Power, power, power

IF THE Philippine government took to heart the lessons learned from the past, these power shortages would not have happened.

While the worsening power supply situation had been attributed to the breakdown of several facilities, scheduled maintenance shutdowns and the El Niño weather disturbance, Francisco L. Viray believes that these outages are also rooted on other factors that could have been addressed early on.

Viray, who served as the energy chief during the administration of former President Fidel V. Ramos, says the supply shortages were clearly brought about by the lack of adequate investments in the power sector over the past decade and of clear and consistent energy policies that could have strategically guided the planning for the country’s energy security.

“We have to review current policies. Considering all the lessons we learned since 1993, there had been many lessons to work on,” Viray tells the Philippine Daily Inquirer.

Viray however says that the current situation was far better than in the early ’90s, when there was an actual lack in generating capacity. During that time, the government had insufficient power generation assets where it can draw electricity from and as such, it had to resort to forging a number of contracts with private independent power producers to help ease the severe shortage.

Government warnings

As early as September last year, Energy Secretary Angelo T. Reyes had raised the alarm over power supply shortages in 2010 with the onslaught of the El Niño weather disturbance and the overlapping schedules for the maintenance repairs of different power plants.

Reyes had then presented to Congress a contingency plan, which would need about P6 billion to P9 billion. The two-year plan included measures that could avert power shortages and ensure adequate supply during the May 2010 elections.

However, the issue on the country’s critical power situation took center stage only in late January this year when the Sual facility broke down and had caused rotating brownouts in Luzon. The onset of the prolonged dryspell also worsened the supply situation, with the water reservoirs beginning to dry up to their critical levels, thus lowering the generating capacities of hydropower plants.

Since then, the country’s power supply remained unstable, with Mindanao being hit the hardest, since it sources 53 percent of its electricity requirements from hydropower sources.

As of March 7, Reyes says that the hydropower facilities in Mindanao are generating at a dismal 90 MW, less than 10 percent of the hydropower plants’ total capacity of 994 MW.

Data from the National Grid Corporation of the Philippines also showed that as of Mar. 12, the Luzon, Visayas, and Mindanao grids posted huge supply deficits of 440 megawatts, 45 MW, and 650 MW, respectively.

Last week, President Gloria Macapagal Arroyo had already declared a state of calamity in Mindanao to allow cities, towns and provinces in the island to release 5 percent of their budgets so they can quickly procure modular generating sets to address the acute power shortage.

The government is rushing to fill in the supply gap, particularly in Mindanao to ensure adequate power supply during the elections. About P5.5 billion would be needed to acquire gensets that could generate as much as 160 MW.

According to Viray, the idea of bringing in gensets was plausible insofar as addressing smaller power generation deficits. However, with the deficiency running up to 700 MW, the former energy chief is wondering whether these gensets would be sufficient to ensure supply by May 10.

Long-term solutions

With the power crisis already full blown, Viray says the Philippine government should already start focusing and preparing for 2014 or 2015 when demand would have greatly outstripped the existing generating capacities if no new facilities are built.

Currently, the Luzon grid’s dependable capacity was pegged at 10,030 MW as of end-2008 while peak demand was at 6,822 MW during the same period; Visayas has dependable capacity of 1,505 MW as against a peak demand of 1,176; and Mindanao, 1,682 MW as against a peak demand of 1,228 MW.

The growth was estimated at 4.6 percent annually.

Data from the Department of Energy showed that from 2010 to 2030, Luzon should have additional capacities of 11,900 MW; Visayas, 2,150 MW; and Mindanao, 2,500 MW. However, committed power projects for Luzon, Visayas and Mindanao were estimated to generate only 600 MW, 654 MW and 100 MW, respectively.

In terms of measures, regulations, policies and other initiatives, the Philippines may have a lot of catching up today, he adds.

For example, to attract bigger, better and more investments Viray says the government should immediately lay down a clearer regulatory criteria, review the energy policies and push for the so-called reserve market, which may be the key to enticing investors to look at the local energy sector. More importantly, there should be political will and consistency in implementing all these initiatives and long-term measures that will ensure energy security.

Excess capacity

Viray says the reserve market is much like the wholesale electricity spot market where electricity is traded.

If in the WESM (Wholesale Electricity Spot Market) the electricity traded would be the volume to be actually distributed and consumed, in the reserve market, the capacities to trade are considered “reserves” or standby capacities representing 23 percent above the total demand. These reserves may be used when a power facility is on maintenance shutdown or there are breakdowns in plants.

He explains that the reserve market will give investors an assured market (on top of the WESM) – a very attractive incentive to build the much needed power plants even without having to enter into agreements with distribution utilities or electric cooperatives (as offtakers).

Ideally, the gross reserves (which would comprise the reserve market) should not be less than 1,500 MW in Luzon; 180 MW in Visayas; and 250 MW in Mindanao.

Viray stresses that power sector investors always look at the existence of the spot and reserves market as this will ensure the viability of their power projects.

“If we don’t want these [power shortages] to happen again, especially in Mindanao, the WESM and reserve market should all be established within the short term, since we need to start building facilities this year,” he explains.

This scheme of having “excess capacity” however came under fire (during the Ramos administration) as the public refused to pay for electricity that was not consumed. These payments are for the fixed operating and maintenance costs of the power plants that were hardly running since these only provide supply reserves.

Viray counters that this would not necessarily result in higher prices but would rather give the assurance of a steady supply of electricity even amid force majeure events like the drought; technical problems at the plants; and scheduled maintenance repairs. Of course, this security and stability comes at a price.

“The cost of excess power is cheaper than the losses in businesses brought about by power shortages caused by lack of supply,” he stresses.

Excess capacity

With the furor raised on the concept of “excess capacity,” Viray recalls that the government had merely allowed the excess power to be eaten by the demand. As such, the demand continued to grow but investments remained marginal.

“That was artificial excess then. If they allowed these investments to push through, there would have been new capacities and Mindanao wouldn’t be suffering from these outages now,” he explains.

Aside from reserve market, Viray also says the government should have a planning criteria that would take into consideration all factors including weather, even if the probability of these events happening at the same time is highly unlikely and minimal.

“But it happened now,” he says, pertaining to what happened in Luzon, which experienced overlapping shutdowns, breakdowns and weather disturbance, all at the same time.

He also cites the case of Mindanao as an example, explaining that the current planning criteria were not based on possible drought conditions but rather on normal rainfall. This proved to be fatal, as seen now, considering the island’s generation mix.

Other areas that would need to be reviewed included protocols in dam water releases; scheduling maintenance shutdowns; the implementation of WESM in the Visayas and Mindanao; the establishment of feed-in-tariffs and other incentives under the Renewable Energy Law to enable more investors to undertake projects; and judgment calls in planning for the future energy projects.

“The government has to act now and fast,” Viray adds. –Amy R. Remo, Philippine Daily Inquirer