Malampaya shutdown starts today

By Lenie Lectura – January 28, 2017

from Business Mirror

Power-industry stakeholders have finalized contingency plans that would address a possible supply-deficiency scenario during the 20-day shutdown of the Malampaya gas facility, which supplies 40 percent of the Manila Electric Co.’s (Meralco) requirement, that starts today, Saturday.

Shell Philippines Exploration BV (SPEx), operator of the gas facility, said the maintenance activities will cover the repair of the subsea facilities, upgrades on the platform and maintenance on the onshore plant.

“SPEx is ready,” Energy Undersecretary Felix William B. Fuentebella said in a text message, when sought for an update.

During the third coordination meeting among stakeholders—composed of the Department of Energy (DOE), the Malampaya Consortium, National Grid Corp. of the Philippines (NGCP), Meralco, Power Sector Assets and Liabilities Management Corp. (PSALM), Philippine Electricity Market Corp. (PEMC), power-generation companies and other distribution utilities—it was agreed that the power plants that will be affected while maintenance work is being undertaken will run on alterative fuel, which is more expensive than gas.


Price shock

This also means that power rates will go up. The Malampaya shutdown will start on January 28, and will last until February 16.

“We’ve already conducted a series of coordination meetings, simulations, and exhausting all possible measures that we can implement to ensure supply and avoid price shocks,” Energy Secretary Alfonso G. Cusi said.

According to Meralco, generation rates may increase by P1.18 per kilowatt-hour (kWh) to be reflected in March electricity bills. With tax, the rate hike could reach P1.44 per kWh.

“The estimated effect on the generation charge of the use of liquid fuel and on spot prices of plant outages is P1.18/kWh. If we include VAT [value-added tax] and other charges, the overall impact is approximately P1.44/kWh,” Meralco Utility Economics Head Lawrence Fernandez said in a text message.

The generation charge for this month stood at P3.70/kWh. The rates for February would be announced by Meralco within the first week of the month.

The gas facility fuels three gas plants: the 1,000-megawatt (MW) Santa Rita, the 500-MW San Lorenzo and the 1,200-MW Ilijan.

Fuel factor

These plants will be using alternative fuel to continue operation and generate electricity during the maintenance period. However, this is more expensive than natural gas. Natural gas as fuel only costs around P4/kWh, while replacement fuel, such as diesel, costs around P6 to P8 per kWh.

“It’s an issue of a change of fuel from a cheaper one to a more expensive one,” said Fuentebella, when asked if a rate hike could be avoided.

To mitigate the anticipated spike in power rates, the DOE said a staggered payment of additional generation cost from having to use more expensive fuel is possible.

The First Gen Corp. of the Lopez Group told the DOE that all six units of Santa Rita and San Lorenzo will run using condensate, while its new Avion plant will run using liquid fuel at 76 MW to 84 MW.

“Fuel delivery is delayed, but the vessel containing the fuel is already in the Philippines. Fuel analysis for specifications is being done, and the vessel is to be cleared by customs. Santa Rita and San Lorenzo can run up to February 11 for the existing fuel stock [condensate]. They will run with diesel if the delivery did not push through,” a report from the January 23 coordination meeting stated.

The DOE assured the public that it continues to explore all possible options and remedies to maximize protection for consumers.

During the maintenance activities, some power plants are on scheduled maintenance, as well. With this, the DOE expects a total supply of 1,850 MW to be out during the period—200 MW from Calaca 1 power plant, 456 MW from Quezon Power Philippines Ltd., 600 MW from block one of Ilijan, 414 MW from San Gabriel and 180 MW out of the 600 MW of the second block of Ilijan plant.


NGCP could issue yellow or red alert warnings during the period.

A yellow alert means 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 there is severe power deficiency.

Based on the latest outlook, NGCP reported to the DOE that the highest peak demand of 8,610 MW could occur on February 9, during the maintenance activity. The report also stated, “Luzon will be on yellow-alert notice from February 8 to 10, 2017.”

The lack of power supply would be addressed by tapping power plants owned by the government and the private sector.

For instance, in the latest report, the government-owned 470-MW Malaya Thermal Power Plant in Pililla, Rizal, would be utilized on February 13 and 16  at 130 MW to avert a yellow-alert notice.

The government also considered to tap Malaya on January 27 and 30, and on February 4, 6 and 11 to avert yellow-alert notice and red-alert notice.

The Malaya plant has already conducted heat run tests for Unit 1 and Unit 2 on January 11 and 17, respectively.

According to PSALM, the declared available capacity of Malaya is 150 MW for Unit 1 and 320 for Unit 2. On fuel inventory, it reported to the DOE that there is available  31.82 million liters, which is sufficient to run both Malaya units at registered minimum stable loadings, 130 MW each, for 18 days.

“There will be additional fuel delivery in the first week of February,” PSALM said.

Also, the Caliraya reservoir will be raised to 288.5 meters above sea level (masl) to ensure availability of four units.

NPC said, “The CBK [Caliraya-Botocan-Kalayaan] confirmed to raise the level of Caliraya lake to 288.5 masl.”

Limay plant

SMC Global Power Holdings Corp., meanwhile, is willing to assist the government in providing cheaper power to be sourced from its newly built power plant in Limay, Bataan, during the 20-day shutdown of the gas facility.

Makakatulong kami kahit during the Malampaya shutdown, kasi nag-pro-produce na ng 150 MW ang Unit 1,” SMC President Ramon S. Ang said, when asked to comment on an earlier pronouncement of the DOE that the commercial operation of the Limay plant should be done earlier.

The first 150-MW unit of the Limay circulating fluidized bed (CFB) coal facility is currently undergoing commissioning, with target commercial operation in May this year, Ang said.

The second unit, another 150 MW, is scheduled for commercial operation three months after.

Unit 1, while on commissioning phase, uses diesel, which is more expensive than coal by at least P5 per kWh.

Ang said the company is willing to subsidize the difference.  “Tumatakbo na ang Unit 1, pero mas mahal kasi ginagamitan ng diesel. But we will help the grid to make sure hindi magkakaroon ng shortage. Okay lang iyun, pagbibigyan na namin iyun,” he said, when asked if the company would sell it at a lower price.

SMC’s coal power plants are sold at an average of P3 per kWh. Meanwhile, the output of a plant that utilizes diesel is sold at an average of between P8 and P9 per kWh.

Power ‘import’ and ILP

For Meralco’s part, the country’s largest distribution-utility firm, has requested Panay Energy Development Corp. to deliver 70 MW starting January 28.

It also wrote to various power-generation companies requesting for available capacity for a short-term (20-day) contract.

Further, Meralco will tap interruptible load program (ILP) participants for the possible ILP implementation in the event that the Luzon Grid would be placed on red-alert status during the shutdown.

ILP works by calling on business customers with loads of at least 1 MW to run their own generator sets, if needed, instead of drawing power from the grid.

With the ILP, power supply from the grid that will not be consumed by participating customers will be available for use by other customers within the franchise area. Through this, the aggregate demand for power from the system will be reduced to a more manageable level, helping ensure the availability of supply.

Around 900 MW are enrolled in the program. Of which, 745.5 MW are signed participants and 132.87 MW could be tapped as potential participants that would aid the utility firm in addressing sudden power outage in its franchise area.

Meralco’s ILP had helped avoid power outages in some incidents of yellow and red alerts.

“Meralco will continue to inform its subscribers to practice efficient energy consumption,” Fernandez added.


At the same time, Cusi said the DOE is encouraging consumers to practice effective demand-side management.

“The public should also be proactive in computing the effect of price adjustments to be provided in the simulations given by the agencies concerned for consumers to practice efficiency measures to avoid price shocks,” the energy chief said.

PEMC, operator of the Wholesale Electricity Spot Market (WESM), assured there would be no spike spot market prices.

PEMC President Melinda L. Ocampo said the Malampaya shutdown would not lead to a repeat of the 2013 incident, because existing mitigating measures are put in place to prevent abnormal price spikes.

“There is a threshold that will prevent higher WESM prices,” she said.

Malampaya’s last maintenance shutdown in November 2013 significantly pushed up power rates, which prompted reforms in the WESM.

WESM’s primary price-cap offer was originally set at P62/kWh, but regulators lowered it to P32/kWh starting December 2013, in a bid to prevent excessive price spikes.

Besides the primary price cap, the Energy Regulatory Commission (ERC) also ordered the implementation of a secondary cap to further protect consumers from excessive price spikes triggered by supply tightening.

Called the price-threshold mechanism, the P6.245/kWh secondary price cap kicks in the market once an average threshold of P9/kWh is reached over a 168-hour period.

The DOE has raised the possibility of further lowering the secondary price cap.

“We are reviewing how to lower the secondary price cap in the WESM with the ERC,” Fuentebella said.

Since ensuring supply in this particular situation inevitably increases power rates, the DOE continues to look for ways on how to mitigate steep increase and unwarranted market behavior to ensure utmost consumer protection.

The implementation of energy efficiency and conservation (EE&C) measures is a priority, Cusi said, since this is the most effective way to avoid price shocks.

The public may apply EE&C measures as simple as these: Reducing time of watching TV from 10 hours to nine hours, which translates to P19.80/month; setting to low electric fan from high to save P52.80/month; or even reducing an hour to usual time of ironing of clothes to save P44/month.

“The DOE assures the public that it will exhaust all possible legal options and measures to ensure supply and protect consumers from price shocks, but we cannot do it alone. That’s why we are also asking the public to remain vigilant and cooperative in managing their consumption,” Cusi said.