Daddy, daddy, it’s dark in here

Some of you are old enough to remember the eight-to-12-hour daily blackouts as Cory Aquino’s term ended. Blackouts caused because no new power plants had been built for years. Economists estimated that the blackouts cost the country around P3 to 5 billion daily in lost business and contracted the 1992 Gross National Product by three percent.

Fidel Ramos came in and promised full power by the following Christmas. He was able to do it—but at a cost. You don’t get the cheapest power plants when you must rush, and when you’re desperate. But as he rightly said: “No power is more expensive”.

Well, inaction by this government is leading us into a repeat of that disaster. It claims to have been successful because it sold 81 percent of its NPC plants and Transco. But the successful privatization of the National Power Corp. was five years delayed and added a meager 280 megawatts. The bulk of it was just transferred ownership. Also, in the 81 percent of total NPC capacity privatized, 609 MW were retired plants (sold for scrap metal) so there was actually a net loss of 429 MW.

Under the Arroyo presidency, new power projects are few and far between. Committed power projects from 2004 to 2009 were a mere 589 MW. From 2010 to 2014, it’s slightly better at 1,348 MW. But there are no guarantees that these committed projects would eventually push through. In fact, 2 power plants previously listed with the Department of Energy as committed projects—DMCI Power’s 100 MW coal for Iloilo and Cepalco’s 8 MW hydro for Cagayan de Oro—slated for commercial operations for 2010 have already been shelved.

There has not been sufficient interest, and for good reason: It’s too risky. This government has stepped in on several occasions to control pricing or take back a decision it has already made. Take Meralco’s application for a shift towards a performance-based rate mechanism. The government took three years to approve an already tried and tested pricing mechanism, only for it to take back its decision when Meralco was about to implement it (PBR was finally implemented in 2009, the first time in six years Meralco was allowed to adjust its rates).

The government has done that, or changed conditions, the worst being where the President used her powers to force changes in Independent Power Producer contracts in 2002 that were seriously disadvantageous to the investor. Investors lost an estimated P1 billion in expected revenues. You don’t get new players that way.

Now it’s all coming to a head, the 2-hour rotating blackouts experienced in Metro Manila last week highlight just how dire the power situation in the country has gotten. Luzon is now in a power supply deficiency, while the Mindanao situation reached the critical level in 2009. Meanwhile, the Visayas is already desperate. Since mid-2009, local officials and businessmen in Cebu and Panay have been scrambling to find the fastest solution to supply additional power in the Visayas, even if it means they have to pay more to get it. The tight power supply has meant that provinces in the Visayas and Mindanao have had to endure power outages of at least 3 to 4 hours, This same fate awaits Luzon this year.

This is the state of the country’s power supply as of January 29, 2010, according to the National Grid Corp. of the Philippines. For Luzon, acceptable capacity is 6,587 MW, peak load is 6,122 MW, gross reserve is 415 MW while requisite reserve is 1,837 MW.

For Visayas, acceptable capacity is 1,097 MW, peak load is 1,132 MW, gross reserve is -35 MW while requisite reserve is 340 MW.

For Mindanao, acceptable capacity is 1,213 MW, peak load is 1,230 MW, gross reserve is -17 MW, while requisite reserve is 369 MW.

According to the National Grid Corporation of the Philippines, the Luzon grid has been in trouble since last year because of its “thin power reserves”. According to the Energy Department, the reserve margin should be 23-25 percent of peak demand. But the Asian Development Bank places the ideal reserve margin for the Philippines at a higher range of 30 percent for Luzon, 32 percent for the Visayas and 50 percent for Mindanao because existing power plants are very old, and there is a significant amount of hydro capacity subject to water shortages in a dry year (Luzon hydroelectric plants are already reporting low levels of water due to El Niño). If a power system operates below the ideal reserve margin, the slightest disturbance is amplified. And this is exactly what happened last January 25, when the Sual coal generation plant had to be shut down and it triggered a grid-wide blackout affecting Metro Manila and the nearby provinces.

The power situation in the country is now so critical that power firms are forced to defer much needed maintenance work just to avoid any plant shutdown. Steag State Power Inc., for instance, postponed major preventive maintenance work scheduled for end-January to avoid triggering another grid-wide blackout in Mindanao. This puts this plant, and others, at risk of a catastrophic breakdown. If you don’t put oil (regular maintenance) in your car engine, it blows up. This is the same concept but on a much, much larger scale. You must regularly maintain any mechanical device.

The government has been heralding recently that it has signed up $4.5 billion worth of renewable power projects, more than enough they say to cover for the 4,100 MW new power investments that the country needs. But many of these projects are not “shovel-ready” and are in the process of exploration or the conduct of feasibility studies (also some of the renewable energy contracts granted by the DOE are conversions, those existing power plants that have applied to change their service contracts to “renewable energy contracts” to avail of the incentives under law, so the numbers are deceiving).

But anyway there is no guarantee that the indicative projects would actually translate into new power plants in the future. Companies that have “indicated” their intention to build power plants sometimes do not push through with their plans for a number of reasons—difficulty in getting the necessary permits, inability to secure energy service contacts, etc. This is true of power plants generally, not just renewable energy plants. It is a historical fact that is unlikely to change now.

What is, or should be, really worrying is that there are few indicative projects for baseload plants. Even the DOE is concerned, recognizing that need for additional base load capacities. Existing base load capacities are very old (in Luzon the average age of base load plants is more than 40 years old), and these have been de-rated, aggravating the already tight supply in the system. Worrying for Mindanao is that these indicative projects are heavily concentrated in Luzon and the Visayas. So the government’s promise to the Moro Islamic Liberation Front that it will get investment into the region is a hollow promise.

The presidential candidates might want to consider incorporating specific plans and actions to attract new power plant investors urgently. In some fashion, guarantee the integrity of their investment, maybe even a minimum return on that investment. Whatever make-up funds government might need to provide would be far less than any cost here. We need power, it’s time to be creative. It’s time to act. –Peter Wallace