Why do electricity costs keep rising?


Posted at Jun 07 2023 04:00 PM | Updated as of Jun 07 2023 04:49 PM

Photo source: Pexels
Photo source: Pexels

Filipinos are paying more for the price of electricity, not only in terms of monthly bills, but the environmental costs that are incurred when producing power.

Understanding your electric bill

According to Jephraim Manansala, Chief Data Scientist of the Institute for Climate and Sustainable Cities (ICSC), in our electricity bills, we can observe that the Generation Charge constitutes the largest portion of our payments, accounting for around 55% of the charges that we are paying. However, what we fail to notice is that the generation charge is also the most volatile pricing component as it depends on various factors – the most significant of which is the fuel costs used to operate power plants.

In the Philippines, since we have limited domestic sources of fossil fuel like coal mines, we need to import them in order to have a sufficient power supply. In fact, over 76% of the coal we use is imported – thus, it depends on the prices in world markets which are known to be volatile and dependent on geopolitical concerns. So, whenever the price of coal increases in world markets, it will result in an increase in electricity prices in the Philippines.

The Philippines has already witnessed a surge in the price of coal in the world market over the past years, which has led to Filipinos paying more for the Generation Charge.

Photo source: ICSC
Photo source: ICSC

Another clause is called the 'automatic fuel pass-through' in the contracts between the power plants and distribution utilities, which enables the volatility of the world markets to be reflected in the local electricity pricing conditions. So, whenever the price of its fuel increases in the world markets, the power generation cost rises automatically, and without any further approval, the additional cost is passed on to consumers.

Before the global health crisis, the price of coal was only around $60 to $80 per metric ton, but it reached as high as $400 per metric ton. Currently, it has slightly decreased to around $160 per metric ton, but it is still higher compared to its previous price.

The price hike has translated into a significant increase in our electricity bills in the same timeframe. Before the global health crisis, the generation charge accounted for only P4 to P6 per kWh of our total bill, but recently it has reached over P8 per kWh. This is a direct result of the price increase in the world markets and the result of the 'automatic fuel pass-through', on which its impacts are further intensified because of our high dependency on the importation of energy commodities according to ICSC. 

Call for a revision of laws

ICSC is calling for the review of the automatic fuel pass-through. The organization understands that it is normal for businesses to pass on the capital expenses they incur in their operations to consumers to make a profit. 

However, what is not favorable about the current situation is the automatic and unnotified passing of these additional costs to consumers. Furthermore, ICSC wants future contracts not to have the automatic fuel pass-through policy. 

The organization desires that people learn from mistakes, so that consumers will not have to bear the risks of the volatility of the world markets.

Clean energy is possible and within reach

Through civil society organizations that advocate accelerating energy transformation in the Philippines and in Asia, community-based organizations are able to embark on initiatives that likewise promote the use of renewable energy sources in their own communities.

SM-ZOTO along with its president, Orly Gallano plans to introduce renewable energy to underprivileged communities to provide them with a more affordable source of energy. So that these communities will have an opportunity to uplift their lives by being able to save money from the high costs of electricity in the country. Moreover, these communities will also receive training that will educate them on why clean energy is cheaper not only for your pocket, but also how it is less costly for the environment.

Clean and safe environment

Greenhouse Gas Emission (GHG) traps heat and makes the planet warmer. Affecting various aspects of the climate, including surface air and ocean temperatures, precipitation, and sea levels. Human health, agriculture, water resources, forests, wildlife, and coastal areas also become vulnerable because of GHG.

Clean energy helps reduce GHG globally since power generation accounts for approximately 31% of greenhouse gas emissions. primarily due to our reliance on fossil fuel sources for electricity generation especially in countries like the Philippines which is 75% reliant on power generation that comes from fossil fuels such as coal, natural gas, and diesel.

Saving your wallet, saving the environment

According to ICSC, quantifying the exact savings people may achieve by using clean energy may be challenging especially considering the various contexts in which these technologies operate, however, it may be reduced to up to 28% during peak hours.

Furthermore, Towards an Affordable and Reliable Grid with Energy Transition (TARGET) report by the Philippine team of the regional initiative Clean, Affordable, and Secure Energy for Southeast Asia (CASE) provides valuable insights into the potential benefits. As noted in the report, in recent years, variable renewable energy (VRE) sources have demonstrated their ability to reduce spot market costs.

Electricity prices in the electricity spot market fluctuate, with increases during peak hours and decreases during off-peak hours. The price hike during peak hours is primarily driven by the higher demand that requires additional power plants, including expensive options like diesel generators, potentially resulting in prices reaching around P30/kWh. This is where VRE sources, which are often available during times of high demand, play a crucial role in addressing this issue.

Remarkably, even though VRE's share in the energy mix is below 3%, data shows that utility-scale VRE has reduced the cost of electricity in the spot market by 28% during peak hours. 

One can only imagine the significant potential of clean energy for further reducing electricity prices in the Philippine power generation mix, shares ICSC.

Ordinary people may have access to residential and community-based rooftop solar panels with the help of organizations like the SM-ZOTO. 

It is also important that the government and private sector organizations invest further in the development of renewable energy sources in the Philippines - such as solar, wind, mini-hydro, geothermal, and farm-based biomass. This includes establishing the necessary infrastructure and encouraging the adoption of clean energy technologies. Supportive policies and regulations are crucial, which might include incentives, renewable energy targets, and feed-in tariffs, shares ICSC. 

You can make a difference by incorporating green energy in your lives, and engaging the government and leaders to create policies where everyone can benefit from renewable energy. 

Together we can help shape the clean energy narrative and contribute to a brighter and more sustainable future for our country.

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