Electric cooperatives and system loss

* This is my article in BusinessWorld last Friday.

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Three news reports published by BusinessWorld during the past few days indicated that the energy sector in the Philippines and its several neighbors is becoming more efficient, market-oriented, and less bureaucratic. These news articles were (1) “ERC declines to intervene in 4 Meralco power deals” (Sept. 20), “DoE says no plans to extend FiT for biomass, river projects” (Sept. 26), and “Malaysia, Thailand, Laos to sign energy-trading deal” (Sept. 26).

The first article says that the Energy Regulatory Commission (ERC) is upholding its own rule to stop intervention after a deadline for petition against any power supply agreement (PSA) has been met.

The second one says that the Department of Energy (DoE) will not extend the feed in tariff (FiT) or guaranteed high price for renewables for 20 years, for undersubscribed biomass and run of river hydro power. This move will protect electricity consumers from further high electricity prices.

The third story says that electricity trading in the three countries mentioned will mean greater power stability and more price competition among power producers. This is like expanding our Wholesale Electricity Spot Market (WESM) from national to regional trading.

To add to this list of positive news, it has also been reported that power transmission and distribution in the region have become more efficient, cutting down on system losses.

Within a decade, the Philippines, for instance, has managed to chop system losses from 12.9% to 9.4% of electricity output, an efficiency gain of 3.5% (See table).

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Based on the table, economies with low system losses have high electricity consumption per capita, except Hong Kong. And vice versa, countries with high system losses of at least 9% tend to have low per capita electricity use.

And this implies that the technology and administrative processes to bring down system losses are generally correlated with the wealth and industrialization of an economy.

There are several attempts both in Congress and the ERC to significantly reduce the distribution system loss by distribution utilities (DUs).

The ERC Draft Rules intend to make high consideration if not outright favoritism of many electric cooperatives (ECs) by giving them (a) high technical loss (mainly conductor loss and no load loss) cap of 5.5-7.0%, (b) high cap on nontechnical loss (illegal connection, direct theft, meter error, billing irregularity) of 4.5%, total of 10-12.5% distribution system loss that can be passed to consumers. In contrast, (c) private DUs will be forced to have a low technical loss cap of only 2.75%, and low nontechnical loss cap of only 1.25% or total of only 4% distribution system loss by private DUs.

This is not a good plan for the following reasons.

One, it institutionalizes a double-standard. Favoring ECs and allowing them to remain wasteful and pass the additional cost of high system loss to the consumers vis-a-vis strict monitoring of private DUs and disallowing them to pass high system losses charges to their consumers.

Two, it does not pressure or discipline the ECs and force them to become more efficient in cutting their system losses. As a result, it is not possible to bring down the system loss to the levels of Thailand, Malaysia, China, Japan, Singapore if this attitude and policy is further adopted.

Three, it does not push many inefficient ECs to be corporatized, to behave like many private corporations that are forced by SEC regulations to be more transparent.

Four, it remains silent on transmission system loss of the sole grid operator, the National Grid Corp. of the Philippines (NGCP).

Government through the ERC should create rules that apply to all players — ECs in the provinces and private DUs in big urban centers — no exceptions or favoritism, and give consumers further reduction in overall electricity prices.

Forcing both provincial ECs and private DUs to have low system loss at uniform rates is consistent with enforcing the rule of law, consistent with encouraging more competition, consistent with the spirit of EPIRA law of 2001.

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E-trikes loan halted

See these news reports about this weird “more tricycles to save the planet” ADB loan.

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From the MB report,

“For the e-trike, I already cancelled the loan – supposedly the funding for 100,000 e-trikes. But for the 3,000 units, since bidding was done and units were already produced by the winning supplier, we’ll go ahead with that – so the canceled loan portion should just be for the 97,000 units,” he explained.

The energy department, under the past administration, had just been looking at a price point of R150,000 to R200,000 per e-trike, but unfortunately, the cost subsequently swelled to R250,000 per unit.

From Malaya ‘ too expensive’ report,

Last February, Bemac Electric Transportation Philippines Inc., a unit of Uzushio Electric Co. of Japan won the contract to build 3,000 electric trikes worth $30 million.

An e-trike costs $10,000 or P500,000 half of which is the cost of battery.

Ordinary tricycles cost from as low as P60,000 for second-hand units and upward from P150,000 for the better quality products.

The e-trike then costs three times more than the ordinary tricycle.

In comparison, new branded vehicles used in ferrying passengers start from P800,000 and they can be bought on instalment with low rates.

From Malaya ‘scaled down’ report,

This time, the e-trike project would involve only 3,000 units of e-trikes from the original plan of  100,000 and the cost is significantly slashed from P21.672 billion to P1.73 billion.

The e-trike project was part of the original $504 million e-vehicle project plan jointly funded by the ADB, the Clean Technology Fund (CTF) and the government as part of efforts to jumpstart the energy-efficient electric vehicles industry in the country by producing 100,000 units of electric vehicles.

From the $504 million, ADB was supposed to shoulder $300 million while CTF will provide $105 million and the remaining $99 million from the government.

From Philstar report,

In an annual audit report recently published on its website, the COA stated that as of Dec. 31, 2016, only P77,791,419.85 or 0.35 percent of the total project cost of P21.672 billion ($504 million) has been disbursed.

Of this disbursed amount, only P14,398,023.17 was allocated for project implementation activities, while P63,393,396.68 was for the payment of commitment charges and interests incurred due to the project’s delayed implementation.

The COA said the sustainability of the project is now “in jeopardy” as the cost per unit of the e-trikes has already increased from around P250,000 to currently around P455,000.

The COA pointed out that this would be “very costly for the local tricycle drivers who will be required to pay the same over a period of five years.”

In its reply letter, the DOE management informed the COA that the National Economic and Development Authority Investment Coordination Committee (NEDA-ICC) has approved the DOE’s request for the cancellation of at least $359.76 million worth of ADB loans for the E-Trike Project.

DOE Sec. Al Cusi made a good decision in cancelling a big portion of this very lousy, very costly project. We have to pay the commitment fee and save us nearly P21 B.

At P455k per e-trike, one cannot even go safely from QC to Las Pinas and back. If battery power runs out due to distance and traffic, there is nowhere to charge for at least 3 hours. Better buy a 2nd-hand car, good running condition with air-con, one can drive up to Baguio, Ilocos or Bicol and back safely.

This $400-M e-trikes loan to help ‘save the planet from fossil fuel’ is a stupid program. Its main function will only be to further expand institutional robbery via loans-then-taxes of Filipino taxpayers.

On the retail competition and open access (RCOA) and EPIRA

* This is my article in BusinessWorld on April 19, 2017.

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Electricity distribution, unlike generation, is defined as a “public utility” and hence, is granted as a monopoly right via congressional franchise. There are more than 120 distribution utilities (DUs) such as Meralco and electric cooperatives.

To dilute this monopoly, the Electric Power Industry Reform Act (EPIRA) which was passed in 2001 came with Section 31, Retail Competition and Open Access (RCOA) that “shall be implemented not later than three (3) years upon the effectivity of this Act,” and Section 29, Supply Sector, “The supply of electricity to the contestable market …” These are useful, anti-monopoly provisions, thanks to EPIRA.

The RCOA was finally implemented 12 years after, on June 26, 2013. The Department of Energy (DoE) and the Energy Regulatory Commission (ERC) issued orders to implement this beautiful provision.

But somewhere along the way, what should be a competitive scheme has become a “mandatory” order.

Some electricity consumers are unhappy because their choice to stay with their DUs — especially if these provide them good service and prices — has been done away with. This is why they went to the Supreme Court (SC) and asked for a Temporary Restraining Order (TRO) against the RCOA.

Below is a summary of these orders (one from DoE, four from ERC, and one from the SC).

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The SC TRO has mixed signals. It is good because (a) it stopped the “mandatory migration” to RES by contestable customers (CCs) and thus, they have the option to stay with their DUs or not, and (b) local RES will be allowed again. But it can also be bad because (a) it stopped the voluntary participation of CCs for 750kW (lowered threshold), and (b) some ERC Resolutions suspending earlier prohibitions to Retail Electricity Suppliers (RES) are also removed.

Government prohibitions should be kept to the minimum as much as possible.

These prohibitions would give people — especially those with very low technical and financial capacities — the right to become RES which might invite abuse of CCs.

2017041893842Such prohibitions should not include more RES players, the right of CCs to stay with their DUs or not, and voluntary participation of customers at 750kW.

EPIRA has provided for more customer choices, strengthened consumer empowerment, and demonopolization of electricity generation and distribution. Let this spirit stay in the succeeding orders of the DoE and the ERC.

 

Energy bureaucracy, electric cooperatives and NEA

* This is my article in BusinessWorld last March 08, 2017.

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The Philippines experienced a seemingly energy revival in 2016 and 2017 with plenty of new power plants commissioned and running. Mindanao experienced an energy surplus after many years of frequent involuntary “Earth hours” or almost daily blackouts lasting for many hours.

So it is ironic that while new power capacity were added into the grid, Luzon including Metro Manila, still incurred occasional “yellow alerts” in power supply. This indicated near-brownout situations that took place a few weeks ago since several power plants went offline all of a sudden, coinciding with maintenance and repair shutdowns that were scheduled ahead of time.

Some groups blame “collusion” of some generating companies (Gencos) to stage an artificial power deficiency and thus, command higher prices for several hours on those “yellow alert” situations. However, they offer little proof and numbers to back up this claim.

o4_030817For me, the more plausible and visible cause is the undeclared “collusion” of various groups including many government agencies and environmentalist groups to delay if not stop the installation of more power capacities to have huge reserves that can (a) cover even huge unscheduled power shutdowns and (b) bring down electricity prices further as a result of intense competition. See table below as proof.

With only 700+ kWh/person/year in 2014, that puts the Philippines slightly higher than the electricity use of poor neighbors Cambodia and Myanmar, and only half the electricity consumption of Vietnam, 1/4 that of Thailand, 1/7 that of Malaysia and 1/13 that of Singapore.

Last Friday, March 3, I attended the forum on “Institutionalizing Energy Projects as Projects of National Significance” by Sen. Sherwin Gatchalian, Chairman of the Senate Committees on Energy and Economic Affairs, sponsored by the Energy Policy Development Program (EPDP) held at the UP School of Economics (UPSE) Auditorium.

The three reactors were Dr. Ronald Mendoza, Dean of the Ateneo School of Government, Dr. Alan Ortiz, President and COO of SMC Global Power Holdings Corp., and DoE (Department of Energy) Undersecretary Jesus Posadas.

The senator recognized the problem of low power capacity of the Philippines in general, and some big islands in particular. There are many big committed and indicative power plants lining up but they often encounter bureaucratic delays.

20170307a5df3A paper, “An analysis of time to regulatory permit approval in Philippine electricity generation” (2016) by Laarni Escresa of EPDP showed that on the average, power plant operators need to secure 162 clearances (MBC, 2014) and 102 permits.

So the Senator’s bill will prioritize these big power plants (P3.5B or higher in capitalization) for faster approval process. For instance, agencies are given 30 days to check the documents submitted; if they fail to act on time, it is deemed that the papers are approved and permits be automatically granted.

Alan Ortiz mentioned something that’s somehow a shocking figure: Boracay’s electricity needs rose from 8 MW just 10 years ago to 100 MW today. From 8 to 100 MW in just 10 years — that’s a lot.

Undersecretary Posadas gave a good assurance that the DoE is “agnostic” on the source of energy (renewable or not) and want to see more power plants coming in. He also said that the DoE will no longer issue a 3rd round of feed-in-tariff (FiT) for wind-solar. Good announcement.

Another factor that contributes to uncertainties in power generation are those inefficient and losing electric cooperatives (ECs). They just get power from the Wholesale Electricity Spot Market (WESM) and distribute to their customers and do not pay the many Gencos that happened to supply their electricity needs.

From the Philippine Electricity Market Corp. (PEMC), here are the top three market participants or players which have unpaid energy settlement Amounts at WESM as of Feb. 27, 2017:

(1) Albay Electric Cooperative, Inc. (ALECO) P98.59M, (2) Abra Electric Cooperative (ABRECO) P63.97M, and (3) AP Renewables, Inc. P14.38M (source: http://bit.ly/unpaidwesm).

The numbers above exclude the unpaid amount of ALECO in their Special Payment Agreement with PEMC amounting to nearly P1B.

The National Electrification Administration (NEA) does not seem to properly discipline certain ECs under its belt. To have an old debt of nearly P1B and new debt of nearly P100M from one EC alone (Aleco) should be a red flag indicator that this type of prolonged and sustained inefficiency and losses have been tolerated.

The NEA should step back from this and other problematic ECs and force them to corporatize and be subjected to bankruptcy laws under the Securities and Exchange Commission (SEC).

The Philippines and its electricity consumers need stable and cheap electricity. They do not need the burden of being dependent on ECs that lose money and are unable to pay generation companies that further add uncertainties to bureaucratic delays.

Bienvenido Oplas, Jr. is the president of Minimal Government Thinkers and a Fellow of SEANET and Stratbase-ADRi.

Electric cooperatives and unstable power supply

* This  is my article in BusinessWorld last February 08, 2017.

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Almost everything we do now requires energy and if we stay in non-mobile structures like buildings and houses, everything requires electricity. Energy precedes development so unstable and expensive energy means unstable and poor economy.

Given the technological revolution the world has experienced in recent decades, it remains a tragedy that many countries still have low electrification rates and very low electricity consumption per capita.

Unfortunately, the Philippines is among those countries with still not-so-high electrification rates until today and its electricity use is among the lowest in the ASEAN (see table).

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Electricity consumption in kWh per capita is high for the following developed and emerging Asian economies: Taiwan, 10,460; South Korea, 10,430; Brunei, 9,550; Singapore, 8,840; Hong Kong, 5,930; Malaysia, 4,470 (6.5x of PHL); China, 3,770; Thailand, 2,490 (3.6x of PHL). These countries and economies also have 100% electrification rate except perhaps China.

There are two reasons why the Philippines has a relatively low electrification rate and low per capita electricity use.

First is due to its archipelagic geography.

Many municipalities and villages are located in islands that are off-grid and, as a result, their residents rely on biomass like firewood for cooking and gensets running on diesel for lighting although some do use solar.

Second is due to politics.

There are not enough base-load power plants that can provide electricity 24/7 even in major islands like Luzon and Mindanao. This is because of political opposition by certain groups to cheap and stable fossil fuel sources like coal. Also, there are many bureaucracies (national and local) that discourage the quick construction and commissioning of new power plants. There are also weak, inefficient, and even corrupt electric cooperatives (ECs) that are given monopoly privileges to serve certain provinces and municipalities.

There are 119 ECs in the country from Luzon to Mindanao plus private distribution utilities like Meralco and those in PEZA/ecozones. All ECs are supervised and regulated by the National Electrification Administration (NEA).

Of the 119 ECs, some remain financially weak and problematic until today, like the Abra EC (ABRECO) and Albay EC (ALECO). These two ECs are so deep in debt they are unable to provide stable electricity to their customer-members and have arrears with power generating companies (gencos) that supply them electricity at the Wholesale Electricity Spot Market (WESM).

According to National Electrification Administration (NEA), from 2004 to 2014, it has released subsidies to ABRECO worth P56.6 million for the implementation of the Sitio Electrification Program (SEP), Barangay Line Enhancement Program, and its procurement of a modular generator set.

For ALECO, it was badly managed and was on the brink of bankruptcy that local business and political leaders proposed and supported its corporatization and take over by more established energy players.

In January 2014, ALECO was acquired by San Miguel Energy Corp.’s subsidiary Global Power Holdings Corp. (SMC Global) and renamed it as Albay Power and Energy Corporation (APEC). ALECO then was the first EC in the country that was corporatized.

Upon takeover, SMC Global and APEC inherited a P4-billion debt by ALECO including overdue payments at WESM of nearly P1 billion.

More than two years after the takeover, the debt ballooned to P5.6 billion, mainly due to low collection efficiency. APEC said its database of customers has been sabotaged since about 80% of its customers are not on the database.

APEC resorted to disconnecting some big customers that do not pay but disgruntled ALECO employees and officers have resorted to reconnecting them.

The ball and accountability is in the hands of NEA. Why are these things allowed to continue for years, to the detriment of paying customers and generation companies that are not paid on time.

In 2015, NEA reported that it lent a total of P2-billion loans to 51 ECs to finance their capital expenditure projects, rehabilitate their power distribution systems, among others.

NEA should perhaps consider slowly stepping out of the sector and push all the ECs to move towards full corporatization with full exposure to expansion or bankruptcy. The sector that needs protection should be the electricity consumers, not the ECs.

Consumers should be protected from expensive and unstable electricity as well as disconnection because the DU or EC has been disconnected by gencos and WESM for huge unpaid accounts.

The NEA, along with other government agencies in the energy sector, should look at the above table again, and try to find out why our electrification rate and electricity use are at the level of Pakistan and Mongolia instead of at the level of Thailand, Vietnam, and Malaysia.

Bienvenido Oplas, Jr. is the President of Minimal Government Thinkers and a Fellow of SEANET and Stratbase-ADRi.

DOE not concurring with PH’s Paris agreement, good

Some PH Senators declared that the Senate will ratify the Paris Agreement of more expensive, unstable electricity “to save the planet” even if the DOE did not concur with it. Portion of the report said, “32 of the 33 agencies having already submitted their certificates of concurrence to Malacañang.”
(Phl to ratify Paris climate pact in July, Philippine Star, January 10, 2017)

The agency or department that did not concur with the PH (actually CCC) commitment to the Paris Agreement is the DOE, thanks Sec. Cusi.

“In the Cabinet, officially I have the only department that has not concurred in the ratification of the climate [pact].”

“I cannot concur on the ratification of the climate change [pact] because that can be used against DoE in approving the kind of power plants that we are going to have,” he said.

Mr. Cusi said the country’s pledge to cut carbon emissions by 70% means reaching a level that has already been met — in 2015.

“What does it mean? Wala na tayong gagawin [We can’t do anything],” he said, referring to curtailing the country’s development.”
(Energy department calls for foreign funding of global warming measures, BWorld, Dec. 12, 2016)

Many big countries like the US, Germany, UK, have not ratified their Paris commitment. Those who ratified are mostly small countries. $100 B a year of climate money transfer from developed to developing countries has become a huge extortion project that will produce huge disappointment from beggar countries. Almost ALL developed countries are already heavily indebted, they have huge public debts, don’t have enough money for their own citizens. And they will give away huge money to developing countries, many of whom are led by despots and corrupt leaders, will not happen.

The degree of climate extortion varies. While the “consensus” is $100 B a year starting 2020, some UN officials and planet saviours want $500 B a year. Less flood or no flood or more floods; less snow, no snow or more snow, that money should be given to them.

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As for energy prices, Meralco generation charges for Sept-Oct-Nov 2016 below. All these power plants are using coal and nat gas, except TMO, a peaking plant that uses oil. WESM prices are cheap, down to only P2.54/kWh last Nov. Which means FIT Allowance will be high so that pampered solar and wind plants at P8 to P10+ per kWh will remain “viable” through expensive electricity imposed on all energy consumers nationwide.

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Sec. Cusi’s energy realism should be supported against energy alarmism by other agencies and groups.

Trump transition team questions for US DOE

This is not directly related to energy issues in Asia but US climate and energy policies can reverberate strongly in Asia and other continents/countries. Hence, I am reposting this article by Willis Eschenbach, The DOE vs. Ugly Reality last December 10, 2016, about the 74 questions sent by Mr. Trump’s transition team to the current DOE leadership.

I think those question are frank and highly sensible. But there are many news reports attacking the letter and questions, saying they infringe on DOE scientists’ independence, etc., and they cite only a few of those 74 questions. Good work there, Willis, thank you
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usdoe1Questions for DOE

This memo, as you might expect, is replete with acronyms. “DOE” is the Department of Energy. Here are the memo questions and my comments.

  1. Can you provide a list of all boards, councils, commissions, working groups, and FACAs [Federal Advisory Committees] currently active at the Department? For each, can you please provide members, meeting schedules, and authority (statutory or otherwise) under which they were created?

If I were at DOE, this first question would indeed set MY hair on fire. The easiest way to get rid of something is to show that it was not properly established … boom, it’s gone. As a businessman myself, this question shows me that the incoming people know their business, and that the first order of business is to jettison the useless lumber.

  1. Can you provide a complete list of ARPA-E’s projects?

Critical information for an incoming team.

3 Can you provide a list of the Loan Program Office’s outstanding loans, including the parties responsible for paying the loan back, term of the loan, and objective of the loan?

4 Can you provide a list of applications for loans the LPO has received and the status of those applications?

5 Can you provide a full accounting of DOE liabilities associated with any loan or loan guarantee programs?

6 The Department recently announced the issuance of $4.5 billion in loan guarantees for electric vehicles (and perhaps associated infrastructure). Can you provide a status on this effort?

Oh, man, they are going for the jugular. Loan Program Office? If there is any place that the flies would gather, it’s around the honey … it’s good to see that they are looking at loan guarantees for electric vehicles, a $4.5 billion dollar boondoggle that the government should NOT be in. I call that program the “Elon Musk Retirement Fund”.

Folks, for $4.5 billion dollars, we could provide clean water to almost half a million villages around the world … or we could put it into Elon Musk’s bank account or the account of some other electric vehicle manufacturer. I know which one I’d vote for … and I am equally sure which one the poor of the world would prefer.

7 What is the goal of the grid modernization effort? Is there some terminal point to this effort? Is its genesis statutory or something else?

Asking the right questions about vague programs …

8 Who “owns” the Mission Innovation and Clean Energy Ministerial efforts within the Department?
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