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Prepare for darkness

DEMAND AND SUPPLY - Boo Chanco (The Philippine Star) - July 21, 2021 - 12:00am

Energy Secretary Al Cusi should be having sleepless nights by now if he only knew and understood the almost inevitably dark future ahead of us. The worst part is, there is absolutely nothing much he can do at this point. Energy projects, in the best of times and circumstances, take years to put in place, not weeks.

A week ago, NGCP placed the Luzon grid on yellow alert, citing the unavailability of over 1,500 megawatts (MW) because of unplanned outages and reduced output at some plants.

According to the NGCP, four coal-fired plants with a total capacity of 1,458 MW went on forced outage. These include the 460 MW plant run by Quezon Power; Unit 1 of a plant operated by GNPower Marvels, which took 316 MW off the grid; Unit 2 of the Semirara-Calaca Power, which removed 300 MW; and a unit of a coal-fired plant in Pagbilao, Quezon, which took out 383 MW.

Three other plants were also operating on de-rated or reduced capacity, removing 64 MW from the Luzon grid. TeaM Energy’s Sual Unit 2 accounted for 57 MW, while units 1 and 3 of Southwest Luzon Power were de-rated by seven MW.

By mid-afternoon, as I was getting a briefing from NGCP officials via Zoom, they lifted the grid’s yellow alert status due to “low actual system demand.” If the economy was more robust, yellow would have turned to red.

When Malampaya is shut down for 20 days in October and the creaky power plants fall apart again, no power will alternate with expensive power.

The Malampaya shutdown can no longer be moved. The only alternative for the power plant operators using Malampaya gas is to import liquid gas fuel.

They have imported the fuel. But the public must bear increases in electricity rates. Crude oil prices in the world market are now surging past $72 per barrel. But what is the choice? The most expensive power is having no power.

The clueless DOE is now faced with a steady increase in demand, but the margin for supply is thin. Even for our slowly recovering economy, supply is not always enough to meet energy and reserve requirements.

This is partly because of the pandemic’s impact on maintenance schedules and delays in additional capacity. Increased short-term demand during the summer demand spikes were not addressed. We have a lack of additional peaking capacities – hydro and oil-based.

Our aging power plants must be factored in our planning. There is an increased risk of frequent outages. Actual outages exceeded planned outages, particularly for the Luzon grid’s pivotal plants.

New plants should complement the decline in performance of older plants. We must bring in new capacity because demand growth will eventually pick up. But the commercial operations of new plants have been delayed by an average of one  to two years.

DOE must also make sure the transmission highways should be ready to support newly built power plants, but we have a three to four years historical delay in the completion of critical transmission projects.

Visayas and Mindanao have a combined 700 MW of unutilized or stranded capacity that could have been exported to the Luzon grid if only the critical transmission infrastructure was completed on time.

There is also a basic business problem with current policies that works against attracting investors in power plants. An e-mail from Rep. Ria Vergara, who has experience in running a small power plant, brings this up:

“I am currently the representative of the 3rd district of Nueva Ecija, but I write you taking the perspective of a former power sector stakeholder.

“The country is short of new investments in the power generation sector. Most of the power plants being commissioned today are plants that were approved by previous administrations, and the existing ones, as you said, are “old and unreliable.”

“The Competitive Selection Process (CSP) that the SC mandated all utilities must undergo before contracting baseload power supply has made our country unattractive to power generator suppliers.

“While I understand this was the ruling of the SC to prevent ‘sweetheart deals’ between electric distributors and power generators – it has also made our country ‘the last choice’ for power generator investors. It is a disincentive for power generator investors and one of the reasons for the lack of new generating power investments.

“Having built a 12.6 MW power plant for Cabanatuan City in 1994 – the first question the bank asked me then was: Who will be purchasing the energy generated?

“The PPA (Purchased Power Agreement) is critical to get a loan for this capital-intensive business, otherwise investors would have to finance it purely on equity (and no one would do that).

“Then, as it is today, distributors are regulated and generators are not. And while in the past this did not entail a CSP, ERC would still have to approve the PPA entered into by the DU (distribution utility). The ERC does a thorough review to make sure the cost of power in the PPA is fair, just, and reasonable.

“This process ensures sufficient supply of power for distributors without necessarily going through a CSP.  As it is, all utilities and electric coops must now undergo a CSP for their baseload power supply contracts.

“I support the rationale behind the CSP, but this only works in an environment where there is excess supply of energy.  When supply is low and demand high – it works against utilities/ electric coops, especially small ones, and results in higher WESM rates, which results in higher power rates for all Filipinos.

“There is a need to address this issue – how do we spur the interest of power generators to invest in our energy sector? Otherwise as your article mentioned, darkness and rotational brownouts will plague our country once again.”

Duterte should have appointed a technocrat at the helm of DOE instead of a politician… or a politician who understands technocrats like Joey Salceda, Stella Quimbo, and yes, Ria Vergara.

The same with ERC, which should have someone like former Energy secretary Popo Lotilla who understands the technical nuances of the energy/power industry.

But as always, we suffer from Duterte’s choices. Prepare your candles and standby generators.

 

 

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

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