UP PROFESSOR SAYS HIGH POWER RATES CAN BE REDUCED

UP PROFESSOR SAYS  HIGH POWER RATES CAN BE REDUCED

The Philippines has the highest power rates in the ASEAN region but these can be reduced by up to 20% by ensuring security of supply, said UP professor Rowaldo del Mundo  at a public lecture on April 16, 2015.

Prof. del Mundo of the UP Electrical and Electronics Engineering Institute, explained before a crowd of students, civil organizations representatives, private sector, government officials and policymakers as well as UP faculty members that the reduction of power rates can be done by aggregating the power demand of electric cooperatives and organizing a competitive and transparent procurement process for power supply contracting.

Citing his experience with electric cooperatives in Mindanao and Central Luzon, he concluded that by aggregating their power demand, distribution utilities (DUs) such as electric coops attain economies of scale and obtain market power. “Security of supply can be achieved by organizing competitive procurement process and designing properly the power supply contracts of DUs,” said Del Mundo.

Prof. del Mundo examined Philippine power rates in the context of five factors, namely, taxes, subsidies, fuel mix, privatization, and electricity market. Contrary to popular perception, reducing taxes for the power industry does not translate in huge drop in power rates. “If taxes in the Philippines are reduced to the level of taxes in ASEAN countries, only 2% to 3% [reduction] can be achieved,” Del Mundo stressed.

As for subsidies, even if the other ASEAN countries remove their subsidies, power rates in the Philippines will still be 30% higher, said Del Mundo. Moreover, compared with Singapore, which also does not subsidize its energy sector, even if we use the same fuel mix, the Philippine tariffs will still be higher by Php 2.00/kWh, he added.

Furthermore, privatization also increases the power rate as the new owner must recoup the costs of acquisition an existing power plant. To attain the largest reduction, the focus of policies must be on the electricity market and the security of supply.

He recommended that first, a mandatory public bidding should be done by distribution utilities (DU) in the procurement of power supply. To encourage the private sector to build more power plants, long-term forward contracts must be awarded for the operation of new power plants, whereas for existing ones, only short-term contracts should be granted to them. In addition, the DUs must submit to the Department of Energy (DOE) or the Energy Regulatory Commission (ERC) their power supply procurement schedule. If the DUs fail to procure power supply according to schedule, the government must step in and bid the uncontracted demand.

Second, the ERC should take a more proactive role in evaluating and approving power supply contracts for captive consumer of DUs. Hence, if a contract submitted by a DU is negotiated instead of resulting from a public bidding, the ERC should subject the contract to a “Swiss challenge,” he said.

During the open forum, Rep. Reynaldo Umali, House Energy Committee Chair, also gave updates regarding new bills proposed in the House of Representatives to amend Republic Act 9136, also known as EPIRA. He also called for collaboration with the academe to provide technical assistance in the review of current energy policies.

The public lecture was organized by the University of the Philippines Center for Integrative and Development Studies (UP CIDS) under its Sustainable Energy Program (SEP), and was held at the Engineering Theater, Melchor Hall, University of the Philippines Diliman.

Dr. Edna Co, Executive Director of UP CIDS, opened the program by discussing various initiatives of the Center, one of which is the SEP. Dr. Mili-Ann Tamayao, Program Director of SEP, discussed the thrust of the program. She also called for interdisciplinary collaboration in understanding the energy sector as well as partnerships among the academe, the government, civil sector organizations, and the private sector toward a sustainable energy policy.

Prof. Del Mundo’s slides may be downloaded at http://cids.up.edu.ph/lecture-2015.