Why power rates will continue to increase

Electricity consumers rejoiced when the Supreme Court issued a 60-day temporary restraining order ( TRO) on the record power rate increase of the Manila Electric Co. (Meralco) in its December bill.

In reality, there’s no cause for rejoicing.

A bigger problem is brewing in the country’s energy sector, given rising power demand and the lack of power plants.

While the public lauded the high court’s move, the TRO merely postponed the inevitable. At some point, Meralco will still have to pay the power generators for the power it bought and supplied to consumers for the November supply month. It’s only a matter of when.

Furthermore, the situ- ation may arise again in the summer months when demand is higher.

As it is, Meralco said that the January 2014 generation charge – which comprises 65 percent of the total electricity bill – has risen to P10.23 per kilowatt-hour although the power distributor is constrained to peg this month’s generation charge at just P5.67

per kwh in deference to the TRO issued by the Supreme Court last Dec. 23.

Meralco spokesperson Joe Zaldarriaga has said the power distributor is still waiting for guidelines from the Energy Regulatory Commission (ERC), the power regulator and the high court on how to collect the balance for the January generation charge.

To sum it up, Meralco still needs to collect – when the dispute on high power prices is resolved – a total of P7.99 per kwh broken down as follows: P3.44 per kwh representing the balance for the December 2013 generation charge of P9.10 per kwh and P4.56 per kwh representing the balance for the January 2014 generation charge of P10.23 per kwh.

The high court issued the TRO acting on the petition filed by militant groups after Meralco announced a record increase in generation charge of P3.44 per kwh last month.

The increase stemmed from higher power costs as a result of the month-long shutdown of the Malampaya gas field in offshore Palawan from Nov. 11 to Dec. 10. This prompted three power plants sourcing gas from Malampaya to utilize the more expensive liquid fuel.

The three plants sourcing power from Malampaya are the 1,200-megawatt Ilijan combined cycle natural gas plant owned by Kepco Philippines Corp. and the 1,000-MW Sta. Rita and 500-MW San Lorenzo natural gas facilities owned by First Gen Corp. of the Lopez group.

Unplanned outages by several other power plants also tightened supply, jacking up prices at the Wholesale Electricity Spot Market ( WESM), the country’s trading floor for electricity, where Meralco also sources its power requirements.

Contributing factors

Indeed, the problem goes beyond Meralco even as militant groups are underscoring the power distributor’s alleged corporate greed.

The problem, observers say, stems from a host of reasons including a flawed law, the Electric Power Industry Reform Act ( EPIRA) of 2001, which promised to bring down power rates and regulators that do not have enough teeth.

Energy Secretary Carlos Jericho Petilla recently said one solution is to have new power capacity installed by 2017, which means construction must start now.

“The problem really is that we need more generation capacity,” Petilla said in an interview.

He said that demand for power is on the rise on the back of a growing economy.

“It’s really challenging because of the high growth rate and the government cannot go into power generation,” Petilla said, referring to the provision in the EPIRA that bars the government from going into power generation.

Ernesto Pantangco, a senior officer of Lopez- led First Gen Corp., a power generation company and a former president of the Philippine Independent Power Producers Association, said in April last year that there is a four to five percent growth in energy demand annually.

He warned that without enough capacity, there would be shortage in 2015 and 2016.

“If we don’t have new builts coming in the Luzon area, let’s say we need to place about a thousand MW capacity every three years, we are headed toward a shortage again in 2015 and 2016,” he said in an interview with AsianPower.com

“The government doesn’t care where the power is coming, so long as we have sufficient supply generated from cost-effective sources,” he said.

Furthermore, he said that the Luzon grid would need something like 1,000 MW for every three years to meet the growing demand.

Permanent solution

Meralco, too, stressed the need for a more permanent solution to high power costs.

“The government should offer a permanent solution that would benefit both the electric power industry and the consumers. From 2001 to 2013, the peak demand of electricity increased by 2,659 MW while the increase in installed capacity contributed by additional power plant during the same period only amounted to 652 MW. This kind of situation results in scarcity in the supply of electricity. The increasing demand in the market without the corresponding increase in the supply will inevitably result in price increases,” it said.

Meralco added that the increase in generation charge is indeed but a symptom of and a signal for more basic underlying issues that need to be addressed.

“First, the Luzon grid needs the early completion and commissioning of new, highly efficient, highly reliable base load mid mire and/or peaking plants. Most of the country’s existing power plants were built prior to the turn of the century and even as they have been refurbished to the credit of the generation companies, their efficiency and reliability are challenged,” it said.

Meralco said from 2001 to 2013, the Luzon peak demand has grown by 2,659 megawatt or 47 percent from 5,646 MW to 8,300 MW. Yet, no new major base load plant has been constructed and added to the Luzon grid other than the coalfired plant of GN Power in Mariveles, Bataan, with a reported installed capacity of 652 MW and current dependable capacity of 495 MW. Accordingly, demand has outgrown new base load capacity addition by around 2,000 MW over this period.

“The Luzon grid peak demand registered on May 8, 2013 is 8,300 MW. The reported aggregate dependable capacity is only 11,466 MW. However, 19 percent of this dependable capacity is hydroelectric plants, large and small, which are highly subject to the vagaries of weather and rainfall patterns; 15 percent are more costly oil- fired plants; 24 percent are the gas-fired plants fueled by Malampaya gas which cannot continue to operate during Malampaya shutdown unless more costly liquid fuel is used,” Meralco said.

This renders the Luzon grid, including the Meralco franchise area, susceptible not only to the risks of increase and spiking generation charge but also to the risk of lack of power supply to meet the growing demand during peak hours.

“Second, the country needs to accelerate exploration, development and production of indigenous fuels for our power plants – natural gas and oil, geothermal and hydro, in addition to the development of cost competitive renewables,” Meralco said in its comments submitted to the Supreme Court in response to the TRO.

Committed capacity

According to the latest data from the Department of Energy (DOE) dated Dec. 13, the total committed capacity for Luzon from 2014 to 2016 is roughly 1,467.40 MW, comprising coal, natural gas, geothermal and biomass projects.

For coal, these are the 135- MW coal fired power plant of South Luzon Thermal Energy Corp. in Calaca, Batangas set for commissioning in May 2014 ( first phase); the 300-MW Southwest Luzon Power Generation Corp. set for commissioning in November 2015; the 135-MW South Luzon phase targeted for November 2015 (phase two) and the 82-MW Anda Power Corp. Circulating Fluidized Bed Coal Fired Power Plant of Anda Power Corp., Pampanga set for commissioning in March 2016.

For natural gas, there is the planned 600- MW Combined Cycle Gas Fired Power Plant of Energy World Corp, slated at 200 MW per

year from 2014 to 2016 and the 100-MW San Gabriel First Gen Corp. slated this year.

For geothermal projects, there is the 20-MW Maibarara Geothermal Power Project slated for commissioning in March 2014 and the 67.5-MW Phase 1 Pililla Wind Power Project by Alternergy Wind One Corp. in September 2014.

Biomass projects, meanwhile, include the 9.9- megawatt San Jose City Power Corp. in San Jose, Nueva Ecija and the 20-MW Isabela Biomass Energy Corp., both set for March 2015.

Whether or not these committed power plants would actually be online as scheduled remains to be seen. In the meantime, consumers are keeping their fingers crossed that there would be no power outages in the coming years and that electricity would not come at such a high price.

(Tobe continued)