Viewpoint: Duterte should focus on PH power plight

(Bloomberg Gadfly)

Want to switch on the TV? Wait for the entire family to gather in the evening. That’s one of the strategies that Philippine Energy Secretary Alfonso Cusi says his countrymen use to squeeze the most juice out of electricity.

When President Rodrigo Duterte gets a moment from his drugs war, a busy economic agenda is crying out for attention. Energy will be near the top of the list. There’s no obvious reason why power should cost 60 percent more for Filipino households than those in Thailand. Indonesian tariffs are seven times cheaper. Even Singapore, which like the Philippines has no consumer subsidies, pays 18 percent less for electricity than its Southeast Asian neighbor.

Yet statistics point to a glut. Prices in the spot market, where distribution companies buy electricity from producers, are down to a record 2 pesos (4 cents) per kilowatt hour, Cusi says.

Producers, which include a Who’s Who of the Filipino business elite, are complaining about a dangerous oversupply of capacity. Nonetheless, they have to finish what they’ve started.

Ayala Corp., the country’s oldest conglomerate, will allocate 21 billion pesos of its 185-billion peso capital expenditure this year to power. The bulk of San Miguel Corp.’s 63 billion pesos in spending this year will be on power. Aboitiz Equity Ventures, Inc. has earmarked 59 billion pesos to complete the 4,000 megawatts it wants to own by 2020.

Everyone’s a little jittery. The rate of return on new power plants has slid to below 10 percent. At least one group has already put the brakes on fresh investment. If all projects that were on the table when the last administration left office in June are completed by 2021, it may take nine years for demand to catch up with supply.

Consumers should still brace for bill shocks. The reason is partly the country’s challenging topography. In an archipelago of 7,000 islands, transmission is a big challenge. Increasingly, a bigger reason may be an unsustainable quest for sustainable energy.

Renewables account for 31 percent of dependable power capacity, a close second to coal’s 36.5 percent share. More than half comes from hydro, with solar making up roughly a tenth. But in the island group of Visayas, which spans the middle of the Philippines, a quarter of renewable energy capacity – and almost 12 percent of the total – is now solar.

Five years ago, the government guaranteed to absorb power generated by renewable sources at what now appear to be highly lucrative long-term prices. That’s especially the case for solar, where panel prices have crashed. The extra cost is recouped from customers. It’s no different from Germany, except that an average Filipino’s income is a fraction of the average German’s.

So what are the options? The Philippines is hot but not particularly sunny. It has exhausted its geothermal potential, and nuclear is a long way from being politically viable. Gas has merit, especially if Duterte’s bonhomie with China leads to exploration opportunities in the South China Sea.

Cusi’s stance of keeping supply sources “technology neutral” is sensible. He comes from Mindoro, an island whose sole source of power is diesel barged in from elsewhere. A submarine cable from a coal-fired plant on another island was approved only recently.

For the Philippines to have a shot at sustaining 7 percent GDP growth, coal is unavoidable. It’s also contentious. Just this week, Greenpeace identified the country as one of 10 “hot spots” beyond China and India because it’s building almost 14 gigawatts of coal-fired plants.

Environment Secretary Gina Lopez, while awaiting senate confirmation, gladdened many a green heart – and earned many powerful enemies – by cancelling 75 mining permits in February.

With her family’s company a prominent energy investor, rivals worry about bias. Backers say her advocacy of 100 percent renewables is what the Philippines’ fragile ecology – ravaged by five serious typhoons since 2006 – needs to address climate change.

Like almost everything else in this country of 104 million people, any decision will ultimately be a battle among members of the business elite. That’s why Duterte, a former city mayor with no ties to the conglomerates, will have to step in.

One solution could be to stop the mollycoddling of solar, and let new plants bid for tariffs. If the Indian experience is anything to go by, there could be plenty of supply at low rates. The last thing the president will want, though, is India’s downside: lots of stranded coal-based generating capacity in a slowing economy weighing on the banking system.

Duterte has so far kept his thoughts on economic policy to himself. That’s causing anxiety for business groups.

Even if the president doesn’t give two hoots for the billionaires, he has to think of his power base: the people. The 86 percent popular support he enjoys could be reinforced if somebody living in a one-bedroom apartment didn’t have to shell out $60 a month for electricity.

That’s in Manila. On a remote island, consumers pine to watch TV and leave electric fans running. If only the president could tear himself away from chasing pushers and dealers.

(This column does not necessarily reflect the opinion of Bloomberg LP and its owners).