Power generation companies called on the government to help make diesel plants more viable as these facilities helped avoid rotating power outages during red and yellow alerts last month.
Energy Regulatory Commission chairperson Monalisa Dimalanta admitted that diesel capacity helped ensure there were no rotating outages in the last two weeks of April.
“What was utilized, what saved the system, why we did not have a system wide-blackout, are our diesel plants,” Dimalanta said.
Industry players said diesel plants were “under-appreciated” but important as an interim solution.
Sources said diesel plants are important in helping the grid especially during the dry months when demand is high, and it helps address peak load when solar capacity is not available.
They said diesel plants are the most ideal solution, “at least until the next 5 to 8 years to support demand.”
Sources said, however, the economics of diesel plants are challenged because of market framework such as the secondary price cap.
“With the must offer rule, our diesel units in Luzon and Visayas [Mindanao is partially contracted for contingency and dispatchable reserves] are offered to WESM [Wholesale Electricity Spot Market]. When the secondary price cap is in effect, plants that have fuel costs higher than the cap can file for cost recovery,” Aboitiz Power Corp. president Emmanuel Rubio said.
“If there are opportunities to contract at acceptable terms, we would consider. Key is to review the secondary price cap rule to make the market more efficient and to allow for price signals in order for new capacities to be considered. If the cost recovery application is approved, and in most cases they are albeit delayed, at least you recover your cash costs but not capital recovery,” Rubio said.
Meanwhile, Ingrid Power, a joint venture between ACEN and Marubeni Corp., leases and operates one of the largest and newest diesel plants in the system—the 150-megawatt Ingrid high speed diesel plant in Pililla, Rizal. The units are leased from British-based company Aggreko.
“We decided in 2019 to bring in the plants given the impending shortage in the system especially during peak summer months. We had to pay for standby charges to keep the units until June 2024,” ACEN president and chief executive Eric Francia said.
Francia confirmed that if a plant is not viable, there is a risk of decreased capacity because of poor maintenance.
Meanwhile, Alsons Power, which owns 203 MW of diesel power plants that can respond to mandatory dispatch to fill supply gaps in the Mindanao Grid during the summer month, is also affected by pricing challenges.
“Our ability do so will be partially constrained when the fuel supply of our power plant in Zamboanga City runs out as we will be unable to adequately replenish our stock in that plant with the significant disparity in the WESM price cap and our fuel cost. Our power plant in Iligan City however with its contract already approved by the Energy Regulatory Commission will be able to sustain its operation throughout and continue providing power to the Grid,” he said.
Sources also said that because diesel is not the cheapest and not the cleanest, it would only fill in a certain capacity and would not cover/optimize its full capacity.
They said diesel has a double disadvantage—expensive and can’t sell its full capacity , which is what happened in the ancillary services contract.
“The diesel plants seem expensive because they only bid on partial capacity despite the investment. Therefore if a plant is partially contracted then you need to earn a lot on that partial contract to make it viable. The dilemma now is how can we make these diesel plants thrive during this interim period to help keep the lights on especially during summer, while gas is not there yet,” sources said.
“We have this recurring problem every summer that is painful for the industry and the consumers. Long-term solution is gas and battery storage, but in the meantime we need an interim solution. Diesel is there, but expensive. It can’t be contracted fully so it needs to charge high for that partial capacity to sustain the entire plant. After all no power is an expensive power,” they said.
Data from the Independent Electricity Market Operator of the Philippines showed that the utilization of the country’s oil-based plants increased to as high as 3.17 percent last month as more diesel plants contributed to the grid to address the lack of availability capacity which resulted in red and yellow alerts.
Oil-based power plants (both diesel and gasoline-fueled) accounted for only 0.79 percent of the generation mix during the week of April 8 to 14.
This went up to 3.17 percent during the week of April 15 to 21, where there were numerous red and yellows alerts and during the week of April 22 to 28 at 2.39 percent of the generation mix.