Power Crisis: Real, contrived or God-given?

What should electricity consumers believe of the brownouts, yellow and red alerts and invocation of emergency powers supposedly to address the power crisis?

Let’s start with Mindanao, which is experiencing a severe drought. This has a tremendous impact on the electricity situation because most of the generated power in Mindanao is hydropower. According to the Department of Energy, Mindanao’s hydropower plants can generate only about 350 megawatts because of El Niño—even lower than the dependable capacity of oil-fired plants in Mindanao. The National Grid Corporation of the Philippines (NGCP), in its website, says dependable capacity throughout Mindanao today is 807 megawatts (MW), while peak demand is 1,457 MW—a shortage of 650 MW.

We need emergency powers, say Energy Secretary Angelo Reyes and his boss, President Gloria Arroyo, who are both running for Congress in the May 10 elections. Actually, way before “Hello, Garci,” the Arroyo government should have already planned for this eventuality. Mindanao’s electricity is cheap because of hydropower, but such strength is itself a weakness especially in the drought years. Scientists and environmentalists have warned us about severe weather resulting from global warming. Drought is more frequent, harsher and hotter. Why couldn’t the government see this ahead of today or yesterday?

Instead of preparing for what is being seen to unfold in Mindanao, Reyes and President Arroyo are pushing coal projects down South. Worse, they have hastily invoked emergency powers and plan to utilize with lightning speed P10 billion apparently to lease—not own or acquire—60 MW of modular generator sets.

This is history being repeated in the name of emergency powers to solve a crisis. But we all know that this is nothing more than another hefty expense, similar to the IPP contracts of the Ramos years, to “solve” the power shortage in Mindanao, that would result in electricity rates of P18 to P21 per kilowatt-hour—a sure way to kill any industrial development in the region and make electricity even more inaccessible to the poor and marginalized Mindanaoans.

Visayas more stable

Northward now to the Visayas. If there is any region where the threat of an impending shortage of electricity has been repeatedly and consistently raised since the passage of EPIRA, it is the Visayas.

Attempts by local government officials and energy planners to strike fear of a shortage in the hearts of Ilonggos and Cebuanos have been met with strong resistance to set up coal plants in their communities.

For some reason, coal is the government’s choice of fuel, global warming notwithstanding. But studies undertaken by energy experts in the academe tell us that the main problem in the Visayas is more of transmission than generation.

Ironically, of the three main island groups, Visayas’ power situation seems the more stable.

The Department of Energy itself acknowledges this, showing generating capacity in the Visayas to be 100 MW more than peak demand. One explanation for this is that when National Grid took over transmission, it upgraded the submarine transmission connection between Leyte and the Visayas. An 82-MW coal plant that has been added in Cebu, plus renewable-energy plans, should be more than sufficient for the Visayas.

It is not surprising, but nonetheless mindboggling, why the Energy department is supporting the plans of South Korean power company KEPCO to put up a 200-MW coal plant also in Cebu. Is this really needed, and if so, is coal the only answer? This question should be raised and decided among the people of the Visayas, not just among powerful industry players and bureaucrats, but the communities that will host the generating plants and are themselves consumers of electricity.

Luzon situation

Finally, Luzon. The Department of Energy cites data from the National Grid Corporation of the Philippines (NGCP), which states that as of 24 February 2010, of the current installed capacity of 11,253 MW in Luzon, only 7,375 MW is dependable.

What a waste of consumers’ money: Since the time of the Ramos presidency, we have been paying for excess capacity we couldn’t afford to use, only for a big chunk of it to become unusable today. That expensive electricity that killed industries, sent factories packing and jobs fleeing to neighboring Asian countries and emptied our pockets, is gone—but we still have to pay for it.

That’s the horrible downside. Still, believe it or not, there’s a positive element or “consuelo de bobo” for consumers: What the Energy department reports as dependable capacity is still higher than peak demand (the strongest demand for electricity, occurring for a few hours a day). It’s a tiny consuelo, though.

Because for any grid to be stable and for electricity to be reliable, it needs reserve or contingent capacity.

That is what’s in short supply. Or let’s put it this way: Given the very thin reserves at present, the Luzon grid is vulnerable to any occurrence of plant outages whether real or contrived. So if a plant trips, for whatever reason, some parts of Luzon may be affected—as was the case in recent weeks.

WESM first policy

Unfortunately, the bad news for Luzon consumers doesn’t seem to end. Electricity in the Luzon grid is dispatched through the Wholesale Electricity Spot Market (WESM). Any plant that would like its electricity to be dispatched in Luzon must offer a quantity (in MW) and price (in pesos per MW) to the WESM. All plants are actually required to offer their available capacity to WESM.

Now here’s the grim tale: According to WESM reports, “no matter what conditions were prevailing in the market at each time, the ratio of the average offered capacity to average available capacity ranged between 55 percent (and) 66 percent during the first 12 months of WESM’s operations.”

Let’s rewind to February 24, 2010, when the Energy department reported that available or dependable capacity was 7,375 MW. What was the maximum capacity offered to the market on that day? 6,299 MW.

What was peak demand that same day? It was 6,768 MW—more than the offered capacity. So was there a shortage? The answer is yes. For what reason? Not because the capacity was insufficient, but because it was withheld. Two words describe such behavior—market abuse.

In January and February 2010, there were 28 days when the maximum offered capacity in Luzon was lower than peak demand. Were there outages? Yes they were aplenty. Some of them understandable, with El Niño, hydropower capacity in Luzon having fallen significantly. (But even without El Niño, hydropower capacity will fall in the dry months.) Other outages were more difficult to fathom. From January 8 to February 9, only one unit of Sual—acquired by San Miguel Energy Corp. (SMEC)—was running. The reason for the unscheduled outage was “fuel constraint.”

Was there no coal for the new owners, or the SMEC rejected PSALM’s stocks of low-grade coal? The Limay oil-fired plants were also deactivated from January 11 to February 17. The reason for this was “preparation for turnover to new owner, SMEC”, or the new owner doesn’t know how to run the complicated operations of the plant? Wow, privatization!

So is there a shortage in Luzon? No as far as actual demand is concerned, yes as far as required reserves are concerned. Let’s not forget also that hydropower will be available once the rains come in a few months’ time. What is clear from the data is that there is more capacity than is being offered in WESM.

Calling on the Energy Regulatory Commission: Aren’t you supposed to monitor the market?

The crisis we are facing in the power sector is clearly not God-given, but man—repeat, man—made.

Consumers in Mindanao, Visayas and Luzon should worry that electricity will become more expensive and less stable in the years to come, not because that’s how God wants it, but because a very flawed law—EPIRA and incompetent energy bosses—govern the power sector.

As the Freedom from Debt Coalition emphasized in a recent statement: “EPIRA did not remove the crooked syndicates, the oligopolists, the political power players, the big business groups, both local and foreign. It did not put an end to rent-seeking, deal-making, price manipulation and market abuse. It did not require an independent and non-politicized and highly competent regulatory body. It did not create a level playing field. EPIRA did not empower consumers.”

The way ahead for the power sector is a new framework that makes electricity available to all households and enables the power sector to stimulate the development of vibrant local economies. Until then, we will simply be swinging from one crisis to another.

Maitet Diokno-Pascual, is a former president of Freedom from Debt Coalition (FDC) and now a member of FDC Board of Trustees Working Group on Power. –MAITET DIOKNO-PASCUAL Freedom from Debt Coalition, Manila Times