INDUSTRY INFORMATION

Philippine Energy Plan 2005 Update

Plan Framework | Energy Demand and Supply Outlook | Sectoral Demand Projections | Energy Supply Mix | Sectoral Plans and Programs | Power Development Program | MAIN GRID | SMALL ISLAND AND ISOLATED GRIDS | Expanded Rural Electrification | Energy Resource Development | Downstream Sector Development | Energy Efficiency and Conservation | Environmental Management 

The Philippine Energy Plan 2005 Update (PEP 2005 Update) outlines options to ensure reliability and adequacy of supply of various forms of energy. Against the specter of the continually increasing oil price in the world market and power shortage on the domestic front, this PEP 2005 Update sets out to appraise the possibilities and courses of action towards providing adequate supply to the increasing energy demand through resource development and savings, as well as power market reforms.

The PEP 2005 Update is anchored on the five-point national development agenda as set forth in the 2004-2010 Medium-Term Philippine Development Plan (MTPDP), one of which is the attainment of energy independence. This over-arching objective is further specified into two-fold energy sector agenda to wit: pursuit of energy independence; and, implementation of power market reforms. The planning parameters of the PEP 2005 Update include: a) low economic Gross Domestic Product (GDP) growth targets set by the National Economic and Development Authority (NEDA), i.e., the ranges of 4.9 to 6.5 percent from 2004 to 2007; 6.8 to 7.0 percent from 2008 to 2010; the 6.5 percent growth rate from 2011 to 2014 is based on the average growth rate of the 2005-2010 forecast of NEDA; b) foreign exchange rates as provided by the Bangko Sentral ng Pilipinas of Php 55.00/USD in 2004-2005 and Php 55.50/USD for 2006-2010; the DOE extended the 2010 level of Php 55.50/USD for the period 2011-2014; and c) population growth projections of the National Statistics Office of 2.0 percent in 2001-2004 and by 1.9 percent from 2005 onwards.

With energy independence as its theme, this Update calls for the development of the country’s indigenous energy resources and promotion of clean technologies to sustain energy-efficient energy supply and demand chains that will eventually lead to increased self-reliance and provide the much-needed boost to the country’s economic front. The DOE has set forth a goal of 60 percent self-sufficiency level in 2010, and hopes to achieve this by:

• Increasing indigenous oil and gas reserves

• Aggressively developing renewable energy resources

• Increasing the use of alternative fuels

• Forging strategic alliances with other countries

• Promoting a strong energy efficiency and conservation program

On the other hand, the implementation of power market reforms includes a transparent privatization process of the generating assets of the National Power Corporation (NPC) and the transmission assets of the National Transmission Corporation (TransCo). The planned operationalization of the Wholesale Electricity Spot Market (WESM), the electricity trading mechanism among generators, suppliers and wholesale consumers, will be implemented in phases, starting with Luzon and Visayas in 2006.

Industries and consumer groups will benefit from the open access scheme in the competitive generation market, and provide them with the flexibility to choose their electricity suppliers at the least possible cost. These efforts will thereby create an investment climate attractive to private domestic and foreign investments.

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Consistent with the 6.6 percent average annual GDP growth target provided by NEDA, it is projected that the national aggregate demand will rise from 216.4 MMBFOE in 2005 to 335 MMBFOE in 2014, for a ten-year average increase of 4.7 percent. Households, transport, industry, commercial entities and agriculture, will drive the energy demand on an uptrend.

Petroleum products used mainly by the transport sector will comprise the bulk of the total final energy demand with an average share of 39.4 percent for the entire planning period. Biomass consumed mostly by the residential sector will follow next with an average share of 38.4 percent. Electricity, coal and natural gas will post an average share of 15.1 percent, 2.7 percent and 2.2 percent, respectively. Alternative fuels such as coconut methyl ester (CME) and ethanol will jointly comprise 2.2 percent.

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Targets are set to achieve indicative capacity additions from indigenous energy resources during the ten-year planning period. These include natural gas (1,500 MW), geothermal (220 MW), hydropower (1,212 MW), coal (300 MW), biomass (55 MW) and wind (245 MW).

The country’s indigenous resources are projected to contribute 163.3 MMBFOE, translating to an energy self-sufficiency level of 57.1 percent in 2005. In 2010, the selfsufficiency level is targeted to increase to 61.5 percent, translating to a contribution of 229.0 MMBFOE from domestic energy resources. By 2014, energy supply from indigenous resources will reach 261.9 MMBFOE. On the other hand, the country’s dependence on energy imports will continue on a more restrained level at an average annual growth rate of 3.9 percent over the ten-year planning period. Imported energy supply will account for about 42.9 percent of the total energy mix in 2005 corresponding to a volume of 122.5 MMBFOE. By 2010, this will grow to 143.3 MMBFOE and further to 191.1 MMBFOE by 2014.

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The 2005 Power Development Plan (PDP) outlines the country’s indicative supply expansion plan in the next ten years under the EPIRA framework. It aims to provide an integrated roadmap for the industry participants to attain the EPIRA’s overall goal of ensuring reliable and sustainable electricity supply at reasonable prices for the country’s growing electricity demand. The program hopes to invigorate the electric power industry with the infusion of private sector capital and managerial expertise in realizing the installation of new generation capacities and in developing a robust transmission system.

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The system peak demand of the country is expected to increase from 9,827 MW in 2005 to 14,265 in 2010 and 19,064 MW in 2014 with an average annual growth rate of 7.6 within the planning horizon.

For Luzon, the projected 2005 peak demand of 7,343 MW is expected to grow to 11,018 MW in 2010 and 14,959 MW by 2014. The annual growth rate for the entire planning period is 8.2 percent.

For the Visayas grid, a lower forecast level is seen with 5.7 percent average annual growth rate. The projected demand for the region is forecasted to grow from its estimated value of 1,113 MW in 2005 to 1,463 MW by 2010 and 1,849 MW by the end of the planning period.

For Mindanao, the forecasted peak demand for 2005 is about 1,371 MW and will continue to grow to 1,784 MW in 2010 and 2,256 MW in 2014. This indicates an average annual growth rate of 5.9 percent.

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The projected peak demand forecasts will require a total of 9,228 MW of new capacity additions in the next ten years. Of this total, 578 MW will come from committed projects while the remaining 8,650 MW are indicative capacity additions identified as baseload, midrange and peaking plants. For Luzon, 7,200 MW indicative capacities are needed to fill up the demand starting 2008. For Visayas and Mindanao, the putting-up of critical infrastructure facilities that include both committed and indicative projects will avert the most likely occurrence of power shortages in 2005. Aside from the committed projects, 600 MW indicative capacities are needed in Visayas and the additional indicative capacity will commence by 2008. For Mindanao, 850-MW indicative capacities are needed and by 2005, it is essential to put up the 150-MW peaking plant to prevent power shortage. Of the 578-MW committed projects, 65 MW will come from Luzon, 228 MW in the Visayas and 285 MW in Mindanao. Considering the retirement of

951.5 MW of aging power plants, the net installed capacity in the country will reach 23,834 MW at the end of 2014.

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The 2005 PDP is consistent with the energy sector goal of increasing self-sufficiency and using environment-friendly and cleaner fuels by firming up the entry of 180-MW renewable energy capacities during the period. These include two wind power plants in Ilocos Norte (the 25-MW Northwind power plant and the 40-MW Philippine National Oil Company-Energy Development Corporation (PNOC-EDC) wind power project), two geothermal power plants (the 40-MW Northern Negros and the 20-MW PNOC Palinpinon) and two bioenergy projects (the 30-MW Talisay and 25-MW Bais Bioenergy both located in Negros Occidental).

Fossil fuels will continue to be used to meet the growing demand. Expected to be

in commercial operation by 2007 is the 210-MW Mindanao coal-fired power plant in

Misamis Oriental which is currently under construction. Likewise, to address the looming

power shortage in Visayas, the transfer of the 110-MW Pinamucan diesel-fired power

barge from Batangas to Panay Island is targeted in 2005. Meanwhile, to augment the

anticipated increase in demand in Mindanao due to the additional load from the National

Steel Corporation, power barges 101, 103 and 104 with a combined dependable capacity

of 75 MW will be transferred from Estancia and Obrero, Iloilo and Cortes, Bohol in

Visayas by 2005.

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Total electricity generation is estimated to register an average annual growth rate of 7.7 percent within the ten-year planning period in support of projected electricity demand growth. Total electricity generation will increase from 61,699 gigawatt-hours (GWh) in 2005 to 90,248 GWh by 2010 and further to 120,392 GWh by 2014.

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The implementation of ongoing transmission projects shall increase the grid system by 1,998 circuit-kilometers (ckt.-km.) of transmission lines and 3,230 megavolt ampere (MVA) of substation capacities all over the country. Additions of reactive and capacitive equipment totaling 593 megavolt-ampere reactive (MVAR) shall also be installed to provide voltage support in the different outlying areas.

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The small island and isolated grids power and transmission development plan is one of the major components of the Missionary Electrification Development Plan (MEDP) which the DOE shall prepare annually as embodied in Rule 13 of the Implementing Rules and Regulations (IRR) of the Electricity Power Industry Reform Act (EPIRA).

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The average annual peak demand growth rate of 9.3 percent for the entire planning period will entail an additional capacity of 331.2 MW. Electricity generation will grow from 538.4 GWh in 2005 to 809 GWh by 2010 and further to 1,431 GWh by 2014.

Luzon will contribute 73.9 percent share of the country’s total capacity mix in the small island grids. A total of 229.2 MW will be added to the systems for the ten-year planning period to sustain the demand growth rate of 8.6 percent. Meanwhile, electricity generation will increase from 420 GWh in 2005 to 605 GWh in 2010 and 1,114 GWh by 2014. Electricity sales will likewise increase by an average annual growth rate of 11.4 percent from 400 GWh in 2005 to 574 GWh in 2010 and finally to 1,058 GWh by 2014.

The average annual peak demand growth rate of 12.7 percent for the entire planning period will entail an additional capacity of 29.3 MW in the Visayas small island grids. Electricity sales will grow from 35.3 GWh in 2005 to 63.9 GWh by 2010 and 103 GWh by 2014. Gross generation will grow from 36 GWh in 2005 to 65 GWh by 2010 and 105 GWh by 2014.

Mindanao will contribute 21.5 percent share of the country’s total capacity mix in the small island grids. The demand growth rate in Mindanao of 10.8 percent entails the installation of around 19 MW additional capacities within the planning period. Consequently, gross generation will grow from 82 GWh in 2005 to 138 GWh by 2010 and further to 212 GWh by 2014.

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A total of 931 line kilometers (km.) of transmission lines will be needed in the small island grids in the next ten years to augment the required capacity additions. This comprises 778 km. for Luzon, 58 km. for Visayas and 95 km. for Mindanao.

Expanded Rural Electrification 

Wider access to reliable supply of electricity (100 percent barangay electrification by 2008 and 90 percent household connection by 2017) will be the country’s goal of rural electrification as it starts the year 2005 with an electrification level of 91.4 percent nationwide. The Department of Energy (DOE) is committed to electrify 1,476 barangays earmarked for 2005, of which 712 barangays are spill-overs of 2004 due to several constraints encountered by the implementing offices and agencies. In 2008, 505 barangays will still be energized to achieve the 100 percent completion level.

Target barangays will be electrified through the installation of renewable energy systems in off-grid areas and expansion of about 17,748 ckt.-km. of distribution lines that will, in turn, require the installation of additional 1,635 MVA of substation capacity in grid areas. Likewise, around 9,897 ckt. kms. of distribution lines will be rehabilitated to contribute to the reliability and efficiency of electricity service during the ten-year period.

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Renewable Energy

Geothermal

Geothermal installed capacity will increase from 2,146 MW in 2005 to 2,206 MW by 2014. Gross generation, on the other hand is projected to increase from 10,384 GWh in 2005 to 13, 317 GWh in 2010 and 14,043 GWh in 2014. Expansion and optimization of existing fields/plants, as well as exploration and development of new areas will be undertaken to achieve the targeted capacity addition.

In generating investor interest, the government will intensify its efforts in facilitating farm-in agreements on the drilling of exploration and delineation wells, conduct of feasibility studies, subsequent development of the steam field and construction of corresponding power plant.

Hydropower

The DOE aims to double the current generating capacity from hydropower resources by 2013 as provided under the Renewable Energy Policy Framework (REPF). Accordingly, the hydropower installed generating capacity is expected to reach 3,127 MW by the end of the planning period. Likewise, the country’s electricity generation from hydropower resources is expected to grow from 7, 617 GWh in 2005 to reach 8, 101 GWh in 2014.

For the planning horizon, the DOE will continue its campaign towards attracting greater private-sector participation in the development of the country’s hydropower potential.

Biomass, Solar and Wind

With the over-all goal of achieving a 100 percent increase in the country’s renewable energy-based capacity within the planning period, concrete measures include the installation of 130 to 250 MW of capacity from biomass and solar resources and about 417 MW of wind farms. Additionally, some 18 wind power projects will be available to investors during the planning period with a total installed capacity of 425 MW.

The DOE will pursue the aggressive development and utilization of renewable energy resources in the country through the implementation of various programs that include the UNDP-assisted Capability Building to Remove Barriers to Renewable Energy Development (CBRED) project. The DOE will also push for the passage of the Renewable Energy Bill which will strengthen the directions for renewable energy development, as well as provide appropriate incentives to stimulate investments in the sector.

Fossil Fuels

Oil and Gas

The 2005 PEP envisions the production of 10.3 million barrels (MMB) of oil in 2005, 11.0 MMB by 2010 and 8.4 MMB by the end of the planning period. The steady increase in production from 2005 to 2010 hinges on the reactivation of the Cadlao field, the production of the Malampaya Oil Leg and a target discovery of a new oil field which is expected to produce 9.12 MMB by 2009. The Malampaya Deep Water Gas-to-Power Project is scheduled to produce 146 BCF of gas per year. The San Antonio gas field in Isabela, on the other hand, will produce 365 MMSCF annually from 2005 to 2006. The natural depletion of the field is seen by 2007. To explore the country‘s petroleum proven reserves, a total of 51 wells is expected to be drilled in Luzon and Visayas, and 20 service contracts (SCs) are targeted to be awarded within the ten-year planning period.

The conduct of several petroleum public contracting rounds will be a continuing activity of the DOE to further encourage more investments in the sector.

Coal Estimates show that the total in-situ reserves of the country stand at 343.4 million metric tons (MMMT). This level will slightly increase to 349 MMMT in 2005 to reach 360.3 MMT by the end of the planning period. Total coal production of 47.2 MMMT is expected to fuel the coal-fired power plants scheduled for commissioning within the ten-year period.

In boosting local production, the DOE will conduct studies to identify additional coal exploration areas. The application of clean coal technologies will likewise be a continuing strategy to provide a market for low-rank domestic coal.

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Oil

Over the planning period, the DOE will implement a three-pronged program to promote healthy competition among the industry players and at the same time safeguard consumer welfare. These programs include: a) Ensuring the country’s oil security through the pursuit of bilateral supply arrangements with other countries; b) Improving fuel quality fuel standards and petroleum facilities; and, c) Strengthening retail market monitoring.

Natural Gas

As a vital strategy to reduce dependence on imported oil, the government will expand the use of natural gas for transport and industrial use. The industries in the southern part of the National Capital Region (NCR) are expected to start using natural gas by 2007 for co-generation and cooling purposes. This will be synchronized with the completion of the approximately 100-km. Batangas-Manila (Batman 1) gas pipeline project in the same year, and expanding between 2007 and 2010 to the proposed 140-km. Bataan-Manila (Batman 2) project for the sale of natural gas for power generation. The use of natural gas will be intensified in the transport sector having taken off with the currently implemented Natural Gas Vehicle Program for Public Transport (NGVPPT).

Coal

The government will continue to exert efforts in developing coal as a major fuel. Parallel to this move are implementation measures to address the environmental challenges in the sector. In compliance with CAA, the government has strengthened its advocacy campaign for the adoption of clean coal technologies.

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In line with its mandate to promote the efficient and judicious utilization and conservation of energy and make it a way of life for every Filipino, the DOE will vigorously pursue programs and projects which cover two areas, namely: fuel efficiency and conservation as well as power conservation and demand-side management. With an invigorated energy efficiency and conservation program dubbed as the "EC way of life", a cumulative aggregate savings of 240.8 MMBFOE, to include the use of alternative fuels will be attained within the planning period.

This energy management program is expected to redound not only to the total reduction in oil importation but also to the avoidance of greenhouse gas (GHG) emissions of approximately 61,977 gigagram carbon dioxide (GgCO2) during the ten-year period.

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Alternative Transport Fuels

The increasing use of alternative fuels, namely: compressed natural gas (CNG), coconut methyl ester (CME) or coco-biodiesel, autogas, ethanol (ethyl alcohol or "grain alcohol") in transport and technology will be seen in the next ten years, in response to the fluctuating crude oil prices in the world market and the growing concern for air quality and the environment, in general.

Compressed Natural Gas

The DOE will ensure the availability of CNG and the development of related infrastructure facilities to make the industry commercially feasible to all NGVPPT participants. The DOE commits to accelerate incentives and support for NGVPPT stakeholders to encourage other transport firms to shift to CNG. By 2005, about 140 commercial CNG public utility buses are expected to ply the major routes of Metropolitan Manila and some parts of Southern Luzon, with this number increasing to 900 in 2010 and all Metro Manila public utility buses by 2014.

Coconut Methyl Ester

An intensive Information, Education and Communication (IEC) campaign will be conducted to ensure the conformity of the entire bureaucracy to Memorandum Circular No. 55 (M.C.55) including the local government units. As a result, it is expected that over 29,000 diesel-run government vehicles will comply with M.C. 55 and be able to use approximately over 65,000 kiloliters of CME in 2005.

During the planning period, policies will be formulated for the expanded utilization of coco bio-diesel to include stationary engines.

Ethanol

The DOE, in collaboration with other government agencies will promote the use of ethanol otherwise known as ethyl alcohol as an alternative source of fuel for the transport sector. One of the country’s major oil players, Petron Corporation has signified its interest in undertaking the blending of ethanol with other fuels and ensuring its availability in the local market while a group of sugar industry players formed the first Philippine Fuel Ethanol Alliance to help the government in pursuing the development of ethanol in the country. The Philippines will also collaborate with the government of Thailand in conducting a study to develop ethanol as a fuel additive. The legislative support to ethanol utilization is embodied under the Senate Bill No. 1677 and House Bill No. 2583.calling for the establishment of a "National Fuel Ethanol Program."

Autogas

An autogas standard on road vehicles, cylinders and dispensing stations will be developed by 2005 through the joint in collaboration with the Department of Trade and Industry (DTI). During the planning period, capacity building will be instituted by conducting an IEC campaign and training programs on autogas conversion, repair and maintenance.

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Reduction of Carbon Dioxide Emissions (CO2)

With the implementation of the various sectoral plans and programs in the 2005 Plan Update, CO2 emission levels will increase at a lower average annual growth rate of 5.7 percent, from 77.1 MMMT in 2005 to 99 MMMT in 2010, and finally reaching 124.2 MMMT in 2014. The CBRED project commits to a 29.6 MMMT reduction within the planning period.

Clean Development Mechanism (CDM) Initiatives

A continuing inventory of energy projects with CDM potential, as well as the development of a CDM Promotional Kit and other IEC materials will be undertaken by the DOE to serve as tools to encourage foreign and domestic investments on CDM.

Oil Spill Prevention, Control and Response Training

The DOE will continue to take the lead in Oil Spill Prevention, Control and Response Training which is done annually to review oil spill prevention measures as well as ensure the preparedness of energy industry players in dealing with oil spill incidents.

Caring for the Society and the Environment

The NPC and TransCo are both guided by the Corporate Social Responsibility and Environmental Stewardship Program policy on environmental management which subscribes to the precepts of sustainable development and consistent with Section 5: Environmental Protection clause of the EPIRA.

The NPC implements a power project cycle-based environmental management policy that is compliant to existing regulations such as the CAA, Solid Waste Management Act of 2000 and the recently passed Philippine Clean Water Act of 2004.

Its activities include environmental impact assessments, monitoring/inspection and auditing. TransCo’s corporate environmental policy, on the other hand, is embodied in its commitment "to a cleaner operation to prevent pollution, comply with relevant environmental laws, regulations and standards, and continuously review and improve the environmental performance of its activities. As such, TransCo ensures the environmental compliance of its projects from the pre-construction stage, construction proper, operation, up to the decommissioning of a facility.

Meanwhile, through its re-launched Corporate Social Responsibility Program, the PNOC-EDC commits to be a catalyst for environmental and socio-economic prosperity for its host communities. The company aims to deliver holistic, equitable and meaningful benefits to its host communities through public participation and the principle of management accountability to its stakeholders.

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Hosting energy-generating facilities and/or entities engaged in the development of energy resources has corresponding benefits to the barangay, city or municipality, province or region. The provision of benefits, either financial and/or non-monetary is anchored on the following laws: Republic Act 7160 otherwise known as the Local Government Code of 1991; R.A. 7638 or the Department of Energy Act of 1992; and, R.A.9136 or the EPIRA.

The DOE will ensure the compliance of the power-generating companies and/or energy developers in providing financial benefits to the host communities.

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For the planning period, the Consumer Welfare and Promotion Office is committed to its long-term goal of empowering energy consumers. It will also be on the frontline in the development and implementation of various education and advocacy programs for better consumer understanding on the issues and concerns of the energy industry.

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The implementation of national energy projects for the next ten years will require huge investments, to wit: Energy resource development projects alone will require a capital investment of Php1.1 trillion. The power and transmission development projects intended for the main grid will require a capital outlay of Php 554 billion while those for the small-island grids will require Php 18.4 billion.

For the downstream oil and natural gas sector, around Php 184.5 billion will be required to put in place expansion programs in the downstream oil sector, as well as for the successful operation of the natural gas industry.

On the other hand, financing for the remaining unenergized barangays under the Expanded Rural Electrification Program will total Php 6.9 billion.

Finally, a successful energy efficiency and conservation program calls for an investment of Php 145.1 billion.

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The energy sector will push for the passage of several legislative measures, to wit: TransCo Franchise Bill, Renewable Energy Bill, Natural Gas Bill, Ethanol Bill, Alternative Fuels Bill and Liquefied Petroleum Bill. 

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