The quest for more stable and cheaper electricity in the ASEAN

* This is my article in BusinessWorld last April 28, 2017.

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High economic growth means high energy demand coming from stable supply and competitively priced energy, not unstable, intermittent, and expensive energy. This is what the Association of Southeast Asian Nations (ASEAN) economies need as their high GDP growth of 4.7% in 2016 is projected to improve to 4.8% this year and 5% in 2018 (ADB data), much faster than the projected growth of other regions and economic blocs.

One week before the ASEAN 50th Summit Meeting, the 7th Annual Meeting of the Nuclear Energy Cooperation Sub-Sector Network (NEC-SSN) hosted by the Department of Energy (DoE) was held. A pre-feasibility study showed that many ASEAN countries are in favor of using nuclear energy for commercial use. The ASEAN Center for Energy (ACE) also sees nuclear energy as a long-term power source for the member-countries.

The intensive infrastructure projects of the Duterte administration require huge amount of energy. The proposed 25-km. subway in Metro Manila by the Japan government alone would require high energy supply for the dozens of trains running simultaneously below the ground plus dozens of train stations below and above ground.

Lots of base-load power plants, those that can run 24-7 all year round except when they are on scheduled shut down for maintenance, will be needed. These baseload plants include coal, natural gas, geothermal, and nuclear. Hydro plants too but only during the rainy season.

How reliable and how costly are the different power generation plants that the Philippines and other ASEAN countries will need? This table will help provide the answer as I have not seen data for the ASEAN yet.

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Power reliability is represented by plant capacity factor or actual power output relative to its installed capacity. So unstable, intermittent sources like wind and solar have low capacity factor, not good for manufacturing plants, hotels, hospitals, malls, shops, and houses that require steady electricity supply.

Power cost is represented by the levelized cost of electricity (LCOE), composed of capital expenditures (capex), fixed and regular operation and maintenance (O&M), variable O&M, and transmission investment. CCS means carbon capture and sequestration.

The cost of ancillary services for intermittent sources, the standby power plants if the wind does not blow or if it rains make solar plants temporarily inutile, does not seem to be reflected in the transmission cost though.

ASEAN countries like the Philippines will need those power plants that have (a) high reliability, high capacity factor, (b) low LCOE, and (c) low or zero need for ancillary services.

However, more ASEAN countries are entertaining more solar PV and wind onshore since they were convinced to believe that they need unstable yet expensive electricity to “save the planet.”

During the Energy Policy Development Program (EPDP) lecture last April 20 at the UP School of Economics (UPSE), Ms. Melinda L. Ocampo, president of the Philippine Electricity Market Corp. (PEMC) talked about “Electricity Trading and Pricing in the Philippine WESM.” Ms. Ocampo discussed among others, the new management system where the interval for electricity dispatch has been improved from one hour to only five minutes.

I pointed during the open forum that the imposition of the lousy scheme feed-in-tariff (FiT) or more expensive electricity for favored renewables was unleashed even to consumers in Mindanao, which is not part of WESM, and is not connected to the Luzon-Visayas grids. The FiT-Allowance that is reflected in our monthly electricity bill has risen from 4 centavos/kWh in 2015 to 12.40 centavos in 2016 and this year, we should brace for at least 26 centavos/kWh soon because the 23 centavos petition by Transco starting January 2017 has not been acted by the Energy Regulatory Commission yet.

The issue of stable and affordable energy will be tackled in the forthcoming BusinessWorld Economic Forum this May 19, 2017 at Shangri-La BGC. Session 4 “Fuelling Future Growth”of the conference will have the following speakers: John Eric T. Francia, president & CEO of Ayala Corp. (AC) Energy Holdings, Inc.; Antonio R. Moraza, president & COO of Aboitiz Power Corporation; Josephine Gotianun Yap, president of Filinvest Development Corp., and DoE Secretary Alfonso G. Cusi. Yap and Cusi are still to confirm the invite.

Local energy players will have a big role in ensuring that the Philippines should have stable and competitively priced energy supply today and tomorrow.

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.

Rising feed in tariff (FIT) due to more wind-solar power

* This is my article in BusinessWorld last January 24, 2017.

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Cheaper electricity and stable energy supply are among the important components to have fast and sustainable economic growth.

On Jan. 17, the Philippine Electricity Market Corp. (PEMC) sent a press release saying that “effective settlement spot prices (ESSPs) in the wholesale electricity spot market (WESM) plunged to P2.28/kWH for the December 2016 billing period which is the lowest since January 2011. ESSPs refer to the average prices paid by wholesale customers for energy purchased from the spot market.” That is good news as various players using fossil fuel sources like coal, natural gas, and oil, are fiercely competing with each other in generating electricity. WESM was created by EPIRA of 2001.

On the same day, the Department of Energy (DoE) posted a “Request for comments on the draft Department Circular entitled ‘Declaring the launch of WESM in Mindanao’ (on Jan. 26, 2016) and providing for transition arrangements.” Another good news because finally, there will be a formal spot market for power producers and electric cooperatives that will guide a competitive and deregulated market, benefitting the consumers.

Last Dec. 23, 2016, the Energy Regulatory Commission (ERC) posted a request for public comments until Dec. 30 regarding the petition of three wind developers — Trans-Asia Renewable Energy Corporation (TAREC), Alternergy Wind One Corporation (AWOC), and Petrowind Energy, Inc. (PWEI) — that their feed in tariff (FiT) or guaranteed price for 20 years of P7.40/kWh be raised to P7.93/kWh, citing various cost escalations. That was bad news because expensive electricity is never a virtue. I sent a letter to ERC Commissioner Salazar arguing that they say No to the petition.

And last Dec. 6, 2016, the ERC published in a newspaper a National Transmission Corp. (TransCo) petition asking for a FiT allowance (FiT-All) of 22.91 centavos/kWh starting January 2017. That’s also bad news because FiT payments by consumers keep rising fast. From an introductory price of only 4 centavos/kWh in 2015, became 12.40 centavos/kWh in 2016, and almost 23 centavos/kWh this year.

Now two factors will raise the FiT-All for 2017 beyond 23 centavos. (1) ERC will not be able to act on this by January or not even February 2017, that means there will be price underrecoveries that must be added to the original requested price. And (2) with low WESM prices the past few months — P3.19/kWh last September, P2.91/kWh last October, P2.54/kWh last November (data from Meralco), and the P2.28/kWh ESSP last December — this means that FiT-All will go up. This allowance is the difference between FiT rates (highest prices are solar of P10+/kWh this year due to price escalation, followed by wind, then biomass, cheapest is run of river hydro) and average WESM prices. Or FiT-ALL = FiT rates — WESM prices

Expensive electricity is the hallmark of renewable energy favoritism anywhere in the world.

Understand that in my previous columns, it was shown that the main beneficiaries of expensive electricity from renewables in the Philippines are not ordinary firms but huge companies: the Lopez group (EDC Burgos wind) and Ayala group (Northern Luzon UPC Caparispisan wind, and Northwind Bangui) who got P8.53/kWh FiT and combined revenues of about P4.3 billion in 2015 alone.

Let us check Germany’s renewables output. The chart below is for the last three months, Oct. 23, 2016 to Jan. 22, 2017.

Last Jan. 8, its total electricity consumption was 57.4 GW and here are the renewables output that day: solar 0.23 GW, onshore wind 1.53 GW, and offshore wind 0.39, or a total output of only 2.15 GW from these three renewables (see chart).

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A total of only 2.1 GW was generated by solar-wind sources or only 3.7% of 57.4 GW power demand. If Germany relied solely on wind-solar, that would have meant massive, large-scale, and catastrophic blackouts. Germany of course was saved by the power plants that it wants to banish someday — fossil fuel sources like coal and natural gas plus nuke power, within Germany and from energy imports from its European neighbors — and which it kept running. So we did not hear or read such massive blackouts in Europe’s biggest economy.

Aside from expensive direct cost of wind and solar in Germany due to FiT, there is additional indirect cost of higher transmission cost. From a news report, “The Energiewende is running up against its limits” last Oct. 21, 2016 (http://energypost.eu/energiewende-running-limits/)

“German transmission system operator Tennet recently announced an 80% increase in its transmission fees because of the high construction costs of new power lines to accommodate renewable energy. A study of the Düsseldorf Institute for Competition Economics found that by 2025 costs of the Energiewende could exceed €25,000 for an average four-person household.”

The Joint Congressional Power Commission should consider introducing a law in the future that will abolish the RE Act of 2008 (RA 9513). Penalizing the energy consumers to further enrich the favored and crony firms in renewable energy is wrong.

Top 10 energy news of 2016

* This is my article in BusinessWorld last January 6, 2017.

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Here is my list of 5 international and 5 national or Philippine important energy issues last year.

INTERNATIONAL

  1. Donald Trump and his energy policies.

US president-elect Donald Trump’s energy policies are summarized in his major campaign platform, “Seven actions to protect American workers” and these include:

“FIFTH, I will lift the restrictions on the production of $50 trillion dollars’ worth of job-producing American energy reserves, including shale, oil, natural gas and clean coal… SEVENTH, cancel billions in payments to UN climate change programs and use the money to fix America’s water and environmental infrastructure.”

So far some of Mr. Trump’s Cabinet Secretaries are his fellow skeptics of the anthropogenic or “man-made” climate change claim (climate change is largely cyclical and natural or “nature-made”), or simply pro-oil. These include: (a) Environmental Protection Agency (EPA) head is Scott Pruitt, former attorney general of Oklahoma; (b) DoE Secretary is former Texas Governor Rick Perry who is pro-drilling; and (c) Secretary of State is Rex Tillerson, CEO of the oil giant Exxon Mobil Corp.

  1. OPEC cut on oil production.

For eight years, OPEC never cut its oil production despite declining oil prices to protect its global market share under intense pressure from huge shale oil supply from the US. In November 2016, OPEC finally blinked and decided to cut their collective oil output by 1.2 million barrels per day (mbpd) hoping for an increase in oil prices. Non-OPEC countries like Russia and Mexico made an agreement with OPEC to cut output by another 0.56 mbpd, for a total projected output cutback of about 1.8 mbpd. So far, price impact was marginal as oil prices before this OPEC decision was already touching $50 a barrel. But once US shale oil output ramps up, this marginal price increase can easily be reversed.

  1. More wind-solar means more expensive electricity in selected countries in Europe.

The numbers below show that countries with expensive electricity (1-5) have zero or little nuclear power, have high wind power (except Belgium and Italy), and high solar capacity (except Spain). And cheaper electricity countries (6-10) have high nuclear power (except UK and Netherlands) and low wind (except Sweden), low solar capacity (see Table 1).

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  1. By 2040, 46% of global energy demand will come from Asia Pacific.

Based on a recent report by Exxon Mobil which grabbed global energy headlines, it said that it expects China, India, and the rest of Asia Pacific (including Japan, ASEAN, and Australia) will increase its global share of total energy demand from 234 quadrillion British thermal units (BTUS) in 2015 to 322 quadrillion BTUs by 2040. The percentage share of the region will rise from 41% of global demand in 2015 to 46% by 2040. In contrast, the share of EU and the US combined will shrink from 28% in 2015 to only 22% by 2040 (see Table 2).

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  1. By 2040, wind, solar, biomass, other renewables will contribute only 11% of total global power generation.

Coal will remain the dominant source in power generation worldwide by 2040 but its share will decline from 44% in 2015 to 34% by 2040. The share of natural gas and nuclear power combined will increase from 38% in 2015 to 45% by 2040. The share of wind, solar, geothermal and other renewables will marginally increase from 6% in 2015 to 11% by 2040, despite all the political noise worldwide that these renewables will get “cheaper than coal” and attain “grid parity” with conventional sources like coal and natural gas.

PHILIPPINES

  1. Search for an Independent Market Operator (IMO) of WESM.

In the last Congress, then Sen. Serge Osmeña, Chairman of the Senate Committee on Energy conducted a series of meetings until January 2016 about the absence of an IMO that is supposed to manage the Wholesale Electricity Spot Market (WESM). The Philippine Electricity Market Corporation (PEMC) as market operator of WESM remains weird because (a) PEMC Board is chaired by the DoE Secretary, many board members are government officials; (b) Even the supposed four independent directors plus consumer representative (5 total) are all appointed by the DoE Secretary; and (c) PEMC is regulated by the Energy Regulatory Commission (ERC), which is under the administrative control of the DoE Secretary, who chairs the PEMC that is regulated by ERC.

  1. WESM Mindanao, IMEM.

Aside from issues on the new Market Management System (MMS) for WESM rules and the transition to a real IMO, the move to create a WESM in Mindanao via the Interim Mindanao Electricity Market (IMEM) is gaining ground. The Mindanao dispatch protocol will have to be spelled out in detail too.

  1. Imposition of Renewable Portfolio Standards (RPS).

In June 2016, the DoE issued a draft Department Circular (DC) on RPS, a provision in the RE Act of 2008 (RA 9513) that “requires electricity suppliers to source an agreed portion of their energy supply from eligible RE resources.” This RPS will result in more expensive electricity because wind, solar, biomass, and small hydro that are not given feed in tariff (FiT) privilege of guaranteed price for 20 years can demand higher price for their energy output because distribution utilities will have zero choice but buy from them otherwise the DoE will penalize them.

The draft DC wanted an initial “2.15% to be applied to the total supply portfolio of the Mandated Participant in each grid.” When asked what will be the projected price implication of such policy, DoE and National Renewable Energy Board (NREB) officials answered that no study on price implications has been made yet. A weird proposal where proponents have no clear idea on the cost of implementation to energy consumers, the DC was shelved.

  1. Shift in energy mix from energy source to system capability.

During the administration of DoE Secretaries Petilla and Monsada, the DoE wanted an energy mix based on energy source or technology, 30-30-30-10 for coal-natural gas-RE-oil, respectively. This is highly distortionary because many REs are either seasonal (hydro can be baseload only during the rainy season, biomass can be baseload only if feedstock is available) or intermittent like wind and solar. New DoE Secretary Cusi changed the energy mix based on system capability: 70-20-10 for base load-mid merit-peaking plants, respectively. This is a more rational mixture.

  1. Endless demand for expanded, higher feed in tariff (FiT).

As more solar farms and wind farms are constructed nationwide, their developers and owners are lobbying hard for an expanded FiT 2 with guaranteed price for 20 years. Even geothermal developers also lobbied that their new plants should also be given FiT. Currently, three wind developers — Trans-Asia Renewable Energy Corporation (TAREC), Alternergy Wind One Corporation (AWOC), and Petrowind Energy, Inc. (PWEI) are petitioning the ERC that their FiT rate be raised from P7.40/kWh to P7.93/kWh. Three wind farms were lucky or favored to get P8.53/kWh under the original FiT — EDC Burgos (Lopez group), Northern Luzon UPC Caparispisan (Ayala group) and Northwind Power Bangui (partly Ayala).

The PEMC-NGCP Electricity Summit 2016, low ESSPs last October, high FIT-All next year

The annual Electricity Summit jointly organized by the Philippine Electricity Market Corporation (PEMC) and the National Grid Corporation of the Philippines (NGCP) will be held next week in Davao City, the home of President Duterte. PEMC is the market operator, the Wholesale Electricity Spot Market (WESM) while NGCP is the system operator.

I attended theElectricity Summit 2015 held at the Crowne Plaza in Ortigas. Compared to most conferences that I attend, it was an odd or weird one. The organizers and speakers are the energy regulators (DOE, ERC), market operator and system operator, and the audience are the regulated market players. So during the open forum, I think the audience were  hesitant to ask critical questions and comments to the guys who regulate them and operate the system for them. I think I stood 2 or 3 times to ask questions because the huge conference hall has a generally friendly atmosphere to the organizers.

The program this year is a bit different mainly because (1) EPDP is involved, an independent institute, (2) there are speakers from the WB and ADB, and (3) the President is a keynote speaker. Last year, among the key speakers were from (1) the ASEAN Power Grid, (2) the International Energy Agency (IEA), and (3) Mr. MacDonald, the Australian consultant who justified the PEMC structure of many government representatives in the board and still call it an “independent” agency. Provisional program of Summit 2016 as of November 17.

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I have heard the presentations by Majah, Laarni and Geoffrey at the recent PH Economic Society (PES) conference last November 8. The WB and ADB guys will likely be talking about “more renewables please to save the planet” and indirectly say “we offer pretty climate and energy loans to save the planet.” 🙂

What will be new there will be the proposed electricity market and transmission connection for Mindanao. Will the session also tackle the privatization of huge hydro power plants in Mindanao, the Agus-Pulangi plants, others? I doubt it. These plants are still under another government corporation, the Power Sector Assets and Liabilities Management Corp. (PSALM).

Registration is P15,000 per head, not cheap. People from Metro Manila, Visayas must also fly to Davao and get a hotel room for a night or two.

Meanwhile, PEMC sent me their latest press release with a good news: the Effective Settlement Spot Prices (ESSPs) in WESM further fell from PhP2.86/kWH in September to PhP2.48/kWH in October 2016 billing period. Good news, indeed. ESSPs are average prices paid by wholesale customers for energy purchased from WESM. Meralco has been getting more of their power supply from WESM over the past two or three months, something like 15-20% of their power supply. Mura eh, good decision.

Supply – demand dynamics. Higher supply, more competition among gencos, lower prices. Limited supply while demand remains high, higher prices.

This is the power generation mix for October 2016 in the Luzon-Visayas grids, PEMC data. Will the planet saviours who keep insisting on “more wind-solar please to save the planet” be happy with frequent, long hours of blackouts daily, more candles and noisy gensets 365 days a year? Solar + wind can only supply 2.3% of the total electricity need in Luzon-Visayas grids including Metro Manila.

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Meanwhile, PEMC will not report that there is a bad news to low ESSPs — that the FIT-All (feed in tariff allowance) will naturally rise big time next year.

FIT-All = (Total FIT collections by the renewables firms) – (collections from WESM)

So, since the collections from WESM are low because of low ESSPs while the total FIT collections will be high as more solar-wind are added to the grid with their expensive guaranteed price (for 20 years, mind you), FIT-All will naturally rise. From 4 centavos/kWh in 2015 to 12.40 centavos/kWh this year, to about 20 centavos/kWh in 2017?

If we combine these: (a) FIT under-recoveries in 2015 because of the low FIT-All of 4 centavos + (b) FIT under-recoveries in 2016 because of low ESSPs and insufficient 12.40 centavos + (c) more expensive solar-wind power added to the grid, the resulting FIT-All by 2017 will be high.

The FIT administrator is another government firm that owns the country’s grid system and assets, the National Transmission Corporation (Transco). I do not know yet how much Transco has petitioned the ERC for the FIT-All next year.

Again, my bottomline: government interventions in setting the energy mix, in setting fixed and guaranteed pricing for the variable renewables (solar, wind, biomass, run-of-river or small hydro), in granting mandatory dispatch for these renewables, are all wrong. They can lead to more expensive electricity, more unstable supply and “brownouts-friendly” electricity

No FIT for geothermal and other renewables, please

* This is my article in BusinessWorld last September 01, 2016

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Expensive electricity via government price guarantee for 20 years is wrong. Business is about risks and returns, capitalism is about corporate expansion and bankruptcy, so there is no such thing as guaranteed price nor assured profit for many years in a competitive economy. Only politics and cronyism will try to negate the nature of competition and business reward and punishment.

Last Aug. 17, 2016, it was reported here in BusinessWorld that Geothermal technologies sought to be included in FiT program.

“The National Geothermal Association of the Philippines (NGAP) is asking the government to include emerging geothermal technologies in the feed-in-tariff (FiT) program to address the cost and risks encountered by developers,” the report said.

This is wrong. Other renewables should also not aspire for FiT system. Granting FiT for intermittent renewables like wind and solar for 20 years was already wrong because it exposed consumers to high and rising electricity prices and the grid to volatile power fluctuations within minutes, among others.

The association was correct in calling that “On the policy front, NGAP calls for expedited regulatory action and permit approvals, as well as assurance of peace and order in some of the more remote prospects.”

Let there be less government interventions and bureaucracies for businesses.

Another reason why granting FiT to geothermal and other renewables is wrong is because energy technologies keep improving and hence, their costs keep falling. So why give an assured, guaranteed high price for technologies that evolve towards falling price through time?

The numbers below on levelized cost of electricity (LCoE) will support the above statement. LCoE is not a perfect measurement of the overall cost per technology but it is a good dimension of the overall competitiveness of different power generation technologies.

Some definitions here.

  1. Dispatchable energy sources are those that can easily adjust to consumer demand. Non-dispatchable technologies are those that are generally dependent on the weather.
  1. Capacity factor means the ratio of actual electricity output over rated or installed capacity.
  1. CC means combined cycle for natural gas plants.
  1. CCS means carbon capture and storage, it is made mandatory by the US government for all new coal plants and it pushes the capex to high levels, making coal power in the US more costly (see table).

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So in the US, the no. 1 geothermal electricity producer in the planet, the LCoE of geothermal is falling fast, the lowest among all energy sources at only $42.3/MWh by 2022. The Philippines is no. 2 geothermal producer in the planet, next only to the US. Technologies also follow the law of diffusion of molecules, making expensive technologies become cheaper through time.

On another note, I wrote in my column last Aug. 17, 2016, Brownouts, coal power and the electricity market, “can we expect PEMC to be more independent, more candid, in assessing the harm, actual and potential, of more REs in WESM and grid stability?… no. The DoE cannot contradict itself and say that REs are necessary and that REs are dangerous to the customers’ pockets and the stability of the national grid.”

The Philippine Electricity Market Corporation (PEMC) through Atty. Phillip C. Adviento replied last Aug. 23, 2016. They said that PEMC “acts only as the Market Operator responsible for the governance and operations of the WESM. The function of maintaining the security, reliability and integrity of the power grid is lodged with the System Operator. Against this context, it is grossly inaccurate to claim that PEMC is expected to study the impact of influx of RE resources in the grid.”

Good point, I recognize that strict distinction between a market operator (of WESM) and system operator (of the national grid). Still, PEMC has the data, it generates that data, of the intermittency per hour and even per minute, of the overall low capacity factor, of the renewables that enter the WESM.

PEMC added that it is “not a government-controlled corporation.”

However, it IS a private but government-controlled corporation. The Governance Commission for GOCCs (GCG) itself said this at the Senate Committee hearing last Jan. 26, 2016, then chaired by former Senator Serge Osmeña III.

Since the DoE Secretary sits as ex officio Chairman of the PEMC Board, the Secretary determines who among the private players can sit and cannot sit on the board, the Secretary has included government-owned energy corporations on the board even if they have minimal or zero contribution to electricity supply at WESM (NPC and PSALM), also TransCo. That makes PEMC a government-controlled corporation.

Government needs to step back from its intervention in the sector. It should reduce the number of permits that firms need to secure so that they can put up new power plants quickly. The government should also cut or abolish the system of guaranteed price for decades for favored renewables, reduce the taxes and fees imposed on energy companies, and the electricity costs paid by the customers.

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

PEMC reply to my article on WESM, AEMO

The Philippine Electricity Market Corp. (PEMC) replied to my article in BWorld, Brownouts, coal power and electricity market, August 17, 2016, below.

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Dear Editor: We are writing in reference to a column written by Mr. Bienvenido Oplas published on 17 August 2016 entitled, “Brownouts, coal power and the electricity market”.

We note the persistent claims made in your column that Philippine Electricity Market Corporation (PEMC) is exactly replicating the Department of Energy’s (DOE) efforts to push for more renewable energy (RE) resources into the system. It was also averred in your column that “since PEMC continues to be a government controlled

corporation, can we expect PEMC to be more independent, more candid, in assessing the harm, actual and potential of more REs in the WESM and grid stability?”

In addressing these claims, you used the example of the Australian Energy Market Operator (AEMO) in its initiative to conduct reliability studies. It must be pointed out that the AEMO is not merely a market operator but also a power systems operator that provides critical planning, forecasting, and power systems information. Thus, it can conduct studies on the impact of withdrawal of coal-fired generation capacity cognizant of its responsibility in maintaining the reliability of the Australian power

grid. In contrast to the Australian structure, PEMC acts only as the Market Operator responsible for the governance and operations of the WESM. The function of maintaining the security, reliability and integrity of the power grid is lodged with the System Operator. Against this context, it is grossly inaccurate to claim that PEMC is expected to study the impact of influx of RE resources in the grid.

With regard to the claim that PEMC is pushing for more RE resources in the WESM as a result of its study on “merit order effect” (MOE), this is a non-sequitur. The study published in our electricity journal focused on the impact of FIT incentives based on

the actual generation of FIT-qualified resources in the WESM as a result of priority dispatch accorded by Republic Act No. 9513 otherwise known as the RE Act of 2008. The MOE of the possible lowering of energy prices in the electricity bourse is no form of endorsement of RE resources on PEMC’s part. In the study, the impact of MOE on the market affects only those distribution utilities and directly-connected customers that purchased from the market and does not necessarily translate to the direct lowering of retail rates for end-users because of the FIT. The initiative of PEMC in conducting studies and analyses affecting market outcomes is without partiality to any resource.

Lastly, we wish to point out that PEMC remains a private corporation and not a government-controlled corporation. We recognize the DOE’s role in the policy oversight of the WESM operations as envisioned pursuant to relevant laws and

regulations.

We understand and appreciate your pursuit of balanced reporting and as such, we deemed it necessary to address the assertions made in your column.

In the interest of unbiased journalism, we request that you allow us to air our side by publishing this letter in your paper, as is and sans comment.

Respectfully yours,

Atty. Phillip C. Adviento,

Manager, Training and Communications

 

The Philippine Electricity Market Corporation (PEMC) is a non-stock, non-profit corporation which was incorporated in November 2003 upon the initiative of the Department of Energy (DOE) with representatives from the various sectors of the electric power industry to be the governance arm of the Wholesale Electricity Spot Market (WESM). The WESM began Commercial Operations in Luzon in June 2006 and in the Visa yas in December 2010. In June 2013, PEMC launched and integrated the Retail Competition and Open Access (RCOA) into the WESM. The WESM is a centralized venue for buyers and sellers to trade electricity as a commodity where its prices are based on actual use (demand) and availability (supply). The WESM was created by Republic Act 9136, the Electric Power Industry Reform Act (EPIRA) of 2001. This provided for the establishment of an electricity market that reflects the actual cost of electricity and lowers its price through more efficient production through competition.