Luzon power supply: A crisis seeking ‘legitimacy’

by Myrna Velasco, December 31, 2014
from Manila Bulletin 

Someone hit the panic button that a crisis in electricity supply will hit Luzon grid by summer next year – and voila… the entire power sector was again caught in a political whirlwind.

Regrettably, the immediate reaction was not a scramble for solutions. With all that the problem implies, it had been taken as a chance for politics to intervene – so the government’s first tough act was to seek “emergency powers” for President Aquino by invoking Section 71 of the Electric Power Industry Reform Act (EPIRA).

That particular provision of the power industry reform law stipulates that: “Upon the determination by the President of the Philippines of an imminent shortage of 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.”

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The situation had been some sort of Gordian knot, but the familiar scenes recurred: first, There had been the favorite pastimes of finger-pointing and “blame-game”; then call for execution of drastic political measures; and although disappointing, the last had been ascertaining the real problem and what could be the appropriate fixes.

CRISIS IS REAL… OR DEBATABLE?

President Aquino, in a letter-request to Congress dated September 12, 2014, has averred that “in accordance with Section 71 of Republic Act No. 9136, otherwise known as the EPIRA, I hereby seek the immediate enactment of a Joint Resolution authorizing the President to establish additional generating capacity.”

He stressed “this authority is needed in order to address the imminent shortage of electric power for the summer of 2015 in Luzon.”

It was just established later on that the “crisis threat” was more on extremely tight power supply condition – meaning, even if the available capacities of power plants are still enough under normal operating conditions, the lack of any additional capacity that could plug portended gap in supply if any of the plants will conk out (or suffer from forced outages) will be the probable trigger to the feared rolling brownouts.

At the outset, that had not been clear in the government’s messaging strategy in explaining its “warning of a crisis” – until after a reverse course on forecasts had been clearly laid down to Congress – and that was around November already. One issue not given specific and detailed attention had been on the power system’s requirement for reserve capacity.

Whether or not such blunder will eventually tarnish President Aquino and his administration’s record, it is history – and even the brownouts… err, blackouts – that will judge him.

A SUMMER OF DISCONTENT

The crisis will not last forever – but will it really be a summer of discontent?

Based on prognosis cast by Energy Secretary Carlos Jericho L. Petilla, it will just be for the duration of summer months (March-July 2015 to be exact) – and it would even be to a lesser degree compared to the years of rotating brownouts that Mindanao grid had suffered.

Although the power supply-demand outlook being presented by the Department of Energy (DOE) had been ever-changing (note that the numbers scampered from 280 megawatts to more than 1,000MW), Mr. Petilla has been consistent in his warning that the “crisis is real” and that power interruptions will torment consumers.

“It will be red alert… shortfall is 240 to 270 megawatts, within that range, it will start in March because of the Malampaya shutdown,” Mr. Petilla said when he was interviewed by reporters in August.

The power interruptions, he qualified, will likely last for two-and-a-half (2.5) hours in the franchise area of Manila Electric Company (Meralco) as well as in other areas.

Many business groups and power industry players, however, have discrepant view. They reckoned that supply will still be sufficient, but the system will nonetheless be problematic of its reserve requirements.

Typically, prudently-operated electricity systems shall need frequency regulating reserve (in the Philippines that is equivalent to 4.0% of demand at any given time and it shall address excursions in system frequencies to forestall cascade of power plant trippings); contingency reserve which is equivalent to the biggest generating unit in a power grid (or roughly 647MW for Luzon); and the dispatchable reserve which shall also follow the capacity instruction as well as technical parameters set by the Grid Code.

GENSETS’ QUEUE

On the solution front, the government and some private industry players had been poles apart also on their prescriptions. The DOE in collaboration with its attached corporate entity Power Sector Assets and Liabilities Management Corporation (PSALM) quickly jumped at the prospect of leasing or purchasing generating sets (gensets) from offshore/foreign suppliers.

PSALM, for its part, had issued a press release on long queue of prospective genset suppliers already making offers. It listed the likes of: Aaltaphil Inc.; Aggreko Pte. Ltd.; APac Energy Rental Pte. Ltd.; APR Energy; ATN Philippines Solar Energy Group, Inc.; Cinta Asia (Singapore) Pte. Ltd.; Energreen Technology, Inc.; Enertech Systems Industries, Inc.; General Electric Company; Guangxi Hydroelectric Construction Bureau; Horizon Synergy, Co. Ltd.; Itochu Corporation; Jeongan Electric Company, Ltd.; JS Philippines Global Corporation; Novo-Gapmec Power Philippines, Inc.; PT Sumberdaya Sewatama – Power Solution Provider; Philman Corporate Distribution; Ring Power Corporation; Siemens, Inc. Philippines; SO Energy, International Inc. and Third Millennium Holdings Corporation.

The company’s president Emmanuel R. Ledesma Jr. enthused that “since President Aquino asked Congress for the authority to establish additional generation capacity under the EPIRA, PSALM has been receiving several letters of intent and accommodating requests for meetings from these potential contractors.”

Yet after the details of the Section 71 mandate had been fleshed out, the message from government somehow shifted into something that infers: “Sorry, you have been knocking on forbidden doors!”

Just as they say that the map is not actually the territory, the State’s policy guidance may not necessarily be reflective of the workable solutions. The genset-procurement approach of government was perceived to have been “a bit too much,” especially with reports that P6 billion to P12 billion of public money will be spent for such fickle band-aid measure.

The private sector players which relatively have deeper grasp of the power sector’s operational nitty-gritty wanted a solution that is feasible and lighter on the consumers’ pockets or the government coffers in terms of subsidy.

DELTA OF SOLUTIONS

For Meralco and other well-entrenched industry players, they prefer instituting a solution that had already been tested in crisis-ridden areas of Visayas and Mindanao – and that is integrating capacity de-loading of big ticket electricity end-users via the interruptible load program (ILP) – that was dangled as rapprochement to what was re-packaged as tamer version of ‘Section 71’ mandate for President Aquino.

It’s still not a cure-all for the power industry’s deep-rooted ills, but it will be something that can save the country’s biggest power grid next year and in 2016 – or the period prior to the entry of new power capacities that can stabilize supply over the long haul.

Mr. Petilla was not exactly pleased at the tenor of the final “quick fix proposals,” but he averred he will assent to the will of Congress as to the ‘authority’ that they will bestow the President.

That was despite the fact that his pronouncements to media were still streaked with “be careful” caution, as he insisted that the ILP “does not guarantee zero brownouts.”

Conversely, the energy chief asserted that while “I am perceived to be negative on ILP, that’s not true. In fact, I was the first one to invoke ILP as early as December (2013).”

The variations in estimates being crunched by the DOE and the private sector – mainly Meralco and the Retail Electricity Suppliers Association (RESA), he claimed had been anchored on the status of the negotiations with the prospective ILP participants and the scale of contracts already signed.

RE-CALIBRATING ILP PARADIGM

But while stakeholders are at odds when it comes to their preferred fixes to the industry’s dilemmas, they are still opting to work together to spare the consumers from the predicaments of exasperating power interruptions.

The bottom line, according to Mr. Petilla, had been that “the department is seeking more ILP participants,” albeit qualifying that “the program will only be part of the answer to the looming power shortages next summer.”

He added that “in every meeting, we need to ensure that they (ILP candidates) will understand our side and let them know how important this program is not only to their cause but to the people as well… it’s a matter of explaining it well and ensuring that they will sign the participation papers at the end of the meeting.”

As of mid-December, around 708MW in equivalent capacity for de-loading of the ILP participants had already been firmly committed; and  both Meralco and RESA have been stepping up to the plate so they can sign up at least 800MW by January. ILP-underpinned deloading of capacity, in essence, will free up supply for the grid thus threats of power supply shortages can be averted.

Past the ILP program and invoking EPIRA’s Section 71, Mr. Petilla has noted that he has more on his four-pronged solution to next year’s power supply dilemmas. These shall include: energy savings to be called on a voluntary basis; and when feasible, to enjoin the Grid Management Committee and the National Grid Corporation of the Philippines to come up with a strategy to potentially lessen forced outages.

The Section 71 mandate to the President shall also bequeath him powers to suspend the operability of some laws and rules – among them the Value Added Tax Law for the ILP cost recoveries, the Clean Air Act for Ilijan’s fuel shift to pure diesel; as well as some rules of the Wholesale Electricity Spot Market). These shall be enforced so the operations of some power plants can be optimized and for the ILP participants not to be unduly burdened with the punishing taxes on the use of their gensets.

On the regulatory sphere, the Energy Regulatory Commission (ERC) has similarly announced that it has been modifying the ILP Rules so it can factor in the specific facets and cost recovery schemes of the contestable customers under RESA which will sign up into the ILP program.

In the end, what’s worth seeing is if the proposed solutions will be enough and if they will work… or will it really be: So long summer of distress? (To be continued)

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