Energy Trading, Competition and Policy Harmonization in the ASEAN

7/26/2019 Energy Trading, Competition and Policy Harmonization in the ASEAN

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FEBRU

ENERGY TRADING,COMPETITION,AND

POLICY HARMONIZATIONIN THEASEAN

9.2VOLUME

PAPEROCCASIONAL


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With the formal economic integration of the 10 ASEAN

member countries into a single market called the ASEAN

Economic Community (AEC) in January 2016, we expect

stronger and faster economic activities among the people of

the community. The elimination of taris, the reduction of

non-tari barriers (NTBs), and freer mobility of people and

services mean that there is greater potential for companies

and people to hop from one country to another withinthe region, bringing with them various businesses

and employment opportunities.

Lots of energy, both upstream and downstream, will be

required to power this bigger and faster mobility of people

and goods within the region. A country-based energy supply

and trading alone will be insucient to catch up with this

huge energy demand from all ASEAN member states (AMS).

In addition to the fact that energy precedes development,

energy powers more growth and the lack of energy can stie

growth. An insucient energy supply could push investorsaway from the Philippines and towards other ASEAN nations

with more stable and more aordable electricity, leaving the

* The views and opinions expressed in this Paper are those of the author and do not necessa

Philippines to miss out on the potential benets of the

AEC altogether. Thus, the need for more international

and regional energy trading will become more

pronounced in the coming years.

Currently, the Philippines has the unhealthy image of

having the second highest electricity prices in Asia next

to Japan. Over the years this has been one of the biggestdeterrents for investors who wish to invest in the Philippines.

There are many reasons for this, two of which are (1) a lack

ENERGY TRADING,

COMPETITION,ANDPOLICY HARMONIZATIONIN THE

ASEAN

C 2016ADRiNSTITUTEfor Strategic and International Studies. All rights reserved.

OCCASIONAL PAPER FEBRUARY 2016

02

ENERGY

Currently, the Philippines has the unhealthy image of having the second highestelectricity prices in Asia next to Japan. Over the years this has been one of thebiggest deterrents for investors who wish to invest in the Philippines.


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of reliable supply across the countrys three grids, and

(2) high and multiple taxes imposed on energy products,

while many Asian countries subsidize theirs.

International and regional energy trading would lead into

the inux of additional supply, making the supply side

more competitive. This in turn will lead to more aordable

and competitive electricity prices, and thus more industrial

and commercial activities sprouting or expanding.

Electricity consumption and GDPexpansion in the ASEAN

In the past decade, the Philippines has expanded

its power capacity very slowly. While expansion has

accelerated in more recent years, the country still suers

from some form of energy poverty compared to many ofits neighbors in the region. For instance, even newcomer

Vietnam has electricity consumption per capita almost

twice that of the Philippines. The Philippines total primary

energy supply (TPES), expressed in tons of oil

equivalent (toe) per capita, is also low.

As shown in Table 1, note the positive correlation

between electricity consumption per capita and Gross

Domestic Product (GDP) per capita, using purchasing

power parity (PPP) values. Those on the top are

Brunei, Singapore and Hong Kong. In the middle

are Malaysia, Thailand, Vietnam and Indonesia. The

Philippines can be considered in the bottom group

in per capita electricity consumption, along with

Laos, Cambodia and Myanmar. V

lower per capita GDP than the Ph

but doubled its per capita income

one decade, from 2004 to 2014.

Table 1. SOME ENERGY & GDP INDICATION FOR SOUTH EAST ASIAN ECONOMIES

Sources: Columns 2 and 3: I nternational Energy Agency (IEA), Key World Energy Statistics (KWES) 2015

Columns 4 and 5: IMF, World Economic Outlook (WEO) Database, October 2015

* HK is not ASEAN member ** Laos is not included in KWES annual reports



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Many of our neighbors have many cheap energy

sources. Brunei is a top natural gas exporter and

Indonesia and Malaysia have lots of coal. Here is

the resource endowment in fossil fuels of

many ASEAN countries:

Oil: Brunei, Cambodia, Indonesia, Malaysia,

Myanmar, Thailand, Vietnam

Gas: Brunei, Cambodia, Indonesia, Malaysia,

Myanmar, Philippines, Thailand, Vietnam

Coal: Indonesia, Malaysia, Philippines, Thailand,

Vietnam.

For renewables endowment:

Hydro: Cambodia, Indonesia, Laos, Malaysia,

Myanmar, Philippines, Vietnam

Geothermal: Indonesia, Philippines

Solar and biomass: all countries have various

amounts and types. Wind has limited potential.

Fossil fuels remain as the primary source of

electricity in many Asian countries, as shown in

Table 2. It is divided into two parts: East Asian

economies which have 90% or more of their total

electricity production coming from fossil

fuel sources, and those below 90%.

It is notable that the Philippines ve more

developed Asian neighbors namely Brunei, Hong

Kong, Malaysia, Singapore and Thailand, have a

fossil fuel dependence of 92 to 100%. They can

attract more manufacturing and other industrial

Table 2. Electricity production and sources in selected Asian economies, 2

Source: International Energy Agency (IEA); ADB, Key Indicators for Asia and the Pacific 2015.


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players, such as hotels, malls and other

service industries, because they have

stable, reliable and more aordable

electricity supplies.

For other Asian economies, like Myanmar,

Cambodia, China, and the Philippines, energysource reliance features hydro signicantly.

Fossil fuels are all dispatchable energy

sources. This means that these sources can

be dispatched or controlled anytime according

to demand, even with very short-term demand

hikes and with only one or two hours lead

time. The high percentage of fossil fuels in

the energy mix of those countries and the

high supply capacity of big hydro plants are

important ingredients for energy

trading within the ASEAN.

A number of ASEAN countries are net energy

exporters, which means that their domestic

energy production is bigger than their

consumption and they export the balance.

The biggest energy exporter is Brunei, the

main producer of natural gas in the

region, followed by Indonesia.

The big net energy importers in the ASEAN

are Singapore, Philippines and Thailand. In

North East Asia, the big net energy

importers are S. Korea and Taiwan.

Table 3. Energy production and net imports of East Asian economies

Sources: ADB, Key Indicators 2015; WB, World Development Indicators,http://databank.worldbank.org/data/reports.aspx?source=sustainable-energy-for-all


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The ASEAN Power Grid

The ASEAN Power Grid (APG) project was

invented in 2007 via a Memorandum of

Understanding signed by Energy Ministers and

Secretaries of the region. It is a agship program

mandated in 1997 by the ASEAN Heads of States

under the ASEAN Vision 2020. Its main objective is

to strengthen and promote power interconnectionand trade towards greater energy security

and supply stability in the region.

In a presentation, ASEAN Power Grid: Road to

Multilateral Power Trading during the Philippine

Electricity Summit last December 11, 2015 in

Manila, Mr. Bambang Hermawanto, Chairman of

the ASEAN Power Grid Consultative Committee

(APGCC), showed this data in Chart 1. There are

various projects that provide the various routes

and grid interconnections among the ASEAN

countries, current and future.

The APG will be an extensive system of

interconnection in the region someday, especially

in the north, covering Vietnam, Cambodia,

Laos, Thailand, and Myanmar, but also in the

south, connecting Malaysia, Indonesia,

Singapore, and Brunei.

The Philippines is generally detached from the

rest of the region, being in the far east, but

interconnection is possible via Sabah and Palawan.

There is an existing domestic natural gas pipeline

from northern Palawan to Batangas. The nextpipelines to be constructed should include (a) Sabah

to southern Palawan, then (b) southern to northern

Palawan. More distant in the horizon would be pipelines running

from Sabah to Sulu, to Tawi-tawi, to Basilan, then to

Zamboanga and the Mindanao mainland.

These long and extensive grids and interconnections will denitely

cost large amount of money (see one estimate in Table 4).

However, the long-term monetary saving

would mean overall or net savings. There

private partnership (PPP) and its variants

of this huge amount of resources.

Chart 1. List of ASEAN Power Grid projects and their earliest COD, as of May 201

Source: Hermawanto (2015).


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be completed by 2018/2019. Thirteen future

projects (with completion beyond 2020) will cross

borders, and generate a total of 24,824 MW.

The Palawan-Sabah project is still on the drawing

board and projected to cost half a billion dollars.

The northern system of APG is the most extensive

and hence, more costly. It is projected to cost

between $22.4 to $25.5 billion for both existing

and ongoing projects (see Table 5). Currently, there

are 8 existing cross border projects with total

power of 3,489 MW. There are 7 further projects,

with a total power of 5,072 MW, expected to

Table 4. Projected savings from APG, US$ million, in 2009 prices

Source: ASEAN Interconnection Master Plan Study (II), June 2010.

Table 5. Current status of APG projects, in million

Source: Hermawanto (2015).

Note: 6 projects consisting of 8 cross-border links already in operation.


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Among the issues that can cause delay in APG are

the following:

1. Diering national policies, as some

countries desire selfsuciency before regional

interconnection.

2. Wariness of an electricity restructuring owing, to

varying reasons. These include (a) the prospect of

the system evolving into a multilateral power trading

arrangement, which is new to the region; (b) a

harmonized operational and regulatory framework

or tari structure is not available; (c) there are no

mechanisms for power wheeling, pool rules, power

bidding, regulatory framework and ensuring system

reliability and security; (d) the task of obtainingnancing modalities to realize the APG; and (e)

concerns on the harmonization of dierent national

energy policies, regulation on export/import of

electricity, and the availability of infrastructure.

Mr. Hermawanto said there are so

ASEAN spirit. These include plain

by member governments and priv

participation in the nancial burden

infrastructures and institutions.

The strategic and action plan 201

multilateral trading, according to M

are:

1. Accelerate the development of t

Power Interconnection projects.

2. Prepare for the formation of the

Grid institutions.

3. Synchronize National Power De

and optimize the generation of ele

4. Encourage and optimize the uti

resources, such as funding, exper

products to develop the APG.

The most important factor to realiz

deregulation or relaxation of regula

governments to assist private inve

introduction of sub-regional interco

further step of cross-border interc

Fossil fuel trading

Let us review the base load powe

ASEAN countries, in coal in partic

5 countries have a rising coal capafact within one decade from 2004

case of Indonesia, there was a trip

Table 6. Coal consumption in East Asia, million tons oil equivalent (mtoe)

Source: BP, Statistical Review Power Data Workbook 2015


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The most important to realize Asean Poweis the deregu

or relaof regulations by m

governments toprivate inves

These are among the baselines for projections of future

power capacity for the ASEAN 5.

The International Energy Agency (IEA) and the

Economic Research Institute for ASEAN and East Asia

(ERIA) produced the South East Asia Energy Outlook

2013 and made a projection in energy trading. The

study projects net imports in oil but net exports in

gas and coal for the ASEAN in 2020, to be led by

Indonesia. The Philippines would have net imports on

all three fossil fuels but the amounts are small enough

that they can easily be covered by excess supply in

other ASEAN countries like Indonesia and Malaysia.

Oil is expressed in million barrels per day (mbpd), gas

in billion cubic meters (bcm), and coal in megatonnes

coal equivalent (mtce). Positive values are exports and

negative numbers are imports.

Table 7. Fossil fuel net trade in the ASEAN

Source: IEA, ERIA, South East Asia Energy Outlook, September 2013. Table 3.1.


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2. More deregulation or relaxation of many

regulations by member governments is needed to

assist private investment and help realize the APG.

3. An ASEAN Electricity Exchange should beconsidered in the future to help develop dynamic

electricity trading in the region. Currently, two

ASEAN countries have national electricity exchange:

Singapore and the Philippines. The respective

bodies are (a) National Electricity Market of

Singapore (NEMS) and (b) Wholesale

Electricity Spot Market (WESM).

Specically, for the Philippines:

1. Taxes and royalties of indigenous energy sources

in the Philippines should signicantly go down and

some should be abolished in order to help bring

down electricity prices. Royalties for natural gas

from Malampaya in Palawan for instance would be

as high as P1.45 per kWh on certain years. This

is big considering that there are no such taxes on

indigenous natural gas produce in Indonesia,

Brunei and other ASEAN countries.

2. Heavy bureaucracies and complicated

procedures to get multiple permits from local and

national government agencies should signicantly

shrink to help expand the number of players in

the power generation sector, both fossil fuels andrenewables. To endure two to ve years just to

Concluding notes

Mr. Hermawanto made these conclusions in his

presentation:

1. Electricity demand in ASEAN region will continue

to rise despite depletion i n fuel resources, andASEAN countries collectively need to benet from

the abundance of i ndigenous resources.

2. Steps to realize APG are to rst encourage

cross-border bilateral basis, then gradually to

expand to a subregional basis, and nally to a

fully integrated APG system.

3. Harmonize regulatory framework and standards

to facilitate regional energy connectivity. APG is

a step towards the optimization and conservation

of energy in the ASEAN region. APG also

creates bilateral arrangements through

cross border electricity trading toward

multilateral trading arrangement.

This paper agrees with the three main points by

Mr. Hermawanto. Three market-oriented

reforms are needed in the region.

1. Energy price competition should prevail over price

harmonization in order to allow the various players in

the industrial, agri-business and commercial sectors

of all ASEAN countries to realize cost-reduction.

Electricity is a big cost component in many sectorsand sub-sectors like manufacturing and hotels.

get various permits befo

power plant is a big cont

power supply capacity.

3. Governance at WESMreal Independent Market

provided by the Electric P

Act of 2001. Safeguards

market behavior is a func

Regulatory Commission

government ocials at th

Department of Energy, th

Liabilities Management C

National Power Corporat

Electrication Administra

the spirit of independen

Trade is governed by co

People or companies ca

products and services if

or many strict regulations

policies in energy should

one very important stake

consumers: rich and poo

rural and urban. Energy t

guided by the spirit of co

is an important endeavor

consumers in the region


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is an independent international and strategic researchorganization with the principal goal of addressing theissues affecting the Philippines and East Asia

Stratbases Albert Del Rosario Institute

9F 6780 Ayala Avenue, Makati CityPhilippines 1200

V 8921751F 8921754

www.stratbase.com.ph

ABOUTBienvenido S. Oplas, Jr.is a Fellow of the Stratbase-Albert del Rosario Institute (ADRi),President of Minimal Government Thinkers, and a columnist inBusinessWorld. [email protected].

Mr. Oplas received his AB Economics undergraduate degree andDiploma in Development Economics (DipDE) from the University

of the Philippines.

9.2VOLUME

Energy Trading, Competition and Policy Harmonization in the ASEAN

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