BWorld 226, The EPIRA is working

* This is my article in BusinessWorld last June 25, 2018.

The Electric Power Industry Reform Act (EPIRA) of 2001 or RA 9136 was among the most important pro-market reforms in the Philippines. Before that law, the government-owned National Power Corporation (NPC) was the single-biggest debtor agency and the single-biggest deficit generator, fiscally bleeding the taxpayers while providing unreliable power supply.

EPIRA has significantly changed this, moving away from a state monopoly to a competitive sector with dozens of competing players in power generation alone. Competition can pressure price declines overall while improving electricity supply quality and reliability.

Yet many sectors still glamorize that dark era of state monopoly and endless fiscal deficits. They complain of “continuously rising” electricity prices and then blame EPIRA.

Electricity prices are rising, true.

And while they occasionally spike, the general trend is a price decline.

When prices look “unaffordable” for some, people should realize that the monthly electricity bill contains about a dozen items. These include generation, distribution, and transmission charges — the three costliest items — as well as supply, universal, system loss, and metering charges. The bill also covers VAT and feed in tariffs and so on.

After EPIRA was passed, focus was placed on the privatization of NPC power plants, not in the construction of new ones.

As a result, the country’s installed capacity has hardly improved, from 14.7 GW in 2002 to 15.1 GW in 2003, 15.6 GW in 2009.

Significant capacity additions occurred only in 2010 with 16.4 GW, then 2012 with 17.0 GW, then in 2014 with 17.9 GW, 2015 with 18.8 GW, big jump in 2016 with 21.4 GW then in 2017 with 22.7 GW.

These numbers show the following:

One, installed capacity from 1991 to 2001 — the decade before EPIRA — expanded twice but power generation expanded only by 1.8 times. This suggests low productivity and efficiency under the NPC.

Two, capacity from 2001 to 2011 (EPIRA’s first decade) has expanded only 1.2 times but power generation expansion was 1.8 times. This means the private owners of NPC-privatized power plants were more efficient in optimizing the capacity and efficiency of those plants.

Three, from 2011 to 2017 (last six years), power generation has expanded 1.4 times in lock step with installed capacity despite the fact that many capacity additions were from intermittent, unstable renewables with low capacity factors like wind and solar. This shows again higher efficiency and lower prices by private players.

Fast expansion in power generation means fast expansion in power consumption and electricity prices are more affordable so the people use more electricity. And this debunks the claim by anti-EPIRA groups that electricity prices are “continuously rising.”

AN INDEPENDENT MARKET OPERATOR, FINALLY

Meanwhile, this Monday, June 25 the Philippine Electricity Market Corporation (PEMC) will hold a press briefing after the PEMC annual membership meeting. The event will include the election of a new set of PEM Board of Directors and handover of market operations and governance functions from the DOE to the new PEM Board.

This will be a very significant event for two reasons.

One, the creation of the Independent Market Operator (IMO) as specified in EPIRA will become a reality after 15 years of foot-dragging by the DOE. Rules of the Wholesale Electricity Spot Market (WESM) were promulgated in 2002 and the PEMC was incorporated one year later. The PEMC was designated by the DOE as the Autonomous Group Market Operator (AGMO) in 2004.

Two, the PEMC will become a real independent market operator (IMO) and not a DOE-designated AGMO. Chairmanship of PEMC will be held by one of the WESM players and will not come from government. This will be a first time since PEMC was created in 2003 or after 15 years.

Under the previous administrations, it may be argued that the DOE partially violated the EPIRA because it made PEMC as government-dependent market operator. So now this anomaly will be corrected.

DoE will still have regulatory power over the IMO through the issuance of related Department Administrative Orders, Memo and Circulars, and via the Energy Regulatory Commission (ERC).

Bienvenido S. Oplas, Jr. is President of Minimal Government Thinkers, a member-institute of Economic Freedom Network (EFN) Asia.

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See also:

BWorld 216, Positive and negative disruptions in the electricity market, May 31, 2018 

BWorld 221, Mindanao power development, reality vs illusion, June 16, 2018

BWorld 223, Ease of setting up and closing down business, July 9, 2018 

BWorld 224, China mercantilism and US free trade challenge, July 10, 2018

BWorld 225, Anti-reason of Duterte’s anti-tambay order, July 11, 2018

BWorld 210, Electricity competition, EPIRA, and WESM

* This is my article in BusinessWorld last week, May 09, 2018.

Last Monday, I discussed business competition in general and the role of the Philippine Competition Commission (PCC).

The theme will be continued in this piece and it will discuss electricity competition in particular, especially after I was able to interview PCC Chairman Arsenio Balisacan, the CEO of the Philippine Electricity Market Corp. (PEMC) and Chairman of Transition Committee Oscar Ala and PEMC Spokesperson Atty. Nino Juan.

The Electric Power Industry Reform Act (EPIRA) of 2001 or RA 9136 has drastically liberalized the Philippines electricity sector with at least three important provisions: (1) deregulation and demonopolization of the power generation sector, (2) creation of the Wholesale Electricity Spot Market (WESM), and (3) liberalization and demonopolization of electricity distribution via Retail Competition and Open Access (RCOA).

With these and other provisions of EPIRA, the questions to ask, among others would be:

(1) Were there many private generation companies (gencos) that entered the market competing with each other?

(2) Were there many retail electricity suppliers (RES) that entered the market competing with each other?

(3) Were there many players, gencos and distributors, that use the WESM spot market competition? And more importantly, (4) Have electricity prices for consumers gone down?

The short answer is YES to all four questions.

For gencos for instance, before EPIRA, the National Power Corp. (Napocor) was the state-owned power generation monopoly, which also incurred huge losses and public debts for many years.

As of April 2018, there were 113 gencos in the Luzon-Visayas grid alone and all of them are WESM participants. Excluded are gencos in the Mindanao grid which is not part of WESM yet. Of these 113 gencos, five players have become more efficient and more moneyed than others, except perhaps the government-owned Power Sector Assets and Liabilities Management Corporation (PSALM), which still owns previous Napocor-owned power plants, mostly hydro facilities in Mindanao and the Malaya plant in Rizal.

For retail competition, the number of contestable customers (CCs) or those with monthly peak demand of 750 KW or higher and have the freedom to pick their own service providers — such as electric cooperatives (ECs) and private distribution utilities (DUs) — have increased. RCOA implementation however, has been issued an indefinite TRO by the Supreme Court in February 2017 and this resulted in a decline in number of CCs.

Here are the numbers for comparative electricity prices that include two types of customers, the captive market (small consumers who must stay with their DUs or ECs) and contestable market (they can leave their DUs or ECs and choose their own RES).

Contestable customers are able to enjoy lower average prices, P6.91/kWh, than captive customers that pay an average price of P7.78/kWh.

So there you see it.

Despite the noise created by certain sectors that EPIRA and WESM are not working, which leads them to call for a return to the old scheme of nationalization, these data show that indeed electricity competition is working.

It is true that Philippine electricity prices in general remain higher than most of our neighbors in the region but that is because of other factors like (a) many taxes especially the high VAT of 12% applied in all parts of the electricity supply chain, from generation to transmission, distribution and supply, even the system loss; (b) many charges in our monthly electricity bill including universal charge, system loss charge, feed-in-tariff (FiT) for favored renewables.

The transition of PEMC, the market operator of WESM, into a real Independent Market Operator (IMO) as explicitly specified in EPIRA may soon become a reality.

As a result, there will be no more government energy agencies and bureaucracies at the PEMC Board. Good work, PEMC Transition Team.

----------------

See also:

BWorld 205, Energy mix and wishful thinking, April 30, 2018

BWorld 207, Fare control and surge cap are wrong, May 10, 2018 

BWorld 208, Consumer choice in electricity supply and prices, May 11, 2018 

BWorld 209, Is the PCC a facilitator or a hindrance to business competition? May 15, 2018

BWorld 193, TRAIN, inflation and emerging DOE price control

* This is my column in BusinessWorld on March 5, 2018.

More countries are reporting their January 2018 inflation rate and it is becoming clearer that majority of them have reigned in the inflationary pressure of the big rise in world oil prices. West Texas Instrument (WTI) prices, for instance, rose from $43.2/barrel in 2016 to $50.9/barrel in 2017, and $63.7/barrel in January 2018.

Of the 13 major Asian economies in the table, 10 have experienced a decline in their inflation rate compared to their December 2017 level and only three, including the Philippines, have experienced an increase. But the rise in the Philippines was big 0.7 percentage points (see table).

The big question is: Why is the Philippines the outlier in Asia in inflation rate movement?

The proximate reason is the recent tax law, RA 10963, known as the Tax Reform for Acceleration and Inclusion (TRAIN). The cut in personal income tax was good, but it was more than negated by the tax hike in oil and other commodities — coal, sugar beverage, etc. The anticipated pass-on effects of such tax hikes should be big.

How about Japan, which experienced a 0.3% point increase? There are two possible explanations.

One, it is experiencing a re-inflation trend after deflation in 2016 of -0.1%, then 0.5% in 2017. Two, it has a tax reform bill in 2018 that includes a 15% tax credit for corporations if their workers have higher pay of at least 3%, and if domestic investment in depreciable assets is equal to or more than 90% of depreciation. This means there will be expected higher household consumption due to higher salaries for workers and managers, and higher re-investments.

TRAIN’S IMPACT ON ELECTRICITY PRICES

The effect of TRAIN on electricity prices would be felt in four avenues.

1. Oil tax hike (for peaking plants in WESM), about 1 centavo/kWh.

2. Coal tax hike (P10/ton to P50/ton in 2018), another 1 centavo/kWh.

3. VAT application on electricity transmission charge, about 6-7 centavos/kWh.

4. Rise in universal charge (a big hike in electricity cost for many islands and provinces running on gensets/oil, subsidy passed on nationwide), perhaps another 1 centavo/kWh.

Sources for the first three points are Meralco as reported in the papers.

EMERGING DOE PRICE CONTROL

Last January, the Department of Energy (DoE) directed all distribution utilities (DUs) to require their power suppliers, the generation companies (gencos) to explain any additional charges that will arise from TRAIN.

Then last February, the DoE suggested that gencos should absorb the initial cost of higher oil and coal taxes. Meaning there will be no pass-on to the consumers. This was never done before.

In addition, the DoE also mandated the oil companies extend subsidies to public utility vehicles (PUVs) as a “cost cushioning mechanism.” This is another no pass-on policy.

These are price control measures. These are ugly policies to make the ugly tax hikes under TRAIN appear “less ugly” and “non-inflationary.”

TRAIN DOUBLE TALK

The architects and apologists of TRAIN are confused and are engaged in double-talk.

First, they make cheaper oil and coal become expensive, then deny the potential big inflationary pressure of such a measure.

Second, when inflationary pressure is higher than their projected and concocted figures, they blame speculators and not the law that created speculation.

Third, TRAIN exhibited favoritism and cronyism for renewable energies (REs) like wind-solar because their feed-in-tariff (FiT) revenues from WESM, then FiT-All, were again exempted from VAT. Natural gas is also fossil fuel but TRAIN did not slap it with excise tax, only oil and coal.

Fourth, TRAIN’s architects deny that additional revenues were largely meant to favor Chinese contractors and suppliers because many big projects that were already under the integrated PPP were reversed and put under “hybrid” PPP to be financed by ODA and foreign loans from China.

Fifth, they now propose price control measures in energy and other sectors to make TRAIN look “less ugly” and “non-inflationary.”

The Communist Party of China and Xi Jinping’s “thoughts on socialism” could be a rising influence in the economic and energy policies of the Philippines. This is wrong.

The Philippines should stay the course of more market reforms, not more state interventions and taxation. China’s communism and dictatorship is a lousy “model” that should never be entertained by the Philippines and other developing economies.

Bienvenido S. Oplas, Jr. is President of Minimal Government Thinkers, a member-institute of Economic Freedom Network (EFN) Asia.

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See also:

BWorld 188, Estimating electricity price hikes resulting from TRAIN, March 10, 2018.

BWorld 190, TRAIN, inflation and the stock market, March 15, 2018 

BWorld 191, Solar insecurity, energy stability and affordability, March 15, 2018 

BWorld 192, Cobalt mining and TRAIN, March 16, 2018

BWorld 184, ERC paralysis and implications for consumers

* This is my article in BusinessWorld last February 01, 2018.

Despite a significant increase in the Philippines’ power generation capacity in recent years, the country’s installed capacity and electricity production remains small compared to the ASEAN-6 and North East Asian neighbors.

For instance, its installed capacity of 21.2 gigawatt (GW) in 2016 was what Vietnam has about 10 years before. Vietnam now has twice the Philippines’ installed capacity (see table).

A reliable and stable supply of energy results in economic development.

More power plants mean more electricity generation; more electricity generate will mean more competition for power supply and hence, lower electricity prices for the consumers.

However, an unfortunate turn of events might prevent the Philippines from realizing this both in the short- and medium-term. The Ombudsman has issued a one-year suspension for four of five Commissioners of the Energy Regulatory Commission (ERC) last Dec. 21, 2017.

The officials were charged with violation of Republic Act No. 3019 (Anti-Graft and Corrupt Practices Act) in connection with the revised implementation date of the competitive selection process (CSP). The Ombudsman also said the suspended officials favored a few power supply contracts.

With only one Commissioner — Chair Devanadera — allowed to work, here are some of the serious implications and problems.

1. No deliberations and resolutions on applications for approval of power supply agreements (PSAs) and projects for transmission and distribution by the National Grid Corporation of the Philippines (NGCP), distribution utilities, and electric cooperatives. An estimated P1.588 trillion worth of energy-related projects and capital outlays would be affected.

2. The inability to act on petitions for rate adjustments and pass-on charges; consumer complaints, violations of industry players of existing laws and regulations.

3. Non-issuance or renewal of certificates of compliance (CoC) or provisional authorities to operate power plants.

4. The inability to award procurement contracts, like the ERC meter seals and stickers being placed on electric meters of the distribution utilities, among others.

With these problems, among the solutions would be the following:

1. The President should appoint OIC Commissioners to temporarily act on behalf of the four suspended officials until the suspension order has lapsed in late December this year and the suspended officials will be back in office.

2. Despite ERC paralysis, DoE will allow or accredit players with expiring or pending CoCs to operate and trade at the Wholesale Electricity Spot Market (WESM). The required ERC approval of CoCs will resume only when there is quorum already at the Commission. DoE Secretary Cusi said that “about 26 generation companies with a total of 3,314.60 MW generating capacities have expired or have expiring CoCs in 2018… Additional new capacities of at least 720 MWs are also expected to go into commercial operation within the next few months. If not allowed to participate in the WESM, the available electricity supply in the market will be curtailed, which can result in higher market clearing prices.”

4. DoE should also be able to accredit or renew Retail Electricity Suppliers (RES) with pending or expiring licenses, until the ERC paralysis is resolved.

Several government branches and constitutional bodies must always put in mind the welfare of the consumers. The inflationary pressure of TRAIN law (higher oil prices, higher coal generation prices, among others) is already mounting.

The “vested interest” of consumers — cheaper, competitively-priced, and stable energy supplies — should prevail over vested interests of politicians and regulators. There should be more power generation companies and power plants, more electricity distributors and retailers — all competing with each other to meet the consumers’ “vested interest.”

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See also:
BWorld 178, Top 8 energy news of 2017, January 14, 2018 

BWorld 181, Effects of Supreme Court TRO on RCOA, January 22, 2018

BWorld 182, Asia Liberty Forum 2018 in Jakarta, January 31, 2018 

BWorld 183, Why low or zero income tax can mean more development, February 09, 2018

BWorld 155, Electric cooperatives and system loss

* This is my article in BusinessWorld last Friday.

Three news reports published by BusinessWorld during the past few days indicated that the energy sector in the Philippines and its several neighbors is becoming more efficient, market-oriented, and less bureaucratic. These news articles were (1) “ERC declines to intervene in 4 Meralco power deals” (Sept. 20), “DoE says no plans to extend FiT for biomass, river projects” (Sept. 26), and “Malaysia, Thailand, Laos to sign energy-trading deal” (Sept. 26).

The first article says that the Energy Regulatory Commission (ERC) is upholding its own rule to stop intervention after a deadline for petition against any power supply agreement (PSA) has been met.

The second one says that the Department of Energy (DoE) will not extend the feed in tariff (FiT) or guaranteed high price for renewables for 20 years, for undersubscribed biomass and run of river hydro power. This move will protect electricity consumers from further high electricity prices.

The third story says that electricity trading in the three countries mentioned will mean greater power stability and more price competition among power producers. This is like expanding our Wholesale Electricity Spot Market (WESM) from national to regional trading.

To add to this list of positive news, it has also been reported that power transmission and distribution in the region have become more efficient, cutting down on system losses.

Within a decade, the Philippines, for instance, has managed to chop system losses from 12.9% to 9.4% of electricity output, an efficiency gain of 3.5% (See table).

Source: WB, World Development Indicators, Database 2017.

Based on the table, economies with low system losses have high electricity consumption per capita, except Hong Kong. And vice versa, countries with high system losses of at least 9% tend to have low per capita electricity use.

And this implies that the technology and administrative processes to bring down system losses are generally correlated with the wealth and industrialization of an economy.

There are several attempts both in Congress and the ERC to significantly reduce the distribution system loss by distribution utilities (DUs).

The ERC Draft Rules intend to make high consideration if not outright favoritism of many electric cooperatives (ECs) by giving them (a) high technical loss (mainly conductor loss and no load loss) cap of 5.5-7.0%, (b) high cap on nontechnical loss (illegal connection, direct theft, meter error, billing irregularity) of 4.5%, total of 10-12.5% distribution system loss that can be passed to consumers. In contrast, (c) private DUs will be forced to have a low technical loss cap of only 2.75%, and low nontechnical loss cap of only 1.25% or total of only 4% distribution system loss by private DUs.

This is not a good plan for the following reasons.

One, it institutionalizes a double-standard. Favoring ECs and allowing them to remain wasteful and pass the additional cost of high system loss to the consumers vis-a-vis strict monitoring of private DUs and disallowing them to pass high system losses charges to their consumers.

Two, it does not pressure or discipline the ECs and force them to become more efficient in cutting their system losses. As a result, it is not possible to bring down the system loss to the levels of Thailand, Malaysia, China, Japan, Singapore if this attitude and policy is further adopted.

Three, it does not push many inefficient ECs to be corporatized, to behave like many private corporations that are forced by SEC regulations to be more transparent.

Four, it remains silent on transmission system loss of the sole grid operator, the National Grid Corp. of the Philippines (NGCP).

Government through the ERC should create rules that apply to all players — ECs in the provinces and private DUs in big urban centers — no exceptions or favoritism, and give consumers further reduction in overall electricity prices.

Forcing both provincial ECs and private DUs to have low system loss at uniform rates is consistent with enforcing the rule of law, consistent with encouraging more competition, consistent with the spirit of EPIRA law of 2001.

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See also:

BWorld 152, Cronyism in Renewable energy, gas sectors? September 23, 2017 

BWorld 153, Property rights, trademarks and consumer protection, September 30, 2017 

BWorld 154, Kuala Lumpur, Incheon, JFK airports and lessons for the Philippines, October 01, 2017

Transport Econ 21, E-trikes halted, P455k each

See these news reports about this weird "more tricycles to save the planet" ADB loan.

From the MB report,

“For the e-trike, I already cancelled the loan – supposedly the funding for 100,000 e-trikes. But for the 3,000 units, since bidding was done and units were already produced by the winning supplier, we’ll go ahead with that – so the canceled loan portion should just be for the 97,000 units,” he explained.

The energy department, under the past administration, had just been looking at a price point of R150,000 to R200,000 per e-trike, but unfortunately, the cost subsequently swelled to R250,000 per unit.

From Malaya ‘ too expensive’ report,

Last February, Bemac Electric Transportation Philippines Inc., a unit of Uzushio Electric Co. of Japan won the contract to build 3,000 electric trikes worth $30 million.

An e-trike costs $10,000 or P500,000 half of which is the cost of battery.

Ordinary tricycles cost from as low as P60,000 for second-hand units and upward from P150,000 for the better quality products.

The e-trike then costs three times more than the ordinary tricycle.

In comparison, new branded vehicles used in ferrying passengers start from P800,000 and they can be bought on instalment with low rates.

  

From Malaya ‘scaled down’ report,

This time, the e-trike project would involve only 3,000 units of e-trikes from the original plan of  100,000 and the cost is significantly slashed from P21.672 billion to P1.73 billion.

The e-trike project was part of the original $504 million e-vehicle project plan jointly funded by the ADB, the Clean Technology Fund (CTF) and the government as part of efforts to jumpstart the energy-efficient electric vehicles industry in the country by producing 100,000 units of electric vehicles.

From the $504 million, ADB was supposed to shoulder $300 million while CTF will provide $105 million and the remaining $99 million from the government.

From Philstar report,

In an annual audit report recently published on its website, the COA stated that as of Dec. 31, 2016, only P77,791,419.85 or 0.35 percent of the total project cost of P21.672 billion ($504 million) has been disbursed.

Of this disbursed amount, only P14,398,023.17 was allocated for project implementation activities, while P63,393,396.68 was for the payment of commitment charges and interests incurred due to the project’s delayed implementation.

The COA said the sustainability of the project is now “in jeopardy” as the cost per unit of the e-trikes has already increased from around P250,000 to currently around P455,000.

The COA pointed out that this would be “very costly for the local tricycle drivers who will be required to pay the same over a period of five years.”

In its reply letter, the DOE management informed the COA that the National Economic and Development Authority Investment Coordination Committee (NEDA-ICC) has approved the DOE’s request for the cancellation of at least $359.76 million worth of ADB loans for the E-Trike Project.

DOE Sec. Al Cusi made a good decision in cancelling a big portion of this very lousy, very costly project. We have to pay the commitment fee and save us nearly P21 B.

At P455k per e-trike, one cannot even go safely from QC to Las Pinas and back. If battery power runs out due to distance and traffic, there is nowhere to charge for at least 3 hours. Better buy a 2nd-hand car, good running condition with air-con, one can drive up to Baguio, Ilocos or Bicol and back safely.

This $400-M e-trikes loan to help 'save the planet from fossil fuel' is a stupid program. Its main function will only be to further expand institutional robbery via loans-then-taxes of Filipino taxpayers.

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See also:

Foreign Aid 14: ADB's Electric Tricycles, April 07, 2012 

Foreign Aid 17, ADB's costly e-tricycles loan, February 19, 2016

FAT-FREE ECONOMICS: Foreign aid, public debt andtricycles, April 12, 2012

Transport Econ 18, E-tricycles in Manila, October 11, 2016 

Transport Econ 19, On taxi fare contracting, December 17, 2016 

Transport Econ 20, On traffic and road sharing, January 20, 2017

BWorld 125, On the retail competition and open access (RCOA) and EPIRA

* This is my article in BusinessWorld on April 19, 2017.

Electricity distribution, unlike generation, is defined as a “public utility” and hence, is granted as a monopoly right via congressional franchise. There are more than 120 distribution utilities (DUs) such as Meralco and electric cooperatives.

To dilute this monopoly, the Electric Power Industry Reform Act (EPIRA) which was passed in 2001 came with Section 31, Retail Competition and Open Access (RCOA) that “shall be implemented not later than three (3) years upon the effectivity of this Act,” and Section 29, Supply Sector, “The supply of electricity to the contestable market ...” These are useful, anti-monopoly provisions, thanks to EPIRA.

The RCOA was finally implemented 12 years after, on June 26, 2013. The Department of Energy (DoE) and the Energy Regulatory Commission (ERC) issued orders to implement this beautiful provision.

But somewhere along the way, what should be a competitive scheme has become a “mandatory” order.

Some electricity consumers are unhappy because their choice to stay with their DUs -- especially if these provide them good service and prices -- has been done away with. This is why they went to the Supreme Court (SC) and asked for a Temporary Restraining Order (TRO) against the RCOA.

Below is a summary of these orders (one from DoE, four from ERC, and one from the SC).

The SC TRO has mixed signals. It is good because (a) it stopped the “mandatory migration” to RES by contestable customers (CCs) and thus, they have the option to stay with their DUs or not, and (b) local RES will be allowed again. But it can also be bad because (a) it stopped the voluntary participation of CCs for 750kW (lowered threshold), and (b) some ERC Resolutions suspending earlier prohibitions to Retail Electricity Suppliers (RES) are also removed.

Government prohibitions should be kept to the minimum as much as possible.

These prohibitions would give people -- especially those with very low technical and financial capacities -- the right to become RES which might invite abuse of CCs.

Such prohibitions should not include more RES players, the right of CCs to stay with their DUs or not, and voluntary participation of customers at 750kW.

EPIRA has provided for more customer choices, strengthened consumer empowerment, and demonopolization of electricity generation and distribution. Let this spirit stay in the succeeding orders of the DoE and the ERC.

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See also: 

BWorld 122, Six more myths in the mining debate, April 13, 2017 

BWorld 123, Drug-related murders and criminal justice in Asia, April 23, 2017 

BWorld 124, On Grab, Uber, traffic and LTFRB, May 05, 2017

BWorld 117, Energy bureaucracy, electric cooperatives and NEA

* This is my article in BusinessWorld last March 08, 2017.

The Philippines experienced a seemingly energy revival in 2016 and 2017 with plenty of new power plants commissioned and running. Mindanao experienced an energy surplus after many years of frequent involuntary “Earth hours” or almost daily blackouts lasting for many hours.

So it is ironic that while new power capacity were added into the grid, Luzon including Metro Manila, still incurred occasional “yellow alerts” in power supply. This indicated near-brownout situations that took place a few weeks ago since several power plants went offline all of a sudden, coinciding with maintenance and repair shutdowns that were scheduled ahead of time.

Some groups blame “collusion” of some generating companies (Gencos) to stage an artificial power deficiency and thus, command higher prices for several hours on those “yellow alert” situations. However, they offer little proof and numbers to back up this claim.

For me, the more plausible and visible cause is the undeclared “collusion” of various groups including many government agencies and environmentalist groups to delay if not stop the installation of more power capacities to have huge reserves that can (a) cover even huge unscheduled power shutdowns and (b) bring down electricity prices further as a result of intense competition. See table below as proof.

With only 700+ kWh/person/year in 2014, that puts the Philippines slightly higher than the electricity use of poor neighbors Cambodia and Myanmar, and only half the electricity consumption of Vietnam, 1/4 that of Thailand, 1/7 that of Malaysia and 1/13 that of Singapore.

Last Friday, March 3, I attended the forum on “Institutionalizing Energy Projects as Projects of National Significance” by Sen. Sherwin Gatchalian, Chairman of the Senate Committees on Energy and Economic Affairs, sponsored by the Energy Policy Development Program (EPDP) held at the UP School of Economics (UPSE) Auditorium.

The three reactors were Dr. Ronald Mendoza, Dean of the Ateneo School of Government, Dr. Alan Ortiz, President and COO of SMC Global Power Holdings Corp., and DoE (Department of Energy) Undersecretary Jesus Posadas.

The senator recognized the problem of low power capacity of the Philippines in general, and some big islands in particular. There are many big committed and indicative power plants lining up but they often encounter bureaucratic delays.

A paper, “An analysis of time to regulatory permit approval in Philippine electricity generation” (2016) by Laarni Escresa of EPDP showed that on the average, power plant operators need to secure 162 clearances (MBC, 2014) and 102 permits.

So the Senator’s bill will prioritize these big power plants (P3.5B or higher in capitalization) for faster approval process. For instance, agencies are given 30 days to check the documents submitted; if they fail to act on time, it is deemed that the papers are approved and permits be automatically granted.

Alan Ortiz mentioned something that’s somehow a shocking figure: Boracay’s electricity needs rose from 8 MW just 10 years ago to 100 MW today. From 8 to 100 MW in just 10 years -- that’s a lot.

Undersecretary Posadas gave a good assurance that the DoE is “agnostic” on the source of energy (renewable or not) and want to see more power plants coming in. He also said that the DoE will no longer issue a 3rd round of feed-in-tariff (FiT) for wind-solar. Good announcement.

Another factor that contributes to uncertainties in power generation are those inefficient and losing electric cooperatives (ECs). They just get power from the Wholesale Electricity Spot Market (WESM) and distribute to their customers and do not pay the many Gencos that happened to supply their electricity needs.

From the Philippine Electricity Market Corp. (PEMC), here are the top three market participants or players which have unpaid energy settlement Amounts at WESM as of Feb. 27, 2017:

(1) Albay Electric Cooperative, Inc. (ALECO) P98.59M, (2) Abra Electric Cooperative (ABRECO) P63.97M, and (3) AP Renewables, Inc. P14.38M (source: http://bit.ly/unpaidwesm).

The numbers above exclude the unpaid amount of ALECO in their Special Payment Agreement with PEMC amounting to nearly P1B.

The National Electrification Administration (NEA) does not seem to properly discipline certain ECs under its belt. To have an old debt of nearly P1B and new debt of nearly P100M from one EC alone (Aleco) should be a red flag indicator that this type of prolonged and sustained inefficiency and losses have been tolerated.

The NEA should step back from this and other problematic ECs and force them to corporatize and be subjected to bankruptcy laws under the Securities and Exchange Commission (SEC).

The Philippines and its electricity consumers need stable and cheap electricity. They do not need the burden of being dependent on ECs that lose money and are unable to pay generation companies that further add uncertainties to bureaucratic delays.

Bienvenido Oplas, Jr. is the president of Minimal Government Thinkers and a Fellow of SEANET and Stratbase-ADRi.

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See also:

BWorld 111, Electric cooperatives and unstable power supply, March 01, 2017

BWorld 114, Brownouts, ancillary services and transmission charge, March 23, 2017 

BWorld 115, Centralization and federalism, March 23, 2017

BWorld 116, Urban transport myths and the jeepney strike, March 28, 2017

BWorld 111, Electric cooperatives and unstable power supply

* This  is my article in BusinessWorld last February 08, 2017.

Almost everything we do now requires energy and if we stay in non-mobile structures like buildings and houses, everything requires electricity. Energy precedes development so unstable and expensive energy means unstable and poor economy.

Given the technological revolution the world has experienced in recent decades, it remains a tragedy that many countries still have low electrification rates and very low electricity consumption per capita.

Unfortunately, the Philippines is among those countries with still not-so-high electrification rates until today and its electricity use is among the lowest in the ASEAN (see table).

Electricity consumption in kWh per capita is high for the following developed and emerging Asian economies: Taiwan, 10,460; South Korea, 10,430; Brunei, 9,550; Singapore, 8,840; Hong Kong, 5,930; Malaysia, 4,470 (6.5x of PHL); China, 3,770; Thailand, 2,490 (3.6x of PHL). These countries and economies also have 100% electrification rate except perhaps China.

There are two reasons why the Philippines has a relatively low electrification rate and low per capita electricity use.

First is due to its archipelagic geography.

Many municipalities and villages are located in islands that are off-grid and, as a result, their residents rely on biomass like firewood for cooking and gensets running on diesel for lighting although some do use solar.

Second is due to politics.

There are not enough base-load power plants that can provide electricity 24/7 even in major islands like Luzon and Mindanao. This is because of political opposition by certain groups to cheap and stable fossil fuel sources like coal. Also, there are many bureaucracies (national and local) that discourage the quick construction and commissioning of new power plants. There are also weak, inefficient, and even corrupt electric cooperatives (ECs) that are given monopoly privileges to serve certain provinces and municipalities.

There are 119 ECs in the country from Luzon to Mindanao plus private distribution utilities like Meralco and those in PEZA/ecozones. All ECs are supervised and regulated by the National Electrification Administration (NEA).

Of the 119 ECs, some remain financially weak and problematic until today, like the Abra EC (ABRECO) and Albay EC (ALECO). These two ECs are so deep in debt they are unable to provide stable electricity to their customer-members and have arrears with power generating companies (gencos) that supply them electricity at the Wholesale Electricity Spot Market (WESM).

According to National Electrification Administration (NEA), from 2004 to 2014, it has released subsidies to ABRECO worth P56.6 million for the implementation of the Sitio Electrification Program (SEP), Barangay Line Enhancement Program, and its procurement of a modular generator set.

For ALECO, it was badly managed and was on the brink of bankruptcy that local business and political leaders proposed and supported its corporatization and take over by more established energy players.

In January 2014, ALECO was acquired by San Miguel Energy Corp.’s subsidiary Global Power Holdings Corp. (SMC Global) and renamed it as Albay Power and Energy Corporation (APEC). ALECO then was the first EC in the country that was corporatized.

Upon takeover, SMC Global and APEC inherited a P4-billion debt by ALECO including overdue payments at WESM of nearly P1 billion.

More than two years after the takeover, the debt ballooned to P5.6 billion, mainly due to low collection efficiency. APEC said its database of customers has been sabotaged since about 80% of its customers are not on the database.

APEC resorted to disconnecting some big customers that do not pay but disgruntled ALECO employees and officers have resorted to reconnecting them.

The ball and accountability is in the hands of NEA. Why are these things allowed to continue for years, to the detriment of paying customers and generation companies that are not paid on time.

In 2015, NEA reported that it lent a total of P2-billion loans to 51 ECs to finance their capital expenditure projects, rehabilitate their power distribution systems, among others.

NEA should perhaps consider slowly stepping out of the sector and push all the ECs to move towards full corporatization with full exposure to expansion or bankruptcy. The sector that needs protection should be the electricity consumers, not the ECs.

Consumers should be protected from expensive and unstable electricity as well as disconnection because the DU or EC has been disconnected by gencos and WESM for huge unpaid accounts.

The NEA, along with other government agencies in the energy sector, should look at the above table again, and try to find out why our electrification rate and electricity use are at the level of Pakistan and Mongolia instead of at the level of Thailand, Vietnam, and Malaysia.

Bienvenido Oplas, Jr. is the President of Minimal Government Thinkers and a Fellow of SEANET and Stratbase-ADRi.

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See also:

BWorld 108, Rising feed in tariff (FIT) due to more wind-solar power, February 06, 2017 

BWorld 109, Asians' march to liberty and progress, February 16, 2017 

BWorld 110, Should we go federal or not? February 19, 2017

Energy 89, DOE not concurring with PH's Paris agreement, good

Some PH Senators declared that the Senate will ratify the Paris Agreement of more expensive, unstable electricity "to save the planet" even if the DOE did not concur with it. Portion of the report said, "32 of the 33 agencies having already submitted their certificates of concurrence to Malacañang."

(Phl to ratify Paris climate pact in July, Philippine Star, January 10, 2017)

The agency or department that did not concur with the PH (actually CCC) commitment to the Paris Agreement is the DOE, thanks Sec. Cusi.

“In the Cabinet, officially I have the only department that has not concurred in the ratification of the climate [pact].”

“I cannot concur on the ratification of the climate change [pact] because that can be used against DoE in approving the kind of power plants that we are going to have,” he said.

Mr. Cusi said the country’s pledge to cut carbon emissions by 70% means reaching a level that has already been met -- in 2015.

“What does it mean? Wala na tayong gagawin [We can’t do anything],” he said, referring to curtailing the country’s development."

(Energy department calls for foreign funding of global warming measures, BWorld, Dec. 12, 2016)

Many big countries like the US, Germany, UK, have not ratified their Paris commitment. Those who ratified are mostly small countries. $100 B a year of climate money transfer from developed to developing countries has become a huge extortion project that will produce huge disappointment from beggar countries. Almost ALL developed countries are already heavily indebted, they have huge public debts, don't have enough money for their own citizens. And they will give away huge money to developing countries, many of whom are led by despots and corrupt leaders, will not happen.

The degree of climate extortion varies. While the "consensus" is $100 B a year starting 2020, some UN officials and planet saviours want $500 B a year. Less flood or no flood or more floods; less snow, no snow or more snow, that money should be given to them.

As for energy prices, Meralco generation charges for Sept-Oct-Nov 2016 below. All these power plants are using coal and nat gas, except TMO, a peaking plant that uses oil. WESM prices are cheap, down to only P2.54/kWh last Nov. Which means FIT Allowance will be high so that pampered solar and wind plants at P8 to P10+ per kWh will remain "viable" through expensive electricity imposed on all energy consumers nationwide.

Sec. Cusi's energy realism should be supported against energy alarmism by other agencies and groups.

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See also:
Energy 86, Germany's RE on a wild ride, December 30, 2016 

Energy 87, Europe's rising electricity prices as more wind and solar are added, January 03, 2016 

Energy 88, Letter to ERC re petition by 3 wind companies for higher FIT, January 10, 2016

Energy 84, CCC's anti-coal, anti-fossil fuel lobbying

The Climate Change Commission (CCC) was created mainly to echo the UN FCCC agreements and lobbying. They may deny this of course but from its activities and advocacies, they point to this fact. Look at its target -- "Survive 1.5 C" -- referring to the UN target of targeted allowable global warming by 2100 compared to pre-industrial levels.

Some of more ridiculous documents by the UN FCCC project up to 7.5 C global warming by 2100. Wow. The modern warm period (from mid-1800s to 2000s) after the little ice age (LIA) produced a warming of only 1.0 F or 0.7 C in the planet. Plateau in overall global temperature, we are moving to a global cooling phase, actually.

Anyway, the CCC organized a “Forum on National Policy Review and Framework Development on Energy” last week November 22 at Sofitel Philippine Plaza, CCP Complex, Pasay City. A friend told me about this and CCC invited some energy players in the country.

The CCC launched the "National Policy Review (NPR) and Framework Development on Energy" last June 16, 2016. The November 22 Forum was part of a series of multi-stakeholder consultations to review the country’s energy policy and develop a policy framework on energy related to CCC Resolution No. 2016-001.

Get that, CCC plans to somehow duplicate if not overrule the DOE in setting the country's energy policy. The CCC is firm on anti-coal, anti-fossil fuel ideology while the DOE wants to increase the country's energy capacity from as many power sources as possible, coal + oil plants + nat gas included.

The next day, November 23, there was a big business conference also at Sofitel on how to "low carbon economy".

The CCC, along with the UN, Al Gore, WWF, etc. of course refer to CO2 in their "low carbon" scenario. The gas that we humans exhale, the gas that our pets and farm animals exhale, the gas that our crops, flowers and trees use to produce their own food via photosynthesis, has been declared as a pollutant gas, an "evil" gas by these groups and hence, must be controlled, restricted via more government regulations, prohibitions and taxation.

So reduce fossil fuel use in transportation, energy and industry. Really? The campaigners do not love their cars, frequent jet-setting to other countries that use fossil fuel 100%? They go to their offices and meetings on bicycles or skateboards or by walking, or hitching a ride with flying carpets or brooms? Enjoying the convenience of fossil fuel then lambasting it and still get lots of taxpayers money, cool.
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Last October 21, Ateneo School of Government (ASoG) Reform Energy Project (REP) that also engages in implicit anti-coal campaign held a forum implicitly supporting natural gas.

REP's Project Director is Tony la Vina, who was also the former Dean of ASoG and a perennial PH climate negotiator for the past two decades, since Kyoto Protocol negotiations, I think.

Look at the other speakers aside from government (CCC, DOE, ERC), from Energy Development Corp. (EDC) and Shell, both pushing for more nat gas.

I support more nat gas plants in the country. I also support more coal plants, more diesel power as peak-load plants, more hydro, more geothermal. Even more variable or intermittent renewables like wind-solar.

What I do not and cannot support are subsidies like FIT or guaranteed price for 20 years for intermittent renewables, priority dispatch in the grid, RPS, other forms of favoritism and cronyism at the expense of energy consumers like you and me.

I also do not support the government setting the "right" mandatory energy mix. Like 30-30-30-10 for coal-nat gas-renewables-oil, respectively. The ones who should set the appropriate and dynamic energy mix should be the consumers, not the government or greeny lobbyists. 

Why? Because consumers would prefer cheaper, stable, available 24/7 (no blackout even for 1 minute) energy sources. If a firm goes bankrupt because of expensive monthly electricity bill, or its production is halted or damaged by on-off power supply and frequent blackouts, only they suffer the losses, not the government or the feel-good greeny lobbyists. 

If people really believe that there is grid price parity of renewables now, then there is little or zero need for (a) subsidies ala FIT, RPS, priority dispatch to the grid, and (b) state-mandated and coerced energy mix nationwide.

----------- 

See also:
Energy 81, Trump's climate and energy policies, November 12, 2016 
Energy 82, Jarius Bondoc on FIT for renewables, November 14, 2016 
Energy 83, The PEMC-NGCP Electricity Summit 2016, low ESSPs last October and high FIT-All next year, November 22, 2016

Energy 73, Comments to DOE draft Department Circular on RPS

The DOE asked for public comments to its proposed draft Department Circular after the public consultation last June 16.

Source: http://www.doe.gov.ph/news-events/events/announcements/2995-draft-department-circular-providing-rules-and-guidelines-governing-the-establishment-of-the-renewable-portfolio-standard-rps

Below is my letter to the NREB Secretariat and Dir., also Assistant Secretary Mario  Marasigan.
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To: techsec.nreb@gmail.com

June 21, 2016

Dear ASec Mario,

My column today in BusinessWorld is about the RPS and the public consultation last week,

http://www.bworldonline.com/content.php?section=Opinion&title=renewable-portfolio-standard-and-electricity-price-uncertainty&id=129284   

Please consider that as my position  paper on the subject. Take note in particular Table 2.

PH total electricity generation in 2015 = 82.6 TWh. Of which from wind = 0.6 TWh, from solar = 0.1 TWh. So small despite FIT + priority dispatch + fiscal subsidies.

In contrast: Vietnam electricity generation in 2015 = 164.6 TWh (2x that of PH's). Of which from wind + solar = 0.2 TWh only.

Indonesia's = 234 TWh (nearly 3x that of PH's), of which from wind + solar = less than 0.1 TWh.

Malaysia's = 147.4 TWh (nearly 2x that of PH's), of which from wind + solar = 0.1 TWh only.

Our neighbors have huge existing power capacity, something that we should aspire for many years from now, and they are not gung-ho on new renewables like wind and solar. The numbers on price implication to electricity consumers should be prioritized.

My article's conclusion,

"The DoE should either implement the minimum 1% of AMI in RPS, or further delay RPS implementation until the price implications are studied and the consumers are not further burdened with higher prices and unstable electricity supply."

Thank you.

Nonoy Oplas

---------------- 

Meanwhile, see this table (original table is annual data from 1990-2015, I cropped it)

Source: http://www.doe.gov.ph/doe_files/pdf/02_Energy_Statistics/power_statistics_2015_summary.pdf

New RE's share in total installed capacity rose from 0.9% (153/17,325 MW) in 2013 to 4.3% (813/18,765 MW) in 2015.

But new RE's actual contribution to electricity generation nationwide was only 0.4% (279/75,266 GWh) in 2013 and 1.5% (1,254/82,413 GWh) in 2015. Low capacity factor of new REs (about 20% average for solar, wind and biomass) is the  main reason for this. Old REs like geothermal and hydro have higher capacity factor, about 75%.

Again, new REs give us more expensive electricity and less stable, less reliable energy source. That is why government-imposed subsidies to new REs from the  pockets of electricity consumers nationwide should have short timetable, not 20 years, not even 10 years. After all, the proponents, advocates and campaigners of new REs often argue that their energy sources have "already attained grid parity" with coal and nat gas. 

If that is true, then the more that subsidies, fiscal incentives, mandatory dispatch and related provisions (like this soon RPS or  mandatory use of renewables by __% of distribution utilities' (DUs) total electricity supply to their clients and customers.) should end soon.
--------------

See also:
Energy 66, What companies receive FIT and by how much?, May 21, 2016

Energy 70, ACEF 2016 on the ASEAN grid and Nordic electricity exchange, June 09, 2016 

Energy 71, Roberto Verzola's rebuttal to my BWorld article on renewables, June 10, 2016 

Energy 72, FIT-eligible solar plants in the Philippines, June 22, 2016