Aboitiz Group CEO and President Erramon I. Aboitiz was among the invited panelists at the first BusinessWorld Economic Forum held last July 12 at Shangri-La at The Fort in Taguig City. With the theme of “Charting Progress to 2020”, the event featured top leaders from both the business community and public sector. In addition to discussing the benefits of EPIRA and Open Access, EIA emphasized how power availability is key to the country’s achievement of its full growth potential.
Good afternoon, ladies and gentlemen.
Earlier today, we heard about the encouraging signs related to our economic growth, and how the demand for energy and other infrastructure requirements is expected to rise to support this trajectory. I have been asked to discuss how the supply of electricity can keep up with this increased demand.
Perhaps it may be useful to go back a few years and understand what transpired within the power industry to understand and gain comfort in its future.
The Electric Power Industry Reform Act, more commonly referred to as EPIRA, was passed in 2001. It provided the framework for the restructuring of the power industry to a functioning competitive structure with the end goals of attracting investment in the sector, driving down power costs and empowering customer choice. This necessitated the government exiting the power industry to allow open and transparent competition and the elimination of subsidies.
Perhaps one of the most underappreciated achievements of the past administrations, the implementation and gains under EPIRA (at least in my humble opinion), has been a real success with tangible results.
Over 70% of NPC’s (National Power Corporation) assets have been privatized, the financial drain on government has been arrested, the power generation monopoly was transformed to a competitive landscape with a couple of dozen power companies sprouting out and with Open Access (OA) giving the end user the power of choice from whom to source his power requirements, albeit in a limited fashion as yet.
This journey has not been an easy one and had its share of bumps along the way; but to derail its full implementation would be in my view a mistake and something we should in earnest complete.
From a situation of brownouts and red alerts, we are hearing people actually predicting oversupply of power in the future.
All of this, I must add with prices of power actually going down.
But this is where we are, and I am sure you are more concerned as to where we are going.
The country’s peak requirement for power today is about 11,500 MW, and is expected to increase to 14,000 MW in 5 years. Taking a 10 year view peak demand is estimated to reach 17,500 MW. Mind you, this is with moderate economic growth. Given the optimism in the air under the Duterte administration, we believe we should prepare for a higher growth scenario as it would be totally unacceptable for power availability to be the culprit of not achieving our growth potential. In fact, our target as an industry should be to build capacity ahead of growth.
Looking as a basis into DOE’s (Department of Energy) Power Outlook 2015-2020 report released last August 2015, there’s about 5,000 MW of committed and 12,000 MW of indicative projects for Luzon, Visayas and Mindanao. Even if we sensitize demand growth to a more bullish scenario we should have enough capacity in the medium term. This is indeed a positive manifestation that the private sector is ready, committed and has the appetite to make the necessary investments in additional power capacity over the coming years.
But as we know and have seen many times, there is usually a gap between plans and the actual fruition of intentions, especially in the power sector. These are usually multi-billion peso projects, with long gestation periods, that are complex and require multi-sector stakeholder support.
While I am optimistic that the needed supplies will come in, we should not be excessively confident and lower our guards.
Allow me to touch on a few areas of concern.
I am sure we are all supporters of renewable energy. AboitizPower in fact started its generation business building run-of-river mini hydros and continues to do so. I am in fact a believer in solar in the long-term. But the fact is that these power projects are generally small and electricity generated is intermittent and dependent on the availability of the resource used – whether it be the sun, wind or rain – let alone the cost impact. So while we should encourage renewables, we cannot be totally dependent on them; which leads me to the need for dependable, reliable and competitively priced baseload capacity.
Recently there has been a lot of discussion about coal and whether we should be building additional coal capacity. However technology and best practices of clean and responsible coal are available today. In fact if you visit these modern coal plants, you will see that the host communities are thriving and unaffected negatively by these power plants.
As a developing country sourcing approximately 40% of our power requirements from renewable sources and a carbon footprint much lower than the developed world, with a need to be globally competitive to protect our jobs and our economy, we should be careful not to get ahead of ourselves and cognizant of the increased cost in adopting renewables.
Bottom line, we need to have a balanced mix of responsible power to ensure availability, reliability and affordability.
Affordability is indeed top of mind for our regulators and the community at large; but in times of shortage we all realize that the most expensive power is “No power.” While I totally agree that the role of regulators is to protect the consumer and ensure the power he is paying is reasonable and competitive, the other equally important responsibility is to make sure power capacity is built as required and the only way this will happen is if developers get a reasonable return on their investment.
I firmly believe that the only way for power prices to go down and keep them there is to ensure there is adequate supply and that there is healthy competition amongst industry players.
Which leads me to what we refer to as the holy grail of competition in the power industry – Open Access. Open Access is envisioned to give the end user the power of choice and at the same time allowing retail electricity suppliers to fight for their customers. Without Open Access, generators would have no option but to sell to distribution utilities; with open access they can market themselves and compete to service the needs of the end user, very similar to all other industries.
While the implementation of open access has been delayed, it has started, initially limited to larger customers of 1 MW and above; and lowered to 750 kW last June 26, 2016 albeit on a voluntary basis. We expect the threshold to be further lowered to 500 kW by June 26, 2018. With a more definite schedule of the full implementation of OA, power developers will be able to plan with more certainty and give them the confidence to build new capacity to service the needs of these contestable customers under a deregulated regime.
As mentioned earlier, power projects require the support of multi-sector stakeholders. We have heard about the myriad of permits required in building power plants. Perhaps government could look into these requirements and streamline the process in securing permits to build a power plant.
However, the complexity of building power plants does not end with securing the appropriate property and all the required permits, financing the multi-billion peso project, finding a market for power and securing the necessary regulatory approvals. We also need transmission lines to be available and ready to connect and transmit the electricity to where the demand is. But what comes first, the chicken or the egg? The transmission lines or the power plant? The long period required to secure various permits, approvals and the rights of way for the power lines, makes it imperative that construction plans of both power plants and transmission lines have to be developed in parallel. This is a complex task that needs the immediate attention and collaboration across the various industry stakeholders including the DOE and ERC (Energy Regulatory Commission).
With that, I thank you for your kind attention and interest.