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The Philippine power industry saw a major transformation with the Electric Power Industry Reform Act of 2001 (EPIRA), which mandated privatisation of the government-owned National Power Corporation’s (NPC) assets and delineation of responsibilities of various government agencies. A critical EPIRA objective was reorganising the power industry into four sectors: generation, transmission, distribution and supply.

The transmission and distribution sectors are considered public utilities, and therefore regulated. The generation and supply sectors, on the other hand, are treated as public interest and operate in a competitive environment. The EPIRA also directs the Department of Energy (DOE) to supervise restructuring and development of the Philippine Energy Plan (PEP), providing for a comprehensive study of energy resources that is updated annually, favouring environment-friendly, indigenous and low-cost sources.

The DOE is also required to prepare the annual Power Development Programme (PDP), which considers joint programmes for the transmission, generation and distribution sectors. To regulate the transmission sector, the EPIRA provided for the creation of the National Transmission Corporation (Transco), which assumed the power transmission functions of the NPC, as well as responsibility for its centralised operations of high-voltage transmission facilities. This included the high-voltage backbone system of interconnected transmission lines, substations and related facilities of the national grid and ancillary services.

The Power Sector Assets and Liabilities Management Corporation was also created to take ownership of all existing NPC generation assets and liabilities.

NGCP concession

On 15 January 2009, through a congressional franchise under Republic Act No. 9511, the National Grid Corporation of the Philippines (NGCP) took over Transco’s power transmission business and electrical functions, including operation of the grid.

The NGCP prepares the annual Transmission Development Plan (TDP) with private sector and DOE input. This year, the Cebu-Negros-Panay 230kV backbone project, the Mindanao-Visayas interconnection project, and the Mariveles Hermosa San Jose project were finally energised, all allowing for more new power plants to be accommodated.

While the EPIRA has defined functions of the DOE and NGCP (as Transco concessionaire), the Philippines has suffered from a lag between power plants being commissioned and transmission lines being operational to accommodate new capacities.

This incompatible schedule has resulted in a shortage of electricity supply for the past few years, resulting in increased power costs, especially during the peak summer months. This dichotomy peaked when the DOE implemented the first-to-build, first-to-feed in tariff (FIT) policy in 2014. Without necessary DOE-NGCP co-ordination, most solar power developers constructed their facilities in Negros, despite the transmission network in that area of the Visayas not being ready for injection of additional power.

Cogent planning

A repeat of the 2014 FIT crisis of stranded power plants for insufficient transmission capacity should clearly be avoided. It is easy to put blame on the NGCP, but the root cause can be easily identified: incongruent generation and transmission plans.

With the Philippines’ push for massive renewables – including large-scale offshore wind and floating solar projects – this supply-shortage scenario can be prevented by adopting more co-ordinated planning between generation and transmission. The PEP, PDP and TDP must be aligned to ensure a proper nexus exists between power generators and transmission facilities to deliver electricity where it is most needed.

With the assistance of the US Agency for International Development, the DOE’s Grid Planning and Competitive Renewable Energy Zones in the Philippines initiative is a step in the right direction. Informed by successful renewable energy zone projects in the US, this initiative identifies the most economic renewable energy resource areas so transmission expansion can accelerate their development.

But more needs to be done, such as:

1. Regulated issuance of system impact studies to allow only serious developers with complete technical and financial support;
2. A dynamic Energy Regulatory Commission approval process for the NGCP budget that recognises supplementary applications when a new transmission project is proposed by the DOE; and
3. Proactive involvement by all government agencies on the endemic right-of-way issues that delayed numerous transmission projects, among others.

Given the overwhelming response of investors to the Philippines’ call for more power plants, it is imperative to enhance transmission infrastructure alongside increasing power supply on a co-ordinated timeline.

The DOE, ERC, Transco and NGCP must all work together towards integrating some long-term solutions. The private sector is ready.

Jose M Layug Jr is a senior partner at DivinaLaw in Metro Manila