OVERHAUL NEEDED: PIDS study urges reforms for Philippine power grid

By Francis Allan L. Angelo

Electricity demand in the Philippines grew by about 140 percent over two decades, but the country’s power transmission system has struggled to keep pace, expanding by only about 11 percent over the same period, according to a study by the Philippine Institute for Development Studies (PIDS).

The study, titled “The Need for Power Transmission Sector Reforms in the Philippines,” was authored by PIDS Senior Research Fellow Adoracion M. Navarro. It examines how regulatory frameworks, investment incentives, and inter-agency coordination influence the performance of the transmission sector.

From 2003 to 2024, electricity consumption in the Philippines increased from 52,941 gigawatt-hours to 126,941 gigawatt-hours. Over the same period, transmission lines expanded from 20,774 circuit-kilometers to only around 23,110 circuit-kilometers.

“This underinvestment in transmission contributed to the ongoing energy insecurity in the Philippines,” the study said.

The study identified several factors behind persistent project delays, including right-of-way constraints complicated by fragmented land ownership and valuation disputes that often end up in protracted expropriation proceedings and court battles extending timelines by several years.

Weak inter-agency coordination among local governments, environmental authorities, and national agencies has also led to overlapping permitting requirements and administrative friction.

Security risks in conflict-affected areas, where transmission corridors are vulnerable to sabotage, further compound delays.

On the regulatory front, the study found that rate-setting uncertainties have created conditions that discourage timely investment.

During the extensively delayed Fourth Regulatory Period, an outdated weighted average cost of capital (WACC) of roughly 15 percent was carried over from the previous period, inflating the return-on-capital component of transmission charges passed on to consumers.

To mitigate bill shock, the Energy Regulatory Commission finalized the Fourth Regulatory Period by lowering the approved WACC to 11.33 percent and authorizing a much lower maximum allowable revenue than what the National Grid Corporation of the Philippines had applied for.

The ERC also adopted an “As Spent” approach for capital expenditures, which adds costs to the Regulatory Asset Base as they are incurred rather than waiting until projects are fully commissioned. The study said this method smooths out rate impacts over time and avoids sudden price spikes.

The study proposed a hybrid approach as a more balanced alternative, under which capital expenditures would be provisionally included to support project financing but only fully recognized for depreciation and return once assets are commissioned and operational.

“When transmission infrastructure is not available on time, lower-cost or cleaner generation gets curtailed, forcing the system to rely on more expensive alternatives,” the study said.

The study cited the case of the San Isidro Wind Power Project, where regulators had to impose load curtailment or dispatch-prioritization conditions because the local transmission network was too constrained to handle the full energy injection.

On national security, the study noted that a significant portion of NGCP’s equity is held by the State Grid Corporation of China, raising concerns about potential foreign influence over operational decisions and cybersecurity vulnerabilities.

To address these concerns, the Philippine government utilized the Maharlika Investment Corporation to acquire a 20 percent preferred share stake in Synergy Grid and Development Philippines Inc., which holds a 40.2 percent effective ownership in NGCP.

The study also discussed proposals to structurally decouple system operations from transmission asset management, placing system operations under a government-controlled or tightly regulated entity to improve oversight and reduce conflicts of interest.

The study cautioned against prematurely extending NGCP’s 25-year concession, warning that doing so based on anticipated rather than demonstrated gains could weaken regulatory oversight and create conditions conducive to regulatory capture.

To address these structural challenges, the study recommended strengthening regulatory incentives, improving institutional coordination, and streamlining right-of-way and permitting processes.

“Improving transmission sector performance will depend on regulatory capacity and clarity, effective coordination, and a governance framework that consistently prioritizes reliability, affordability, and long-term system resilience,” the study concluded.