YEARENDER: Issues create shockwaves for energy sector

By Danessa Rivera (The Philippine Star), December 27, 2016

MANILA, Philippines – Shockwaves were felt in the energy sector in 2016, from the change in leadership to various controversies.

At the start of the year, solar players were scrambling to beat the March 15 deadline to qualify for the second round of feed-in tariff (FIT-2) for solar, which needs only 450 megawatts (MW) in new capacity to meet the 500-MW installation target.

With numerous developers eyeing the P8.69 per kilowatt (kwh) fixed rate for 25 years, the solar capacity overshot the installation target, leaving over 300 MW without the much sought set of incentives.

Solar players, led by the Philippine Solar Power Alliance (PSPA), have long been seeking for transparency in the validation process and a thorough investigation on those that supposedly qualified for FIT perks.

The previous administration came out with a list of eligible solar power plants wherein 17 projects with a total capacity of 417.05 MW were endorsed to receive incentives in the second round for solar under the FIT scheme.

This was disputed by solar developers who were not in the list over questions in qualifications.

“I think it’s not a question of who is excluded, because if you really should be excluded, you should be excluded if you did not make it to the parameters set. What we need to work on are the parameters that were the basis of their decision. The parameters has to be very clear,” PSPA president Maria Theresa Capellan had said.

With the change in government, the DOE launched an investigation on the controversies surrounding the solar FIT-2 race.

An investigating committee was formed in September to thoroughly study the implementation of the solar FIT-2 following complaints lodged by solar companies.

But DOE Secretary Alfonso Cusi also wrote to the Energy Regulatory Commission (ERC) to continue the process under the FIT mechanism since the endorsements were made before his term.

But if there are problems arising from ERC’s evaluation, the DOE will work on addressing the issue, the energy chief said.

May elections

The DOE may have failed to get former the approval of former president Benigno Aquino III and Congress for special powers but it received overwhelming support from the private sector to avert any chance of power outage in the Luzon grid during summer, especially during the May national elections.

Private companies pledged to participate in the Interruptible Load Program, wherein commercial and industrial customers voluntarily use their own generators, instead of getting supply from the Luzon grid, to ease the strain on the grid.

All power players also complied with the DOE directive not to conduct maintenance shutdowns a week before and after the May 9 to give way for the whole election process.

The DOE also set up the Power Task Force Election (PTFE) 2016 to ensure it’s all systems go for the power sector.

Former DOE Secretary Zenaida Monsada assured the power situation in the country is stable with enough power reserves and low demand since election day is a national holiday.

The May 2016 elections proceeded smoothly, with no major power outage as feared previously, due to sufficient supply in the power grid.

During election day, only minor glitches and isolated power issues hit several polling precincts, which were immediately addressed with contingency measures to ensure smooth election process, according to the PTFE.

Change in leadership

With the landslide win of Duterte, he started naming his Cabinet secretaries and for the DOE, it was Alfonso Cusi, the vice chairman of Partido Demokratiko Pilipino-Lakas ng Bayan, Duterte’s political party.

Originally from the transport sector, Cusi was connected with the Aboitiz Group handling the family’s maritime transportation business in the 80s. He left sometime in the 90s, and formed his own shipping line, Batangas-based Starlite Ferries Inc.

Meanwhile, his experience in government started during the Arroyo administration, holding top positions such as the chief of Manila International Airport Authority, Philippine Ports Authority and Civil Aviation Authority of the Philippines.

Cusi said he did not really have any plans of going back to government, but Duterte offered him to be the DOE Secretary and obliged.

“Somebody has to work also to help the President deliver the change that is required,” he said.

Considered an outsider, the DOE chief has a lot of learning to do especially with a long list of issues in the sector, power players said.

Under his term, he promised the DOE will do everything to ensure the country will have enough power supply to meet growing demands, as well as lower power rates to the benefit of consumers who are paying one of the highest electricity tariffs in the world.

But just within six months into his term, Cusi faced numerous instances of yellow and red alerts and at least two major power outage incidents in Luzon which he dubbed as his “baptism of fire.”

A yellow alert status means that contingency reserves are below the minimum level set by the regulator but does not necessarily lead to power outages while a red alert means there is severe power deficiency.

In Aug. 5, certain parts of Luzon suffered from up to three-hour power outages yesterday due to severe power deficiency in the grid.

The insufficient power supply was caused by the sudden outage of four power plants and six power plants under scheduled maintenance.

Cusi has ordered for an in-dept audit on all power sectors—generation, transmission and distribution – to prevent such incident from happening again.

But just recently, the Luzon grid experienced power interruption lasting up to nearly two hours because of grid system fault which caused eight power plants to trip last Nov. 15.

The energy chief has then ordered to review the concession agreement of National Grid Corp. of the Philippines (NGCP) to make sure the grid operator is meeting all its responsibilities as stipulated in the deal.

In 2008, NGCP won a 25-year concession to run the country’s transmission network after it took over the management of the country’s national transmission network from the state-owned National Transmission Co. (TransCo).

New energy mix

Apart from reviewing the whole power sector, the DOE has laid down a new energy mix that will not put a limit on any technology to foster competition so that the country will have adequate and reliable electricity supply moving forward.

Cusi announced recently an energy mix in the form of 70 percent baseload, 20 percent mid-merit and 10 percent peaking.

Baseload power plants can provide the minimum level of demand in a power grid over 24 hours while mid-merit plants are those that can fill the gap between baseload and peaking plants which run during peak hours.

“What we see is we want it to be competitive so we’re not putting a quota per technology,” Cusi said.

The previous administration has set an energy mix in the form of 30 percent coal, 30 percent natural gas, 30 percent renewable energy and 10 percent other fuels.

Cusi garnered support from industries and consumer groups for a no-cap energy mix policy.

The Federation of Philippine Industries (FPI)—composed of 34 industry associations and 120 corporation manufacturing members— lauded the government’s plan to remove the cap on the power generation mix as this will promote competitive power pricing, benefitting consumers as well as the industry sector.

“Secretary Cusi’s pronouncements are consistent with FPI’s stand on certain issues, especially on supporting industrial growth by ensuring stable baseload power supply,” FPI chairman Jesus Lim Arranza said.

Meanwhile, consumer group Citizen Watch expressed its approval on the shift the energy mix policy to ensure a reliable power supply and lower the price of electricity.

“We support the DOE’s new direction on the energy mix policy promoting competition among generation companies and will ultimately result in cheaper electricity prices for consumers,” Citizen Watch secretary-general Paco Pangalangan said.

ERC official’s death

It was a big shock for the industry when the late ERC director Francisco Villa Jr. committed suicide at the comfort of his own home last Nov. 9.

His death opened a Pandora’s box for the ERC, as his suicide letters revealed corruption activities in the agency.

Sen. Sherwin Gatchalian dubbed the ERC as “the Supreme Court of the power industry,” since it has the power to grant several types of permits necessary for power industry players to operate and to adjust rates as applicable.

Created under the Electric Power Industry Reform Act (EPIRA) of 2001, ERC is an independent and quasi-judicial five-man regulatory body which ensures that the objectives of power reform such as greater competition, improved services, customer choice and lower power rates are achieved.

The DOE was quick to call of an investigation, tapping the National Bureau of Investigation (NBI) to look into the allegations as stated in Villa’s suicide letters. Both houses of Congress also made their plans to conduct hearings on the incident.

As soon as he heard of the terrible news, President Duterte immediately ordered ERC officials to resign or else he will abolish the agency. But the ERC officials did not oblige the President’s call as this will hurt the power sector, given the agency’s mandate.

Instead ERC chairman Jose Vicente Salazar went on a one-month break, giving in to calls to take a leave until investigation on the alleged corruption in the agency is finished.

“I have taken this step in order to focus on helping in the ongoing and planned inquiries regarding issues related to the Energy Regulatory Commission (ERC), particularly those allegedly raised by the late director Francisco Jose “Jun” Vila, Jr. prior to his recent death,” he said.

This was a huge blow for the power industry, which is already facing the slow processing of permits for new power projects, according to some industry players.

With no manpower enough to handle all the backlog of cases, plus the allegations of corruption within the agency, there is the overwhelming concern that permitting could take longer.

Regulatory approvals can take as much as three years, as the ERC is still processing cases such as complaints from consumers on the side.

“There’s regulatory – that also can be improved. Our main complaint is the time it takes to get an approval. So we’re not for its abolishment,” Alsons Consolidated Resources Inc. executive vice president and COO Tirso Santillan said.