The RE Feed-In Tariff Dream that Turned Into a Nightmare for Consumers

Posted on: May 24, 2017

David Celestra Tan, MSK
18 May 2017

How is it that whenever the government is doing something supposedly good in power, the electric consumers get screwed in the end?

Just like the rest of the world, the Philippines had this wonderful dream for a clean energy existence by promoting renewable energy instead of fossil fuel. It is part of the global concern for “climate change”. It even passed a special law called the Renewable Energy Law of 2008 seeking the encouragement of investments in solar, wind, mini-hydro, biomass, and ocean energy authored by Senator Migs Zubiri.

The law provided for tax free importation of equipment, income tax holiday for first seven years, guaranteed purchase of output, and only 10% income tax after that. On top of all these the law provided for a subsidy program called Feed-In Tariff and created a special government agency called National Renewable Energy Board (NREB) to oversee the implementation of the RE Law. It’s a wonderful dream!

Now 10 years after, it has turned into a nightmare specially solar. From a rightfully cautious target of only 50mw for solar that was asking for P19.00 per kwh subsidized rate (compared to generation rate average of P5.50 per kwh and P12.00 per kwh for bunker c plants) it ballooned to 500mw with an additional 400mw claiming entitlement to subsidies.

In July 2012, the ERC approved for the First wave of FIT the rates of P9.68 per kwh for Solar, P8.53 for wind, P6.63 for Biomass, and P5.90 for run of river mini-hydro. The initial FIT ALL rate was P0.0406 per kwh as a universal charge. In March 2015 the ERC approved a 2nd round for Solar now for an additional 450mw at a reduced rate of P8.69 per kwh. And the FIT All rate was increased to P0.12 per kwh.

Feed-In Tariff (FIT) is what the government pays the RE plants for their energy output. That energy is sold to the WESM market at whatever is the market price. Whatever is unrecovered is the loss or subsidy which is passed on to the all electricity users nationwide.

Based on the figures of Transco, the designated administrator of the FIT program, the total subsidy for 2017 would be approximately P14.9 billion a year based on national energy sales of 68 billion kwh a year and a subsidy of P0.22 per kwh chargeable to all users. So far ERC had approved about P0.18 per kwh.

On kwh subsidy basis P0.22 per kwh seems small. What consumers do not realize is the per kwh subsidy for solar power is actually P3.19 per kwh in Luzon and P4.16 per kwh in the Visayas. And those are based on the reduced FIT2. In FIT1 the subsidy for solar is P4.50 per kwh in Luzon and P5.40 per kwh in the Visayas. That is almost double the cost of coal power! Should clean energy cost this much for the consumers? Or should clean energy be solar instead of large hydro and geothermal?

The FIT program is a disaster for the consumers as much for the amount of subsidy as the confused way it was implemented. It is a comedy of errors by the DOE and NREB. Those of us observing things unfold, kept on hoping there was method to the madness.

Mad Scramble for Opportunities

The RE Law was passed in 2008 during the term of Energy Secretary Angelo Reyes. Within a span of six months the DOE issued 400 Service Contracts for these RE projects, the first step for subsidy entitlement. There were rules but it did not appear that the DOE even established qualification standards. Everyone and his uncle who are vaguely connected with some awareness of the FIT program got their own RE project mostly solar. Others speculated on wind, biomass, and mini-hydro.

When the Aquino Administration came into power, his Energy Secretaries, First Rene Almendras and then Jericho Petilla were in a quandary on what to do with the FIT program and those RE Service Contracts handed out by the previous Secretary.

A technocrat, Almendras established sensible installation targets of 200mw for wind, 250mw for hydro power, 250mw for biomass, and only 50mw for solar. Almendras did not stay long though at the DOE.

When Leyte Gov. Carlos Jericho Petilla, also a technocrat, took over the DOE, one thing they realized is that not many of the 400 RE developers really have made much progress. Most of them apparently were just speculators and amateur power developers looking to cash in. The Renewable energy program had not achieved much. Petilla’s DOE came up with a method called “first come first served”. A sort of deliver or be cancelled approach. Bowing to solar lobby pressure Petilla also increased the target to 500mw because of the claimed need to increased power supply to the country. Yes he chose solar…and later lobbied hard for P2 billion worth of rental generators. Further madness ensued. It was another gold rush! Solar developers raced against each other to beat the March 2016 deadline to get the lucrative FIT rates.

Many, including MSK, called for the DOE to hold auctions or biddings since there are so many solar developers interested in investing. Yet for some reason they kept on doling out service contracts at those generous FIT rates. Just giving money away. One well connected guy got 3 solar service contracts and sold 2 of them in Northern Negros to foreign investors and a local conglomerate. Guy got rich quick.

Remember that while all this is going on in the Philippines, bid rates for solar projects had been dropping in many parts of the world. Latin America and the Middle East. $0.04 per kwh compared to the $0.19 per kwh that the Filipinos are doling out. I mean that’s almost 500% of international rates. Yet the DOE chose to ignore these reports. Just doesn’t make sense.

While solar technology was pioneered and developed by Germany, it was the manufacturing juggernaut that is China that brought down the cost of solar panels by as much as 80% which consequently brought down the cost of solar projects. Except in the Philippines where the solar lobby up to today and the NREB are still pushing for subsidies I kid you not.

The DOE did not even pay attention to where those solar projects are being installed. Many large developers went to the island of Negros where large tracts of land can be leased making the race to DOE target completion of March 15, 2016 achievable. Except no one thought about the transmission line limits of the Negros Island. Asked later, even the NGCP only meekly called the attention of the DOE to the lack of transmission capacity on the island apparently for fear that they will instead be accused of failing to do their job of developing the transmission grid.

Negros Island only has 300mw in electricity demand. Most of its power needs are supplied by base load coal power plants from Cebu and Panay. Also by geothermal from Leyte and Dumaguete. For the 300mw of solar projects installed on Negros island to be absorbed by the grid, they will need to be exported to Cebu and Luzon. But it cannot be done became there is no transmission capacity. Solar power in the afternoon stayed in Negros causing an oversupply that sent the WESM price (the market price for RE FIT) tumbling to P1.50 to P2.50 per kwh in the afternoon hours. Additionally those intermittent solar drop in output by as much as 60% when cloud cover passes thus requiring grid operator NGCP to secure instantaneous replacement power from Luzon to stabilize the system. That 100mw of ready ancillary service is expensive and passed on to the consumers.

The Negros solar dilemma hit the consumers’ pockets three ways. First they are already paying for the P4.00 per kwh subsidy for every kwh of solar energy, the FIT recovery also drops due to the lower market price in the grid where FIT is supposed to recover some of the revenue. Then the cost of the ancillary services to cure the intermittence of solar are passed on to the consumers via the NGCP transmission charge.

Solutions to High Fit subsidies and the stranded solar projects

The DOE under new Secretay Cusi had declared that there will be no more third wave of FIT for solar. Bless his heart. The NREB for its part is now talking about coming up with a subsidy scheme for the so called 360mw of “stranded solar projects” that did not get in the second wave of FIT.

Why is the government still talking about subsidizing solar? The reason for the Feed In Tariff subsidy program for renewable energy is to encourage investments. To kind of kickstart the RE program. But when investors have already come and there are more suppliers than the country can afford to subsidize, it is time to make everyone compete for the country’s RE business. Why is the DOE so averse to holding biddings for solar projects? Why are they insisting on doling out subsidies that are passed on to the consumers? The fiscal incentives offered by the RE Law of 2008 is enough.

Why not hold an auction among those 360mw of stranded solar projects? Let us establish the avoided cost of power as coal at P5.00 per kwh. Add 12% VAT and that would be P5.60 per kwh.

Let all these solar projects bid with the P5.60 ($0.114 per kwh) as the maximum rate. Then we get clean energy without any subsidy. Note that $0.114 per kwh is still more than double the bidded rates in the Middle East which was $0.04 per kwh.

At $0.114 avoided cost solar developers should be able to afford the investment in storage battery to manage the intermittence of solar and to extend its service to the evening peak hours.

What to do with the 50mw of solar in the First Wave enjoying $0.20 per kwh and those who worked fast and are well connected to get into the 500mw second round at $0.177 per kwh?

Let us accelerate the digression rate. Those who built their plants in 2015 and 2016 already caught the low cost solar panels and should be able to afford the lower rates. If not why not force them to add storage batteries so the consumers do not pay for ancillary services to regulate their output.

We also may need to review the role of the National Renewable Energy Board (NREB). As a government office they should work for the interest of consumers instead of acting as a lobby group for RE. Maybe the DOE’s REMB (Renewble Energy Management Board) is also part of the problem. Maybe there is a need to clarify for whom their bells must toll and that is for the Filipino consumers.

The RE and FIT program is another case of knowing that we wanted to provide FIT subsidies to encourage RE development but forgetting in the end why we are doing it. We wanted to develop clean energy but if the investors are already here, there is no need to subsidize. Instead make them compete for our business. We don’t need those who are here only because they can make a killing.

In case you are not noticing, the Universal Charges combined are the fastest increasing component of our electric bill. FIT-All will soon be P0.22 and can eventually be P0.35 per kwh. On top of the UC-ME that is now P0.19 and the UC stranded cost of PSALM, consumers are getting screwed further.

It is not too late to get out of this FIT nightmare and get back on track towards our clean energy dreams. Towards that why not subsidize and incentivize large hydro and geothermal instead. Review the grid competitive Biomass and mini-hydro. Those dreams are still worth dreaming.

Matuwid na Singil sa Kuryente Consumer Alliance Inc.
Matuwid.org
david.mskorg@yahoo.com

The Kind of ERC the Country Needs

Part 1

David Celestra Tan, MSK

5 May 2017

If there is a silver lining in what is going on at the Commissioners level at the Energy Regulatory Commission, it is that this is an opportunity towards finally righting the regulatory course for this very critical government agency that has been adrift in the sea of confused identity and foggy purpose.

If we use Sections 41 and 43 of the Epira Law that created it as scorecards, the ERC would score a 65% at best.

President Duterte’s decision on ERC Chair Salazar is a big step forward that we hope will finally lead to the long needed remake of the regulatory agency.

First A Background on how we Got here

16 years after its creation under the Epira Law of 2001, the regulatory agency had not found its regulatory soul.  Its best Chair was the first one, Atty. Fe Barin,  who was ignominiously promoted to the Monetary Board and later as SEC Chair reportedly because the vested interests (the same people who lobbied for the loopholes in the Epira Law) “could not work with her”.  The President then appointed a “trapo”politician who promptly gave everything the distribution utilities wanted and saw rates soaring including the reviled PPA (purchased power adjustment, remember?). He resigned and ran for Congress but lost.  He was replaced by another “trapo” politician and when his term expired he was replaced by another politician. And the rest is history.

If there is anything we can say about the travails of the supposedly non-politician JV Salazar (although we heard he is an election lawyer), it is that it was a letdown because we the consumers had hoped so much from him. After all, the resigned DOE Secretary Carlos Jericho Petillascreened and vouched for him.

To be fair, the ERC suffered from the sheer magnitude of responsibility dumped on it by the Epira Law. Anything that the bi-cam framers of the Epira Law could not resolve, or did not want to give to their distrusted DOE, they gave to the ERC.  That was the official line. Insiders said the real reason was the powerful lobbyists wanted to keep the rules and implementation concentrated in the regulatory agency, which they historically had been able to “capture” under its predecessor ERB.

ERC was observed to release rulings on very complex Meralco issues but take very long to rule on simple methodologies for electric cooperatives just like the old ERB.   We recall an incident when the ERB was criticized on one ruling, the Chairman had the temerity to fax her reply from Meralco offices. (Yes Junior, we use fax at that time not email!)

The ERC could have used the steady and incorruptible guiding hands of Fe Barin in its formative years when it could have defined its regulatory soul.  But the appointing authority gave it a succession of leaderships that were too susceptible to the enticing lobbying of the vested interests.  Being Commissioners and being its chair is so powerful that absolute power had intoxicated. The ERC lost its way.

MSK refers to them as the old ERC.  The current crop of Commissioners are upgrades from the previous ones.  Former President Noynoy Aquino has political detractors but in our book one of the best things he did for the power sector was appointing  two very capable and morally upright Commissioners in Gloria Victoria YapTaruc and Alfredo Non, absolute professionals with high levels of integrity. Commissioner Josefina Magpale-Asirit brought valuable insights from her previous stint at the Department of Energy. Commissioner Geronimo Sta. Ana was a long time official of the Cebu Chamber of Commerce and brought business sector insights to the regulatory agency. Although his appointment causedan uproar because he was supposedly a recommendee of a vested interest group as exposed by another vested interest.

The old ERC similarly had some good commissioners and line officials but the caliber and moral compass of the Chairman (and his Executive Director) defined where they were going as an institution.  And they went lower than purgatory with patronage and misguided regulation.

Sadly, the ERC has many professionals in its ranks that are committed to public service as exemplified by the late Atty. Jun Villa.

In the new ERC, the conflict at the Commission levelstemmed from the reported dictatorial tendencies of the new Chairman which did not sit well with the other commissioners who understandably invoked that the Commission is a consensual body.  There is normally a reason why someone wanted to be dictatorial.

The problem with the New ERC thoughis that they were only implementing the rules and methodologies that they inherited without revisiting whether they are anti-consumer or if they are contrary to the ERC’s own mandate to prevent monopoly, anti-competitive behavior, abuse of market power, and cartelization. Perhaps the ERC have been overwhelmed by the weight of the responsibility and just the sheer volume of work and contentious issues from 15 private DU’s 119 electric coops, 100 or so private power generators, the PSALM, NPC, and NGCP.

Your consumer organization MSK thanks Commissioner Geronimo Sta. Ana for responding to the petition of MSK when he was OIC last December 2016, for a review of the Performance Based Rate making rules (PBR) which had been unacted by the ERC for about a year. We believe PBR has been causing P10 to P15 billion a year in undeserved profits to the DU’s.

The consequence is here we are 16 years later and we have the highest electricity rates in the Asean and our country is not anywhere near the global competitiveness that the Epira Law aspired for. Cross ownership between the distribution sector and generation sector is pervasive and monopolization and rate overcharging is prevalent.  A lot of it caused by the loopholes in the law and its IRR and ERC’s failure to truly regulate and protect the public interest.

 The Epira Law of 2001 envisioned the ERC Commissioners to be incorruptible which is the reason the law provided for a generous safety net of retirement at the level of Supreme Court justices and the security of a tenure.

 Let us hope that President Duterte would cause a leadership reform in the ERC that would be committed to enlightened and incorruptible regulation that balances, efficiently and timely, the interest of power service providers like the DU’s and generators and the need of the consumers to be safeguarded from the profit optimization maneuvers of these private business.

 Reforming the ERC is a national emergency.

 

Next: Creating the Kind of ERC the Country Needs

MatuwidnaSingilsaKuryente Consumer Alliance Inc.

Matuwid.org

david.mskorg@yahoo.com

Wanted: A Clear Energy Mix Strategy for the Country from DOE

David Celestra Tan, MSK

1 May 2017

One of the most critical functions of the Department of Energy is to provide a prescient Energy Mix strategy for power supply development.  And one of the expensive lessons learned since the power sector was privatized and deregulated under the EPIRA Law of 2001 is that the private sector cannot be counted upon to develop a holistic energy mix power supply that will provide energy security, competitive power, and environmental protection for the country.

Left to themselves, the private generators naturally will gravitate towards the low risk and most profitable technologies like coal. A recent case in point is the signing by Meralco with its sister company Meralco PowerGen more than 4,000mw of power supply, all coal.  And this after its Chairman is supposed to have egged the DOE “to provide the energy mix policy direction and the private sector will follow.”

While we as a country are talking about concerns for climate change, the reality is that most of the base load power supply are now coal. Mindanao has become coal country after having been clean hydro (and low cost power) island for generations. Visayas is also dominated by coal.  And here comes Meralco, the largest distribution utility in the country at 62% market share committing their future power supply to coal.

Diversifying Energy Mix a Tough Challenge

Diversifying the country’s energy reliance is a critical strategy for energy security. It cannot rely too much on one fuel like coal. Most of our coal comes from Indonesia and Australia. Something happens to those countries and the country will pay through the nose. Indigenous coal like Semirara does not provide Filipinos with price leverage because even this local coal is price-indexed to foreign coal prices. We need to balance it with natural gas, geothermal, hydro, and a sensible renewable energy program.

 The private sector is justifying all these by saying coal is the only option if the country is to have cheap power. Gas generation is similarly in the same cost level but the infrastructure for LNG supply has not been sufficiently developed. And it is not going to happen without a resolute and sustained push from the DOE.

Surely it will take sustained effort for 3 to 6 years but the DOE’s leadership historically had not stayed long enough in their jobs to make meaningful direction to the diversification of our power technologies.

Clean energy options like hydro, solar, wind, and biomass are reaching grid parity with coal. Nationally it seems coal generation rate will be in the P5.00 to 5.50 per kwh range.  Meralco’s claimed rates of P3.60 per kwh for their new contracts with Meralco PowerGen are based on low coal prices. And when world coal prices kick up we will see its real price. But clean energy is not as easy as coal which can also be developed at large scales of 300 to 1200mw compared to renewable energy which is 10 to 100mw in each location.

Our power cost is high because low power cost is not really a national policy. We only pay lip service to it. We buy into the line of the power generators that “the most expensive power is shortage of power”.  Assuring sufficient supply and attaining least cost power must always go together.  When the government only talks about assuring adequate supply and the need for renewable energy, you know that price is not a consideration which means it is going to be non-competitive and expensive.

 Energy mix also need to define whether we are pursuing centralized power for our archipelagic country or are we decentralizing our power supply by encouraging bite sized power plants on each island? Should we aspire for N-1 power reliability in each island?

We mostly talk about base load supply and renewable energy.  Energy Mix includes developing intermediate, reserve, and ancillary services power. The rise of intermittent renewable energies, like wind and solar, make development of ancillary services power even more exigent.

What is the role of hydro projects? Should they be sources of cleaner and cheaper power as in the pre-EPIRA days before 2001 at P2.10 per kwh or should they be reserve and ancillary services power as the new private owners have converted them to be at WESM prices of P6.00 per kwh. Along these lines would depend the role of the Agus hydro complex in Mindanao. Should they be privatized and turned into ancillary services power as they did in Luzon or should they be rehabilitated and restored to being a source of lower cost power for the people of Mindanao? On the role of hydro in the energy mix will also depend whether the Laiban dam project in Quezon will be encouraged or not.

The Department of Energy is mandated by RA 7638 (Department of Energy Act of 1992) to prepare, integrate, coordinate, supervise and control all plans, programs, projects and activities of the Government relative to energy exploration, development, utilization, distribution and conservation.  Its mandate however was made more specific by the Epira Law of 2001 to include the following under Section 37.

(a) Formulate policies for the planning and implementation of a comprehensive program for the efficient supply and economical use of energy consistent with the approved national economic plan and with the policies on environmental protection and conservation and maintenance of ecological balance, and provide a mechanism for the integration, rationalization, and coordination of the various energy programs of the Government;

 (b) Develop and update annually the existing Philippine Energy Plan, hereinafter referred to as ‘The Plan’, which shall provide for an integrated and comprehensive exploration, development, utilization, distribution, and conservation of energy resources, with preferential bias for environment-friendly, indigenous, and low-cost sources of energy. The plan shall include a policy direction towards the privatization of government agencies related to energy, deregulation of the power and energy industry, and reduction of dependency on oil-fired plants

(c) Develop policies and procedures and, as appropriate, promote a system of energy development incentives to enable and encourage electric power industry participants to provide adequate capacity to meet demand including, among others, reserve requirements;  

(d) Monitor private sector activities relative to energy projects in order to attain the goals of the restructuring , privatization, and modernization of the electric power sector as provided for under existing laws: Provided, That the Department shall endeavor to provide for an environment conducive to free and active private sector participation and investment in all energy activities;

We are not saying setting up a policy guideline on Energy Mix would be politically easy. Every mix the DOE pushes will have detractors because sectors have their own agenda. And implementation is another matter.  The DOE has been considered toothless in implementing power development strategy. Its Philippine Energy Plan is considered nothing but a tally sheet of power projects being determined and developed by the private sector. The CSP reform is the one that is giving DOE enforcement teeth for an energy mix policy.

Let us hope the DOE comes up with a prescient Energy Mix policy soon.  We have not had a President with the true political will to do what is right for the country. The term of President Rodrigo Roa Duterte is an opportunity to reform the power industry and create an Energy Mix for the country. Let us not miss this chance.

 

Matuwid na Singil sa Kuryente Consumer Alliance Inc. 

Matuwid.org

david.mskorg@yahoo.com

DOE MUST PUSH FOR CSP BIDDINGS NOW TO AVOID FUTURE POWER SHORTAGES

David Celestra Tan, MSK

Updated 22 April 2017 from 8 November 2016

The inexplicable postponement by the ERC of the policy requiring competitive biddings for power supply contracts by five (5) months and 20 days from November 6, 2015 to April 30, 2016 caused so much brouhaha that the future power supply of the country in Luzon is now threatened.

ERC’s deferment enabled Meralco to fast track the signing ofseven (7) midnight power supply contracts totaling 3,551mw purportedly with various power generators that turned out to be all majority owned by its own subsidiary MeralcoPowerGen. The contracts were signed on April 26, 2016 and  filed with the ERC at 7am on April 29, 2016, just beating the new extension given by the ERC of April 30, 2016. The contracts with five different companies have similar language and pricing formula and obviously came from one template. Signed on the same day!

Uproar among consumers

Consumer advocacy groups smelled a rat in the apparent evasion of the CSP policy and filed cases seeking nullification of the ERC resolution 1 of 2016 and the suspension of the ERC hearings on the approval of the power supply contracts. Alyansa Para saBayangPilipinas or ABP filed a lawsuit in the Supreme Court to nullify the extension of the CSP by the ERC. ABP also filed an administrative anti-graft case against the five ERC commissioners.  Party-list Bayan Muna had called for Congressional investigation in aid of legislation of the alleged midnight contracts signed by Meralco with several partners but all controlled by MeralcoPowerGen.

Your organization MSK itself had filed a petition seeking the suspension of project approval hearings until the ERC resolves first it’s obligatory“motuproprio” review of the evident monopolization, market power abuse, and cartelization of the power market by Meralco and its affiliate MeralcoPowerGen. ERC’s obligation is mandated under Section 43 of the Epira Law of 2001.

The threat that is being floated is that all these lawsuits to stop Meralco’s 3,551mw of new power supply with indicative completions of 2021 and 2022 will result to debilitating power shortages in the future and well within the term of President Rodrigo RoaDuterte.

Who is to blame here? The people who are evading the CSP rules or the consumer groups who are seeking to protect the consumers from such actions? After all it is estimated that the overprice in the negotiated power rates is about P12 billion a year for 20 years compared to the rate that they can get from a truly open competitive bidding.

Meralco is claiming urgency and scaring the people about power shortages and brownouts. The truth is of the 3,551mw only 70mw (2%) was coming on line in 2016. Meralco’s previous 440mw San Buenaventura coal project in Mauban is scheduled for 2018. (not one of the 7 new contracts) That’s two years from now.  Most of the new 3,500mw will come on line in 5 to 7 years yet.  It takes only 3 to 4 yearsto build those coal power plants. We still have one year to go through an honest to goodness competitive bidding.

A Challenge to Meralco and the DOE and ERC

To settle all arguments on competitive power and how that can be achieved better, by “aggressive negotiation” with sister companies as claimed in Meralco propaganda or by truly open bidding, why don’t we hold even one pilot biddings now?

The DOE, which is tasked to assure sufficient supply of power at fair and reasonable rates can push for biddings now. Perhaps a 300 to 500mw generation projects in Luzon, one with coal and another in natural gas, that would be administered by an independent third party and where only the truly independent power generators can participate or at least there should be a minimum of three independent bidders in the competition mix. (Meralco’s chosen partners in the seven (7) midnight contracts have been compromised and should not be allowed to participate in this pilot project intended to show truly independent bidders can result to better rates).

There are still independent bidders that may not be hopelessly compromised. Ayala Group, TeamEnergy of Japan, AES of USA, Kepco of Korea, Filinvest of the Gotianuns, GN Power, PeakPower of the Ng Family, First Gen of the Lopez Group, Energy World of Australia, TransAsia.   Other Japanese, Korean, Singaporean, French and Canadian companies looking to participate in power generation.

This future supply in Luzon can even be offered by 2,000mw of coal projects in Mindanao if DOE steadfastly pushes for the completion of the power transmission interconnection between Mindanao and the Visayas and Luzon grid by 2020.

True Competitive Bidding not Swiss or Price Challenge

The DOE promoted biddings will also open the generation market to more investors and not only to the ones anointed by Meralco and the MVP Group that controls it. This is the right way to assure future additions to power supply in a sustainable manner. By tearing down the “Berlin wall” barrier to entry to the generation market that negotiated contracts present. 

By bidding, we don’t mean the swiss or price challenge type that the MVP Group had been lobbying for because that type is a sham competitive bidding.  It is rigged in favor of the supposed “unsolicited proponent” especially if it is the subsidiary of Meralco and MVP Group.  It doesn’t even comply with the true wordings of the BOT law that allowed such unsolicited proposals.  We are just playing games with the public.

Let us hope that the Court cases will be resolved soon enough. Finding someone to blame does not serve the public interest.  Meanwhile, we need to keep in mind the two important things. The country’s need for sufficient power supply to meet the demands of our growing population and economy and for competitive, fair, and reasonable rates.

The bidding process could take a maximum 12 months. Less if administered by a truly capable third party consultant. This would be way enough time to build plants within 4 to 5 years.If the DOE, ERC, Meralco, and the Energy Committees of Congress really want to assure there is sufficient power supply in the future,  why not hold legal and truly competitive CSP biddings now?  Otherwise, power shortage can become a self-fulfilling prophecy.

How about it sirs?

MATUWID NA SINGIL SA KURYENTE CONSUMER ALLIANCE INC.

Matuwid.org

Duterte should focus on PH power plight

By Andy Mukherjee (Bloomberg Gadfly) – March 24, 2017, 10:00 PM

from Manila Bulletin

Want to switch on the TV? Wait for the entire family to gather in the evening. That’s one of the strategies that Philippine Energy Secretary Alfonso Cusi says his countrymen use to squeeze the most juice out of electricity.

When President Rodrigo Duterte gets a moment from his drugs war, a busy economic agenda is crying out for attention. Energy will be near the top of the list. There’s no obvious reason why power should cost 60 percent more for Filipino households than those in Thailand. Indonesian tariffs are seven times cheaper. Even Singapore, which like the Philippines has no consumer subsidies, pays 18 percent less for electricity than its Southeast Asian neighbor.

Yet statistics point to a glut. Prices in the spot market, where distribution companies buy electricity from producers, are down to a record 2 pesos (4 cents) per kilowatt hour, Cusi says.

power plight

Producers, which include a Who’s Who of the Filipino business elite, are complaining about a dangerous oversupply of capacity. Nonetheless, they have to finish what they’ve started.

Ayala Corp., the country’s oldest conglomerate, will allocate 21 billion pesos of its 185-billion peso capital expenditure this year to power. The bulk of San Miguel Corp.’s 63 billion pesos in spending this year will be on power. Aboitiz Equity Ventures, Inc. has earmarked 59 billion pesos to complete the 4,000 megawatts it wants to own by 2020.

Everyone’s a little jittery. The rate of return on new power plants has slid to below 10 percent. At least one group has already put the brakes on fresh investment. If all projects that were on the table when the last administration left office in June are completed by 2021, it may take nine years for demand to catch up with supply.

Consumers should still brace for bill shocks. The reason is partly the country’s challenging topography. In an archipelago of 7,000 islands, transmission is a big challenge. Increasingly, a bigger reason may be an unsustainable quest for sustainable energy.

Renewables account for 31 percent of dependable power capacity, a close second to coal’s 36.5 percent share. More than half comes from hydro, with solar making up roughly a tenth. But in the island group of Visayas, which spans the middle of the Philippines, a quarter of renewable energy capacity – and almost 12 percent of the total – is now solar.

Five years ago, the government guaranteed to absorb power generated by renewable sources at what now appear to be highly lucrative long-term prices. That’s especially the case for solar, where panel prices have crashed. The extra cost is recouped from customers. It’s no different from Germany, except that an average Filipino’s income is a fraction of the average German’s.

So what are the options? The Philippines is hot but not particularly sunny. It has exhausted its geothermal potential, and nuclear is a long way from being politically viable. Gas has merit, especially if Duterte’s bonhomie with China leads to exploration opportunities in the South China Sea.

Cusi’s stance of keeping supply sources “technology neutral” is sensible. He comes from Mindoro, an island whose sole source of power is diesel barged in from elsewhere. A submarine cable from a coal-fired plant on another island was approved only recently.

For the Philippines to have a shot at sustaining 7 percent GDP growth, coal is unavoidable. It’s also contentious. Just this week, Greenpeace identified the country as one of 10 “hot spots” beyond China and India because it’s building almost 14 gigawatts of coal-fired plants.

Environment Secretary Gina Lopez, while awaiting senate confirmation, gladdened many a green heart – and earned many powerful enemies – by cancelling 75 mining permits in February.

With her family’s company a prominent energy investor, rivals worry about bias. Backers say her advocacy of 100 percent renewables is what the Philippines’ fragile ecology – ravaged by five serious typhoons since 2006 – needs to address climate change.

Like almost everything else in this country of 104 million people, any decision will ultimately be a battle among members of the business elite. That’s why Duterte, a former city mayor with no ties to the conglomerates, will have to step in.

One solution could be to stop the mollycoddling of solar, and let new plants bid for tariffs. If the Indian experience is anything to go by, there could be plenty of supply at low rates. The last thing the president will want, though, is India’s downside: lots of stranded coal-based generating capacity in a slowing economy weighing on the banking system.

Duterte has so far kept his thoughts on economic policy to himself. That’s causing anxiety for business groups.

Even if the president doesn’t give two hoots for the billionaires, he has to think of his power base: the people. The 86 percent popular support he enjoys could be reinforced if somebody living in a one-bedroom apartment didn’t have to shell out $60 a month for electricity.

That’s in Manila. On a remote island, consumers pine to watch TV and leave electric fans running. If only the president could tear himself away from chasing pushers and dealers.

(This column does not necessarily reflect the opinion of Bloomberg LP and its owners).

 

Meralco’s Needs True Concern for Consumers in Annual Malampaya Shutdown Costs

David Celestra Tan

18 March 2017

About 20 typhoons hit the Philippines every year like clockwork. It is only a question of where they would hit and how bad the damage would be.  Meralco is hit additionally  by two disasters every year like clockwork. Similarly it’s a question of how bad the damage to consumers will be.  One Every summer when power demand shoots up and hydro power supplies are down. It is no longer as bad because of solar power but nonetheless there is frenzy in power shortages in the summer months. These are also the months when those who want to ram the approval of their coveted coal projects go into high gear with their media and lobby campaign with legislators threatening power shortages and calling for fast approval of projects.

The Second disaster that hits the Meralco area every year like clockwork is the Malampaya alternative fuel shuffle. When it happened in November 2013, Meralco nonchalantly applied for approval of a whopping 4.15 per kwh pass on charge, 90%, in generation rates and got ERC’s approval in one sitting just before Christmas of 2013. Meralco and ERC were foisted to whack the consumers with almost P10 billion alternative fuel charge.  If that was not enough they followed it with a 100% increase application for January.

The Malampaya consortium is the only supplier of natural gas to the three natural gas generators contracted to Meralco. A total of 2,565mw.Malampaya shuts down annually for preventive maintenance. Everytime that happens the three generators, First Gas Sta. Rita, First Gas San Lorenzo, and Ilijan, buy alternative fuel which are more expensive.

In 2013 Meralco’s media machinery tried to blame all of the P10 billion additional charge to the Malampaya shutdown and the shutdowns of many coal power plants that mysteriously went off line in the same period.  MSK’s analysis of Meralco’s power sourcing showed that the P10 billion additional charge was not only a result of Malampaya but the suspicious behavior of Meralco’s other power suppliers and the apparent market manipulation that caused the WESM market to shoot up to P62 per kwh.

These annual Malampaya hurricane has been hitting Meralco consumers since 2007 when the First Gas Power plants totaling 1,500mw started operations. And the ERC and the Meralco consumers have been dutifully approving and paying for them without question were it not for the mind-boggling amount in 2013!

This year the Malampaya shutdown happened from January 28 to February 16. Meralco applied on February 18, 2017  with  the ERC for an additional charge of P0.9174 per kwh for recovery of P2.4 billion in additional cost of alternative fuel used by the three Meralco suppliers using Malampaya gas. It turned out the actual fuel increase being claimed was P1.751 Billion and the ERC gave a provisional authority last March 6, 2017 for Meralco to start charging the consumers with a lower P0.22 per kwh additional charge for the first month compared to the original P0.30 per kwh Meralco was applying for.

Your association, MatuwidnaSingilsaKuryente Consumer Alliance Inc., entered its intervention in the application to determine if the additional charges are fair and reasonable and to look into the mitigating measures that Meralco has been taking to protect consumers from avoidable charges.

The first hearing was held last March 14 at the ERC main offices in Ortigas center, Pasig City. The 2nd one was held March 17 at 2pm.

We discovered during the hearings that Meralco is passing on the fuel differential for the whole month of January 26 to February 25, 2017 (30 days) instead of only for the period that coincide with the Malampaya shutdown of January 28 to Feb 16 (20 days). Asked during cross examination why there is no breakdown ,Meralco’s witnesses said that’s how First Gas and Ilijan bill them and they don’t ask for further details. They just passed on whatever is invoiced to them by the power generator.

My observations in the first two hearings.

1. Meralco’s nonchalant attitude towards the annual additional charge to consumers

Meralco was apparently not prepared to answer deeper questions on their mitigating measures to protect the consumers. It is clear that to them Malampaya surcharge of P2.4 billion is only a computational and passive exercise. Their culture does not seem to really take to heart their continuing mandate as a public services distribution utility franchise holder to protect the consumers and assure least cost power.

Well what can we expect from Meralco when it is doing business with its sister company?

2. Meralco’s lack of true mitigating measures to reduce cost to consumers of the annual Malampaya shutdown.

In the 2nd hearing last Friday March 17 at 2pm, a more senior lawyer of Meralco, Atty. Valles attended.  He tried to answer questions in ways that suggest that Meralco is taking measures to protect the consumers and not just passively passing on what their suppliers bill them as was admitted by Meralco’s billing and rates supervisors in the previous hearing of March 14.

Congressman Ted Casino of Bayan Muna asked Atty. Valles how they insure that the fuel being charged to consumers were competitive in the market and that there were no lower suppliers. Ted asked if their generators submit a canvass of the different suppliers of alternative fuel to Meralco. Atty. Valles this time said they receive such a canvass and Meralco studies it to see if they are satisfied that the prices are competitive.  Ted then asked Atty. Valles if they can submit copies of such procurement canvass for Alternative fuel and Meralco communications to First Gas and Ilijan of their approval or comment. Atty. Valles demurred and said return the documents to the generators and they don’t keep copies of those communications.  He also mentioned about confidentiality agreement between Meralco and First Gas. MSK argued with Mr. Valles that if Meralco wants to pass on these more expensive fuel to the consumers they must at least support the charges.

The ERC’s hearing officer Atty. Ivan Galura, instructed Atty. Valles to submit these supporting documents validating that Meralco indeed did something to assure the prices of alternative fuel are procured competitively to mitigate the costs to the consumers.  We assume that this validating document will be presented by Atty. Valles in the next hearing on March 27, 2pm.

Atty. Valles also said Meralco coordinates with NGCP and the other power generators on preparations for the Malampayashurdown.  He was vague though on whether such coordination included looking for mitigating measures to protect the consumers.

Atty. Valles presented a witness who made a presentation on the terms of the power supply agreement between Meralco and the Malampaya generators, First Gas and Ilijan.  In essence they were saying that they needed to run the 2,565mw of Malampaya power plants to assure there will be no brownouts in the Meralco area. They disclosed also that under the terms of the power supply contract that interruption in Malampaya fuel supply is considered a “force majeure” event and that the power generators can therefore buy more expensive alternative fuel to keep the plants running. Atty. Dimagiba of Laban Konsyumer Inc., another intervenor,  argued that the PMS shutdown of Malampaya is not considered force majeure as defined by law.

So far there appear only two mitigating measurers being taken by Meralco.   One is to spread the pain of the Malampaya additional charges by dividing it into three months. Two is that they sign for additional supply to cover the drop in the output of the Malampaya generators.

Your association will endeavor to introduce mitigating measures for the future to find a solution to protect the consumers since such does not seem to be coming from Meralco.

We will update you as things develop.  Next hearing is March 27 2PM at the ERC Offices, 15th floor Pacific Center, Ortigas Center Pasig.

 

MatuwidnaSingilsaKuryente Consumer Alliance Inc.

Matuwid.org

Dreaming Realistic Options to Inter-Island Power Grid Links – Archipelagic Power Strategy for an Archipelagic Country

David Celestra Tan, MSK

5 March 2017

The Philippines has 7,017 islands with 20 major ones. Luzon, Most of Visayas, and soon Mindanao are connected to the main grid. Big islands likePalawan, Mindoro, Masbate, Marinduque, Romblon, Catanduanes, Bantayan Island, Siquijor, and Basilan are the major islands not connected to the national grid and they take up P10 billion a year in missionary subsidy.The true cost of generation is about P10 per kwh compared to an average of P5.00 per kwh on the grid.

Yet, the quality of power supply continue to be unsatisfactory and slow in coming.

First Things First

 Many ideas for more submarine cables to connect big islands like Mindoro to Luzon, Mindanao to the Visayas, Sabah to Palawan and Palawan to Luzon are being floated. To make sensible decisions on these expensive connections, a national strategy decision has to be made first on the role of the inter-island power grid links. Are they for the purpose of being the main source of power or only to share supplementary supply resources among the islands?

Inter-island link as main source of supply

 If the submarine inter-island grid is intended to be the main source of power to the island it means there is no intention to build cost effective main supply on the island itself.  It means centralizing power generation and bringing them to these islands by submarine cable. It also means the submarine cables will be much bigger in capacity, probably 138 and 230kv.

We are an archipelagic country trying to configure our national grid as if we are one homogenous country like the western countries that we seem to be copying. Centralized generation is so old and ignores the trend towards smaller generation and renewable energy that also tend to be smaller. The drop in savings from larger and larger power plants, the increased cost and geographical constraints of building more and more high voltage transmission lines, and  the dropping cost of smaller generation technologies have combined to this trend.

 Inter-island links for sharing of supplementary resources

 This means the inter-island connection is only being built for the purpose of sharing the power generation resources of one island with another for supplementary peaking and reserve power and even intermediate or mid-merit needs.

This means the main source of power of each island will still be on the island itself and not imported. Consequently, the submarine connection is for lower capacity of 69KV and in some cases maybe even 34.5kv. There is a quantum leap in costs of 138 and 230kv submarine power systems which require gas insulated cables and technology compared to only basic insulation and auxiliary systems for 69kv. In the proposed Mindoro to Batangas connection the 230kv line was estimated at P11.9 billion while Napocor estimated the 69KV line at P4 billion.

 Lessons from the Past

 The Napocor monopoly pursued this centralized power generation strategy and linked the Visayas islands in the 1970’s and 80’s with submarine cables to Negros, Panay, Bohol, and Boracay. Main power supplies were centralized in Leyte and Cebu. Consequently Negros, Panay, and Boracay suffered for decades with terrible power quality under this concept. It was only when the private sector built power plants in Iloilo that the power reliability improved in Panay island and Boracay.

 1. On-Island Power Generation and N-1

 For power reliability each island must be self-sufficient in base-load power supply. Some islands are big enough to afford a 65 to 150mw in base-load generator like coal and natural gas. It can be a mix of energy resources like mini-hydro and biomass and small natural gas which is now feasible like what is possible on Negros Island.

 This is in line with the N-1 and even N-2 power development requirement of the Philippine Grid Code. It means even if one or two of the largest generating unit to the island goes out the “N” (normal service) will still be maintained.

The submarine cable is a unit of supply. If it is the main supply of power to an island, if it goes out, will there still be normal power service to the island or there will be brownouts? If we supply Negros island with 200mw of base-load power via submarine cables,everytime that system goes down, will there be 200mw of backup reserve power on the island itself to maintain normal electric service?

 2. Economic Sense of Submarine Inter-island grid connections

Ideas for inter-island grid connections must make economic sense for ultimately it will be the consumers who will pay for it.

 a. The Mindanao-Visayas grid connection

 We can argue that this connection despite its costs can be economical because there is plenty of power supply from Mindanao (2,500mw of coal projects) that can be supplied to the Visayas and Luzon grid. Mindanao also has over built on diesel power plants that were intended only as security in case the Agus and other suppliers fail. Luzon and Visayas can share to Mindanao its excess power during the summers when Agus hydro complex drops 400mw in capacity.

The Mindanao supply can help keep the WESM prices in both Visayas and Luzon within reasonable level.

 1. The Mindoro Connections

 Mindoro island is so big and so close to Luzon that the island has been a favorite target for submarine grid connection. However, the originally proposed P12 billion Batangas to Mindoro connection was apparently designed to carry a 300mw coal supply from Mindoro to Luzon that’s why it was designed for 230kv. The problem was the claimed 300mw coal project in Mindoro was not actually in Mindoro because the DOE had long determined that Mindoro coal is not of sufficient quality. (Whoever tried that stunt?)

 When your consumer group MatuwidnaSingilsaKuryente Consumer Alliance looked into it in 2011, it realized that there were actually three (3) parts to the “Batangas to Mindoro” connection proposal. The 230kv submarine cable connection from Batangas to Calapan Mindoro (25kms), then the 230kv, 300km overhead transmission line from Calapan to San Jose Mindoro Occidental and as disclosed by the electric coop OMECO, the submarine connection from San Jose to Semirara Coal mines.  Apparently the 300mw coal supply mentioned by NGCP to benefit Luzon consumers was not really in Mindoro but in Semiraraisland, 15 kms away. It explains why the project incongruously included a 300KM 230KV line from Calapan to San Jose, a city with only 12mw in demand.

 Building the submarine cable is very expensive and someone has to pay for it and it will most likely be the consumers. The only way to make the cost palatable is to spread the cost over all the Luzon consumers.

 Economically, it does not make sense. Mindoro island currently has 65mw power demand. It grows only at 5% at most per year. In 10 years it will only have 106mw.  Obviously Mindoro island cannot use all that 300mw power so a connection line from Mindoro to Luzon will have to be eventually justified.

 There is a new proposal to build a submarine cable from the mine-mouth coal plant in Semirara to San Jose Occidental Mindoro, a province with only 25mw in demand As far as we know the Phil Grid Code rules that such connection will only be for the use of a Semirara coal project and therefore should be classified as a dedicated connection line that the power generation proponent will have to build himself and pay for it as part of his project cost. Down the road the creative minds will convince “another” power generator to build a plant on Semirara island and hence technically the submarine connection line from Semirara to Mindoro will have to be taken over by NGCP because by then it is “needed to assure competition” since there will be several generator users.  Imaginative. The cost of the expensive submarine cable connections will become part of NGCP transmission charge. And it will be bigger because they will justify building the 300km 230kv overhead line from San Jose to Calapan and then the 25km submarine cable from the Calapan to Batangas. Just like the old proposal in 2011 except this is being pursued in reverse.

 MSK’s question then still remains. Why make the Luzon consumers pay so much for submarine cable costs from Semirara to Batangas when it can buy the 300mw from a Luzon based power project without the big transmission line expense? Why not buy the 300mw from the SemiraraCalaca plant even?

 The Island of Mindoro can need 300mw of power by itself only in the foreseeable future if it is connected by land bridge to Batangas thus justifying migration of industries and more residents to the island. Otherwise it will be only a 100mw island in 10 years.Longer if it grows its normal 3.5%.

 1. The Palawan-Sabah power Link-up

 Another exotic idea being floated is to source “dirt cheap” power from Sabah to Palawan by a 200km submarine cable power link. We agree with writer Ms. Myrna Velasco of the Manila Bulletin that it is “dreaming an impossible dream”.

 A 200km Sabah to Palawan cable link can be economically feasible only if it involves more than 1000mw. It will also involve building a 230kv line the 350km length of Palawan island. The 300km  subsea gas line ofMalampaya became viable because it involved 2,700mw of gas energy. Furthermore, we have to consider the national energy security implications of buying power from a country with whom the Philippines has some history of territorial conflict.

 The main land of Palawan now uses only under 50mw peak demand.Even if it grows at 10% per year, it will only need 130mw in 10 years. And it is not going to maintain that 10% growth by the 7th year.

 Obviously, the 200km Sabah to Palawan link up will not be viable if it is only for the 50mw Palawan. Supposed the Sabah power is 500mw. That power will need to be brought to the larger market of  Luzon. This means building a submarine cable from Palawan to Luzon mostly likely via Mindoro.That will help justify that 230kv overhead line from San Jose Occidental Mindoro and the 25km submarine line from Mindoro to Batangas.

 But it is not that Simple

 Bringing power to Luzon via a Mindoro power link from Semirara or Palawan-Sabah will have to address the congestion in the Batangas transmission line corridor to the load center of Metro-Manila. The cost of building a new 230kv line to Manila will need to be factored in the cost of a Mindoro connection project.

 Talking about what is technically and economically sensible, why not the Philippines consider Bataan as an energy zone and build a shallow Manila bay submarine cable from the Bataan Peninsula to the Metro-Manila and Calabarzonarea? This is a dream worth dreaming.

 Economic Costs and Archipelagic Power Grid

 In the end it should be the economic costs to consumers that should drive the decision. For the archipelagic Philippines, what would be fair and reasonable to consumers would be an archipelagic power grid where each major island would beself sufficient in its base-load supply and only get where feasible the peaking and reserve power from other islands.  Even this one needs to be economical. It would not be sensible for Palawan to secure its peaking power from outside because it is so far away from the other islands. Down the road when it gets to say 200mw, maybe it can do the reverse. Buy its main supply from the Luzon grid through a submarine cable and then be self-sufficient in peaking and reserve power. For now what makes sense for Palawan is to develop its own base-load power using mini-hydro and natural gas. Temporarily supplement it with diesel plants.  Solar does not make sense unless it becomes self-regulating with its own battery storage capability at reasonable costs. Palawan is also tied up with long term power supply contracts with DMCI and Vivant Delta P with guaranteed contracts on bunker c power for 20 years.

 Let us be realistic when we dream of these inter-island grid connections. We can do so by deciding first on what role of the inter-island connection. Will they be for main source of power or for resource sharing of excess power for peaking and reserve?

 It seems our power grid dreams are imagined by the power generators for their own interest.  The government officials will dream the right dreams if they do so purely from the interest of the country and the Filipino consumers.

 

MatuwidnaSingilsaKuryente Consumer Alliance Inc.

Matuwid.org

David.mskorg@yahoo.com