A Caution to DOE Secretary Al Cusi On A Realistic Energy Mix Policy

David Celestra Tan, MSK
25 July 2016

Dear Secretary Cusi:

You are coming into the Department of Energy that had been touting an Energy Mix objective of 30% coal, 30% natural gas, 30% renewable Energy, and 10% all others.

We trust that you will not automatically buy into these numerical targets that had unclear basis.

Caution No. 1

Reducing Coal to 30% is not achievable for the next 40 years.

Meralco and the MVP Group are trying to preempt the Duterte Government and Your energy tenure by hurriedly signing seven (7) contracts totalling 3,551mw of coal power supply negotiated with sister companies, affiliates, and partners last April 26, 2016 and filed with the ERC at 7am on April 29, a day before the extension granted by the ERC.

Those 3,551 of “fast break” coal projects brought to 4,100mw contracts that Meralco signed recently that will supply up to 90% of the energy needs of the National Capital Region within the next 10 years and those contracts are valid for 20 to 25 years. If we do the math, those Meralco coal projects alone translate to 55.8% of the national energy needs considering that Meralco consumes 62% of the energy needs of the whole country. So adopting a 30% goal for coal in the energy mix target for your administration will not be credible nor meaningful.

If we add the 2,000mw of coal projects being developed in Mindanao and the 2,000mw coal projects in the Visayas, coals share in the energy mix will eventually be 80 to 90%.

Caution No. 2

Clean Energy is not necessarily Renewable Energy alone.

Any targets for clean energy should therefore be called clean energy and not Renewable Energy. What’s the difference? It must be realized that Renewable Energy has become synonymous to expensive subsidized energy and those who have influenced the Department of Energy into adopting 30% RE as an energy mix target is setting up the country for expensive subsidies. Towards that fallacy, the government even has a board named National Renewable Energy Board (NREB) acting as lobbyists for solar and wind.

RE Law of 2008 identified several technologies for support. Solar, Wind, Biomass, and Mini-Hydro. (forget about ocean energy, why should the Filipino consumers subsidize their development?) Of these, mini-hydro and biomass are both grid-competitive and deserving of more rational government support.

Clean Energy means the inclusion of large clean energy projects as a program for development. Large hydro, geothermal, energy efficiency. We have probably 3,500mw of large hydro projects and 2,000mw of geothermal. Let us support their rehabilitation and expansion. We already have a significant 25% of clean energy. Let us not be misled into thinking we need 30% Renewable Energy. The Philippines should welcome renewable energy but let us wait until they are affordable and the developers reasonable in their profit expectations.

There is a need to rationalize the role of hydro in the grids. Privatizing Agus in Mindanao will surely turn them into ancillary reserve plants which means they will no longer be baseload supplying power to the people of Mindanao at P2.50 per kwh and become ancillary power supplier selling at P5.00 to P10 per kwh to the private buyer. This is what happened to the hydro plants in Luzon whose population lost the source of P1.90 per kwh power when the hydros were privatized.

If Meralco were truly looking for cheaper sources on arms-length basis, they would be working hard to secure cheaper hydro as a main source.

Caution No. 3

Natural gas options need more determined DOE impetus as a way to balance our energy mix. There are pioneering CNG projects that deserve government support. They are being locked out of the Meralco market because the CSP policy is not being implemented with resoluteness at the regulatory level.

If the government sponsors a CSP for gas with Meralco as participant it is most likely that the private sector will come up with reasonable solutions. The existing natural plants of First Gas and Kepco will probably be interested in eventual conversion to LNG/CNG.

Caution No. 4

Energy Efficiency and Demand Side Management Programs must be part of a total energy mix approach for the country. The top 3 are all addressing supply. The country needs programs to address the demand side. Roof Top solar is a form of curbing the demand side of the energy mix.

Not all coal is the same. Perhaps the dirty coal should be eliminated and clean coal technologies can be improved. There is coal gasification technologies. If we cannot immediately reduce coal in the least we can make them cleaner. Why not look at the smaller new nuclear technologies that are a lot less risky. How about fission technology in the future? And let us not allow Meralco to force the issue and lock up their supply with self-negotiated contracts and prices for the next 20 years, rendering the DOE policy of CSP useless.

We wish you success in providing a more rational, practical, and achievable energy mix policy for the country.

God Bless
Matuwid na Singil sa Kuryente Consumer Alliance Inc.


Update: The Emerging Truth About Meralco’s Interim Distribution Rate Reduction of P0.1883 per kwh

David Celestra Tan, MSK
17 July 2016

A year ago in July 2015 Meralco urgently petitioned the ERC to reduce its distribution rate by 10.4% to P1.3939 per kwh from P1.5822 that was approved for the Third Regulatory period of July 2011 to June 30, 2015.

Meralco’s media machinery went on overdrive trumpeting its voluntary rate reduction. Consumers were overjoyed. The Matuwid na Singil sa Kuryente Consumer Alliance (MSK) was nonetheless curious because it seems out of character for a Distribution Utility with a long culture of overcharging consumers and pushing the limit on profits, both regulated and unregulated. What gives?

A reduction is a reduction and welcome relief for consumers so your consumer group MSK endorsed the immediate provisional approval. Nonetheless we registered as an intervenor to find out if the P0.1883 voluntary rate reduction is the correct amount and sufficient. Last Friday, July 15, MSK finally had a chance after waiting for six months to cross-examine Meralco’s presented expert on rate setting Engineer Roderick Dennison N. Nacu, a Mechanical Engineer with an MBA degree from UP and a 21 year veteran of Meralco with the last 10 as Asst Vice President of the Rates and Pricing Office. Mr. Nacu is in charge of the preparation, supervision, and review of the calculation of Meralco’s proposed rates for each regulatory year.

Here are some of the truths emerging about the reduction that can be bothersome for the consumers.

1. Its not a voluntary rate reduction!

The P0.1883 per kwh is actually the component of Meralco’s rate for the Third Regulatory period of July 11 to June 30, 2015 that was allowed by the ERC to recover the under recovery from the Second Regulatory Period (July 2007 to June 2011).

Truth 1: That authority to recover the under recovery from the previous period actually expired on June 30, 2015. It was not therefore a voluntary rate reduction by Meralco as their media pronouncements were claiming. It would have been illegal for them to continue charging beyond June 30, 2015 and they should stop charging that component automatically. But wonderful PR spin don’t you agree?

Truth 2: There actually was no rate reduction from the Third Regulatory Period to the Fourth Regulatory Period. They are charging in the interim the same basic rate. (The reason it is interim is the ERC had not come out yet with the rules for the Fourth Regulatory Period of July 2015 to June 2019. The existing methodology is PBR. MSK has also petitioned ERC to rescind it because it is illegal and contrary to Section 25 of the Epira Law. Read our article on the subject)

Truth 3? Asked if the P0.1883 per kwh reduction is what he, as the rate setting expert of Meralco, had recommended to the Management of Meralco for approval, Mr. Nacu demurred and said only that he submitted many figures. In a way, saying the P0.1883 per kwh was a choice of Meralco’s top management. The amount was discretionary? Hmmm.

2. Chance of over recovering the under recovery of 2nd Regulatory Period

Mr. Nacu, in his sworn affidavit, said in computing the P0.1883 per kwh recovery, “Meralco used the norminal values of the under recoveries for the four-year period….. and divided it by the Forecast Energy Sales from RY 2012 to 2015….. to arrive at Php0.1883 per kwh”.

This means if Meralco’s actual energy sales (kwh) for 2012 to 2015 are higher than the forecast, Meralco would be over recovering the nominal amount of previous under recovery. Asked about it in the cross-examination, Mr. Nacu said under the ERC’s rules, what is being approved is the rate. If Meralco sales grew higher than the forecasted energy volume used , Meralco keeps the additional revenue. Mr. Nacu added that it was ERC who determined that forecasted energy volume, clearly trying to pass responsibility to ERC.

(Before I was improperly interrupted by Meralco’s lawyer Francis Dino S. Antonio, I was going to ask Mr. Nacu if ERC’s approval was based on Meralco’s application or if the ERC comes up with its own forecast of energy volume as he was implying?) ,br>
Anyway, Is this true Chairman Salazar? Is ERC allowing Meralco to overrecover the underrecovery? In the past, Meralco is known to petition for recovery of under recovery. Would they petition to refund any over recovery? Mr. Nacu said Meralco keeps any additional revenue from higher sales. We thought Meralco’s return on investment is regulated?

Meralco’s annual energy sales grew from 30,592 gwh in 2011 to 37,124 gwh in 2015 or a total increase of 21.13% for the four (4) year period. We believe ERC’s forecast is only 3% per year or a total of 12% only for the four years. That’s an excess of 9.13%.( In fact it is not unusual for Meralco to announce energy sales growth of 10% in one month).

Truth 4: Meralco’s total energy sales from 2012 to 2015 is 139,139 gwh, 9.13% of which is 12,703.39 gwh. P0.1883 per kwh is equivalent to P2.39 billion in what appears to be excess recovery for the Third Regulatory Period.

Is ERC really allowing Meralco to overrecover the underrecovery?

3. Meralco profits or return on investment is no longer regulated

That is one of the rude awakenings that consumers is getting from the hearings at ERC. Meralco’s Mr. Nacu said in cross-examination that under PBR rate methodology, it is a price setting methodology, and not a return on investment regulating system. The approval is on the rate. If however, Meralco’s actual energy sales grew higher than forecasted and used for calculating the per kwh rate, Meralco keeps the additional revenue. The profits of Meralco is no longer regulated.

One more compelling reason the Performance Based Rate Setting price method (PBR) must be rescinded. It is anti-consumer and anti-Filipino. MSK had actually filed a petition with the ERC for a rules change to revert back to Return on Rate base which is actually more transparent and fair. We don’t know when the ERC will show any interest.

We are forgetting that power (including telephone and water) are public services only provided by the private sector as franchises. The monopoly is granted by the government and most business risks are passed on to the consumers. Profits must be regulated.

Good news from this ERC proceedings.

ERC’s bureaucracy have long been derided for being incompetent political appointees. We know many good professionals in the agency who truly take their regulatory jobs seriously. The ERC hearing officer assigned to this case is a lady Atty. Grace Lu Santos. Was by herself and handled the proceedings very professionally and coolly. Very balanced, eloquent, and sensitive to consumers. She would not let Meralco’s lawyers get away with their disruptive antics. Clearly when their presented witness is being asked contentious points. Unruliness is normally expected from consumer oppositors. This time it is the Meralco’s highly paid lawyers who were disruptive and inappropriate.

Atty. Grace Lu Santos Is a credit to the ERC and we should all be proud.

The next ERC hearing on the subject would be August 12 2016 at 10am.

Matuwid na Singil sa Kuryente Consumer Alliance Inc.

Cutting Electricity Rates The Right Way

David Celestra Tan, MSK
9 July 2016

When the subject of reducing power rates come up, Meralco gratuitously suggests “reduce the VAT taxes”. When there was pressure to reduce generation rates, they suggested that the government should eliminate the taxes on Malampaya natural gas that First Gen is using.

This is a classic case of “NIMBY” self-interest, “Not In My BackYard” is an acronym used to refer to host communities’ position that power generation plants are okey to build as long as they are “not in my backyard”. In reducing power rates, Meralco’s wisdom seems “NIMPO”, “Not In My Pocket”.

What is worse than not cutting the country’s electricity rates? Cutting it the wrong way! The key is knowing where to look and be guided by the right conscience and motives.

Looking in the right places. Let us count the right ways.

1. Power Generation
As Meralco itself is saying, this cost component in your monthly electric bill consist of 60% of the total bill and therefore the logical place to start.

Most of Meralco’s power generation supply have been negotiated. About 60% from affiliated generators, 30% from non-affiliates and 10% from WESM and other suppliers. Among coal suppliers, the price Meralco pays to affiliates is 21 % higher than non-affiliates. In natural Gas, Meralco had been paying for many years 15 to 20% higher than the non-affiliated Ilijan power plant of Kepco although there has been parity among them lately.

In the last known comparable figures, Meralco negotiated with its affiliate Meralco PowerGen a rate of P4.35 per kwh for the 400mw Mauban coal expansion, In the same time frame, eight (8) electric coops in Northern Luzon banded together and bidded out a combined 135mw of power generation supply. They got P3.78 per kwh or 15% lower. That’s approximately P1.5 billion a year in higher pass-on charges to consumers. And that is one contract.

If we add the impact of their generous take or pay, downtime, and fuel rate provisions, the true pass on charges to Meralco consumers of these negotiated contracts are actually much higher.

And things will get worse because every single new power supply deal signed and announced by Meralco to the tune of 3,000mw are with “friends and family”, signed when the consumers were not watching during the elections.

If we truly want to reduce power rates, these negotiated sweetheart deals must stop. There is supposed to be a new DOE policy on requiring competitive selection process or CSP but it seems bedeviled in the implementation at the regulatory level.

President Duterte’s government can do something about arresting the rampaging monopolization of the generation sector. That should start with repealing Rule 11 of the Epira law IRR (implementing rules and regulations) that effectively redefined the anti-monopoly and pro-competition aspirations of the mother law that it is supposed to be implementing. It provided the cathedral sized loophole for monopolization of the generation sector. Its a farce and betrayal that had long been waiting for a champion to rectify. Someone will have to step up for the people.

There cannot be a true power cost reduction program if generation that is its largest component of the consumers bill are not reformed. Generation rates appear to be comparatively lower now that world fuel prices are low. Wait until coal and oil prices go back up and see Meralco’s rates pound the consumers. Let us not be misled. Let us act before it is too late.

Lack of a true competitive process at the bilateral contract level will not be compensated by putting wistles and bells like RCOA and RES.

2. Systems Loss Charges, P0.4273 per kwh in your July bill.
This is the cousin of the generation charge because its rise and fall depends on the generation rate. This is supposed to be limited to 8.5% and Meralco claims its average is under 8%. But the residential and commercial customers that pay 60% of the revenue of Meralco are being charged more than 10%. (Look at your bill in the back. Divide the systems loss charge per kwh by the generation charge per kwh)

Worse is that the computation is actually non-transparent under the methodology allowed by the old ERC. For many years the residential and commercial customers were being charged 13 to 15% systems loss! Now at 10% it is still higher by 1.5% than 8.5%. We estimate the difference is about P500M to P1 billion a year.

ERC’s loose methodology on systems loss computation must be revised to make it more transparent and eliminate opportunity charges. And the limit has to be 8.5% to all consumers. The devil has been in the averaging.

3. Transmission Charges, now at P0.8398 per kwh
The current national concessionaire, NGCP, and joint venture of the China Grid and SM, is entitled to a fair return on their investments. They have a big financial, technical, logistical, and operational challenge in their hands keeping up with the growth of the economy and the unwieldy power generation development.

What should not belong to NGCP is the power to establish rules and transmission development policy. The Epira law provided that this will stay as a function of the government agency Transco and not sold as part of the concession. You cannot have one private make the rules and be the beneficiary of the rules. This was a consequence of a glitch in the wording of the NGCP Concession law that confused the right of NGCP to act as System Operator and right to operate its system. The former is a rule maker. The latter is a technical and operational function.

This conflict will result to higher transmission rates and will result to a disjointed transmission development plan. Let NGCP concentrate on being a builder and operator of the transmission system. Transco should even step up and handle the right of way issues which a government agency can do better.
The devil that is PBR.

Technically these are supposed to be the only revenues of Meralco as the electricity distributor. Everything else is pass on that Meralco likes to say they only act as collectors.

These charges are determined under a methodology called “Performance Based Rate” making or “PBR”. This methodology is actually a violation of the Epira laws provision in Section 25 that “retail rates” must be based on “full recovery of prudent and reasonable economic costs incurred”. PBR allows Meralco a return on projected investments that under the ERC rules do not even need to be actually “incurred”.

We estimate that this results to an overcharge of P0.50 per kwh on distribution wheeling rates or more than P10 billion a year.

Consumer groups’ appeals to the ERC to review this had been falling on deaf ears. This is another of those anomalous charges that any true effort at reducing rates will have to address.

5. VAT Taxes
The EPIRA law of 2001 exempted power generation from VAT taxes in evident pursuit of the law’s declared policy objective of making the Philippines globally competitive. When the GMA government went cash strapped after the 2004 elections, the EVAT law was passed where power generation is imposed a 12% VAT, increasing the electric rates by P0.67 per kwh. This made the country even more uncompetitive as a manufacturing country. May be the new government can balance this by reducing the 12% VAT to say 6% to kind of share the burden of supporting government between the electric consumers and the other sectors of society. This will reduce electricity rates by 0.33 per kwh, not small peanuts.

6. Universal Charges for Renewable Energy – FIT-ALL. Now at 0.1240 per kwh
After snowing the consumers with a “promotional rate” of 0.045 per kwh at the start of the feed-in tariff program, it jumped to the current 0.1240. Even at that level, many RE power producers are not being paid their full FIT rates. The current confusion in the RE sector and the strong lobby of the solar groups and the NREB for more subsidized solar power will easily push this to P0.25 per kwh.

This doesn’t count the extra transmission charges and NGCP’s purchase of frequency regulating reserves to manage the grid disruptions caused for the intermittent RE, solar and wind. Hopefully the leadership and patriotic grounding of new Energy Secretary Al Cusi can put a rhyme and reason in this wayward program. Clean energy is not necessarily intermittent RE.

7. Universal Charges for Stranded Contracts UC-SCC now at P0.1938 per kwh
These charges need closer scrutiny and some rationalization. The component that resulted from failed government policies of the past should not be dumped on the consumers. The component for failure of PSALM management should similarly not be passed on to the consumers. There needs to be a clear accounting of the proceeds of privatization that are supposed to pay for all these. These charges appear to have gone beyond the true stranded contract costs.

8. Universal Charges for Missionary Subsidy, now P0.1561 per kwh
The abuses in this program have been going under the radar, first because they are in the “remote” areas and secondly they wave flag of missionary. This started at 0.035 per kwh. A bidder in one island that won with a bid of P9.38 per kwh, jacked up the rate to 12.80 per kwh even before the project is started. In another island, the same bidder won with a bid of P7.15 per kwh but now currently getting P13.00 per kwh, or an increase of P5.85 per kwh in missionary subsidy. Now there are more negotiated bids through another farce called swiss challenge bidding that the DOE has been tolerating.
The place to start is the DOE itself that recently endorsed a new 25mw contract in an island that has only 40mw in demand and with existing power supply of 55mw already. Reportedly the swiss challenge bidding was held without prior DOE approval as provided for under the CSP rules, but the DOE nonetheless issued a certificate of compliance of the contract to the CSP rules.

All these things are increasing instead of decreasing the missionary subsidies that are being passed on to the national electric consumers.

9. WESM rules ,br>The WESM price is the sword of Damocles that hang over the head of Meralco consumers. This market needs to be a reduced to a market for excess supply and demand. The current rule on determining “market settling price” defined as the highest price dispatched for the day is anti-consumer. Offerors must be paid as they bid.

Unless reformed, this can periodically harass the consumers with high market rates.

10. Line Rental Charges
This is one of those charges that are passed on to the consumers but kind of mysterious. This appears to be line congestion costs. Deserves close scrutiny and rationalization.

Cause oriented members of the Matuwid na Singil sa Kuryente Consumer Alliance actually has a P3 Campaign seeking to reduce Meralco’s rate by P3 per kwh. At that time, Meralcos rate was P12 per kwh. The organization hoped to reduce generation rate by P1.50 per kwh and the other P1.50 to come from the other charges to consumers.

The current reduction in the generation charge by more than P1.50 is not a result of making the sector competitive but by the lucky drop in the world oil and fuel prices. In other words, when world oil normalizes, we will see the generation rates of Meralco to go back up.

Let us cut the power costs in the country in the right way!

Matuwid na Singil sa Kuryente Consumer Alliance Inc.

Archipelagic Nation Needs Archipelagic Generation – Part 2

David Celestra Tan
July 7, 2016

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.

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.

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.

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.

Negros island can eventually be self-sufficient in base-load power from Renewable Energy! But of the biomass kind not solar which if the DOE’s approval philosophy continues will reach an ill-advised 1,000 mw. Lets hope they require these FIT-spoiled solar projects to at least supply grid-compatible systems.

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. It is not their job they say. 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. Documents showed the 230kv sizing is for the purpose of accommodating a 300mw coal project where there is none on the island of Mindoro itself. And it was on its way to approval by the old ERC! 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 or Mindoro grid but for peaking and reserve power. 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, biomass, and wind potential. Also grid-compatible solar. 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.

A lot of big generating projects and submarine cable projects are already in place. But it is not too late to establish a better rhyme and reason for their locations and the purpose and sizing in the transmission development plan. It takes time to create sensible power projects and it will also take time to undo the cost to consumers of ill-advised projects. But it will have to start with a spark of reason triggered by a visionary. Let us hope Secretary Al Cusi can provide a new direction in the nick of time and we can change course towards what is sensible and seemed obvious – archipelagic generation for an archipelagic nation.

It will help assure consumers are charged transmission wheeling rates that are reasonable and based on a carefully planned transmission development strategy.

Matuwid na Singil sa Kuryente Consumer Alliance Inc.

Archipelagic Nation Needs Archipelagic Generation – Part I

David Celestra Tan
Updated July 4, 2016

One fundamental strategic issue in Philippine power development that maybe revisited by newly appointed Energy Secretary Alfonso Cusi is the long time thinking that the nation should build big and bigger plants wherever the private sector generators want and to just string all these plants together with HV transmission lines.

This is expensive for consumers, takes too long, and does not really result to an efficient power grid.

Our country is archipelagic with 7,107 islands (okey in low tide!), at least 15 of them are major that are occupied by 85% of our 100 million population. We should have archipelagic generation where 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 the big island of Luzon the idea of locating large base-load plants and building transmission lines is not so bad although many experts believe that some better thinking should have been made before they allowed the 1,200mw Sual coal plant to be built as far north in Pangasinan, 300 kilometers away from the load center of Metro-Manila.

We need some serious rethinking in the Visayas where the government owned monopoly Napocor decided to rely on the geothermal plants of Leyte to power Panay Island, Negros, and Bohol with high voltage lines overland in Cebu and make them cross to those islands with high capacity submarine cables.

Not only did the Cebu-Negros-Panay submarine cable system cost a lot, it also proved to be too slow to upgrade to keep up with growing demand in the islands of Panay and Negros. This is why Boracay which is at the northwestern tip of Panay island had been suffering from brownouts and low voltage problems for many many years. So did many cities of Panay island.

The problem of Panay island was solved only when the private sector started building 300mw base-load coal plants in Iloilo. Another generator is building a 275mw coal plant also in Iloilo province. Since the Panay Island only has a 300mw demand, the rest will need to be exported to Negros and Cebu. And the burden of upgrading the Negros-Panay submarine cable falls on the national grid concessionaire NGCP, who also will need to upgrade its overland transmission lines across Negros island (Right of Way problems and all) so that those Panay based power can be delivered to their customers in Cebu and Negros.

This creates congestion in the Visayan grid and increases the transmission wheeling charge to consumers to whom all those submarine cable costs will be passed on.

We need an archipelagic strategy where each large island must be made self-sufficient in their base-load power and only draw from the other islands and use the submarine cable lines for their peaking and reserve requirements. This is also called sharing of resources. This cannot happen unless the Department of Energy uses its authority to make sure there is rhyme and reason for the locations of the large base-load plants and not leave it all to the private sector to decide.

The private power generators will build plants where it is safer and more profitable for them. The way it is, the NGCP has the burden of building more and more transmission lines to connect those private generators wherever they are. Unfortunately, all those connection costs are passed on to the consumers. The more disparate the locations are the more it costs consumers.

If Negros island is made more self-sufficient in base-load power, then we don’t need the expensive submarine cable upgrades from Panay to Negros and from Cebu to Negros. Our PEMC and DOE try to justify this by saying the free-flow of power from any island to the Visayan Grid will create competition and off-set the heavy costs of upgraded submarine cables. If they do the math they will realize that the price impact of competition in generation sector will not justify the additional transmission line charges.

Bringing down generating cost to consumers can better be achieved by creating true competition in the bilateral contracting stage.

This is also relevant in the strategic plan for Mindanao. The current plan is to connect Mindanao to the national grid by building a submarine cable system from Northern Mindanao to southern Negros island. Such Mindanao-Visayas connection is advantageous but should it be so big in capacity? It is being designed to transfer the 3,000mw of coal projects announced in Mindanao instead of building only enough for Mindanaos own use plus some capacity to supplement the peaking and reserve requirements of the Visayas and Luzon? Or if the strategy is to allow Mindanao to be a main source of base-load power for Visayas and Luzon, why should we also build high capacity submarine lines between Panay and Negros and Negros to Cebu and make consumers pay for it?

Shouldn’t those Cebu-Negros-Panay submarine lines be limited to peaking and reserve capacity?

Matuwid na Singil sa Kuryente Consumer Alliance Inc.