Rural Electrification in the Philippines: Challenges and Strategies Emman Talag (Dept of Planning, DOE – Philippines) Experience Exchange Seminar on Rural Electrification Using Renewable Energy in Sub-Saharan Africa Agence Française de Développement 28 November 2014

The Philippines at a Glance Land area: 300,000 sq km Population: ~100 Million Literacy rate: 95% Currency: Peso Yearly Sales : ~60 000 GWH / year With more than 7,100 islands, providing electricity services to unelectrified households in remote areas remain to be the biggest challenge to the Government The Philippines is strategically located at the crossroads of international shipping and air lanes. One of the largest archipelagos in the world, its 7,100 islands is grouped into three geographic areas: Luzon, Visayas, and Mindanao. Luzon is the biggest island group where the capital city of Manila is located. With more than 7,000 islands, providing electricity services to these areas poses the biggest challenge to the Government.

Status of Household Electrification PHILIPPINES 16.94 M HHs -------------- = 79.12% 21.42 M HHs 4.47 Million Unelectrified HHs 21.42Million Total Potential HHs Based on Census 2010 1.34 Million Unelectrified HHs LUZON 11.13 M HHs -------------- = 89.3% 12.47 M HHs VISAYAS 3.07M HHs -------------- = 75.4% 4.07 M HHs 1.00 Million Unelectrified HHs MINDANAO 2.75 M HHs -------------- = 56.3 % 4.89 M HHs 2.13 Million Unelectrified HHs As mentioned by Undersecretary Aguilos in his Welcome Remarks, electrification has always been one of the development policy strategies of the Government in promoting economic rural development and poverty alleviation in rural areas. In fact, it has been the policy of the State to provide total electrification to the country as stated under EPIRA. Currently, efforts are being geared towards attainment of 90% household electrification level by 2017. As of December 2013, we have already reached 79.12 household energization level or around 4.47 million households do not have access to electricity. At least, 3.1 million new household connections are needed to achieve the household electrification target. Unless new strategies are established, existing efforts cannot achieve the target. 100% Barangay electrification has been achieved Target: 90% electrification of households by 2017

Declared Policies of the State on Rural Electrification Promote the sustainable development in the rural areas through rural electrification Promote the full development and use of renewable energy as a tool to address the cross-cutting issues of gender, poverty and economic development But Government has limited resources so it also recognizes the significant role of the private sector in the country’s total electrification program

Institutional Framework under EPIRA (since 20O1) DOE - - - HOUSE TEAM Policy Direction – Goal Setting, and Program Management and Coordination NEA Identification, Financing and Monitoring ERC Rate Design, Licensing, and Determination of UC-ME Rural/Missionary Electrification SPUG - NPC Implementation and Filing of Petition for UC-ME Universal Charge for Missionary Electrification Distribution Utilities (DU) Implementation and O&M OTHER GOV’T. AGENCIES (e.g.,OPAPP) Financing and Permitting PRIVATE SECTOR Financing, and Project Implementation and Operation NPPs, QTPs * “DUs, SPUG and other qualified parties licensed by ERC are the only entities allowed to directly implement and operate rural electrification projects under the EPIRA”

Major Players in Missionary Areas: DOE, NPC, DUs, and NEA Supervise the restructuring of the industry Energy Policy and Long-Term Planning Oversight on Total Electrification NPC NEA Perform Missionary Electrification Administers subsidies to NPPs and QTPs Prepare ECs to operate in a competitive market; Review and upgrade regulatory policies to enhance viability of electric cooperatives Distribution Utilities (DUs) Provide Universal Service to its franchise areas; Ensure reliability and adequacy of electric services; Facilitate entry of QTPs

Creation of PSALM Major Players in Missionary Areas: PSALM, ERC, TransCo and Private Players/Investors Management of NPC assets and liabilities and transmission company pending privatization Manage NPC Privatization process Assume NPC debt and IPP Contracts Administer Universal Charge Creation of ERC Independent, quasi-judicial regulatory body Promote competition Ensure customer choice Penalize abuse of market EPIRA created two new entities: PSALM or the Power Sector and Asset Liabilities Management Corporation PSALM will assume NPC’s existing generation assets, liabilities, and contracts with IPPs. It will absorb NPC’s outstanding debt including future borrowings PSALM is also tasked with the privatization of NPCs generation and transmission assets. Transco or the National Transmission Corporation Transco will assume our electricity transmission assets, and will remain a subsidiary of PSALM. EPIRA also created a new regulatory framework, with the ERC, the Energy Regulatory Commission, replacing the Energy Regulatory Board or the ERB. The ERC is envisaged under EPIRA as a strong and independent, quasi-judicial regulatory body It is tasked to promote competition in the power sector, encourage market development and ensure customer choice. Compared to its predecessor (the ERB), the ERC will have stronger and broader powers in the sense that it will be authorized not only to correct but to prevent and penalize anti-competitive practices. ERC will also establish and enforce methodology for setting transmission and distribution wheeling rates. Private Players (NPPs and QTPs) New Private Power Providers Qualified Third Parties NPPs: Assume the generation function of NPC QTPs: Assume the provision of electricity to Missionary/Unviable Areas Entitled to subsidies from the Universal Charge-Missionary Electfn

Tarifs and Costs in missionary areas Gap covered by the UC - ME Missionary areas economically unattractive for power generation Universal charge to compensate NPC and now to promote private sector involvement Diesel generation costs not reflected in effective selling rate Tariffs (Socially Acceptable Tariff) different per region 1Peso = 2€cents 3 2 Examples 1.Basilan  Power selling rate: 6,58 PhP/KWh  True costs: 13,70 PhP/KWh (in 2020: 32,31 PhP/KWh) 2.Caluyan  Power selling rate: 6,84 PhP/KWh  True costs: 18,89 PhP/KWh (in 2020: 41,94 PhP/KWh) 3.Alad  Power selling rate: 6,59 PhP/KWh  True costs: 28,03 PhP/KWh (in 2020: 67,90 PhP/KWh) 1

UNIVERSAL CHARGE (UC) on all kWh sold 1€ = 56 Pesos; 1 P = 2 €Cents Represents 1% of Tariff (6 to 11P/kWh) ~100M€/y Now 160 M€/y in 2014 Target of 200M €/y

Present True Cost of Generation Process Financing: DBP, Land Bank, Cial Banks (Generation) Petition ERC for UC-ME Disbursed by PSALM END USERS Tariff Socially Acceptable Per region Producers (NPC, NPPs) Present True Cost of Generation SAGR per region <> ? DU often ECs Dist cost + capped profit Distribution NEA rating, LGU-GC BLEP, SEP (GOVT) SAGR : Subsidised Approved Generation Rate DU : distribution Utility – EC: Electric Cooperatives

- Good progress on NPPs (~40, fuel and now more and more Ren) - Only 1 QTP (Gen + distrib or SHS programme)

Incentives for Renewable Energy

Attain 90% HH Electrification by 2017 Rationale and Objective of HEDP Provision of basic electricity services to improve the quality of life of all Filipinos, especially in remote and other poor areas of the country. Causal relationship between Electricity access and poverty reduction Social justice and inclusive economic growth Attain 90% HH Electrification by 2017 Define policies and strategies Delineate roles of key stakeholder Develop and consolidate programs, projects, and activities Enhance info systems for program planning and monitoring Determine and allocate financial and other resources Rationale Ultimate Objective Specific Objectives

HOUSEHOLD ELECTRIFICATION DEVELOPMENT PLAN Towards 90% Household Electrification by 2017 Grid Electrification Off-Grid Electrification NIHE Project PV MAINSTREAMING DOE-REMB HEP NEA SEP & BLEP DOE-EPIMB ER 1-94 Mini-Grid and Other RE-Based Electrification Grant Assistance to Poor Household QTP approach

Strategies Governance arrangement and Private Sector Participation Privatization of generation function in small island and isolated grids Private investment in small-scale generation and distribution in unviable areas that cannot be served by distribution utilities Funding Government appropriation and subsidy Private investment, Loans Grant, Corporate social responsibility International cooperation Technical assistance and financing Creation of venue for discussion, review and enhancement Provision of alternative perspective and business model for sustainability

Case: Philippine Rural Electrification Service French Financial Protocol of 22,5M€ for the electrification of 18,000 off-grid households in Masbate island through diesel micro grid (5 hours of service) and solar home system Condition: Public-private partnership with a designation of Qualified Third Party as operator With delay: NPC as interim operator and manager despite organizational constraints Possible model for sustainable electrification of remote areas

Conclusion Rural electrification using renewable energy in the Philippines: Dynamic and open to new ideas Creates opportunities for good governance and responsible business Contributes to social progress

Thank you. Emman Talag emctalag@yahoo. co Thank you. Emman Talag emctalag@yahoo.co.uk (Dept of Planning, DOE – Philippines) Director Mylene Capungcol (Dept of Planning)

Status of Household Electrification Updates based on NSO’s 2010 Census resulted to HH electrification level lower than previously reported by DUs/ECs (from above 80% to nearly 70%.) National HH Electrification Level Regional Breakdown (31 December 2013)   TOTAL HHs Served HHs Unserved HHs HH Elec Level 31 December 2012 119 ECs 13,137,012 8,978,344 4,158,668 68.34% MERALCO 5,895,355 5,840,879 54,476 99.08% Other DUs 1,978,523 1,294,990 683,533 65.45% PHILIPPINES 21,010,890 16,114,213 4,896,677 76.69% 31 December 2013 13,348,509 9,406,100 3,942,409 70.5% 6,052,075 5,863,730 188,345 96.9% 2,014,653 1,673,524 341,128 83.6% 21,415,236 16,943,354 4,471,882 79.1% HH populations are from NSO 2010 Census. Served HHs are from 2014-2023 DDP (for all DUs) and NEA’s Status of Electrification Report (for DUs w/o DDP Submissions). 3.94M unelectrified HHs in EC franchise areas 0.188M unelectrified HHs in MERALCO areas ~ 600 thousand HHs (5% of total) possibly not yet covered by existing reports of DUs (HECS Studies) Mindanao has lowest electrification level at 56.3% ARMM is the least electrified region at 33.2%.

Rural/Missionary Electrification Rule 7, Distribution Sector, Section 4(f) – Obligations of a DU: “A Distribution Utility shall provide universal service within its franchise area, over a reasonable time, including unviable areas, as part of its social obligations…” EC WITH FRANCHISE QUALIFIED THIRD PARTY (QTP) ADJOINING EC NPC-SPUG Sect 23 last para; Rule 7 (f) Rule 7 (g) Rule 14 Sect 5(a) Rule 13 Sect 3 (a) but a DU must sustain its economic viability Rule 14, Provision of Electricity by QTPs, Sec. 1 – Guiding Principle: “… The provision of electric service in remote and unviable areas that DU is unable to service for any reason shall be opened to other qualified third parties…” QTP shall operate as a regulated business but differs from the conventional service providers in many important ways Rule 13, Missionary Electrification, Sec. 3(a) – Obligations of SPUG: “SPUG shall be responsible for providing power generation and its associated power delivery systems in areas that are not connected to the grid and cannot be serviced by Distribution Utilities and other qualified third parties.” SPUG is the implementor of last resort