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EnsuringEnergy Security, Reliable

Power Supply and Affordable Power Rates

PCCI Energy Committee

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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

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Source: R. del Mundo, et. al., “Philippine Electric Power Industry Market and Policy Assessment”, University of the Philippines – National Engineering Center, 2011

1 day/yr LOLE = 28.7% Reserve

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]

Adequate and Reliable Power Supply

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Luzon Grid

YearCapacity

(MWDemand

(MW)Reserve

(%)LOLE

(Days/Yr)2011 9583 7581 26.41% 5.072012 9624 7827 22.96% 12.082013 9657 8085 19.44% 5.272014 9657 8356 15.57% 82.27

• 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 Plant cannot be retired (uneconomic dispatch)

Assuming Malaya Oil Thermal Plant will not be operated

New Power Plant Capacity added courtesy of PPAs signed in 1990s

US & European criteria

Adequate and Reliable Power Supply

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Adequate and Reliable Power Supply

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)

Minimum Requirement to maintain 1 day/year LOLE

Source: R. del Mundo, et. al., “Philippine Electric Power Industry Market and Policy Assessment”, University of the Philippines – National Engineering Center, 2011

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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]

Adequate and Reliable Power Supply

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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 .

Energy Security under EPIRA

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Energy Security under EPIRA

San Miguel27%

Aboitiz18%

First Gen20%

PSALM14%

AES6%

SEM Calaca

5%

NPC2%

Others8%

Luzon Grid

Global28%

Salcon15%

First Gen12%

Aboitiz6%

NPC2%

PSALM34%

Others3%

Visayas Grid

Aboitiz18%

NPC52%

PSALM28%

Others2%

Mindanao Grid

Ownership of Installed Power Generating Capacity, 2011

Source: DOE

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

• Also owners of Distribution Utilities

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Source: MERALCO

Energy Security under EPIRA

AVERAGE POWER RATE OF MERALCO

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Brunei Cambodia Indonesia Lao PDR Malaysia Myanmar Philippines Singapore Thailand Vietnam0

5

10

15

20

25

30

Residential Commercial IndustryUS¢/kWh High

Electricity Prices of SEA countries

Energy Security under EPIRA

Source: JICA (Sep. 2013)

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Energy Security under EPIRA

Report of MERALCO Consultant on Subsidies:

Other countries are using subsidy for strategic competitive advantage in the short term

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Energy Security under EPIRA

Source: JICA (Sep. 2013)

Thai

land

Indo

nesia

with

Sub

sidie

s

Indo

nesia

With

out S

ubsid

ies

Philip

pine

s

Vietn

am0

5

10

15

20

25

9.927.14

14.28

20.8

6.21

US C

ents

/kW

h

Comparison of Tariff with Indonesia’s subsidies (2011)

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Long-Term Power Supply Security Framework

Uncontracted Demand

Long-term PS

Contract

Power Plant

Project Financing

Power Plant Dev’t. &

Construction

Qualified GENCO

Bid

Lender Financing

Investor Capital

Baseload: 3-5 Years Peaking: 1-2 Years

New Power PlantDemand

Forecast & PS Contracts

Additional Generating

Capacity

Competitive Electricity Market will only work if

Supply deficiency is avoided

• Long-Term Contract for New Capacity

• Short-Term Contract for Existing Capacity

166 Permits & Licenses

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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!

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Options for Energy Security

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

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Options for Energy Security3. Embedded Combined Heat and Power

System in Economic Zones for Self-sufficiency 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

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Options for Energy Security4. 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!

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Policy and Regulatory Measures1. DOE to mandate and oversee a regular international

power generation supply bidding for DUs and large customers.

2. 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).

3. Declare Power Projects and Fuel Exploration as National Major Strategy Programs (“Shovel Ready”). Streamline & shorten Permitting and Licensing

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Policy and Regulatory Measures

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.

6. Fastrack Natural Gas program (e.g., accelerated PPP) and establish regulation (technical and price) to make LNG for power and industries available ASAP.

7. .

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Policy and Regulatory Measures

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.

8. ERC to simplify and make more transparent and understandable the Rate Setting Methodology for transmission and distribution utilities.

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PROF. ROWALDO “Wali” DEL MUNDO

National Engineering CenterUniversity of the PhilippinesDiliman, Quezon City 1101

Tel/Fax (02) 981-8500 Loc. 3014 / Fax (02) 926-1516Email: rddelmundo@gmail.com

Cellphone: (0929) 564-2772

EnsuringEnergy Security, Reliable Power Supply and

Affordable Power Rates