DOE moves to avert Luzon power shortage

By Lenie Lectura & Butch Fernandez – August 4, 2016

from Business Mirror

The Department of Energy (DOE) and the Energy Regulatory Commission (ERC) have begun assessing the country’s power-supply situation, after a series of yellow- and red- alert status were raised in Luzon.

On Thursday, when the National Grid Corp. of the Philippines (NGCP) placed the Luzon grid on yellow-alert status anew, the DOE said it had started looking at all possible mechanisms that would ensure adequate and stable power supply necessary to sustain the country’s economic growth.

In particular, the DOE is assessing the practices of power-generation firms during incidents of sudden plant shutdown.

“The recent spate of yellow alert-status declaration by the NGCP prompted the DOE to assess whether there are enough measures or standards for power-generation companies to ensure their power plants are always in good condition and are able to meet their obligations to their respective customers,” the DOE said.

Mechanisms that are being studied by the agency include looking into the provision of replacement power for contracted capacities and the creation of technical-audit teams to assess the operations and contracts of generation companies (gencos) and distribution utilities (DUs), as well as strengthening the promotion of energy investments to augment the supply of electricity in the country.

“We are keen on improving the power-supply situation in the country. We will strengthen the policies and programs and we will work with the ERC to ensure that all standards are enforced to ascertain reliable, stable and reasonably priced electricity, because we cannot let the people suffer from power interruptions,” Energy Secretary Alfonso G. Cusi said.

‘Price rigging’

The Senate Committee on Energy is poised to conduct a full-blown inquiry into alleged “price rigging” by power industry players following last weekend’s simultaneous shutdowns of six power plants in the Luzon grid, triggering massive spikes in electricity rates charged to millions of consumers.

Sen. Sherwin T. Gatchalian, committee chairman, said on Thursday  the panel’s probe was instigated by Senate Minority Leader Ralph G. Recto’s resolution, citing “possible collusion among industry insiders after the six plants, which provide more than 13 percent of the Luzon grid’s installed capacity, went offline for unscheduled maintenance at the same time.”

“What we want is to determine what really happened and come out with legislation to prevent this type of collusion [from] happening,” Gatchalian said.

He lamented that as a result, electricity prices in the Wholesale Electricity Spot Market (WESM) jumped to five times the normal rate, from an average of P4 per kilowatt-hour (kWh) over the last month to a whopping P20 per kWh on July 29 and 30.

Gatchalian added that senators also want to find out at the upcoming inquiry “if we have mechanisms to prevent collusion and to punish collusion, and that’s where the legislature will come in,” Gatchalian said.

At the same time, the senator affirmed his commitment to work with the Duterte administration in crafting a “forward-looking plan in pursuit of building a stable and efficient energy supply for the entire country.”

He explained that forecasting and planning are very important in the energy sector,” noting that “this is a long-term industry, and to build a plant takes years and years.”

“So, we really need to plan. We really need to develop strong planning and forecasting mechanisms  and, at the same time, work together with the legislature to come up with policies which will support these plans,” Gatchalian added.

Judicious power consumption

The DOE also reiterated its call to the public to judiciously manage energy consumption.

The NGCP placed the grid on yellow alert from 9:01 a.m. to 4 p.m. on Thursday due to “insufficient operating reserve.”

Later that day, the yellow-alert status was extended until 8 p.m. after the San Gabriel plant of First Gen tripped at 2 p.m. Based on the 6 a.m. advisory of NGCP, Luzon system capacity stood at 9,805 megawatts (MW), while the system peak demand is projected to reach 9,128 MW at 11 a.m., leaving reserve capacity at 364 MW. The Visayas and Mindanao grids are operating on normal condition.

A yellow alert is issued by NGCP when contingency reserve is less than the capacity of the largest synchronized unit of the grid. In Luzon this is equivalent to 647 MW, or one unit of the Sual power plant.

A red alert, meanwhile, means that there is severe power deficiency.

From July 25 to August 4, there had been seven yellow alerts and two red alerts raised in Luzon grid.

‘Longest streak’

Prior to Thursday’s yellow-alert status, the NGCP placed the Luzon grid in similar alert status late last month.

According to the Manila Electric Co. (Meralco), the issuance of yellow and red alerts is the longest streak (seven days, or from July 26 to August 1) since April 2004, when the utility firm first adopted the Interruptible Load Program (ILP), according to Meralco Utility Economics Head Lawrence Fernandez.

“In accordance with protocols, upon issuance of the yellow-alert notice, Meralco began advising participants to the ILP to prepare for possible activation, in case the state of the grid deteriorates to a red alert like it did last Friday and Saturday,” Fernandez said in an interview.

Under ILP, customers with large loads, like commercial establishments, will be asked to operate their own generator sets if the grid operator projects a need to augment generation capacity in the Luzon grid.  Through this, the aggregate demand for power from the system will be reduced to a more manageable level, helping ensure the availability of supply during the season.

Whenever yellow alert is issued, Meralco advises its ILP participants to be ready to use their own generator sets should the need arise.

Forced outage

It has been observed that the lack of power supply or thinning power reserves for the past days have been due to the forced outages of various generating plants in Luzon.

On Thursday nearly 1,300 MW was shaved off Luzon grid, following the unplanned outage of various plants. These are the the 50-MW Angat Hydroelectric Power Plant Unit 4, the 180-MW Kalayaan Hydroelectric Power Plant U1, the Makban Geothermal Power Plant U1 and U10 with a combined capacity of 83 MW, the 60-MW Limay Cogeneration Plant Block 5, the 382-MW Pagbilao Coal-Fired Power Plant U2, the 122-MW South Luzon Thermal Energy Corp. Coal-Fired Power Plant U1, the 280-MW Malaya Thermal Power Plant U1 and the 140-MW Southwest Luzon Power Generation Corp. Coal-Fired Power Plant U2.

Meanwhile, the power plants on planned maintenance shutdown are the 180-MW Kalayaan U2, the 265-MW Santa Rita U2, the 55-MW Bacman Geothermal Power Plant and the 600-MW Ilijan Natural Gas Power Plant Block B.

Meralco, for its part, said the immediate cause of the reduced reserve levels is the outage of Ilijan Block B (600 MW) at 12:44 a.m. earlier, to go on scheduled maintenance.  The unit is expected to be unavailable until August 28.

Ongoing review

The ERC, for its part, said on Thursday that it is currently evaluating the reports submitted by the power firms, whose generating facilities were among those that recently went offline.

“Power plant outage reports are coming in. These are already being evaluated by the ERC,” said ERC spokesman  lawyer Rexie Digal said in an interview.

Under ERC Resolution 4, Series of 2015, generating facilities are required to submit a report to the ERC, within 48 hours from the occurrence of an unplanned outage.

“For this particular reason, the ERC has reminded the plants who went on outage to submit the detailed reasons for the outage. Once the reports are submitted, the ERC will evaluate,” Digal said.

Surge in WESM prices

The Philippine Electricity Market Corp. (PEMC) said the other day that it monitored “surges in market prices.” However, the PEMC said these surges did not necessitate the imposition of a secondary price cap.

“Taking into account the several yellow- and red-alert notices issued by the System Operator [NGCP] during the week of July 25 to 31, the secondary price cap  mechanism was not imposed, as breach of cumulative price threshold was not triggered, as provided in ERC Resolution  20, Series of 2014,” said PEMC, operator of the WESM.

A secondary price cap of P6.245 per kWh is implemented as a price-mitigating measure so consumers are protected from steep WESM prices when supply is tight in the spot market.

The secondary price cap is implemented once an average threshold of P9 per kWh threshold is reached over a 168-hour period.

“As of August 2, the cumulative price threshold has not yet been breached,” PEMC said.

Based on PEMC’s preliminary data, “there are surges in market prices on few intervals,” but prices remain low in the weekend of July 30 and 31,  due to decreased demand and lower temperature.

“WESM ushers in transparency in a liberalized regime where spikes in prices provide signals on tightness of supply condition due to forced and planned outages.

The secondary price cap and other measures, such as lowering of offer price cap and setting of offer price floor, were instituted by the DOE, ERC and PEMC to address sustained high prices and volatilities inherent in a competitive electricity market,” PEMC President Melinda
L. Ocampo said.

Ocampo vowed that the PEMC would remain steadfast in maintaining transparency in market processes as it continues to reflect market prices that signal the supply and demand relationship.

Higher power rates  

Meralco said power rates are anticipated to go up because of the frequent incidence of yellow- and red-alert status issued by the NGCP.

However, since these incidents occurred late July, any adjustment would be reflected in the September Meralco bills.

Fernandez said there “maybe upward pressure on market prices this August,” The Meralco official was referring to electricity prices in the WESM.

“This is because of the successive yellow and red alerts experienced by the Luzon grid. This may eventually affect September generation charge,” Fernandez added. DOE Spokesman Felix William Fuentebella, meanwhile, said that, “As a general rule, if supply is down and demand is up it may drive prices.”