Is the strong economic growth story catching up with energy supply? A series of yellow alerts in the Luzon grid starting at the end of August has drawn concern that the Philippines may be on the brink of a power shortage.
Manila Electric Co., the biggest electricity retailer, said the yellow alerts showed the “vulnerability” of the system, where further forced outages of generating plants could result in power shortage in Luzon.
“I think it just shows potential vulnerability of the entire system and you’re better with adequate capacity. If we cut it too thinly, and there are a bit delays, then we’re going into a situation as we move to 2019-2022. Approvals have been delayed by more than a year,” Meralco president Oscar Reyes said.
Yellow alerts is declared by the grid operator when the total reserves are less than the capacity of the largest plant online (which for the Luzon grid is 647 megawatts).
Meralco noted an increase in demand even during weekends when it has been traditionally lower.
Energy Department records showed the Philippines’ installed capacity reached 21,423 MW as of 2016, up 14 percent from 18,765 MW in 2015, while dependable capacity was placed at 19,097 MW.
Luzon’s peak demand, meanwhile, reached an all-time high of 9,726 megawatts on May 3, 2016 at 1:52 p.m., higher than the 2015 peak demand of 8,928 MW.
This year, peak demand breached 10,000 MW in Luzon, driven by growth in demand in all sectors, supporting the country’s 6.5-percent economic expansion in the second quarter.
“The yellow alerts are a reality. It shows vulnerability. The reason for yellow alerts are outages. If you’ve got the confluence of outages 3 years ago, it poses a risk to continued commercial industrial activity. With economic growth, there’s rising affluence, even for residential,” Reyes said.
Reyes said Meralco does not want to “raise an alarm,” but the yellow alerts is “really just a realization that you’re better off with adequate capacity because it takes time to build, its not instant noodles.”
Energy Undersecretary Felix William Fuentebella dismisses fears of an impending power shortage, stressing the country just needs more power reserves as demand grows.
Not enough
“The reserves are not enough. We get the reserves in the same pool of power capacity so we need more (power),” Energy Undersecretary Felix William Fuentebella said.
He said the need for more reserves was underscored during times when power plants go on forced outage simultaneously.
Lawrence Fernandez, Meralco vice president and head of utility economics, said a yellow alert means there are not enough reserves to cover the largest running generating unit at the time.
“In the three instances, the yellow alerts were triggered by forced outages of several large generation facilities. In turn, these (at times) triggered the automatic load dropping scheme of Meralco,” Fernandez said.
“This meant that certain areas in Meralco experienced momentary interruptions to help the grid recover from the generation outages,” he said.
Fernandez attributed the yellow alert occurrence to high demand even during regular weekends and the forced outage of coal-fired power plants.
“Our concern, while so far it did not lead to red alert, when power plants trip, there is automatic load dropping. Which means some of the customers lose electric service because of the tripping of some power plants,” he said.
Fernandez added that while more than 1,000 MW of power plants were commissioned in last year, “the rise in demand is soaking up new capacity.”
“We were not expecting the growth in demand that we experience this year coming off from 2016 where was El Nino and election year,” he said.
“In the Meralco area alone, electricity consumption had grown almost four percent to-date. This despite having registered a robust growth of 8.1 percent in 2016 due to the effects of El Nino and elections-related spending,” Fernandez said.
“As demand for power continues to increase, additional generation supply will be needed, both to meet new demand and to improve the reliability of the electric system,” he said.
Energy Secretary Alfonso Cusi said the Energy Department was closely monitoring the power supply situation, especially during times of low power reserves.
Cusi appealed to the public to to use energy wisely when supply is tight and assist in stabilizing energy situation.”
More capacity needed
Consumer group Citizen Watch has warned that Luzon faces tight power supply despite the completion of several generation plants, as robust economic activities led to higher demand especially during weekends.
Citizen Watch expressed concern over the series of ‘yellow alerts’ raised over Luzon in August to September despite the entry of new capacity.
Citizen Watch said Luzon experienced three yellow alerts following the forced outages of transmission and generation facilities, including two 600-MW plants, high-voltage transmission lines and Malaya 2, the grid’s security plant.
“This tightness in power supply means our grid is still vulnerable to power interruptions and outages,” CitizenWatch Philippines convenor Hannah Viola said.
Viola said there was a drastic need for more power plants in the country.
“In order to avert the possible unwanted consequences, Luzon is in dire need of new generation capacity which will provide reliable and stable power supply,” she said.
Viola said a reliable and affordable power supply was an important component in assuring the country’s economic growth.
She said more power plants were urgently needed considering the demands of Duterte administration’s ambitious ‘Build, Build, Build’ infrastructure agenda. “We’re a bit concerned about that. Ever since Aug 30, there was once a week yellow alert. Of the past two Saturdays, there were yellow alerts,” Fernandez said.
Grid operator National Grid Corp. of the Philippines placed the Luzon grid on yellow alert in three instances on Aug 30, Sept. 9 and Sept 16.
Ancillary reserves
Cusi and NGCP are in talks to ensure adequate ancillary services for the country’s power grid.
Cusi recently met with NGCP president Henry Sy Jr. “to make our electricity supply really reliable, sustainable.”
“We asked for an accounting of ancillary services…In the concession agreement, they (NGCP) should have regulating, contingency and dispatchable reserve,” Cusi said.
Ancillary services refers to those services that are necessary to support the transmission of capacity and energy from resources to loads while maintaining the reliable operation of the transmission system.
Cusi expressed concern over NGCP’s non-firm contracts with power generators for ancillary services.
“It’s like we have a spare tire without air so if the tire goes flat, we don’t have spare. What we are saying is, they are getting the reserve from the same bucket,” the energy chief said.
Cusi said the department is looking at where to get the ancillary services so as not to affect the existing pool of power supply.
“If the country lets say needs 1,000 MW, and then you are also getting your reserve there, if we lose that, where do we get the reserves?” he said.
Cusi lauded NGCP for being “very receptive” and has committed to work with the department on the need to resolve the issue on the ancillary reserves.
“Instead of giving reasons, we agreed to sit down and really resolve….There are scheduled meetings and we set the timeline up to the end of the month to really fix the issue of ancillary and how are we going to address that,” he said.
Cusi said NGCP have the option to build a power facility or engage a third party to put up ancillary services.
National Transmission Corp. president Melvin Matibag, for his part, said that while cross ownership of transmission and generation facilities are not allowed “for purposes of reserves they are allowed to build and address that reserve.”
TransCo as owner of the country’s transmission asset was also present in the meeting between NGCP and the department.
“We are going to see how we can have a real reserve and all of these things have to be quantitatively computed. We need computation, cost…with a purpose of achieving a stable supply without increasing the cost,” Cusi said.
“We want to make sure that what the people are paying for is getting the good service. We are paying for ancillary, so that we can have a steady supply of electricity,” he added.
NGCP is mandated under the law to ensure and maintain reliability, adequacy, security, stability and integrity nationwide of the electrical grid and to adequately serve generation companies, distribution utilities and suppliers requiring transmission service/and or ancillary services through the transmission system.
Sy has long been pushing to lower ancillary rates for NGCP grid customers.
“We are constantly looking for ways to lessen AS cost by engaging power generators who are technically capable and willing to provide AS at a rate acceptable to grid-users,” Sy said.
NGCP operates the country’s transmission network under its 25-year concession agreement signed in 2009. The company offered $3.95 billion for the TransCo concession when it was offered for privatization in 2007.
TransCo to build reserve plants?
Matibag said he is preparing a policy paper for submitted to Senate and Congress asking a revision of its charter to allow TransCo to build reserve capacity that will be needed by NGCP.
TransCo was created under the Electric Power Industry Reform Act of 2001. TransCo, as owner of the country’s transmission assets, oversees the operations of NGCP.
“TransCo to put up power plants for purpose of addressing ancillary reserves,” Matibag said.
Matibag said TransCo is looking at putting up 2,000 MW of capacity, in joint venture with partners, to be offered as reserves.
The target 2,000 MW capacity is equivalent to 20 percent to 25 percent of the country’s installed capacity.
The official said TransCo may also utilize the government’s existing unprivatized power plants, if needed.
“We will not compete with gencos. This is just for reserves of NGCP,” he said.
Matibag expects to submit his proposal to the Senate and Congress within the year but has raised the matter with Cusi.
“Before the end of the year, we will submit it to the Presidential Legislative Liaison Office,” he said.
Causer’s pay
The department announced in July that a circular is being prepared charging power generators when their plants go on forced outage.
“We will come out with a causer’s pay policy program on charging the cost of electricity to the generator that went on forced outage,” uentebella said earlier.
Fuentebella said the department investigate the reason for the forced outage of the power plants and make a determination regarding their culpability, whether the shutdown is intentional or due to negligence.
Fuentebella said costs incurred during forced outages of power plants are usually passed on to consumers.
He said the policy issuance will be in coordination with the Energy Regulatory Commission including the imposition of penalties.
“It’s a policy that we will look into with the ERC and we will have it tested with the players what will be the effect to them,” he said.
“The one that will pay is the one that caused the problem. Instead of charging to all of us, the only one who cause the problem will shoulder the cost,” Fuentebella said.
He said the company found liable for the forced shutdown may have to compensate participants of the interruptible load program who will be called to run their generator sets instead of drawing power from the grid.
At present, consumers of the affected distribution utility affected pay for running the ILP under the approved rules of the ERC.
Fuentebella said not only generation firms but also government-owned or government-controlled plants can be held liable. It can also include the transmission operator.
He said power plant or transmission shutdown caused by force majeure or acts of God will not be charged under the policy.
Fuentebella said the move will also ensure that power plants improve their reliability as most of the large power plants today are aging.
The department has also recently issued department circular 2017-05-008 providing for the policies and guidelines on the conduct of performance assessment and audit for all power generation, transmission and distribution systems and facilities.