BWorld 208, Consumer choice in electricity supply and prices

* This is my column in BusinessWorld on April 30, 2018.

In several statistics comparing electricity prices in Asia, the Philippines often ranks as the third most expensive in Asia next to Japan, Singapore, or Hong Kong.

Here are numbers from three different sources: (1) The Lantau Group (TLG), “Global Benchmark Study of Residential Electricity Tariffs,” May 2013. The study prepared for the Energy Market Authority (EMA), Singapore; (2) Enerdata, cited by Chris Herrera, “Optimization of Supply” presented at EPDP lecture, UPSE, October 26, 2017; and (3) International Energy Consultants (IEC), “Regional/Global Comparison of Retail Electricity Tariffs: Executive Summary,” May, 2016.

In the IEC study, subsidized markets are Indonesia, Malaysia, Thailand, South Korea, Sri Lanka, Taiwan. Unsubsidized and deregulated markets are Japan, Philippines, and Singapore. Hong Kong is unsubsidized but it is unsure if it’s deregulated.

The Electric Power Industry Reform Act (EPIRA) of 2001 has several provisions to help reduce Philippines’ electricity prices. The deregulation of power generation encouraged many private power producers to compete with each other. The Wholesale Electricity Spot Market (WESM) average prices for instance have been declining, in Pesos/kWh: 6.43 in 2010, 3.80 in 2011, 4.87 in 2012, 3.85 in 2013, 4.40 in 2014, 3.47 in 2015, and 2.84 in 2016.

The retail competition and open access (RCOA) under EPIRA is also an excellent provision. RCOA allows the “contestable consumers” or those with average electricity consumption of 1,000 KW (or 1 MW), a level which will later be reduced to 750 KW a day, to choose their own Retail Electricity Suppliers (RES) and leave their existing private distribution utility (DU) or electric cooperative (EC).

With RCOA, electricity consumers can set their own conditions from their RES.

Some can demand that they be supplied 100% only from renewables even if the price is higher, others can demand that they be supplied only from cheap and stable sources. Small customers can also aggregate their demand or allow an aggregator to pool their combined demand to become contestable customers.

There are two recent reports in BusinessWorld related to this.

(1) SC asked to lift TRO on retail power suppliers (April 24)

(2). DoE may step in as licensing body for retail power suppliers (April 12).

Report #1 is about Bayan Muna (BM) petition at the Supreme Court (SC) that it should lift its indefinite temporary restraining order (TRO) it issued in February 2017 barring the Department of Energy (DoE) and the Energy Regulatory Commission (ERC) from further implementing RCOA and allow the contestable customers to choose their own RES.

I was surprised that the pro-state intervention and pro-big government Bayan Muna suddenly turned around and campaigned for pro-market, pro-consumer choice — that consumers be given more freedom to choose an RES from the 23 short-listed by the ERC. Turns out that Bayan Muna is only doing this to further fight Meralco as a monopoly in electricity distribution in Metro Manila and some surrounding provinces. However, the group is silent about the Constitutional provision granting monopoly power to all other DUs and ECs in the country.

Report #2 is about the DoE studying the legality of being the issuer of licenses for RES. There are no updates about this yet.

The indefinite TRO has a very adverse result, reducing consumer choice, especially the contestable customers.

Those who consume 750-999 KW a day and are willing to move voluntarily to RES cannot do so because they will be disallowed by the ERC and PEMC. And even those who consume 1MW or more per day that are already qualified for RCOA are hesitant to have power contracts with RES because of the continuing uncertainty.

The ERC also does not and cannot issue new RES licenses or renew expiring ones, resulting in reduced RES competition.

Even some DUs also face uncertainties whether to get additional generation contracts or not for contestable customers because these customers can leave them anytime once the TRO is lifted.

Government prohibitions should be kept to the minimum. The EPIRA law has already succeeded in reducing electricity prices and expanded the country’s power supply capacity so why suspend more customer choice and empowerment?

The SC indeed should lift its indefinite TRO because it is anti-consumers and anti-business. Existing DUs have the freedom to put up their own RES so that contestable customers who have left the DU franchise system can still be their customers. Or the SC can strike down certain ERC resolutions so that it can issue new resolutions and regulations to implement RCOA and further expand consumer choice.

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See also:

BWorld 205, Energy mix and wishful thinking, April 30, 2018 

BWorld 206, Intellectual property rights in East Asia, May 09, 2018 

BWorld 207, Fare control and surge cap are wrong, May 10, 2018

Energy 98, Wind-lover S. Australia has highest electricity rates in the world

Reposting some recent news here, will have only one-sentence comment at the bottom.

http://www.abc.net.au/news/2017-06-28/sa-has-most-expensive-power-prices-in-the-world/8658434

http://www.abc.net.au/news/2017-06-16/origin-follows-agl-in-announcing-energy-price-hike/8624348

http://www.abc.net.au/news/2017-06-27/sa-recycling-business-power-bills-rise-causing-closure/8654638

https://stopthesethings.com/2017/08/13/power-prices-in-wind-powered-south-australia-double-the-price-of-power-in-nuclear-powered-france/

Power Prices in Wind ‘Powered’ South Australia Double the Price of Power in Nuclear Powered France

August 13, 2017 by stopthesethings 

Governments should step back from energy cronyism and climate alarmism, picking "winners" like wind companies while penalizing energy consumers.
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See also:

Energy 95, Al Gore's $15-T carbon tax racket, May 12, 2017 

Energy 96, ACEF 2017 at ADB, panel on private sector in renewables, June 09, 2017 

Energy 97, Solar can replace coal power in the PH? July 03, 2017

BWorld 95, Manufacturing and electricity costs in Asia

* This is my article in BusinessWorld last December 06, 2016.

A country’s manufacturing sector is a good indicator of its degree of industrialization and prosperity. The sector provides most of the basic needs of the people, from consumer items like bread, shoes, mobile phones, and cars, to capital goods like tractors and bulldozers.

Aware of the sector’s important function, the Department of Trade and Industry (DTI), Board of Investments (BoI), with funding assistance from USAID and JICA, organized a big, two-day “Manufacturing Summit” last Nov. 28-29, at Shangri-La Makati.

Besides DTI Secretary Ramon Lopez, high profile speakers included Diosdado Banatao of Tallwood Venture Capital, Jaime Zobel de Ayala of Ayala Corp. and IMI, Roberto Batungbacal of Dow Chemical Pacific, Alpesh Patel of McKinsey, Lawrence Qua of Ionics EMS, and many more.

Currently, different sectors and groups conduct their own study of the degree of modernization and competitiveness of the Philippine manufacturing sector. But sometimes, these studies have conflicting results.

One study is made by Japan External Trade Organization (JETRO) in 2015, showing that the Philippines has one of the more affordable, more competitive markets to do manufacturing business.

Recent macroeconomic figures also show that the Philippines has one of the most dynamic, fast-growing economies in Asia and the rest of the world. And in industrial production, the country managed to have modest growth, not as high as those of Vietnam and China but not low or negative as experienced by Hong Kong and South Korea (see Table 1).

  

Among the important activities of the Manufacturing Summit was the breakout sessions into seven simultaneous workshops. I have attended two pre-summit consultations by the DTI in early November, on International trade policy and Free Trade Agreements (FDAs), and Competitive and Innovation industries. So during the breakout sessions, I attended the workshop on Physical infrastructure.

The focus of discussions were on streamlining and modernizing the roll-on roll-off (RORO) system that allows buses, trucks, and other vehicles to transport goods and people from Luzon to Visayas and Mindanao and vice versa, and solving the heavy traffic congestion in Metro Manila and other big cities in the country.

The subject of the Philippines’ high cost of energy and unstable power supply was brought up by the representative from the garments and textiles industry, saying that we have the second highest electricity rates in Asia making our manufacturing sector less competitive.

I followed this up and I said that aside from the distortions in energy taxation/royalties and bureaucratic processes that make power plants construction more lengthy and costly, subsidies to renewables will further exacerbate the high energy cost.

While the EPIRA (Electric Power Industry Reform Act) of 2001 promised cheaper energy because it allowed competition among more players in power generation, the RE (Renewable Energy) Act of 2008 promised expensive energy because of various subsidies to renewable firms, especially the feed in tariff (FIT) system.

Arangkada Philippines, a project of the Joint Foreign Chambers of the Philippines, also distributed its latest policy note on Manufacturing during the summit and proposed measures to improve the Philippines’ manufacturing competitiveness. No. 1 in their 10 recommendations is to “Address high cost of power through tax credits and discounts.”

Here is possibly the latest available data for comparative electricity prices in Asia. Meralco contracted the International Energy Consultants (IEC) to conduct the study (see Table 2).

  

Based on IEC data, the Philippines has the 3rd highest electricity prices among developed and emerging economies in Asia.

This isn’t really good news but it is somehow an improvement from “2nd highest” ranking we had a few years ago.

Consider that (a) the governments of Indonesia, Malaysia, Thailand, South Korea and Taiwan subsidize their energy sector while the Philippines along with Japan (Kansai), Hong Kong and Singapore do not have such arrangements. And (b) Meralco tariff rate decline from 2012 to 2016 was a significant 28%.

The huge price cut in Singapore is worth noting and the Philippines should learn from it.

Aside from low global oil prices from 2015 to 2016, Singapore: (a) has high dependence on cheaper fossil fuel (natural gas, 92% of total electricity output in 2013) and almost zero wind-solar that are expensive, (b) does not seem to have energy tax for its natural gas consumption, whereas the Philippines imposes a high royalty (an energy tax) on its domestic natural gas production from Malampaya, and (c) market-oriented operator, the National Electricity Market of Singapore (NEMS) that is 100% independent of government and hence, relatively free from political pressures and interventions.

All manufacturing and financial powerhouses in Asia have huge power generation capacities, four to twenty times per capita electricity consumption of the Philippines.

Having a dynamic manufacturing sector is a must for the country to provide more jobs, more locally produced, and assembled consumer and capital goods. So having cheaper electricity and huge generation capacity from baseload and stable power plants, not intermittent sources, will help the Philippines achieve its manufacturing and industrialization goals.

Bienvenido S. Oplas, Jr. is President of Minimal Government Thinkers and a Fellow of SEANET and Stratbase-ADRi.

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See also: 

BWorld 92, Climate action and Asian energy realities, November 19, 2016 

BWorld 93, ASEAN multinationals, December 02, 2016 

BWorld 94, Economic freedom, taxes and tariffs in Asia, December 17, 2016