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PHILIPPINE POWER SITUATIONER:

WILL OUR BROWNOUTS BE SHORT-LIVED OR LONG-LASTING?

THE POWER OUTLOOK


A forum on the Impending Power Crisis

Victor B. Santos Jr.


June 29, 2010
ROTATING BROWNOUTS

NOT ENOUGH POWER


PLANTS BUILT THE
VICIOUS
CYCLE OF FAST-TRACK CONSTRUCTION
POWER Urgency + Few Players = High Price
CRISIS

POLITICAL SUPPRESSION OF
PRICES/UNSTABLE
REGULATORY ENVIRONMENT HIGH ELECTRICITY PRICE

CONSUMER OUTRAGE
DISCUSSION OUTLINE
1. POWER SUPPLY AND DEMAND:
WHY ARE WE HAVING BROWNOUTS?

2. POWER RATES IN THE PHILIPPINES:


ARE THE PRICES REFLECTIVE OF THEIR TRUE COST?

3. TAKE-AWAYS AND NEXT STEPS:


WHAT CAN WE DO TODAY TO PREPARE FOR TOMORROW?
LUZON GRID

LATEST DOE FORECAST EXPECTS THE POWER SHORTAGE IN LUZON


TO HAPPEN STILL IN 2011-2012…

Luzon Power Supply-Demand Forecast


12,000

10,000

8,000

6,000

4,000

2,000

0
2009 2010 2011 2012 2013 2014
Committed Existing Capacity Required Reserve Margin Peak Demand

2009 2010 2011 2012 2013 2014


Committed 686.00 686.00
Existing Capacity 10,030.00 10,030.00 9,425.00 9,425.00 9,425.00 9,425.00
Required Reserve Margin 8,682.00 8,971.00 9,356.00 9,790.00 10,253.00 10,748.00
Peak Demand 7,036.00 7,270.00 7,582.00 7,934.00 8,309.00 8,710.00
MARCH 01

IN THE 1ST HALF OF 2010, THERE WERE NUMEROUS DAYS WHEN THE
LUZON GRID WENT ON RED ALERT AND ROTATING BROWNOUTS.
CAUSED BY A CONFLUENCE OF UNFORTUNATE EVENTS:

753 MW DEFICIENT POWER


10,000.00 MW REASON
PLANT CAPACITY
9,000.00
DEFICIT
8,000.00 PLANNED – 1,700 MW
PEAK DEMAND: 6,650 MW
7,000.00 75,000 EOH
STA RITA 1
500 SCHEDULED
6,000.00 STA RITA 3
MAINTENANCE
5,000.00 MALAMPAYA
ILIJAN 1,200
SCHEDULED
4,000.00
MAINTENANCE
3,000.00
UNPLANNED – 1,973 MW
2,000.00
HYDRO POWER
1,000.00
MAGAT 310
- SAN ROQUE 250
AVERAGE DEPENDABLE LACK OF WATER –
MARCH 1 CAPACITY ANGAT 158
CAPACITY IN 2009 EL NIŇO
HEDCOR 73
Wind 33.00 - BAKUN 72
Oil Based 1,528.13 1,453.60 CASECNAN 150
BINGA 50
Hydro 1,750.61 668.00
Natural Gas 2,458.04 1,025.00 SUB-TOTAL 1,063
Coal 2,634.00 2,315.00
Geothermal 410.00 435.00 MASINLOC 1 310 BOILER TUBE LEAK

TOTAL 8,813 MW 5,897 MW SUAL 1 600 BOILER TUBE LEAK

Source: Wholesale Electricity Spot Market Daily Market Updates TOTAL – 3,673 MW
VISAYAS GRID

IN VISAYAS, LATEST DOE FORECAST NOW REFLECTS ACTUAL


SHORTAGE…

Visayas Power Supply-Demand Forecast


2,500

2,000

1,500

1,000

500

-
2009 2010 2011 2012 2013 2014

Committed Existing Capacity Required Reserve Margin Peak Demand


2009 2010 2011 2012 2013 2014
Committed 160.00 638.00 638.00 638.00 638.00
Existing Capacity 1,505.00 1,505.00 1,457.00 1,457.00 1,457.00 1,457.00
Required Reserve Margin 1,642.00 1,764.00 1,787.00 1,834.00 1,906.00 1,979.00
Peak Demand 1,331.00 1,430.00 1,448.00 1,486.00 1,545.00 1,603.00
VISAYAS GRID
WITH NO NEW CAPACITIES COMING IN, THIS SUPPLY SHORTAGE
HAS ACTUALLY PLAGUED THE VISAYAS GRID FOR THE PAST 2 YEARS
- SUPPLY DEFICIENCY OF ~128 MW

1,800 128 MW
1,600 DEFICIT
PEAK DEMAND: 1, 332MW
1,400
1,200
1,000
800
600
400
200
0
DEPENDABLE CAPACITY AVE DEP1 CAP
MARCH 2009
CAPACITY
Oil Based 539.12 410.78
Hydro 11.51 6.90
Coal 140.23 102.75
Geothermal 906.25 684

TOTAL 1,597 MW 1,204 MW


VISAYAS GRID

THE ENTRY OF NEW COAL CAPACITY WILL PROVIDE SUFFICIENT BUFFER


OVER THE NEXT TWO YEARS

2,000
1,800 3% 9% 31%
RESERVE RESERVE RESERVE
1,600 MARGIN MARGIN MARGIN
1,400 PEAK DEMAND: 1,332 MW
1,200 CEDC 1 KEPCO-
1,000 82MW
(MAR.’10)
PEDC
82MW
SALCON
200MW
800 CEDC 2
(Oct’10) (JAN.’11)

600 82MW
(MAY’10)
CEDC 3
(Dec’10)
PEDC
82MW
400 (JAN ’11)

200
0
Ave Dep Cap Dep Cap 1H Dep Cap 2H Dep Cap 1H
Dep Cap
2009 2010 2010 2011
Biomass 0 0 0 0 18
Oil Based 539.12 410.78 410.78 410.78 410.78
Hydro 11.51 6.90 6.90 6.90 6.90
Coal 140.23 102.75 266.75 348.75 630.75
Geothermal 906.25 683.80 683.80 683.80 683.80

TOTAL 1,597 MW 1,204 MW 1,368 MW 1,450 MW 1,750 MW


MINDANAO GRID

POWER SUPPLY SHORTAGE IN MINDANAO IS EXPECTED


TO HAPPEN IN 2011…

DOE Power Supply-Demand Forecast - Mindanao


2,500

2,000

1,500

1,000

500

-
2009 2010 2011 2012 2013 2014

Committed Existing Capacity Required Reserve Margin Peak Demand

2009 2010 2011 2012 2013 2014


Committed 42.00 42.00 50.00 50.00 50.00 100.00
Existing Capacity 1,682.00 1,682.00 1,682.00 1,682.00 1,682.00 1,682.00
Required Reserve Margin 1,645.00 1,720.00 1,794.00 1,874.00 1,960.00 2,047.00
Peak Demand 1,359.00 1,421.00 1,483.00 1,549.00 1,620.00 1,692.00
MINDANAO GRID

HOWEVER, 1H 2010 SHORTAGES IN MINDANAO WAS A RESULT OF


MINDANAO’S DEPENDENCE ON HYDRO POWER
423MW
1,800.00 DEFICIT
DEFICIENT
1,600.00 PEAK DEMAND: 1,457 MW POWER PLANT
1,400.00 CAPACITY MW REASON

1,200.00
UNPLANNED

1,000.00 AGUS 1-7 538 LACK OF WATER –


EL NIŇO
800.00
SHUTDOWN –
600.00 ILIGAN DIESEL 100 NEEDS SPARE
PARTS
400.00
TOTAL – 638 MW
200.00

0.00
Dep Cap Actual Cap March 2010
Oil Based 517.68 436.86
Hydro 861.80 288.63
Coal 210.00 210.00
Geothermal 108.48 98.72
TOTAL 1,698 MW 1034 MW
HOW MUCH RESERVE CAPACITY DOES A GRID
REALLY NEED?

1. AGE AND CONDITION OF POWER PLANTS

2. RELATIVE SIZES OF INDIVIDUAL POWER PLANT UNITS – MORE


LARGE-SIZED GENERATING UNITS REQUIRE HIGHER LEVEL OF
RESERVES

3. CONDITION/RELIABILITY OF TRANSMISSION SYSTEM

4. GENERATION CAPACITY MIX – HAVING MORE “INTERMITTENT


SOURCES” (e.g. HYDRO AND WIND) REQUIRE HIGHER LEVEL OF
RESERVES
PRESCRIBED RESERVE MARGINS

GRID CODE AND ERC-APPROVED ANCILLARY


DOE REQUIRED RESERVE MARGIN SERVICE PROCUREMENT PLAN

GRID % of PEAK TYPE OF RESERVE % of PEAK


DEMAND DEMAND
LUZON 23.4% 1. Load following 2.8%
and frequency
VISAYAS 23.3% regulation

MINDANAO 21.1% 2. Spinning 10.4%


Reserve*
DOE Supply-Demand Forecasts use a required
Reserve Margin based on probabilistic method 3. Back-Up Service 19.6%
– Loss of Load Probability (LOLP) or the
expected number of days for a specified 4. Reactive Support -
period in which peak demand is expected to
go exceed capacity TOTAL 32.8%
Note: * equivalent to largest single unit
for each grid
WITH NPC NO LONGER
ALLOWED TO PUT UP ANY
NEW POWER PLANTS, WHERE
WILL OUR NEEDED RESERVE
CAPACITY COME FROM?
MUCH NEEDED CAPACITIES WILL COME FROM GREENFIELD
DEVELOPMENTS AS WELL AS INCREASED AND IMPROVED CAPACITIES
OF PRIVATIZED PLANTS
LUZON VISAYAS
Plant MW Plant MW
CALACA REHAB 320 KEPCO –SALCON CEBU COAL 200
BACMAN REHAB 110 GLOBAL PANAY COAL 100
ANGAT REHAB 28 CEBUEDC - COAL 246
AMBUKLAO REHAB 70 NASULO 20
GLOBAL GREEN 18
REHAB SUB-TOTAL 528 MW
ASEA ONE 35
PAGBILAO EXPANSION 400
QPPL EXPANSION 500 GREENFIELD TOTAL 619 MW
SAN GABRIEL 550
MINDANAO
PANTABANGAN-MASIWAY EXPANSION 77 Plant MW
CBK EXPANSION 360 CONAL COAL 200
EXPANSION SUB-TOTAL 1,887 MW MINDANAO III / APO 50
BURGOS WIND 116 GREENFIELD TOTAL 250 MW
GN POWER 600
TANAWON 40
GREENFIELD SUB-TOTAL 756 MW TOTAL 4,040 MW
LUZON TOTAL 3,171 MW
FROM NOVEMBER 2007 TO OCTOBER 2008, THE LUZON
GRID’S AVERAGE DEPENDABLE CAPACITY WAS ~7981 MW

LUZON GRID- Nov 2007 to Oct 2008


45 100%

40 90%

80%
35
70%
30
60%
Frequency

25
50%
20
40%
15
30%
10
20%

5 10%

0 0%

7024
9982

9797

9612

9427

9242

9058

8873

8688

8503

8318

8133

7948

7763

7578

7394

7209

6839

6654

6469

6284

6099
DEPENDABLE CAPACITY (MW) Frequency Cumulative %
AFTER PRIVATIZATION PICKED UP MOMENTUM, AVERAGE DEPENDABLE
CAPACITY OF THE GRID INCREASED BY ~450 MW TO 8,467 MW. THE
INCREASE HAPPENED WITHOUT ANY NEW POWER PLANTS.

LUZON GRID - Nov 2008 - Oct 2009


50 100%

45 90%

40 80%

35 70%

30 60%
Frequency

25 50%

20 40%

15 30%

10 20%

5 10%

0 0%

7024
9982

9797

9612

9427

9242

9058

8873

8688

8503

8318

8133

7948

7763

7578

7394

7209

6839

6654

6469

6284

6099
DEPENDABLE CAPACITY (MW) Frequency Cumulative %
DISCUSSION OUTLINE
1. POWER SUPPLY AND DEMAND:
WHY ARE WE HAVING BROWNOUTS?

2. POWER RATES IN THE PHILIPPINES:


ARE THE PRICES REFLECTIVE OF TRUE COST?

3. TAKE-AWAYS AND NEXT STEPS:


WHAT CAN WE DO TODAY TO PREPARE FOR TOMORROW?
POWER IS SOLD AND PURCHASED THROUGH (1) POWER SUPPLY
CONTRACTS AND (2) THE WHOLESALE ELECTRICITY SPOT MARKET

POWER RATE FORMAT

(1) BILATERAL POWER • FIXED FORMULA


SUPPLY CONTRACTS • BILATERAL SETTLEMENT
• ERC-DEFINED BENCHMARK RATE (PRE OPEN ACCESS)

(2) WESM • HOURLY PRICES


• WESM BILLING AND SETTLEMENT
• PRICES ARE DETERMINED BY SUPPLY-DEMAND SITUATION
PER HOUR
BETWEEN 2004 - 2009, NPC RATES HAVE GONE UP TO AS HIGH AS
50%, 100% AND 133%...

COMPARATIVE PRICE MOVEMENTS - NPC RATE VS. POWER INPUTS


400%

350%
GROWTH ( 2004 = 0)

300%

250%

200%

150%

100%

50%

0%
May-04

May-05

May-06

May-07

May-08

May-09
Jul-04
Sep-04
Nov-04

Jul-05
Sep-05
Nov-05

Jul-06
Sep-06
Nov-06

Jul-07
Sep-07
Nov-07

Jul-08
Sep-08
Nov-08

Jul-09
Sep-09
Nov-09
Jan-04
Mar-04

Jan-05
Mar-05

Jan-06
Mar-06

Jan-07
Mar-07

Jan-08
Mar-08

Jan-09
Mar-09

Jan-10
Mar-10
-50%

NPC Effective Rate-VISAYAS NPC Effective Rate-LUZON NPC Effective Rate-MINDANAO


…HOWEVER PRICES OF MAJOR INPUTS TO ELECTRICITY SUCH AS
OIL AND COAL HAVE INCREASED BY AS HIGH AS 320% AND 349%.

COMPARATIVE PRICE MOVEMENTS - NPC RATE VS. POWER INPUTS


400%

350%
GROWTH ( 2004 = 0)

300%

250%

200%

150%

100%

50%

0%
May-04

May-05

May-06

May-07

May-08

May-09
Nov-04

Nov-05

Nov-06

Nov-07

Nov-08

Nov-09
Jul-04
Sep-04

Jul-05
Sep-05

Jul-06
Sep-06

Jul-07
Sep-07

Jul-08
Sep-08

Jul-09
Sep-09
Mar-04

Mar-05

Mar-06

Mar-07

Mar-08

Mar-09

Mar-10
Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

Jan-09

Jan-10
-50%

NPC Effective Rate-VISAYAS NPC Effective Rate-LUZON NPC Effective Rate-MINDANAO


Diesel ($/BBL) NEX Coal ($/Ton)
THE BENCHMARK NPC RATES MUST REFLECT THEIR TRUE COSTS.
NPC TODAY STILL SELLING BELOW ITS COST.

P6.01/
7.00 kWh
6.00
P4.21/
5.00 kWh
P3.11/
P/kWh

4.00 kWh
3.00

2.00

1.00

0.00
LUZON VISAYAS MINDANAO NEW COAL
PENDING ICERA APPLICATION 0.64 0.07 0.04
PENDING GRAM APPLICATION 0.63 0.06 0.11
AUTOMATIC COST ADJ - FPPCA 0.37 0.32 0.11 P5.40/
AUTOMATIC COST ADJ - FxA
FBHC
0.00
0.02
0.02
0.02
0.00
0.03
kWh
BASIC ENERGY CHARGE 4.36 3.73 2.82 5.54

ERC’S DIRECTION TO ADOPT AN AUTOMATIC COST ADJUSTMENT MECHANISM IS THE


MORE APPROPRIATE METHODOLOGY FOR POWER RATES REFLECT TRUE COST
WESM MUST HAVE CORRECT PRICE SIGNALS THAT
INVESTORS CAN TRUST

WESM Weekly Average Prices


P/kWh Jan. 1, 2008 – Feb. 24, 2010
18.00
Malampaya and Baseload
16.00 San Jose Plant Outages (Grid under
Transformer Critical Capacity Levels)
14.00 Summer
Outage
Sual Months
12.00 Warmer Increase in Intervals
Outage Lower
Temperature with Must-Run Unit
Demand due Cold Season
10.00 ERC orders Dispatch (80% More
to Typhoons and Extended
use of NPC Compared to 2008)
8.00 TOU Holidays

6.00

4.00

2.00

0.00
Sep-08

Nov-08

Sep-09

Nov-09
Jan-08

Mar-08

Jan-09

Mar-09

Jan-10
Feb-08

May-08

Feb-09

May-09

Feb-10
Jun-08

Jun-09

Dec-09
Apr-08

Jul-08

Aug-08

Dec-08

Apr-09

Jul-09

Aug-09
Oct-08

Oct-09
-2.00

-4.00

-6.00
“ACROSS-THE-BOARD” SUBSIDIES ON ELECTRICITY MISALLOCATE
RESOURCES AWAY FROM THE POOR AND TOWARDS THE RICH

% SHARE OF NATIONWIDE NO. OF FILIPINOS PER


ELECTRICITY CONSUMPTION PER INCOME CLASS
INCOME CLASS
Class C,D,E,F Class B Class A
8% of total kWh 10.4M Filipinos: 2.3M Filipinos

Class B
Class A
36% of
56% of
total kWh total kWh Class C,D,E,F
73.8M Filipinos

Source: Family Income and Expenditures Survey (FIES), National Statistics Office 2006
As A Percentage Of Their Budgets, Lower Income Families
Spend Much Less On Electricity Than Higher Income
Households

Class A Class B
Personal Care, 5% Personal Care, 5%
Educational Fees,
Educational Fees,
Fuel, 4% 12.4% Fuel, 4%
15.2%
Furnitures, 5% Furnitures, 5%
Household Household
operations, 5.0% Food, 31.6% operations, 4.4%
Food, 45.9%
Clothing, 5.1%
Clothing, 5.8% Transport and Transport and
Comm., 10.4% Water, 1.1% Comm., 7.3%
Electricity,
Water, 1.1% Electricity,
4.9%
4.3% Recreational, 3.3%
Recreational, 6.3%
Taxes, 1.0%
Medical Care, 3.7%
Taxes, 2.7% Medical Care, 2.5%

2,213,568 10,490,461
Source: Family Income and Expenditures Survey (FIES), National Statistics Office 2006
As A Percentage Of Their Budgets, Lower Income Families
Spend Much Less On Electricity Than Higher Income
Households

Class C Class D
Personal Care, 5% Personal Care, 5%
Educational Fees,
Educational Fees,
Fuel, 4% 10.0%
10.8% Fuel, 4%
Furnitures, 5%
Furnitures, 5%
Household Household
operations, 5.4% operations, 5.3%
Food, 61.3%
Clothing, 2.1%
Clothing, 2.5% Food, 56.4%
Water, 0.4%
Water, 0.6% Transport and
Transport and Electricity,
Electricity, Comm., 3.0%
Comm., 4.5% 1.4%
2.6%
Taxes, 0.1%
Taxes, 0.2% Recreational, 1.7% Recreational, 0.7%
Medical Care, 1.6%
Medical Care, 1.8%

13,845,948 14,320,288
Source: Family Income and Expenditures Survey (FIES), National Statistics Office 2006
As A Percentage Of Their Budgets, Lower Income Families
Spend Much Less On Electricity Than Higher Income
Households
Class E Class F

Personal Care, 3% Personal Care, 3%


Educational Fees, Educational Fees, 5%
Fuel, 2%
6% Household Fuel, 2%
Household operations, 4%
operations, 5% Clothing, 0%
Food, 72%
Clothing, 1% Water, 0% Food, 75%
Transport and
Electricity,
Water, 0%
Electricity, Comm., 2% 0.5% Transport and Comm.,
3%
1%
Recreational, 0%
Recreational, 0%
Medical Care, 2% Taxes, 0% Medical Care, 3%
Taxes, 0%

22,479,051 22,357,846
Source: Family Income and Expenditures Survey (FIES), National Statistics Office 2006
Industrial Power Rates (2006)
WHY DO WE HAVE
ONE OF THE HIGHEST Philippines 14.0

POWER RATES IN ASIA Thailand 7.0

WHEN WE SAY WE Indonesia 6.0

HAVE BEEN Malaysia 6.3

SUBSIDIZED BY THE Vietnam 6.3

GOVERNMENT?
0 2 4 6 8 10 12 14 16
US cents/kWh
COMPARATIVE GENERATION MIX OF SELECTED ASIAN COUNTRIES
Philippines Thailand Malaysia China Vietnam
RATE TO INDUSTRIAL CONSUMER (as of Dec 2006)
$0.14 / kWh

$0.070 / kWh $0.062 / kWh $0.063 / kWh


$0.058 / kWh

Imported
Imported 14.0%
Imported Imported
Imported 2.2%
23.6% 27%
35.1%
Indigenous Indigenous Indigenous
Indigenous
64.8% 73% Indigenous 86.0%
76.4%
97.7%

Nuclear
Oil
1.9%
2.5%
Hydro Natural Gas Oil
Hydro 0.3% Hydro
Geothermal Coal Coal 10% 14.7% 14.0% Natural Gas
7.4% Coal
18.5% 26.9% 17.2% 29.0%
Oil 27% Coal
6.4% 15.0%
Hydro
18% Oil
Natural Gas Natural Gas
8.2% Coal Hydro
66.1% 63% 80.5%
Natural Gas 42.0%
29.5%

Source: DOE, Various energy sources (2006)


IRONICALLY IN THE PHILIPPINES, INDIGENOUS FUELS ARE THE
MOST HEAVILY “TAXED”

Legend:
1.79
Import/Excise tax on Imported Fuels

Royalties on Indigenous Fuels

~0.30-0.70
In P/kWh

0.22
0.21
0.04
Indigenous Imported Imported Coal Geothermal Indigenous
Coal Diesel Steam Natural Gas
RA 9337, Tarrif and Customs Code:
PD 972, PD 1174: PD 87:
Excise Tax: Coal-P10/MT, Bunker-0, LNG - PD 1442:
30% of net proceeds 60% of net proceeds 60% of net proceeds
2%, Diesel-0; ~ 48%-56% of gross
~ 3% of gross Import Duty= Coal:3%, Oil:1% ~ 6%-42% of gross
30

Note: Royalties include income tax portion.


Source: In-house analysis, Actual 2007 figures
WHILE IT APPEARS THAT THE PHILIPPINE “TAX TAKE” ON OIL/GAS IS
AMONG THE LOWEST IN SOUTHEAST ASIA…

Thailand Philippines Indonesia Malaysia Vietnam

Gross Proceeds 100.00% 100.00% 100.00% 100.00% 100.00%


Less:
Royalty 10.00%
Recoverable Costs 20.00% 19.39% 19.39% 19.39% 19.39%

Net Proceeds 80.00% 80.61% 80.61% 70.61% 80.61%


Contractor Share 40.00% 32.24% 46.51% 35.31% 26.60%
Government Share 40.00% 48.37% 34.10% 35.31% 54.01%

Total Government Take


Government Share 40.00% 48.37% 34.10% 35.31% 54.01%
Royalty 0.00% 0.00% 10.00% 0.00%
Income Tax 22.32% 14.12%

Total Govt Take 40% 48% 56% 59% 54%


31
Source: DOE
... IN INDONESIA, THAILAND, VIETNAM AND MALAYSIA,
DOMESTICALLY USED NATURAL GAS IS NOT TAXED AND IN SOME
CASES EVEN SUBSIDIZED

Cost of Natural Gas


(In P/kWh) Philippine Government Collects 37 Billion Pesos
From Natural Gas Royalties Yearly

1.44
P/kWh

1.76 1.03
1.27 1.08
0.54 0.66
0.08 - -
Philippines Indonesia (1) Thailand (2) Vietnam (3) Malaysia (4)

Level of Royalties
Sources: 1. US Embassy in Indonesia. Gas sold to domestic market is typically priced 1/3 less than LNG sales.
2. Unocal Thailand Fact Sheet. Royalty paid from 1981-2003 is $1.4 Billion for 5.561 Tcf of natural gas.
3. Price of gas sold by government owned PVN to government owned EVN is $3.22/MMBtu.
4. Petronas. Government subsidy on domestically used natural gas ~$1.72Billion per year.
Gas rate to TNB is RM6.4/MMBtu (~$1.78/MMBtu) 32
“ACROSS-THE-BOARD” REDUCTION ON ELECTRICITY RATES WILL FAVOR
THE HIGHER INCOME HOUSEHOLDS

% SHARE OF NATIONWIDE NO. OF FILIPINOS PER


ELECTRICITY CONSUMPTION PER INCOME CLASS
INCOME CLASS
Class C,D,E,F Class B Class A
8% of total kWh 10.4M Filipinos: 2.3M Filipinos

Class B
Class A
36% of
56% of
total kWh total kWh Class C,D,E,F
73.8M Filipinos

Source: Family Income and Expenditures Survey (FIES), National Statistics Office 2006
HIGHEST “BANG-FOR-BUCK” FOR GOVERNMENT FROM ROYALTY
REMOVAL WILL BE ACHIEVED BY REDUCING POWER RATES FOR
HIGH LOAD FACTOR INDUSTRIAL USERS
Electricity
Electricity 41%
25%
Salaries
Water 37%
Salaries 1%
45% Construction
2%
Taxes
6% Telecom
Transportation 1%
14% Transportation Construction
Training
1% 2% 17%
Taxes
Services
2% Waste Water
5% 1%

Texas Instruments Intel


STUDY OF UP PROF. DANTE CANLAS: GOVT ROYALTIES LOST VIA TARGETED REDUCTION
OF POWER RATES TO THESE CUSTOMERS WILL BE REGAINED IN 2 YEARS TIME VIA
INCREASED ECONOMIC ACTIVITY AND EMPLOYMENT
Source: Competitive Landscape Study, Deloitte Consulting, 2003
IF IMPLEMENTED, GENERATION RATES TO HIGH LOAD-FACTOR
POWER USERS (TODAY, ROUGHLY ~600MW) COULD BE AS LOW AS
2.57 P/KWH
5
4.5 4.45 4.36*
4
3.52
3.5
3
2.57
P/kWh

2.5
2
1.5
1
0.5
0
MERALCO Generation
Generation
Charge
Charge
From Natural
NPC Ecozone Rate
GENERATION CHARGE GasFrom
FiredNatural
Power Plants
Gas After
Fired
Removal
PowerofPlants
Royalties
(2700MW)
(2700MW)
INITIALLY, ONLY PHP5 BILLION FOREGONE ROYALTY TO GOVERNMENT

* May 2008
DISCUSSION OUTLINE
1. POWER SUPPLY AND DEMAND:
WHY ARE WE HAVING BROWNOUTS?

2. POWER RATES IN THE PHILIPPINES:


ARE THE PRICES REFLECTIVE OF TRUE COST?

3. TAKE-AWAYS AND NEXT STEPS:


WHAT CAN WE DO TODAY TO PREPARE FOR TOMORROW?
TAKE-AWAYS AND NEXT STEPS

1. OUR GRIDS NEED SUFFICIENT AND APPROPRIATE GENERATION


CAPACITY RESERVES TO ENSURE THAT OUR LIGHTS STAY ON

• There is significant value in securing reserves, we actually use power


“we pay for but do not use”
• Amount of reserve capacity for each grid should consider the
identified various factors (age, relative sizes, condition of
transmission system and generation mix)

2. NEEDED CAPACITY CAN BE PROVIDED BY PRIVATE SECTOR


PLAYERS

• Expansion and capacity improvements by the private sector on


privatized plants provide fastest solution to immediate need
• Greenfield power projects exist and can provide long-term capacity
requirements
TAKE-AWAYS AND NEXT STEPS (CONT…)

3. ERC TO FOLLOW THROUGH WITH BENCHMARK RATES WHICH


ARE REFLECTIVE OF TRUE COST AND PRESENT MARKET
CONDITIONS

4. CORRECT TAXATION POLICY ON INDIGENOUS ENERGY SOURCES,


SPECIFICALLY NATURAL GAS

5. IMPROVED COORDINATION AMONG THE PLAYERS – DOE, NGCP,


PEMC, ERC, GENCOs, DUs/ECs

6. STABILITY AND CONTINUITY OF ENERGY POLICIES


ROTATING BROWNOUTS

NOT ENOUGH POWER


PLANTS BUILT THE
VICIOUS
EVERYBODY SHOULD PLAY THEIR ROLE
FAST-TRACK
CYCLE OF TO
CONSTRUCTION
Urgency + Few Players = High Price
BREAK THE COUNTRY OUT OF THIS CYCLE
POWER
CRISIS

POLITICAL SUPPRESSION OF
PRICES/UNSTABLE
REGULATORY ENVIRONMENT HIGH ELECTRICITY PRICE

CONSUMER OUTRAGE
END OF PRESENTATION