Energy 61, EPDP lecture on PH power projections by 2040

Yesterday afternoon, I attended the Energy Policy and Development Program (EPDP) lecture at the UP School of Economics (UPSE). The 5 co-authors were all there. The powerpoint version of this 34-pages paper was presented by Dr. Majah Ravago. Lecture room was full, audience from different groups, energy companies, NGOs.

http://garnet.zoom.ph/~upeconor/wp-content/uploads/2016/03/DP2016-01-Filipino-2040-Energy_Power-Security-and-Competitiveness.pdf

Sadly, there was no one from the WWF because during the open forum, I referred to them as "dishonest people" (audience laughed) for claiming that the capacity factor of renewables is 53%. From WESM data, capacity factor of solar in the PH is around 18% only, wind about 14%, biomass about 12%, so where did the WWF get their 53% figure, from the cold air of the Arctic or Antarctica?

(next 2 photos below from EPDP fb page)

The EPDP team however used the WWF data in projecting PH power capacity by 2040. I hope they will discard that WWF paper as a source and make another PH power projection.

Among the slides shown was this chart, that the generation charge in Meralco area is the biggest component of our monthly electricity bill. I pointed out during the open forum that one reason for this is that the cost of generation for natural gas power plants is distorted upwards by government royalty or energy tax, the Malampaya royalty. It is about P1 to P1.50/kWh, the royalty alone, that government collects from the Malampaya consortium (composed of Shell, PNOC, another company) that developed the nat gas field offshore of Palawan, which the consortium passes to the 2 power companies that own and run the 3 nat gas power plants in Batangas, and these companies ultimately pass it to us electricity consumers in the form of higher generation cost.

So this type of energy pricing by the gencos in the PH, that P4.48/kWh from nat gas includes the Malampaya royalty or energy tax (about $1 B a year, makes the government richer, greedier). If there was no royalty, then the consortium and the 3 power plants in Batangas that use the Malampaya nat gas can sell at around P3 to P3.50/kWh including their profit already.

I did not comment anymore on carbon tax as inspired by the UN FCCC global energy racket. There were many hands raised that afternoon from an active audience.

So this is the result of using that lousy and dishonest WWF data on capacity factor of renewables. The projected installed capacity by 2040 under the 30% minimum share of renewables is 48 GW. If the more realistic cap factor of around 16% for renewables is used, then the required installed capacity by 2040 should be 50+ GW.

Nonetheless, this table and projection shows a very important point -- that if we use the 30% mandatory renewables share by 2040, we will require some 48 GW of installed power cap (in 2014 it was 16+ GW) and the average generation cost will be P6+/kWh.

Whereas if we discard that 30% mandatory renewables, we will need only 40.5 GW of installed capacity to serve some 130 M Filipinos by 2040. And the cost of generation that consumers will pay will be lower, only about P4.7/kWh.

I like the points made by Alan Ortiz of San Miguel Energy Corp. (SMEC), the biggest genco in the country, followed by Aboitiz Power, First Gen and so on. Especially on the cost of building renewable power plants: about $5M per MW for solar, $4M/MW for wind and hydro, $2M/MW for coal. And solar requires 2 hectares of land to produce 1 MW of power. Me thinks that if actual electricity production is considered and not the installed capacity, it will require about 5-6 hectares of land to produce 1 MW because solar's average capacity factor is only around 18%. That is, a 100 MW solar farm can actually produce only around 18 MW on average.

After the lecture. All UPSE faculty members and EPDP Fellows, except the left most :-) From left: Ruping Alonzo, Raul Fabella, Ernesto Pernia, Majah Ravago, Rolly Danao. Sir Ruping (also my ninong, wedding godfather) and Raul were my former teachers at the school.

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See also:
Energy 58, Sen. Loren Legarda and renewables, February 27, 2016
Energy 59, Cheap oil and the OFWs, March 07, 2016
Energy 60, PH solar companies, PagIBIG loan for solar, March 12, 2016

BWorld 34, Solar power and supply instability, December 24, 2015
BWorld 47, Renewable energy and the illusion of merit order effect, March 06, 2016 

BWorld 51, WESM as market-oriented, PEMC as bureaucracy-oriented, March 25, 2016

Electric cars, the promise... of inconvenience? March 02, 2016

Wind power, flattened mountain ridges, collapsed towers, March 08, 2016

Business 360-34, Hydropower in Asia, March 17, 2016

Earth Hour 7, Lesson in basic electrical engineering, March 21, 2016

Sensational libertarians and solar power in the Visayas, March 30,  2016

Fat Free Econ 53: WESM, Myths and Realities

* This is my article yesterday in interaksyon.com
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With the debate on whether the power generation rate increase -- mistakenly referred to as "Meralco rate hike" -- is justified or not, the role of WESM has been put under question.

The Wholesale Electricity Spot Market was created under Sec. 30 of Republic Act 9136 or the Electric Power Industry Reform Act of 2001 (EPIRA). Power generators, distribution utilities (DUs) and electric cooperatives, bulk consumers, similar entities authorized by the Energy Regulatory Commission (ERC) can participate there.

Below are some allegations or criticisms about WESM:

1.  DUs or electric cooperatives like Meralco collude with certain power generators and bid up the price at WESM.

2.  DUs and bulk consumers can easily buy forward contracts or buy electricity for specified short periods in the future to cover any foreseen exposure they may have. This is on top of their long-term bilateral contracts with power generators.

3.  DUs who buy at WESM would know who supplied them power at any time, any day.

4.  It is “a misnomer, a huge farce: More than 90 percent of its transactions aren’t spot trading transactions at all. They are bilateral contracts, with the price and quantity not having anything to do with market conditions at any given time.”

5.  The rule that WESM “must offer all available electricity capacity to the spot market” is mocked and disobeyed by many power companies by offering the maximum bid of P62 per kilowatt-hour (kWh).

6. WESM and its high rates in the November-December period could have been bypassed by running the state-owned Malaya power plants.

How true or valid are these allegations? Let us tackle each of them -- with hard data.

1.  The allegation of collusion between some DUs like Meralco and power generators is belied by the average generation cost in 2013 -- P5.52 per kWh – which was lower than the P5.76 in 2012. The spike in the December billing – which was based on the November generation cost -- was mainly due to the absence of cheaper natural gas from Malampaya, and the purchase of more expensive power from diesel plants, so that brownouts would be avoided.

To prove “collusion,” one must show who colluded. Barring this, collusion is simply an allegation. Item number three below will illustrate why identifying who colluded is impossible. 

2.  DUs and bulk consumers can buy or contract electricity at WESM – say about 10 percent of their projected demand -- just one or two hours ahead, not weeks or months ahead. There is an allowance if some of its contracted generator plants will conk out or suffer output reduction due to mechanical problems, or the demand would suddenly go up.  It is a spot market and as such is characterized by price volatility. But at least power supply is delivered, and disruption or a brownout, is avoided. When supply exceeds demand by a wide margin, the price goes down. When this margin narrows, the price goes up.

Here is a short history of WESM prices from July 2006 to November 2013. The three outliers, January 2009 – when prices were very low -- and February-March 2010 and November-December 2013 – when prices were very high -- are explained in bold sentences. Note the lower cost of WESM load-weighted average price (LWAP) compared to average Napocor rates.

3.  Knowing who sold power and by how much at WESM is fungible. When you buy, you no longer know from which plant and how much power is coming, so there is no way Meralco or ERC can know. Suppose there are 10 generators (excluding those covered by bilateral contracts) supplying WESM in a given hour, and there are 60 buyers (excluding those covered by bilateral contracts) during the same hour, it is impossible to attribute to one generator any output bought by a buyer.

Take this case. On December 6 -- or two days before Typhoon ‘Yolanda’ struck Eastern and Central Visayas -- coal and hydro plants could produce less than 5,000 MW in Luzon, while demand stood at 5,400 MW. More than 3,200 MW of power were either on planned/scheduled shutdown or on forced outage. The oil/diesel plants provided the power to address demand that coal and hydro could not supply. But the supply came at a higher price, in exchange for no brownout that day in Luzon.

Knowing which among the various oil-based power plants supplied how much energy to different DUs and bulk consumers at different prices at different hours of the day cannot be determined. DUs decide whether to buy at that particular price that hour, or beg off on those hours and suffer brownouts in certain cities and municipalities of their franchise area. 

Fat Free Econ 51: Ten Things About the Meralco Rate Hike

* This is my article the other day in interaksyon.com.

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1. The P4.15 per kilowatt-hour (kwh) electricity rate increase is short-term. It should have applied for only a month (if the increase had not been staggered) while the Malampaya natural gas platform was under maintenance. After that, the original lower rates, other things being equal, should return. Thus, contrary to public opinion, the rate hike is not long term.

2. The rate increase stems mainly from the generation charge, partly from the transmission charge, but nothing from the distribution charge. As distributor, Meralco is on the last stage of the electricity supply chain and is the collecting agent for all players (including the taxes that the government levies), and so naturally receives the brunt of public anger.

Table 1. Schedule of Rates for December 2013 

Source: Meralco

Compare the December rates above with the November rates below. Supply charge remained at P0.6043/kwh or P19.88/customer/month, while metering charge also stayed at P0.4066/kwh or P5.00/customer/month.

Table 2. Schedule of Rates for November 2013

Source: Meralco

The generation charge from November to December this year increased by P2.00/kwh, transmission charge by P0.0372, and system loss charge by P0.1950. As for the distribution charge, no increase.

Last October, the per kwh charges were as follows: generation charge, P4.6832; transmission charge, P0.8652; and system loss charge, P0.5050 -- all lower than the November rates. But the September rates were slightly higher than those of October, as part of the normal fluctuation in prices per month.

3. Lack or absence of competition is bad. Electricity distribution in the Philippines is always a monopoly, given to a specific entity through a congressional franchise. The Meralco monopoly is an example. In addition, there is a Constitutional restriction, as foreign equity is not allowed.

4. Meralco largely relies on natural gas-run power generation plants.

Table 3. Generation Cost for October and November 2013

Source: Meralco

Sovereign Wealth Fund from Malampaya Gas

A friend based in Tokyo, Jules, sent me his random thoughts to create a Sovereign Wealth Fund out of government royalties from the Malampaya Natural Gas in offshore Palawan. Here are Jules' random thoughts:

1. Have a 15 years moratorium on spending anything from the  fund from the start of lunch, to discourage current officials in government from messing with it.

2. Let the fund be managed by Professionals in the investment business.

3. Have it earmarked solely for the "future:"

a. spending for young children (0-12 years) for primary health care and education.  and
 b. projects that mitigate any effects that mining or similar extractive activities have on the environment.

4. Setting a spending cap of only 75 percent at most of the net earnings from the investments, the balance of 25 percent to be further added to the principal.

5. A competitive bidding for projects to be funded, both private sector and government agencies can participate.

6. Have a bidding committee composed mostly of volunteers from institutions like churches (INC, Catholic, Protestants, Born Again, Islamic institutions) and  perhaps experts from the academe.

7. Set in place a monthly reporting/updating system on liquidating expenses that can be viewed publicly through social networks

8. East Timor, which became a sate only in 2005(?) has already a huge Sovereign Wealth Fund in billions of dollars from their Petroleum industry. Even Singapore which has no extractive industry has huge Sovereign Wealth Fund.

9. The 15 years moratorium can be extended to 20 or 25 years. Long term investing generates more consistent results if you look at historical returns of most indexes. This practically takes the current generation away from the funds. It is for the future generation.

I can support that proposal, thanks Jules. The current generation can be supported by existing revenues, public and private, and endless borrowings by the government. It is the future generation of Filipinos who have been compromised by the past and present political administrations via high and rising public debt stock and rising interest payment. If improperly managed further, it can generate a huge fiscal crisis someday.

But the intent of the law must be respected, that only energy-related projects should be funded from it. Then the fund should be used to develop more energy sources. When electricity supply is stable and affordable, faster development can happen. Energy is development.

Meanwhile, here are some facts from Maritess Vitug's article in Rappler last September 22, 2013.

Presidential power over Malampaya billions

* P130 billion (as of August) kept in a trust fund with the national treasury, not reflected at all in the annual national budget.

* from the royalties of the seemingly bottomless Malampaya natural gas reservoir off the shores of Palawan which provides about 50 percent of Luzon’s power needs.

* Project began in 2001, it was during President Gloria Arroyo watch that the fortunes from Malampaya started to flow into the government coffers. She spent a total of P23.6 billion, almost all of which went to non-energy projects.

* Arroyo authorized the release of P19.3 billion, mostly in 2009, apparently for the rehabilitation of areas damaged by 2 typhoons. This coincided with a pre-election year.

* Agriculture department (Secretary Arthur Yap) got a lot of the bounty: P4 billion in 2008 “to augment the Agricultural Guarantee Fund Pool and the rice self-sufficiency programs and other commodity programs” and P1.8 billion in 2009 to help farmers and fishermen devastated by the typhoons.

* Unterior department (Secretary Ronnie Puno) received P2.1 billion in 2009 for its calamity rescue operations;

* National Housing Authority (Vice President Noli de Castro, chairman, and Federico Laxa, general manager) P1.4 billion for relocation efforts;

* Defense department (Secretary Norberto Gonzales), P1.2 billion for the “structural maintenance project and recovery of C-130.”

* Public works department (Acting Secretary Victor Domingo who replaced Secretary Hermogenes Ebdane) that received the heftiest share, P7 billion.

* Only P303 million went to supposedly fund the energy projects of the science and technology department, transport and communications department, defense department, and the energy department.

* Arroyo released almost P4 billion to Palawan as assistance from the national government.

* For his part, President Aquino put in all of his Malampaya Fund expenses to energy-related projects, about P15 billion from 2011-2012. 

* Biggest chunk went to the National Power Corp (P6 billion), followed by the DND (P5.6 billion) “to upgrade its capability” to secure the natural-gas-to-power project.

* The rest went to the National Electrification Administration (P1.9 billion), energy department (P300 million), and interior department (P150 million for the “Pantawid Pasada”).