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Philippine consumers spend a large part of their household income on energy; the country's electricity tariffs are among the highest in the region. This situation has become even worse with recent oil price increases and is likely to continue in the short to medium term as the Government cannot influence high oil prices. The introduction of competition through open access and targeting existing subsidies can only reduce electricity tariffs in the medium to long term. The Government is focusing on increasing the use of indigenous renewable energy generation (such as geothermal, biomass, wind, and hydropower) and promoting energy efficiency to meet these challenges.
The Government recognizes that it alone cannot identify and finance the various energy-efficiency initiatives. Studies carried out by the Department of Energy (DOE) with assistance from the Asian Development Bank (ADB) demonstrate that by investing $46.5 million in energy efficiency, the Government could defer
$450 million of investments in new power plants, and save about $100 million annually in fuel cost.
The Project's purpose is to reduce the peak load power demand by implementing an energy-efficiency program, with particular focus on efficient lighting that will contribute to greenhouse gas reduction. Carbon credits will be sought following the methodology approved by the executive board of the Clean Development Mechanism. The Project is economically and financially sound with an economic internal rate of return of 99% and a financial internal rate of return of 206% compared with the weighted average cost of capital of 2.4%. For the CFL distribution component, the payback period is less than 1 year, making the investment cash flow positive in the first year. The economic and financial internal rates of return calculations do not include the value of Clean Development Mechanism credits generated by the Project.
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