BWorld 114, Brownouts, ancillary services and transmission charge

* This is my article in BusinessWorld last February 23, 2017.

Rotational and scheduled brownouts for several hours about once a month, then unscheduled short brownouts from time to time, have become a regular experience in the two provinces of Negros island. Despite the installation of many huge solar plants in recent years.

    

I am currently in Sagay hospital in Negros Occidental to visit my seriously sick father. Last night, there was brownout for about 10 minutes, the hospital’s generator set immediately takes over to supply electricity to their patients and staff.

The Facebook page of the Central Negros Electric Cooperative (CENECO) gives frequent advisory of power interruption that lasts for nine hours (8 a.m. to 5 p.m.) until this month.

Stories and testimonies of frequent brownouts in many cities and municipalities of Negros Oriental in 2016 are also reported in dumagueteinfo.com.

In June 2016, the Department of Energy (DoE) said that line congestion is building up in Negros Occidental due to many solar power plants operating in the province. The abrupt influx of solar power plants is causing the main line, transmission and interconnection lines to congest (Sun Star Bacolod, June 10, 2016).

This month, Negros Occidental Electric Cooperative (NOCECO) explained that one of the main reasons of higher electricity is the increase in the transmission charge from P1.0538/kWh in January 2017 to P1.1777/kWh in February 2017 or an increase of 0.1239/kWh. The transmission rate hike is due to the increase in the ancillary service charges of the National Grid Corporation of the Philippines (NGCP).

There are at least two issues here. First is the presence of more brownouts in Negros island despite its having the most number of installed solar power plants per sq. km. of land in the whole country, more than 300 MW.

Solar power is very unstable and intermittent, zero output at night and very low output when it is cloudy, or power fluctuates wildly if clouds come and go in minutes. So there should be more ancillary services or standby power plants, usually natural gas or diesel plants, that should quickly provide power when thick clouds come and when evening comes. Still, this causes power fluctuations that damage machines, engines and appliances running on electricity and the leadership of Negros chamber of commerce and industry have pointed this out to the DoE and NGCP last year.

Second, how is the NGCP regulated and accounted in its transmission charge pricing and assets management?

Power generation is deregulated and hence, the extent of competition among many players is the main regulator of the generation charge. Distribution charge is regulated by the Energy Regulatory Commission (ERC) because distribution utilities (DUs) like Meralco and the roughly 119 electric cooperatives (ECs) nationwide are all monopolies in their respective franchise areas.

So while there are 120+ distribution monopolies composed of private DUs and ECs, the NGCP is a single, national monopoly in power transmission.

There are 12 different charges in our monthly electricity bill. The top six in the table below, and these five charges with lesser rates: (7) universal charge, (8) cross subsidy charge, (9) lifeline rate subsidy, (10) senior citizen subsidy, and (11) feed in tariff allowance (FiT-All). No. (12) are value-added tax (VAT) and other government taxes, these are huge too but not included in the table because they are unrelated to the electricity system.

Of these 12 different charges, subsidies and taxes, the smallest is #10 while the fastest growing is #11, FiT-All: P0.04/kWh in 2015, 0.124/kWh in 2016, and set to rise to P0.23-P0.25/kWh this 2017, the ERC still has to decide on the Transco petition for FiT-All hike (see table).

Notice in the table above the following: (1) In 2013 vs. 2017, all five charges have declined in rates in 2017 except transmission charge which has remained practically the same at P0.91/kWh. And (2) In 2014 vs. 2015, a similar pattern where all five charges have declined in rates in 2015 except transmission charge which has even increased to nearly P1/kWh.

The possible explanations why the transmission charge by NGCP seems to be the odd man out among the top six charges are (1) rising cost of more ancillary services as more intermittent solar-wind power are added into the grid, (2) it passes its own system loss to the transmission charge, (3) it simply behaves like a typical monopoly, revenue-maximizing as consumers and other players have zero option of other service supplier/s.

Brownouts and expensive electricity, these are ironic events in our modern world. We should have stable and cheap electricity, no brownouts even for one minute except after heavy storms and typhoons that knock down electrical posts and power lines.

Government should step back in some heavy regulations like forcing intermittent solar-wind into the grid which can discourage some developers who can build stable and cheaper power like coal and natgas plants. And giving high price guaranty for 20 years to renewables like wind-solar is wrong and punishing the consumers. Technology changes very fast, the costs of solar and wind equipment are falling fast, so why lock the high price for 20 years? This is wrong.

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See also:

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

BWorld 112, Asia Liberty Forum 2017 in Mumbai, March 01, 2017 
BWorld 113, Peace talks with CPP-NDF for another 30 years? March 04, 2017

BWorld 90, Who should set the energy mix, government or consumers?

* This is my article in BusinessWorld last November 02, 2016.

This question seems to have a “default” answer: the government and it is time to revisit the premise of government being the central planning body that sets the Philippines’ energy mix.

The Energy Policy Development Program (EPDP) composed of mostly UP School of Economics (UPSE) faculty members as fellows and researchers produced their most recent paper, “Filipino 2040 Energy: Power Security and Competitiveness.” The 52-page long paper projects two scenarios for the Philippines until 2040, the strong/fast growth and slow/mediocre growth, and the projected energy demand and prices based on four policy options. Here are the projected cost of electricity by 2040 based on current technology and two Sensitivity Analysis (SA) that project the cost of variable renewable energy (VRE) on two scenarios. (see Table 1)

 The numbers for policy #4 under the three scenarios above do not account yet for these two costs: (a) intermittency cost of VREs (possibility of frequent brownouts) and (b) grid integration cost of VREs (will require additional investment by NGCP). The EPDP paper noted these two costs:

“For example, a 16 GW wind turbine in Scotland requires a grid investment of £4 billion... In Britain, a 34% share of renewables in their generation and transmission imposes a likely cost of £6.8 billion a year, or an extra 38% increase.”

This EPDP paper was presented by lead author, Dr. Majah Ravago during the Stratbase-Albert del Rosario (ADRi) and Foundation for Economic Freedom (FEF) forum on “Affordable Electricity: a Requisite for Competitiveness” held at Oakwood in Mandaluyong City last Oct. 26.

As one of the two reactors during the event, I expressed my disagreement with some of the numbers presented, as indicated on the table.

Even under current technology, the price gap between policy #2 (the current energy mix) and policy #4 (being pushed under RA 9513 or Renewable Energy Act of 2008) by 2040 will be small.

In Germany’s experience of feed in tariff (FiT) for instance, the price and subsidies did not flatten or decrease, they only kept rising, endlessly. From €0.20 cents/kWh in 2000 to €0.42 by 2003, €0.88 by 2006, €1.31 by 2009, €3.53 by 2011, €5.28 by 2013, €6.24 by 2014, €6.35 this year and projected to further rise to €7.1 by 2017. A whooping 35.5x increase after 17 years.

I also mentioned the case of massive, state-wide blackout in South Australia last Sept. 28.

Some areas lost power for five hours, others ten while others for one week or more.

While Australia is 69% dependent on coal, especially the state of Victoria, the state of South Australia is heavily dependent on wind power. When the wind does not blow, wind turbines’ output is zero. When the wind blows too much like the big storm that day, many wind operators shut down and lock their wind turbines to prevent damage, and wind output was also zero, triggering a series of power trips that resulted in state-wide blackouts.

Below are actual electricity production and not just installed electric power capacity for selected economies in Asia Pacific in 2012.

The ADB’s Key Indicators 2016 report has yet to be released as of this writing. Note the wide disparity in energy mix in favor of coal for many of them (see Table 2). Those that are more dependent on natural gas are Thailand, Malaysia and Singapore (84.3%).

Note that all those countries that are more coal dependent than the Philippines have lower electricity prices than us except Australia because of the latter’s high grid or transmission charges, more than twice that of the Philippines.

Thus, if more coal reliance would result in cheaper, more stable, electricity supplies, why should the Philippine government -- through the Department of Energy (DoE), Energy Regulatory Commission, and even Congress -- impose regulations that will force us to have less coal power and instead, have more intermittent, unstable, expensive renewables?

So, who should set the optimal and consumers-oriented energy mix, the state or the public? The government or the consumers?

The obvious answer is the consumers; residential, commercial, agricultural, industrial consumers. They are the ones who will ultimately pay the monthly electricity bill, the ones who will suffer if brownouts become frequent.

Policy option #2 of EPDP should be pursued by the government. The DoE and Congress should step back and respect the consumers’ right to cheaper and stable electricity.

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See also:
BWorld 79, Brownouts, coal power and the electricity market, August 21, 2016 
BWorld 82, No FIT for geothermal and other renewables, please, October 02, 2016 
BWorld 84, Eliminate red tape in the Philippine energy sector, October 08, 2016 
BWorld 87, Economic, fiscal and energy policies of the Duterte administration, October 17, 2016
BWorld 89, President Duterte's outbursts and PH economic momentum, November 12, 2016

BWorld 79, Brownouts, coal power and the electricity market

* This is my article in BusinessWorld last August 17, 2016.

Brownouts, actual and potential, have returned to some areas of Metro Manila and surrounding provinces in the Luzon grid over the past two weeks. This is unfortunate because electricity demand has somehow declined because of the colder, rainy season and more power plants have been added to the grid.

  

This rare event was caused by heavy stress in the Luzon grid as a result of the unscheduled outage of several coal-fired, hydroelectric, oil, and geothermal power plants in the grid, many of them are already ageing. Among these coal plants were (a) 382 M-W Pagbilao’s unit 2 (U2), (b) 122 M-W South Luzon Thermal’s U1, (c) 140 M-W Southwest Luzon’s U2, and (d) 60 M-W Limay Cogen Block 5.

Among the hydro plants were (a) 50 M-W Angat Main U4 and (b) 180 M-W Kalayaan U1. Then 83 M-W from Makban Geothermal and 280 M-W from Malaya Thermal U1. Almost 1,300 MW of power went on unscheduled or unplanned outage, plus power plants on scheduled or planned maintenance shutdown.

The newly-commissioned wind and solar plants in Luzon cannot and will not be able to fill up the power deficit. If the wind DoEs not blow, wind power is zero; if it is night time or day time but very cloudy, then solar power output is zero or very low.

This situation again highlights the need to continue building new coal and natural gas plants. The proposal and lobbying by certain sectors and environmentalist groups to discontinue building new coal plants and build only intermittent renewable energy (RE) plants like solar and wind is not wise. The Philippines’ fossil fuel consumption remains among the lowest in Asia’s emerging and developed economies plus Australia.

(Correction:  the last 2 columns are for oil, unit in million tonnes, not mtoe)

Last Aug. 11, 2016, the Australian Energy Market Operator (AEMO) released its 2016 Electricity Statement of Opportunities (ESoO) report and it highlighted the growing importance of network and non-network developments to secure future electricity generation. Notable in its report is this warning,

“AEMO has modelled the impact of withdrawing a further 1,360 MW of coal-fired generation capacity to meet the COP 21 commitment under AEMO’s neutral scenario, with results suggesting potential reliability breaches occurring in South Australia from 2019-2020, and New South Wales and Victoria from 2025 onwards.”

“Reliability breaches” is a technical term for power outages or blackouts. And AEMO projects that it will take place in three to four years from now. Replacing coal power with additional RE capacity will not compensate for the loss of coal capacity.

AEMO was candid enough to categorically warn about the dangers of cutting coal power and pushing more renewables into the system. This candor is good because it will prepare both power suppliers and consumers of what’s going to happen few years on the road.

One explanation for such candor by AEMO is its independence from the government as the latter pushes for more REs.

In contrast, the Philippine Electricity Market Corporation (PEMC), AEMO’s counterpart here as electricity market operator, is government-dependent. It is headed and chaired by the DoE (Department of Energy) secretary and many board members are from the government, like the National Power Corp. (NPC), National Transmission Corp. (TransCo), and the Power Sector Assets and Liabilities Management Corp. (PSALM).

Since the DoE is the main implementer of RE Act of 2008 (RA 9513), DoE is naturally pushing for more intermittent REs into the system and that is what PEMC is exactly doing. The latter for instance produced a study in November 2015 saying that REs that are priority dispatch at the Wholesale Electricity Spot Market (WESM) have created the “merit order effect” (MOE) in reducing the market clearing price (MCP) at WESM.

MOE can also be realized via more and cheaper conventional plants like coal rather than expensive and intermittent REs. With conventional plants, there is no need for additional ancillary costs.

So, since PEMC continues to be a government controlled corporation, can we expect PEMC to be more independent, more candid, in assessing the harm, actual and potential, of more REs in WESM and grid stability?

The most logical answer is no. The DoE cannot contradict itself, say that REs are necessary and say at the same time that REs are dangerous to the customers’ pockets and the stability of the national grid.

So the important implication here is that the independent market operator (IMO) as clearly stated in the EPIRA (Electric Power Industry Reform Act) some 15 years ago and now represented by PEMC, should be independent from government like AEMO. The DoE secretary and all other government energy agencies, including those in the “advisory” capacities, should get out of IMO or PEMC board.

Having less government intervention in the energy sector in general and the electricity market operation in particular is pro-consumer. Just give the consumers more choices, no or little coercion and they will choose the least costly, the more stable and reliable energy source.

Bienvenido S. Oplas, Jr. is the head of Minimal Government Thinkers and a Fellow of SEANET and Stratbase-ADRi. minimalgovernment@gmail.com

Mr. Oplas has written about the PEMC, renewable energy, and related issues in his previous columns. To read his pieces entitled “State dependence of Philippine electricity market” and “Renewable energy, expensive electricity, and the merit order effect,” please visit these links http://goo.gl/r0XaLt, http://goo.gl/Hf6DRg, respectively.

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See also:

BWorld 58, INDCs and PH energy realities, May 14, 2016 

BWorld 63, Can renewables only power the PH and Asian markets? June 10, 2016 

BWorld 66, Renewable portfolio standard and electricity prices, June 26, 2016 
BWorld 70, Wind power firms corner billions of FIT money, July 09, 2016
BWorld 76, Solar can never power the PH and Asia, August 06. 2016 
BWorld 78, If the US becomes protectionist, who loses? August 11, 2016

Energy 52, Renewables to "save the planet", Germany and UK cases

This is section III of my presentation, Climate change and the need for cheaper and stable energy sources during the Energy Policy Development Program (EPDP) Conference 2016 this week, January 12-13 at the New World Hotel in Makati. 

The cost of renewables rising for households despite their supply instability and very low capacity factor.

At this time of human progress, they are talking about possible blackouts in Germany or other parts of Europe? No thanks to intermittent power sources.

Also in UK, they are talking about energy rationing? At this time of human progress?

Reversal of renewables subsidies starting. Just following the law of economics and scarcity.

And that is why when there are wind towers, there are no houses, no hotels or shops or beach/mountain resorts near them. Wind farms can displace other nearby economic activities.

Government-sponsored renewables cronyism is lousy. They should be stopped and spare the public of expensive and intermittent energy. If people really want wind and solar power, they can do it and use their own money and savings, and not force everyone else to pay the subsidies to make this expensive electricity become "cheap and affordable."
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See also:

Energy Econ 37, More on Wind Power in Germany, June 07 2015 

Energy Econ 38, Solar Power in Germany and in Cadiz City, Negros Occidental, June 15, 2015

Energy 47, Low capacity factor of wind, solar and biomass plants, November 04, 2015 

Energy 50, Cheap oil, natural gas and coal prices, December 15, 2015 

Energy 51, More on solar power and supply instability, December 29, 2015

BWorld 38, Climate change and the need for cheap energy, January 14, 2016

Energy Econ 26: Dealing with Power Deficit in 2015

Independent think tank, Stratbase Research Institute (SRI) published yesterday my paper, "Energy and Rice Deficiency: Reform Challenges for the Last Quarter of the Aquino Administration."

I uploaded the paper in my slideshare account, 11 pages, check it there. For this article, I will only discuss the part on power and energy.

President Aquino has officially requested for a Congressional Resolution to deal with projected power deficiency next year, especially on the hot months of March to May 2015, or just six months from now. I believe they have a reason to panic.

Chart 1. Power Supply-Demand in Luzon, 2014-2020, as of June 2014

Source: Department of Energy (DOE).

I highlighted in my paper that when analyzing the above graph.

1. Available or existing capacity (blue curve) does not mean that all power plants will not experience sudden or unscheduled shutdowns. A number of those facilities just conk out anytime, especially among the  older ones. Thus, actual power production on certain period is lower than what the blue line in  the  chart suggests.

2. The same applies for committed power projects (gray curve). In addition, many of these committed are wind and biomass, where actual power generation is very often lower than their rated or promised capacity. 

The National Grid Corporation of the Philippines (NGCP) issues alert levels in cases of power deficiency.  "Red alert” means the contingency reserve is near zero, if not negative. “Yellow alert” means the total power  reserves is less than the capacity of the largest plant online, which for the Luzon grid is 647 megawatts (MW).

Chart 2. Zoom in to  2014 and 2015 Only

NGCP has issued “Yellow Alert” last April 8, May 9, 14, 20 and 26, 2014. It also issued  “Red Alert” (RA) on the following days this year.

1. RA May 16:  Two unscheduled shutdowns, one unit of Sual coal plant (647 MW) + one unit of Pagbilao coal plant (367 MW).

2. RA June 17:  Malampaya Gas Restriction, Manual load dropped 105 MW.

3. RA June 25: Three unscheduled outages:  Sual 1 (647 MW) + Calaca 1 (300 MW) + Masinloc 2 (315 MW). Plus derated capability of GN power (Mariveles) 1&2.

4. RA September 9: Two unscheduled shutdown on September 8:  GNPower Unit 2 (300 MW) + Ilijan Block A (600 MW). And two scheduled maintenance shutdowns: Sual Unit 2 (647 MW) + Kalayaan Unit 1 (177 MW)

These are huge power plants that conked  out unscheduled: Sual (15 year old), Pagbilao (18 yo), Masinloc (19 yo) and Calaca (30 yo). Metro  Manila and provinces in the Luzon grid are dependent on power facilities listed below.

Check again Chart 1 above, committed power projects. Wind for late 2014 to 2015 is 253.5 MW (Northwind 18, Burgos 87, Caparispisan 81, Pillila 67.5). That looks substantial but wind power is highly unstable and  unreliable in delivering power.

Take the case of Germany, possibly the “wind and solar power giant” in the world today based on  their installed capacity. In the chart below, gray is conventional power (coal, nuclear, gas), yellow is solar, dark blue is wind, light blue is hydro, and green  is biomass. Red is actual German consumption. 

The story is no different for the  US and UK. 

Sources:
Left: No Tricks Zone, Germany’s Habitually AWOL Green Energy…Installed Wind/Solar Often Delivers Less Than 1% Of Rated Capacity!

Right: WUWT, Renewable Energy in perspective: Solar and Wind power, August 30, 2014

The threat of rotating brownouts next year in Metro Manila and other provinces in Luzon is real. It is not imaginary. But it will not be as bad as the one we experienced in 1990-91 where the whole of Metro Manila would have about 3-5 hours brownout daily on some months. I think it will just be a few hours and not cover the entire metropolis. Something like this: brownout in Malabon 7-8am, in Navotas 8-9am, in northern Quezon City 9-10am, and so on.

To have stable electricity, supply must be generally equal to demand. If supply is limited due to technical problems with some big power plants, parts of electricity demand  should be "killed" via rotating brownouts.

Some policy proposals that I put in the paper:

1. Get more peak-load plants like those mobile diesel power barges. In Luzon, there is only one existing, Therma Mobile (TMO) of Aboitiz Power. It is an old power barge actually, bought from Duracom Power and was idle for about five years until it  was rehabilitated and re-commissioned  in  November 2013 just to prevent rotating brownouts in Metro Manila and other Luzon provinces during the Christmas holiday season.

2. Reduce power demand on peak hours of those hot months by asking the heavy users like big industrial zones, mining firms and cement plants, to have their own power generator sets. The Interruptible Load Program (ILP) seems  to be working, more big companies should volunteer to join the ILP.  But they should be compensated somehow, in the latter  months as these companies would have larger power cost on those periods that they were using their gen sets.

3. The public, households and commercial offices can help reduce power demand by using more energy-efficient lights and appliances.

4. Government agencies  should reduce the bureaucracies and permits they require in building and commissioning new power plants. DOE Sec. Petilla once said that in some projects, some 100 signatures are required to have one big power plant be put up and keep running.

5. Over the medium term, government should  reduce the taxes and royalties in power as these impositions  significantly contribute to high electricity prices. And the public blame the power companies or the distribution utilities (DUs) and even call for “Junk EPIRA, back to government monopoly in power.” 

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See also:

Energy Econ 22: FEF on FIT for Solar Power Plants, June 13, 2014

Energy Econ 23: Death of Australia's Carbon Tax, July 17, 2014

Energy Econ 24: NPC Debt, PSALM and Universal Charges, August 02, 2014

Energy Econ 25: Coal Use and GDP Expansion, Is There a Correlation?, September 01, 2014

Energy Econ 20: On Slashing the Max Power Generation Charge

When there is thin or very small power reserves on peak demand hours of hot months April-May, there are two options. (1) Have rotating brown outs, kill electricity demand for a few hours in some areas; or (2) get expensive power from peak-load plants like diesel barges and avoid brown-outs.

The P32/kwh max rate (usually for 1 or 2 hours, and used to be P62/kwh) allowed in WESM (vs average price of about P5/kwh) looks exorbitant, true. But if it will help avoid a brown out of 1 or 2 hours, it may look less merciless as other people would describe it. So some businessmen are willing to invest in diesel barges that may run only 1 to 3 hours a day (vs. base load plants like coal and nat gas that run 24 hours a day), in exchange for a higher generation charge.

Now there are moves by the ERC and DOE to slash the max rate to only P6.25/kwh.

A power investor will only put his money in base load plants that run 24/7 and selling at P4-7/kwh, not in peak load plants that may run only 1-3 hours a day on hot months, and zero on rainy and cold months, and be allowed by the ERC to charge only P6+/kwh. When there are no or very few peak load plants to address short-term high electricity demand, frequent brown outs on hot months will happen.

When there is frequent brown out, people will resort to (a) buying generator sets, which are costly and running on costly diesel, or (b) have more candles and experience more fires. People forgetting to attend to their candles which accidental fell down, burned a piece of paper, ultimtely burning the entire house and the neighboring houses.

Electricity supply should be big relative to demand. Electricity prices should be low due to competition among many power generating companies. This thing is not happening yet. DOE itself is part of the problem why power supply is limited.

Three friends made the following comments when I posted the above discussion in my fb wall.

(1) Bembette: noy, as part of the energy family, we have a directive to turn off our aircon for 3 hours everyday, during the peak hours. there has been a decrease in our energy consumption. adverse effect: aircons bogging down because of the constant turning on and off, which means additional cost for repair/replacement.

(2) Grace: During times of extreme heat or cold here, and the power grid looks like it may be overwhelmed; our power companies ask the we "help" by unplugging any unnecessary electric & electronic devices (cable boxes, clocks, DVD players, etc - you're not at home using them). That reduces demand some.

(3) Rose: It's a no win solution for consumers Noy! Grrrr!

(4) Andrew: What about raising prices during peak hours? That would be the Hong Kong solution.

Another adverse result of forced conservation as narrated by Bembette. A government office saves from monthly electricity bill but spends more on appliances maintenance, or replacing them with a new unit.

Grace's observation is correct, it should be done during period of emergencies and unforeseen events. Either the power plants conk out, or there is power but the transmission lines or distribution lines are cut off due to toppled electrical posts. It is different in predictable or foreseen events, like high electricity demand in the hot months of March-April-May, the last two especially.

And this partless addresses the disappointment of Rose. Consumers can bring down their electricity bill by shifting some of their activities to non-peak hours, say doing electric laundry, ironing, electronic work, at non-peak hours.

Andrew's proposal is incorporated in the long term direction of the wholesale electricity spot market (WESM), pricing by the hour. Thus, cheaper monthly electricity bill for those who are using more electricity during non-peak hours. Currently, the distribution utilities like the various electric cooperatives nationwide lump the pricing in one average price for the month. Thus, users of electricity during non-peak hours subsidize those who use more electricity during peak hours.

When investors come in to put up new power plants,

"Petilla said more than 100 signatures are required from various government agencies just so an investor cant push through with a project."

Government is very often, the main cause why there are not enough new power plants in this country. Its bureaucratism, permit-permit-permit, tax-fees-royalties mentality, discourages a number of potential players into power generation.

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See also:

Energy Econ 16: Electricity and Development, March 20, 2014 

Energy Econ 17: Brown outs in Mindanao, Thin Reserves in Luzon, April 11, 2014 

Energy Econ 18: Brown outs in Metro Manila?, April 16, 2014 

Energy Econ 19: Wind Power, Feed in Tariff and Electricity Subsidy, April 23, 2014

Energy Econ 18: Brown outs in Metro Manila?

A friend, Rose, posted this in her fb wall yesterday,

I am totally pissed after hearing the news that Meralco will be implementing a rotating brownout tomorrow starting at 11am? Are they serious?? At the height of the heat we all suffer each day....they will implement THAT?! It's probably because all of these people thinking of this solution have not experience what it is to stew in the heat! I think before they implement this they should first themselves experience what ordinary Filipinos are experiencing each day! All this hullabaloo just so that this government and Meralco can justify what they've all along wanted to impose on the already burdened Filipinos! A P4 increase and more on our electric bill!

Rose's frustration is understandable. In many of our neighboring countries in Asia, they can put plenty of street lights even in less-populated cities because they have so much power supply. Here, we are still talking about brown outs, actual or imaginary.

The main problem here is in power generation (not enough new power plants, many ageing existing plants) and not in power distribution (Meralco, other electric cooperatives). During heavy storms, power interruption  can happen, problem with power transmission (NGCP) or distribution, if the storm would topple electrical towers and posts.

Rose added that  "this should have been addressed by the appropriate branch of government....and I am still not convinced enough that this is not just a scenario created by Meralco...and their friends in government to justify any increases in our electric bill!"

To summarize the situation:

(1) Immediate problem is high electricity prices and/or brown outs, actual or threats.
(2) This is caused by lack of new power plants; the old plants require more frequent maintenance or scheduled shutdowns, or they can easily conk out (unscheduled shutdowns).
(3) And this is caused by (3a) government bureaucratism (DOE, DENR, LGUs, etc) in giving or restricting new power plant permits, and (3b) environmental activism opposing cheap but stable power sources like coal, nuclear.

If one will check the monthly electricity bill, between 50-60% of it is due to generation charge (ie, going to power plants).

For people who remain pissed off with the electricity distribution utilities (DUs) or the electric cooperatives, there are two ways that people can get out of these DUs which, by political nature, are all monopolies (Meralco, Bataan Electric Coop, Cagayan Electric Coop, Cebu Electric Coop,...).

One is to have their own solar system, wind, etc in their homes and/or offices. This is expensive though.

Two is via "open access" which is also in the Electric Power Industry Reform Act of 2001 (EPIRA). A village or an industrial zone can go direct to an electricity producer (say a small coal or solar or wind plant) for demands of less than 1 MW. This way, they can stop paying (a) transmission charge, (b) distribution charge, (c) supply charge, (d) systems loss charge, (e) universal charge, (f) lifeliine subsidy charge, (g) taxes and fees, plus another charge, I forget. So you see, there are about 9 different items in our monthly electricity bill, but people only see Meralco or the electric coop as the villain.

By going through the open access system, people will pay only (a) generation charge to the small power producer, and (b) wheeling charge, for the use of Meralco or other electric coops' electrical lines, from the power plant to the end-users (houses in a village, an industrial zone, a mall, etc.).

If one cannot do any of these two choices, another choice is to reduce electricity consumption by using more energy efficient lights and appliances; have more big and open windows with screen, to allow more sunlight and wind.

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See also:

Energy Econ 14: Power Rate Hike, Who Colluded?, February 22, 2014 

Energy Econ 15: Electricity Angsts, Presentation at UP Diliman, March 08, 2014

Energy Econ 16: Electricity and Development, March 20, 2014 

Energy Econ 17: Brown outs in Mindanao, Thin Reserves in Luzon, April 11, 2014
Business 360 17: Electricity and GDP Growth, April 15, 2014

Business 360 17: Electricity and GDP Growth

* This is my article for Business 360, a monthly magazine published in Kathmandu, Nepal, April 2014 issue.
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Electricity powers many economic activities in any society, from small shops that give jobs to micro entrepreneurs to cranes that build huge and tall buildings. Economies that rely more on human and animal power and energy tend to be very poor because of low productivity while those that use more machines that run on extensive electricity tend to be rich because of higher productivity.

Below is an illustration of how selected Asian economies have expanded their electricity use over two decades.

See the big jump in power use in just two decades by Vietnam (10.6x increase), China (5.8x), Maldives (4.6x), Indonesia (4x) and Thailand (3.2x). The other countries have a simple doubling of use, or even flat lined, like the case of Mongolia.

There have been several literatures that show the near causality between electricity use and economic growth. The next table further illustrates this point.

See the pattern and possible causality? In South East Asia, Singapore, Brunei and Malaysia are at the top in electricity consumption and they are also at the top in per capita GDP. At the bottom in both tables are Cambodia, Myanmar and Laos.

In North East Asia, at the bottom are China and Mongolia while the four economic dragons alternate each other at the top in both tables. And in South Asia, it is Maldives and Bhutan at the top, Bangladesh and Nepal at the bottom in both tables.

Of all the countries mentioned above, the electricity-poorest are Afghanistan and Nepal. Nepal’s electricity use in 2010 was just 1/10^th of Bhutan consumption, 1/90^th of Singapore, and 1/100^th  of Taiwan and South Korea.

In the February 2013 issue of this magazine, this column wrote about “Addressing power shedding and rationing” in Nepal and these proposals were made:

One, facilitate and hasten more power imports from India especially those from coal power plants. Coal  is generally cheap and supply is stable. This will require building more transmission lines from India to Nepal.

Two, deregulate power rates. Let those who can afford to pay higher electricity rates in exchange for more stable supply do so, whether imported from India or locally produced. This will encourage faster construction of more power generation plants and transmission lines.

Three, privatize some power plants that produce more losses than revenues for the government, sell to private power companies in a competitive bidding. Such privatization should be coupled with industry deregulation, at least the power generation sector, to encourage more competition among various players.

Four, reduce the requirements, bureaucracies, taxes and fees for companies putting up new power generation plants and transmission lines.  Invite more power supply companies from many countries to enter Nepal and put up more power generation and transmission infrastructures over the medium- to long-term. 

Fifth, entertain the possibility of getting nuclear power as this is a cheap, stable and generally safe power source.

This column reiterates the above proposals once more. In addition, Nepal and other electricity-poor countries may consider using natural gas as this is also a cheap and stable power source. The shale gas revolution in the US, Europe and other Asian countries means that natural gas prices will stabilize or even decline either in the short or long term.

Regardless of the power source that investors will use for their power plants, government bureaucracies that hinder such initiative should be drastically reduced, as well as the taxes, fees and royalties that result in high electricity prices for businesses and households. 

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See also:
Business 360 13: US Government Shutdown and Lessons for Asia, November 28, 2013 
Business 360 14: Middle Income Trap and Economic Freedom, January 02, 2014 
Business 360 15: How to Improve Economic Freedom in Asia, January 22, 2014 

Business 360 16: ASEAN Economic Community 2016, March 21, 2014

Energy Econ 16: Electricity and Development, March 20, 2014 

Energy Econ 17: Brown outs in Mindanao, Thin Reserves in Luzon, April 11, 2014

Energy Econ 17: Brown outs in Mindanao, Thin Reserves in Luzon

The World Wildlife Fund (WWF) and Earth Hour campaigners could be jumping with joy with this news. Up to six Earth Hours everyday in some areas of Mindanao, wow.

KIDAPAWAN CITY -- Power consumers in Cotabato City have been experiencing two to three rotating power interruptions due to limited power supply Cotabato Light and Power Company (Colight) had been getting from the National Grid Corporation of the Philippines (NGCP).

In North Cotabato, last year’s long hours of brownout could even go higher as Mindanao’s power supply deteriorates.

Kidapawan City and other service areas of the Cotabato Electric Cooperative (Cotelco) have been experiencing four to six hours power interruption every day since last week.

Lory Tan, Yeb Sano, Vince Perez and other leaders of WWF, the chief campaigner of Earth Hour, will deny of course that they are jumping with joy. But that is what they are campaigning, that power plants should come mainly from renewables like hydro, biomass, solar and wind.  If coming from dirty "non-renewables like coal and natural gas, they are unhappy because such energy sources contribute to "man-made/anthroogenic" global warming and climate change. The renewables on the other hand, help "save the planet."

Meanwhile, the anti-Meralco, anti-privatization of NPC hydro plants, or even anti-coal crusaders, cannot go full blast in their campaigns. Even if Meralco is not in Mindanao, even if the hydro plants are in the hands of government, even if coal power is very limited in Mindanao, brown outs, which are worse than power rate hikes, are happening.

In Luzon, even outside Meralco area (M.Manila, Cavite, Rizal, Bulacan), tight or low power reserves (only 200-300 MW instead of the relatively safe 600 MW) can mean rotating brown outs if just one power plant with 300 MW capacity will suddenly conk out. A small bearing gave way, which damaged the big bearings, which damaged other moving parts, and power supply is suddenly zero. These are parts of daily realities, that is why high reserves by base load plants, at least 600 MW, is important. 

Peak load plants like diesel can provide extra power of course (peak hours are usually 11am to 2pm weekdays, then 7-9pm). But diesel is expensive compared to coal, hydro or natural gas. So using diesel plants will mean higher generation charge, which constitutes between 50-60 percent of our monthly electricity bill. Then the anti-power rate hike groups will rally in the streets, go to Congress and Supreme Court, go to mainstream media, facebook and twitter, to oppose any power rate hike.

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These windmills in Bangui, Ilocos Norte, 20 of them, are famous. They are often posted in fb and other social media. They have an installed capacity of 33 MW. But since wind plants have capacity delivery of only around 20 percent of their installed capacity on average, these wind plants can deliver only around 6 MW on average. (Photo credit, my good friend Jun Concepcion)

See the windmills, there are no houses and fishing village, no beach resorts either, no other business enterprises. This is because some of those wind towers can fall down someday, or the blades can overheat and also fall down. Hence, dangerous to people and structures.

But don't those wind plants bring down the cost of electricity in the country? No. On the contrary, they contribute to expensive electricity because of the feed in tariff (FIT) that they are entitled to, courtesy of the Renewable Energy (RE) Act of 2008. The FIT for wind power is P8.53/kwh, and for solar, P9.68/kwh. FIT is add-on charge to existing generation charge. So if average generation charge for the month is P5/kwh + FIT of P8.53 = P13.83/kwh. Electricity consumers, residential or commercial or industrial, will bear this burden.

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See also: 

The Renewable Energy (RE) law, February 18, 2011

Energy Econ 2: Renewable Energy and High Electricity Prices, July 30, 2012 

Energy Econ 7: Renewables, FIT, RPS and Climate, September 24, 2012 

Energy Econ 10: Climate Alarmism and FIT for Renewables, June 28, 2013

Energy Econ 13: Universal Charges and Thin Power Reserves, February 13, 2014

Energy Econ 14: Power Rate Hike, Who Colluded?, February 22, 2014 

Energy Econ 15: Electricity Angsts, Presentation at UP Diliman, March 08, 2014 

Energy Econ 16: Electricity and Development, March 20, 2014

Energy Econ 15: Electricity Angsts, Presentation at UP Diliman

The other day, I was one of three speakers in a forum on the Electric Power Industry Reform Act of 2001 (EPIRA) at UP Diliman. The two other speakers were Maria Teresa "Maitet" Diokno of the Center for Power Issues and Initiatives (CPII) and Atty. Debora Anastacia Layugan of the Energy Regulatory Commission (ERC).

I knew that Maitet, a fellow UPSE alumni, would be talking critically and negatively about the EPIRA as I have read one of her articles on the subject. And it's good that she spoke ahead of me. She said that the law promised many things but has not delivered. Like bringing down electricity prices but we have more unaffordable electricity rates now.

This table shows that electricity rates are more affordable now, at least in 2013 vs 2012 prices, generation charge. Our monthly electricity bill is composed of about nine items: generation charge, transmission charge, distribution charge, supply charge, metering charge, system loss charge, universal charge, lifeline subsidy, and taxes. Generation charge comprises about 50 percent of the total bill.

I discussed the immediate cause of the power rate hike last December -- a combination of planned/scheduled shutdowns and unplanned/unscheduled shutdowns of several power plants running on natural gas and coal, two of the cheap sources of electricity. Some power plants that run on nat gas had to run on diesel, or oil-fired power plants were tapped, to prevent brownouts.

Energy Econ 11: On the Power Rate Hike

Below are my comments in one thread in Government andTaxes, Liberty and Responsibility facebook group, about the ongoing  debate on electricity  rate hike.

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January 12-16, 2014

(1)  Bobi Tiglao (he is in this list) has implied that there should be more government intervention in the power sector, like adopting the Singapore model of vesting contracts.

About the proposal by Cong. Evardone to give the President "emergency powers", Speaker Belmonte has an answer to it: The President is not even asking for it. It's a non-issue, but some legislators, some media can sensationalize it to a big issue.

Take note guys, there WILL be rotating brownouts this coming summer 2014 in Luzon including M.Manila, then another set of brown outs in summer 2015, most likely until summer 2016. The big power plants will come online by 2017 and 2018.

The main problem is in the power generation sector, not in transmission (via NGCP) or in distribution (via Meralco, other electric coops). Some days in 1st week of December 2013, last month, up to 3,800 MW of power was offline due to scheduled + unscheduled shutdowns. Forced shutdowns occur mostly in power plants that are more than 20 years old.

(2) I do not think that the left, the socialists and the pro-nationalization are winning the public debate to re-nationalize power generation and distribution. Government is the most un-trustworthy institution in the country, or even in almost all countries. People are complaining of corruption left and right, from Executive to Legislative to Judiciary, from local to national governments, from armed to non-armed units, and you give heavy political power and control of the important electricity system to the government?

The worst thing that can happen is frequent brown outs. Like what they have in Nepal, N. Korea, and to a certain extent, in Mindanao. People are willing to pay a high price just to have electricity, that's why they buy more expensive gen sets running on expensive diesel. Or the cost of frequent fires because of too many candles is something that the public will hate. A rise of P4/kWh for one month, and perhaps another rise the next month, then back to old rates the next month, is not enough justification for the public to be hoodwinked to the propaganda of the left and socialists.

(3) The typical "nationalize, socialize" argument from the Freedom from Debt Coalition (FDC), no new argument, no studies presented, just press conference.

From interaksyon.com, January 13, 2014,

Repeal of Epira, public control of power industry are best solutions to power crisis – FDC

This group btway cannot advocate freedom from borrowings policy. Only spend-tax-borrow, then demand freedom from debt later.

(4)  "Let foreign power companies compete with our own power producers and distributor. For the leftists and protectionist Centrists, a free power sector is a radical solution. I agree, freeing not only the power industry but the whole protected economy is a radical solution, but this is exactly what we need if we are to survive, both politically and economically."

-- VincentonPost,  January 14, 2014

A Free Power Industry for Cheaper Electricity

(5) Politicians and legislators tend to have very parochial minds. For any problem, to them the solution is more politics, more government. Can any politician put up a power plant in one month or one year? The main problem here is not enough new power plants. Many are old, bought from NPC, 20 yrs old, 30, 40 yrs old. Some would break down from time to time. 

From abs-cbn news, January 14, 2014
Trillanes files bill giving PNoy emergency powers minus 'bad' provisions

Instead of asking what government should do, they should ask what government should NOT do, like not imposing too many taxes, fees, royalties, permits, other regulations and restrictions to new power plant projects.