Philippine power outlook dims for 2023: but prospects appear bright for clean energy sector
(PE2 Note: Richmond Mercurio of the Philippine Star interviews PE2 president Alexander Ablaza on the review of 2022 and 2023 outlook for the energy efficiency sector.)
MANILA, Philippines — Prospects appear bright for the country’s push for a cleaner energy future, but dark clouds are hanging over the horizon as potential power shortages and higher prices loom.
The year 2022 is regarded by many as a difficult period for the country’s energy sector given developments both locally and abroad.
However, next year may even be more challenging as tight power supply in Luzon and Visayas will be met by an even higher demand as the economy recovers further from the pandemic.
Energy Secretary Raphael Lotilla admitted in October that the country’s power situation for the first half of 2023 would be difficult, especially in the summer months.
Energy stakeholders, in fact, agree that it will likely be another bumpy road ahead for the country’s power situation next year.
“This has been a very challenging year for the power sector given the tight supply situation and elevated fuel prices. 2023 will remain challenging especially given the declining output from Malampaya and the continued growth in electricity demand on the back of the economic recovery,” ACEN Corp. president and CEO Eric Francia said.
Francia said ACEN, the listed energy platform of the Ayala Group, is building over 1,000 megawatts (MW) of solar and wind projects in the country, of which around 700 MW is expected to start operations within the next 12 months.
“This would help alleviate some of the supply pressure, and help towards achieving the country’s renewable targets,” he said.
But with not much improvements seen in the supply side from both coal and fossil gas power plants, the Institute for Climate and Sustainable Cities (ICSC) said the Philippines’ power outlook for 2023 is bleak.
“The performance of several coal plants were characterized by prolonged and recurrent outages even after repairs and maintenance. Fossil gas supply remains restricted affecting the operations of natural gas plants,” ICSC senior policy advisor Pete Maniego Jr. said.
“We at ICSC do not foresee much improvements in the supply from both coal and fossil gas power plants,” he said.
Maniego said the entry of new solar and other renewable energy power plants to augment much needed supply are likewise constrained by limited transmission and distribution interconnection capacities.
He said forced outages of coal-fired power plants and the operation of natural gas power plants would have to be taken into consideration because if not mitigated, then yellow and red alerts, with possible rotating blackouts, would be possible again during the second quarter of 2023.
The DOE’s Electric Power Industry Management Bureau had earlier projected that there would be occurrence of 17 yellow alerts and three red alerts for 2023.
The red alerts may occur in May and June peak months as capacity may fall below required regulating reserve.
Yellow alerts, meanwhile, may occur for various periods between February and June, and from October to early December next year.
Just this December, several yellow alerts and red alerts were raised for the Luzon and Visayas grids due to forced outages of several power plants.
Maniego pointed out that many existing coal-fired power plants have experienced unplanned outages and exceeded their Energy Regulatory Commission-mandated allowable outage limits in 2022.
“If the same unplanned outages occur during the second quarter of 2023, then this would significantly deplete the available capacity during this period,” he said.
Currently, the country uses a significant amount of fossil fuels, such as coal, oil, and natural gas, accounting for about 77.2 percent of its energy supply.
According to the Department of Energy (DOE), coal dominates the energy supply with a share of 37.1 percent, followed by oil at 34.6 percent and natural gas at 5.5 percent.
Renewable energy, on the other hand, accounts for 22.8 percent, which is mainly sourced from wind, solar, biofuels and hydropower.
For 2023, Alsons Power vice president for business development Joseph Nocos said coal and gas prices are forecasted to remain elevated, with no end in sight to the crisis in Ukraine.
Nocos said pressure on fuel supply coming from the reopening of China and the continued ban on the importation of Russian fuel would keep prices high.
“With the further reopening of business and industry next year, power supply will experience tightness, particularly in Luzon and perhaps even the Visayas. The completion of the Visayas Mindanao Interconnection Project could provide some relief as the excess power in Mindanao can then make its way northwards,” Nocos said.
For Nocos, 2022 for the energy sector was marked by sharp increases in power costs arising from spikes in the cost of coal and gas due to the war in Ukraine.
He said this has affected not just consumers, but also power generators as well, especially those who committed to fixed fuel prices.
“More tellingly, this exposed the vulnerability of the country’s energy sector to global market forces that are beyond everybody’s control. Tightness in power supply, particularly in Luzon, was a lingering concern, especially with warnings from a major supplier affected by the fuel price volatility,” he said.
“All these provide fresh impetus for the development of more renewable energy projects that will help provide more stability in supply and power prices. The establishment of the country’s LNG supply chain is also becoming more urgent with the depletion of the Malampaya gas resource and the government’s policy of diversifying away from coal. Private sector and government will have to work together to implement these solutions,” Nocos said.
But amid the challenges, 2022 has shown a lot of progress and promise for the Philippines, according to Aboitiz Power Corp. president and CEO Emmanuel Rubio.
Rubio said gross domestic product growth for the past three quarters ranged from 7.5 percent to 8.2 percent, peak electricity demand continues to rebound even surpassing pre-pandemic levels, and activities in cities and key destinations around the country appear to be at their highest levels in recent years.
“To sustain our country’s upward trajectory, the energy sector must continue to work together to provide stable and reliable electricity in 2023 and beyond,” Rubio said.
“All forms of energy, plus new and more advanced power generation technologies, are needed to realize the promise of the full economic potential of the country,” he said.
AboitizPower has continued to invest in renewable energy assets in 2022 with over 1,000 MW of disclosed energy projects from various indigenous energy sources.
The company is scheduled to start the operation of a 94-MW peak Cayanga-Bugallon solar power project in Pangasinan by the first quarter of next year.
Rubio is optimistic that the country will be able to overcome the challenges that lie ahead. “We can expect difficulties on this journey but we must persist as an industry and work together with stakeholders and broader society to deliver a cleaner energy future for the country,” he said.
Bright future for RE sector
While the country’s power situation outlook may be dim for next year given tight supply conditions, the future, however, is looking bright on the renewable energy front, with significant strides being made by the government just this year alone to entice more investments.
On top of these initiatives was the lifting of foreign equity restrictions in the sector following the DOE’s issuance of the amended rules of the Republic Act 9513 or the Renewable Energy Act of 2008.
The amendment now allows foreign citizens or foreign-owned entities to engage in the exploration, development, and utilization of the country’s renewable energy resources such as solar, wind, biomass, ocean or tidal energy.
Further boosting the country’s renewable energy push was a move which raised the percentage of the utilization of renewable energy for on-grid areas from one percent to 2.52 percent.
Part of the administration’s goal of transitioning towards a sustainable and clean energy future, the hike in the country’s renewable portfolio standards (RPS) requirement is expected to usher in new investments as it creates a larger market for the renewable energy industry.
The RPS is a policy mechanism under the RE ACT designed to increase the use of renewable energy sources for electricity generation.
It requires electricity suppliers, particularly the distribution utilities, to source or produce a specified fraction of their power supply from eligible renewable energy resources.
In addition, the DOE has also made all qualified and registered renewable energy generating plants as preferential dispatch in the wholesale electricity spot market (WESM), a move seen accelerating the development and utilization of indigenous renewable energy resources.
This means that all qualified and registered generating units utilizing renewable energy sources may now enjoy the option of preferential dispatch in the WESM, a platform for centralized trading of electricity.
All these form part of the DOE’s efforts to fast-track the development of renewable energy in a bid to increase its share in the country’s power mix from the current 22 percent to 35 percent by 2030, and further to 50 percent by 2040.
“The year 2022 has been a transition year for the energy efficiency sector,” Philippine Energy Efficiency Alliance president Alexander Ablaza said.
“In the second half of 2022, DOE’s new leadership under Secretary Lotilla throws a heavier emphasis on energy efficiency as a distinct infrastructure investment asset class apart from renewables and energy storage projects,” Ablaza said.
“Through the coming 2023, we expect the government and private sector to be collaborating more closely as DOE strives to roll out the remaining specific guidelines under the Energy Efficiency and Conservation Act, such as the one pertaining to demand-side management, and to see significantly improved compliance by designated establishments in the commercial, industrial and transport sectors, and by national and local government entities under the government energy management program,” he said.
Ablaza said the DOE is also expected step up its promotion of energy efficiency and conservation as a fundamental strategy to mitigate the disruptive impacts of more frequent yellow and red alerts in major power grids in preparation for the anticipated summer supply deficits.
The country’s energy chief has pointed out that as one of the measures to reduce the electricity demand, the DOE has intensified the drive to encourage the implementation of energy efficiency and conservation measures among government offices, private companies, and local government units to help reduce electricity consumption.
The agency is also aggressively pursuing the development and adoption of alternative fuels and emerging technologies to reduce the country’s dependence on imported fuel.
“We have been continuously instituting policies and programs to ensure a balance among energy security, affordability to attain environmental sustainability,” Lotilla said.
According to Lotilla, the current administration is fully committed toward attaining a sustainable low carbon future for the country.
Lotilla said the use of greener energy sources is becoming the trend in the global energy landscape, with industrialized economies pledging to prioritize energy transition strategies.
“This indicates a shift from a low carbon economy to a net zero or carbon neutral society. However, for a developing country like the Philippines with scarcer resources, this remains an ambitious goal as achieving it requires substantial capital investments, alter policies and regulations, and the development of next generation technologies, among others,” Lotilla said.
“Given these, the government is going for a more gradual transition in comparison, as there is another line to be crossed between balancing economic growth and consumer welfare, while still pursuing our sustainable environmental growth,” he said.
Moving forward, these efforts to boost renewable energy development and transition to a sustainable low carbon future is aimed at providing the Filipino people an energy supply that is both accessible and affordable.
But for the meantime, consumers should brace for the worst, with the country in the grip of a power supply crunch and higher electricity prices.