Pro-consumer
Some people have been speaking more loudly of late, urging government to adopt an “energy mix” policy. They come under false pretenses, pretending to be concerned about climate change while actually protecting the profits extracted by investments in “renewable energy” (RE).
By “energy mix” policy, what they are actually saying is that the present cross-subsidy borne by all consumers and that leads to higher power costs must actually be expanded. The result of that will be more money pumped out of consumers and high energy costs that will waylay our industrialization effort.
One advocate of this strange idea actually spoke of “guiding” the market to accept a more diversified energy market. What he actually means is to kill market forces, coercing consumers to pay more for power when they could actually pay for less.
He is actually talking about reversing the Electric Power Industry Reform Act (EPIRA) whose essence is to allow market forces free play in the energy sector. Since this reform act was passed early in the Macapagal-Arroyo administration, it has succeeded in bringing down electricity costs.
True, this reform act may still be perfected to prevent unscrupulous businesses from creating artificial shortages and forcing price spikes. The perfection will have to be in the form of improving competition and enhancing market disciplines.
Not too long ago, we had among the most expensive power rate regimes in the world. Today, our power costs are nearly compatible with our neighbors, discounting the subsidies their governments pay to keep electricity costs low as a means to encourage industrialization.
One factor that keeps our power costs from going even lower is this strange mechanism called Feed-In Tariffs (FIT). Through this mechanism, all electricity users nationwide are forced to pay an additional 12 centavos per kWh that is, in turn, paid out to RE producers (controlled mainly by two business groups).
Each year, at present FIT rates, unwilling and uninformed Filipino consumers shell out the staggering sum of P8 billion that is handed out to RE producers. The profitability of these producers is guaranteed. They assume no risk in their investments and take enormous profits from consumers who do not understand how this racket works.
Because of FIT, investors in RE basically indulge in rent-seeking behavior. They use regulatory levers to ensure their own profitability. Now, those vested interests want not only to raise FIT rates but also to increase headroom for the RE racket by asking government to adopt an “energy mix” policy.
Another factor that keeps our electricity costs from going even lower are long-term supply contracts entered into with distribution utilities like Meralco. These contracts were sealed when generation costs were very high. Today, with lower generation costs, the distribution utilities, bound by these supply contracts, are obliged to keep passing the higher generation costs to consumers.
Not surprisingly, the beneficiaries of this price distortion are the same ones who benefit from FIT. They stand to benefit even more if higher FIT rates are charged and an “energy mix policy” favorable to their investments is somehow adopted.
If they get their way, we will never be able to build an industrial base. Our power costs will make domestic manufacturing uncompetitive. We will remain an economy trapped in low-yielding subsistence agriculture and a low value-added service sector. This, in turn, will ensure our poverty rates remain intolerable.
Market forces
Fortunately, Rodrigo Duterte was elected president. He is not captive to the same vested interests that succeeded in keeping power rates high and poverty widespread. He is not inhibited by the spell of “political correctness” peddled by the rent-seekers in the power sector.
Even before he took office, Duterte railed against the Paris Accord because this will retard our industrialization. The accord will reward only the highly industrialized economies who polluted the air in the name of progress and caused the problem of climate change.
The facts support our president. The Philippine share of global carbon emissions is a mere 0.3 percent even if we are the 12th largest country in terms of population. The power sector contributes only 40 percent of our national emissions share.
There is some slack we could utilize to improve our chances for industrialization. If we let market forces work and allow consumers to choose our method of generation, the price of electricity should plummet dramatically.
If we want to grow our manufacturing, what we need to do is to adopt a cheap energy policy, not the “energy mix” formula the rent-seekers are pushing. Along with a cheap food policy enabled by liberalized trade, this will go a long way in bringing down poverty rates. We should abolish this racket called FIT.
President Duterte could do this if he focuses his mind on a poverty reduction strategy and stop dabbling in geopolitics.
One spokesman for the vested interests benefitting from expensive power supply contracts actually found the gall to take the distribution utilities to task for supporting new power plants and sealing new power contracts. What he did not say is that these new plants and these new contracts result in lower generation costs that benefit all consumers.
I see the declining price of electricity in my monthly power bill. I am happy with that. With falling generation costs, we are able to moderate the inflation rate that otherwise might have spiked with the erosion of the peso and higher oil prices.
The next task is to break the grip of the oligarchs over our regulatory agencies. That stranglehold is masked in the misleading rhetoric of political correctness.