Interview with Secretary Raphael P.M. Lotilla, Department of Energy, The Philippines

25 Jun Interview with Secretary Raphael P.M. Lotilla, Department of Energy, The Philippines

How was The Philippines’ energy consumption for 2023 and what significant changes occurred compared to the previous year in terms of consumption patterns and energy production?

Conventional power generation takes three to five years to construct and this administration started in mid-2022. To ensure adequate power, our priorities include freeing up stranded power, which refers to unused capacity hindered by transmission constraints and harnessing excess power. In Mindanao, we have up to 800 megawatts (MW) of excess power. We prioritized completing Mindanao-Visayas interconnection allowing us to transfer 450 megawatts via submarine cable to Visayas where it is needed. Additionally, the Cebu-Negros-Panay interconnection project enables us to distribute excess power from Mindanao to the rest of Visayas and Panay Island. In Luzon there were around 600 megawatts of stranded power when this administration began. We have been working incessantly to complete the necessary interconnections, which should be fully operational by July this year, addressing the issue of stranded capacities.

The 1,200 MW Ilijan natural gas power plant in Luzon lost its fuel supply when its contract ended in June 2022, resulting in a significant power loss. By completing regasification facilities for the import of Liquefied Natural Gas (LNG) we have restored 1,200 MW to the grid. Despite the initial loss and the challenges of El Niño in 2023, Luzon hasn’t experienced significant power outages due to these efforts. El Niño led to an unprecedented increase in demand due to extremely high temperatures, which constrained supply and required the use of expensive oil-fired backup power plants. The heat also adversely affected the operations of thermal plants, especially coal-fired ones, causing breakdowns. However, preemptive measures and the early operation of several solar power plants, which helped supply the grid during peak hours, avoided massive power outages.

In 2024, we anticipate adding nearly 2,000 MW of conventional coal and natural gas power plants and another 2,000 MW of solar, wind and run-of-river hydro plants. This will ensure sufficient base load capacity for Luzon over the next two years as other plants expand or new ones are built, enhancing our current power supply.

In the Philippines, the power sector is privately owned, market-driven and unsubsidized affecting the price of electricity. Yellow Alerts and Red Alerts serve as market signals and capacity is dispatched via the wholesale electricity spot market. We plan to introduce commercial operations for the reserve market, allowing system operators to source reserves from various providers. We are also studying the introduction of a futures market and a capacity market, providing additional opportunities for power generators. Our Energy Regulatory Commission is working to

complete the Retail Competition and Open Access, currently limited to consumers averaging 500 kilowatt- hours per month. We also anticipate the development of aggregation, allowing companies and retail suppliers to combine demand from households and condominiums to contract directly with generators. These market reforms set us apart in Southeast Asia, as our power sector is entirely private, including our transmission operator, unlike the state-owned, vertically integrated and subsidized models common in the region and globally.

The government aims for the country to achieve energy security and independence to support its growing economy. What is the DOE’s strategy to achieve these goals and in which specific areas is the Department prioritizing investments?

We aim to increase renewable energy’s contribution to 35% by 2030 to ensure supply security. This involves diversifying power sources, particularly emphasizing indigenous ones. Maximizing renewable energy use is crucial as these resources are locally available. Additionally, we’re incentivizing upstream natural gas exploration, seeing it as a vital transition fuel. The Malampaya gas field’s contract was extended to ensure additional supply while exploring new fields. This complements the new LNG Import and regasification facilities contributing to the country’s power supply.

For renewable energy, we aim to enhance geothermal power. U.S. companies are collaborating with local firms to maximize geothermal use by exploring abandoned steam wells and utilizing secondary heat from power generation. We are also addressing environmental concerns, such as reducing hydrogen sulfide – a byproduct of geothermal process, to avoid impacting nearby communities. Additionally, we’re partnering with institutions like the Asian Development Bank to reduce the risks and costs associated with geothermal exploration and steam well drilling, which are both expensive and high-risk ventures.

We have increased the Renewable Portfolio Standards from 1% to 2.52%, requiring distribution utilities to source more power from renewable energy. This creates a market for renewable energy generators. Our Renewable Energy Act and related investment laws provide liberal incentives, including allowing 100% foreign ownership of offshore wind projects and spurring interest in offshore wind and floating solar projects, such as those in Laguna de Bay.

We are also focusing on the availability of transmission lines to accommodate new power sources, both conventional and renewable. Ensuring these lines are constructed on schedule is crucial to support the country’s economic growth targets, which require a 5.2% annual increase in power supply.

President Ferdinand Marcos Jr. and Indonesian President Joko Widodo presided over the signing of a Memorandum of Understanding on energy cooperation. Could you explain the benefits of this MoU and what bilateral partnerships is the Philippines currently pursuing with other countries?

Indonesia supplies 98% of the coal needed for about 70% of the Philippines’ domestic needs, making cooperation crucial. The Indonesian Minister of Energy assured us that the early 2022 coal export ban, caused by domestic shortages and a two-tier pricing scheme, won’t happen again. This ban had previously disrupted not only the Philippines, but also other countries with contracts for Indonesian coal.

Additionally, Indonesia has surpassed the Philippines in geothermal capacity due to its larger resource base. Among the energy ministers of the Association of SouthEast Asian Nations (ASEAN) we are working on interconnecting the region’s power grids. While continental ASEAN is largely interconnected, the archipelagic ASEAN-including Indonesia, Malaysia (Sarawak, Borneo, Sabah), Brunei and the Philippines – still needs integration. Achieving this will enhance energy security for the entire region.

During last year’s Asia-Pacific Economic Cooperation summit in San Francisco, the U.S. and the Philippines signed the 123 Agreement, facilitating U.S. nuclear technology exports. Currently, formal requirements for its enactment are being processed. The agreement focuses on two main areas: providing scholarships and training for personnel involved in nuclear projects, covering technology, regulation and safety and conducting policy studies on cleaner technologies, including small modular nuclear options to ensure informed decision-making, particularly within the private sector.

Do you have a final message for the millions of readers of USA Today about choosing the Philippines as their next business, tourism or investment destination?

We appreciate the keen interest shown by the United States and extend an invitation to U.S. investors and locators. There is considerable interest from U.S. entities in establishing hyperscale data centers in Southeast Asia and we welcome them to the Philippines. They can collaborate with renewable energy providers to become off-takers of power produced by renewable energy sources, facilitating a mutually beneficial arrangement.

Similarly, there is U.S. interest in mining critical minerals, driven partly by renewable energy needs. We encourage investors in renewable energy to collaborate with mining interests. Even if U.S. companies currently focus on domestic mining due to incentives, other Indo-Pacific countries may pave the way. We are open to collaboration with the U.S. and other Indo-Pacific nations.