Is anyone minding the store?
DEMAND AND SUPPLY - Boo Chanco (The Philippine Star) - April 22, 2019 - 12:00am

The past few weeks have not been good for the country. In Metro Manila, people are not happy about the failure of basic utilities to provide the services expected of them.

The water utility, a subsidiary of a blue chip conglomerate once trusted for efficiency, miserably failed its customers. It also initially tried to blame El Niño for what was clearly its fault.

We thought power was in relatively good situation until NGCP declared a series of red and yellow alerts. A good number of power plants broke down, supposedly unexpectedly.

It is easy to blame the private sector operators. But they are by law heavily regulated by government. If government was doing its job, problems could have been anticipated and mitigation efforts done.

Regulatory failure happened because President Duterte made disappointing appointments in MWSS, ERC and DOE. We don’t have a shortage of talents if he looked beyond Davao, San Beda, and the police.

If DOE was doing its job, they would have known that power reserves are thin, many power plants are getting old and are less reliable. There is also a fast growing economy that needs all the juice it can get.

As usual, DOE tried to pass the blame. DOE claims they have been urging the power industry to increase the grid’s contingency reserve from 15 percent to 25 percent.

Energy senior undersecretary Jesus Cristino Posadas was quoted as saying “private investors favor tight supply conditions which maintain high electricity prices.”

That’s not fair, nor true. The reality is that government had been sitting on applications to build new power plants, sign new power supply agreements, and invest in capex recoverable through a rate increase, among others.

Indeed, there had been private sector investors brave enough to build merchant plants, or those without definite supply contracts. They know sooner rather than later, those capacities will be badly needed.

The day after my column, “Is power shortage next?” was published, the yellow and red alerts came. I received this comment from a concerned reader:

“I have taken a quick look at DOE’s so-called PHILIPPINE ENERGY PLAN 2017-2040. It seems like they have no other plans than to less than double the current generation capacity from roughly 20,000 MW today to 43,000 MW in 2040 (page 84). If that is the case then I am concerned and here’s why:

“That would imply that the power consumption would roughly double by 2040. As of 2017, the per capita power consumption was at 885 kwh.

“Now let’s put in perspective: Thailand, a country with a GDP per capita roughly twice that of Philippines has a power consumption per capita of 2,404 kwh as of 2016... the Philippines should expect similar power demand before 2030 or so.

“Worse yet, the Philippines is estimated to have a GDP per capita of around $10,000 by 2040, which is what Malaysia has right now. And their per capita power consumption is at 4,232 kwh!

“Even Indonesia and Vietnam have a saner power development plan. Vietnam currently has a capacity of 42,000 MW (twice that of Philippines already, with their similar population and lower income), plans to increase this to almost 140,000 MW by 2030! Their energy policy seems to build beyond the demand to prevent the issues Luzon is experiencing.

“Of course, I hope I am totally wrong about this and that these are just projections. But the power capacity growth is embarrassingly slow for the Philippines, where production has only gone from 94,370 to 99,765 MWh between 2017 and 2018 (compare this with 125,000MWh in 2014 to 190,000 MWh in 2017 for the Vietnamese).”

The DOE guys will say it is not right to compare us with our neighbors because the nature of our economy’s demand is different from theirs. Thailand has a lot more manufacturing than us.

We have gone from agriculture to services with a little manufacturing.  Services require less electricity.

Do we have a power shortage now? No, we don’t. But we will have one soon unless government, by some miracle, acts intelligently and decisively.

There is a lot working against us. An industry insider observed that DOE “is not making sure we have the reserves... not making sure NGCP provides the backbone.

“This is where they should be focused now… firstly to make sure that the entire grid is one… then power can move back and forth everywhere… assuring quality supply…”

That’s true. While the Luzon and Visayas Grid are technically interconnected via submarine cable, the capacity to bring power to and from the islands is limited. NGCP is not making the investments needed to increase capacity of its transmission facilities.

Money is not the problem. NGCP practically prints money. It is a 100 percent risk free investment. Its investors have recovered their investments years ago, many times over. Even the capex they make to improve the system is charged to us, the users. There is no valid excuse for inadequacy in the system.

It is easy for NGCP to blame power plant failures for the yellow and red alerts and they may be right sometimes. What about the times when the tightness could have been alleviated if the transmission system had the right capacity to move power?

Then there is ancillary service. As grid operator of the country’s transmission network, the NGCP handles the contracting of ancillary service with generating companies to stabilize the fluctuation of power needed in the grid.

The NGCP maintains the various reserves to cover variations in demand within a day and to immediately cover the loss or failure of a generating unit or a transmission line.

Energy Secretary Al Cusi describes ancillary service as a spare tire always available in times of trouble. But the contracted reserves are often inadequate and also sourced from the same generating capacities supplying the power grid. In real emergencies, the spare tire is hardly available or very expensive at the spot market.

One more thing: 40 percent of NGCP is owned by the State Grid of China and they are in charge of technical operations. Call me paranoid, but that worries me too specially because government doesn’t seem to be minding the store.

Boo Chanco’s e-mail address is bchanco@gmail.com. Follow me on Twitter @boochanco

EL NIñO
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