Transition to sustainable energy

HE SITUATION in Mindanao is a balancing act that must be managed to address the mandate of the law that created the industry we are in now and the strong sentiments of Mindanaoans not to pursue the privatization of the remaining assets on the island.

The Epira or Republic Act No. 9136 mandates the privatization of government’s generation and transmission facilities to promote competition and invite investments in the power industry. Proceeds of the sale were used as payments for the power debts of the country which as of that time reached around P1 trillion due to the debts incurred by National Power Corp.

Exempt

The law, however, exempted Mindanao under a provision giving it a 10-year moratorium on privatizing hydropower generation assets as its stakeholders had chosen to maintain the assets which supply them with cheaper energy.

In the meantime, Luzon and the Visayas underwent the changes brought about by Epira. A decade later, Luzon recovered from 10-hour brownouts as investors established different types of power plants. As it stands today, Luzon has a reserve power of around 2,000 megawatts (MW).

The Visayas has also stabilized since then. A total of 610 MW came online from December 2010 to June 2011.

Mindanao, on the other hand, is now facing outages due to a lack of generation capacity to meet both the demand and reserve requirements needed by its grid.

Spot market

Mindanao’s situation is similar to that of the Visayas around three years ago when outages crippled the economies of Cebu, Bohol and other areas. The solution of the government was to establish a wholesale-electricity spot market with the same operations in Luzon to give investors and stakeholders the venue for electricity trading.

A strong opposition was mounted against the establishment of a Visayas power market on the ground that it would bring up rates to unprecedented levels. All the fears, however, were allayed as the Visayas now has a surplus of at least 400 MW with rates even lower than those under bilateral contracts.

From the Visayas’ experience, we saw the importance of having a stable power supply. Likewise, when the supply situation was very tight consumers in the Visayas had to contend with

Solar

Coal higher power rates from the use of embedded generation facilities that were more expensive to run and utilize than other conventional sources of power.

Interconnection

The advantage of Luzon and the Visayas is also its interconnectivity. Right now, we can easily dispatch power to and from Luzon and the Visayas grids if and when either grid needs more power. Unfortunately, we have yet to see the fruition of the interconnection of Mindanao to Luzon and the Visayas as strong opposition to it is still a hindrance to the sharing of power across the country.

This could have been advantageous to the people in Mindanao right now as it no longer needs to suffer one to three hours of power considering the excess capacity available from the Visayas and Luzon.

Today, Mindanao has an available capacity of only 1,280 MW while demand (excluding the reserve requirement) is higher by 20 MW. Power investors veer away from Mindanao knowing it will not be economical to go up against the government’s hydropower installed capacity of almost 900 MW of which only 65 percent can be considered dependable capacity.

Baptism of fire

Upon assumption of office in 2010, like a baptism of fire as the new energy secretary, we issued a department circular to address the power-supply issue in Mindanao. This circular enabled the dispatch of all available power supply to the grid in order to address the demand as there were power barges on the island that were not being contracted out.

At that time, before the directive was issued, 100 MW out of the available 200 MW was contracted by National Grid Corp. of the Philippines under an ancillary service provider agreement, while the 100 MW remained uncontracted.

The contracted capacity was, however, only available to run when there was a plant outage as a contingency reserve. That directive solved the power-supply problem in Mindanao at that time but that was just a quick-fix solution.

Baseload capacity

What Mindanao really needs is baseload capacity that can meet demand and attract additional generation capacity that will be available for contracting with the load customers (electric utilities as well as directly connected customers).

Since then, the Department of Energy (DOE) has been continuously looking for solutions to the Mindanao power situation. As soon as we assumed office, we gave realistic projections and warnings that Mindanao would experience a very challenging situation. Hence, we embarked on attracting investments and engaged in discussions with stakeholders for the dissemination of appropriate updated information to instill awareness of the power needs of Mindanao.

We strengthened assistance to address challenges that investors encountered in establishing new power facilities. A handful of them argued that demand would never be sufficient for the amount of investment and opposition they would get from the area.

Still, we pushed for new power plants in Mindanao which now resulted in additional 273 Mwof committed capacity by 2014 on top of the potential of 797 Mwof capacity from different power sources.

However, despite the contracts signed, a lot of Mindanaoans still refuse to accept other types of plants as a power source, especially power facilities run by private investors since they think it will make their power more expensive.

Thus, we issued another circular recently, two years after we issued the first circular, this time to urge distribution utilities, both public and private, to contract power from private power facilities.

In line with this, the DOE would like to negate statements that power prices in Mindanao would go up by as much as P14 per kilowatt hour (kwh) since this gives the wrong impression to the consumer.

Power pricing in Mindanao is determined by taking into account the volume and time these power sources are utilized. Right now, power in Mindanao is averaging P3 to P4 per kwh, still the lowest compared with those in Luzon and the Visayas. In the immediate term, the government is set for the transfer of power barges to Mindanao so these can be repaired and be ready for the region’s use. This is another stop-gap measure to address the current power needs of the Mindanaoans.

We were never remiss in saying that Mindanao needs baseload plants to bridge the supply gap. These baseload plants produce energy at a constant rate for a consistent capacity and period.

It is worthwhile to note that while any type of plant can provide the baseload power demand of an area, the seasonality of the resource needed to run hydropower plants does not make the existing generation mix in Mindanao (56 percent hydro) an ideal situation.

Dependent on hydro

This is very important to establish in Mindanao given that more than half of its power comes from hydropower plants. Preparations must be intensified as early as now as experts have mentioned that rainfall patterns in Mindanao have already changed.

When power supply is intermittent or irregular, we run the risk of having a power shortage. There are too many variables when we rely on a single power source and those variables need to be extrapolated and contingencies must be in place.

The DOE’S proposed solutions include the transfer of power barges, proper contracting of stakeholders for power supply from power utilities and the rehabilitation of the Agus and Pulangi hydropower complex.

Monthlong maintenance

Right now, the Pulangi hydro plant is undergoing a monthlong maintenance. The repair of the Agus 6 power plant is also underway with an approved budget of P2.6 billion. This will improve the plant’s capacity.

What we need is acknowledgement of the real problem that the situation in Mindanao is different a decade ago and that power will have to come from sustainable and reliable sources. We believe that the people in Mindanao should trust and support the plans being laid out by the government to make them effective.

Everything will rely on execution and that also requires concerted efforts from every stakeholder in order for these to produce results. We all need to work together to implement the solutions. (Jose Rene D. Almendras is the energy secretary.) THE GOVERNMENT and a big player in the power industry attempted to replay an old script. Fortunately, the people of Mindanao didn’t buy it.

The Mindanao power-supply issue that has grabbed media limelight and has spurred public discussions over the past few weeks, is nothing but a drama. It was the biggest box-office flop of the year.

When President Aquino attended the Mindanao Power Summit that was called to discuss solutions to the powersupply shortfall that caused rotating blackouts in some parts of the island, he declared: “The simple truth is you will have to pay more ... There are only two choices—pay a little more for energy, or live with the rotating brownouts.”

No, it wasn’t a story of “he came, he saw, he conquered.” Rather, it was a story of “the President came, declared a debatable truth, and got the ire of the people.” Then, the plot thickened.

Epira

The Electric Power Industry Reform Act ( Epira) is the problem behind the Mindanao power- supply shortfall. This law was designed for big business interests, not for public service. Before Epira was passed, National Power Corp. ( Napocor) was responsible for generating electricity and developing transmission lines.

But Epira removed this fundamental role of the state. What Epira did was to pave the way for private investors to come in and chart the course of generating electricity in our country. The matter of developing power supply and management has been left to the private sector, an oligopoly.

Shielded from risk

After more than 10 years under Epira, the government provided few big firms practically every incentive to shield them from major risks and allowed them to practice market abuse. These big corporate interests hardly contributed to increasing power-generation capacity.

The Department of Energy (DOE) simply surrendered its mandate to private initiative. Through cross-ownership of generation and distribution components of the industry and high-level rent-seeking practices, these elites managed to impose high electricity rates—now the highest in Asia—and extract superprofits at the expense of our consuming public, our industries and small distribution units like rural electric cooperatives.

Reasons

Since 2009, the supply shortage has been repeatedly felt in Mindanao every summer and yet, the DOE ignored the need to develop additional capacity for baseload and peaking plants. Why?

Instead of rehabilitating Agus and Pulangi hydroelectric power plants, they were allowed to deteriorate. These power plants were never harnessed to full capacity and developed further, and the main resource of these two great rivers, Lake Lanao, was not nurtured.

While DOE claims that it put up coal-fired power plants in anticipation of shortages, it takes three years before they become operational. These pro- jects cannot be an immediate solution to the problem. More importantly, they are not climate-friendly.

Napocor power barges are continually being privatized, leaving the government without reserve capacity to deploy in times of need.

Old scenario

To entice investors to come in, power players recreated an old scenario. It was timed when people were about to go on vacation leave before the Holy Week.

They conditioned the minds of the people that because of the dry season, power shortages were bound to happen. Rotational blackouts did appear, affecting mostly those in the western part of the island. Then, they presented a solution—additional but expensive electricity (P14 per kilowatt-hour) from privatized power barges.

Electric cooperatives on the island refused to purchase power from these private firms, stressing that electricity rates would surely shoot up at the expense of the consumers. More rotational blackouts occurred.

Coops blamed

DOE officials, in turn, blamed the cooperatives for the daily power interruptions across Mindanao.

Some legislators and proponents of Epira said the comparatively low generation cost in Mindanao was not a competitive price and therefore there was a need to increase its generation rates. Why would Mindanaoans agree to this argument?

In September 2010, the average production cost (excluding depreciation) of Agus-pulangi was only 21.34 centavos per kwh as compared to Iligan Diesel Power plant’s P7.791 per kwh and Power Barge 104’s P7.337 per kwh. In the same period, the total net operating revenue of the seven hydro-electric power plants of Agus and Pulangi reached P6.85 billion.

Solutions

To immediately address the so-called power crisis in Mindanao, government must upgrade the Agus and Pulangi hydrocomplexes, dredge silt and implement watershed reforestation and development projects to sustain water flow.

It also must change its attitude toward privatization and maintain the ownership of remaining generation assets. It must be transparent and provide the people with all declared generating capacity in Mindanao to guide them about the real status of the baseload requirements.

To spur economic development, the government must give utmost importance to subsidizing the electricity used by the poorest of the poor and to maintaining access to the Agus and Pulangi plants, sources of cheap and clean energy.

The crisis must be turned into an opportunity toward genuine development through a reinvigorated sense of ownership and commitment to pursue a just transition to sustainable energy development. ( Lucita Gonzales is the secretary general of the Freedom from Debt Coalition-western Mindanao chapter.)