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FEF tells Aquino administration: No ‘quick fixes’ to resolve power shortage 

The Foundation for Economic Freedom (FEF) slammed the Aquino administration on on Wednesday for coming up with “quick fixes” to address the power shortage in the summer of next year, saying these are expensive and will only burden consumers for a long period.

“We caution the government against quick fixes with lasting cost consequences that some participants in the power industry, including government, have put forward,” FEF said.

For one, FEF pointed out that the proposed contracting of additional capacity for summer months over two years should be reviewed.

“A short-term problem requires a short-term solution, and any government contracting should be limited just to the period where they hope to guard against blackouts. If the problem is projected to persist, then other long-term solutions must be found,” it said.

FEF said it is premature for administration to consider acquiring “strategic” generation assets when it has not even completed the privatization process and still owns, among others, the CBK and Malaya power plants.

“The argument is made that outright purchase is not much more expensive than leasing for two to three years, because of saving demobilization costs, but government may recall how little they received when they sold assets like the Limay and Dingle plants,” FEF added.

The group also stressed the costly take-or-pay 20-year contracts for intermittent unreliable power from solar—an additional 450 megawatt (MW) and 300 MW from wind—at high feed-in tariff (FIT) rates of P9.68 per kilowatt- hour (kWh) and P8.53 per kWh.

“These are two-year-old rates in a segment of industry where costs change very quickly, being touted as incentives to solve the tight power supply instead of the blatant rent seeking they really are.

At these rates and volumes, the incremental cost to the public by way of a higher power bill amounts to almost P5 billion annually. This will add at least another seven centavos per kWh to the four centavos initially applied for to cover the cost differential.”

Solar and wind energy forms part of renewable-energy (RE) sources.  FEF alleged that the RE proponents are trying to take advantage of this temporary supply situation to lock in their 20-year windfalls.

The rate for wind energy is P8.53 per kWh, cheaper than diesel at  P13 per kWh diesel.

“What they have not said is you pay the P13 to run the diesels only when needed while you pay P8.53 whenever the wind produces electricity whether you need it or not, and there are no guarantees they will operate when you actually need them, so you will still need the diesels for those times,” FEF said.

These quick fixes, FEF said, will ultimately hurt not only the industrial sector but the household sector in particular.

Instead, FEF said the government should continue to implement the following initiatives already being implemented in a partnership between government and the private sectors to address the immediate shortages.

These include the Interruptible Load Program, lifting of the secondary-price cap,  a fuller utilization of government generation assets especially the Malaya power plant, better scheduling of maintenance of plants, demand side bidding in the Wholesale Electricity Spot Market (WESM), ancillary services procurement  and energy conservation.

The energy department has raised the alarm on an impending electric power shortage in the Luzon grid in the summer of 2015, projecting a reserve deficiency of  400 MW to 500 MW in the March to May months, translating into two or three hour rotating outage during that period.

The agency has proposed, and President Aquino has written a letter asking Congress to pass a “Joint Resolution authorizing the President to establish additional generating capacity.”

Additionally, the Department of Energy has proposed the additional contracting of 450 MW of solar power, and 200 MW to 300 MW of wind.

“In requesting for emergency power, the secretary of energy said the more grievous sin is not to do anything. We disagree. We think the greater sin is to do something costly but ineffective, or worse, harmful while leaving unattended fundamental long-term constraints,” FEF said.

 

 

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