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Laying the Groundwork for Expanded Renewable Energy and Rural Electrification in the Philippines

Many developing and middle-income countries are setting ambitious energy goals for themselves: reforming their power sectors, extending electricity to regions that are still underserved, and building out renewable energy capacity.  The hardest challenges, however, often come after the policy is set or the commitment is made, in the implementation phase.  In some cases, transformative goals require new or strengthened regulations and institutions before energy sector development can really get off the ground.

 

The Philippines provides an excellent example of a country where a national commitment is being combined with this sort of policy and institutional strengthening to accelerate the country’s energy transition.  The power sector in the Philippines has faced a number of challenges, including the lack of modern electricity connections for millions of households, a shortage of generation capacity in some localities, and relatively high electricity costs when compared to neighboring countries.

 

However, the country does have a long-term advantage in the form of tremendous renewable energy endowments.   The Renewable Act of 2008 set out a broad menu of options to scale up the development of these resources.  These include renewable portfolio standards, feed-in tariffs, and priority connection to the grid for renewable power sources. The Department of Energy (DOE) has set an ambitious goal of doubling renewable energy-based capacity by 2030.  However, a lack of defined requirements and technical specifications for renewable inputs into the national grid has hampered development.

 

Philippines Anil Cabraal ImageAt the same time, the Philippines DOE has is committed to bringing electricity access up to 90 percent by 2017, which would require 3.4 million new household connections.  Here, a key role is being played by electric cooperatives (ECs), which provide electricity services to rural areas and smaller cities and towns in the Philippines. The government in recent years has made the cooperatives more accountable for their own supply requirements, which has left some cooperatives struggling to raise capital to maintain and extend service to these populations.

 

For the past two years, ESMAP has supported a World Bank technical assistance program to provide strategic advice to help the Philippines address these and other emerging challenges.  This assistance covers power sector financing, cost management and pricing issues, electricity access, and renewable energy policy and regulation.  A particular focus has been supporting the government’s transition from being the national power supplier of last resort, to acting primarily as a policymaker, regulator, and facilitator for privately financed power generation.

 

This work achieved a notable success in February 2013, when the national Grid Management Commission approved an addendum to the national grid code that for the first time established connection requirements and performance standards for variable renewable energy sources being integrated into the national grid.  These include solar and wind, which are expected make up an increasing share of the country’s electricity supply, particularly in the Visayas, the Philippines’ middle islands.

 

This is expected to have ramifications for the entire national renewable energy effort: defining the provisions for integrating renewables into the grid was seen as the last regulatory hurdle to kick-starting the development of projects eligible for feed-in tariffs.

 

“These new requirements provide a much more certain environment for renewable energy development in the Philippines,” said Marcelino Madrigal, Senior Energy Specialist for the World Bank’s Sustainable Energy Department.  “Grid operators will have the tools they need to manage variable generation.  The government can be more certain that integration will proceed smoothly. And developers will know which technical specifications will be required for their equipment, as well as understand their responsibilities in providing forecasting and other information to operators.” 

 

The Grid Management Committee’s decision came after months of consultations among stakeholders, including workshops in Manila and Cebu.  These brought in experiences from grid operators and regulators from other countries, so that the impacts of changes to the grid code would be clearly understood.

 

“It was important for the Committee and other stakeholders to hear the experiences of other countries, particularly larger countries in Europe, where there has been a massive integration of renewables in recent years, as well as  smaller countries whose electricity grids have similarities with the Philippines,” said Madrigal. “It is particularly useful for everyone to understand that managing the variability of certain renewable power sources is increasingly well understood around the world.  We are familiar with the issues and how to deal with them.”

 

Two months later, the national renewable portfolio standard (RPS) rules were amended to allow fees to be  collected from electricity suppliers which fail to fail to secure the required level of renewable energy credits under the RPS. Such fees were identified by the World Bank team, in dialogue with the Philippine Electricity Market Corporation, as a recognized global best practice in ensuring a successful RPS. These payments are essentially an incentive to suppliers to increase the RE proportion of their portfolios.   

 

The World Bank activity supported by ESMAP has also seen recent progress in the work on electricity access.  It has become increasingly clear that meeting the government’s goal of 90 percent access by 2017 would require addressing the issue of the ECs’ finances. The unbundling of the Philippines’ electricity sector in recent years left the country with almost 120 ECs, serving half the country’s electricity customers and the vast majority of areas where access is still an issue. However, only about a quarter of the ECs are regarded to be in good fiscal health.

 

In response to this need, ESMAP-supported project has helped the ECs build upon existing financing windows, such as the Rural Power Project and the Electric Cooperative System Loss Reduction Project, that support investments in rural electrification. Partnership opportunities have been identified among the ECs themselves as well as with local commercial finance firms. The technical assistance program has also helped ECs look at issues related to credit risk, tariff methodologies and corporate governance.

 

A letter sent from the Philippines National Electrification Administration (NEA) to the World Bank country office in February described the technical assistance program as very timely, given the increasing demands being faced by the ECs.  The letter went on to express confidence that the collaboration with the World Bank would help increase access to credit for the ECs, and in turn promote energy efficiency and low-carbon power generation options.