Coal-price volatility may force DOE to revise energy-mix policy next year

By Lenie Lectura – December 23, 2016

from Business Mirror

THE Department of Energy (DOE) is contemplating on the possibility of amending a year-old circular to accommodate a new energy-mix policy.

Energy Undersecretary Felix William B. Fuentebella, in an interview, said the Competitive Selection Process (CSP) circular would be used as a “tool” to implement the newly proposed energy-mix policy announced by the agency’s secretary, Alfonso G. Cusi.

“The CSP circular will undergo public consultation for amendment,” he said, adding that the draft amended CSP circular could be out within the first quarter of next year.

The circular mandates all distribution utilities (DUs) to undergo CSP in securing their power-supply agreements (PSAs). This means that DUs and electric cooperatives (ECs) will have to bid out their power requirements from a pool of interested power firms, thereby eliminating bilateral negotiation.

Not fuel specific

Cusi said last week that his office is strongly pushing for an energy mix that is not fuel specific, but rather a flexible one that does not put a cap on which technology to be developed by power-generation firms.

In particular, Cusi wants an energy-mix policy that comprises the following: 70-percent baseload (power plants that run 24/7); 20-percent midmerit (running on long hours, but not 24/7); and 10-percent peaking (with easy start-up and can be used during peak hours).

This proposed energy mix is not even close to the proposed 30 (coal)-30-(gas)-30 (renewable energy)-10 (other technologies) that the previous administration was pushing for.

Based on latest DOE data, the country’s installed power-generation capacity is 34-percent renewable energy; 33 percent from coal plants; 18 percent from oil-based plants; and 14 percent from natural-gas plants.

Cusi said his “comprehensive and responsive energy-mix policy” would support and sustain the growing economy, while also guiding energy developers on the business environment.

“In this regard, power developers can compete with one another accordingly, and can picture the situation in each of the main grid for the kinds of investment needed,” he said, while stressing that this would serve as a guide for the entry of investors and proponents in the energy industry.

Just a guide

However, according to Fuentebella, no new circular will be issued. He echoed the statement of Cusi, who said that this 70-20-10 energy-mix policy would merely serve as a guide.

“…That’s a guide for consumers and investors. This is meant to achieve optimization of supply and least cost so that DUs can be guided that the purchases they make can be easily approved,” he commented, when asked how the agency plans to enforce the proposed energy mix.

He said some power-generation companies were already informed about this when a meeting was recently held to discuss the country’s demand profile.

Fuentebella said he talked with representatives of Lopez-led First Gen Corp., which recently urged the Duterte administration to come up with an energy-mix policy in order to shield consumers from surging coal prices.

“I spoke to them. Malinaw na sa kanila [It’s clear to them] that it’s per DU. On CSP, no problem naman,” the DOE official said.

First Gen, which operates gas plants and utilizes renewable energy, aired the call, as prices of coal—the dominant fuel for power plants in the country—have turned volatile this year.

“Prices of coal have more than doubled between January and October this year. Such price volatility should give us reason to pause and think of other fuels we can use to protect consumers from erratic fuel-price movements. One solution is to cap the share of specific fuels we use to generate our electricity,” First Gen President and COO Francis Giles Puno said.

First Gen cited June 2016 DOE data: coal-fired power plants accounted for 33 percent, or 6,666 megawatts (MW) out of the country’s 20,055-MW total generating capacity.

But coal’s share in the mix is expected to drastically expand in the coming years.

Mixed views

Some industry players welcomed the proposed 70-20-10 energy-mix formula, saying this would definitely encourage competition.

“I agree that it should not be fuel specific, but according to load curve,” Isidro A. Consunji, chairman and president of DMCI Holdings Inc., said in a text message. The power business of DMCI remains one of its most profitable businesses.

Separately, Aboitiz Power Corp. President Antonio R. Moraza said via text message that Cusi’s proposal is “great”.

Positive effect

“Our energy policy should be fuel agnostic, whatever is most competitive. The reality is that available technology will naturally follow this direction,” he said, when sought for comment.

Meanwhile, a group composed of industry associations and manufacturing companies welcomed the DOE’s pronouncement toward a flexible energy mix.

The Federation of Philippine Industries (FPI) said mandating a cap on certain technologies would only reduce market competition and with a positive effect on power rates in the country.

It also said this would, indeed, promote a more competitive market, and eventually lower the power costs that consumers pay. FPI also agrees that the move of the DOE will ensure ample supply of power for the country, as it moves toward industrialization.

“Secretary Cusi’s pronouncements are consistent with FPI’s stand on certain issues, especially on supporting industrial growth by ensuring stable baseload power supply,” said Dr. Jess L. Aranza, chairman of FPI.

FPI also recognizes the country needs diversified energy resources, but this can be achieved even without mandating a strict power-generation mix that will limit the technologies that will be developed by the private sector.

FPI is against the call of several groups for an energy mix, with caps of 30 percent each for natural gas, coal and renewable energy, and 10 percent for other fuels.

Go for a good blend

To ensure technical and economic optimization, Alsons Vice President for Business Development Joseph C. Nocos said the energy mix should be a good blend of base load, intermediate, and peaking plants that matches the demand profile and provides adequate reserves.

“Fuel options for each type of plant can vary, but typically baseload plants are most economic if powered by coal or nuclear, intermediate by gas or hydro, and peaking by oil or renewable energy,” he said via text message.

Based on current lineup of existing and committed power plants, Nocos said it appears that the country’s base-load needs are adequately supplied. However, in the near and medium term, investments in intermediate power plants would be required to achieve an ideal mix of power sources.”

For Trans-Asia Oil and Energy Development Corp., company president Francisco L. Viray said, “This is my first time to see an energy mix not based on technology/fuel. So, I do not have any reaction, since I am not familiar with this energy-mix model.”

‘Tricky

Jose Victor Emmanuel de Dios, GE Philippines CEO and former DOE undersecretary, said laying out an energy mix, whatever model it maybe, is “tricky”.

“I think, what we really need is our load profile. The fuel will follow…. Tricky iyan and, at the end of  the day, the regulator will have to play a part,” he said in an interview.

He also noted that alongside an important energy mix is a strong grid. “If the grid is compromised, then the very purpose for which you are mandated to serve, to ensure stable and reliable electricity, will be compromised,” de Dios added.

The energy chief underscored the need for the National Grid Corp. of the Philippines to build reliable and interconnected transmission facilities across all three grids—Luzon, the Visayas and Mindanao—so that electricity will be distributed to DUs and ECs, which, in turn, are responsible for transporting power directly to the households.

“We have power, but how can that be transmitted to the households if our grid is not reliable. Transmission is vital to this industry. It goes hand in hand with generation and distribution,” Cusi pointed out.