* My article in BusinessWorld last Tuesday, February 24, 2020.
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Last week I attended three lectures. First the talk of
Fritz Ocampo, Chief Investment Officer of Banco de Oro (BDO), titled “The
Philippines: back on track” on the evening of Feb. 20 sponsored by the Rotary
Club of Rizal West (RCRW) and held at the Elks Club, Makati. I was invited by a
former clubmate, Past President Patty Michener. Then, on Feb. 20 and 21, media
briefings by the Independent Electricity Market Operator of the Philippines
(IEMOP) and Department of Energy (DoE), respectively.
Fritz is a dynamic guy who served as President of RCRW
and District Secretary of Rotary International District 3830 twice. He showed
rigor in his contention that projected GDP growth for 2020 will be 6.5%,
despite the COVID-19 scare and economic dislocations.
Nonetheless, I do not share Fritz’s and BDO’s optimism. I
think a GDP growth of 5.0% to 5.5% this year is more realistic. Consider these
two points: One, a decline in tourism revenues. The Department of Tourism and
the National Economic and Development Authority (NEDA) said the tourism
industry is projected to lose up to P23 billion a month due to the persisting
COVID-19 scare. Visitors from China reached 1.2 million in 2018 and probably
1.5 million in 2019. Many airlines, hotels, resorts, and shops are already
affected.
Two, there is already a growth deceleration trend from
2016. The COVID-19 scare has further dampened household consumption, private
investments, and net merchandise exports.
The IEMOP figures for peak demand do not consider yet the
effects of COVID-19 scare. Below are their numbers including the Effective Spot
Settlement Price (ESSP) for customers at the Wholesale Electricity Spot Market
(WESM). I added a column on GDP growth trend (see table 1).
I think the IEMOP peak demand projection of 14.19 GW is
high. Aside from lower GDP growth this year related to COVID-19 scare,
electricity demand is projected to be lower due to the current transition to La
Niña where we can expect more rain and colder temperatures.
The temperature anomaly (deviation from the average) for
the Niño 3.4 region — the widest, centermost part of Pacific Ocean — in hot
months are as follows, numbers in degrees Centigrade (C), data from Australia
Bureau of Meteorology (BOM):
March to July 2018: -0.6 to +0.5 C (cold to warm).
March to July 2019: +0.8 to +0.5 C (generally warm).
March to July 2020: +0.8 to -0.5 C (warm to cold).
Taken together, the projected demand can be slashed by
roughly 200 MW. This is shown under “Peak Demand B” below. We compare the
supply margin of the three hottest months April — June under two scenarios,
IEMOP’s and this paper’s. Peak supply 1 (PS 1) has an allowance for 1,200
reserves and it can aptly cover the projected margin by June of -67 MW.
If we take Peak Demand B scenario, the supply margin
under PS 1 is still a comfortable +133 MW but when the reserve is raised to
2,000 MW, the margin turns into a deficit (see table 2).
The DoE briefing focused on the Luzon grid and they
foresee potential “yellow alerts” for three weeks, from late May to mid-June
this year where the power supply will likely be below the contingency reserve.
DoE has lined up several measures to address potential
supply gaps. Among them: publishing the Grid Operating and Maintenance Program
(GOMP), increasing import from the Visayas grid, expanding NGCP transmission
from more power plants, getting more ancillary service contracts, resuming the
Interruptible Load Program (ILP), and power savings from the Energy Efficiency
and Conservation (EEC) program.
These are good moves but I don’t think they enough. We
need new peaking plants and not just old barges, and we need to remove the
disincentive of power price control, especially the secondary price cap at
WESM. I raised these during the open forum at the DoE press conference. The
Energy Regulatory Commission should realize that “cheap but unavailable” power
is more costly than “expensive for few hours but available” power.
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