Archipelagic Nation Needs Archipelagic Generation

David Celestra Tan
25 January 2015

Should a country generate its power from larger power plants far away from the load center or should it build smaller power plants closer to where they are needed?

This article is a continuation of our previous posting on Locational Strategy for power development.

The debate on distributed generation versus centralized generation dates back to the time of Thomas Alba Edison, the inventor of electricity, when he built the Pearl Street Station in New York in 1882.

The idea is generating power is cheaper from larger centralized though farther power plants even if we factor in the cost to transmit them by HV power lines to the load center. Land costs in remote areas are cheaper and the sparsely populated surrounding communities that can use the large investment, tax, employment, and general contribution to the community economy, would be not as resistant to environmental risks. Large coal power plants also need to be located close to the coastlines for coal fuel handling and plant water cooling.

This debate is very relevant to our beloved Philippines, an archipelagic country with 7,107 islands (okey in low tide), at least 15 of them are major, occupied by 85% of our 97 million population. Do we build big and bigger power plants and string the islands with a network of long and longer submarine power cables and overhead transmission lines? Or do we build island-centric generating plants and only build medium voltage and strategic inter-island submarine connections for supplementary peaking and reserve power. There is a big jump in technology and cost from a 69kv submarine system to 138 and 230kv. Major high voltage lines of 138 and 230kv can be built for strategic reasons like connecting the major island of Mindanao to the Visayas and Luzon grid.

In power sector parlance, distributed generation means generating power close to the distribution centers. It is also called embedded generation when a power plant is located close to the load center and power is delivered directly to its distribution substations and feeders without going through long high voltage transmission lines.
The deciding factors should be power reliability and the total cost of delivered power to the electricity consumers. This means including the cost of transmission lines. Embedded generation is embodied in our Philippine Grid Code.

Napocor’s Philosophy of Centralized Generation

The policy of distributed generation got lost in the Philippines power development strategy when the government nationalized under Martial Law the power generation and transmission functions under the government owned monopoly, National Power Corp. One thing that Napocor’s and the old Ministry of Energy’s strategy got confused on was while it may be sensible for building bigger power plants in the large Luzon island, that centralized generation philosophy was adopted also in the Visayas and Mindanao. Consequently, under Napocor there were no major power plants built in Negros and Panay islands. Instead, they relied on the 700mw geothermal fields in Ormoc, Leyte and built overhead power lines to Cebu and connected Leyte, Cebu, Negros, and Panay with submarine power cable systems.

Meralco under its original American owners (from New York) and visionary Lopez patriarch Eugenio Lopez Sr. was building power generating plants close to the load center of Manila. Remember the Rockwell power plant in Makati, the Gardner Snyder station in Sucat, Tegen Power Station in Sta.Ana, and Malaya? These were feasible in their locations in Laguna Bay and Manila because they run on bunker c which can be barged.

Even the last big power project under Martial law, the 600mw nuclear plant in Morong, Bataan was not unreasonably far (120km) from the Metro-Manila load center. There was already a 230kv transmission line built from Morong to Hermosa Bataan. When this power project was aborted under the Anti-Marcos frenzy of 1986, there were no power projects undertaken to replace it despite having a supposed power guy appointed by President Cory Aquino to the presidency of the power monopoly Napocor.

Power Development in the Philippines was neglected during the political upheaval of 1980’s and caught up with the country just as it was starting to economically recover after the people power revolution. A five (5) year power crisis ensued with 12 hour rotating brownouts 1990 to 1995. The power projects undertaken under the Power Crisis Act giving new President Fidel V. Ramos the absolute power to negotiate urgent power projects, saw the building of power plants in places where coal unloading is feasible, where power barges can be moored, and where big power investments are politically convenient.

From a transmission planning and system balancing point of view, many wondered why a 1,200mw power plant, the country’s largest, was built way in the North in Sual, Pangasinan, which is 210 kilometers away from Meralco’s nearest power substation feeder. It necessitated the building of an equal length of 230kv transmission line whose cost is passed on to the consumers.

If we decide that the Bataan Peninsula is a good strategic generation area, it may be sensible to build a submarine cable system from Bataan to the Manila and Calabarzon load centers instead of going around Pampanga and Bulacan with overhead power lines that tend to run into right of way problems in building them.

An archipelagic and island-centric generation strategy is most critical for the Visayan islands because of the high cost of continually building submarine power cable systems. Its major islands of Panay, Negros, Cebu, and Leyte, are seeing booming economies. Of these islands the weak link in generation is the 250mw Negros where there has not been a major power plant built for 40 years other than the ill-fated 80mw Northern Negros Geothermal project of PNOC EDC in the Mt. Kanlaon area which PNOC, after investing billion pesos, turned out to be a 10mw area. Currently most of Negros power comes from a coal plant in Cebu and eventually a coal plant in Panay islands to the West which will both require the expensive expansion of the submarine cable systems from those islands to Negros, adding to the transmission charges to consumers. We heard this is budgeted at P5 billion to bring about 100mw of Panay generated power to Negros.

One of the emergency power projects in the 1990’s was the 700mw geothermal of Cal Energy in Ormoc, Leyte, built with a full off-take guarantee by the national government through PNOC. For many years it was being dispatched only 50% because its power cannot be delivered efficiently through the Visayan Grid which relies on submarine cables. During this period, Panay island and Negros had been suffering from power shortages including Boracay. In August of 1998, Leyte was connected to Luzon by a 440mw HVDC submarine cable system.

For power reliability in each island there has to be sufficient on-island generation. There is an esoteric term in the power sector called “N-1” which roughly means an island must be able to maintain normal power supply even if its largest power source like a generating unit or largest transmission system is down. This is embodied in the Philippine Grid Code as part of power reliability formula. The Code also encourages embedded generation.

NGCP as the system operator and planner of the power grid does not push for on-island generation. In fact their behavior suggests they are against it. They push for more revenue generating transmission line projects. And those will continually add to the transmission charges to the consumers.

At some point, the major islands of Mindoro and Palawan will need to be connected to the main grid. However, the scale and cost must be sensible. NGCP’s proposal to connect Mindoro island with a P11.9 billion 230kv submarine cable is an overkill and ignores the need to maintain on-island generation. Had they proposed a more sensible 69kv connection line to provide supplementary power it would have been more viable. Of course, they have to address how to protect Mindorenos from the loss of the missionary subsidies.

The same with the 250 kilometer long Palawan island, cited for being one of the most beautiful islands in the world. It may eventually be connected to the Luzon grid because of its sheer size and load potential. For now the major task for at least the next 5 years is building as much on-island generating capacity as possible to meet its 40mw demand. Palawan is a wonderful place for the government to aggressively push for Renewable Energy. It has hydro, solar, biomass, and wind potential. Why are they insisting on building a coal plant that the Palawenos are against? It can sabotage the clean and pristine image that the island needs for its tourism, the most logical driver of economic development of the island.

For power reliability and lower total cost of delivered power, we need on-island generations not only in small islands. Building expensive submarine cables is part of the cost to the consumers. Our archipelagic country needs an archipelagic generation philosophy.

Matuwid na Singil sa Kuryente Consumer Alliance Inc.

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Palawan Should Not Have Brownouts

Mainland Palawan only has 37mw of peaking demand. It has power supply contracts with three IPP’s totaling 53.7 MW. Palawan Power of Gozon Group at 15.2mw net, Delta P of Vivant at 13.5mw, and DMCI of Consunji Group of 25mw.  That gives a reserve of 16.7mw or 45%, one of the best among all the islands in the Philippines.

So why is this tourist paradise sufffering from brownouts during its peak tourist seasons?

It seems local coop Palawan Electric Coop is not enforcing its power supply contract rights with its IPP’s just like Meralco appear to be failing to do so and it’s the consumers suffering the consequences.  Is this due to a lack of understanding of their contractual rights, the IPP shortchanging the local distribution utility, or part of a plan to create an atmosphere of a power shortage?  Or is it a combination of all of the above?

The key issue is the services that the IPP’s are obligated to deliver to the off-taker Paleco. Is it  only energy (kwh) or capacity (mw) or both?  This is not commonly understood even by many people getting into the power supply business. And most coop managements are not prepared, or un-informed by their own power generation suppliers, to protect its member consumers by a rightful enforcement of its contractual rights.

IPP’s with bilateral contracts are obligated to deliver two things, energy and capacity.

1. Supply of Energy

Of the two, the delivery of energy in kwh per month or year is the easier to enforce because that’s how they are billed every month, in kilowatthours or KWH.

Paleco’s electricity supply agreement with Palawan Power Generation Inc. (PPGI) calls for the delivery of a total of 74 million kwh a year. Its contract with Delta P calls for an additional 72 million kwh a year. That is a total of 146 million kwh a year. Any balance of its approximately 192 million kwh a year or 46 million kwh will be supplied by DMCI through its existing high speed generators.

From all indications these IPP’s have been complying with their respective annual energy commitment to Palawan based on these annual kwh energy agreements.

So why is Palawan suffering from brownouts?  It has been because the first two IPP’s PPGI and Delta P have not been delivering their capacity obligations.

2. Supply of Capacity

This is the part commonly not enforced by Paleco and even by Meralco on its own power supply contracts.  The delivery of generating Capacity in kw. (Energy measured in kilowatthours is the amount of electricity produced for each hour that you run the generator capacity).   PPGI has contracted to deliver net capacities of 15.2mw of generating supply and Delta P has contracted to deliver 13.5mw capacity. Both plants are in Puerto Princesa. Power Plants do have to be allowed downtime for their maintenance and servicing. Both PPGI and Delta P are allowed 60 days per year (1,440 hours) in downtimes since they are older power plants. Newer power plants are allowed 45 days per year only.

What do these mean?  It means, both of them will need to be operating or ready to operate this total of 28.7mw for 305 days per year or 7,320 hours. This means the delivery of 28.7mw of capacity for a total of 7,320 hours a year.  Capacity is being delivered when a total of 28.7mw of generating capacity is operating OR when it is ready on standby in reserve to provide ready service.  Distribution utilities do need to have ready generating capacity in reserve in case needed to cover its requirements. It pays to have these reserve capacities.

When these two IPP’s got their Tariff approvals from the Energy Regulatory Commission they were allowed to recover their full recovery fees and fixed costs for the full 15.2mw and 13.5mw respectively subject to the downtime allowances. Hence, the total revenue they are making even if expressed in price per kwh and their billing is based on kwh energy, they are actually being paid for the capacities for the rest of the year beyond the downtime allowances.

For Paleco, PPGI and Delta P must be delivering 15.2mw and 13.5mw net respectively for 7,320 hours per year.

Are they not?

Delta P, owned by Gigawatt Power and Vivant, had been interpreting their service obligation to deliver only 72 million kwh per year. If they deliver this in 13.5mw, they only have to operate 222 days a year or 5,333 hours. Or have to deliver the 72 million in 7,320 hours, they are obligated to deliver only 9.84mw in capacity and not 13.50mw.

What happens to the difference between the 305 days and the 222 operating days?  For those 83 days, Delta P must still have 13.5mw available in reserve and ready for dispatch by Paleco. Their rate recovery as approved by the ERC includes availability on those days because they are only allowed 60 days a year downtime. Having 13.5mw in reserve ready to provide power over those 83 days could cover that additional power badly needed for the summers in Palawan.

PPGI for its part, had been conveniently adopting the similar interpretation. On their 1st electricity supply agreement available from the ERC, PPGI is contracted to deliver 7.2mw and 30 million kwh a year.  They can deliver this in 4,166 running hours. Based on their downtime allowance, PPGI’s 7.2mw should be available 7,320 hours a year or 4,166 of running hours and 3,154 hours of reserve time.  That is 7.2mw of reserve capacity for 131 days a year.

On the 2nd of PPGI’s electricity supply agreement of 10mw gross (8mw net), Paleco is contracted to get 44 million kwh a year from this base-load plant. That is running hours of only 5,500 hours a year. With downtime allowance of 1,440 hours a year, it means PPGI-2 needs to be ready on standby reserve for an additional 1,820 hours a year or 75 days a year. That’s 8mw of reserve capacity enough to last the December to January holiday peak season.

Delta P claims that they are not allowed by the ERC to supply more energy than their 72 million kwh per year. I think this is not correct because the 72 million is the minimum energy and Paleco has the right to buy more if needed by its consumers.  To access these uncalled reserve  capacities, Paleco can seek clarifications from the ERC if needed.

What do these mean to the national electricity consumers?

Paleco apparently believes that their two IPP’s (called NPP’s for off-grid areas) have been meeting their contractual obligations by delivering the contracted energy totaling 146 million kwh. This means they are not requiring PPGI to deliver 7.2mw of standby capacity for 131 days a year (4.36 months of the year) and 8mw of reserve for 75 days a year (2.5 months).  From Delta P, it has been forfeiting 13.5mw 83 days a year or (2.76 months a year). That’s about 289 days of foregone reserve capacities averaging 9mw that could have been dispatched to avoid brownouts. This is the real reason Palawan has been experiencing brownouts.

Paleco actually need only an optimum contracted capacity of about 45mw (peak plus 20% reserve) and needed to contract only 17mw of additional capacity from a third supplier.  It contracted 25mw net, or a full 8mw of excess power supply from DMCI.

Who is paying for these undelivered and excess capacities? WE, the national consumers through the missionary subsidy that is passed on by PSALM as universal charge for missionary electrification (UC-ME). This has gone from an initial 0.035 per kwh to now 0.095 per kwh and increasing.

Electric Coops need to care about costs to the national consumers. Part of the problem is the Electric Coops in the missionary areas only pay the P6.58 per kwh Socially Acceptable Generation Rate (SAGR) and the government is the one paying the balance of  the P13 per kwh true cost of generation or P6.42 per kwh as missionary subsidy.  This is passed on to the national consumers as “missionary electrification” charge.

This is the reason they do not pay attention to properly managing their contracts in the same manner that Meralco did not care much about the downtimes of their IPP’s and PSA generators because they were content with buying the difference from WESM and passing them on to the consumers “automatically”.

In the competitive selection process for El Nido, Paleco is asking for installed capacities of 5mw when the peak load in the area is only 1mw. Even if they double it, they need only 2mw. The 5mw capacity will be paid for through the missionary subsidy. Diesel plants are modular and easily expandable. So why ask for 5mw now when it will not be needed for at least 8 years?

Anyway, Palawan’s 37mw demand in the coming summer can easily be served by its existing IPP’s provided they demand that PPGI and Delta P deliver their contracted capacities and not only energies (kwh). Otherwise they will be running the DMCI temporary generators which use more expensive regular diesel fuel with incremental operating charges for extra hours, another unnecessary increased costs to the missionary subsidies.

These off-grid areas may be distant and smaller than the power concerns in Luzon and Mindanao but the accumulated impact on the national electric consumers also run in billions a year.

David Celestra Tan
Matuwid Na Singil sa Kuryente Consumer Alliance Inc.

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