With news of inflation reaching record highs (due to the implementation of the Tax Reform for Acceleration and Inclusion Law and other factors), many consumers are already bracing themselves for what is customary during the summer months: a spike in their monthly power bills.
Historically, demand for electricity had always peaked from mid-March to May owing to the rise in temperature and people’s tendency to stay indoors. And the signs were there: Early this year, the shutdown of several power plants had led to a thinning of reserves, prompting authorities to declare a series of yellow alerts. By all indications, this year would be no different.
Meralco’s announcement of lower rates for May thus comes as a welcome surprise. The company announced a decrease of P0.5436 per kilowatt-hour in overall electricity rates for a typical household. Mainly due to the P0.4212 per kWh decrease in the generation charge, the adjustment is equivalent to a decrease of around P109 in the bill of a residential customer consuming 200 kWh.
Bucking the yearly trend owed much to adequate power supply and anticipation of demand, which benefits everybody, including low-income consumers for whom every saved peso counts. From the Department of Energy’s list of existing power plants in Luzon as of June last year, there were a total of 1,125 megawatt of installed generating capacity added to the Luzon grid over the preceding year, from July 2016 to June 2017. Some 96 percent of this use coal and natural gas to provide stable and reliable power supply.
Because of this additional generation capacity, there were only three instances of Yellow Alerts in the Luzon grid from January 1 until August 29 this year compared to 19 during the same period in 2016. The additional generation capacity also allowed the demand in Luzon to breach the 10,000 MW mark this year and supported the country’s 6.5-percent GDP growth in the second quarter of 2017.
But while this can be considered a victory for the energy sector, it can be short-lived and tenuous. Just last year, there were already three instances of Yellow Alerts in the brief period between August 30 and September 18, due to forced outages of transmission and generation facilities.
Industry experts and insiders are already concerned about a potential power shortage in as few as four years, or by 2022 or 2023. This is, in no small part, due to the slow construction of new power plants, which may not be able to keep up with what is envisioned to be vigorous demand brought about by the administration’s ambitious development agenda.
Clearly, despite the additional capacity, the Luzon grid remains vulnerable to power interruptions, especially in light of forced outages of generation and transmission facilities. Add the administration’s much-vaunted “Build Build Build” program and the need for a reliable and stable power supply becomes even more crucial.
And if this inclusive economic agenda is meant to be inclusive, any disruption—much more an energy crisis—will not only be disastrous for industry, its repercussions will be felt by millions of consumers.
A look at the sector’s recent history should add another context regarding the state of the industry and how it relates to economic growth and, thus, poverty reduction. Between 2012 and 2017, the Luzon grid witnessed demand outpacing capacity. Meralco figures say demand grew by around 2,900 MW while additional capacity was only 2,600 MW.
Based on existing GDP targets for the island, the grid will need at least 24,385 MW in new capacity, not to mention sufficient transmission and distribution investments to ensure power supply adequacy and reliability.
The Department of Energy had long declared that energy security and expanding access to energy are among its long-term strategic directions. For the agency, the rationale is clear: sufficient and reliable power promotes the growth of industry, in particular the manufacturing sector, which is in turn instrumental—if not crucial—in poverty reduction.
Following the examples of countries like China and, recently, Vietnam, a larger manufacturing sector results in higher poverty reduction than a larger services sector, which is the current profile of the domestic economy.
The Energy Regulatory Commission thus needs to move fast on pending power plant applications. While the recent round of rate cut indicates that there is currently enough supply in the Luzon grid, there is a need to be one step ahead, and this means addressing the low reserve margin, deteriorating plants, and regulatory delays.
In the medium term, the power situation truly depends on a number of factors, including the entry of new plants for added capacity, the retirement of old ones, and the pace of the demand. Some experts say the interconnection of Mindanao to Visayas and the rest of the country is also a factor, as this can translate to whether an area can make use of additional capacity.
At the end of the day, while there is relief in the May cuts, the bigger picture remains slightly dim, unless authorities step up and make such good news more and more routine rather than a cool surprise.