Energy yearender: Searching for long-term solutions

by Claire-Ann M.C. Feliciano, January 13, 2015
from Business World Online

THE COMING dry season will be challenging for the energy sector, which will struggle to meet demand as hydroelectric sources dry up, potentially exposing consumers to crippling outages.

This was the outlook given by Energy Secretary Carlos Jericho L. Petilla, who declined to give a precise estimate of the looming shortfall.
The uncertainty of power supply — a problem which used to be confined to Mindanao — has now spread to Luzon, which accounts for around 70% of the country’s output.

Latest figures showed an additional 782 megawatts (MW) is needed to avoid supply disruptions between March and June this year.

“In the power sector, every day provides a different learning experience,” Mr. Petilla said in an e-mail interview.

“The dynamism of the power sector is a certainty; we are confronted with challenges of varying degrees. This year’s summer just presents a more challenging situation that will test existing mechanisms,” he explained.

Are consumers helpless? The Energy chief doesn’t think so.

“Consumers can be more proactive and be more aware of our current state of affairs,” Mr. Petilla said, adding that “demand-side management” was a matter he hopes to raise the profile of with the broader public.

The circular enjoins public and private establishments, which includes households, to participate and practice different energy conservation measures.

“Examples are putting your air-cooling systems to 25 degrees celsius and replacing you lighting with LED lights,” Mr. Petilla said.

“We also have an interactive Web site wattmatters.org.ph for smart energy choices, where you can also find different conservation measures you can apply at home,” he added.

Mr. Petilla assured that the government is cooperating with the private sector for the solutions to mitigate the potential adverse impact of the power supply shortfall.

But he admitted that the interruptible load program (ILP) — which relies mostly on the private sector — is seen the most viable measure right now.

The ILP is a demand-side management solution meant to alleviate the power supply situation by calling on big consumers to run their own generator sets instead of drawing power from the grid. Parties joining the ILP will be compensated for their participation.

“The ILP can be of assistance in easing the power problems this summer,” he said.

Mr. Petilla said existing ILP rules provide that the program is ILP activated when the grid enters the red alert stage — which means demand will need to outstrip available supply before participants activate their generators.

“The ERC (Energy Regulatory Commission) has started the process of amending the ILP Rules and expanding its coverage,” Mr. Petilla said.

Mr. Petilla said the Department of Energy (DoE) wants to activate ILP even during the yellow alert level — or when reserves are thinner than required — to avoid rotating power outages.

Latest data from the DoE showed that a total of 197.55 MW are already enrolled under Manila Electric Co.’s ILP and there is still potential for 55.9 MW more.

The agency is also expecting a total of 444.94 MW from the contestable customers or those who have their own retail electricity suppliers.

“We will come up with a new and updated list by the end of January. At present, we are securing more commitments from potential ILP participants,” Mr. Petilla said.

Apart from the ILP, the government is also pushing for the fast tracking of committed power projects, and energy efficiency and conservation measures to address the shortfall.

But are these measures sufficient to stem the problem? The government cannot give assurances, but business groups — which are supporters of the ILP — are very optimistic.

As early as the first quarter of 2014, the DoE had flagged absence of new power generation plants in Luzon as potentially causing outages — especially since most of the country’s power plants are prone to unplanned shutdowns due to their age.

The dry season of 2014 was a big challenge to the energy sector as it coincided with the World Economic Forum — an international gathering of world leaders from both governments and the business sector.

Supply was tight throughout those months, but outages turned out to be minimal, caused by the emergency shutdown of some base load power plants in Luzon.

Mr. Petilla in May said an improved supply situation is expected this year as new power plants with combined capacity of nearly 1,000 MW are scheduled to go online by this year’s dry season.

The positive outlook turned sour in July, when Mr. Petilla himself pointed out the need for additional supply — and even suggested invoking the power crisis provision of the Electric Power Industry Reform Act of 2001 (EPIRA).

EPIRA’s Section 71 states that “[u]pon the determination by the President of the Philippines of an imminent shortage of the supply of electricity, Congress may authorize, through a joint resolution, the establishment of additional generating capacity under such terms and conditions as it may approve.”

“The DoE projected thin reserves for the summer months of 2015,” Mylene C. Capongcol, director of the DoE’s Electric Power Industry Management Bureau, said in a separate interview.

“Because of the high level of forced outages and the delays in the committed projects including the de-rating of some power plants, we were prompted to trigger Section 71 of EPIRA,” she said.

In his most recent interview, Mr. Petilla did not give details on the status of the power projects that were supposed to be operational by the dry season.

“The DoE is hands-on in inspecting and ensuring that power facilities around Luzon will come online as scheduled in order for us to update our data and forecasts more accurately,” he said instead.

Major projects in Luzon were earlier identified as: the 135-MW coal plant of South Luzon Thermal Energy Corp.; 300-MW coal plant of Southwest Luzon Power Generation Corp.; and the 150-MW wind farm of Energy Development Corp.

President Benigno S. C. Aquino III in September invoked the power crisis provision of the law and asked for Congressional authority to contract additional capacity.

To date, however, a joint resolution has yet to be issued even though the House of Representatives has come up with its own version that focuses on the ILP.

“The department is constantly in talks with the legislature in passing a favorable joint resolution, which can prevent this impending situation from happening,” Mr. Petilla said.

Mr. Petilla acknowledged that projections on supply and demand are always changing, adding that this makes it hard for the government to assure that there will be no outages after the dry season passes.

“With the scheduled opening and inauguration of different plants this year, we foresee no concerns beyond the summer months,” Mr. Petilla said.

“However, the situation is dynamic and we would like to clarify that there may be some events that are entirely uncontrollable and way beyond the jurisdiction of the powers prescribed under DoE’s portfolio which may provoke the same challenges,” he explained.

“In the long term, we are set to launch the Demand Aggregation and Supply Auctioning Program to ensure that demand is met with supply from prospective power projects for future years,” Mr. Petilla said.

Under this program, all distribution utilities (DUs) and electric cooperatives (ECs) will be asked to present their demand and existing contracts.

An aggregate bidding would help some ECs whose un-contracted demand is minimal. These distributors may opt to source power from the spot market, where prices are volatile.

He said some ECs are already conducting auctions for their demand before executing supply deals but requiring all of them to do so would ensure a transparent selection process and competitive pricing.

Apart from these measures, Mr. Petilla said the government also wants public participation in order to maximize the potential of conservation efforts.

“At the household level, we are pushing for the public to practice energy conservation methods as this is the only thing which our people can do collaboratively and collectively,” Mr. Petilla said.

Action for Economic Reform (AER), a nongovernment organization engaged in research related to fiscal policies and administration, said the looming power problem could recur if the government will just think short-term.

“This is an emergency situation and the government is looking at an emergency solution. Right now, the choices are very limited,” Nepomuceno A. Malaluan, a member of AER’s industrial policy team, said in an interview.

“There can be some rotating brownouts during several periods in summer. But the bigger question concerns the long-term plans of the government. We have to find out how we came to this situation and find a solution as early as now,” he said.

Mr. Malaluan noted the need for a more active role by the government in providing a solution to the power problem, which he said, could even go beyond 2015.

“There is a need for a more strategic solution. Otherwise, this will just keep on repeating. If nothing gets done, there’s a big possibility that the problem will happen again in the future,” he said.

Mr. Malaluan expressed concern that the government cannot not assure that new power plants — which are supposed to plug the needed supply — would be sufficient.

“We understand that if one plant breaks down, we are left with no choice. We have to face rotating brownouts. There should be a better way of handling this since we’ve been experiencing it more often now,” he said.

He also questioned the provision of the EPIRA which requires the country’s chief executive to secure an authority from the two chambers of Congress before contracting additional capacities.

“Government must be determined to exercise the power even without congressional authority,” Mr. Malaluan said.

Asked to describe the country’s energy sector, he said: “I think it’s in crisis. I’m sure the problems are going to resurface.”

The National Association of Electricity Consumers for Reforms (NASECORE), while aware of the inconvenience that could be brought by the potential outages, noted that the government should not forget who is responsible for the problem.

“The projected power crisis comes form the inability of the NGCP to contract sufficient ancillary reserves,” Pete L. Ilagan, NASECORE President, said referring to the National Grid Corporation of the Philippines.

NGCP is private firm that has been operating, maintaining and developing the country’s transmission network since 2009.

The firm is in charge of the transmission of high-voltage electricity through power superhighways that involve an interconnected system of transmission lines, towers, substations, and related facilities.

It acquired the 25-year concession of National Transmission Corp. in an auction conducted by the Power Sector Assets and Liabilities Management Corp. in 2008 where it submitted a $3.95-billion bid.

“The DoE and ERC must not forget to deal with this. The Congress must review the performance of NGCP as a franchise utility as it fails in its mandate,” Mr. Ilagan said.

He added that the government should also undertake other alternatives and not just focus on the ILP.

“The DoE and ERC must fast-track and encourage utilization of rooftop-mounted solar panels especially on commercial buildings and factories as an alternative to diesel plants which aggravate climate change and global warming,” Mr. Ilagan said.

Business groups concurred in the need to look for long-term thinking.

“There are too many uncertainties about supply and demand to be sure there will be no brownouts,” John D. Forbes, senior adviser of the American Chamber of Commerce in the Philippines, said.

Mr. Forbes said the business community is also pushing for the removal of obstacles in bringing in new projects, which could solve the looming problem.

“While the shutdown of a large feedstock source such as Malampaya will not recur, more new power must come on-stream each year to reach rising demand,” Mr. Forbes said.

He specifically cited the long delay of Redondo Peninsula Energy, Inc.’s (RP Energy) proposed 600-megawatt (MW) coal-fired power plant in Zambales, which could have helped address the anticipated problem.

“The long delay of the Redondo project creates a tight situation for 2015 and 2016 even if other projects are underway,” Mr. Forbes said.

“We hope the Supreme Court would issue its decision regarding Redondo as we need many new large plants as possible to begin construction as soon as possible,” he added.

RP Energy — which is a joint venture of Meralco PowerGen Corp. (MGen), Aboitiz Power Corp. and Taiwan Cogeneration Corp. — was supposed to put the project into operation by 2015.

Development, however, was halted in July 2012 because of the filing of a Writ of Kalikasan, a legal remedy introduced in 2010 to deal with environmental damage that affect residents near a project site.

“This could have been online next year to meet Luzon’s shortage,” Angelito U. Lantin, MGen senior vice-president and general manager, said last December.

“The coal power plant of RP Energy has not yet been built, so how can it be alleged to cause environmental damage?”

“The ease of filing Writ of Kalikasan cases needs to be revisited. It presents a significant risk and deterrent to the development of coal power plants in the Philippines,” Mr. Lantin said.

Henry J. Schumacher, executive vice-president of the European Chamber of Commerce in the Philippines, said: “In order for the problem not to happen in 2016 and 2017 and beyond, more generation plants have to come on-stream especially in the renewable energy field,” adding that it is “essential that the approval process for the power generation plants is streamlined.”

Other members of the business community are more optimistic, saying that the same power problem will go beyond 2015.

Luis Miguel O. Aboitiz, president of the Philippine Independent Power Producers Association of the Philippines, said the ILP will be more effective in addressing the need for standby power.

“I think the likelihood that it will happen again in the succeeding years is lower,” Mr. Aboitiz said.

“With what’s happening now, the ILP will be more refined in the future,” he added.

Alfredo M. Yao, president of the Philippine Chamber of Commerce and Industry, for his part said that the projects that have been delayed will come online in the coming years.

“I don’t think the shortage can happen again in the future. There are power plant capacities of almost 1,000 MW that have been delayed but will be operating between 2015 and 2017,” Mr. Yao said.

“We need an additional 600 MW every year, so we will be assured of enough power if the government will continue to support investors that want to build power project,” he added.

The Federation of Philippine Industries (FPI) also shrugged off the possibility of the problem continuing beyond the year.

“What’s happening now and what will happen in the future make us more prepared,” FPI President Jesus L. Arranza said.

“I think if we work together and we do our share, we can avoid the same thing from happening. There are so many investments coming in for power and I think the government just need to support these projects,” he added.

Mr. Arranza said that the government should start considering the obstacles in achieving energy supply security in the country.

“We really have to understand what went wrong. My recommendation is for them to review the Writ of Kalikasan because we all know the Redondo project could have been a big help,” he said.

“There should also be a review of the Department of Environment and Natural Resources rules as far as air pollution and power projects are concerned,” Mr. Arranza said.

He noted the environmental concerns continue to delay the construction of new power projects.

The official also suggested an assessment of the powers and roles of the ERC and DoE.

“We want to know what other powers these main agencies need so that we will not have any problem that some issues cannot be resolved because those are not part of their mandates,” Mr. Arranza said.

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