The National Grid Corporation of the Philippines (NGCP) said the Energy Regulatory Commission (ERC) should be allowed to review the Department of Energy (DOE) policy requiring 100-percent firm contracting for ancillary services (AS).
“We are hoping that the ERC should be, at the very least, consulted and given the opportunity to review the policy and study its full impact on consumers,” NGCP said.
NGCP said it does not deny its obligation to secure sufficient AS. “This obligation is clear. We only ask that this be thoroughly studied, and the price impact be given primary consideration. With consumers already reeling from the economic effects of the pandemic, industry leaders should think before pushing a procurement strategy that can be, at best, described as anti-poor, and at worst, basis for charges of plunder.”
The grid operator warned last week last week that consumers stand to suffer from soaring electricity rates should the DOE policy prevail.
NGCP’s warning, it said, comes after the DOE’s insistence on the dispatch of ancillary services as a response to thin operating margins and possible load dropping in the Luzon grid at various points this year due to multiple power plants on extended outage.
Based on NGCP’s initial simulations, power rates can see an upsurge of P0.64 per kilowatt hour (kWh) for Luzon, P0.54 pesos per kWh for Visayas, and P1.39 pesos per kWh for Mindanao. For a household consuming 200kwh, this would mean an additional P128 in the electric bills of consumers from Luzon, P108 for those in Visayas, and P278 for those in Mindanao.
The power transmission operator has repeatedly clarified that ancillary services are not meant to replace baseload plants or for any long-term or continuous use. Instead, ancillary services are a stop-gap measure, dispatched only to stabilize and balance the grid in cases of power supply and demand imbalance.
In times when supply is sufficient, it is meant to run only long enough to bridge the gap between the loss of supply event, and the time that replacement power can be scheduled by the Independent Electricity Market Operator of the Philippines, Inc. (IEMOP), usually within the succeeding hour or two. It should not run for days, weeks, or months on end without violating the Electric Power Industry Reform Act and prevailing regulatory approvals.
Under the DOE’s strategy, however, NGCP is being compelled to procure all of its ancillary services requirements under 100-percent firm contract, wherein AS providers will be paid for 24/7 availability, regardless of actual or absent utilization. NGCP currently contracts both firm and non-firm arrangements for its ancillary services.
AS, it stressed, are services, not energy “reserves” that the grid can tap for extended periods of time should major power plants falter. Shifting from the current non-firm arrangements to a firm arrangement will not solve the current lack in supply, as they are taken from the same pool of power plant suppliers.
“Shifting to firm contracting is not the solution to the power supply shortage. We get our power to support AS from the same pool of generators, many of which went on unscheduled shutdowns, and whose current collective output is not enough to meet consumer demand. Signing a firm contract will not make a large capacity power plant magically appear with the stroke of a pen. The only thing that changes is the charging mechanism,” NGCP said.
Moreover, the grid operator notes that many of the power plants asking for firm contracts run on diesel fuel. “Contracting diesel-run power plants for AS, especially if the diesel plants are decrepit and inefficient, will not only be counterproductive, it will drastically hike electricity rates. AS costs are pass-on costs that NGCP does not profit from.”
Even as it is privately owned, NGCP comports its operations in full understanding that its transmission service is a public utility.
“Yes, we are a private company, but we are fully cognizant of the public utility nature of our business. And as a public utility, we have a duty to the consuming public to ensure that our operations, including our procurement strategies, provide the best value for their hard-earned money.”
NGCP is a Filipino-led, privately owned company in charge of operating, maintaining, and developing the country’s power grid, led by majority shareholders and Vice Chairman of the Board Henry Sy Jr. and Co-Vice Chairman Robert Coyiuto Jr.