III. Hydroelectric Resource Development

The Philippines remains the world's second largest user of geothermal energy for power generation with 1,931 megawatts (MWe) of installed capacity. In 2003, geothermal power plants generated a total of 9,419.02 gigawatt-hours (GWH) of electricity displacing about 16.24 million barrels of fuel oil equivalent (MMBFOE). This translates to US $454.71 million of foreign exchange savings based on a yearly average price of US$28.00/barrel of oil. Power generation from geothermal resources accounts for 19.10 % of the country's total electricity requirement.

There are two companies involved in developing geothermal fields, the Philippine Geothermal, Inc. (PGI) which is a wholly owned subsidiary of the California-based Union Oil of California (UNOCAL) and state-owned PNOC-Energy Development Corporation (PNOC-EDC). Both sell their steam to the state-owned National Power Corporation (NPC). However, with the passage of Executive Order 215 and Republic Act 7718 which allowed private sector participation in power generation, PNOC-EDC’s most recent steamfield developments were tied to power plants built by foreign entities through the Build-Operate-Transfer scheme. The company also ventured into vertically integrated operation with their wholly PNOC-EDC merchant geothermal project in Northern Negros due for commissioning by 2006. Meanwhile, PGI-NPC geothermal projects will be up for privatization by virtue of the provisions of the Electric Power Industry Reform Act (EPIRA). PNOC-EDC continues to do exploration work in new geothermal areas, aside from continuing exploration around the vicinity of its contract areas. The DOE, likewise, continues to conduct initial geoscientific studies in less explored areas to update the reserves database and promote the said areas to interested parties for further exploration..

With only 1,931 MW installed out of 2,047 MW proven geothermal reserves and 4,790 MW potential reserves, there are obviously plenty of opportunities for expansion and private sector involvement. The primary emphasis will necessarily be to complete on-going geothermal projects such as the expansion and/or further development of major known geothermal fields -expansion projects in fields Bacon-Manito   in Albay/Sorsogon and Palinpinon   in Negros Oriental, an optimization project in Mt. Apo in Davao and the development of Cabalian project in Southern Leyte. Private sector investment in said projects, which are located in areas covered by service contracts between the DOE and PNOC-EDC, could be realized through venture arrangements with PNOC-EDC and participation in the recently launched First Philippine Geothermal Contracting Round (Geothermal 1). Private companies may also consider investing in nonpower utilization of geothermal energy. Feasibility studies have shown that geothermal energy, particularly the waste heat from existing geothermal installations and low-temperature geothermal steam in other areas which cannot be used for power generation, can likewise be used in a wide spectrum of applications, such as: salt making, drying, hatchery, alcohol distillation and fish processing.

Under Presidential Decree (P.D.) 1442 otherwise known as “An Act to Promote the Exploration and Development of Geothermal Resources”, the current incentives given to a geothermal service contractor are as follows:

Recovery of operating expenses not exceeding 90% of the gross value in any year with carry forward of unrecovered cost.

Service fee of up to 40% of net proceeds

Exemption from all taxes except income tax.

Income tax obligation paid out of government’s share.

Exemption from payment of tariff duties and compensating tax on the importation of machinery, equipment, spare parts and all materials for geothermal operations.

Depreciation of capital equipment over a ten (10)-year period.

Easy repatriation of capital equipment investment and remittance of earnings.

Entry of alien technical and specialized personnel (including members of immediate families).

Geothermal energy is among the renewable energy sources currently preferred to be developed to displace fossil fuels in view of the commitments called for by the Kyoto Protocol. Philippine Energy Plan 2003-2013 schedules 860 MW of indicative geothermal capacity addition within the ten-year planning period to address the forecast additional capacity requirement largely in Luzon. Most of these projects are included in the areas for offer in Geothermal-1 Contracting Round.