Pre-Feasibility Study for. Rural Electrification Program by Renewable Energy. In The Mountainous Region of Northern Samar. in the Philippines

Transcription

1 Pre-Feasibility Study for Rural Electrification Program by Renewable Energy In The Mountainous Region of Northern Samar in the Philippines STUDY REPORT March 2007 Engineering and Consulting Firms Association, Japan West Japan Engineering Consultants, Inc This work was subsidized by Japan Keirin Association through its Promotion funds from

2 From Manilla CATARMAN

3 Contents Executive Summary S-1 Chapter 1 Introduction 1 1.1Background and Objectives 1 1.2Scope of Works 2 1.3Study Area 2 1.4Study Schedule 2 1.5Study Team Member 3 Chapter 2 Socio-Economic Development in Communities Hosting Renewable energy 4 2.1Economic Development and Energy in the Philippines 4 2.2Renewable Energy Development in the Philippines 5 2.3Major Issues Government Policies and Programs Impact to Host Communities 8 Chapter 3 Rural Electrification Current Condition of Rural Electrification Promotion Policy of Rural Electrification Issues of Rural Electrification Effects of Rural Electrification 25 Chapter 4 Outline of the Surveyed Area Outline of Northern Samar Province Electrical Power Situation in Northern Samar Province 30 Chapter 5 Pre-Feasibility Study of Rural Electrification by Renewable Energy Current Situation of Rural Electrification in Coverage Area Assumption of Electric Demand associated with Rural Electrification Assumption of Electrification associated with Expansion of Distribution Line Assumption of Electrification Cost by Renewable Energy Selection of Candidate Barangays for Electrification by Renewable Energy 60 Chapter 6 Rural Electrification Plan by Renewable Energy Potential of Micro Hydro Power Plant 61

4 6.2 Hydro Power Generation Plant at Barangays Micro Hydro Power Plant Biogas Power Plant 66 Chapter 7 Profile of the Project 69 Appendix 1 Schedule for Field Investigation Appendix 2 Interviewed Persons List Appendix 3 Photos

5 Figure List Fig-5.1 Status of Barangay Electrification in Region VIII 35 Fig-5.2 Status of Barangay Electrification in Northern Samar 36 Fig-5.3 Diagram of Transmission Line in Philippines (Northern Samar Area) 37 Fig-5.4 Breakdown of Consumer Numbers in NORSAMELCO (as of 2004) 39 Fig-5.5 Demand Forecast of NORSAMELCO 40 Fig-5.6 Assumption of Electric Demand by Rural electrification (daily load curve) 45 Fig-5.7 Expansion Plan of Distribution Line 48 Fig-5.8 Outline of 3kW Stirling Engine (ST-5) 57 Fig-6.1 Micro Hydro Power Turbine Types 63 Fig-6.2 Turbine Selection Diagram 64 Fig-6.3 Biogas Generating System 68

6 Table List Table-1.1 Study Team Members 3 Table-2.1 Hydropower Measurable Targets 9 Table-2.2 Indicative Hydropower Capacity Addition 10 Table Implementation Plans of O-Ilaw Program and ER Program 20 Table-3.2 Electrification Level by Region (As of 31, October 2006) 21 Table-3.3 Barangay Electrification Level by Franchise Holder (As of October 2006) 21 Table-3.4 Rural Electrification by Method ( ) 25 Table-4.1 Electricity Demand 31 Table-4.2 Annual Power Purchase 32 Table-4.3 Supply Demand Profile 32 Table-4.4 Level of Electrification 33 Table-5.1 Status of Barangay Electrification in Region VIII 35 Table-5.2 Status of Barangay Electrification in Northern Samar 36 Table-5.3 Outline of NORSAMELCO (As of 2006 Oct.) 38 Table-5.4 Energy Distribution of NORSAMELCO(2004) 39 Table-5.5 Electric Tariff of NORSAMELCO(2004) 39 Table-5.6 Income Statement of NORSAMELCO(2004) 40 Table-5.7 NORSAMELCO Development Plan 41 Table-5.8(1) Current Situation of Electrification of Barangays in Catubig 43 Table-5.8(2) Current Situation of Electrification of Barangays in Las Navas 44 Table-5.9 Assumption of Electric Demand by Rural electrification 45 Table-5.10 Electrification Plan of Barangay 46 Table-5.11 Number of Household and Distance of Distribution Line 48 Table-5.12 Electrification Cost by Expansion of Distribution Line 50 Table-5.13 Electrification Cost by Each Method of Power Generation 53 Table-5.14 CDM Project by Usage of Biogas in Philippines (Registered CDM Project) 54 Table-5.15 Current Situation of Firming of Livestock and Poultry in Catubig 55 Table-5.16 Specification of Stirling Engine 58 Table-5.17 Assumed Amount of Rice Chaff for Generating 58 Table-6.1 Potential of Micro Hydro Power at Catubig Service Area 61 Table-6.2 Basic Specification of Hybrid Power Generating at Each Barangay 65 Table-6.3 Basic Specification of Biogas Power Generation 67 Table-6.4 Comparison of Biogas Generating in Philippines and Japan 68

7 Abbreviations DOEDepartment of Energy NPCNational Power Corporation NPC-SPUGNational Power Corporation Small Power Utilities Group NIANational Irrigation Administration PNOCPhilippine National Oil Corporation PNOC-EDCPhilippine National Oil Corporation-Energy Development Corporation TRANSCOTransmission Company NEANational Electrification Administration PSALMPower Sector Assets and Liabilities Management Corporation ERCEnergy Regulatory Commission EPIRAElectric Power Industry Reform Act PEPPhilippine Energy Plan WESMWholesale Electricity Spot Market IPPIndependent Power Producer NEDANational Economic and Development Authority NORSAMELCONorthern Samar Electric Cooperative, Inc. SIDCSorosoro Ibaba Development Cooperative LGULocal Government Unit NGONon Government Organization DILGDepartment of Interior and Local Government EREnergy Regulation RWMHEEReforestation and Watershed Management, Health and Environment Enhancement RECRural Electrification Cooperative BAPABarangay Alternative Power Association LUWASLocal Unit Water and Sanitation Systems RAICRegional Agri-Industrial Center PDIPProvincial Development Investment Program PDMPProvincial Development Management Plan PDCProvincial Development Council RPSRenewables Portfolio Standard JICAJapan International Cooperation Agency JBICJapan Bank For International Cooperation

8 Executive Summary To sustain the government s efforts in providing a better quality of life to the Filipino people, the eradication of poverty remains a top national concern and a big challenge to the present administration in the Philippines. The Philippine government set plans that would attain its target of completing the energization of all barangays by year The Northern Samar province in the Eastern Visayas region, which is the study area for this feasibility study on rural electrification, is one of the underdeveloped areas in the Philippines. Its per capita income level is less than 50% of the average per capita income level in the Philippines. Since the electrification rate of households in the northern mountainous area is only less than 20%, it has targeted to increase the electrification rate in order to boost the growth of agricultural activity and the development of the tourism industry. JBIC has decided to fund the Exclusive Agricultural Development Project in the Catubig watershed area in the municipalities of Catubig and Las Navas in Northern Samar. This project aims to increase agricultural productivity, particularly of rice and other crops, increase the income of residents and improve health and sanitary conditions. This will be addressed by the development of an agricultural infrastructure centered on an irrigation system. This project will commence in 2007 and will be completed in It is envisioned that there will be an improvement in the quality of life of the people belonging to the poor sector upon the development of the base infrastructure. Moreover, the acceleration of rural electrification is also expected. This study covers the feasibility of rural electrification by renewable energy, such as micro hydro power supplied from the potential of the Catubig River and irrigation facilities and biomass power energy supplied from agricultural products. The increase in agricultural products is an expected outcome of the Exclusive Agricultural Development Project in the Catubig watershed area. As a result of this study total construction cost of rural electrification by hybrid system between micro hydro power for the base load and biogas power for the peak load is estimated as most competitive other than the cost of other alternatives such like expansion of distribution line to the beneficiary, soro micro hydro power, soro biogas power and rice chaff power. - S-1 -

9 Chapter 1 Introduction 1.1 Background and Objectives To sustain the government s efforts in providing a better quality of life to the Filipino people, the eradication of poverty remains a top national concern and a big challenge to the present administration in the Philippines. The Philippine government set plans that would attain its target of completing the energization of all barangays by year Two-thirds of the poverty group, which comprises about 40% of the population in the Philippines, are engaged in the farming and fishing industries. Realization of rural electrification is expected to bridge the gap between the rich and the poor, help eradicate poverty in rural areas, provide a better quality of life and produce new sources of income. The Northern Samar province in the Eastern Visayas region, which is the study area for this feasibility study on rural electrification, is one of the underdeveloped areas in the Philippines. Its per capita income level is less than 50% of the average per capita income level in the Philippines. Since the electrification rate of households in the northern mountainous area is only less than 20%, it has targeted to increase the electrification rate in order to boost the growth of agricultural activity and the development of the tourism industry. The main industry in this province is agriculture, with major crops including rice, corn, coconut, banana and cassava. Although agriculture is the province s main income source, self-sufficiency in rice has not been attained. Therefore, rice has been imported from the adjoining Leyte province. Poor health and sanitary conditions, including that of the rural sewerage systems, have brought some diseases to the residents, thereby contributing to the slow progress in the province. Furthermore, since the roads in this area are unpaved, agricultural products can not be easily transported during the rainy season. These factors contribute to the low income level in the province. JBIC has decided to fund the Exclusive Agricultural Development Project in the Catubig watershed area in the municipalities of Catubig and Las Navas in Northern Samar. This project aims to increase agricultural productivity, particularly of rice and other crops, increase the income of residents and improve health and sanitary conditions. This will be addressed by - 1 -

10 the development of an agricultural infrastructure centered on an irrigation system. This project will commence in 2007 and will be completed in It is envisioned that there will be an improvement in the quality of life of the people belonging to the poor sector upon the development of the base infrastructure. Moreover, the acceleration of rural electrification is also expected. This study covers the feasibility of rural electrification by renewable energy, such as micro hydro power supplied from the potential of the Catubig River and irrigation facilities and biomass power energy supplied from agricultural products. The increase in agricultural products is an expected outcome of the Exclusive Agricultural Development Project in the Catubig watershed area. 1.2 Scope of Work This study covers the feasibility of a scheme for implementation of this project, site survey and collection of data on the following: Site Survey at Power Plant site Present condition and action assignment of rural electrification Feasibility study of rural electrification by renewable energy 1.3 Study Area This study was conducted in the municipalities of Catubig and Las Navas, which are located in the Northern Samar province, the mountainous region of north Samar Island. To gather more information on case examples for renewable energy generation, the study team visited a biogas power plant site, which is currently undergoing construction in the Batangas province, and an existing micro hydro power plant in the Laguna province. 1.4 Study Schedule Two site surveys were conducted for this study. The first survey was conducted to have a meeting, gather information and collect data from the concerned government units and branch offices during the period October 10, 2006 to October 14,

11 The second survey was conducted to have a meeting with concerned government officials and visit the proposed site and some unenergized barangays in Northern Samar, the existing micro hydro power plant in Laguna and the biogas power plant site in Batangas. This second survey was carried out from December 3, 2006 until December 12, The detailed schedule of the site surveys is shown in the attached documents. 1.5 Study Team Member Members of this study are listed below. Table-1.1 Study Team Member No Name Specialty 1 Takatoshi Nagao Project Manager, Project Implementation Plan 2 Masahiko Kaneko Study of Renewable Energy 3 Yusuke Inoue Electric Power Facility Plan 4 Kei Katayama Rural Electrification Plan 5 Hiroki Aso Regional Development Plan - 3 -

12 Chapter 2 Socio-economic Development in Communities Hosting Renewable Energy 2.1 Economic Development and Energy in the Philippines The link between energy and the economy has never been more evident than now when energy-related events tend to impact on a country s economic performance. An increase in prices of oil, for example, is bound to immediately affect the prices of basic commodities and utilities such as water and electricity. The trickling effect goes on a wider scale as oil is a primary input to run our transport facilities. Electricity is also a basic requirement to sustain our industrial, commercial, and to a certain extent, agricultural activities. There is no doubt, therefore, that energy is a fundamental tool in any country s development and a priori in the improvement of the people s quality of life. Being aware of this fact, the government ensures that energy development is preceded by a rationalized and integrated energy-environment and economic planning approach. The Philippine Energy Plan (PEP), which has a revolving time frame of ten years, is guided and remains consistent with national development plans such as the Medium-Term Philippine Development Plan (MTPDP) and Medium-Term Philippine Investment Plan (MTPIP). It is also cognizant of the country s commitment to international agreements such as the UN Convention on Climate Change, the Kyoto Protocol and more recently, the Johannesburg Plan of Action for Sustainable Development. The PEP, with the most recent edition being the 2006 PEP Update, is annually modified by the Department of Energy (DOE) and its attached agencies to integrate vital developments in the global and domestic economy. Thus, any PEP update carefully considers macro-economic planning set by the relevant government agencies in the Philippines such as the National Economic and Development Authority (NEDA) for the Gross Domestic Product, Gross National Product and Gross Value Added rates; National Statistics Office for the population growth and the Central Bank of the Philippines for the foreign exchange rates. On the other hand, crude oil prices are taken from international benchmarks. Such is the link between energy and the economy that the Arroyo administration has included energy independence as one of the components in its Five-Point Reform Package together with macro-economic stability, good governance, job creation and social development. With Philippine prospects for growth pegged at 5.5 percent in the next three years, all sectors in government including energy are called upon to contribute their respective shares in ensuring - 4 -

13 the country s sustainable growth. The DOE, the country s energy policy making body, commits to this over-arching goal as affirmed in its mission statement, to wit: improving the quality of life of the Filipino by formulating and implementing policies and programs to ensure sustainable, stable, secure, sufficient, accessible and reasonably-priced energy. These are fleshed out in the two major goals as outlined in the Philippine Energy Plan and affirmed in the 2006 PEP Update, to wit: attaining energy independence or a sustained self-sufficiency level of 60 percent by year 2010 and beyond; and, promoting the effective implementation of power sector reforms to bring about fair and reasonable energy prices in a competitive environment. In realizing the 60 percent self-sufficiency goal, the energy sector has laid out plans that will accelerate the exploration, development and utilization of indigenous energy resources, intensify renewable energy development; increase the use of alternative fuels; and, enhance energy efficiency and conservation measures. In the context of the study, the discussion will focus on the strategy of intensifying renewable energy development. Anchored on the government s Renewable Energy Policy Framework (REPF) , the goal is to double the capacity share of renewable energy sources within the REPF time frame through the following specific objectives: a) Be the number one geothermal producer in the world b) Double hydro capacity by 2013 c) Be the number one wind energy producer in Southeast Asia d) Become the solar manufacturing hub in Southeast Asia e) Expand contribution of biomass, solar, and ocean energy by 131 MW 2.2 Renewable Energy Development in the Philippines Hydropower Hydro energy, as defined in the REPF, is generated from the movement of masses of water. Hydroelectric power plants convert energy contained in flowing water, such as rivers and streams, into electricity. They are classified according to various capacities as follows: a) - 5 -

14 micro-hydro 1 to 100 kw; b) mini-hydro 101 kw to 10 MW; and c) large hydro- more than 10 MW. Hydropower generation started in the country in the early 1900s in the northern mountains of Luzon. This was followed by the construction of the Botocan hydroelectric plant in Laguna in the 1930s but which was commissioned only during the 1940s as a result of the war that crippled operations in the country. During the same decade and the 1950s, more hydroelectric plants were commissioned by the state-owned National Power Corporation (NPC). Below is a listing of the early hydro power projects built by the NPC, the Manila Electric Company (MERALCO), the country s largest electric utility provider, and some private institutions, such as the Villa Escudero Plantation and Resort (Tiaong, Quezon ) and Camp John Hay Development Corporation (Baguio City): a) Early Micro-hydros 1) VILLA ESCUDERO HP Operator/Owner : Villa Escudero Plantations & Resort Capacity : 75 kw Year of Operation : ) CALIBATO HP Operator/Owner : PHILPODECO Capacity : 80 kw Year of Operation :

15 b) Early Mini-hydros 1) CAMP JOHN HAY MHP Operator/Owner : John Hay Development Corp. Capacity : 560 kw Year of Operation : ) BALOGBOG MHP Operator/Owner : PHILPODECO Capacity : 650 kw Year of Operation : ) PALACPAQUIN MHP Operator/Owner : PHILPODECO Capacity : 400 kw Year of Operation : 1937 c) Large Hydros 1) BOTOCAN HP Operator/Owner : MERALCO /NPC (1979) Capacity : MW Year of Operation : ) CALIRAYA HP Operator/Owner : NPC Capacity : 32.0 MW Initial Year of Operation : 1941 Complete Operation :

16 Current Situation In accordance with the REPF goals, the Philippines seeks to double its existing hydropower capacity from 2,518 MW in 2002 to 5,468 MW in 2013 through indicative capacity addition of 2,950 MW. Performance Assessment In the country s quest for alternative clean sources of energy and correspondingly reduced dependence on imported fuels, hydropower generation presents a vital option. In 2004, hydropower resources contributed 15.9 percent to the country s total power generation with the commissioning of the 345-MW San Roque Hydropower plant in Pangasinan and 350-MW Kalayaan 3 and 4 in Laguna. Fuel oil displacement of the sector reached 14.8 million barrels of fuel oil (MMBFOE). Currently, the country has 134 hydropower plants in operation, broken down into 21 large hydropower plants, 52 mini-hydropower plants and 61 micro-hydropower plants

17 Measurable Sectoral Targets By 2014, the hydropower sector targets a cumulative installed capacity of 3,991 MW from hydropower resources, as outlined in the Philippine Energy Plan update 2006 (Table-2.1). This corresponds to about 780 MW of additional capacity from the current capacity of 3,219.1 MW, and is much smaller that the target capacity addition as defined in the REPF. Generation of electricity will reach 14,741 GWh by 2014, thereby displacing 25.4 MMBFOE. Table-2.1 Hydropower Measurable Targets Installed capacity 3, , , ,991.1 (MW ) Luzon 2, , , ,509.8 Visayas Mindanao , Gross Generation 8,374 8,563 12,996 14,741 (GWh) Luzon 4,422 4,611 8,896 8,819 Visayas Mindanao 3,917 3,917 4,065 5,734 Total Imported Fuel Oil Displacement (in MMBFOE) Indicative Projects Potential sites for mini and micro-hydro projects are evenly distributed in all the country s administrative regions. These were identified by the DOE, NPC and the National Electrification Administration (NEA). In 1995, the DOE conducted a water resource inventory study to validate NEA s and NPC s identified potential sites for promotion to private investors. Meanwhile, a study conducted by the United States Renewable Energy Laboratory (US-NREL) likewise revealed that micro-hydro potential sites are well distributed all over the country. The study gained the support of the local government units (LGUs), non-government organizations (NGOs), electric cooperatives (ECs) and the state-university based Affiliated Non-Conventional Energy Centers (ANECs) by also conducting local identification projects

18 Table-2.2 Indicative Hydropower Capacity Addition Region Project Location Potential Year Capacity (MW) Available CAR Pasil HEP Kalinga Talubin MHP Mt. Province Can-eo MHP Mt. Province Agbulu HEP* Apayao Nalatang HEP* Benguet Binongan HEP* Abra I Upper Agno MHP* Pangasinan II Adalam HEP Quirino Diduyon HEP* Quirino Abuan HEP* Isabela Ilaguen HEP* Isabela III Dinalugan MHP Aurora Debutunan MHP Aurora IV-A Kanan HEP* Infanta, Quezon IV-B Batang-Batang MHP Palawan Langogan MHP* Palawan Babuyan Island MHP* Palawan Catuiran HEP* Mindoro Oriental Aglubang HEP* Mindoro Oriental Cabinbin MHP* Palawan V Kapipian MHP Catanduanes Colasi MHP* Camarines Dugui MHP* Catanduanes Cawayan II MHP* Sorsogon Hitoma MHP* Catanduanes VI Igbolo MHP* Iloilo Timbaban HEP* Aklan Villasiga HEP* Antique VII Pacuan HEP Negros Oriental Siaton MHP* Negros Oriental Okoy HEP* Negros Oriental Sicopong HEP* Negros Oriental VIII Bugtong MHP* Samar Amandaraga MHP* Eastern Samar IX Lower Dapitan MHP Zamboanga Norte Salug Daku 1 MHP* Zamboanga Sur Salug Daku 2 MHP Zamboanga Sur Middle Dapitan MHP Zamboanga Norte Salug Daku 3 MHP Zamboanga Sur Salug Daku 4 MHP Zamboanga Sur Upper Dapitan MHP Zamboanga Norte Ingin MHP* Zamboanga Norte * With feasibility study

19 Region Project Location Potential Capacity (MW) Year Available X Tuasan MHP Camiguin Misamis Larangan MHP Occidental Culaman MHP Bukidnon Odiongan 3 MHP* Misamis Oriental Cabulig MHP* Misamis Oriental Tagoloan HEP* Bukidnon Impasugong HEP Bukidnon Odiongan 2 MHP* Misamis Oriental Liangan HEP Lanao Norte Bulanog Batang HEP* Bukidnon Agus III HEP* Lanao Norte/Sur XI Sibulan A Davao del Sur Sibulan B Davao del Sur Taytayan MHP Compostela Valley Tandik MHP* Compostela Valley Siguil B Sarangani Talaingod MHP Davao del Norte Suwawan HEP Davao City Tamogan HEP Davao City Camanlangan MHP Compostela Valley Balutakay MHP Davao del Sur XII Magpet MHP* Cotabato Libungan MHP North Cotabato Pulangi V HEP* North Cotabato XIII Taguibo MHP Agusan Norte Lake Mainit HEP Agusan Norte Pugo HEP* Agusan Norte ARMM Kanapnapan Fall MHP Lanao Sur * With feasibility study The 2006 Plan Update identifies 70 hydropower projects with a total potential capacity of 2,603.5 MW (Table-2.2). This is composed of 34 large hydropower projects, 27 mini-hydropower projects and nine micro-hydropower projects. About 37 of these indicative projects have existing feasibility studies

20 Wind Power Wind energy refers to the energy that can be derived from the wind, which can then be converted into useful electrical or mechanical energy. In the Philippines, there are six regions identified with wind electric potential. These include the following: 1. Batanes and Babuyan Island 2. Northwest tip of Luzon (Ilocos Norte) 3. Higher interior terrain of Luzon, Mindoro, Samar, Leyte, Panay, Negros, Cebu, Palawan, Eastern Mindanao and adjacent islands 4. Well-exposed east-facing coastal locations from Northern Luzon southward to Samar 5. The wind corridors between Luzon and Mindoro (including Lubang Island) 6. Between Mindoro and Panay (including the Semirara and Cuyo Island The first large-scale wind power plant in the Philippines and in Southeast Asia is located in Bangui, Ilocos Norte. This 25-MW plant is developed by Northwind Power Development Corporation. During the first wind contracting round in 2004, 16 potential wind power sites were offered to private investors. The estimated total capacity of these sites is 345 MW. Six pre-commercial contracts (PCCs) were since then issued by the Department of Energy (DOE) to various developers. Nineteen additional wind power sites with an estimated total capacity of 3,270 MW were identified during the second batch. Six private investors signified their interest in developing some of these sites. Solar Power Solar energy is defined as energy derived form solar radiation which can be converted into useful thermal or electrical energy. Considering that the Philippines is situated near the equator, there is a nationwide potential for harnessing solar energy. Presently, there is a 960-kW CEPALCO solar power plant which is located in Cagayan de Oro in Mindanao and connected to the grid

21 There are eight solar energy programs, seven of which are funded by foreign donors. As part of the Solar Electrification Project, a 28-kWp centralized photovoltaic (PV) plant was also installed in Pangan-an Island, Cebu to supply electricity to about 200 households. The Solar Power Technology Support (SPOTS) Project was designed to install solar energy systems in about 80 Agrarian Reform Communities (ARCs). There are 5,600 solar energy systems completed in 154 barangays under this program. The Environmental Improvement for Economic Sustainability (EIES) Project also promotes the use of photovoltaic systems for rural-based electrification through the installation of 15,000 Solar Hybrid Systems (SHSs) in the target regions, which include Regions I to VII, the Minadanao area and the Cordillera Administrative Region (CAR). This project is being implemented by PNOC, in coordination with the DOE. As of the first quarter of 2006, 9,191 SHS have already been installed. Biomass The Philippines has significant biomass resources which can be harnessed to develop energy systems. The DOE has identified a biomass (bagasse) potential of 250 million barrels of fuel oil equivalent (MMBFOE) in the country. In terms of capacity, the country has a total installed capacity of MW from the different regions, with Western Visayas having the biggest potential of MW. While the documentation of biomass energy systems is still an ongoing activity, the DOE has listed down several ongoing biomass projects including the 30-MW Talisay Bioenergy Project and the 50-MW Bioenergy Project. There are likewise ongoing studies for the 25-MW Bais City Project, the 25-MW Capiz Bioenergy Project, the 5-MW La Suerte Rice Hull Project and the 5-MW Inter City Rice Hull project. The DOE foresees the expansion of RE contribution (biomass, solar, micro hydro and ocean) by 250 MW by year

22 2.3 Major Issues The capital-intensive nature, long gestation period (average of seven years) and related issues of social acceptability of large hydropower projects remain to be the sector s biggest challenges. On the other hand, micro-hydro development for off-grid electrification is hindered by high upfront costs and the need for government support and intervention. Socio-environmental concerns There is considerable resistance for the development of large hydropower projects due to the potential for upstream flooding, destruction of agricultural areas and animal habitats and disruption of communities in the affected areas. These factors have affected the attractiveness of large hydropower projects. Shift in type of development Given the many issues plaguing large hydropower projects, the logical step is to focus on smaller, more manageable run-of-river projects. However, such shift will have to consider some challenges, such as a decrease in new potential capacity given the smaller scale of the projects, intermittent supply of power and an anticipated decrease in power generation during the summer months. Commercialization of hydropower technology There is a need to develop and commercialize suitable micro-hydro technology in the Philippines, even as hydropower technology for large and small projects is proven and mature. The Philippines remains to be dependent on imported electro-mechanical equipment for micro-hydro projects. The costs of these equipment vary based on kilowatt capacity. For instance, a 5-kW equipment with controls and metering devices costs US$11,000 while a 100-kW equipment costs US$64, Government Policies and Programs The aggressive development of the country s renewable energy (RE) resource potential comes as the second most critical strategy in attaining the Philippine government advocacy for energy independence. In recent years, the steady increase in the contribution of geothermal

23 and hydropower resources to the power generation mix has lessened the country s dependence on imported fuels. In the government s rural electrification efforts, renewable energy sources such as solar, micro-hydro, wind and biomass resources are seeing wide-scale use. Thus, it has become the government s policy to facilitate the energy sector s transition to a sustainable system with renewable energy as an increasingly prominent, viable and competitive option. Along this context, the government is strongly working for the passage of House Bill 1068 entitled An Act to Promote the Development, Utilization and Commercialization of Renewable Energy Sources to further boost renewable energy in the country. The proposed bill, now on bicameral discussions, aims to promote the development of RE to further reduce the country s reliance on generation systems powered by imported fuels while minimizing exposure of the economy to price fluctuations in the international markets. The bill will also ensure the increase in RE use through the provision of fiscal and non-fiscal incentives to RE developers, including mandatory generation, priority dispatch for intermittent generation and establishment of a trust fund. Likewise, the zero rating provided for RE-generated electricity under the recently-implemented Reformed Value Added Tax Law (R-VAT) or Republic Act 9337 will enhance the competitiveness of RE-sourced electricity. Specifically, for hydropower projects, the enactment of Republic Act No. 7156, otherwise known as the Mini-Hydroelectric Power Incentives Act, in September 12, 1991 institutionalized attractive incentives for mini-hydro development, and consolidated under the then Office of Energy Affairs the responsibility and authority for hydropower development in the country. The law was meant to address the financial issues plaguing the industry then in the wake of the peso depreciation experienced by the country in the late 1980s. Summarized below are the important provisions of RA 7156 which are enforced to date: a) Special privilege tax rates Tax payable by developers/grantees to develop potential sites for hydroelectric power and to generate, transmit and sell electric power shall be 2.0 percent of their gross receipts. b) Income tax holiday for seven years from the start of commercial operation. c) Tax and duty free importation of machinery, equipment and materials Exemption from payment of tariff duties and value-added tax (VAT) on the importation of machinery and equipment within seven years from date of award of contract

24 d) Tax credit on domestic capital equipment For developers who buy machinery, equipment, materials and parts from local manufacturers, tax credit is granted in an amount equivalent to 100 percent from the value of VAT and customs duties that would have been paid to import said machinery, equipment, etc. e) Special realty tax rates on equipment and machinery Realty and other taxes on civil works, equipment, machinery and other improvements of a registered mini-hydroelectric power developer shall not exceed 2.5 percent of their original cost. f) VAT exemption Exemption from payment of 10 percent VAT on gross receipts derived from the sale of electric power whether wheeled via NPC or electricity utility lines. In relation to the issues presented earlier, the following are some action plans that the DOE has indicated to pursue: a) Information, Education and Communication to enhance public acceptability Prior to the implementation of the hydropower projects, the DOE shall involve all stakeholders in the decision-making process which could also include consultations with cultural communities (since hydro projects are mostly in the hinterlands). This would ensure that rights of the affected peoples are taken into consideration. At the same time, project risks are easier to ascertain through the joint conduct of social preparation activities. b) Promotion of alternative hydro development The run-of-river schemes of construction will allow for a balance of river ecosystems while providing communities dependent on the river for their livelihood to co-exist with hydropower projects. In addition, the government would place greater emphasis on projects with social and environmental issues by treating these problems as an integral element, along with economic and financial considerations in the decision-making process

25 c) Commercialization of hydropower technology With additional incentives as stipulated in the proposed RE Bill, the commercialization of locally made hydropower equipment can be attained. The following measures are proposed to hasten commercialization: 1) Establishment of a Market Service Center The Center will assist RE producers to obtain legal papers and permits required for RE projects. Likewise, under the UNDP-assisted CBRED project, there are provisions for various financing assistance options available to developers of renewable energy projects. The Center is also envisioned to be the repository of database for all hydropower projects. 2) Pursuit of technical cooperation with other countries For small-scale hydropower development, the basic strategy for commercialization is to encourage electro-mechanical manufacturers to set up facilities in the Philippines and reduce the cost of importation of turbine equipment. There are several local turbine fabricators in the country that can be trained to enhance their capability to manufacture turbine equipment. The DOE will likewise continue to seek technical and bilateral cooperation with other countries that offer the latest expertise and technology transfer to replicate some successful demonstration projects

26 2.5 Impact to Host Communities The DOE continues to fulfill its social commitment to communities hosting energy projects through Energy Regulations (ER) 1-94 of Republic Act (RA) 7638 or the Department of Energy Act of Other enabling legislations include the following: Republic Act 7160 or the Local Government Code and Republic Act 9136 or the Electric Power Industry Reform Act (EPIRA) of Energy projects include energy-generating facilities or energy resource development activities. Section 289 and 294 of the RA 7160 provides that the LGU shall receive 1.0 percent of the gross sales of the preceding calendar year or 40 percent of the total collection of royalties, taxes and other fees earned from the development and utilization of energy resources, whichever is higher. Eighty percent of this allocation shall be applied solely for the reduction of electricity costs where such resources are located while the remaining 20 percent will be used for local development and livelihood projects. On the other hand, ER 1-94 requires generation companies and/or energy resource developers to set aside Php 0.01/kWh of their total electricity sales as financial benefits to the host communities. Funds can be accessed by proposing projects under any of the following classifications: electrification fund (EF); development and livelihood fund (DLF); and, reforestation, watershed management, health and/or environment enhancement (RWMHEEF). The allocation of the fund is as follows: 50 percent of one centavo for EF and 25 percent each for DLF and RWMEEF, respectively. The non-monetary advantages, on the other hand, include the prioritization of load dispatch, training and skills development, preference in employment, preference in procurement of local supplies and sound environmental management. The grant of financial benefits was subsequently strengthened in Section 66 of the EPIRA and Part A, Rule 29 of the EPIRA s Implementing Rules and Regulations. The guidelines expanded the coverage with the inclusion of energy generating facilities having capacities of 10 MW and below

27 Chapter 3 Rural Electrification 3.1 Current Condition of Rural Electrification Rural electrification in the Philippines has been adopted as a key policy of the national government as it can improve the living standards of the people and reduce poverty by the creation of new income sources in rural areas. In 1960, the Philippine government declared its stance in tackling rural electrification as a national policy, and established the Electrification Agency (EA). In 1969, the National Electrification Act was enacted and the EA was reorganized to form the National Electrification Administration (NEA), with the task to seriously undertake rural electrification. As power distribution in the Philippines had been carried out by private companies, the business was concentrated in highly populated urban areas where economic efficiency is greater. Therefore, the difference between urban and rural areas was growing larger. To solve this situation, NEA initiated the promotion of rural electrification through the Rural Electrification Cooperatives (RECs 1 ) to be established in the local areas pursuant to the Act 2. Spurred by a substantial amount of subsidies from the national government and the support agencies, rural electrification dramatically advanced in the 1970s, and the number of RECs reached the current 119 in However, there were some RECs with weak financial foundation and many had poor collection of electricity charges. Thus, electrification has been carried out with many financial issues. By 1997, electrification was completed for all municipalities, but the barangay level electrification remained only at roughly 72%. In order to keep promoting rural electrification, the Philippine government launched the O-Ilaw program in 2000 and the Expanded Rural Electrification (ER) program in April These programs were initiated to meet the objectives to complete electrification of all barangays by 2008 (initial target was 2004, which was changed to 2006 and re-changed to the current target), and to reach 90% household connection rate by It is said that there are 41,995 barangays in the Philippines, and roughly 8,300 (19.8%) were un-electrified as of the end of The national government is trying to accelerate electrification by increasing the annual target for electrification to 1,500 barangays (Table-3.1). 1 REC changed its name to Electric Cooperative (EC) in JICA Report of SW mission on "Rural Electrification in the Philippines (June 2004)" page

28 Table Implementation Plans of O-Ilaw Program and ER Program YEAR ANNUAL TARGET CUMULATIVE NO. OF BARANGAYS BARANGAY ELECT. LEVEL 1999(actual) , % 2000(actual) 1,366 33, % 2001(actual) 1,253 34, % ,636 36, % ,664 38, % ,700 39, % ,095 40, % ,000 41, % TOTAL 7, (Source: DOE, In the Philippines, a subject barangay is deemed electrified either (1) electricity is supplied to 10 or more households in that barangay, or (2) feeder lines have been installed in the un-electrified barangay (electricity supply is possible, but to be electrified or not is up to the customer). But recently DOE reformed its definition (1) electricity is supplied to 30 or 40 households in that barangay by sustainable energy such as solar power, battery charge station (BCS), diesel power and others or (2) feeder lines have been installed in the un-electrified barangay. Definition described in (2) is the same as the last one but the number of beneficiaries of electrification was increased. However, even if 100% electrification is achieved on the barangay level, many households are yet to be electrified. In fact, an average 30 to 40 households in a barangay are connected, meaning that the barangay is electrified even if only a part of the barangay is actually served with electricity 3. As of October 2006, of the total 41,945 barangays 4, electrification has been completed in 39,590 barangays, giving an electrification rate of 94.4% (Table-3.2). Electrification rates are largely different among regions: Luzon region 97.1%, Visayas region 96.0%, and Mindanao region 87.0%. Comparison of the electrification rate by power distributor, which is responsible for electrification implementation, shows 93.8% for ECs, the largest in number, followed by 98.5% for MERALCO, and 97.7% for private business/municipality/others (Table-3.3). 3 Japan Electric Power Information Center, Inc "Overseas Electric Utility Industries 2003 Philippines" pp The October 2006 data says the total number of barangays is 41,

29 Table-3.2 Electrification Level by Region (As of 31, October 2006) Area Barangays Electrified Unelectrified Ratio Barangays Barangays (%) Philippines 41,945 39,590 2, Luzon 20,476 19, Visayas 11,443 10, Mindanao 10,026 8,720 1, (Source: DOE) Table-3.3 Barangay Electrification Level by Franchise Holder (As of October 2006) Franchise Holder Number of Barangay Electrified Electrification Completed Level (%) Challenge 119 Electric Cooperatives 36,080 86% 33, ,251 MERALCO 4,314 10% 4, Private Investor 1,625 4% 1, Owned/ LGUs/ Others Total 41, % 39, ,355 (Source: DOE )

30 3.2 Promotion Policy of Rural Electrification Rural electrification has been carried out by concerned organizations led by the DOE, in accordance with the O-Ilaw Program and the ER Program. First, the Secretary of the DOE formulates an electrification objective for the year, which is allocated to the concerned organizations by the Program Team (PT) comprised of the DOE and other parties. Then, the RECs and private power companies conduct actual implementation 5. The PT was formed through DOE Special Order No in January 2000 (revised by S.O. No in 2001). Its responsibilities include the overall planning, promotion, monitoring and evaluation of rural electrification. The PT is composed of officials from the DOE, NEA, PNOC and NPC. The Program Management Office (PMO) based in the DOE serves as the implementing arm of the PT. The O-Ilaw Program allows for a menu of options for participation from which donors or prospective partners can choose. The O-Ilaw Program components include the following 6 : (1) Regular electrification program of government agencies a) Department of Energy and its related agencies (i) Locally-funded projects on electrification using new and renewable energy sources (ii) Grant-in-Aid Programs (iii) Electrification projects under ER 1-94 Fund 7 b) National Electrification Administration/Rural Electric Cooperatives c) National Power Corporation d) Philippine National Oil Company through its Environmental Improvement for Economic Sustainability (EIES) Project e) PNOC-Energy Development Corporation f) Department of Agrarian Reform through its Solar Power Technology Support (SPOTS) Project for Agrarian Reform Communities (2) Electrification projects of Private Investors-Owned Utilities such as Meralco, Davao Light and Power Company, etc. (3) Electrification projects of LGU-owned utilities 5 Japan Electric Power Information Center, Inc "Overseas Electric Utility Industries 2003 Philippines" p The Philippine Department of Energy Websitehttp:// 7 Financial Benefits to Host Communities under ER One-centavo per kilowatt-hour (P0.01/kWh) of the Electricity Sales which shall apply to Generation Facilities and/or energy resource development projects (50% for Electrification Fund, 25% for Development and Livelihood Fund and 25% for Environment Enhancement Fund)

31 (4) The Independent Power Producers (IPP) Program (5) The Adopt-a-Barangay Program (6) Electrification through the Renewable Energy Service Company (RESCO) concept As seen from these programs, the O-Ilaw Program and the ER Program offer participation in rural electrification projects to organizations other than government agencies and electric power suppliers. The funds come from different sources such as the national general budget, ER 1-94 fund, LGU budget, and subsidies from NGO or overseas. IPPs are also invited to participate with some expectation placed on their financial capability. Some examples of rural electrification implemented using the ER 1-94 fund are the PNOC-EDC's electrifying roughly 10 barangays near Ormoc on Leyte Island in 2000, the US Southern Energy's barangay electrification project near the coal-fired thermal power plant in Quezon, and the Malaysia's East Asia project in Cebu 8. Rural electrification is basically carried out by an entity which holds the power distribution rights in the relevant area (Franchise Distribution Unit, e.g., EC). However, in the area where such FDU has declared no electrification plan in the foreseeable future in view of economic efficiency, electrification is implemented by the Missionary electrification project. Missionary electrification is undertaken by entities other than ECs, and they also expect private companies to participate. The entity implementing electrification in that area is called the qualified third party (QTP). If there are no QTPs, the NPC-SPUG will implement the project as a last resort. As Missionary electrification projects are for areas with little or no profitability, continuous subsidies are needed and the fund from a universal charge is appropriated. Universal charge is imposed on every electricity end-user as a part of the electricity charge, and its rate is decided by the Energy Regulatory Commission (ERC). 3.3 Issues of Rural Electrification For power distribution, the country is divided into a total of 138 service districts; 119 ECs, 16 private power distributors, and 3 municipal electric power suppliers. Of the ECs, only 15 (12.6%) have achieved 100% barangay electrification, and 75 (63.0%) have not reached 90%. None of the ECs have achieved 100% household connection rate 9. 8 Japan Electric Power Information Center, Inc "Overseas Electric Utility Industries 2003 Philippines" p JICA "Survey of Donor Trend for Overseas Electrification (Philippines) September 2003" page

32 Electrification has two methods, one is to extend transmission/distribution grids and the other is to utilize dispersion type power sources. At the end of 2000, roughly 4,000 (approx. 45%) of about 8,300 barangays were located quite a distance from the existing grids 10. Investment efficiency in these areas is significantly low. The grid extension is difficult due to dispersed locations of villages and electrification cost is high because of the low income level. Such areas have no choice but to depend on the off-grid dispersion-type power sources. Mini-hydropower is utilized in areas where hydropower potential exists. Other areas utilize mini grids that use new or renewable energy sources such as solar light, wind power and biomass. Individual electrification by solar home system (SHS) is also promoted. Table-3.4 shows the electrification methods used from 1999 to Of the 5,082 barangays, 4,159 or 81.8% were electrified by grid extension, and the remaining 923 or 18.2% ere through mini grid. Roughly 70% of the mini-grid electrification was through new or renewable energy sources 11. Whether electrified by grid extension or by mini grid, the barangays to be electrified in the future have a small power demand, making the electricity supply cost high. As the income of the people living in such barangays is small, an electrification project is quite unattractive to the power distributors. A big issue for the future is how electrification should be promoted in such areas from the perspective of livelihood improvement of the residents. The DOE has other data useful for planning future electrification. Roughly 1,700 barangays, approx. 18% of roughly 8,300 un-electrified barangays, are located in the provinces where power plants have already been constructed. These power plants mainly supply energy for the demand outside the province. It is desirable for them to contribute to promoting the electrification of un-electrified barangays in one way or another. ER1-94 fund was established to this end. As aforementioned, pursuant to this system, power producers are obliged to set aside one centavo (0.01 peso) per kwh of energy generation to the DOE fund. 50% of this fund is disbursed to energize the un-electrified barangays surrounding the power plants. It is also possible for a power producer to construct a power-distribution grid, and in such a case, the ER 1-94 fund will be refunded later on 12. At any rate, it has a significant value in planning the 10 The Philippine Department of Energy Website 11 JICA Report of SW mission on "Rural Electrification in the Philippines (June 2004)" page The Philippine Department of Energy Websitehttp://