This is a special report by BusinessWorld last June 17 where I was one of the resource persons they have interviewed. Enjoy.
By Mark T. Amoguis
Senior Researcher
IN THE PHILIPPINES, one would have to get used to
brownouts, or the drop in voltage in an electrical power supply system. Whether
or not it is intentional, these outages have wide-ranging effects on the
economy: households would experience no electricity for a few minutes or even
for hours, causing great inconvenience; businesses would incur higher costs by
way of lost revenue and reduced productivity; and investors would be hesitant
to do business, leading to reduced investments.
The Luzon grid has had episodes of “yellow” alerts since
March due to high electricity demand outstripping supply as well as unscheduled
outages of power plants. The first yellow alert, which occurred on March 5, saw
peak demand for the day reaching 9,491 megawatts (MW) against the grid’s
available capacity of 10,115 MW with an operating margin at just 624 MW —
falling short of the required contingency reserve of 647 MW.
Thinning reserves reached a low when the National Grid
Corporation of the Philippines (NGCP) declared on April 10 its first “red”
alert notice as power demand in Luzon outstripped reserves following
unscheduled outages.
NGCP, which is the private firm that operates, maintains,
and develops the country’s transmission network, issues these alerts whenever
energy reserves are inadequate. The grid operator has several levels of reserve
energy that it uses to stabilize the fluctuating power demanded from the
electricity grid.
One, there is a “regulating” reserve, which is the
standard operating requirement to maintain a balance between available capacity
and system demand. This is ideally equivalent to around four percent of peak
demand.
On top of the regulating reserve, the NGCP maintains a
“contingency” reserve that it allocates to immediately cover the loss in supply
when the largest power generating unit online — usually at around 600 MW —
fails to deliver.
Lastly, the operator also maintains a “dispatchable”
reserve that is readily available to replenish lost contingency reserve.
A yellow alert notice is issued when the dispatchable
reserve is fully spent and the system is already tapping into its contingency
reserve. A red alert notice means both dispatchable and contingency reserves
are gone.
Based on NGCP notices, there were seven yellow alerts and
seven red alerts in April alone. In May, there were 13 yellow alerts and two
red alerts.
This number far outstripped the number of yellow alerts
in the previous years, according to consumer advocacy group CitizenWatch
Philippines’ “PowerPlant Watch.”
“Comparing this to previous years, we had only seven
instances of yellow alerts in 2018 and only three during the same period in
2017,” wrote Hannah Viola, convenor of CitizenWatch and energy fellow at
Stratbase ADR Institute, in her column in BusinessWorld titled “A Call for
Energy Transparency” published on April 9.
Bienvenido S.
Oplas, Jr., columnist for BusinessWorld, economist, and president of
Minimal Government Thinkers (MGT), noted in an e-mail interview the
Philippines’ power capacity as being “far out from many neighbors in East
Asia.”
Citing data from the Central Intelligence Agency’s World
Factbook, Mr. Oplas said the
Philippines, which has a population of at least 100 million, has a lower power
capacity per person compared to neighboring countries such as those of Vietnam,
Malaysia, and Laos at 2.1 times, 4.9 times, and 4.9 times, respectively.
LACK OF POWER PLANTS, DE-RATINGS
Industry players and analysts said this scenario could
have been avoided had there been more power plants available to compensate for
those undergoing unscheduled shutdowns or maintenance.
Data from the Department of Energy (DoE) showed there are
126 power plants in Luzon grid alone as of end-2018 with installed and
dependable capacities of 16,133.06 MW and 14,641.76 MW, respectively.
However, results of a study from the Energy Regulatory
Commission (ERC) released in May showed that up to 72% of these power plants
are at least 16 years or older, which may have contributed to the grid’s power
deficiency this year.
“Older plants require more frequent maintenance and
repairs and may be more prone to unscheduled outages,” Lawrence S. Fernandez,
Manila Electric Co. (Meralco) vice-president and head of Utility Economics,
said in an e-mail interview.
DoE Undersecretary Felix William B. Fuentebella said in a
separate e-mail interview that the occurrence of unplanned and forced outages
were considered in the DoE’s assessment of the 2019 summer supply and demand
outlook as well as the potential impact of El Niño.
“However, the simultaneous breakdowns were not expected
in spite of the preparation and availability of the interruptible load program
during the red alert statuses, which resulted in manual load drops,” Mr.
Fuentebella said, adding that the delays in the entry of committed power plants
“contributed to the limited capacities” in the Luzon grid.
Meralco’s Mr. Fernandez said they have noticed the demand
for power has been growing faster in the rest of Luzon compared to the Meralco
service area.
“However, it was really the unplanned and forced power
plant outages and the delayed entry of new generation capacity that caused the
alerts this year,” he said. “This thinning power supply, paired with rising
power demand, combine to create a less than ideal power situation.”
“I think the unforeseen factor there was the ‘old plants’
factor; just many of them went on unscheduled shutdowns,” MGT’s Mr. Oplas said.
A closer look at available data showed plants currently
online include those built way back in the 1940s and 1950s — plants whose
efficiency has eroded through the years.
Two of these plants are located in Luzon — the Caliraya
dam-type hydroelectric power plant (HEPP) and the Botocon run-of-river type
HEPP, both located in Lumban, Laguna. These plants were commissioned in the
early to mid-1940s.
Adding to the forced and unforced outages, the lack of
supply is also attributed to plant de-ratings, which happens when a power plant
is operating at less than its maximum capability in order to prolong its life.
“The current situation of our power plants and the
continuously rising demand suggest that it would be beneficial to our grid if
new capacities are built so more supply and reserves are available,” said
Meralco’s Mr. Fernandez.
For MGT’s Mr.
Oplas, the lack of new peaking power plants being built is also a concern.
These are power plants that are generally run when there is high demand or only
during peak times.
The economist explained there is little to no incentive
in putting up these peaking plants as they can only sell through the Wholesale
Electricity Spot Market (WESM), which has installed price caps to protect
consumers from excessive price spikes.
“There should be incentives for developers of peaking
plants that may be idle for nine to ten months per year, then running only for
a few hours per day on hot months… Even if they charge high, say five to ten
times the average WESM clearing price on certain hours, it’s still cheaper
compared to having massive blackouts, or the poor buying candles (and have more
fires) or the middle class and rich buying more generator sets (and have more
air, noise pollution),” he said.
“When demand is high during hot months, baseload and
mid-merit plants cannot deliver extra,” he explained.
Joe R. Zaldarriaga, Meralco assistant vice-president and
public information office head, said the government and power plant operators
should look into the causes behind these power plant outages and address them
accordingly.
“It would be best to explore ways of better operating, maintaining
and sustaining the various power plants and keep them running efficiently. The
government should also continue identifying projects of national significance,
like large power plants and transmission facilities, and help fast-track their
construction and operations,” he said in an e-mail.
DELAY IN POWER SUPPLY DEALS
According to DoE’s Mr. Fuentebella, common hurdles faced
by proponents in pursuing new power projects include “licensing/permitting
challenges” as well as access to financial packages.
For his part, MGT’s Mr.
Oplas noted the “thick, wide bureaucracies” in the local and national
levels when applying for a power plant project.
“[T]he whole thing would require 359 government
signatures, involving 74 agencies and bureaus, covering 43 different licenses
and contracts,” Mr. Oplas explained,
citing a September 2018 PowerPoint presentation of Senator Sherwin T.
Gatchalian, who chaired the Senate’s energy committee in the 17th Congress.
Meralco’s Mr. Zaldarriaga said for power projects, long-term
planning is crucial as the construction of a power plant, which includes the
permitting process takes more than five years to achieve.
Business groups have been calling for the construction of
power plants to ensure ample long-term supply of electricity. However,
hampering efforts is the delay in the approval of power supply agreements
(PSA), which is a bilateral agreement between a generation company and a
distribution utility for the purchase and supply of power.
A PSA is typically a critical milestone for power
projects as these are signed before construction of a power plant starts to
reassure banks that the plant will have ready buyers for its output.
The Supreme Court (SC) ruled last month that all PSAs
submitted by distribution utilities to the ERC on or after June 30, 2015, must
undergo what is called a competitive selection process (CSP).
CSP requires contracts between power generation companies
and distribution utilities to be subjected to price challengers, a process that
is aimed at lowering electricity cost.
The decision affected seven PSA applications that were
filed by Meralco that covered 3,551 MW. The contracts were signed on April 29,
2016, a day before the April 30, 2016 extended deadline set by the ERC.
The ERC promulgated CSP in November 2015 but had to
restate its effectivity date to April 30, 2016 through a resolution issued in
March 2016. It said the move was prompted by letter-inquiries from distribution
utilities and generation companies assailing the legal implication of the CSP
to existing power supply deals.
Meralco’s PSAs are with two subsidiaries of its unit
Meralco Powergen Corp., which is constructing power plants under subsidiaries
Atimonan One Energy, Inc., San Buenaventura Ltd. Co., and Redondo Peninsula
Energy, Inc.
The Atimonan project, whose PSA was filed in 2016,
consists of two ultra supercritical coal-fired power plants with a capacity of
600 MW each. It was originally expected to be completed by 2021, but has since
faced several regulatory issues. The company now looks to complete the project
by the fourth quarter of 2025.
Meralco also has a PSA with St. Raphael Power Generation
Corp., its joint venture with Consunji-led Semirara Mining and Power Corp.
Meralco is also seeking approval for PSAs with Central Luzon Premiere Power
Corp., Mariveles Power Generation Corp., Panay Energy Development Corp., and Global
Luzon Energy Development Corp.
The high court ruling is viewed as a mixed bag, according
to the sources interviewed by BusinessWorld.
DoE’s Mr. Fuentebella said the ruling is a welcome
development in the power industry.
“While ensuring transparency, competitiveness, and
reasonableness of the power supply cost, it will provide an opportunity to
enhance the power supply agreements between the generation companies and
distribution utilities that will eventually redound to the benefits of the
electricity consuming public,” Mr. Fuentebella said.
For MGT’s Mr. Oplas, it is more of a net negative as this
will further delay the construction of power plants.
“It is now 2019 and [the] SC wants to backtrack CSP
ruling to PSAs made four years ago? ERC and SC should focus on enforcing CSP
only to new PSAs,” the economist said.
Nevertheless, Meralco has said that they will respect the
SC’s decision.
“Meralco respects, honors and abides by the SC ruling on
[the CSP]. Moving forward, we will conduct CSP to ensure availability of
quality, stable and cost-competitive supply in the country,” Mr. Zaldarriaga
said.
“Meralco PowerGen, through its subsidiaries, will also
work with all the concerned parties and agencies to ensure that planned power
plants progress and to have these up and running as soon as possible,” he
added.
So far, there are 19 private sector-initiated power plant
projects in Luzon targeted to go online between this year and 2023, data from
the Energy department as of end-2018 showed. These facilities are expected to
have a combined committed capacity of 4,774.8 MW.
Meralco’s controlling stakeholder, Beacon Electric Asset
Holdings, Inc., is partly owned by PLDT, Inc. Hastings Holdings, Inc., a unit
of PLDT Beneficial Trust Fund subsidiary MediaQuest Holdings, Inc., has
interest in BusinessWorld through the Philippine Star Group, which it controls.
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See also:
Energy 124, US, Russia, Saudi oil production, May 03, 2019
Energy 125, Falling world oil prices, June 02, 2019
Energy 126, Oil prices now only $51+ per barrel, June 06, 2019
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