Archipelagic Nation Needs Archipelagic Generation

David Celestra Tan
25 January 2015

Should a country generate its power from larger power plants far away from the load center or should it build smaller power plants closer to where they are needed?

This article is a continuation of our previous posting on Locational Strategy for power development.

The debate on distributed generation versus centralized generation dates back to the time of Thomas Alba Edison, the inventor of electricity, when he built the Pearl Street Station in New York in 1882.

The idea is generating power is cheaper from larger centralized though farther power plants even if we factor in the cost to transmit them by HV power lines to the load center. Land costs in remote areas are cheaper and the sparsely populated surrounding communities that can use the large investment, tax, employment, and general contribution to the community economy, would be not as resistant to environmental risks. Large coal power plants also need to be located close to the coastlines for coal fuel handling and plant water cooling.

This debate is very relevant to our beloved Philippines, an archipelagic country with 7,107 islands (okey in low tide), at least 15 of them are major, occupied by 85% of our 97 million population. Do we build big and bigger power plants and string the islands with a network of long and longer submarine power cables and overhead transmission lines? Or do we build island-centric generating plants and only build medium voltage and strategic inter-island submarine connections for supplementary peaking and reserve power. There is a big jump in technology and cost from a 69kv submarine system to 138 and 230kv. Major high voltage lines of 138 and 230kv can be built for strategic reasons like connecting the major island of Mindanao to the Visayas and Luzon grid.

In power sector parlance, distributed generation means generating power close to the distribution centers. It is also called embedded generation when a power plant is located close to the load center and power is delivered directly to its distribution substations and feeders without going through long high voltage transmission lines.
The deciding factors should be power reliability and the total cost of delivered power to the electricity consumers. This means including the cost of transmission lines. Embedded generation is embodied in our Philippine Grid Code.

Napocor’s Philosophy of Centralized Generation

The policy of distributed generation got lost in the Philippines power development strategy when the government nationalized under Martial Law the power generation and transmission functions under the government owned monopoly, National Power Corp. One thing that Napocor’s and the old Ministry of Energy’s strategy got confused on was while it may be sensible for building bigger power plants in the large Luzon island, that centralized generation philosophy was adopted also in the Visayas and Mindanao. Consequently, under Napocor there were no major power plants built in Negros and Panay islands. Instead, they relied on the 700mw geothermal fields in Ormoc, Leyte and built overhead power lines to Cebu and connected Leyte, Cebu, Negros, and Panay with submarine power cable systems.

Meralco under its original American owners (from New York) and visionary Lopez patriarch Eugenio Lopez Sr. was building power generating plants close to the load center of Manila. Remember the Rockwell power plant in Makati, the Gardner Snyder station in Sucat, Tegen Power Station in Sta.Ana, and Malaya? These were feasible in their locations in Laguna Bay and Manila because they run on bunker c which can be barged.

Even the last big power project under Martial law, the 600mw nuclear plant in Morong, Bataan was not unreasonably far (120km) from the Metro-Manila load center. There was already a 230kv transmission line built from Morong to Hermosa Bataan. When this power project was aborted under the Anti-Marcos frenzy of 1986, there were no power projects undertaken to replace it despite having a supposed power guy appointed by President Cory Aquino to the presidency of the power monopoly Napocor.

Power Development in the Philippines was neglected during the political upheaval of 1980’s and caught up with the country just as it was starting to economically recover after the people power revolution. A five (5) year power crisis ensued with 12 hour rotating brownouts 1990 to 1995. The power projects undertaken under the Power Crisis Act giving new President Fidel V. Ramos the absolute power to negotiate urgent power projects, saw the building of power plants in places where coal unloading is feasible, where power barges can be moored, and where big power investments are politically convenient.

From a transmission planning and system balancing point of view, many wondered why a 1,200mw power plant, the country’s largest, was built way in the North in Sual, Pangasinan, which is 210 kilometers away from Meralco’s nearest power substation feeder. It necessitated the building of an equal length of 230kv transmission line whose cost is passed on to the consumers.

If we decide that the Bataan Peninsula is a good strategic generation area, it may be sensible to build a submarine cable system from Bataan to the Manila and Calabarzon load centers instead of going around Pampanga and Bulacan with overhead power lines that tend to run into right of way problems in building them.

An archipelagic and island-centric generation strategy is most critical for the Visayan islands because of the high cost of continually building submarine power cable systems. Its major islands of Panay, Negros, Cebu, and Leyte, are seeing booming economies. Of these islands the weak link in generation is the 250mw Negros where there has not been a major power plant built for 40 years other than the ill-fated 80mw Northern Negros Geothermal project of PNOC EDC in the Mt. Kanlaon area which PNOC, after investing billion pesos, turned out to be a 10mw area. Currently most of Negros power comes from a coal plant in Cebu and eventually a coal plant in Panay islands to the West which will both require the expensive expansion of the submarine cable systems from those islands to Negros, adding to the transmission charges to consumers. We heard this is budgeted at P5 billion to bring about 100mw of Panay generated power to Negros.

One of the emergency power projects in the 1990’s was the 700mw geothermal of Cal Energy in Ormoc, Leyte, built with a full off-take guarantee by the national government through PNOC. For many years it was being dispatched only 50% because its power cannot be delivered efficiently through the Visayan Grid which relies on submarine cables. During this period, Panay island and Negros had been suffering from power shortages including Boracay. In August of 1998, Leyte was connected to Luzon by a 440mw HVDC submarine cable system.

For power reliability in each island there has to be sufficient on-island generation. There is an esoteric term in the power sector called “N-1” which roughly means an island must be able to maintain normal power supply even if its largest power source like a generating unit or largest transmission system is down. This is embodied in the Philippine Grid Code as part of power reliability formula. The Code also encourages embedded generation.

NGCP as the system operator and planner of the power grid does not push for on-island generation. In fact their behavior suggests they are against it. They push for more revenue generating transmission line projects. And those will continually add to the transmission charges to the consumers.

At some point, the major islands of Mindoro and Palawan will need to be connected to the main grid. However, the scale and cost must be sensible. NGCP’s proposal to connect Mindoro island with a P11.9 billion 230kv submarine cable is an overkill and ignores the need to maintain on-island generation. Had they proposed a more sensible 69kv connection line to provide supplementary power it would have been more viable. Of course, they have to address how to protect Mindorenos from the loss of the missionary subsidies.

The same with the 250 kilometer long Palawan island, cited for being one of the most beautiful islands in the world. It may eventually be connected to the Luzon grid because of its sheer size and load potential. For now the major task for at least the next 5 years is building as much on-island generating capacity as possible to meet its 40mw demand. Palawan is a wonderful place for the government to aggressively push for Renewable Energy. It has hydro, solar, biomass, and wind potential. Why are they insisting on building a coal plant that the Palawenos are against? It can sabotage the clean and pristine image that the island needs for its tourism, the most logical driver of economic development of the island.

For power reliability and lower total cost of delivered power, we need on-island generations not only in small islands. Building expensive submarine cables is part of the cost to the consumers. Our archipelagic country needs an archipelagic generation philosophy.

Matuwid na Singil sa Kuryente Consumer Alliance Inc.

Meralco Customers Paying P13.68 B a Year More To Sister Company Generators

David Celestra Tan
16 February 2015

If there is any doubt at all on whether monopolization and self-negotiated power supply agreements are bad for electric consumers and the economic competitiveness of the country, we only have to look at Meralco’s buying generation rates from its various suppliers.

An analysis of Meralco’s generation cost data for the months of October 2014 to January 2015 by consumer group Matuwid na Singil sa Kuryente Consumer Alliance.(MSK) showed that Meralco has been buying and passing on to consumers P13.68 billion more per year for the higher rates of its sister company generators compared to those of non-affiliated power generation companies.

MSK is advocating for a power rate reduction in the Meralco area by P3 per kwh from the P12.50 in July 2014. Half of the reduction or P1.50 per kwh will come from the generation rate. It has been lower because of the fortuitous drop in world oil prices but that soon will be back to reality. MSK had filed a petition with the ERC to pass a regulation requiring open competitive bidding of power supply contracts and to outlaw negotiated sweetheart deals with affiliated companies that has been resulting to high pass on generation rates to consumers.

1. Coal power generators
From October 2014 to January 2015, Meralco’s non-affiliated power generation suppliers averaged in price only at P3.4885 per kwh whereas Quezon Power in Mauban averaged P4.65 per kwh or P1.16 per kwh or 33% more.

Meralco doesn’t attempt to defend the rate disparity and argues only that QPL is not affiliated with Meralco which is technically true. But the 440mw power contract was negotiated with people close to the then controlling owners of Meralco under same sweetheart deal as the 1,500mw First Gas Power. QPL is now owned by EGAT of Thailand who is now the 49% partner of Meralco PowerGen in the 400mw expansion of the Mauban coal facility.

It is true also that the four (4) other coal suppliers, SEM-Calaca, Masinloc, SMEC Sual, and Therma Luzon Pagbilao, are negotiated contracts but they are nonetheless non-affiliated and the deals were arms-length.

In terms of financial magnitude, Meralco bought 1.01 billion kilowatthours from QPL for the four months October to January. At the higher rate of P1.16 per kwh, the higher cost to the Meralco consumers for QPL power was P1.172 billion for the period.

Meralco buys 27.8% of its energy needs from the four (4) cheaper coal suppliers, an average of 6.95%. It buys 9.4% from QPL. If it were dedicated to least cost power and dealing on arms-length basis, one would think Meralco would be buying more from these cheaper sources which now averages P3.4885 per kwh. Would they not be asking them to expand cheaper capacity.? Instead it chooses to negotiate a power supply contract with its own self for a 400mw Mauban expansion at the rate of P4.30-P5.00 per kwh.

2. Malampaya Natural Gas
Of the three (3) generators selling natural gas power to Meralco, San Miguel’s 1,200mw SPPC Ilijan is non-affiliated and supplies power at P4.4542 per kwh. The Lopez owned First Gas Power are charging P5.4151 per kwh for 1,000mw Sta.Rita and P5.5182 per kwh for the 500mw San Lorenzo, for an average of P5.466 per kwh or a full P1.01 per kwh or 23% higher. They are all using the Malampaya Natural Gas at presumably the same fuel prices and terms.

The two First Gas plants supply 35.6% of the energy purchases of Meralco, an average of 17.8%. That translates to 3.394 billion kwh in the four months. At the higher rate of P1.0124 per kwh, the higher cost to the Meralco consumers is a whopping P3.346 Billion for October to January.

All these three contracts were negotiated but again the difference is San Miguel is non-affiliated and the two First Gas contracts were sister company sweetheart deals that will continue to be an albatross on the necks of Meralco consumers for 12 more years.

In total, the Meralco consumers have paid P4.56 billion more for the higher contracted rates for Meralco’s sister company generators just for the four months from October 2014 to January 2015, or a total of P13.68 billion for 12 months.

The big price disparity and onerousness to consumers between sweetheart deals and arms-length power rates is quite clear.

Meralco PowerGen had announced that it will put up 3,000 mw of new power plants all with negotiated and sweetheart prices and terms with Meralco. All these will be majority owned by Meralco. The 600mw Redondo Power in Subic had just been liberated by the Supreme Court and the 400mw Mauban expansion is moving forward and so does the 400mw Pagbilao expansion. All are coal power plants.

If nothing is done by the government, Meralco’s 5500mw power supply will be monopolized by PowerGen at 3,000mw, First Gas at 1,500mw with another 1,000mw expansion, and Summit Group (a significant shareholder of Meralco) at 600mw. The five truly independent power generators (including SPPC-Ilijan) that currently saves consumers approximately P13.68 billion a year in lower generation rates will practically disappear.

Yet, Meralco is trying to say there is no basis for MSK’s petition that the generation rates will be lower if they are not negotiated and subjected to open bidding and monopolization by sister generators are banned. May be that is to be expected from Meralco but for the ERC, who is mandated by law to protect the public interest, to appear to be apathetic to the petition, is a great disservice to the people and country. Facts and Figures don’t lie.

When will the government pay attention to the electric consumers flight? Who is looking after us and the P13.68 billion per year in avoidable overcharge in generation rates?

David Celestra Tan is a former power generation executive and a founding director and former president of the Independent Power Producers Assn. A CPA and retired utility economist, he is a co-convener of the electricity consumer advocacy group Matuwid na Singil sa Kuryente Consumer Alliance Inc.(MSK). Email