Former DOE chief offers his view on ‘energy mix economics’

by Myrna Velasco – October 24, 2016

from Manila Bulletin

To get discussions moving to the next level on the proposed energy mix for the country, former Energy Secretary and PHINMA Energy President Francisco L. Viray offered insights on what metrics the energy planners shall be assessing and taking into consideration for the policy.

At this stage, energy mix had become the industry’s buzzword but the Department of Energy (DOE) is still at ground zero when it comes to the specifics of the plans and parameters for such policy crafting.

The fixed 30-30-30 prescription of technology sharing for coal, gas and renewables remained a deep puzzle and still too-complicated terrain for the industry players, hence, they have been seeking for clarity of the energy mix economics being presented by the energy department.

In an exclusive interview, Viray noted that the starting point for the DOE planners shall be to analyze the power system’s load duration curve (LDC), and from there, they should “determine the mix on the basis of the components of the load curve – namely, the system’s need for base load capacity, mid- to peak load and then the system’s need for ancillary services (reserves).” A load curve is applied in power generation to demonstrate the relationship between the generating capacity requirements of a system and how that capacity is being utilized.

Viray said it is paramount for energy planners to “determine technologies for each component of the load curve using basic rule of power system economics of a vertically-integrated utility.”

In essence, that must reflect realities that the base load capacities “are supplied by technologies with high capital expenditures (capex) and low variable fuel costs,” he said. In the Philippines, that reality is the dominance of coal-fired power plants; while for mid-merit to peak load capacities, these are often supplied by technologies with “low capex and high variable/fuel costs.”

Following that, Viray emphasized the need to distribute the mix among the technologies based on the realities of power developments trended by the private investors in the restructured electricity sector.

Factoring all of that, he emphasized that the other important step for energy planners would be to optimize such capacities, but with consideration of the constraints posed by each technology.

The deeper technical and economic analysis of the proposed energy mix will then require them to flesh out the more detailed elements, such as cost of electricity generation, environmental impact, and security of supply relating to indigenous versus imported fuels; weather dependency of technologies and geopolitics.