PCCI Energy Committee

Ensuring Energy Security, Reliable Power Supply and Affordable Power Rates
PCCI Energy Committee

1
Energy Security
International Energy Agency (IEA) Definition 1. Adequate 2. Affordable 3. Reliable European Commission Definition
Uninterrupted physical availability of energy products on the market, at a price which is affordable for all consumers (private and industrial)
Considering the above definition, one can say that the Philippine energy is NOT SECURED because we have been experiencing the cycle of power capacity deficiencies and high prices
2
Adequate and Reliable Power Supply

LOLE number of days that there will be power curtailment (Daily peak demand will exceed available generating capacity due to simultaneous scheduled and forced outages of power plants)
1 day/year Loss-of-Load Expectation to meet the optimal level of reliability of power supply in the Philippines [Viray & del Mundo,
UPNEC, 1991]
Source: R. del Mundo, et. al., Philippine Electric Power Industry Market and Policy Assessment, University of the Philippines National Engineering Center, 2011 3
1 day/yr LOLE = 28.7% Reserve
Luzon Grid
New Power Plant Capacity added courtesy of PPAs signed in 1990s
Generation deficiency started in 2010. WESM prices reflects this first stage of power crisis. There will be generation deficiency even with BacMan rehabilitation (2012) and GNPower new 600 MW Power plant in (2013) Worst situation in 2014 Malaya and Limay Oil Thermal
US & European criteria
Year 2011 2012 2013 2014
Capacity (MW 9583 9624 9657 9657
Demand (MW) 7581 7827 8085 8356
Reserve (%) 26.41% 22.96% 19.44% 15.57%
LOLE Plant cannot be retired (Days/Yr) (uneconomic dispatch) 5.07 12.08 5.27 Assuming Malaya Oil Thermal Plant 82.27 will not be operated

Minimum Requirement to maintain 1 day/year LOLE
Luzon Grid (in addition to 600MW Mariveles CTPP)

200 MW Peaking Plant (2013)
600 MW Baseload Plant (2015) 600 MW Baseload Plant (2015 for Malaya Retirement)
Visayas Grid
50 MW Intermediate Plant (2017) 100 MW Intermediate Plant (2018)
Mindanao Grid
600 MW Baseload Plant (ASAP)

100 MW Baseload Plant (2015) 100 MW Baseload Plant (2016) 100 MW Baseload Plant (2017)
Source: R. del Mundo, et. al., Philippine Electric Power Industry Market and Policy Assessment, University of the Philippines National Engineering Center, 2011 5
Visayas Grid had power crisis in 2009 after which Distribution Utilities signed power supply contracts with Gencos to build new power plant. Mindanao Grid is currently in crisis. Modular Diesel plants were recently procured by ECs for emergency power and power supply contracts signed to build new capacity (2015 2017). Luzon Grid will soon experience power crisis DUs signed contract only with existing plants DUs hesitated to sign power supply contract for new capacity because of threat of Open Access and Retail Competition [Concern on contracted capacity that will be stranded]
6
Energy Security under EPIRA
Power Generation is liberalized and competitive (deregulated) sector of the power industry
DOE Power Development Plan only provides outlook.
Private Generation Companies will decide what capacity, what type of plant, when and where to build power plants NPC no longer allowed to build new power plants or sign new PPA with IPPs
EPIRA in 11 Years: Plan did not convert to Plant on time Power Rates also went up instead of reduction
Lack of policy, regulation and implementation mechanism that will ensure new power plant capacity will be available on time to meet growing demand in the liberalized and competitive electricity market .
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Ownership of Installed Power Generating Capacity, 2011
SEM Calaca 5% AES 6% NPC Others 2% 8%
Luzon Grid
San Miguel 27% First Gen 20% Aboitiz 18%
PSALM 14%
Big 3 in Electric Power Industry control 65% of supply in Luzon

Also owners of Distribution Utilities
Aboitiz 18%
Others 3% PSALM 34%
Visayas Grid
Global 28% Salcon 15% PSALM 28%
Mindanao Grid
Others 2%
NPC 2% Aboitiz 6%
First Gen 12%
NPC 52%
Source: DOE

AVERAGE POWER RATE OF MERALCO
Source: MERALCO 9

US/kWh 30 Residential Commercial Industry High
25
20
15
10
0 Brunei Cambodia Indonesia Lao PDR Malaysia Myanmar Philippines Singapore Thailand Vietnam
Source: JICA (Sep. 2013)
Electricity Prices of SEA countries

10
Report of MERALCO Consultant on Subsidies: Other countries are using subsidy for strategic competitive advantage in the short term
11

25
Comparison of Tariff with Indonesias subsidies (2011)

20.8
20
US Cents/kWh
15
14.28
10
9.92
7.14 6.21
0 Thailand Indonesia with Subsidies Indonesia Without Subsidies Philippines Vietnam
Source: JICA (Sep. 2013) 12
Long-Term Power Supply Security Framework

Demand Forecast & PS Contracts
Qualified GENCO Bid
Lender Financing
Investor Capital
New Power Plant
Uncontracted Demand
Long-term PS Contract
Power Plant Project Financing
Power Plant Devt. & Construction
Baseload: 3-5 Years Peaking: 1-2 Years 166 Permits & Licenses
Long-Term Contract for New Capacity Short-Term Contract for Existing Capacity Competitive Electricity Market will only work if Supply deficiency is avoided
Additional Generating Capacity
13
Options for Energy Security

1. Aggregation of Electric Cooperatives
20 ECs in Mindanao bidded 330 MW of baseload. Signed long-term power supply contract at Php4.09/kWh requiring Genco to supply from new power generation capacity (405 MW in 2017) 12 ECs in Central Luzon bidded (October 18, 2013) 300 MW of uncontracted demand starting 2018. Genco is also required supply from new capacity. Lowest bid less than Php4.00/kWh
Lessons: Economy-of-scale, Competitive Selection Process, and Long-term contracting for new capacity!
14

2. Aggregation of Large Customers in Retail Competition and Open Access (RCOA)

Industry associations and Economic Zones to organize power supply aggregation similar to Electric Cooperatives
Minimum of 100 MW (preferably at least 300 MW) Long-term contract (at least 10 years). The longer the term, the lower the price.
Unbundled transmission and distribution wheeling fees are already in place. Hence, will require only metering, billing & settlement protocol to implement
15

3. Embedded Combined Heat and Power System in Economic Zones for Selfsufficiency and affordability Economics of CHP based on waste heat utilization (for heating/cooling) after gas turbines (for power). Efficiency at least 60% compared to 30% of conventional thermal plant Avoids transmission wheeling charges (~Php1.00/kWh)
Needs Liquified Natural Gas Terminals in Batangas and Bataan and Transmission pipelines to Metro Manila through the economic zones
16

4. Distribution Utilities Mandatory Bidding of Uncontracted demand of Captive Customers
Lesson from Latin America (Brazil and Chile) where spot market did not produce new capacity. Government designed auction of Long-Term Power Supply Contracts as mechanism. Mandatory for all DUs to submit forecast and auction uncontracted demand. Winning Gencos in auction will build power plants Limit Open Access for Large customers only (at least 1 MW demand) for 10 years. Possible Declaration of ERC of lower threshold and eventually full retail competition will continue to threaten DUs. This will also solve cross-ownership between generation and distribution under EPIRA!
17
Policy and Regulatory Measures

1.
DOE to mandate and oversee a regular international power generation supply bidding for DUs and large customers. ERC to use market-based rules as default in approving power supply contracts of DUs (for captive customers) with reserved price such as the prices Best New Entrant (BNE). Cost-based rules to be used only if price from competitive selection process did not achieve competitive results (i.e., higher than BNE).
2.
3.
Declare Power Projects and Fuel Exploration as National Major Strategy Programs (Shovel Ready). Streamline & shorten Permitting and Licensing
18

4.
Certify as urgent the following pending bills in Congress:
Uniform Franchise Tax on DUs in lieu of any and all taxes

Reduction of electricity rates through utilization of government share in the discovery, exploration, development, and/or production of indigenous resources
5.
Fastrack the establishment of ancillary reserve market and provide mechanism for transparent procurement and rules on determining optimal level required and dispatching. Fastrack Natural Gas program (e.g., accelerated PPP) and establish regulation (technical and price) to make LNG for power and industries available ASAP.
.
19
6.
7.

7.
DOE to tighten the power program in Mindanao that would assure adequate, reliable and reasonably priced power supply and total electrification for small and large utilities and consumers. ERC to simplify and make more transparent and understandable the Rate Setting Methodology for transmission and distribution utilities.
8.
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Ensuring Energy Security, Reliable Power Supply and Affordable Power Rates
PROF. ROWALDO Wali DEL MUNDO
National Engineering Center University of the Philippines Diliman, Quezon City 1101
Tel/Fax (02) 981-8500 Loc. 3014 / Fax (02) 926-1516 Email: rddelmundo@gmail.com Cellphone: (0929) 564-2772
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PCCI Energy Committee - TWG On Power

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Ensuring Energy Security, Reliable Power Supply and Affordable Power Rates

Adequate and Reliable Power Supply

1 day/yr LOLE = 28.7% Reserve

Adequate and Reliable Power Supply

US & European criteria

Year 2011 2012 2013 2014

Capacity (MW 9583 9624 9657 9657

Demand (MW) 7581 7827 8085 8356

Reserve (%) 26.41% 22.96% 19.44% 15.57%

Adequate and Reliable Power Supply

Luzon Grid (in addition to 600MW Mariveles CTPP)

600 MW Baseload Plant (ASAP)

Adequate and Reliable Power Supply

Energy Security under EPIRA

Energy Security under EPIRA

Big 3 in Electric Power Industry control 65% of supply in Luzon

Others 3% PSALM 34%

First Gen 12%

Energy Security under EPIRA

Energy Security under EPIRA

Source: JICA (Sep. 2013)

Electricity Prices of SEA countries

Energy Security under EPIRA

Energy Security under EPIRA

Comparison of Tariff with Indonesias subsidies (2011)

0 Thailand Indonesia with Subsidies Indonesia Without Subsidies Philippines Vietnam

Source: JICA (Sep. 2013) 12

Long-Term Power Supply Security Framework

Qualified GENCO Bid

New Power Plant

Power Plant Project Financing

Power Plant Devt. & Construction

Additional Generating Capacity

Options for Energy Security

Options for Energy Security

Options for Energy Security

Options for Energy Security

Policy and Regulatory Measures

Policy and Regulatory Measures

Certify as urgent the following pending bills in Congress:

Uniform Franchise Tax on DUs in lieu of any and all taxes

Policy and Regulatory Measures

PROF. ROWALDO Wali DEL MUNDO

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