Power demand to outpace supply in 5 years – EIU

MANILA, Philippines – Demand for power will outpace supply in the Philippines in the next five years as regulatory and bureaucratic uncertainties persist, a report by the Economic Intelligence Unit (EIU) said.

“The Philippines’ electricity consumption is poised to expand by an average of 5.7 percent a year in 2015 to 2020. Over the same period, however, generation will lag slightly at an annual average of 5.3 percent,” the EIU report said.

The EIU is an independent business within The Economist Group, providing forecasting and advisory services through research and analysis.

It said the power supply glut in the Philippines will persist as investments into the power sector continue to face considerable delays and challenges.

First, it cited issues in the privatization of state-owned power plants under the Electric Power Industry Reform Act (EPIRA) due in part to problematic documentation of government-owned land on which the plants were built.

Second, several proposed coal-fired power plant projects have been met with law suits brought forward by environmentalists, which have delayed their completion.

Furthermore, the Philippines’ largest electricity company, Manila Electric Co. (Meralco), has experienced difficulties with the Supreme Court, owing to an indefinite extension of the temporary freeze on the company’s proposed electricity rate increase in April 2014.

“As a result, investment activities from Meralco have been stalled,” the report stressed.

The EIU said the Philippines suffers from numerous unplanned electricity outages, owing to the country’s insufficient and outdated power-generation infrastructure.

On the country’s largest island, Luzon, which consumes 75 percent of the nation’s power supply, these blackouts usually occur during the height of summer, between April and June.

“(Blackouts) harm the economy by interrupting business activity. Furthermore, owing to demand outstripping supply, electricity prices in the Philippines are among the highest in Asia, which automatically increases input costs for producers,” it added.

The shortage of electricity supply leads to structurally high electricity prices. The Philippines is one of the few countries in Asia where electricity is not subsidized and, as such, its fiscal accounts are protected from electricity price rises.

Yet, domestic electricity costs are some of the highest in Southeast Asia.

This has a knock-on impact on input prices and, as a result, inflates the final market price of products manufactured locally. Goods produced in the Philippines are therefore relatively less competitive than those produced abroad.

The EIU pointed out that the high cost of electricity is also a deterrent for new foreign investment, as well as a constant hindrance for businesses that are already invested in the country.

But steep electricity costs are also damaging for consumers. It is estimated that an average household of four pays $418 per month for their electricity bill, which is equivalent to 311 percent of their monthly personal disposable income.

To reduce the likelihood of power outages in 2015, the Energy Regulatory Commission extended the implementation of the Interruptible Load Program (ILP), which was introduced in 2014.

Under the ILP, the government offers financial incentives to big power consumers, such as industrial zones and shopping malls, to switch from the national grid to their own diesel generators during peak demand periods.

But these have yet to be fully tested.

“Some quarters fear the ILP may not be able to meet the pressure from the rapid demand growth as the summer heat intensifies,” the EIU said. –Ted P. Torres (The Philippine Star)