'Philippine electricity prices to stay high'
MANILA, Philippines - High Philippine electricity prices are unlikely to go down in the near future, according to the managing director of International Energy Consultants, John C. Morris.
"It's hard to see how the cost of electricity and therefore the price can come down by large quantities," Morris told Rappler in an August 17 interview.
A study conducted by the company and commissioned by Meralco found that at the beginning of 2012 the Philippines had the 2nd highest electricity rates in the region and the 9th highest out of 44 international markets.
The main reason prices are likely to stay high is the Philippines can't afford to subsidize its electricity as other countries in the region do, explained Morris, who pointed out that the practice in itself is unsustainable and unadvisable.
He said that 3/4 of the reason energy costs are high is because the government doesn't apply subsidies to keep tariffs artificially low.
While Filipinos pay close to the "fair and reasonable" price of energy, he showed a graph illustrating that its regional partners pay less than the actual cost.
He also explained that the Philippine power generation relies largely on imported fuel pegged to high international fuel prices, which the country cannot dictate.
Why is PH electricity so expensive?
In the study, which was standardized for type of customer, time period, currency price and resource rates, he came to a number of conclusions about why consumer electricity rates in the Philippines are relatively high for the region and internationally. Several of the issues don't seem to have a near term solution in sight.
1. The government doesn't subsidize energy. Several neighboring countries -- Thailand, Indonesia, Malaysia, Korea and Taiwan -- all have lower tariffs because of government subsidies. He said up to and sometimes over 50% of costs in these countries are subsidized since government policies freeze tariffs, sell fuel at below market rates and make government shoulder business losses.
2. It's expensive to produce energy in the Philippines. The country is making efforts to explore more of its own natural gas resources, but finding deposits and setting up production facilities will take years. In the meantime, the country is reliant on high cost international fuel.
3. Challenging geography. Because the Philippines is made up of thousands of islands, it does not have a unified electricity grid and there are several providers. "In principle," said Morris, "the bigger the grid the cheaper the cost" which can be spread out among more customers. However he thought that creating a unified grid in the Philippines would be problematic given the terrain. He noted that transmission costs are more expensive because power has to be sent across several islands. IEC found that 8 of the 10 highest cost markets in the survey were island nations or states, which could be a "fundamental cost multiplier." He said, "It is expensive to make electricity, transmit it and distribute it in this country… I can't see that problem changing in the next 20 years."
4. Ineffective plants. He pointed out that when some plants don't work well, it is necessary to have a reserve plant, which means additional costs. "The higher your reserve margin the higher the total cost of supply," he said. He added that the reserve margin of the Philippines was probably around 20% but should actually be between 33% to 35% since the country has had brownouts in the last year, which he said "means you don't have enough capacity to meet reliable demand."
Given the enormous obstacles to creating cheap energy, Morris said the Philippines should focus on lowering barriers for creating new generation. IEC found that "the greatest barrier to the entry of new [independent power producers] in Luzon is the lack of access to long-term, large-scale [Power Purchased Agreements] with creditworthy offtakers." He pointed out that while there is significant interest in putting up power plants, there is need to get various approvals. - Rappler.com