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3/21/17
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Mandate of EPDP: To provide inputs to energy policy that is conducive to sustained growth and poverty reduction
Filipino 2040 Energy: Power Security and
Competitiveness Majah-Leah Ravago, Raul Fabella, Ruperto Alonzo,
Rolando Danao, Dennis Mapa, and AssociatesUniversity of the Philippines and EPDP
March 17, 2017UPSE
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Main take-away message
• The paper is neither pro-fossil fuels nor pro-renewable. It is all about crafting an energy policy that is conducive to attaining the Ambisyon Natin 2040. It illustrates the appropriate fuel mix that respects the evolution of prices of fuel over time.
• We highlight the role of competitiveness among various resources.
Maginhawa, panatag, at matatag na buhay.
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The Vision in 2040 v GDP per capita – PhP316,173 (US$6,873 in constant 2000 prices) from
where it is today, PhP74,453 (US$1,618)v Growth of GDP per capita - about 5.96% per year
§ A departure from the approximately 4% per year in the last 25 years (1990-2015).
v GDP growth – about 7% per year for the next 25 years§ Something that we attained only in 2010-2015
Visioning up to 2040 affords decision makers with a perspective that can guide the choice of present responses.
What is required from the energy sector to attain this vision?
The Challenge Sourcing and timing of additional capacity in meeting the growing
consumption and at the same time, bringing the cost of power down.
§ Goal: To improve the well-being of the Filipinos § Indicator: Price of electricity
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Philippines has one of the highest power cost in ASEAN, losing out in comparison on the cost of doing business.
IndustrialResidential
0
2
4
6
8
10
12
14
16
18
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
usc/kWh
0
2
4
6
8
10
12
14
16
18
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
usc/kWh
Source of basic price data: Enerdata
54%47%
55%62%
10%
9%
11%12%5%
5%
4%4%
18%27%
15%10%
12% 11% 14% 12%0.5% 0.4% 0.5% 0.6%
Overall Residential Commercial Industrial
Generation Transmission System Loss Distribution (Meralco) Taxes/UC/Subsidies FIT-Allowance
Generation
Transmission and Distribution
Transmission and Distribution
Generation charge makes up about 47% of the bill of households!
Source of basic data: Average Rates by Customer Class and Billing Component (Meralco)
Transmission and Distribution
Taxes and Subsidies
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The Philippines in 2040: Strong- vs. Weak- growth Scenarios
Php/cap• GDP growth per year: 7 from 2016-2040
• Average per capita income growth of 5.96 per year
• Pop growth: decreasing from 1.46 to 0.61 for 2016-2040
• Average per capita income: PhP 316,173 in 2000 prices ($6,873)
• GDP growth per year: 4 from 2016-2040
• Average per capita income growth of 2.58 per year
• Pop growth: decreasing from 1.68 to 1.04 for 2016-2040
• Average per capita income: PhP 140,791.00 in 2000 prices ($3,061)
ACTUAL FORECAST
Strong Growth
Weak Growth
-
50,000
100,000
150,000
200,000
250,000
300,000
1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040
Electricity Consumption Forecast Strong- vs. Weak- growth Scenarios
Electricity consumption includes the following:• Residential,
Commercial, and Industrial Sales
• Own Use (Distribution Utilities and Power Plants)
• System Loss (Distribution Utilities losses and Transmission losses)
• Others (Public buildings, street lights, irrigation, energy recovered and others not elsewhere classified)
0
40,000
80,000
120,000
160,000
200,000
240,000
1995 2000 2005 2010 2015 2020 2025 2030 2035 2040
TOTAL ELECTRICITY CONSUMPTIONGWh
ACTUAL FORECAST
STRONG GROWTH
WEAK GROWTH
GWh
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Source: Maniego, P. (2015) Increasing the Share of RES in the Power Mix. Presented at the 3rd EU-PH Meeting on Energy on 14 July 2015, National Renewable Energy Board
DOE Circular 2015-07-0014
Source of basic data: ADB Energy Outlook, 2013
Policy 2: Utilization of lower cost resources but accounts for envi cost
Policy 1: 30-30-30-10 Fuel Mix in 2040
Policy 3: Increased use of Conventional Renewables
Policy 4: Increased use of Variable Renewables and Biomass
Policy Regime on Fuel Mix
Location, load requirement, and available fuel sources matter
Source: NGCP
Coal
Natural Gas
Renewables
Others
0
1
2
3
4
5
6
7
8
9
1:00
AM
3:00
AM
5:00
AM
7:00
AM
9:00
AM
11:0
0 A
M1:
00 P
M3:
00 P
M5:
00 P
M7:
00 P
M9:
00 P
M11
:00
PM
GWLuzon
Coal
Renewables
Others
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1:00
AM
3:00
AM
5:00
AM
7:00
AM
9:00
AM
11:0
0 A
M1:
00 P
M3:
00 P
M5:
00 P
M7:
00 P
M9:
00 P
M11
:00
PM
GWVisayas
Coal
Renewables
Others
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1:00
AM
3:00
AM
5:00
AM
7:00
AM
9:00
AM
11:0
0 A
M1:
00 P
M3:
00 P
M5:
00 P
M7:
00 P
M9:
00 P
M11
:00
PM
GWMindanao
LVM Hourly Load Curve on a Typical Day
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Four Policy Regimes on Fuel Mix 1. The policy of the
government of maintaining a 30 percent share of renewables (DOE Circular 2015-07-0014).
2. Alternative policy that favors increased utilization of the lower-cost resources but takes into account environmental costs.
3. Increase utilization of conventional renewables resources
4. Increase utilization of variable renewables and biomass.
Installed Capacity Mix Power Consumption Mix
Coal Natural Gas
Conventional RE
Variable RE Others Coal Natural
Gas Conventional
RE Variable
RE Others
Policy 1: 30-30-30-10 2016 35 15 29 4 16 44 20 32 1 3 2022 30 24 27 4 15 37 30 29 1 2 2028 29 28 27 4 12 36 34 25 3 2 2034 30 29 26 4 11 37 35 22 4 2 2040 30 30 26 4 10 38 35 20 5 2
Policy 2: Utilization of the lower-cost resource 2016 35 15 29 4 16 44 20 32 1 3 2022 38 14 29 3 16 47 21 28 1 3 2028 40 15 29 3 13 50 20 27 1 2 2034 44 15 28 2 10 55 17 25 1 2 2040 49 14 27 2 8 63 11 24 1 1
Policy 3: Increased utilization of conventional renewables (hydro and geothermal) 2016 35 15 29 4 16 44 20 32 1 3 2022 31 15 34 5 15 38 21 37 2 2 2028 29 15 34 10 12 36 17 40 4 2 2034 27 15 35 14 9 33 15 43 7 1 2040 24 15 36 16 8 31 15 43 10 1
Policy 4: Increased utilization of VRE (solar, wind, run-off river hydro) and biomass 2016 35 15 29 4 16 44 20 32 1 3 2022 31 15 33 7 15 38 20 37 3 2 2028 29 15 33 11 12 36 17 38 7 2 2034 27 15 34 15 9 33 15 38 12 1 2040 24 15 35 18 8 31 13 38 16 1
Assumption on Fuel Prices Case 1: Baseline
Policy 1 - 2015 prices constant for the next 24 years Policies 2,3,4 - 2015 prices plus emissions charges constant for the next 24 years
Case 2: Prices of RE incorporate FIT degression rates in policies 1 to 4 (Supply response to FIT)
Case 3: Annual decrease in average RE prices by 3% in policies 1 to 4
Case 4: Annual decrease by 8% and 3% in the price of solar and RE, respectively, in policies 1 to 4
Case 5: All prices change simultaneously applying EIA projections on fuel prices in 2015 in policies 1 to 4
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The SCC is an estimate in dollars of the long-term damage caused by a one-ton increase in global carbon emissions in a given year.
Assumption on Fuel Prices
Policies 2,3,4 - 2015 prices plus emissions charges constant for the next 24 years
Downscaled emissions charge:1. Global social cost of carbon (SCC) $25/MT of CO2 (average of the SCC
reported in Nordhaus (2011) and the US EPA (2016).)2. Absent a strong and binding global agreement and assuming that carbon-
induced damages in the Philippines are 5% of worldwide damages, the Philippine carbon tax should be $1.25 per MT of CO2, given a global social cost of carbon of $25 per MT of CO2 or PhP0.0566/Kwh.
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Carbon Emissions Charges
Fuel Pounds of CO2/kWh Coal (Lignite) 2.17 Natural Gas 1.22 Oil 1.64
Source: US EIA
§ Philippine share of damages: 5%§ Global social cost of carbon: $25/Mt CO2§ Carbon tax: $1.25/Mt CO2§ One MWh from coal generate 0.98 Mt of CO2§ Tax on coal: $1.23/MWh or PhP0.0566/Kwh
Generation Price by Fuel Source (GPF)
Carbon Tax based on Roumasset et al. (2016). We use a global social cost of carbon (SCC) ($25/MT of CO2), which is the average of the SCC reported in Nordhaus (2011) and the US EPA (2016).
Sources of basic data: Meralco (2015), “Average Generation Charge by Fuel Type” for Luzon; kuryente.org (2015), “Power Supply Agreements”; Visayan Electric Company (VECO) 2016. “Generation Rates” for Visayas and Mindanao. See Box 2 on the computation of emission charges.
Case 1: Policy 1 - 2015 prices constant for the next 24 years Policies 2,3,4 - 2015 prices plus emissions charges constant for
the next 24 years
Fuel Type
Policy 1 (a) Emissions
Charge* (b)
Policy 2, 3, and 4 (a+b)
Luzon Visayas Mindanao Luzon Visayas Mindanao Coal 3.89 4.65 4.65 0.0566 3.95 4.71 4.71 Geothermal 4.52 5.01 5.01 … 4.52 5.01 5.01 Hydro 4.56 3.86 2.93 … 4.56 3.86 2.93 Must-Dispatch RE 7.16 7.16 7.16 … 7.16 7.16 7.16
Natural Gas 4.41 … … 0.0317 4.44 … … Oil 10.18 6.79 8.24 0.0426 10.22 6.83 8.28
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Case 1: Results Supporting strong growth, Policy 2 results in lower blended generation charges with downscaled emissions charge.
Note: Policy Regimes (1) maintaining a 30% share of renewables (2) policy that favors increased utilization of the lower-cost resources but takes account of emissions charge (3) the increased use of conventional renewable energy (4) the increased use of VRE and biomass. Policies 3 and 4 also take account of emissions charge.
Case 1 (Base) Case 2 Case 3 Case 4
2016 7.16 7.16 7.16 7.162022 7.16 7.06 5.96 5.472028 7.16 6.97 4.96 4.262034 7.16 6.88 4.14 3.362040 7.16 6.80 3.44 2.69
2016 Must-Dispatch RE Price
Source: ERC CASE NO. 2015-216 RC
Wind Solar Biomass Hydro Average 7.40 8.69 6.63 5.90 7.16
Assumption on Generation Price of RE
Case 2: Prices of RE incorporate FIT degression rates in policies 1 to 4 Case 3: Annual decrease in average RE prices by 3% in policies 1 to 4Case 4: Annual decrease by 8% and 3% in the price of solar and RE,
respectively, in policies 1 to 4
Note: Same emissions charge applied as in case 1 for fossil fuel based technologies.
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Case 2: Results when prices of VRE incorporate FIT Policy 2 results in lower blended generation charges
Case 3: Results when there is a minimum reduction of 3% in ave. price of RE Transforms Policy 4 into Policy 2
Assumption 3 asks what is the min. reduction in ave. RE prices for policy 4 to perform better.
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Case 4: Results when reduction in solar prices is 8% and 3% for other RE Transforms Policy 4 into Policy 2
Case 5: All prices change simultaneously applying EIA projections on fuel prices in 2015 in policies 1 to 4
0.00
10.00
20.00
2015 2020 2025 2030 2035 2040
PhP/kWh Must-Dispatch RE
Wind Solar Biomass Hydro
0.00
2.00
4.00
6.00
8.00
2015 2020 2025 2030 2035 2040
PhP/kWh Geothermal
LuzonVisMin
0.00
2.00
4.00
6.00
2015 2020 2025 2030 2035 2040
PhP/kWh Hydro
LuzonVisayasMindanao
0.00
2.00
4.00
6.00
8.00
2015 2020 2025 2030 2035 2040
PhP/kWh Coal
LuzonVisMin
0.00
5.00
10.00
2015 2020 2025 2030 2035 2040
PhP/kWh Natural Gas
0.00
20.00
40.00
60.00
2015 2020 2025 2030 2035 2040
PhP/kWh Oil
LuzonVisayasMindanao
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Case 5: Results with simultaneous fuel price forecast Policy 2 that favors utilization of lower-cost resource performs best.
Results: Strong growth requires more installed capacity
18,983
24,143
30,545
38,682
49,096
0
10,000
20,000
30,000
40,000
50,000
60,000
2016 2022 2028 2034 2040
MW Strong Growth Scenario
18,53920,912
23,80327,185
31,103
0
10,000
20,000
30,000
40,000
50,000
60,000
2016 2022 2028 2034 2040
MW Weak Growth Scenario
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Key result: § The objective is to improve the well-being of the Filipinos by
lowering the price of electricity.
§ We illustrate that the fuel mix is not constant over time but should exploit the opportunities opened up by less-costly resources while taking into account environmental costs to bring the price of power down.
The government can facilitate a more competitive environment by letting the market work (with full implementation of RCOA) .
Vision vs. Long-term Plan “A vision is not a plan. It is a set of long-term goals based on the standard of living that Filipinos want to have in 25 years or so.”
“One needs a long term plan to realize the vision, but always a long term plan cannot be etched in stone because many things can change along the way.”
- NEDA
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Measurable indicators: Proposed targets Benchmark year units
2012/
2015
2016-
2022
2022-
2028
2028-
2034
2034-
2040
Remarks
1. Accessibility 2012( of pop)
87.5 90 92 94 95 2012 is based on WB
2. Affordability: Price (full cost including health & environmental cost) - Gen Charge
2015P/kWh
4.38 4.37 4.34 4.32 4.29
2015 BGC based on MERALCO prices. Projection based on authors’ preliminary calculation
3. Reliability: Loss of Load Expectation (LOLE)
2015day(s)/year
1.2 1.1 1 1 0.9 2015 is based on WB estimates. 1 day optimal LOLE is based on del Mundo 1991.
Long-term goal: To improve well-being of Filipinos
Key reforms are needed for the sector to contribute to the overall vision.
1. Facilitate a more competitive environment by letting the market work (with full implementation of RCOA).
2. Investment coordination in generation, transmission, and distribution
3. Government investment in transmission highway 4. Regulatory oversight coordination in support of a
competitive market. 5. Reconciling two seemingly contradicting
instruments: EPIRA and RE Law
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Tel. Nos. +63 (2) 9279686 loc. 239 Telefax Nos. +63 (2) 9205465
Website: www.upecon.org.ph/epdp Email: [email protected]
Thank you! Members of the EPDP research team who provided excellent research assistance are: Shirra de Guia J.Kat Magadia Miah Pormon Mico del Mundo Tim Guanzon Jean Luang Rainer dela Cruz Donna Bajaro Renzi Frias Monica Castillo
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Full paper is available at http://www.upecon.org.ph/epdp/
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List of Presentations Meeting / Activity Date / Venue
1. EPDP Conference 2016 12-‐13 January 2016/ New World Makati Hotel
2. EPDP Lecture Series 31 March 2016/ Encarnacion Hall, UP Diliman
3. Department of Energy Management Committee Presentation 25 April 2016 / DOE Taguig City
4. Meeting with Dr. Francisco Viray 11 May 2016/ Microtel UP Technohub 5. 38th Annual ScientiTic Meeting, National Academy of Science and Technology
13-‐14 July 2016 / Manila Hotel
6. De LaSalle University Undergraduate Colloquium 5 August 2016/ DLSU Manila
7. Stratbase-‐Albert Del Rosario Institute (ADRi) Roundtable Discussion (with Foundation for Economic Freedom and CitizenWatch)
26 October 2016 / Oakwood Premier Joy Nostalg
8. Meeting with Senator Sherwin Gatchalian 03 November 2016 / Senate of the Philippines
9. Philippine Economic Society 54th Annual Meeting 08 November 2016/Novotel Cubao
10. Meeting with USAID, GIZ, and B-‐Leaders 25 November 2016 / UP Bonifacio Global City
11. Philippine Electricity Market Corporation’s Philippine Electricity Summit 2016
02 December 2016 / Marco Polo Hotel Davao
12. Policy BrieTing for the Department Of Energy 19 December 2016 /UP Bonifacio Global City, Taguig City
List of Comments Received Comments From Date Received
1. Filipino 2040 Meeting of Technical Teams 08 August 2015 2. Filipino 2040 Bilateral Meeting (with Asian Development Bank) 15 October 2015 3. Filipino 2040 Meeting of Technical Teams 08 December 2015 4. EPDP Conference 2016 (Open Discussion) 13 January 2016 5. EPDP Lecture (Open Discussion) 31 March 2016 6. NEDA Infrastructure 06 April 2016 7. Department of Energy (during DOE Mancom presentation) 25 April 2016 8. Manila Electric Company (Meralco) 27 April 2016 9. Dr. Francisco Viray 11 May 2016 10. NEDA-‐Agriculture, Natural Resources and Environment Staff (NEDA-‐ANRES)
01 June 2016
11. National Academy of Science and Technology (NAST Annual Meeting Open Discussion)
14 July 2016
12. NEDA-‐ Trade, Services, and Industry Staff (NEDA-‐TSIS) 2016 (No date) 13. Philippine Institute for Development Studies (c/o Dr. Adoracion Navarro) 2016 (No date) 14. Asian Development Bank (ADB) 2016 (No date) 15. Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH 28 November 2016 16. USAID's Building Low Emission Alternatives to Develop Economic Resilience and Sustainability (B-‐LEADERS)
12 December 2016
17. Mr. Romeo Bernardo 12 March 2017
