Let’s Be Realistic on Nuclear and Solar Power Options

David Celestra Tan, MSK
23 Sept 2016

The new Department of Energy has floated the idea of nuclear power and the reviving of the never operated 600mw Bataan Nuclear Power Plant (BNPP) as a lower cost and cleaner power supply solution as opposed to coal and natural gas. Additionally people are intrigued by the claims of solar developer Solar Philippines of the Leviste and Legarda families that solar has achieved grid-parity. That means solar power being low enough to compete with the P4 and P5 per kwh of coal and natural gas. This contrasted with the P7.70 to 9.60 per kwh that the Solar Alliance lobby group and the government owned NREB continue in pushing as the consumer FIT subsidy level.

First things first though. Even if nuclear offers a really good option and solar is as competitive as claimed, all these will not really happen because there will be no major buyers of power. Why? Meralco would already be contracted for most of its base-load power requirements until 2035 if they get away with their seven (7) midnight coal power supply contracts totaling 4,100mw. And they are all on Luzon island, same island as the BNPP and of the 7,000mw of existing power plants. Unless of course the government agrees that nuclear will also be majority owned by the MVP Group.

That said, lets start with nuclear power.

There is no question that properly operated nuclear power is for now potentially the cleanest and cheapest power generation technology outside of large hydro. Well at least until fusion technology comes around. We can probably get a rate of P3.00 per kwh. It is also true that there are countries like Japan and South Korea who have long years of successful experience in operating and maintaining nuclear power plants using the same technology as the BNPP. The other truth is the Filipinos have just about paid for the Billion dollars that the government borrowed to finance it.

The question is can the 620mw BNPP technically still be operated after it has never been operated and mothballed for 30 years since 1987? The South Koreans, as pushed for by Cong. Mark Cojuangco of Pangasinan, are interested in studying the BNPP’s revival and estimated that it will cost $1 billion (P47 billion pesos) to revive and operate. We believe the study alone with cost $2 million.

Assuming that the government is willing to explore the revival of the plant, should the Filipinos be asked to pay for the attempt? What happens if the plant, after spending $500 million will cost another $1 billion to finally operate. Let us remember that a lot of the equipment and installations have either been pilfered or deteriorated the last 3 decades. We believe that what would be rational and fair for the consumers is if the government wants to do it and KEPCO of South Korea are sure that they can make it work, it should be done on an ROM basis, “rehabilitate operate and maintain”. An agreement can be signed so that the DU’s are willing to buy the nuclear power output at say P3.25 per kwh and if the Koreans are successful they are assured of a market for the output. But surely it would be unreasonable for the government to spend or borrow a single cent for this adventure and to make the taxpayers take the risk if the concept does not pan out.

As pointed out by columnist Boo Chanco, there are other newer, safer, and cheaper nuclear options that are even smaller in size that fits the archipelagic landscape of the Philippines.

We bet that the Koreans will not go for a “no cure no pay” arrangement like ROM because they must know there would be a lot of headaches and risks. Most power generation professionals will tell you that it is actually cheaper and predictable to build a new plant instead of reviving an old one using old technology.

If we add nuclear to our energy mix, lets go for the smaller and safer technologies in the 200 to 300mw range. Spread it out in several islands. As to the BNPP, lets not do it. It is too risky and will not save much. Just charge it as part of our price for regaining democracy and liberty from martial law.

How about Solar?

Young Leandro Levistes Solar Philippines came into the solar scene carrying a pedigree and lobbying power. His focus had been roof top solar and people are giving him the benefit of the doubt since theoretically roof-top solar specially on the expanse of mall and school rooftop would be viable specially if Meralco cooperates in implementing it under the Net Metering program of the ERC.

In the recent months Leviste went on a media blitz announcing that solar has achieved grid-parity. If he means rooftop solar, maybe. If he means grid connected solar we are not sure. And it seems he is referring to large scale solar because he was talking about 1,000mw in Batangas and the low prices in the bidding in Dubai where it is down to $0.04 or P1.92 per kwh.

Before we get too excited, let us consider a few things.

1) What conditions in Dubai allow foreign bidders to bid that low for 300mw of solar? For one the solar irradiance level of Dubai (and the middle east) is almost double that of the Philippines so they get more energy out of their installation by 25% to 40%. Some reports also say Dubai offers attractive project financing support with negligible interest rates.

2) The lesson of Dubai for the Filipinos is actually not they got lower rates but that they did by holding an open competitive bidding or CSP. Our Department of Energy while admitting that the cost of solar panels have gone down by 70 to 80% is still insisting on doling out high Feed-In Tariff to their chosen RE developers. The government paid NREB (National Renewable Energy Board) recently recommended a subsidized rate of P7.70 ($0.16!!) per kwh for the 3rd round of Solar FIT’s.

Cannot President Duterte order these people to hold a competitive bidding instead?

3) When Leviste talks about grid-parity, we are wondering if he also means grid-compatibility? The lesson of the Visayas is that these solar farms cause grid interruptions every time there are passing clouds. And who buys and pays for the regulating reserve that is needed by the grid to stabilize the system? NGCP who then passes it on to the consumers. We doubt that Solar Philippines is referring to self-regulating solar farms. If they are and the rate is in the range of P4.50 per kwh, let’s go!

Let us be realistic. And be realistic that if Meralco and the MVP Group are allowed to evade the mandatory CSP policy for power supply contracts, all these talk for nuclear and energy mix are moot.

Just saying!

Matuwid na Singil sa Kuryente Consumer Alliance Inc.

Can there Still be A truly competitive CSP with 5 Major IPP’s Partnering with Meralco PowerGen in a Cartel?

David Celestra Tan, MSK

Meralco PowerGen’s cartel has currently proposed 4,100mw of coal projects with five (5) major erstwhile independent power generators that on their own also control about another 5,000mw of power plants. That’s 80% already of the country’s power generation supply and 90% of Meralco’s power market.

Erstwhile rival San Miguel is now partners with the MVP Group in two 528mw coal projects and may have entered into partnership in the 1200mw Ilijan natural gas plant. EGAT of Thailand is in a 49% partnership in the San Buenaventura 455mw coal project in Mauban. EGAT also has acquired a significant interest in the 460mw Masinloc plant controlled by AES. MVP Group has acquired 56% of GT’s Global Business Power and GT bought a 15.6% interest in Metro Pacific. Maynilad water partner DMConsunji is also now a partner of Meralco PowerGen for the 400mw Semirara coal project in Calaca. The Aboitiz group for its part is partners with Meralco for the 300mw Redondo Peninsula Coal project in Subic.

With so much concentration and cross-ownership of power generation in one aggrupation how can true competition still exist in the generation market place, both in competing for bilateral contracts and bidding for the WESM spot markets?

Let’s assume that the government realizes the importance of maintaining or restoring a truly competitive generation market and the devastating impact of cartelization, negotiated contracts, collusion to the people and national competitiveness. And it also decides to stop this crime against consumers and evasion of the CSP policy, can there still be a truly competitive bidding given the dominant concentration of generating capacity in the country in the Meralco group? Would they not just collude among themselves and bid even higher just to prove that their negotiated prices were the “least cost”?

The government should not be afraid. Luckily there are enough remaining independent players both local and foreign who can be the core of a truly robust bidding, the kind that will be least cost for the consumers.

Ayala Energy, Filinvest of the Gotianuns, TeamEnergy of Japan, Kepco of Korea, AES of the USA, Energy World of Australia, First Gen and EDC of the Lopez Group, and more local groups TransAsia, GNPower, Conal of the Alcantara Family of Mindanao, and PeakPower Group of the Ng Family. Not to mention additional Japanese, Korean, and Canadian companies who are actively looking at Philippine projects. If Ayala and GNPower end up the partner of Meralco in the 1200mw Atimonan Energy One, then they also lose their independence.

These are highly qualified power generating companies with the kind of resources to offer truly competitive energy supply packages and innovative ideas and technologies. They have not yet been conflicted by a partnership or cozy relationship with Meralco PowerGen or the MVP Group.

The Aboitiz and San Miguel Groups participation in the Meralco cartel is not beyond repositioning and they may still be genuine players in a truly competitive bidding.

Only three serious bidders are needed for a healthy competition as long as at least two of them are not from the Meralco cartel.

We don’t believe potential independent bidders will be the problem in trying to hold a truly competitive CSP. It would be administering properly the bidding so that Meralco cannot tilt the playing field and favor their partners.

These still independent companies need to be assured and see that this type of open and competitive bidding will be implemented by the government at least through the 6 year term of President Duterte. Otherwise they will hesitate to offend the Meralco group if there is a chance that down the road they will need to beg for power supply contracts with them. It costs million dollars to prepare a good bid for major projects.

These independents will be looking for signals that it will be truly open, competitive, and transparent.

1. The government must reiterate a commitment to the CSP policy and the ERC must send the signal that it is honestly implementing it.

2. There must be an independent Third Party bid administrator to assure a proper bidding of proper capacities.

3. The winner must be objectively determined and truly awarded.

4. The CSP is the opportunity for the DOE to put an imprint on the nations power supply with its energy mix strategy.

For all its loopholes, the Epira Law is clear in its mandate that the generation sector shall be “competitive and open”. When we do that, we are able to achieve the twin goals of the Epira Law. 1) adequate power supply in the country for the long term is assured by keeping the market open to new and competitive investors. No barriers to entry. and 2) to achieve fair and reasonable rates supplied in the least cost manner through the maintenance of healthy competition in the market.

In addition to the Epira Law, Let us hold true to the spirit of the Philippine Competition Act, a landmark milestone for maturation of the Philippine government and society. It took us decades to get this far in anti-trust protection of consumers. Let us show that we are mature enough to implement seriously such an enlightened law.

Let us not be afraid in preventing Meralco and the MVP Group from monopolizing and cartelizing the power generation sector. If that is allowed to happen the EPIRA law would be for all intents thrashed as a law and aspiration. Let us not kid ourselves anymore. The millennials? They are still unaware because we the parents are paying for the monthly electric bill. It is supposed to be up to us adults who should try protect their generation. And we are failing. Ironically it can happen under an era when we are supposed to be determined to fight crime and corruption.

Franchise holders of public utility services must be expected to serve the public interest and not be exploitive. There are still enough highly qualified power generation players comfortable with the Philippines who can participate in an honest to goodness bidding. It is not yet very late!

Do we have what it takes? We owe it to our people.

Matuwid na Singil sa Kuryente Consumer Alliance Inc.

It’s Time for a Permanent Energy Planning Commission

David Celestra Tan, MSK
4 September 2016

All these confusion in the energy development strategy for the country happens because the Philippines does not have a long term energy development plan. Every time there is a new government, new energy committee chairmen in the Senate and in the House and everytime there is a new energy secretary we tinker with an energy mix, power cost reduction, power supply procurement for pass on charges to consumers, clean energy, renewable energy, climate change, grid system reliability.

It is time that we learn the realities of power, its development, and rates.

1. Power Development and Strategy is so important to the country, its industry and economy, and well being of consumers that it needs focused attention and clear direction from a very qualified government agency with consistent stewardship.

2. Power projects and solutions require advance planning and implementation. Economical and clear power require 3 to 4 years to build and quick power sources are both dirty and expensive.

3. Power supply is imbued with public interest and the people will hold the government responsible, regardless of privatization and deregulation, whenever there are power problems: shortages, rates spikes, environmental damage. The government cannot cop out and wash their hands and say it is sorry it cannot do anything because the sector is privatized and deregulated. The sooner we all realize this the better.

4. It cannot be left totally in the hands of the private sector that naturally will gravitate towards what’s faster and what’s more profitable and investment safe.

Power Planning and the Department of Energy

Currently the task of preparing a Philippine Energy Plan, the closest we have in terms of energy planning, is with the Department of Energy as mandated under Section 37 of the Epira Law.

The DOE is required to “prepare and update annually a Power Development Program and integrate the same into the Philippine Energy Plan. The PDP shall consider and integrate the individual or joint development plans of the transmission, generation, and distribution sectors of the electric power industry which are submitted to the Department.”

The DOE will also “develop and update annual the existing Philippine Energy Plan. It 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.

Said Plan shall be submitted to Congress not later than the fifteenth day of September and every year thereafter.

Annually the Department of Energy goes through the ritual of complying with this mandate. Every year it dutifully submits a beautiful and colorful glossy book bound Plan.

The DOE even goes on a road show in various regions of the country to present their plan, actually their hopes and dreams. The DOE Secretary for his part uses the plan for his policy statements. Everyone including the local government officials come away from those presentations expecting that these are the direction for the future and what they should be expecting including energy mix. The precepts of the plan are even used as the justification by the DOE and ERC for the approval of projects.

However, by this time, power industry practitioners know two realities of this plan:

1) The proposed power projects were nothing more than a tally of projects that are being pursued by the private sector;

2) The Department only use persuasion and has no real enforcement teeth to force the private sector to follow the plan.

As an example, the DOE has been announcing that it targets an energy mix of 30% coal, 30% natural gas, 30% clean energy, and 10% others. In total disregard of this energy mix, Meralco signed 4,100 mw of coal projects that will tie up the largest distribution utility of the country for the next 25 years. That means coal will be about 90% of the Energy needs of Meralco and that’s easily 56% of the coal energy for the next 25 years. If we add the coal projects outside the Meralco area in Mindanao and the Visayas, the national share of coal would be easily 80%.

The Competitive Selection Process (CSP) policy of the DOE and ERC that was supposed to be implemented starting on November 6, 2015 was going to give the DOE its long missing opportunity for enforcement of its energy mix policy. Until the CSP was inexplicably postponed by the implementation agency the ERC, paving the way for the signing and filing of seven (7) midnight contracts that will evade the CSP.

Some parts of power development planning specially transmission development is performed by the Grid Management Committee of the ERC that is staffed with power professionals. But then their work and ideas are limited to grid issues and not much in power supply development.

Power Development is a three-legged tower. Adequate supply, fair and reasonable rates, and environmentally responsible. We also need an archipelagic generation and transmission strategy that is best suited for our 10 major islands. Lastly, the country must decide whether low cost power would be a national policy as part of our industrial and commercial strategy. Remember Asian integration is here and import tariff barriers are coming down. Our industries will be slaughtered by foreign competition because all of Asean has lower costs by as much as 40% than the Philippines. We don’t even have a national economic plan to give Philippine companies chances versus the incoming foreign competition. Such neglect.

The drug problem is important but there are so many areas in the country with even larger and urgent implications that need government attention.

Ironically, a lot of sensible power and energy development plans have been donated to the Philippines by the World Bank and the Japan International Cooperation Agency and maybe even by the Asian Development Bank. They are just on the shelves, drawers, and archives.

When government officials and the private sector only talk about adequate supply and when threats of power shortages are emphasized, you know that the other two will be jettisoned. It requires a well thought off long term plan that is implemented consistently by competent and incorruptible people to create a truly sensible and holistic power development.

It is time now that the country remedies the short term and revolving nature of energy policy and planning at the DOE and create a Philippine Energy Planning Commission. We can use as models the Energy Planning Commissions of California and other American states and adopt it to Philippine conditions.

Energy Planning has been a crying need for the country.

Matuwid na Singil sa Kuryente Consumer Alliance Inc.