Sona promises: Has Aquino improved the energy sector?

DAWN FOR GREEN ENERGY. THE WINDMILLS in the wind farm of the Energy Development Corp. (EDC) in Burgos, Ilocos Norte, that is now generating up to 150 megawatts of clean electricity CONTRIBUTED PHOTO

When President Aquino delivers his final State of the Nation Address (Sona), those most concerned about electricity need only to refer to the Department of Energy’s (DOE) accomplishments.

The DOE officer in charge, Zenaida Y. Monsada, said 102 power generation projects had been commissioned and committed (work ongoing) under the administration, with a total capacity of 6,549.45 megawatts.

That is a big leap from the nine power projects (with total capacity of 1,338 MW) credited under the previous administration.

READ: First Gen raises P7.5B for power projects

Whether a supply of 6,549 MW is enough may not be as much a source of concern as whether the volume is sufficient to prevent outages in the future.

In Aquino’s 2014 Sona, he gave no indication that he would declare a state of power emergency to gain special powers to avert a supply shortage last summer. It turned out he did not have to.

The President said he ordered then Energy Secretary Carlos Jericho Petilla to coordinate with stakeholders to address the tightness in supply that raised the possibility of outages.

Petilla projected a reserve shortfall of about 200 MW in Luzon from March to May this year. He said a buffer of 400 MW to 500 MW was needed.

The President blamed the shortage on legacy power plants that may experience unexpected outages due to old age, regular maintenance shutdowns and delay in the construction of new ones. The El Niño phenomenon was also a threat to hydropower plants.

READ: Luzon, Visayas may face 800MW power shortage in 2015

Luzon did not experience widespread brownouts over the summer. While a number of tight-supply situations are expected to occur over the second half of this year, the DOE has assured that new power plants are opening.

Backup measure

There is also a back-up measure in the form of the interruptible load program (ILP) in which businesses with generator sets may generate power to ease demand from the grid in exchange for compensation.

So far, so good, it seems.

Petilla, who recently quit as energy secretary, has said he believes Luzon and the Visayas can survive the next tight spots in power supply, especially if committed power projects are delivered on time.

Processing time cut

The carrot-and-stick approach of the DOE has drawn more investors to the energy and power sectors, he said. He noted that the processing time for service contracts had been cut to 45 days (particularly for renewable energy, or RE) from two years.

Petilla said there had been a huge uptake in RE not only due to faster processing of applications but also due to the recent implementation of guidelines for incentives under the feed-in-tariff (FIT) scheme.

FIT incentives

Petilla said encouraging projects to qualify for FIT incentives was so successful that the installation capacity for solar had been expanded to 500 MW from 50 MW and there was a proposal for wind capacity expansion to 400 MW from 200 MW.

READ: FIT race heats up in solar, wind segments

Resolving the dispute between Korean firm Kepco and the state-owned Manila Waterworks and Sewerage System over the Angat hydroelectric complex is another accomplishment cited by the DOE. Kepco’s partnership with San Miguel Corp. was formalized.

Supply, demand update

Besides the backup capacity under the ILP and energy-saving information campaign, the DOE established regular updates on the grid’s supply/demand outlook, Petilla said.

“Now we can predict what kind of prices will be in the spot market and we can be on the lookout,” he said.

READ: WESM seeks P814M from customers

While addressing the power issue in Luzon, the DOE has improved the outlook and capacity of cooperatives by instituting discipline and making it known that nonpaying cooperatives will be disconnected from the grid, Petilla said.

Circulars

Before leaving his post, he issued several circulars, including one that impose penalties on power suppliers who fail to deliver promised power projects or energy supply. The circular is seen to benefit Mindanao, which is experiencing lingering power outages due to poor contracting by electricity cooperatives.

One circular tightens the implementation of open access by requiring big users to find alternative suppliers besides their current distribution utility. Another circular seeks to ensure a 30-percent share of RE in the country’s energy mix.

Bidding for supply contracts

A circular, which focuses on lowering electricity rates, requires competitive bidding for supply contracts of distribution utilities, such as Manila Electric Co. That means they will no longer “self-negotiate” the generation charges that are eventually passed on to consumers.

Another often volatile issue that the DOE deals with is oil price, but that is a nonissue given the oversupply in the global markets.

Unresolved issues

On Luzon’s electricity price shock in late 2013, Petilla said the DOE had done “everything that needed to be done.” It is now up to the Energy Regulatory Commission to resolve the issue and put it to rest, he said.

Where the DOE has not made headway given the hit taken by oil firms from soft demand since 2014, as well as geopolitical issues in the oil-and-gas-rich West Philippine Sea, is the bidding of new oil exploration sites. Few investors applied for such areas, raising concerns on new investments in the sector.

Ongoing is the privatization of the assets of National Power Corp. (Napocor) so it can pay off its debts and restore its financial health.

READ: ‘Consumers to shoulder P62-billion Napocor settlement’

In his first Sona in 2010, the President criticized the previous administration for making Napocor sell electricity at a loss to prevent increases in electricity rates from 2001 to 2004. He said this resulted in huge debts that the nation had to pay and inefficiencies that adversely affected customers.

Fast forward to April 2015. Power Sector Assets and Liabilities Management Corp. (PSALM) said privatization had helped trim down the financial obligations assumed from Napocor by 42 percent to P698.9 billion as of end-2014 from P1.2 trillion as of end-December 2000 (inclusive of interest).

PSALM, which is tasked with privatizing Napocor assets and managing its debts, is ticking off more items on its privatization list between now and 2017.

Auctions

PSALM is set to auction off contracts for the management of the bulk energy output from Leyte and output from the Mindanao coal-fired power plant.

The tender for the Independent Power Producer Administrator (IPPA) for the bulk energy of the Unified Leyte Geothermal Power Plants (ULGPP Bulk) is tentatively set on Aug. 12.

The tender for the IPPA of the 200-MW Mindanao coal-fired power plant is on Sept. 23.

The ULGPP is composed of the 125-MW Upper Mahiao, 232.5-MW Malitbog and

180-MW Mahanagdong power plants, and the 51-MW optimization plants. The ULGPP is covered by power purchase agreements between Napocor and Energy Development Corp.

Also up for auction this year are Power Barge 104 and the decommissioned Sucat Thermal Power Plant.

Next year, the IPPA contract for the Caliraya-Botocan-Kalayaan hydro-electric power power (HEPP) is up for bidding.

READ: NDC, PNOC Renewables sign to build P90M mini-hydropower plant in Nueva Ecija

Agus-Pulangi complex

In 2017, the Agus-Pulangi HEPP complex may be up for bidding, subject to consultation with Congress as stated in the Electric Power Industry Reform Act (Epira) of 2001.

This one is a tricky matter. The continuing deterioration of the Agus and Pulangi plants, along with questions on whether it would be privatized (and if so, how), is the subject of many groups’ opinions given that the hydro plants supply half of Mindanao’s power.

With a combined capacity of 982-MW installed capacity and the top supplier in Mindanao’s grid, it is too large to sell to a lone owner. That would result in a near-monopoly, which is against Epira.

For now, the hydropower complex is under Napocor’s care.

The remaining power generation assets that are not scheduled for auction are the Malaya Thermal Power Plant and the Casecnan Multipurpose Project.

According to PSALM, the privatization of Malaya, a must-run facility, is subject to instructions from the DOE.

The privatization of the Casecnan facility is under the Department of Finance’s review.

Missionary electrification

Napocor, meanwhile, is establishing new Small Power Utilities Group (Spug) areas on Calaguas Island in Camarines Norte province and Camandag Island in Western Samar province.

On top of managing 296 Spug plants across the archipelago, Napocor continues to identify and assess new areas—islands and sitios (settlements) that are not connected to the main grid for missionary electrification.

READ: P5.4B earmarked for NEA electrification program

The DOE’s qualified third party program allows and sets the criteria for private companies to participate in missionary electrification projects, Napocor said.