Coal power and economic development

* This is my article in BusinessWorld on July 12, 2017.

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Cheaper and stable energy means cheaper production costs for the industrial, agricultural, and services sectors of the economy. Cheaper energy also results in increased convenience for consumers too as many activities now are impossible without stable electricity supply.

In the modern history of Asian economies’ rapid growth, the use of coal power is an important contributor for their economic expansion.

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These numbers show three important things:

(1) Countries that have high and fast coal consumption are also those that experienced faster economic expansion (at least three times expansion of GDP size). Most especially China, India, South Korea, Indonesia, Vietnam, Malaysia, and Philippines.

(2) Countries with declining coal use are also those with slow economic expansion (below three times expansion of GDP size). Most notable are the US, Russia, Germany, and UK.

(3) Philippines’ coal use is actually small compared to its neighbors; its 2016 use is just nearly 1/2 of Malaysia and Vietnam’s consumption, just 1/3 of Taiwan’s and almost 1/5 of Indonesia’s. South Korea, Japan, India, and China’s consumption are many times bigger than the Philippines’.

Recently, groups have suddenly scored seven coal power plants that entered into power supply agreements (PSA) with Meralco last year. These coal projects are (1) Atimonan One Energy (A1E) 1,200 MW, (2) Global Luzon (GLEDC) 600 MW, (3) Central Luzon Premiere (CLPPC) 528 MW, (4) Mariveles Power (MPGC) 528 MW, (5) St. Raphael Power (SRPGC) 400 MW, (6) Redondo Peninsula (RPE) 225 MW, and (7) Panay Energy (PEDC) 70 MW.

This covers a total of 3,550 MW of stable and affordable energy that can lead to cheaper and reliable electricity supply for more than 20 million people in Metro Manila, Bulacan, Rizal, Cavite, Laguna, and parts of Batangas and Quezon provinces.

These groups — Center for Energy, Ecology, and Development (CEED), Philippine Movement for Climate Justice (PMCJ), Sanlakas, Freedom from Debt Coalition (FDC), Koalisyong Pabahay ng Pilipinas (KPP), Power for People (P4P) member organizations, others — argue that coal plants are detrimental for the people’s health and livelihood as well as bad for the environment.

They are wrong.

What is bad for the people’s health and livelihood are more candles and noisy gensets running on diesel when there are frequent brownouts coming from intermittent, unreliable renewables like solar and wind. Candles are among the major causes of fires in houses and communities.

What is bad for people’s health and security are dark streets at night that contribute to more road accidents, more street robberies, abduction and rapes, murders and other crimes. Many LGUs reduce costs of street lighting when electricity prices are high (ever-rising feed-in-tariff or FiT for renewables, more expensive oil peaking plants are used during peak hours, etc.). Expensive and unstable electricity can kill people today, not 100 years from now.

Seeking to disenfranchise some 3,550 MW of stable and cheaper energy supply from seven coal plants is suspicious. There are no big hydro, geothermal, and biomass plants coming in. Wind and solar are limited by their intermittent nature, have low capacity factors, high capital expenditures, and often are located far away from the main grid. The only beneficiaries of disenfranchising big capacity coal plants then would be the owners of new natural gas plants.

Are natural gas cheaper than coal power? From the recent experience of Mindanao where many big coal plants were commissioned almost simultaneously, the answer seems to be No. The generation price in Mindanao has gone down to below P3/kWh, on certain days even below P2.50/kWh. Which means coal power has big leeway for lower price if competition becomes tighter. This cannot be said of natural gas plants here.

Consumer groups and NGOs should bat for cheaper, stable electricity. If they fight for something else like intermittent and expensive renewables, or more expensive gas plants, then they abdicate their role as representatives of consumer interests. Pathetic.

Bienvenido S. Oplas, Jr. is the head of Minimal Government Thinkers and a Fellow of SEANET, both are members of Economic Freedom Network (EFN) Asia.

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More growth needs more Megawatts

Reposting an article in Manila Standard last Monday by a friend, Orly Oxales of Stratbase-ADRi.

Orly

More growth needs more megawatts
posted May 22, 2017 at 12:01 am by  Orlando Oxales

For many Filipinos, there is something visceral about electricity. We know that it is not free, that modern life has grown dependent on it, and that any fluctuations related to its price will affect the way we budget our routine household expenses.

This is why news of the Energy Regulatory Commission’s version of “dagdag-bawas” will hit a nerve in every consumer. News of a nearly P7-billion refund of over-recoveries by Meralco was quickly negated by the announcement of a consequent rate hike, thanks to an approved increase in Feed-in-Tariff rates.

Needless to say, the two issues have generated their own share of intrigues and controversies. The refund stems from over-recoveries incurred between 2014 and 2016. Meralco officials explained that “timing issues” gave rise to such over-recoveries, as the rate used to compute for the generation charge in a current billing month is based on the generation cost incurred in the previous one. This thus creates a lag.

Meanwhile, the increase in FIT rates, ostensibly to help boost the renewable energy sector, represents what some say are “very fast adjustments” from 4.06 centavos/kWh in 2015 to 12.40 in 2016 and eventually 26 centavos in mid-2017. Critics of the initiative have hit what they describe as excessive intervention from the government, not only in price control but also in the grid prioritization of otherwise intermittent and unstable energy sources.

For many, what this does, effectively, is sacrifice consumer interest and cheaper and stable electricity for corporate interest and “saving the planet,” via guaranteed pricing, a slew of fiscal incentives, and other privileges. Because of this skewed prioritization, some even describe it as anti-consumer.

There are also reports of so-called “Meralco midnight deals” between the ERC and Meralco-affiliated generation companies that allegedly allowed some 3,551 megawatts of negotiated power supply agreements with periods of 20 years to evade a mandated competitive bidding policy. Some lawmakers have hit the delayed implementation of this rule and hinted at a collusion, something that both parties have vehemently denied.

For its part, the ERC maintained that the extension was not meant to favor any particular utility or generation company. Some industry observers say the move is to “proactively” assure sustainable power supply; distribution utilities and electronic cooperatives from across the country have planned for such by entering into supply contracts with suppliers early on in order to not only  decrease exposure from uncertainties of the wholesale electricity spot market but, more importantly, to guarantee the supply requirements of their customers.

After all, some say, an initiative that aims to replace bilateral agreements with competitive bidding will not succeed due to a serious lack of power producers that can adequately supply the country’s growing demand for power. In short, the initiative doesn’t address the problem of supply, which the Duterte administration’s build-build- build mantra will also need to confront. That necessary surge will only be possible in a healthy market environment with enough energy players.

According to some forecasts, the Philippine economy has the capacity for robust long-term economic growth of about 4.5 to 5 percent per year over the 2016 to 2030 time horizon. But this level, pace, and consistency of growth will require an additional 7,000 megawatts of power generation capacity built over the next five years.

For this to materialize, there needs to be a concrete plan to improve from mere sufficiency to a surplus of energy supply. The Department of Energy’s power development plan aims to make this a reality. Aside from the invitation of foreign investors, local players are also bullishly gearing up for this scenario. This should appease industry, at least for now.

For consumers, the DOE Task Force to Lower the Cost of Electricity in its final report has already identified the main elements contributing to the cost of power along the chain, from generation, transmission, to distribution. Their recommendations include the rationalization of taxes and the removal of bureaucratic barriers to encourage more investments in power plants.

Thus, for both industry and consumers, the issue of supply seems to be the epicenter of our persistent power woes and should guide the rethinking of our energy policies.

Brownouts, ancillary services and transmission charge

* This is my article in BusinessWorld last February 23, 2017.

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Rotational and scheduled brownouts for several hours about once a month, then unscheduled short brownouts from time to time, have become a regular experience in the two provinces of Negros island. Despite the installation of many huge solar plants in recent years.

I am currently in Sagay hospital in Negros Occidental to visit my seriously sick father. Last night, there was brownout for about 10 minutes, the hospital’s generator set immediately takes over to supply electricity to their patients and staff.

The Facebook page of the Central Negros Electric Cooperative (CENECO) gives frequent advisory of power interruption that lasts for nine hours (8 a.m. to 5 p.m.) until this month.

Stories and testimonies of frequent brownouts in many cities and municipalities of Negros Oriental in 2016 are also reported in dumagueteinfo.com.

In June 2016, the Department of Energy (DoE) said that line congestion is building up in Negros Occidental due to many solar power plants operating in the province. The abrupt influx of solar power plants is causing the main line, transmission and interconnection lines to congest (Sun Star Bacolod, June 10, 2016).

This month, Negros Occidental Electric Cooperative (NOCECO) explained that one of the main reasons of higher electricity is the increase in the transmission charge from P1.0538/kWh in January 2017 to P1.1777/kWh in February 2017 or an increase of 0.1239/kWh. The transmission rate hike is due to the increase in the ancillary service charges of the National Grid Corporation of the Philippines (NGCP).

There are at least two issues here. First is the presence of more brownouts in Negros island despite its having the most number of installed solar power plants per sq. km. of land in the whole country, more than 300 MW.

Solar power is very unstable and intermittent, zero output at night and very low output when it is cloudy, or power fluctuates wildly if clouds come and go in minutes. So there should be more ancillary services or standby power plants, usually natural gas or diesel plants, that should quickly provide power when thick clouds come and when evening comes. Still, this causes power fluctuations that damage machines, engines and appliances running on electricity and the leadership of Negros chamber of commerce and industry have pointed this out to the DoE and NGCP last year.

Second, how is the NGCP regulated and accounted in its transmission charge pricing and assets management?

Power generation is deregulated and hence, the extent of competition among many players is the main regulator of the generation charge. Distribution charge is regulated by the Energy Regulatory Commission (ERC) because distribution utilities (DUs) like Meralco and the roughly 119 electric cooperatives (ECs) nationwide are all monopolies in their respective franchise areas.

So while there are 120+ distribution monopolies composed of private DUs and ECs, the NGCP is a single, national monopoly in power transmission.

There are 12 different charges in our monthly electricity bill. The top six in the table below, and these five charges with lesser rates: (7) universal charge, (8) cross subsidy charge, (9) lifeline rate subsidy, (10) senior citizen subsidy, and (11) feed in tariff allowance (FiT-All). No. (12) are value-added tax (VAT) and other government taxes, these are huge too but not included in the table because they are unrelated to the electricity system.

Of these 12 different charges, subsidies and taxes, the smallest is #10 while the fastest growing is #11, FiT-All: P0.04/kWh in 2015, 0.124/kWh in 2016, and set to rise to P0.23-P0.25/kWh this 2017, the ERC still has to decide on the Transco petition for FiT-All hike (see table).

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Notice in the table above the following: (1) In 2013 vs. 2017, all five charges have declined in rates in 2017 except transmission charge which has remained practically the same at P0.91/kWh. And (2) In 2014 vs. 2015, a similar pattern where all five charges have declined in rates in 2015 except transmission charge which has even increased to nearly P1/kWh.

The possible explanations why the transmission charge by NGCP seems to be the odd man out among the top six charges are (1) rising cost of more ancillary services as more intermittent solar-wind power are added into the grid, (2) it passes its own system loss to the transmission charge, (3) it simply behaves like a typical monopoly, revenue-maximizing as consumers and other players have zero option of other service supplier/s.

20170222be0f6Brownouts and expensive electricity, these are ironic events in our modern world. We should have stable and cheap electricity, no brownouts even for one minute except after heavy storms and typhoons that knock down electrical posts and power lines.

Government should step back in some heavy regulations like forcing intermittent solar-wind into the grid which can discourage some developers who can build stable and cheaper power like coal and natgas plants. And giving high price guaranty for 20 years to renewables like wind-solar is wrong and punishing the consumers. Technology changes very fast, the costs of solar and wind equipment are falling fast, so why lock the high price for 20 years? This is wrong.

The PH solar confederation, electric coops and Meralco

From the DOE website, some group photos showing some of the major players in the PH energy sector. Below, one solar group, the Confederation of Solar Developers of the PH, Inc. (CSDP).

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From left: DOE Chief-of-Staff Jesus Cristino Posadas, Engr. Arwin Ardon, Ret. Admiral Reuben Lista, Central Tarlac Biopower Inc. President Don Mario Dia, Equis Manager Craig Marsh, NV-VOGT Phils. President Vivek Chaudhri, North Negros BioPower, Inc. President Arthur N. Aguilar, Reynaldo Casas CSDP President, Aboitiz Equity Ventures Inc. Senior Vice President Juan Antonio Bernad, Carlos Aboitiz of Aboitiz Power, Solar Philippines President Leandro Leviste , SolarPacific Energy Corp. Senior Business Development Officer Dyna Enad, DOE Spokesperson & NASECORE President Pete Ilagan.

There is another solar lobby, the Philippine Solar Power Alliance  (PSPA) headed by Ms. Tetchie Capellan. Meanwhile,…

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From the  DOE website,

Cusi asked both agencies to “go down to the cooperatives” to resolve the issues raised by electric cooperatives namely PHILRECA, QUEZELCO and AMRECO, among others.

 Among the issues raised by the electric cooperatives were ensuring the right of way for electric projects, tax reforms, non-privatization of Agus and Pulangui complexes in Mindanao, the interconnection of SPUG areas to the main grid and the putting up of a one-stop shop and fast lane for the processing of permits and licenses for energy projects.

On the DOE-Meralco partnership in providing electricity connection to relocated informal settlers.

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When “free electricity connection” was reported in local media, I asked Joe Zaldariaga what it means — only the one-time cost of electricity connection plus meter readers are free, or also the monthly electricity bill of the informal settlers. Joe said that only the former is free. The latter, people still have to  pay their monthly electricity bill. This is low anyway because of  the  “lifeline subsidy” for consumers of only 100 kWh a month or less.

Meanwhile, I am curious why the electric  coops would oppose the privatization of hydro power plants in Mindanao? This is long overdue as EPIRA was enacted in 2001 or 15 years ago. Besides, only private players operating in a competitive environment would have enough incentives to really improve the electricity output of those hydro plants, especially when WESM in Mindanao would start operating.

Old renewables and coal are cool, complementary and not contradictory

* This is my article in SPARK by ADRi last January 26, 2016.

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Old renewables and coal are cool, they are complementary and not contradictory

January 29, 2016

Bienvenido Oplas, Jr., Stratbase Albert del Rosario Institute (ADRi) Fellow

Darkness and lack of electricity is inhuman. Having expensive and unstable electricity supply when cheaper and stable power sources are available is wrong and lousy. When many streets and roads are dark at night because local governments or private subdivisions are economizing on their monthly electricity bills and power supply is limited, there are two negative social consequences: more vehicular accidents and more crimes. Criminals love darkness where their victims cannot see or recognize them.

And when there is frequent power outages and brownouts, there are two other negative social consequences: more fires when more people use candles more frequently, or more noise and pollution as some people turn on their generator sets that  run on expensive fuel, diesel.

These are crimes against humanity, the poor especially, that the “limit/kill coal” movement does not take into serious consideration.

Among the cheap and stable energy sources that the country should further take advantage of is coal. While many environmental activists view coal as “enemy” of sustainable development, this is a misguided view. In the Philippines, coal power plays a complementary and non-contradictory role to renewables development.   Here’s why.

One, without coal and natural gas, the Philippines will be as dark at night as North Korea and other underdeveloped countries experiencing daily “Earth hours”.

In Luzon grid, coal + natural gas + oil have produced 86.6 percent of total power generation in the first half of 2015. The “old renewables” hydro and geothermal contributed 12.5 percent while the “new renewables” wind, solar and biomass contributed only 1.0 percent, very small.

In the Visayas grid, coal and geothermal provide the bulk of power generation and in Mindanao, it is hydro, oil and coal.

The actual power generation of coal + natural gas of 84.4 percent are much larger than their power capacity of 61.2 percent of total dependable capacity in the Luzon grid. This means that power plants that use these two fuel types are producing more electricity at stable supply and cheaper prices than other power plants that use oil and geothermal, hydro (low supply during dry months) and new renewables (unstable supply and expensive).

Two, in the Meralco generation cost, power plants that run on coal (TLI, MPPC and SCPC) provide cheaper electricity, although power plants that run on natural gas (SPPC-Ilijan, FGPC-Sta. Rita and FGPC-San Lorenzo) provide the bulk of power generation. Exception is QPPLC that also run on coal but the price is comparable to natural gas power plants.

Table 1. Generation Charge (GC) of Meralco’s Power Suppliers, Dec. 2014 vs. Dec. 2015, in P/kWh

02Source: Meralco, “Computation of the Generation Charge”,
http://www.meralco.com.ph/consumer-information/rates-archive

Three, compared to many developed and emerging Asian economies, coal power consumption in the Philippines is actually small. And while coal power consumption of the US, Russia, Germany and Poland have declined compared to a decade ago, the amount remains big.

The claim therefore by some sectors and observers that coal power is the enemy of sustainable growth of the Philippines is based on subjective and non-objective point of view. Their proposal to outright banning of coal and use only renewables (old and new), is based on emotionalism and alarmism.

For now at least, coal-powered plants are still the most dependable sources of power generation. Given the country’s need for immediate additional power generation to meet the demands a growing Philippines, the need for coal-fired plants is still there.

With regard to developing renewables, however, the US National Renewable Energy Laboratory (NREL) projects that the country has vast potentials in three “new” renewables: wind, solar and biomass. Currently, the “traditional” renewables dominate the renewable energy market: large hydropower and geothermal energy.

There is a continuing debate in the country as to how much the new renewables should be inputted in the energy mix. As shown in the above table, while the cost of mostly coal and natural gas from different power plants can be as low as P3.87/kWh, the guaranteed and fixed generation price of solar and wind are P9.68 and P8.53/kWh respectively, or nearly 3x. This will not help the country escape from the unhealthy label of having the “second most expensive electricity in Asia next to Japan.”

So while a balanced energy mix of both renewable and non-renewable sources of energy should be pursued, policy makers should keep in mind these two important factors in determining the optimal mix: stability and affordability of power for the consumers and businesses alike.

Coal and renewables complement each other

* This is my article in BusinessWorld yesterday.

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In many literatures on energy and environment, electricity and climate policies, the dominant view is that fossil fuels in general, and coal power in particular, are the “enemies” of sustainable development. This should not be the case. The truth is that coal power plays a complementary and not contradictory role to development. Three sets of data will show why.

One, without coal and natural gas, the Philippines will be as dark at night as North Korea and other underdeveloped countries experiencing daily “Earth hours.”

In Luzon grid, coal + natural gas + oil have produced 86.6% of total power generation in the first half of 2015. The “old renewables” hydro and geothermal contributed 12.5% while the “new renewables” wind, solar and biomass contributed only 1.0%, very small.

In the Visayas grid, coal and geothermal provide the bulk of power generation and in Mindanao, it is hydro, oil, and coal.

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Note that the actual power generation of coal + natural gas of 84.4% are much larger than their power capacity of 61.2% of total dependable capacity in the Luzon grid. This means that power plants that use these two fuel types are producing more electricity at stable supply and cheaper prices than other power plants that use oil and geothermal (stable supply but expensive), hydro (low supply during dry months) and new renewables (unstable supply and expensive). Hence, more power are used and purchased from coal and natural gas plants.

Two, in the Meralco franchise area covering Metro Manila and nearby provinces, power plants that run on coal (TLI, MPPC, and SCPC) provide cheaper electricity, although power plants that run on natural gas (SPPC-Ilijan, FGPC-Sta. Rita and FGPC-San Lorenzo) provide the bulk of power generation. Exception is QPPLC that also run on coal but the price is comparable to nat gas power plants.

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TMO is a peaking plant, meaning it runs only during peak hours of electricity use. Its price is higher because it uses more expensive fuel, diesel, and runs only for one, two or four hours a day, depending on the season or months of the year. Thus, its contribution to total power production is small, only 0.6% in December 2015.

Three, compared to many developed and emerging Asian economies, coal power consumption in the Philippines is actually small. The expansion of coal consumption in Malaysia, Indonesia and Vietnam from 2000 to 2014 was nearly twice the expansion in the Philippines.

04
During the recent Energy Policy and Development Program Conference where Energy Secretary Monsada presented at the final plenary, this writer commented during the open forum that the DoE’s target of 30% minimum share of renewables can be a trap and reduce the country’s flexibility to tap cheaper, more stable energy sources like coal.

Such flexibility is necessary in order to (1) address energy poverty (low kWh/capita electricity consumption), and (2) bring down Philippine electricity prices and leave that unhealthy label of having the “second most expensive electricity in Asia next to Japan.”

The claim therefore by some sectors and observers that coal power is the enemy of sustainable growth of the Philippines is based on subjective and non-objective point of view. Their proposal to either (1) limit coal to base load power only, or (2) outright banning of coal and use only renewables (old and new), is based on emotionalism and alarmism.

When many streets and houses are dark at night because local governments and households are saving on their monthly electricity bills, there are at least three negative social consequences: more vehicular accidents, more criminal activity, and more fires when more people use candles more frequently.

These are crimes against humanity and the poor especially that the “limit/kill coal” movement does not take into serious consideration.

Adding more renewables to the energy mix is good and healthy for the economy so long as no subsidies are provided like feed in tariff (FIT) and no “must/priority dispatch” policy via the renewable portfolio standards (RPS).

The government must avoid politicizing the pricing and dispatch of electricity. Instead, it must encourage the entry of more power plants using different types of fuel, whether local or foreign. More competition among more players is the best way to protect the public via stable supply and cheaper, affordable electricity prices.

Bienvenido Oplas, Jr. is the head of Minimal Government Thinkers, and a Fellow of both the South East Asia Network for Development (SEANET) and the Stratbase-Albert del Rosario Institute (ADRi). 

PH electricity market, monopoly and competition

* This is my article in BusinessWorld Weekender last August 14, 2015.

The Philippine electricity market: MONOPOLY AND COMPETITION

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ENERGY is development, and that includes electricity. It is not possible for an economy to grow fast and have sustainable development if its power supply and distribution are unstable and costly. Thus, having sufficient, stable, and affordable electricity is a necessary though not sufficient condition for economic development.

The Philippines remains to have among the most expensive electricity prices in Asia. Here are data with some breakdown also shown, including the cost of power generation, cost of grid/transmission, and value added tax (VAT) or gross sales tax (GST). Of the 14 major cities in North and Southeast Asia plus Australia and New Zealand listed below, Manila has the 3rd most expensive electricity prices — 3rd in overall residential tariff, 3rd in generation cost, 3rd in grid charges, and 3rd in tax rates.

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Some reasons why other Asian cities and countries have lower electricity prices than the Philippines are as follows:

One, their government subsidizes electricity while the Philippine government imposes multiple taxes, royalties, and fees on power. The VAT rates are shown above, and royalties alone for Malampaya natural gas are as high as P1.45/kWh, and this is ultimately passed on to the consumers.

Two, Philippines power generation capacity is low, with total primary energy supply (TPES) in 2012 for instance only 0.44 tons of oil equivalent (toe) per person per year. Indonesia has twice, Thailand has four times, Malaysia has six times, and Singapore has 11 times that amount.

3So with these two factors — high electricity prices and low power gen. — average electricity consumption is also low, only 668 kWh per person per year in 2012.

SUSPICIONS

The Philippine power and electricity sector is characterized by a mixture of competition and monopolies. Power generation is generally competitive with many generation companies (gencos) slugging at each other. Power transmission is a national monopoly via the National Gird Corporation of the Philippines (NGCP). And electricity distribution is reserved to geographical monopolies, mainly the 120 electric cooperatives (ECs) nationwide, the biggest of which, Manila Electric Company (Meralco), accounts for about 75 percent of total electricity sales in Luzon and about 55 percent nationwide.

The issue of high electricity prices in the country has resurfaced once again but in a different angle. In current practices, the various ECs and distribution utilities (DUs) have bilateral contracts with different gencos, and such bilateral arrangement is sometimes suspected of being “sweetheart deals,” wherein both the gencos and DUs benefit to the disadvantage of the consumers.

To address this concern, the Department of Energy (DoE), on the watch of then secretary Carlos Jericho L. Petilla, issued Circular No. DC2015-06-0008, “Mandating All Distribution Utilities to Undergo Competitive Selection Process (CSP) in Securing Power Supply Agreements (PSA).” The order was dated June 11, 2015, or about two weeks before Mr. Petilla’s resignation.

The general principles behind this circular are to (a) increase transparency in the procurement process, (b) promote and instill competition in the procurement and supply of electric power to end-users, (c) ascertain least-cost outcomes, and (d) protect public interest.

Entities that will be covered are ECs, private investment-owned distribution utilities (PIOUs), multipurpose cooperatives, entities within economic zones, and other authorized entities engaged in the distribution of electricity.

Aside from suspicions of “sweetheart deals,” some DUs and ECs have their own gencos. Cross-ownership of DUs and gencos is allowed in the Electric Power Industry Reform Act (EPIRA) of 2001. Two examples here.

One is Meralco, whose wholly owned subsidiary, Meralco PowerGen Corp. (MGen), is targeting a portfolio of 3,000 MW by 2020. MGen is planning or constructing two other big power plants, the 1,200-MW Atimonan, Quezon, coal plant, and the 500-MW San Buenaventura, Quezon, coal plant, both slated for 2018. Another consortium, the Redondo Peninsula Energy, Inc., is slated to open its $1.2-billion, 600-MW coal power plant in Subic in 2018.

Two are the three DUs of Aboitiz Power — Visayan Electric Co., Subic Enerzone Lima Enerzone, and Davao Light.

TAXES, MONOPOLIES

By forcing the ECs and DUs to undergo competitive bidding for their power supply contracts, the DOE hopes to break or minimize the practice, or at least minimize suspicions, of price-rigging.

This is definitely a welcome move for independent power producers (IPPs) which have little or no cross-ownership and control with ECs and DUs. They will have a fairer and level playing field in getting supply contracts. But while the goal is laudable, the circular will be unable to address other problems and contributors to expensive electricity in the country. Among these are the following.

  1. High and multiple taxes, royalties, and fees imposed on natural gas and other energy sources and on electricity generation/transmission/distribution businesses.
  1. Expensive electricity is also being imposed recently by RA 9513 or the Renewable Energy (RE) Act of 2008, wherein wind, solar and biomass are given guaranteed prices via feed in tariff (FIT) for 20 years.
  1. Monopoly characteristic of ECs and DUs because electricity distribution is considered a “public utility” and, hence, protected by the Constitution and franchise laws. Abuse of power is a possibility that is always second nature to any monopolist. This will require amending the Constitution.

A compromise will have to be made, like having a transition period to allow the maturity of existing power supply contracts.

The long-term measures to address structural problems that lead to expensive electricity is to limit government intervention, to step back. Like amending the tax code to reduce or abolish certain taxes on energy, amending the RE law to abolish the FIT provision, and amending the Constitution to remove economic protectionism.

Bienvenido S. Oplas, Jr. heads a free-market think tank, Minimal Government Thinkers, Inc., and is a fellow of the South East Asia Network for Development (SEANET).