line as early as March 2010. However, these will serve as a temporary solution as demand for power in the region, and the country, continues to outpace production.

Prior to EPIRA the government had already begun the process of privatising its oil and gas assets – primarily the Philippine National Oil Company (PNOC) in 1998. Petron, PNOC's distribution arm, has already been 60% privatised. However, production figures have remained somewhat static lately, as exploration work has slowed in recent years. Natural gas production, on the other hand, has risen dramatically since the launch of the $4.5bn Malampaya deep-water, gas-to-power project in 2002.

To facilitate the decrease in external dependency for petroleum the Philippines will surely need to step up its exploration efforts. Meanwhile, exploring renewable energy sources will certainly lighten the burden of its lack of domestic petroleum reserves.

Last year the government showed forward momentum in seeking alternative energy sources when it began enforcing 1% biodiesel and 5% bioethanol fuel requirements. The government aims to implement 2% and 10% fuel requirements, respectively, by 2010. Furthermore, the government has set the goal of generating 2.5 MW in renewable electricity by 2025.

In order to maximise the country's limited energy resources the Philippines set out to harness the power of geothermal energy over 30 years ago. Today, the country remains at the forefront of geothermal energy production as one of largest producers in the world, a very close second to the US. With 1.9 GW of installed capacity, geothermal energy production accounts for over 25% of electricity generation in the country.

Another solution to the country's energy dilemma that has been a subject of ongoing debate is the Bataan Nuclear Power Plant (BNPP). The Philippines' first and only attempt to harness nuclear power was a by-product of the 1973 Middle East oil embargo. Then-President Ferdinand Marcos ordered the construction of the 620-MW nuclear plant that has to this day remained inoperable, while costing the country a hefty $2.3bn.

The final phases of construction on the plant were halted following the overthrow of Marcos during the People Power Revolution and the Chernobyl disaster in 1986. The plant has been maintained, to some degree, over the last two decades and last year Energy Secretary Angelo T Reyes ordered the inspection of the BNPP by the International Atomic Energy Agency (IAEA). Although the IAEA's role was merely advisory and no official declaration of feasibility was made, most analysts reckon rehabilitation would cost $800m over the course of three years.

Revival of the BNPP has faced strong opposition due to the plant's lack of safety requirements, not to mention the fact that it resides near at least one active volcano (Mount Pinatubo) and several major earthquake fault lines. However, the reality of high energy costs and the possibility of a looming energy shortage could leave the government, specifically next year's incoming administration, in a precarious position.

As the Philippines continues to pursue a path of global competitiveness it is becoming evident that securing an adequate energy supply will be ever more critical to its growing industries. Harnessing renewable energy, as with geothermal, will surely play a larger role in the years to come. However, despite the popularity of renewable energy, efficiencies of cost and scale will force the country to continue to pursue unfavourable fossil fuels, and possibly even nuclear energy.

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