Philippines Energy Sector Assessment, Strategy, and Road Map This energy sector assessment, strategy, and road map documents the status and strategic priorities of the Government of the Philippines in the energy sector. It highlights sector performance, development constraints, government plans and strategies, past support of the Asian Development Bank (ADB) and other development partners, and the strategy for future ADB support in the energy sector. It also provides sector background information for investment and technical assistance operations. The assessment is based on a systematic review of the Philippines’ energy sector and consultations with the government and other development partners. About the Asian Development Bank ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. Established in 1966, it is owned by 67 members— 48 from the region. Its main instruments for helping its developing member countries are policy dialogue, loans, equity investments, guarantees, grants, and technical assistance. PHILIPPINES ENERGY SECTOR ASSESSMENT, STRATEGY, AND ROAD MAP OCTOBER 2018 ASIAN DEVELOPMENT BANK 6 ADB Avenue, Mandaluyong City 1550 Metro Manila, Philippines ASIAN DEVELOPMENT BANK www.adb.org PHILIPPINES ENERGY SECTOR ASSESSMENT, STRATEGY, AND ROAD MAP OCTOBER 2018 ASIAN DEVELOPMENT BANK Creative Commons Attribution 3.0 IGO license (CC BY 3.0 IGO) © 2018 Asian Development Bank 6 ADB Avenue, Mandaluyong City, 1550 Metro Manila, Philippines Tel +63 2 632 4444; Fax +63 2 636 2444 www.adb.org Some rights reserved. Published in 2018. ISBN 978-92-9261-362-4 (print), 978-92-9261-363-1 (electronic) Publication Stock No. TCS189616 DOI: http://dx.doi.org/10.22617/TCS189616 The views expressed in this publication are those of the authors and do not necessarily reflect the views and policies of the Asian Development Bank (ADB) or its Board of Governors or the governments they represent. ADB does not guarantee the accuracy of the data included in this publication and accepts no responsibility for any consequence of their use. The mention of specific companies or products of manufacturers does not imply that they are endorsed or recommended by ADB in preference to others of a similar nature that are not mentioned. By making any designation of or reference to a particular territory or geographic area, or by using the term “country” in this document, ADB does not intend to make any judgments as to the legal or other status of any territory or area. This work is available under the Creative Commons Attribution 3.0 IGO license (CC BY 3.0 IGO) https://creativecommons.org/licenses/by/3.0/igo/. By using the content of this publication, you agree to be bound by the terms of this license. For attribution, translations, adaptations, and permissions, please read the provisions and terms of use at https://www.adb.org/terms-use#openaccess. This CC license does not apply to non-ADB copyright materials in this publication. If the material is attributed to another source, please contact the copyright owner or publisher of that source for permission to reproduce it. ADB cannot be held liable for any claims that arise as a result of your use of the material. Please contact [email protected] if you have questions or comments with respect to content, or if you wish to obtain copyright permission for your intended use that does not fall within these terms, or for permission to use the ADB logo. Notes: In this publication, “$” refers to United States dollars. ADB recognizes “China” as the People’s Republic of China and “Korea” as the Republic of Korea. Corrigenda to ADB publications may be found at http://www.adb.org/publications/corrigenda. On the cover: Solar panels from a hybrid energy system on Cobrador Island, Philippines (photo by ADB). Contents Tables and Figures iv Acknowledgments v Abbreviations vi Currency Equivalents vii Weights and Measures vii I. Introduction 1 II. Overall Sector Context 2 A. Energy Resources 3 B. Energy Balance 4 C. Forecasts for Energy Supply and Demand 5 D. Climate Change 7 III. Institutional Context 8 A. Government Institutions in the Power Sector 8 B. State-Owned Enterprises 10 C. Private Sector 11 IV. Core Sector Issues 13 A. Electric Power Subsector 13 B. Energy Efficiency 20 C. Energy Resource Subsectors 21 D. Subsector Constraints 30 V. Sector Strategy 37 A. Power Sector Priorities 37 B. ADB’s Sector Support Program and Experience 39 C. Other Development Partner Support 40 D. ADB Experience and Self-Evaluation 42 E. ADB’s Sector Forward Strategy and Policy Issues Moving Forward 42 VI. Energy Sector Road Map and Results Framework 47 Appendix: Energy Sector Problem Tree 48 iii Tables and Figures Tables 1 Energy Supply Projections for 2040 6 2 Current Transmission Interconnection Capacity in the Philippines 19 3 Approved Feed-In Tariff Rates as of 31 December 2016 28 4 National Energy Targets Set Out by the Philippine Development Plan 2017–2022 38 5 Energy-Focused Legislative Agenda from the Philippine Development Plan 2017–2022 39 6 Major Donor Activities in the Philippine Power Sector, 2010 Onward 41 Figures 1 Regional Real Gross Domestic Product Growth, 2003–2016 2 2 Electricity Demand Growth vs. Real Gross Domestic Product Growth 5 3 Structure of the Power Industry in the Philippines 8 4 Power Generation by Source in the Philippines, 1991–2016 13 5 Supply and Reserve Margins in Luzon, 1987–2016 14 6 Generation in the Main Philippine Grids, 2016 15 7 System Losses in the Philippines 18 8 Installed Renewable Energy Capacity under the Feed-In Tariff Program 29 9 Retail Tariffs for Residential Customers as of September 2017 30 10 Comparison of Generation Charge by Meralco vs. Wholesale Electricity 31 Spot Market Prices 11 Strategic Linkages 43 iv Acknowledgments This report was prepared by a team led by Shannon Cowlin, senior energy specialist, Energy Division (SEEN) of the Southeast Asia Department (SERD), with team members: Rehan Kausar, director, Portfolio Management Division of the Procurement, Portfolio, and Financial Management Department; Manfred Kiefer, senior economist, Private Sector Transaction Support Division of the Private Sector Operations Department; Michael Thomas, consultant, and Christopher Starling, consultant. Guidance and support was provided by Ramesh Subramaniam, director general, SERD; Andrew Jeffries, director, SEEN; and Kelly Bird, director, Philippines Country Office (PHCO). The team wishes to thank Yongping Zhai, chief, Energy Sector Group, Sustainable Development and Climate Change Department; Aekapol Chongvilaivan, country economist, PHCO; and Anthony Jude, consultant, for their helpful reviews and comments during the preparation of the report. The team wishes to thank the Department of Communications and SERD staff: April-Marie Gallega, associate communications coordinator; Mary Grace Huelgas, associate operations officer; and Jeffrey Almera, senior operations assistant, for their support in preparing and editing the report. The team wishes to thank agencies and colleagues in the Government of the Philippines for discussions held during the preparation of the report. v Abbreviations ADB Asian Development Bank ARMM Autonomous Region in Muslim Mindanao ASR assessment, strategy, and road map BAU business-as-usual CES Clean Energy Scenario DENR Department of Environment and Natural Resources DOE Department of Energy EPIRA Electric Power Industry Reform Act ERC Energy Regulatory Commission FiT feed-in tariff FiT-All FiT-Allowance GDP gross domestic product GHG greenhouse gas IMEM Interim Mindanao Electricity Market LNG liquefied natural gas NEA National Electrification Administration NGCP National Grid Corporation of the Philippines NPC National Power Corporation NREB National Renewable Energy Board NREP National Renewable Energy Program PDP Philippine Development Plan PEMC Philippine Electricity Market Corporation PEP Philippine Energy Plan PNOC Philippine National Oil Company PPA power purchase agreement RoR run-of-river RPS Renewable Portfolio Standard TPES total primary energy supply TransCo National Transmission Company UCME Universal Charge for Missionary Electrification WESM Wholesale Electricity Spot Market vi Currency Equivalents (as of 6 September 2018) Currency unit – peso (PHP) ₱1.00 = $0.019 $1.00 = ₱53.59 Weights and Measures GW gigawatt kV kilovolt kW kilowatt kWh kilowatt-hour Mt million metric tons MTOE million tons of oil equivalent MW megawatt vii I Introduction 1. This sector assessment, strategy, and road map (ASR) reviews the state of the energy sector of the Philippines. Consistent with the plans and strategy of the Government of the Philippines, the ASR proposes support actions for the energy sector to be taken by the Asian Development Bank (ADB) during the period 2018–2023. It also provides sector background information, which will be updated as needed for investment and technical assistance operations. The ASR is a working paper based on a systematic review of the country’s energy sector and consultations with the government and other development partners. 2. The ASR is linked to and informs ADB’s country partnership strategy for the Philippines. The country partnership strategy sets out principles for assistance and partnership between ADB and the Philippines. It is aligned with the government’s policies and priorities, and draws upon ADB’s Strategy 2030, which outlines a framework for ADB’s overall operations.1 1 ADB. 2018. Strategy 2030: Achieving a Prosperous,