Given the country's vast hydropower potential, more than 10 percent of electricity requirements will be supplied by hydropower generation. To meet the expected increase in demand for power over the planning period, a total of 2,950 MW of hydropower capacity will be available within both grid and off-grid areas. Committed and indicative capacity additions will increase overall hydropower available capacity to 5,468 MW from the current installed capacity of 2,518 MW (Table 5). Eighteen (18) large hydropower potentials are estimated to account for more than 90 percent of the possible additional capacity while the remainder will be supplied by mini-hydro potentials. In addition, 490 kW of micro-hydro power plants are targeted for installation for the planning horizon. These micro-hydropower plants will be tapped to support the government's rural electrification program targeting 100 percent barangay (or village) electrification by 2006. The committed capacity addition is expected to provide 7.7 TWh of electricity per year equivalent to a fuel oil displacement of 12.9 MMBFOE.

Hydro plants are classified based on their capacities, as follows: (i) micro-hydro - 1 to 100 kW; (ii) mini-hydro - 101 kW to 10 MW; and (iii) large hydro - more than 10 MW. The total untapped hydropower resource potential of the country is estimated at 13,097 MW, of which 85 percent are considered large and small hydros (11,223 MW), 14 percent (1,847 MW) are classified as mini-hydros while less than 1 percent (27 MW) are considered micro-hydros. Some projects in Luzon are available for private financing, while 20 are undergoing feasibility studies and 82 are in the pre-feasibility stage.

Potential sites for mini and micro-hydro projects are evenly distributed in all the regions. The National Electrification Administration (NEA), National Power Corporation (NPC) and the DOE have studied specific mini-hydro potential sites and have lined them up as indicative projects. The NEA has identified about 1,000 mini-hydro potential sites for development based on its mini-hydro program which began in the 1980s. Likewise, NPC has identified potential sites for mini-hydro development. In 1995, the DOE conducted a water resource inventory study to validate NEA's and NPC's identified potential sites for promotion to private investors. Meanwhile, a study conducted by United States National Renewable Energy Laboratory (US-NREL) likewise revealed that micro-hydro potential sites are well distributed all over the regions (Figure 7). Local government units (LGUs), non-government organizations (NGOs), electric cooperatives (ECs), and DOE's Affiliated Non-Conventional Energy Centers (ANECs) supported the study by conducting local identification projects. Another study entitled "Micro-hydropower Development Study for Unenergized Barangays" is a Japanese-funded project which aims to identify at least 40 micro-hydro sites for development in Regions I, II, III and Cordillera Autonomous Region (CAR).

Challenges and Gaps

The capital-intensive nature, long gestation period (average of seven years) and accompanying issues of social acceptability of large hydropower projects remain to be the sector's biggest challenges. On the other hand, micro-hydro development for off-grid electrification is hindered by high upfront costs and the need for government intervention and subsidy.

Socio-environmental concerns

There is considerable resistance to the further development of large hydropower projects due to the potential for upstream flooding, destruction of agricultural areas and animal habitat and disruption of communities in the affected areas. These factors have affected the attractiveness of large hydropower projects.

Shift in type of development

Given the many issues plaguing large hydropower projects, the logical next step would be to focus on smaller, more manageable run-of-river projects. However, such a shift will not come without considerable challenges such as a decrease in new capacity given the smaller scale of the projects, intermittent supply of power and considerable decrease in power generation during the summer months.

Commercialization of local micro-hydropower technology

There is also a need to develop and commercialize suitable micro-hydro technology in the Philippines even as hydropower technology for large and small projects is proven and mature. The Philippines remains to be dependent on imported electro-mechanical equipment for micro-hydro projects. The costs of these equipment vary based on kilowatt capacity. For instance, a 5-kW equipment with controls and metering devices cost US$11,000 while a 100-kW equipment costs US$64,500.

Existing Incentives

Republic Act No. 7156 or the Mini-Hydro Law provides the following rights and privileges of mini-hydro developers, as follows:

1. Special privilege tax rates - Tax payable by developers/grantees to develop potential sites for hydroelectric power and to generate, transmit and sell electric power shall be 2 percent of their gross receipts
2. Income tax holiday for seven (7) years from start of commercial operations
3. Tax and duty free importation of machinery, equipment and materials- Exemption from payment of tariff duties and value-added tax (VAT) on importation of machinery and equipment (within seven (7) years from date of awarding of contract)
4. Tax credit on domestic capital equipment - For developers who buy machinery, equipment, materials and parts from a local manufacturers, tax credit is given equivalent to 100 percent of value of VAT and custom duties that would have been paid to import said machinery, equipment, etc.
5. Special realty tax rates on equipment and machinery - Realty and other taxes on civil works, equipment, machinery and other improvements of a registered mini-hydroelectric power developer shall not exceed 2.5 percent of their original cost
6. VAT Exemption - Exemption from payment of 10 percent VAT on gross receipts derived from sale of electric power whether wheeled via the NPC grid or electric utility lines

Programs and Projects

To address the three major challenges for this sector, the DOE will pro-actively monitor existing hydropower plants in the Philippines.

Enhanced public acceptance

The DOE shall involve all stakeholders in the decision-making processes prior to the implementation of hydropower projects. This would ensure protection of the rights of communities which may be affected by specific projects. At the same time, project risks will be easier to ascertain through consultations and social assessment activities conducted jointly with all affected stakeholders.

Promotion of alternative hydro development

The run-of-river schemes of construction will allow for a balance of river ecosystems while providing communities dependent on the river for their livelihood to co-exist with hydropower projects. In addition, the government would place greater emphasis on projects which are encountering social and environmental problems by treating these issues as an integral element, along with economic and financial concerns, in the decision making process.

Commercialization of hydropower technology

With additional incentives as stipulated in the proposed Renewable Energy Bill, the commercialization of locally made hydropower equipment can be attained. The following measures are proposed to hasten its commercialization:

Creation of hydropower database

The DOE is envisioned to be the central repository for a database of large, small, mini- and micro-hydropower projects and prospects. This database shall be made available to interested developers. Furthermore, the DOE will conduct annual seminars and workshops on hydropower development in strategic locations to promote attractive hydropower projects to private investors.

Pursuit of technical cooperation with other countries

For small-scale hydropower development, the basic strategy for commercialization is to encourage electro-mechanical manufacturers to set up facilities in the Philippines and reduce the cost of importation of turbine equipment. There are several local turbine fabricators in the country that can be trained to enhance their capability to manufacture turbine equipment. The DOE is pursuing a technical experts' dispatch program with the Japan International Cooperation Agency (JICA) to assist these local fabricators. In coordination with the De La Salle University, the DOE through JICA established the Micro-Hydro Testing Center in April 2003 to help improve the output and efficiency of these equipment.

The DOE will likewise continue to seek technical and bilateral cooperation with other countries that offer the latest expertise and technical transfer of hydropower technology to replicate the successful Mahagnao micro-hydro demonstration project. The 65-kW demonstration project in Burauen, Leyte showcases the reliability of the hydropower system to supply electricity in remote barangays located outside the grid. It is designed to supply power to 300 households in the three barangays of Burauen namely, Cansiboy, Logsongan and Mahagnao. The achievement of this project will be replicated in other suitable sites in the country. The said demonstration project was successful in terms of seeking bilateral cooperation with the Japanese government and a successful collaboration with other government agencies in the country which were the key to the project's implementation.

Rehabilitation program for existing hydropower plants

The DOE shall encourage investors to rehabilitate inefficient and non-operating but viable plants to increase their generation capacities. Nationwide promotional activities such as seminars and investment clinics will be conducted towards this end. One such seminar was conducted in December 2002 in Tacloban City in cooperation with JICA to promote the rehabilitation of existing mini-hydro plants in Samar and Leyte to interested investors. The rehabilitation plans for hydropower plants are spread over the ten-year period.