"The coming power deficit could be worse than what authorities are willing to admit."
"The coming power deficit could be worse than what authorities are willing to admit."
Is there a looming electricity shortage, what experts call an energy crisis?
It seems that way. The brownouts that swept the main island of Luzon on May 31 to June 2 are the precursor of things to come—power shortages equivalent to no electricity of four to eight hours a day. The coming power deficit could be worse than what authorities are willing to admit.
On May 31, 2021, there was a shortage of 1,752 megawatts (MW); on June 1– 2,068 MW, and on June 2, 2,068 MW. Four generators, with a combined capacity of 1,579 MW, were shut down. Another two, both old or derated plants, with total capacity of 489 WM, also went off line. Peak demand in those three days was supposed to be 11,841 MW. And supply was supposed to be 12,777. Instead, there was a shortage of between 2,068 MW (Department of Energy estimates) and 4,000 MW (private sector estimates).
The DOE blames the privately-owned and managed transmission monopoly, National Grid Corporation of the Philippines (NGCP) for the outages. NGCP has not complied with its mandate to purchase so-called ancillary services—technospeak for power reserves. For those three days, it seems NGCP purchased just 400 MW. But the shortage was between 2,000 and 4,000 MW. Usually, a 500- MW shortage could mean one hour of brownout.
NGCP probably thought buying ancillary services (power reserves) was unnecessary. There was supposed to be enough supply during those days (May 31, 2021-June 2, 2021).
Energy Secretary Alfonso G. Cusi himself says available power capacity during the period was 17,000 MW and peak demand was only 11,000 MW. “We have something like 6,000 MW excess supplies,” he told a Senate Energy Committee hearing on June 10, 2021.
The brownouts came at a particularly sensitive time for President Duterte. President Cory was derided as the Queen of Darkness for having brownouts as long as 18 hours during her presidency. If brownouts occur under his watch, does it mean Digong is the Prince of Darkness?
What DOE did not anticipate was two major power plants suddenly shut down last end-May and early June. Plus a number of power plants were de-rated or could not deliver their usual rated capacity. The effect was a shortage of 4,000 MW—or up to eight hours of brownouts.
Why did these two events happen on the same days and at the same time? The DOE is investigating why.
NGCP has been blamed for the power outages. It was supposed to anticipate how much power would flow into its transmission lines. If it thought there would not be enough, it must procure, on a firm basis, the expected shortage. It seems it bought only 400 megawatts extra power for the summer—the peak period of demand for electricity. This summer, demand for electricity was higher than it was in 2019, a pre-COVID or normal year.
NGCP admits it did not buy enough power reserves. Doing so costs money, a cost that is passed on to electricity consumers. NGCP estimates the added cost to ordinary households was P60 per month, good for two kilos of rice. Now, these are households with no income and ravaged by COVID. “We did not add to the burden,” claims an NGCP spokesman. NGCP makes its own rules.
Besides, explains NGCP, power supply is really short in Luzon, the result of failure to invest in new power plants over the years. To meet growing demand, an average of 1,600 MW of new generation plants must be on stream each year, or 24,000 MW in 15 years. Only half of the 24,000 MW were built, leaving a shortage of 12,000 MW.
DOE Secretary Cusi thinks NGCP intentionally did not buy extra electricity. It costs money. And money saved turns into profit.
NGCP is one of the most profitable companies in the Philippines. For every P100 of revenue, it makes P66 of pure profit—according to data submitted to the Senate Energy Committee. Also, its weighted average cost of capital –WACC (on which its pricing is based)—is the highest in the region, two to seven times the WACC of transmission companies in the rest of ASEAN.
In 2009, NGCP bought the government’s transmission monopoly business for P168 billion. It has recovered that cost because it has declared more than P209 billion in dividends. President Duterte cannot chastise the NGCP for excessive profiteering. NGCP is partly owned by a Chinese government-owned grid company. China is a good friend.
According to Cusi, it is not true that there is a power supply shortage now. There is plenty of excess electricity in Negros, Cebu, and Leyte—surplus power that should have been pumped into Luzon, had NGCP built the required transmission lines but did not. Transmission lines are like highways that bring vehicles from Point A to Point B.
NGCP has been delayed in building transmission lines, by one year to nine years. Of 319 transmission projects that should have been built during 2009 to 2019, NGCP completed on schedule, only 12 projects or 4 percent. About 23 percent were delayed. Another 26 percent were not completed at all.
Meantime, rotational brownouts have occurred. High-priced electricity (the second highest in the world) is cheaper than having no electricity.
Grid operator NGCP maintains its main business is to transmit electricity, just like a tollway company which maintains an expressway to let vehicles pass through. It is not its business to buy vehicles if there are not enough vehicles using the highway.
But the DOE counters that there are plenty of vehicles and that it is NGCP’s business to build more highways to accommodate more vehicles.
Senate Energy Committee Chair Sen. Sherwin Gatchalian explains the consequences of brownouts:
“No. (1), the vaccination rollout; No. (2), the work-from-homes; No.(3),education and a lot more. We are trying to revive our economy. We want businesses to thrive. But if there is no electricity, then how do we revive our economy? But as we stand right now, there seems to be no certainty.”
Senator Risa Hontiveros adds another complication: “We are going to have an election next year. We cannot afford brownouts.”
biznewsasia@gmail.com