MERALCO POWERS COMPETITIVE ENERGY INDUSTRY TOWARDS ECONOMIC PROGRESS

Across the world, power rates have always been top of mind of investors when it comes to business development and expansion. It's a significant factor that can strongly impact operations, production, and regional and global competition.

Electricity rates in recent years were significantly impacted from global disruptions particularly the COVID-19 pandemic and the Russia-Ukraine war. The Philippine energy industry was not spared from these challenges as it took a hit given the country's heavy reliance on imported coal and domestic gas, which are benchmarked in the volatile world market prices.

These recent global disruptions highlighted the important role electricity rates play in powering and defining economic progress and social development.

But the situation is not the same across all energy markets which is why a comprehensive analysis is a must to contextualize the electricity rates in different countries. After all, poor understanding of electricity tariffs can negatively impact a business—whether small or a full-fledged corporation.

To better understand how electricity rates fare across different countries, the International Energy Consultants or IEC conducted a comprehensive analysis and comparison of 46 energy markets, including two American states.

The IEC is an Australia-based consulting firm that has strong familiarity with the energy markets in the Philippines, Singapore, Vietnam, Taiwan, Japan, Indonesia, New Zealand, and South Korea. Its most recent 2022 study is the fourth in a series to be published by the IEC. Similar reports have been compiled as well in 2012, 2016, and 2018.

Just like in its previous reports, energy markets included in the 2022 study were selected based on availability and quality of data, with a focus on those which would provide a representative range of costs and tariffs. For the Philippines, the IEC used data from the Manila Electric Company (Meralco) since the company is the largest distribution utility in the country.

The IEC indicated that the data was calculated using published tariff schedules for each market's respective utility or supplier and cross-checked with actual customers' bills to ensure accuracy. Results of the survey highlighted interesting insights that properly contextualizes Philippine electricity rates and allows for better appreciation and understanding of data.

Fair And Reasonable Rates

Meralco's electricity rates remain fair and reasonable in comparison to other energy markets, results of the recent IEC study showed.

Meralco's average tariff in 2022 is 3% below the global average and ranks 21st among those surveyed. This, even though the Philippines lacked subsidies for electricity tariffs unlike neighboring countries such as Thailand, Indonesia, Malaysia, Korea, Taiwan and Vietnam which are more than 50% subsidized.

In addition, Meralco's tariff increase at 24% is about the same level of 23% increase over the past five years worldwide. The IEC noted that this is due to higher generation charge, a pass-through cost, which in turn was a result of fuel price increases particularly imported coal and domestic gas.

In terms of distribution charge, the IEC study noted that Meralco only recorded a 2% increase and recognized the distribution utility as well for its diligent management of supply contracts, noting that increase in the generation charge could have been much higher if not for the company's efforts.

"Notwithstanding this increase, all of the components of the regulated tariff are judged fair and reasonable by IEC, based on comparisons with other markets versus the underlying cost of electricity supply in Luzon," IEC said.

"Considering that the Luzon power market is unsubsidized, and the majority of the electricity is produced using imported fuel, Meralco appears to have done a very good job of minimizing tariff increases," it added.

Overall, the IEC study showed that Meralco's tariffs remain close to both the global average and median for the past decade.

As for other energy markets, the IEC in its study noted that electricity tariffs in most subsidized markets have either remained unchanged (in local currency terms) or the increases have been insufficient to offset the increases in inputs costs and currency depreciation. As a result, many of these markets have seen their tariffs (in US dollar terms) decline which has resulted in a massive increase to subsidies.

For example, in 2022, five neighboring countries of the Philippines subsidized their tariffs by an estimated range of 35% to 66% or an average of 52%, resulting in around $138 billion in costs to their governments. The government support provided to cushion electricity costs were in the form of cash grants, subsidized fuel or deferred expenditure. This means that customers in subsidized countries are paying less than half the actual cost of electricity.

In the case of the Philippines, the absence of subsidies means that Filipinos are paying for the true cost of electricity. Should a similar 50% subsidy be applied to Meralco's average tariff, the IEC said it would require an estimated P241 billion in budgetary support.

But despite the absence of subsidies and global pressures, the Philippines power supply industry has proven remarkably resilient and electricity prices have risen at or below the global average.

For its recommendation, the IEC said that for Meralco to hold or improve its position relative to tariffs in other energy markets, it is critical for the country to focus on facilitating investment in new generation to meet rapid demand growth. Priority attention must also be given to accelerating the development of domestic renewable energy sources.

Going Green and Service Excellence

Even before results of the IEC study came out, Meralco has already been transitioning to cleaner energy sources through decarbonization and sourcing an increasing portion of its supply portfolio from renewable energy (RE).

Earlier this year, the distribution utility said it would cut its direct emissions by at least 23% through 2030 in line with the government's goal to become coal-free before 2050. The target covers Scope 1 emissions, which refer to Greenhouse Gas emissions generated by the company from its operations and the use of fuel for vehicles and other equipment.

This early on, Meralco has already breached its initial RE capacity target of 1,500 megawatts (MW) with 1,880 MW of contracted capacity from various suppliers in support of the Department of Energy's Renewable Portfolio Standards (RPS) policy.

Through Meralco's strategic sourcing initiatives, RE is expected to account for 22% of the distribution utility's supply portfolio by 2030, and 18% of Meralco's retail electricity supplier, MPower, by 2025.

Meralco also continuously invests in the expansion and upgrading of its facilities to ensure the delivery of safe, stable, and reliable electricity service to its 7.8 million customers.