THE country’s power supply remained stable for the past 12 months despite a crippled Energy Regulatory Commission (ERC) that left the agency “powerless in making decisions critical to the energy sector.”
“We were able to surpass all challenges. There were difficult times but we just kept on going,” commented Alfonso G. Cusi, secretary of the Department of Energy (DOE).
Industry players also view 2018 as challenging, given the country’s power sector regulatory crisis, but are grateful nonetheless that they all hurdled the rough patches.
“As expected, we had enough supply reserves. There was no major power outage incident, as far as I can recall. There was a delay in some of the power projects that were supposed to come online so that resulted a little bit elevated spot market rates,” AC Energy President Eric Francia noted.
The power arm of Ayala Corp. wants to achieve 5 gigawatts (GW) from a balanced mix of renewables and thermal assets by 2025. Francia said the company is currently “in a nice position, close to 50-50.”
Conglomerate San Miguel Corp. (SMC), which has 3,000 megawatts (MW) of power generating capacity, representing 22 percent of the Luzon grid and 17 percent of the national grid, is “grateful for the year that was.”
“It’s been a good 2018. While our country faced some challenges on the economic front, the Philippines remains strong. I believe there’s more than enough reason to be optimistic and bullish about the coming year,” said SMC President Ramon Ang in an interview.
Four ERC commissioners—Josefina Patricia Magpale-Asirit, Geronimo Sta. Ana, Alfredo Non and Gloria Victoria Yap-Taruc—were twice suspended by the Office of the Ombudsman within a seven-month period after they were administratively held liable for allegedly failing to fulfill their duty to protect the interests of consumers.
The suspension resulted in a backlog of crucial paperwork for power supply agreements (PSAs) and projects in an energy-starved country.
As a collegial body, the presence of at least three ERC commissioners is needed to constitute a quorum to enable the commission to adopt any ruling, order, resolution, or decision in the exercise of its quasi-judicial and quasi-legislative functions.
The ERC was able to overcome its problematic situation even as two of the four commissioners reached retirement age. The commission was complete again following the appointment of renewable-energy advocate Catherine Maceda and Davao-based lawyer Alexis Lumbatan. They replaced Non and Yap-Taruc.
With the regulatory body’s membership back at normal levels, ERC Chairman Agnes VST Devanadera said the commission is eager to work on eliminating its backlog of 480 cases, including pending PSAs.
“The important thing is that we have a quorum now. We have to double our efforts,” commented Devanadera.
In looking back on what he considers “a good 2018,” SMC president Ang said in an interview that SMC continues to leverage on the positive trends. And, despite a few challenges, its businesses were able to deliver strong results.
Alsons Power Group, the energy business of the Alcantara family, said the Duterte administration was able to create an environment where investments in power generation can actually take place and prosper.
Alsons Power Vice President for Project Development Joseph Nocos also noted the efforts exerted by the DOE and the ERC to foster renewable-energy projects. “The DOE has been helpful in creating a regulatory environment within which our projects can be expeditiously implemented. We did not experience any problems in securing our permits and as far our RE projects are concerned. This is a concrete way of attesting this administration’s commitment to RE development,” said Nocos.
Alsons Power, Mindanao’s first and most experienced independent power producer, currently operates four power facilities in the island with a total generating capacity of 363 MW, serving key cities such as Cagayan de Oro, Davao, Iligan, General Santos and Zamboanga.
It is also entering the RE sphere through run-of-river hydroelectric power projects with a total hydro capacity potential totaling more than 145 MW in Negros Occidental, Sarangani, Davao Oriental, Zamboanga del Norte, the two Agusan provinces and Surigao del Sur.
‘Key policies matter’
While 2018 was generally favorable for power industry players, AC Energy would like the ERC to immediately implement three policies aiming to lower electricity rates and foster healthy competition.
Top of my mind, said Francia, “is the CSP [competitive selection process]. I believe there are active hearings, at least, on the side of ERC. We hope that this is expedited.”
The DOE and the ERC are working to harmonize their respective CSP rules. While this has yet to be finalized, power firms are having a difficult time in contracting power capacity from suppliers. “I think it’s critical for the CSP rules to be clarified and implemented soon. It should be a top priority,” noted Francia.
The two other key policies are the RPS (Renewable Energy Portfolio Standards) and RCOA (Retail Competition and Open Access).
“On RE, the impact of RPS is really for 2021-2022. So, there is no rush to build RE given oversupply situation. Last, but not least to me, is RCOA. I am still hopeful the TRO [temporary restraining order] gets resolved soon. So, those are the three key policies that will matter a lot in this industry,” said Francia.
RCOA basically allows consumers to select from where and what kind of electricity to purchase. This is expected to drive down electricity costs and promote transparency in the energy sector. It has yet to be fully enforced, mainly on account of the TRO pending before the Supreme Court.
Meanwhile, RPS mandates generators, distribution utilities, and suppliers to source a specified portion of their electricity requirements from eligible RE resources.
Just like in 2018, energy officials expect adequate power supply in 2019, given an additional capacity of about 2,375 MW that will come from new power projects across the country.
“The DOE is confident in our projections for 2019, that we will be able to meet the demand considering the incoming capacities in Luzon, the Visayas and, of course, Mindanao,” said DOE Assistant Secretary Redentor Delola.
For Luzon, he said peak power demand is expected to reach 11,200 MW, from the 10,800 MW recorded in May last year. Delola said Luzon could experience tight supply because the 650-MW Malaya thermal plant in Rizal province is no longer designated as a must-run unit.
But with additional capacity coming from the first unit of GN Power Dinginin coal plant—around 300 MW, per Delola—and the 335-MW Masinloc plant, there will be enough supply for the expected growth. Delola said the 2019 forecast peak demand in Luzon is considered a “normal growth.”
The DOE official said, “If we will have problems next year, there won’t be a red alert, only yellow alert.”
A yellow alert notice means operating reserves have dropped below the required 647-MW contingency in Luzon, or equivalent to the largest unit in Luzon, the 647-MW coal-fired power plant in Sual, Pangasinan.
A red alert notice is issued by the grid operator when the power reserve left on the grid is regulating reserve or equivalent to 4 percent of the current demand. Power interruption may occur.
In the Visayas, Delola said peak demand is expected to hit 2,300 MW in 2019 from 2,100 MW this year.
The DOE expects Therma Visayas Inc.’s (TVI) 340-MW power plant in Toledo, Cebu, to become operational within the year, “plus HVDCC [High Voltage DC Coupled Charging].”
In Mindanao, Delola said peak demand could hit 2,200 MW. The department expects some 1,400 MW of excess power.
Luzon is the biggest power user, with a peak demand that is fivefold that of the Visayas and Mindanao.
Of the three major grids, “the biggest growth is happening in Mindanao. But they have a smaller base, so in terms of capacity, [the increase is bigger] in Luzon and in the Visayas,” explained Delola.
“It’s really [the] influx of economic development and we’re looking at the possible effects of the electrification program because if we will be able to serve more areas then consumption will increase, as well.”
Francia agreed with the DOE’s forecast, saying the power sector is expected to “maintain equilibrium” because of the new power plant projects coming in.
“We could experience tightness for summer for the first half of 2019, but then in the second half, once these plants come online, there will be additional capacity that could be worth two years of Luzon’s growth,” said Francia.
Ang expects a better 2019 for SMC. “We are hoping for an even better and more robust business environment for 2019. We look forward to continue doing our part to bring about progress for our nation, and serving our countrymen in many aspects of their lives.”
TRAIN 2’s challenge
There’s a challenge, meanwhile, from the second tranche of this administration’s tax reform program, to be implemented in 2019. It is expected to increase power rates by an estimated P0.1111 per kWh.
Another hike, expected at P0.1311 per kWh, is due in 2020.
The first phase of the Tax Reform for Acceleration and Inclusion law already raised electricity prices by P0.0904 per kWh.
The Independent Electricity Market Operator of the Philippines (Iemop), operator of the wholesale electricity spot market (WESM), said the numbers are based on the assumptions of Manila Electric Co. (Meralco) related to its sourcing power mix.
“This study was done when the TRAIN law was just new, [including] incremental tax that will be imposed under that law, and these are the figures based on certain assumptions. We made use of Meralco assumptions of their supply portfolio and their sourcing between bilateral and WESM,” said Iemop President Francis Saturnino Juan.
“So, these are the incremental amounts, but of course if the price of fuel itself will increase, then that will add to this incremental increase in 2019 and 2020 because of the staggered increase in the implementation of the law,” Juan said.
WESM, he pointed out, is an indication of the capacities needed to meet the country’s growing demand for power. “These projections were taken from DOE for Luzon, which has a 4.9 percent growth rate that is forecasted. If no additional capacity will be put online by 2022, you will see now that supply margin reducing and you can expect that there will be an increase in WESM prices,” he said.
At bottom, the DOE foresees adequate supply in 2019, but consumers and industry players nonetheless would rather not assume that everything will be fine. To them, the Year of the Pig may bring its own surprises for the country’s power sector, and they’d rather be ready for anything.