China-made power plant performs badly

Power reserves for the Luzon grid may end up in the worrisome single digit at peak if the American owners of a brand new power plant made in China are forced to shut it down for repairs. The newest major power plant to go on line, the 650-MW plant had been delivering only about half its rated capacity since it was switched on.

The American owners recently got American technicians to check it out and they found out the Chinese-made plant had inherent defects. It was not clear from reports what exactly was causing the power plant to sub-perform, but the story has it that the Chinese parts used didn’t meet specifications.

It is not unusual to hear of badly made Chinese products but one wonders how this has been allowed to happen in a power plant of this size with the requisite technical project consultants.  One also wonders if the national grid now being technically managed by the Chinese, and where Chinese-made parts are used, is not vulnerable to the same shoddy manufacturing problems.

Shutting down the 650-MW power plant, if it comes to that, couldn’t come at the worse possible time. El Niño has resulted in a particularly hot summer that has brought down the water levels in hydro power dams to critical levels.

A number of other power plants in the Luzon grid are also on maintenance shutdowns and an extremely hot day could bring the available peak reserves into the single digits. Normal reserves should be at the level of about 23 percent of peak demand.  We are now at just half of that or around 12 percent.

Rotating power blackouts will definitely cause tempers to rise and increase anger directed at the administration. As it is, higher power rates and increased use of air conditioning in many homes have doubled bills that households normally set aside for electricity. We are still not over that power rate hike headache from last year and a final resolution may take more time.

A serious debate is ongoing among business groups on the right approach to the power rate problem sparked in December last year with the Malampaya shutdown. While the power generators and the electricity spot market have been blamed for that spike in power rates, the failure of the Energy Regulatory Board to anticipate and do something about the problem was also highlighted.

It is interesting how a proposed position paper prepared by the energy committee of the Management Association of the Philippines (MAP) became controversial in recent weeks. The MAP paper calls for Meralco to get a 100-percent cover through bilateral contracts with gencos of all their requirements including at peak. MAP is saying that this is the way to assure certainty in consumer power rates and avoid surprises in the spot market.

Meralco is against the idea. Meralco president Oscar Reyes told me that MAP’s approach will not deliver the least cost to their consumers. Meralco was exposed to the spot market for about seven percent of its needs last December and this was blamed for the rate increase because Meralco had the right to merely pass that on to consumers.

But then again, bilateral contracts do not guarantee the lowest cost to the consumers, Reyes told me on the sidelines of an IBM event last week. Indeed, there are those who say that there should be more transparency in Meralco’s pass on generation costs.

I have talked to some economists who think a public bidding for Meralco’s requirements, supervised by the ERC, is in order. The current bilateral contracts, it is observed, is too opaque to give the public enough confidence that Meralco is not engaged in sweetheart deals with power generators.

As for the MAP position paper, it does not help, some sectors pointed out, that the energy committee of MAP is controlled by representatives of generating companies and are therefore, only looking out for their interests. The gencos want more certainty in their business that can be delivered by bilateral supply contracts with distribution utilities like Meralco.

The gencos also want government through the National Electrification Administration or NEA to more aggressively get the electric coops to sign bilateral supply contracts with government guarantees, of course. For those who are familiar with the hopelessness of coop balance sheets and management in general, this is like throwing taxpayer money into a dark and bottomless pit.

The better way, some suggested, is for NEA to guarantee but with the stipulation that any default on the part of the coop that causes a call on the guarantee would mean the coop will be turned over to a capable private utility. Local politicians won’t like that.

Here is how one economist familiar with utility economics sees it: “There are many reasons why the WESM price spike happened, but one of the main reasons is that at least 10 percent of demand must be supplied by gencos to coops that have terrible balance sheets.

“My view is that management of ‘peak demand’ is a second order problem.  The first order problem is that there is not sufficient base load capacity (after taking into account the odds of surprise plant shut downs). 

“Simply put, there is a significant risk that even if the electricity consumers actually pay the coops, the coops won’t pay the gencos.  The gencos borrowing costs would be higher if their contracts are with coops with bad balance sheets. This plus the risk of not being paid would drive up the offered contracted prices even in highly competitive and transparent auctions…

“The balance sheets of the problem coops must be fixed. Their inefficiency and waste should be reduced. Guess what the MAP recommends in this regard — ‘review the performance of electric cooperatives and provide technical assistance to ensure economic and financial viability and operations of such ECs.’ If you think that the ROTTEN coops are a technical problem, you must be from Mars.”

It seems Energy Secretary Petilla will have a long hot summer. He will have to be constantly on alert as he prays that none of the larger power plants still operating will go on forced outage for any reason.

The tight availability of power supply also means the spot market prices will be on the high side. For us consumers, let us brace ourselves not only for possible blackouts, but also for certain high electricity bills until the rains come in earnest.

Big data

I received this e-mail from Bombet Arangote, a Pinoy expat in Toronto, reacting to a column last week.

Hi Boo,

Like your article.  In addition to the “quants” who make big data, there are those in the business who need to make sense of all these data. 

Early in my career, the main challenge was finding data.  Now is how to make sense of the plethora of data out there and how to convert data into insight.  That’s precisely the reason why we created our consulting firm, Heucon Inc (www.heuconinc.com), to convert these data into insight then eventually wisdom.

Despite all the computer power, it will still be the human brain that will convert this data, into insight then wisdom, then judgment and action.

The remote

After 20 years of marriage, a couple was lying in bed one evening, when the wife felt her husband touching her in way he hadn’t in quite some time.

It almost tickled as his fingers started at her neck, and then began moving down past the small of her back.

He then caressed her shoulders and neck, slowly working his hand down over her breasts, stopping just over her lower stomach.

This went on and on until he had caressed and fondled just about every part of her body.

Then he stopped suddenly, rolled over and started to watch the TV.

The wife had become quite excited by all this caressing so she asked in a loving voice, “That was wonderful. Why did you stop?”

He said, “I found the remote.”

Boo Chanco’s e-mail address is [email protected]. Follow him on Twitter @boochanco