Energy to the Philippines

Trends and opportunities

The market

As the Philippine Government targets an annual gross domestic product (GDP) growth rate of 6.5 – 7.5 per cent in 2017 and seven - eight per cent by 2022, increasing power generation while reducing costs is a top priority. Electricity generation is set to grow by 6.3 per cent in 2016, reaching 80.9TWh. Total generation is expected to reach 122TWh by 2025 (Source: BMI, Philippines Power Report Q4 2016).

The country’s total power generation in 2015 was 82.5 million MWh of which 73 per cent was generated in the Luzon grid; 15 per cent in Visayas; 13 per cent in Mindanao. The Luzon and Visayas grids are interconnected, while the Mindanao grid stands on its own. System losses account for nine per cent of the country’s consumption. The electrification rate is 83 per cent, which means that approximately 16 million Filipinos have no access to electricity (Source: Philippine Institute for Development Studies (PIDS)). In terms of electricity pricing, the Philippines is the ninth highest in the world and the second highest in Asia, next only to Japan (Source: International Energy Consultants, IEC Study, June 2012). Sixty-five per cent of the total retail tariff is generation; nine per cent transmission, 16 per cent distribution, 10 per cent for VAT and other taxes (Source: The Energy Report: Philippines by KPMG). Unlike Asian neighbours, the Philippines do not subsidise electricity.

Coal accounts for 44 per cent of the total energy production, with most of the coal being imported from Indonesia, followed by Australia. While the Government is keen to increase the contribution of renewables, coal-fired power plant developments are still being pursued as the cheaper power generation option.

Natural gas currently accounts for 22 per cent of the energy production, all of which is generated by the Malampaya Gas field. However this field is set to be depleted by 2024 and therefore natural gas pipelines and terminal facilities are being planned to allow for imports.

Renewables account for 25 per cent of the country’s total power generation (largely geothermal and hydro (Source: Department of Energy (DOE)) and other sources (wind and biomass) for eight per cent. The Philippines is the second largest producer of geothermal energy in the world, after the United States (US). According to the Department of Energy, 344 hydropower projects have been approved and awarded, with a potential capacity of 7.4GW. A further 191 hydropower projects are pending. But the challenge of reliability remains for the hydropower given recurrent natural disasters and environmental conditions. 

Feed-In Tariff (FIT) scheme, priority connection to the grid, fiscal and non-fiscal incentives are being offered to encourage Renewable Energy developments. The formation of the Public-Private Partnership (PPP) framework under the Build-Operate-Transfer (BOT) Law resulted in local and foreign investments in the power sector. To date, there are over 30 Independent Power Producers (IPPs) in the country (Source: Philippine Independent Power Producers Association, Inc.).

Nuclear energy does not form part of the current energy mix and this will remain the case unless the Bataan nuclear power plant is rehabilitated.

Opportunities

Smart grid technology offers significant opportunities for Australian consultants and equipment supply providers, including through targeted programs such as the ADB around capacity-building and resource assessments. Instruments for accurate measurement, monitoring, control and analysis equipment are needed to ensure energy sources can be properly and reliably integrated into the grid and deliver a stable and cost-effective power supply regardless of seasons. The smart grid will also decrease system losses.

The Philippines is dependent on imported coal. The country will require 20 thousand metric tons of coal by 2020, equivalent to a 33 per cent increase on the 2015 level. This will mean increased requirements in coal bulk handling and port services, operations and maintenance consulting services and other industrial allied services.

In line with plans for natural gas importation, engineering procurement and contractors (EPCs) are required to build pipelines, import terminal and port handling facilities.

There is also a strong push from local government units to investigate renewable energy sources. Australian RE developers may enter into partnerships to introduce technologies, particularly solar both for the power and transportation sectors.

Competitive environment

Infrastructure developments such as the construction of coal-fired and RE power plants, port facilities, water management, pipelines, and operations and maintenance are usually contracted to local and foreign EPCs.

Sub-contracting opportunities would be available to Australian consultants. Power plant hardware such as turbines, boilers are usually from Europe and the current RE technology is mainly sourced from Europe, Canada and US, although China is seen as a key and cheaper provider of solar technology and hardware such as solar battery storage and solar panels.

Tariffs, Regulations and Customs

Imported coal – anthracite has a zero tariff rate. Bituminous coal is set at five per cent but will drop to zero by 2018.

Imported crude petroleum oils and refined petroleum products entered and withdrawn from warehouses in the Philippines for consumption is subject to the most-favoured-nation (MFN) rate of three per cent.

Australian consultants in the Philippines, independent personal services not rendered more than 183 days, or equivalent to a non-resident with income sourced from the Philippines is exempted from Philippines income tax. Philippines and Australia has a tax treaty agreement. The Australian consultant must apply for a Tax Treaty Relief Application (TTRA) and submit to and received by the International Tax Affairs Division (ITAD) (Source: Taxation of Non-Residents, Bureau of Internal Revenue).

Marketing your products and services

Market entry

Australian organisations interested in exploring opportunities in the Philippine energy sector are encouraged to work with local or foreign EPCs or directly with Independent Power Producers (IPPs). Many EPCs have businesses in neighbouring markets to capture active infrastructure projects.

For hardware products such as turbines and boilers and commodities (i.e. coal and natural gas) using an agent or distributor is a common and effective way to serve the market.

In order to be competitive in this market, Australian organisations particularly RE developers must introduce technology and provide test cases to the IPPs.

Links and industry contacts

Board of Investments
Department of Energy
Department of Trade and Industry
Energy Regulatory Commission
National Electrification Administration

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