Meralco’s CSP HELE HELE with Super Critical Coal Technology

David Celestra Tan, MSK
11 October 2019

Meralco has been super publicizing its adoption of this ultra super critical coal technology with high efficiency and low emission (HELE) for the 1,200mw Atimonan One project. It is supposed to be the country’s first (after Mauban’s San Buenaventura) and implying a high bar for high efficiency and low emission. Such high standards and big project size of 1,200mw were the reasons there were no bidders other than Meralco’s own Atimonan One Energy Corp.

(Not to mention that Meralco’s “Third Party” Bid and Award Committee gave bidders only 7 days to pay P6 million to buy the bid documents and only 40 days to do technical studies, due diligence, and prepare a bid for the approximately $ 3billion project!)

One more “failed bidding” for such super critical technology would mean a legal negotiated contract for the 1,200mw project in Atimonan, Quezon.

Meralco ally San Miguel Corp. who won most of the initial CSP for the 1,200mw and 500mw  brownfield projects due for delivery in December 2019, had his two companies (Panasia and Mariveles Power) withdraw from the bidding. (Paying P12 million for bid documents is small change in this game). SMC President and COO Ramon Ang is quoted in the press saying “allowing power plants with a wide range of technology to join the bidding would allow a level playing field in Meralco’s bid. We want to make an offer, so allow us to join the CSP”. “We did not join the bidding because CFB plants do not meet the requirements” the SMC COO continued. Meralco’s President Ray Espinosa said “we want all gencos to join, but we have considerations why the terms of reference for the greenfield supply are stringent”.

So What’s Ado with Meralco’s Ultra Super critical HELE technology?

Supposedly the high efficiency part (HE) means an improvement in energy efficiency from about 34% to 44%. To you and me it means supposedly lower fuel costs that are passed on to us consumers. The “low emission” (LE) part means it will have much lower harmful emissions specially CO2 and contribute less to global warming.  The ultra super critical part I think refers to the much higher combustion temperature and other thermal processes in the system.

As you can guess, this is much more expensive technology. Meralco had been announcing a project cost of $3 billion for the 1,200mw capacity or $2,500 per kw capacity compared to less than $2,000 for circulating fluidized bed or CFB.

In other words, Meralco is nobly trying to “introduce” this advanced coal technology to be charged to the consumers, who is supposedly going to benefit from “HELE” or high efficiency and low emission.  In so doing, they are able to restrict the CSP to this particular technology and project magnitude, effectively discourage competition and hence be able to negotiate among themselves a rate and terms of PSA. In the past, Meralco evidently tried to secure an “unsolicited proposal status for Atimonan One for a “swiss challenge” type CSP where A1E will have the right to match, another way to tilt the playing field for MeralcoPowerGen.

By super publicizing this super critical HELE technology, Meralco is evidently trying to acquire entitlement to the preferred status in biddings as provided for under Sections 10.2 and 10.3 of the Revised IRR of Republic Act No. 6957 otherwise known as the Built Operate Transfer law.

Project proposals for this advanced technology can acquire original proponent status must meet more or less 1) it is a project not envisioned by current policy programs of the government; 2) it must represent advanced technology not yet used in the Philippines and 3) it must be certified so by the National Science Development Board.

Now let us grant that Meralco’s Super Critical coal HELE meets number 2 and 3, clearly the power development is an established government policy and the introduction of efficient and environment friendly technology.  And CSP is similarly a primordial government policy.

The key question and I guess the main point of this article is, to achieve “high efficiency and low emission” (HELE), does the bidding really have to be restricted to super critical coal or even advanced ultra super critical coal technology that effectively they will scare away competitors, cause a failed bidding, and be allowed to negotiate PSA and prices that will be passed on to the consumers?

At the time Meralco and MeralcoPowerGen negotiated the Atimonan One project in April 2016, it was publicized with a rate of P3.75 per kwh. A few months ago this year 2019 we updated the rate using the escalation rates and fuel adjustments and it became P5.60 per kwh, higher than the then rates of other coal at P5.10 per kwh. Given that all competitors and pretenders have been shooed away from the CSP by the “super critical” requirement, and the 1,200mw greenfield project could eventually be negotiated due to failed biddings, what makes us think it will be lower than the current coal rates of P5.10 per kwh? 

The economic and environmental benefits of “HELE” can be achieved by other proven technologies most notably natural gas, a known cleaner and cheaper fossil fuel than coal and their old combined cycle technologies already beats the HELE of advanced coal technologies.

So if the government (and Meralco) really wants to be faithful to the true competition spirit of the CSP policy and now mandated by the Supreme Court in the Alyansa para saBagongPilipinas case, Meralco should not be allowed to restrict the bid specifications to this ultra super critical coal HELE but instead open the CSP to all technologies that achieve a certain level of low emissions.  The “high efficiency” can be specified but its advantages would already be reflected in the bid price of fuel consumption and costs. Hence it should not be a restrictively “super critical coal HELE”.

Why is Meralco trying to force upon the Filipino consumers this advanced and expensive “BMW that can run 150 kilometers an hour in luxury”when all they want is “fair and reasonable” rates from an electric vehicle that go 80 kms per hour to get from point A to point B? 

With the Meralco CSP being really opened and not restrictive, there will be more honest to goodness competitors, especially if they are really given sufficient time to prepare for a bid and, more importantly, signal to them that the CSP will truly be fair. Why are the established Japanese, Korean, and Chinese generators and local players Ayala, Lopez, and Alsons Group not really active in possibly bidding? And maybe we will see if San Miguel Power will truly compete for Atimonan One, knowing that he had two prior agreements for greenfield projects with MeralcoPowerGen for a 628mw Mariveles Power and a 628mw Central Luzon Power. Will San Miguel et all really compete with its customer Meralco?

Is Meralco’s CSP HELE HELE for ultra super critical coal technology not really about the noble intention of introducing advanced technology, not about high efficiency and low emissions, not about global warming but more about controlling the CSP process and negotiating the price that will be passed on to the consumers?As DOE Secretary Alfonso Cusi rightly asked, why does it have to be 1,200mw? Why not allow 600mw?

When will things ever change for the Meralco consumers?

 

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

Viewpoint: The 52-Billion Pesos Mindanao-Visayas Interconnection Project

Demonstrating how the NGCP makes money for its owners and for the banks at
the expense of electric power consumers
By David A. Tauli, President, Mindanao Coalition of Power Consumers

Last month, the National Grid Corporation of the Philippines scheduled a public forum in Cagayan de Oro where they said they will discuss ongoing projects of the NGCP in Mindanao, particularly the Mindanao-Visayas Interconnection Project (MVIP). I told Mike Baños who received the invitation that we now have an
opportunity to the NGCP about the economic feasibility study that they presumably carried out for the project, which they estimate to cost 52 billion pesos upon its completion in 2020. However, the NGCP cancelled the public forum, so we could not ask them about their financial expectations for the MVIP.

Since 2011 the NGCP has filed a number of petitions to the ERC seeking approval for various components of the MVIP, and in July 2017, they got provisional approval from the ERC to implement the project. But in all those petitions and hearings, the NGCP never showed what will be the increase in the rates that consumers will paying for electricity when the MVIP becomes operational. There also was no quantification of the expected benefits to consumers from the implementation of the interconnection project.

In the absence of information coming from the NGCP or the ERC, I carried out a
basic financial analysis of the MVIP, and here are the numbers I arrived at:

1. Average rate to be paid by consumers who use the MVIP to convey the power
supply delivered to consumers from generating plants in Luzon or the Visayas (in
the case of consumers in Mindanao) or from generating plants in Mindanao (in the
case of consumers in Luz-Vi): 1.90 pesos per kWh
2 Annual profits of NGCP over a period of 30 years for constructing the MVIP: 2.0
billion pesos
3. Annual interests paid to banks (for 30 years) who provide the loans (70% of
project cost) for the project: 2.6 billion pesos

These are based on the standard return to equity and interest on debt that are allowed by the Energy Regulatory Commission for transmission line projects or distribution line projects, so there would be nothing irregular about the profits of the owners of NGCP (the majority shareholders being Henry Sy, Jr. and Robert Coyiuto, Jr.), and the interest earnings of the banks (probably those owned by Sy and Coyiuto or their relatives). However the electric power consumers who pay for these profits and these bank charges will not get any monetary benefit from the project in the form of reductions in the costs of purchased power or improvements in the reliability of electric service.

When the Leyte-Mindanao Interconnection Project (as the MVIP was then called) was first proposed in the 1990s by the National Power Corporation, the economic justification for the project was for power consumers in Mindanao to be supplied with electric power from the geothermal power plants in Leyte. It was then estimated that power supply from the Leyte geothermal plants conveyed through the LMIP would cost a total of 3.00 pesos per kWh, whereas building a coal power plant in Mindanao would cost at least 4.00 pesos per kWh. So consumers would be saving at least 1.00 per kWh with the construction of the LMIP. And the NPC could legitimately earn profits, while the banks could legitimately earn interests with the construction of the interconnection between Visayas and Mindanao.

Comparison of the Mindanao-Visayas Interconnection Project of today with the Leyte-Mindanao Interconnection Project of the 1990s:

Item MVIP LMIP
Annual profit of NGCP or NPC 2.0 billion Pesos Adequate Adequate
Annual interest earnings of banks 2.6 billion Pesos Adequate Adequate
Impact on rates paid by consumers Increase of 1.90 P/kWh Reduction of 1.00 P/kWh

A conclusion that could be drawn about the ongoing construction of the Mindanao-
Visayas Interconnection Project is that it will earn money for NGCP and for the banks, but will give no significant monetary benefit to power consumers that would compensate for the increase in the cost of power supply imported through the interconnection.

The ERC Erred in Approving the Implementation of the MVIP

Another conclusion that can be drawn from doing an economic evaluation of the interconnection project is that the ERC erred in granting provisional approval in July 2017 for the implementation of the MVIP in ERC Case No. 2017-034 RC.

The application submitted by the NGCP states that implementation of the MVIP will: (1) allow excess generation in one grid to be exported to another; (2) promote competition in the electricity market nationwide through the electricity market; and (3) aid the Visayas Grid during peak intervals when the solar plants are not delivering power. However, nothing has been published by the ERC or the NGCP
about the monetary benefits to consumers of attaining these objectives of the MVIP. Thus, it can be concluded that the ERC did not require the NGCP to quantify the benefits to consumers from a project worth 52 billion pesos, all of which will be paid for by the consumers. In addition, of course, the consumers will pay the profits of the owners of NGCP and pay also the interest charges of banks that finance the project.

The ERC decision in the case of the MVIP can be compared with the decision of U.S. regulators in approving the implementation of the New England Clean Power Link (NECPL), which is a 1,000 MW, HVDC transmission project that will extend 154 miles from Canada to Vermont and New England in the U.S., and is estimated to cost $1.2 billion upon completion in 2020. Benefits to consumers from the implementation of the NECPL include the following: (1) Total energy savings for Vermont ratepayers: $245 Million (first ten years of operations); (2) Total energy savings for New England ratepayers: $1.9 Billion (first ten years of operations); and (3) Vermont electric ratepayers will receive an additional $136 million reduction in transmission costs.

The point in making this comparison of the process of approval of regulatory agencies in different countries is that it is necessary for private-sector proponents of infrastructure projects to quantify the costs and benefits of the projects in order to show to the regulators that the monetary benefits to the users of the projects will be greater than what the users will be paying for the project. In the case of the MVIP, the power consumers will be made to pay 52 million pesos and also pay the profits of the owners of NGCP and the interest charges of the banks without any assurance that they will receive monetary benefits commensurate to the payments they will be making to NGCP.

Stop the MVIP

Power consumers should work on stopping the ongoing construction of the MVIP,
unless the NGCP can prove that the benefits to consumers from the interconnection
project will exceed the costs that they will be paying for the MVIP. How to stop
the MVIP will have to be discussed elsewhere.

October 9, 2019