A memorandum of agreement was signed by the two power firms, in which Napacor will introduce a fixed generation rate of P3.52 ($0.08) per kilowatt-hour (kWh) and Meralco, the distributor, is expected to pass the savings on to consumers. The reduced rate applies to 10 industrial estates and industrial areas accredited by the Philippine Economic Zone Authority. To be entitled, locators must have a load factor, the actual amount of kilowatt-hours delivered on a system in a designated period of time, of at least 80% and a demand of one megawatt.
Napacor is a state-owned company that serves as the largest provider and producer of electricity in the Philippines and is the main power provider for Meralco, the only power distributor in the Metro Manila area. Today, Meralco provides power for an area of 9337 sq km, which includes 25 cities and 86 municipalities where prime business districts and industrial estates are situated. The area is home to 20m people, roughly a quarter of the entire Philippine population of 84m.
The 10 economic zones that will benefit from the new scheme are the Gateway Business Park, Laguna Technology Park, Premier Industrial Park, Carmelray Industrial Park 1, First Philippine Industrial Park, First Cavite Industrial Park, Laguna International Industrial Park, Light Industry Science Park 1, Food Terminal Inc and the Light Industry Science Park 2. Amkor Anam Economic Zone, SCG and MacroAsia Ecozone will also be covered.
Meralco President Jesus P Francisco explained that the arrangement, which was requested by groups such as the Semiconductor and Electronics Industries in the Philippines, Inc (SEIPI), would help business cope with high energy costs.
SEIPI President Ernesto B Santiago said he was pleased the administration was now addressing this issue.
"This is very timely as the industry has been waiting for this," he told local media. "The cost of doing business is better than before; it will attract more investors in the industry." he added.
In a recent US State Department report foreign investors cited high-energy costs in the Philippines and the potential for power shortages in the mid-term, as areas of concern.
Regionally, the Philippines is second only to Japan in terms of energy costs and with energy demand increasing at 3.5% annually, this trend is likely to continue.
High energy costs can be mainly attributed to the country's dependence on imported oil and coal as well as a lack of competition.
According to the Energy Information Agency, the Philippines consume 349,000 barrels of oil per day and produces only 25,000. It also consumes 10.1m short tonnes of coal while only producing 2.9m.
Of the 1.3 quadrillion British thermal units (Btus) of energy consumed in the Philippines, oil represents 54%, coal 16%, renewables 16%, natural gas 8% and hydroelectricity 7%.
To address high energy costs and increase domestic capacity, the Department of Energy (DOE) has created the Philippine Energy Plan with the goal of achieving an energy self-sufficiency level of 60% by 2010 and beyond. It aims to do this by accelerating the exploration, development and utilisation of indigenous resources and intensifying renewable energy resource development.
Since 2003, the DOE has used the Philippine Energy Contracting Round, wherein exploration areas have been auctioned off to the private sector to increase domestic capacity. The country now has 22 active service contracts in the petroleum sector and is expected to increase its petroleum reserves from 481m barrels of fuel oil to 579m by 2014. It also has 35 coal operating contracts with development, production and exploration commitments aimed at reducing coal importation by 20%.
Under the renewable energy policy, renewable energy-based capacity is expected to increase from 4449 megawatts (MW) to 9147MW by 2013. Currently, 695MW of hydropower, 25MW of wind power plant and 1MW of solar power have been installed.
Another renewable energy resource that is being promoted is geothermal power. Next to the US, the Philippines is the second largest producer of geothermal power in the world. To date, the country's total estimated potential of untapped geothermal resource is about 2600MW. For the succeeding 10 years, plans to develop proven reserve areas will make possible the availability of a maximum capacity of 1200 MW of this estimated potential.
The administration has introduced power sector reforms aimed at introducing competition and achieving reasonable electricity prices. The Power Sector Assets and Liabilities Management Corporation has been charged with the privatisation of government assets, mainly Napacor, which is expected to attract substantial investments in the energy sector to fend off what could be a potential power crisis.