How much nat’l income will the Philippines lose due to power shortage?

How much nat’l income will the Philippines lose due to power shortage?

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Given the expected shortage in electricity for March to May next year, the Philippines stands to lose about P81.63 billion in real gross domestic product (GDP), which is equivalent to 1.21 percent of the country’s 2013 real GDP figure. The shortage will also likely increase hospital admissions and cut available studying hours for students. It may also reduce potential foreign direct investments (FDIs) due to inadequate power infrastructure and higher electricity rates, hampering the country’s efforts to reach its goal of 6- to 7-percent annual GDP growth in the next few years.


An impending power crisis is set to befall in Luzon next year following anticipated shortages in generating capacity. To address this, the President appealed to the Congress to issue a joint resolution allowing him to have the emergency powers needed to purchase or lease additional generating capacity, following the Electric Power Industry Reform Act (EPIRA) of 2001. The deficit is seen to be around 200MW for April and May,[1] but the Energy secretary recommended an additional capacity of 500MW for buffer.

In this brief, a rough estimate of potential GDP losses is calculated, followed by a brief discussion of added negative effects the lack of power supply may have on the country. Calculations of derived results may be found in the Appendix section.

Power shortage to cause P81.6-billion potential income loss

Given the imminent power crisis, the question is: How will the shortage affect GDP growth? In a study quantifying the potential income lost due to unmet electricity demand in Spain during the 2008 electricity interruptions in the country, it was found that the Spanish economy would lose about 6 euros per kilowatt-hour (kWh) of electricity not supplied.[2] With that said, it must be noted that there is no widely accepted formula of measuring (GDP) losses due to electric supply shortfalls. However, an attempt to provide a rough estimate of GDP losses due to the impending power crises is made for the purposes of this brief.

Borrowing the measurement used by a study by Mizobata, Kanda, and Suzuki, which in turn attempted to quantify the effects of power shortages to the Japanese economy,[3] the potential reduction in the country’s GDP due to next year’s power shortage is about P81.6 billion. This is equivalent to about 1.2 percent of real GDP in 2013.[4] Kindly refer to the appendix section for the explanation of the steps involved in obtaining the figures.

Further potential negative effects due to electricity shortage

I. Health

Apart from the loss of potential income from production, indirect costs may also be incurred. The power shortage, expected to occur during the warm months of March to May, will certainly cause discomfort to citizens who cannot counter the summer heat through the use of electrical appliances. This may result in health and safety risks especially for those sensitive to heat-related illnesses.  In the United Kingdom between 1994 and 2000, there were increases in heat-related emergency admissions for respiratory and renal diseases in children aged under 5, and for respiratory disease in individuals aged 75 years and above.[5] In the US between 1992 and 2006, for the ages of 65 years and above, extreme heat was linked with higher hospital admissions for cardiovascular, renal, and respiratory diseases, with rates for renal diseases jumping by 43 percent.[6] In Sydney, Australia, there was an increase in hospital admissions for cardiovascular, respiratory, diabetes, dehydration, and “effects of heat and light” between 1991 and 2009[7].

II. Education

The lack of electric supply can also affect the performance of students in schools. Global Education First Initiative of the United Nations Secretary General states, such shortage in households, particularly in rural areas, results in children having fewer hours to study and learn. The importance of electricity to education is further highlighted as households that have electricity for longer periods of time (years) is linked to longer studying times and completed school years for girls and boys.[8] In the village of Abu Hasheem in Sudan, the introduction of electricity increased the passing rate of students to 100 percent in 2009 from 57.1 percent in 2007.[9] Furthermore, the correlation between electricity and education is strengthened in the award-winning documentary titled “Black Out” by British director Eva Webber, the. The documentary focuses on the plight of kids in Guinea (Lagos) who go to areas with street lights just to study their schools materials.[10]

III. FDIs and high electric rates

The country’s already comparatively low levels of foreign direct investment may also suffer with declining investor confidence as they may decide to take their fund to areas where infrastructure is adequate and electric supply is stable and would not affect productivity and profits. In the World Economic Forum’s Global Competitiveness Report 2013-2014, the Philippines ranked 93rd behind countries such as Rwanda and Kazakhstan in quality of electricity supply.[11]

In addition, it is anticipated that electricity rates will rise due to the power crisis. In a 2012 study by International Energy Consultants, a private-power sector consulting firm, it was found that MERALCO’s power rates ranked in the top quintile, specifically the 9th highest among the 44 countries surveyed. The average power rates faced by MERALCO’s consumers are almost equivalent to those faced in developed economies like Singapore, Australia, Netherlands, and Denmark.[12] There is a strong possibility that if such high rates of electricity persist, they will cause prices of consumer goods to rise in Luzon and perhaps the rest of the country. In August earlier this year, the Banko Sentral Ng Pilipinas (BSP) announced that it expected inflation rates to settle between 4.7 and 5.5 percent, with the upper end of the forecast the fastest rate experienced since April 2009. Increasing food prices and utility rates were mentioned as some of the main factors behind the rising rate.[13] A few days ago, the Asian Development Bank (ADB) lowered its forecasts on the country’s GDP growth rate from 6.4 percent to 6.2 percent, citing a slowdown in government spending and higher inflation rates as the reasons for the decline in expected growth.[14]

Conclusion and recommendations

With the looming power crisis in 2015, the country stands to lose up to P82 billion, equivalent to 1.2 percent of real GDP in 2013. Aside from loss of potential income, other effects include increased risks to health, detrimental effects on the school performance of children, lower FDI levels, and increased consumer prices.

Although suggestions and the option of emergency power have been put forward to offset the current crises, more measures should be implemented to address even higher energy demands in the future.  Short-term solutions include the ILP, where large power users will be asked to use their own power generation facilities after being taken off the grid so that the power saved may be directed to those who do not have such generation facilities. Power conservation measures are also being promoted to lower power usage rates and demand.

However, long-term solutions are desperately needed to avert a similar crisis in the future. Based on the demand outlook for the island of Luzon, peak demand for energy will exceed available capacity by the beginning of 2016.[15] To overcome such obstacles, the country will need to invest aggressively in power generating plants (preferably which are environmentally friendly) and in updating and maintaining the current grid system. Without the said investments, the country will fail miserably short in maintaining its current growth trajectory of 6 to 7 percent annual GDP growth in the coming years.


In their study, Mizobata, et al. estimated the potential GDP loss due to power shortages through the following:

1-   Estimate power shortfall in average electricity. Data for electricity shortage was obtained from the Aide Memoir, prepared by House of Representatives committee secretary for energy, Efren D. Cortez and submitted to President Aquino. It is included in the report an estimate of the additional megawatt (MW) requirements given per week for March to May in 2015. The numbers obtained are converted from megawatts (MW) to megawatt hour (MWh) by the multiplying the respective MW value by 168, the number of hours in a given week.[16] Through this, a conservative estimate of the total MWh shortage the island of Luzon is expected to face next year is derived, which comes up to about 952,560 MWh.



Required Additional Generation Capacity (MW)

Required Additional Generation Capacity (MWh)





































2-  Find the historical average power consumption rate (real GDP / electricity demand) for Luzon. Real GDP figures were obtained from the Philippine Institute of Development Studies’ (PIDS) database.[17] The years 2010-2012 are considered for purposes of this analysis, given the availability of corresponding data on electricity demand for the said period. Meanwhile, data for electricity demand was taken from the Department of Energy’s (DOE) website for 2010-2012.[18] For both variables, data obtained or derived is for the island of Luzon. Given the lack of disaggregation by island group with respect to GDP, Luzon’s average contribution to real GDP for the said years is estimated by getting its average share for the years 2010-2012. Luzon’s share comes to about P4.36 trillion. Meanwhile, electricity demand for the 3 years has an average of 50.86 million MWh. Using the figures below, the power consumption rate is 85,692 GDP/MWh.


Philippines Readl GDP (in Pesos)

Contribution of Luzon to National GDP (%)

GDP Contribution of Luzon (in Pesos)
















Power Consumption (GWh)

Power Consumption (MWh)












3-  Multiply the power shortfall by the respective power consumption rate to obtain the estimated reduction in GDP, which results in around P81.63 billion, or 1.21 percent of 2013’s real GDP of about P6.8 trillion.

Power Consumption Rate (GDP/MWh)

Expected Power Shortage (MWh)

GDP Loss Estimate




[1] Gonzales, Iris, “Power Crisis Looms in 2015”, The Philippine Star, July 2014

[2] Linares, Pedro, Rey, Luis, “The costs of electricity interruptions in Spain. Are we sending the right signals?”, Economics of Energy, 2012.

[3] Mizobata et al., Power Shortage and Japan’s Economy, 2011

[4] Sourced from PIDS database

[5] Kovats, R.S., Hajat, S., Wilkinson, P., “Contrasting Patterns of mortality and hospital admissions during hot weather and heat waves in Greater London, UK”, Occupational and Environmental Medicine, Volume 61, Issue 11, June 2004

[6] Gronlund, Carina J., “Summer heat, hospital admissions and mortality among the elderly  in Michigan and the United States”, University of Michigan (dissertation), 2013

[7] Vaneckova, Pavla, Bambrick, Hilary, “Cause-Specific Hospital Admissions on Hot Days in Sydney, Australia”, PLOS One, February 2013

[8] Khandker, Shahidur R., Douglas, Barnes F., Samad, Hussain A., “Welfare Impacts of Rural Electrification: A case study from Bangladesh”, The World Bank, March 2009

[9] “In Sudan, Where There is Power, There is Development”, World Bank, February 2011

[10] “School by the Streetlight: Africa’s ‘Black Out’ kids seek the power of education”, Yahoo News, 2014

[11] “The Global Competitiveness Report 2013-2014”, World Economic Forum, 2013

[12] International Energy Consultants, “Regional Comparison of Retail Electricity Tariff Rates-Executive Summary”, June 2012

[13] Martin, Kathleen A., “Inflation seen rising to 5.5% in August”, The Philippine Star, August 2014

[14] Rivera, Danessa O., “ADB lowers PHL growth forecast in 2014, 2015 due to inflation, govt. spending”, GMA-News Online, September 2014

[15] Petilla, Carlos J.L., “Proposed Implementation Plan: Section 71-Electric Power Crisis Provision (EPIRA)”, House of Representatives, Quezon City, September 2014

[16] MW is converted to MWh by multiplying the required MW value per week by 168, which is the number of hours per week.

[17] PIDS data was obtained from the following link

[18] Power statistics were obtained from the following link