Mindanao power development, reality vs illusion

* This is my column in BusinessWorld last Monday, June 11.

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From 2006 to 2013, the Mindanao grid had only 1,900 to 2,000 MW of installed power capacity, mostly sourced from hydropower facilities that provide higher output during the rainy season but declines during the summer.

As a result, power shortages lasting several hours a day are experienced during dry spells.

In 2014, the supply situation improved.

Total installed power capacity increased to 2,211, rising once more to 2,414 MW in 2015.

Starting 2016, the situation improved further with capacity reaching 3,162 MW and later rising to 3,559 MW in 2017, with the help mostly of coal power plants. The last two years showed significant power surpluses that competing power plants were bidding as low as P2.50/kWh in generation cost.

As of end-2017, coal power constituted 39% of installed capacity but actual electricity production was 53% of total because of coal’s reliability and higher capacity factor. Oil-based plants constituted 26% of installed capacity but actual electricity output was only 7% because they were peaking plants and were seldom used.

The committed projects (financing, construction stage) and indicative projects (planning and proposal stage) are shown below.

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The Department of Energy (DoE) projects that from 2016 to 2040, the Mindanao grid will need additional capacity of 10,200 MW (6,300 baseload, 3,200 mid-merit, 700 peaking).

Early this month, a paper was presented at the UP School of Economics (UPSE), entitled “Cost-Effectiveness of Maximum Renewable Energy Penetration in the Mindanao Power Grid” by Dr. Sven Teske of the Institute for Sustainable Futures (ISF), University of Technology, Sydney. The event was sponsored by the Institute for Climate and Sustainable Cities (ICSC) and Mindanao Development Authority.

I was not there so I asked for a copy from UPSE, nothing came and perhaps ICSC did not give them a copy either. A friend of a friend sent me a paper by Dr. Teske last year which could be the basis of his presentation.

The IFS and Dr. Teske made a weird scenario of Mindanao capacity 6x that of DoE scenario. Their scenario is based on heavy renewable energy plus storage (RE+S) and RE plus dispatch (RE+D) and the following assumptions: (1) coal, oil and diesel plants phased out by 2050, (2) of the 3,200 mid-merit target by 2040, half to come from gas plants, half from hydro and biomass, (3) significant increase in solar and wind, (4) increase in storage especially battery (2,491 MW in 2050), and (5) interconnection with neighboring islands.

The weird ISF paper as propagated by the ICSC is obviously a product of the solar-wind lobby, partly by the gas lobby too. Compare what the industry players would actually invest, 410 MW of solar-wind indicative projects, vs what ISF-ICSC lobby of 37,496 MW or 91.5x larger, which is hallucination and illusion.

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Electricity consumers in Mindanao and elsewhere simply want two things: stable electricity available 24/7 no brownout even for a minute, and cheap or competitive.

Solar and wind are not cheap.

If they are, we should have abolished by now the feed-in-tariff (FIT) scheme or guaranteed high price for 20 years, then the planned mandatory or obligatory renewable portfolio standards (RPS).

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The 2nd America First Energy Conference (AFEC 2018), Louisiana, August 7

Heartland Institute will organize and sponsor again a big conference, the 2nd America First Energy Conference (AFEC 2018) in Hilton Riverside Hotel, New Orleans, Louisiana, August 7.

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The 1st AFEC 2017 was also organized by Heartland and was held at JW Marriott Houston, Texas on November 9, 2017. I attended that successful conference, seems I was the only Asian in the big room and I have written some proceedings in my column in BusinessWorld last year,

US energy policies and implications in Asia and Philippines
October 31, 2017, http://bworldonline.com/us-energy-policies-implications-asia-philippines/

US energy trading and implications for Asia and Philippines
November 16, 2017, http://bworldonline.com/us-energy-trading-implications-asia-philippines/

The conference also inspired me to further comment on the irrationality of carbon tax, coal tax, other watermelon (green outside, red inside) policies. Like these,

The Habito carbon tax distortion
December 7, 2017, http://bworldonline.com/habito-carbon-tax-distortion/

Energy favoritism under TRAIN
December 19, 2017, http://bworldonline.com/energy-favoritism-train/.

Website of AFEC2018 is http://americafirstenergy.org/
The agenda looks exciting, from the website:

BREAKFAST KEYNOTE
Opening remarks by Heartland Institute President Tim Huelskamp, Ph.D., and a keynote address by Louisiana Attorney General Jeff Landry.

PANEL 1A. THE FUTURE OF COAL, OIL, AND NATURAL GAS
President Donald Trump has unleashed an Energy Freedom agenda for America with the aim of making the United States the world’s leading energy power. There is a lot of positive news on that front, and these speakers will talk about the bright times ahead for the future of coal, petroleum, and natural gas.

PANEL 1B. CARBON TAXES, CAP & TRADE, AND OTHER BAD IDEAS
Carbon taxes and “cap and trade” schemes, are NOT market-based conservative ideas. They are distortions of the market — a ruse embraced by the environmental left to enact command-and-control policies over our use of energy and the economy as a whole.

PANEL 2A. FUELING FREEDOM AND PROSPERITY
America’s freedom and prosperity is literally fueled by this country’s abundant and affordable fossil fuels — coal, petroleum, and natural gas. We’re finally going after it in ways that will fire the engine of America’s economy and still protect the environment.

PANEL 2B. FIDUCIARY MALPRACTICE: THE ‘SUSTAINABLE’ INVESTMENT MOVEMENT
Environmental activists are gaining voting power to convince corporations and universities to divest from fossil fuel companies “to save the planet.” Not only is that not scientifically necessary, publicly traded companies and organizations that divest do a grave disservice to public pensions, ordinary investors, and the American economy. You want a worthy #resistance? Resist this.

PANEL 3. WHY CO2 EMISSIONS ARE NOT CREATING A CLIMATE CRISIS
Burning fossil fuels lifted humanity out of squalor and created modern society. It also adds carbon dioxide to the atmosphere, which is now more than 400 parts per million. But is human-generated CO2 causing a catastrophic climate crisis requiring wholesale conversion of the world’s energy systems? Short answer: No, as three scientists will explain.

LUNCH KEYNOTE
Two VIPs will give speeches at this lunch.

PANEL 4A. REINING IN THE REGULATORS
The Regulations from the Executive In Need of Scrutiny Act (REINS Act) requires legislative approval of regulations that cost the private sector more than a set amount. A federal version sets the bar at $100 million. This is an essential effort that will finally put unaccountable federal and state regulators back in their place.

4B. CAFE STANDARDS: WHY THEY NEED TO GO
TBA

PANEL 5A. CLIMATE LAWSUITS AGAINST ENERGY COMPANIES AND THE GOVERNMENT
Environmental activists are losing the public debate, so (naturally) they run to the courts to get judges to enact their radical agenda. From the “climate trial” in San Francisco, to the case to preserve the planet on behalf of “the children,” the litigation seem endless. What’s the status of these cases? And will they succeed?

PANEL 5B. REAL COLLUSION: RUSSIA AND THE GREEN MOVEMENT
You want to see real Russian Collusion? Look no further than the nexus between the Russian government and radical environmental activists in the United States, the UK, and Australia. The Russians have funneled millions to groups in the West to oppose energy exploration, especially fracking. This panel will expose this woefully underreported story.

PANEL 6. REFORMING EPA: LOTS OF PROGRESS, MORE TO DO
Three members of President Trump’s Transition Team for the Environmental Protection Agency evaluate the reform victories so far, and look ahead at what else needs to be done to reverse the overreach of the Obama administration. This is a moderated plenary discussion.

DINNER KEYNOTE
Two VIPs will give speeches.

Positive and negative disruptions in the electricity market

* This is my article in BusinessWorld last Monday, May 28, 2018.

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Last week, May 22, a BusinessWorld report said “DoE forecast for peak power demand exceeded on May 17” referring to 10,688 MW peak demand in the Luzon grid on May 17 reported by the National Grid Corp. of the Philippines (NGCP) vs peak demand in 2017 of 10,054 MW.

The increase of 634 MW or 6.3% increase can be considered as positive disruption. Demand for electricity to power various economic activities by households and corporations including those with 24/7 operations remains high and they approximate GDP growth.

Reports of more renewable investments and installations, wind-solar especially, are not “disruptors” because in 2017 or nine years after the enactment of RE law of 2008, solar-wind contribution to total electricity generation in the Philippines constituted only a measly and near-negligible two percent (2%).

Reports also of more battery storage for intermittent wind-solar can neither be considered as a “disruptor” because those batteries do not produce electricity. If it is cloudy or raining then there is no extra solar power to store; if the wind does not blow then there is no extra wind power to store.

During the BusinessWorld Economic Forum 2018 last May 18 at Grand Hyatt BGC, among the speakers were Kristine Romano of McKinsey & Company, and Luis Miguel Aboitiz of Aboitiz Power Corporation. Ms. Romano partly mentioned that innovations in the energy sector is among the big disruptors in the world today. Mr. Aboitiz skirted discussing his sector and mentioned more about the challenges and opportunities of endless innovation and disruption in many sectors.

And we go back to renewables touted as disruptor to “save the planet” (save from what, rains and floods?) and there is one belief or myth that continues to persist — that the cost of wind-solar technology is declining quickly so the cost to generate electricity from them will decline too.

Intermittent or variable renewable energy sources (VREs) are given feed in tariff (FIT) or guaranteed price subsidies for 20 years, among many other perks, by the RE law of 2008 (RA 9513). What happened to this scheme?

First, the FIT rates given to RE developers keep rising yearly, despite the touted decline in the cost of wind-solar, and second, the estimated revenues per kWh is are highest for wind-solar and lowest for run of river (RoR) hydro (see table).

Electricity_052818

Bangui Wind 1 and 2, built in 2005 then August 2008 or before the enactment of RE law in 2008, a bit anomalous, were also given special FIT rates: P6.63/kWh in 2015; P7.05 in 2016; P7.26 in 2017; and P7.53 in 2018.

Then also last week, May 21, the ERC has granted the rise in FIT-Allowance (FIT-All) in our monthly electricity bill from 18.30 centavos/kWh to 25.32 centavos /kWh starting June 2018 billing. This is to cover under-recoveries in 2017 alone.

And that explains the negative disruption in the Philippines electricity market. Energy coming from “free” solar and wind and “declining” technology cost actually result in even more expensive electricity.

This higher FIT-All rate includes only under-recoveries until 2017. Under-recoveries this year not included yet, so a higher rate of probably 33 centavos/kWh can be expected in late 2018.

The environmental and RE lobbyists succeeded in making cheaper coal become more expensive via higher coal tax of P50/ton in 2018, P100/ton in 2019, and P150/ton in 2020 under the TRAIN law. Taxes for oil used by power plants also went up as well and expanded VAT application to transmission charges.

Expensive electricity is wrong.

Adding more intermittent, brownout-friendly, and expensive VREs like wind-solar is wrong. Adding battery storage will reduce the intermittency but will definitely raise the cost to consumers further.

Government should take the side of consumers who desire cheaper, stable electricity. Government should stop its double standards in energy taxation, slapping higher excise tax for reliable oil and coal plants but exempting from excise tax the unreliable, unstable, intermittent VREs especially wind-solar.

On mandatory solar roof in California

I saw these news few weeks ago:

California heads toward requiring solar panels on all new houses
By ANDREW KHOURI  MAY 08, 2018 | 4:55 PM
http://www.latimes.com/business/la-fi-solar-panels-homes-20180508-story.html

California to force new home owners to buy solar panels
Anthony Watts / May 9, 2018
https://wattsupwiththat.com/2018/05/09/california-to-force-new-home-owners-to-buy-solar-panels/

Effects of Mandating PV Rooftop Solar…
By Donn Dears, May 22, 2018
http://powerforusa.com/2018/05/22/effects-of-mandating-pv-rooftop-solar/

ca solar What political socialism cannot achieve in America or some states in terms of more command and control, ecological socialism can. Bonker, a proposal that ALL new houses in California must have solar roof, that means all new houses must cut and kill all nearby tall trees. Because solar hates shades — from clouds, rains and tall trees. Shades automatically reduce the efficiency of solar.

Most environmentalists say, “Plant trees to save the planet.” Solar developers and advocates say, “Remove/kill all nearby trees to save the planet.”

Green, trees — people can see birds, butterflies, squirrels, etc hopping/flying from branch to branch, or tree to tree. Solar has little or zero tolerance for tall trees with tall, wide shades. Solar is fake “green.”

To get energy efficient solar, one must prune, cut if not kill all nearby tall trees. Solar in desert may be understandable but in this proposed CA new law, solar roof for ALL new houses will be mandatory. All the fakes and hypocrisy of the “greenies” or watermelon (green outside, red inside) and ecological socialist movement.

Electricity competition, EPIRA, and WESM

* This is my article in BusinessWorld last week, May 09, 2018.

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Last Monday, I discussed business competition in general and the role of the Philippine Competition Commission (PCC).

The theme will be continued in this piece and it will discuss electricity competition in particular, especially after I was able to interview PCC Chairman Arsenio Balisacan, the CEO of the Philippine Electricity Market Corp. (PEMC) and Chairman of Transition Committee Oscar Ala and PEMC Spokesperson Atty. Nino Juan.

The Electric Power Industry Reform Act (EPIRA) of 2001 or RA 9136 has drastically liberalized the Philippines electricity sector with at least three important provisions: (1) deregulation and demonopolization of the power generation sector, (2) creation of the Wholesale Electricity Spot Market (WESM), and (3) liberalization and demonopolization of electricity distribution via Retail Competition and Open Access (RCOA).

With these and other provisions of EPIRA, the questions to ask, among others would be:

(1) Were there many private generation companies (gencos) that entered the market competing with each other?

(2) Were there many retail electricity suppliers (RES) that entered the market competing with each other?

(3) Were there many players, gencos and distributors, that use the WESM spot market competition? And more importantly, (4) Have electricity prices for consumers gone down?

The short answer is YES to all four questions.

For gencos for instance, before EPIRA, the National Power Corp. (Napocor) was the state-owned power generation monopoly, which also incurred huge losses and public debts for many years.

As of April 2018, there were 113 gencos in the Luzon-Visayas grid alone and all of them are WESM participants. Excluded are gencos in the Mindanao grid which is not part of WESM yet. Of these 113 gencos, five players have become more efficient and more moneyed than others, except perhaps the government-owned Power Sector Assets and Liabilities Management Corporation (PSALM), which still owns previous Napocor-owned power plants, mostly hydro facilities in Mindanao and the Malaya plant in Rizal.

For retail competition, the number of contestable customers (CCs) or those with monthly peak demand of 750 KW or higher and have the freedom to pick their own service providers — such as electric cooperatives (ECs) and private distribution utilities (DUs) — have increased. RCOA implementation however, has been issued an indefinite TRO by the Supreme Court in February 2017 and this resulted in a decline in number of CCs.

Electricity_1_050918

Here are the numbers for comparative electricity prices that include two types of customers, the captive market (small consumers who must stay with their DUs or ECs) and contestable market (they can leave their DUs or ECs and choose their own RES).

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Contestable customers are able to enjoy lower average prices, P6.91/kWh, than captive customers that pay an average price of P7.78/kWh.

So there you see it.

Despite the noise created by certain sectors that EPIRA and WESM are not working, which leads them to call for a return to the old scheme of nationalization, these data show that indeed electricity competition is working.

It is true that Philippine electricity prices in general remain higher than most of our neighbors in the region but that is because of other factors like (a) many taxes especially the high VAT of 12% applied in all parts of the electricity supply chain, from generation to transmission, distribution and supply, even the system loss; (b) many charges in our monthly electricity bill including universal charge, system loss charge, feed-in-tariff (FiT) for favored renewables.

The transition of PEMC, the market operator of WESM, into a real Independent Market Operator (IMO) as explicitly specified in EPIRA may soon become a reality.

As a result, there will be no more government energy agencies and bureaucracies at the PEMC Board. Good work, PEMC Transition Team.

Consumer choice in electricity supply and prices

* This is my column in BusinessWorld on April 30, 2018.

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In several statistics comparing electricity prices in Asia, the Philippines often ranks as the third most expensive in Asia next to Japan, Singapore, or Hong Kong.

Here are numbers from three different sources: (1) The Lantau Group (TLG), “Global Benchmark Study of Residential Electricity Tariffs,” May 2013. The study prepared for the Energy Market Authority (EMA), Singapore; (2) Enerdata, cited by Chris Herrera, “Optimization of Supply” presented at EPDP lecture, UPSE, October 26, 2017; and (3) International Energy Consultants (IEC), “Regional/Global Comparison of Retail Electricity Tariffs: Executive Summary,” May, 2016.

Electricity_042018

In the IEC study, subsidized markets are Indonesia, Malaysia, Thailand, South Korea, Sri Lanka, Taiwan. Unsubsidized and deregulated markets are Japan, Philippines, and Singapore. Hong Kong is unsubsidized but it is unsure if it’s deregulated.

The Electric Power Industry Reform Act (EPIRA) of 2001 has several provisions to help reduce Philippines’ electricity prices. The deregulation of power generation encouraged many private power producers to compete with each other. The Wholesale Electricity Spot Market (WESM) average prices for instance have been declining, in Pesos/kWh: 6.43 in 2010, 3.80 in 2011, 4.87 in 2012, 3.85 in 2013, 4.40 in 2014, 3.47 in 2015, and 2.84 in 2016.

The retail competition and open access (RCOA) under EPIRA is also an excellent provision. RCOA allows the “contestable consumers” or those with average electricity consumption of 1,000 KW (or 1 MW), a level which will later be reduced to 750 KW a day, to choose their own Retail Electricity Suppliers (RES) and leave their existing private distribution utility (DU) or electric cooperative (EC).

With RCOA, electricity consumers can set their own conditions from their RES.

Some can demand that they be supplied 100% only from renewables even if the price is higher, others can demand that they be supplied only from cheap and stable sources. Small customers can also aggregate their demand or allow an aggregator to pool their combined demand to become contestable customers.

There are two recent reports in BusinessWorld related to this.

(1) SC asked to lift TRO on retail power suppliers (April 24)

(2). DoE may step in as licensing body for retail power suppliers (April 12).

Report #1 is about Bayan Muna (BM) petition at the Supreme Court (SC) that it should lift its indefinite temporary restraining order (TRO) it issued in February 2017 barring the Department of Energy (DoE) and the Energy Regulatory Commission (ERC) from further implementing RCOA and allow the contestable customers to choose their own RES.

I was surprised that the pro-state intervention and pro-big government Bayan Muna suddenly turned around and campaigned for pro-market, pro-consumer choice — that consumers be given more freedom to choose an RES from the 23 short-listed by the ERC. Turns out that Bayan Muna is only doing this to further fight Meralco as a monopoly in electricity distribution in Metro Manila and some surrounding provinces. However, the group is silent about the Constitutional provision granting monopoly power to all other DUs and ECs in the country.

Report #2 is about the DoE studying the legality of being the issuer of licenses for RES. There are no updates about this yet.

The indefinite TRO has a very adverse result, reducing consumer choice, especially the contestable customers.

Those who consume 750-999 KW a day and are willing to move voluntarily to RES cannot do so because they will be disallowed by the ERC and PEMC. And even those who consume 1MW or more per day that are already qualified for RCOA are hesitant to have power contracts with RES because of the continuing uncertainty.

The ERC also does not and cannot issue new RES licenses or renew expiring ones, resulting in reduced RES competition.

Even some DUs also face uncertainties whether to get additional generation contracts or not for contestable customers because these customers can leave them anytime once the TRO is lifted.

Government prohibitions should be kept to the minimum. The EPIRA law has already succeeded in reducing electricity prices and expanded the country’s power supply capacity so why suspend more customer choice and empowerment?

The SC indeed should lift its indefinite TRO because it is anti-consumers and anti-business. Existing DUs have the freedom to put up their own RES so that contestable customers who have left the DU franchise system can still be their customers. Or the SC can strike down certain ERC resolutions so that it can issue new resolutions and regulations to implement RCOA and further expand consumer choice.

Energy mix and wishful thinking

* This is my column in BusinessWorld last April 16, 2018.

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“You must be ready to give up even the most attractive ideas when experiment shows them to be wrong.” — Alessandro Volta (1745-1827, Italian scientist who invented one of the first electric batteries known as a voltaic pile)

This quote should be remembered by people who keep on insisting the urban legend that we can banish coal power in our lives soon, that wind, solar, and other intermittent renewables can provide 100% of our electricity needs. That is far out.

Despite the Renewable Energy (RE) law of 2008, despite the generous subsidy to RE companies via feed-in-tariff (FiT) — which provides subsidies for REs for 20 years — wind and solar can provide only 2% of the country’s energy needs as of 2017. Coal, for its part, provided one-half of our total national electricity needs (see table).

Electricity_041618

 

These numbers show that as of 2017, (a) coal installed capacity was only 36% of total but its actual power generation was almost 50% of total; (b) oil-based plants constituted 17% of installed capacity but generated only 4% of total because these oil plants are used mainly as peaking plants or they run only during peak demand hours to prevent blackouts.

Among renewables, geothermal and hydro provide the bulk of power generation. Solar-wind have nearly 6% of installed capacity but contributed only 2% of power generation.

And this brings us to four recent energy reports in BusinessWorld last week.

  1. PHL announces large-scale renewable projects (April 12).
  1. DoE studying shift in energy mix to 50% baseload (April 11).
  1. DoE may step in as licensing body for retail power suppliers (April 12).
  1. Boracay closure to raise Aklan power rates, legislators say (April 12).

Report #1 is about the Board of Investments (BoI)-approved eight solar projects worth P86B ($1.7B) to be rolled out from October. The largest is the Iba-Palauig 2 Solar Project, 140 MW worth P19B. Second largest are two projects in Cavite, 392 MW valued at P17.3B. That is a lot of money that asserts that solar can be a reliable source for the Philippines.

Report #2 is about the DoE studying a change in its previous energy mix policy of 70-20-10 for baseload (power plants running 24/7), mid-merit, and peaking plants respectively, to a new policy of 50-40-10 for baseload, flexible, and peaking plants respectively.

DoE projects that from 2018-2025, a total of 8,618 MW new capacity will be added to the country’s power grid, 6,325 MW of which will come from coal plants.

Report #3 is about the DoE studying the legality of being the issuer of licenses for retail electricity suppliers (RES), a function by the Energy Regulatory Commission (ERC) governing the implementation of retail competition and open access (RCOA).

RCOA is among the beautiful provisions of the EPIRA law of 2001 because it allows electricity consumers the option to choose their own power suppliers. But RCOA was issued an indefinite temporary restraining order (TRO) by the Supreme Court on Feb. 21, 2017.

Consumers can set their own conditions from their RES. Thus, some consumers can demand that they be supplied 100% only from renewables even if the price is higher. The Green Energy Option (GEO) of RE law of 2008 encourages this. Meanwhile, some consumers can demand that they be supplied 100% only from cheap and stable sources.

Report #4 is about Aklan Electric Cooperative (AKELCO) seeking to recoup losses of about P17-M a month associated with the closure of Boracay for six months. It has a power purchase agreement (PPA) with four power generators for 42 MW and they are required to pay for them whether the power is used or not. So AKELCO will increase its rates by P1.62/kWh to the rest of Aklan electricity consumers.

Report #1 does not heed the advice of Alessandro Volta and actual data on Philippines power generation and hence, run the risk of bad investments in the future.

Report #2 and new policy will convert some of those new coal plants to become mid-merit instead of baseload. This policy reversal might sour future investments in reliable coal power.

Report #3 is positive, affirming consumers’ rights to choose their own energy mix. The DoE should ultimately shy away from announcing its preferred energy mix.

Report #4 shows that the arbitrary closure of Boracay is bad not only for businesses in the island but also for businesses and households in the entire Aklan province.

Government, both Malacañang and DoE, should learn more to respect consumer freedom.