Can the Philippines Power Outages Be Eliminated Permanently?
The answer to this is a definite YES.
However, the question of the technical and economic capacity to eliminate the outages is a distinct and separate question to whether the Philippine power market (suppliers, consumers, and regulators) has the underlying policy framework to enable the elimination of power outages.
To the latter question, the answer is NO.
Note that when discussing about the Philippine power outages, we are referring to the market segment which is tied to a system called the power distribution grid. The off-grid solutions are alternatives which will not be covered in this blog post.
To better understand what policies are preventing the elimination of outages, we need to know the following: a) what comprises the electric power supply chain; and b) what are the policies which affect the power supply chain.
Electric Power Supply Chain
First off, we need to understand how electricity ends up in our houses.
Here’s a very concise explanation from a North Carolina electric utility.
Below is a basic overview of how power reaches the typical residential customer.Power Stations — The process begins at power stations, where electricity is initially produced. Each station is connected to others so if one shuts down, power can readily be obtained from another. Together, these facilities form the “power grid,” or transmission grid.Transformers — Once created, electric current is sent through transformers to increase the voltage, allowing it to be pushed over long distances. The current is transported using high-voltage transmission lines.
Substations — Electricity then reaches a substation, where the voltage is lowered. This allows it to safely pass through smaller power lines.Distribution Lines — From these smaller power lines, electricity reaches various levels of customers, as shown in the illustration below. Residential customers (also known as “secondary” customers since they are essentially at the end of the distribution network, behind industries and businesses) are served by distribution lines in neighborhoods, where smaller pole-top transformers again reduce the voltage.Service Drop — Distribution lines connect to your house through a “service drop” which then transfers the electricity to your meter. (Depending on where you live, distribution lines and service drops may be underground.) The meter measures how much electricity you use.Service Panel — Wires bring the electricity from the meter to your service panel, where breakers protect your wiring from power overloads. From the panel, electricity travels through wires to various outlets and switches in your home.
Performance Indicators
Now, imagine electricity as if it were a stream of water flowing from a well to your house. As the electricity moves towards you, the end consumer, the flow is going downstream. As we trace the flow to its source, we are said to be going upstream.
This metaphor will come in handy as we follow the trail from the consumer “downstream” to the power generation firms “upstream”.
Potential Pitfalls
It is also important to understand the definition of the numbers that are being compared lest we fall into equivocation.
For example, one might say that the Philippine power industry is already competitive because there now exist private firms competing to provide power generation services. Moreover, this competition has also led to better prices compared to the time when power generation was a monopoly of NAPOCOR. From a domestic perspective, both statements are true.
The question however is, are we competing against ourselves – or are we competing against different countries from all over the world?
So, yes – the EPIRA introduced competition. BUT, was the competition between the local 75% Filipino majority owned utilities enough?
In the former instance -the competition referred to is domestic competition between the power generation firms.
In the latter instance, the competition referred to is the international competition between the power rates of different countries.
Or is WESM a perversion of the notion of competition. Is WESM a corporatist/crony capitalist/statist tool ? Having this pig of a restrictive market put on a lipstick called EPIRA does not make the pig any less of a pig.
Having said that, let’s take a deep dive and listen to what the data is telling us – or prodding us to inquire some more.
Capacity/Production
How has the Philippines power production panned out compared to its neighbors, given the bigger private sector investments?
For the same period 2005-2011, when private sector investments in energy in the Philippines was higher than its neighbors – electricity production has minimally improved.
Sources of Power
Thailand and Vietnam have a higher proportion of power generated from natural gas resources.
Philippines and Indonesia have a higher proportion of power generated from coal sources.
Investments in Energy with Private Sector Participation
YES – there were private sector investments in energy. But, were the investments enough to drive the costs of power down to affordable levels?
From 2005-2012, the Philippines had more private sector participation in investments in energy ($13B) compared to Thailand ($8B), Vietnam ($4B), Indonesia ($7B), Malaysia ($6.4B), and Cambodia ($2.5B).
Could these be due to the higher capital requirements of coal-based power plants which are more prevalent in the Philippines? Compare that to the power sources of Thailand and Vietnam.
And if the capital investment is higher, guess how this will impact the price to the consumer.
Power Rates
Yes – the EPIRA reduced the high power rates. But were the rate reductions enough?
Were the reductions provided by the the local 75% Filipino majority owned utilities enough – when despite the reduction, the Philippines still has the highest rates in Asia?
Taxes
The other component of power rates is taxes. Every segment of the power supply chain which has a charge has a corresponding VAT.
Consumption / Demand
How has our power consumption fared when compared to our neighbors?
On a per capita consumption basis, consumption has remained stagnant compared to Malaysia, Thailand, and Vietnam.
Access to Electricity
And on top of that, were all these enough to address the 8 hour power outages faced in Mindanao? A reduction in the percent of population with access to electricity, despite the increased private sector investments of 75% Filipino majority owned power generation firms, the Wholesale Spot Electricity Market , the increased privatization of government power generation assets (and liabilities).
Affordability
On the matter of affordability, the question is – after paying electric bills, do consumers still have enough to pay for other necessities and still have discretionary income left? Given that the Philippines has lower GDP per capita and yet has electric power rates that are equal to those with higher GDP per capita, then Filipinos have less disposable income after paying the power bills than the Thai, Indonesians, Malaysians, and Singaporeans.
Or to phrase the question in a more intimate context – what is the difference in the satisfaction between masturbation versus having a fully engaged partner(s)? But I digress.
Policy Framework
In reviewing the policies, I use the framework below. There are four generic scenarios labeled A,B,C, and D. Each of the scenarios are made up three self-explanatory indicators – competition, primary drivers, and primary barriers.
Prior to the EPIRA, the highly regulated power industry had vertically integrated firms in distribution and supply.
After EPIRA,, the vertically integrated distribution and supply segments were broken up to allow more companies to participate in distribution and supply.
The “reform “of the Philippine power industry can be described as a mixed pace of EPIRA implementation based on geographic location.
Luzon and Visayas now have more private firms involved in power generation. Mindanao on the other hand has a state-run monopoly that runs the hydro power generation facilities.
In the overall scheme of things. Despite being inefficiently crafted, compared to nationalized state-run utilities, the corporatist/statist EPIRA has led to continuous power supply to consumers in Luzon, albeit at very expensive rates compared to neighboring ASEAN countries, including developed countries.
The overriding question therefore is not whether EPIRA has worked or not – because it obviously has worked in terms of providing continuous power supply.
Rather the question is whether the outcomes of the EPIRA framework are sufficient or not?
In my opinion, the high cost of electricity in Luzon and Visayas and the continuing power outages in Mindanao INDICATES that the outcomes of the EPIRA framework are insufficient – and simplyunacceptable.
Solutions
The diagram below captures the current state of the Philippine power industry in Luzon, Visayas, and Mindanao. Also shown is “my” ideal future state of the Philippine power industry.
While the EPIRA is an improvement on the state-run model, the EPIRA is a poor and inefficient perversion of a free and open market in electric power. Based on actual data, the EPIRA has not led to increase in access to electricity, nor has it led to affordable power rates, nor has it led to a steady supply of power for a large segment of the population.
Obviously, my market-driven solution is diametrically opposite the demands of the leftists and nationalists to nationalize the industry – which in my view will only make things worse.
Why repeat the experience of Mindanao’s consumers under a state monopoly called NAPOCOR?
We ought to be learning from the experience of Luzon and Visayas under the EPIRA and take this a step further towards full liberalization and open competition.
1 comment:
Make review for power transformer philippines
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