The power crisis: Balancing price and supply

First, the good news: Mindanao’s eight-hour brown-outs may end next month. That’s the hope of Energy Secretary Jose Rene Almendras. “Assuming nothing else goes wrong,” he told media, “no plant breakdowns, no equipment mishaps — then sometime in May we will be able to handle the situation.”

Still, the former banking and water services CEO isn’t minimizing the gravity of the problem. “We admit responsibility,” Almendras declared. “I won’t have problems if I’m asked to resign, because I’m here to serve the nation. If the President says he has no confidence in me, then I will resign.”

The island’s daily power interruptions have prompted no less than President Benigno Aquino III to call for summit on the crisis in April. His Congress allies pushed emergency powers for him to address the crisis, though senators and even Sec. Almendras are unsure about the idea. The latter now says maintenance work on power plants will finish before June. That’s also the time Mindanao hydroelectric dams, which account for half the island’s power capacity, begin filling up and generating again after the dry season.

Now, the bad news: Assuming the lights go on again sometime in coming weeks, there will be higher electricity charges all across the archipelago starting this month, by about 10 percent from the March 26-April 25 billing period. The Energy Regulatory Commission (ERC) approved rate hike petitions from National Power Corp. (NPC) and Power Sector Assets and Liabilities Corp. (PSALM), which runs some generating plants, for increases of 69.04 centavos/kilowatt-hour in Luzon, 60.60 in the Visayas, and 4.42 in Mindanao.

The increase covers higher Napocor expenditures in 2007-10 under the Generation Rate Adjustment Mechanism (GRAM) and Incremental Currency Exchange Rate Adjustment (ICERA). The approved rise would raise NPC’s effective rates by about one-seventh or about 14 percent to 5.7064/kwh in Luzon, with corresponding charges of 4.68 in the Visayas, up 14.9 percent, and 2.9763 or 15.1 percent more in Mindanao.

According to a Department of Energy (DOE) paper on power sector reforms, the cost of generating power accounts for over 70 percent of total electricity charges, with transmission and distribution comprising roughly 8 percent and 20 percent.

Applying those ratios, the new NPC generation charges would add about 10 percent to the typical power bill if all its power comes from Napocor. That’s 1,000 more per month for a family or firm paying 10,000 when the April bill arrives next month.

Clearly, the burden on Filipino families and industries of having the among the highest electricity costs in Asia, not to mention the deterring effect on investors, looks set to get worse.

Already, Manila and Cebu rank third- and second-highest in per-kwh costs as reported in the April 2011 business costs survey of Japan External Trade Organization (JETRO). Singapore power a bit dearer, but the entrepot offers so many pluses to offset the slightly higher power cost.

Indeed, expensive electricity is one reason why the Philippines ranks lowest among the five original members of Association of Southeast Asian Nations (ASEAN) as well as the tiger economies of Hong Kong, Korea and Taiwan in the profitability of Japanese businesses in these countries.

In another JETRO report, “Survey of Japanese-Related Firms in Asia and Oceania,” published just last October, charts on page 7 show that about six out of every ten Japanese companies in the Philippines achieved surpluses last year, below the 70 percent and higher ratios in the other ASEAN and tiger economies.

For its part, the Arangkada Philippines report published in December 2010 by the Joint Foreign Chambers of Commerce in the Philippines, also cited high power rates as a major stumbling block to investment and business expansion, as its backgrounder and charts on electricity show.

Energy czar Almendras notes that Luzon has a generating capacity reserve of 2,000 megawatts, while Visayas has 500 MW excess power. “Why is it in Mindanao we are short?” he sighed. “In very simple terms, because people stopped building generating plants in MIndanao.”

How did that happen? It’s a long story, and it’s not over yet, especially with the country needing an additional 15,500 MW of generating capacity by 2030, by DOE’s forecast. That’s seven times the 2,100 MW increase in nationwide capacity since 2002, and nearly as much as the current installed capacity of 16,350 MW nationwide. It’s also more than double the 7,000 MW of projects approved so far, with 3,771 MW under consideration. In sum, we have much catching up to keep more brownouts away. –RICARDO SALUDO, Manila Times