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Yellow alerts again

The approaching summer months mean differently for the power sector. The expected higher demand translates to a looming power supply shortage, which is saying much considering the country’s already precarious energy situation.

This came a bit early this year—demand historically peaks from mid or late March to May—when the Luzon grid was put into yellow alert on Feb. 26. The island’s power capacity was at 9,971 MW while peak demand reaching 9,349 MW at 2 p.m. and 9,081 MW at 11 p.m. This means reserve level fell below the required 647 MW at one point, prompting the National Grid Corporation of the Philippines to declare a yellow alert.

What happened exactly? As is the case in previous years, it was a combination of many things going awry. Six power plants with a combined capacity of around 1,655 MW went on forced outage, per the Department of Energy. These include Pagbilao, GN, Makban, South Luzon Power Generation Corp. Unit, Malaya, and San Lorenzo. In addition, there were plants that were scheduled for maintenance: Angat, Calaca, Masinloc, Quezon Power Philippines, and South Luzon Thermal Energy Corp.

As if that’s not bad enough, there was natural gas restriction from the Malampaya gas project in Palawan which reduced the supply of the Ilijan gas plant from 1,200 MW to 857 MW and the San Gabriel plant from 420 MW to 260 MW. Two other plants were derated or were on limited generation.

In the past five years from 2012 to 2017, the Luzon grid experienced demand outpacing capacity—demand grew by around 2,900 MW while additional capacity was only 2,600 MW, according to Meralco. This doesn’t bode well considering that the DoE predicts a demand growth of 4.9 percent for the island based on the National Economic Development Authority’s GDP targets. This means the grid will need an additional of at least 24,385 MW in new capacity, not to mention sufficient transmission and distribution investments to ensure power supply adequacy and reliability.

Unfortunately, there is little indication that the country’s energy bureaucracy doesn’t quite appreciate the gravity of the situation. To cite, while at least 93 power supply agreements are currently pending and might be able to make up for the shortfall in the near term, the economic momentum—not the least due to the Duterte administration’s Build Build Build program—will likely make the situation precarious anew.

After the hullaballoo at the Energy Regulatory Commission was resolved, the body should perhaps regain a sense of urgency and find a way to resolve the current backlog of PSAs. In fact, the joint House Committees on Good Governance and Public Accountability and Energy recently urged the ERC to immediately resolve the  seven pending PSAs of Meralco via House Resolution No. 1741.

Aside from such woes in the capacity side, notoriously high rates—one of the highest in the region, if not the world—are also a perennial problem. A closer look at a typical consumer’s bill would reveal artificial charges that require further scrutiny by regulators. In 2010, for instance, average rates hovered at around P8.95/kwh. Fast forward to 2017, after inflation and peso-dollar exchange adjustments, electricity prices actually decreased to P7.93/kwh. Generation or supply charges and distribution charges—the two main components—in fact went down.

But consumers’ total amount due remains high due to a combination of so many charges: value added taxes in all bill components, including a reimposition of VAT on transmission on top of NGCP’s national franchise tax, excise tax on coal, Universal Charges, and Feed in Tariff Allowance to subsidize renewable energy projects. Two of the items are due to the recently imposed Tax Reform for Acceleration and Inclusion Law.

All these pile up and are passed on to the consumer, who ultimately bears the brunt of a policy hardly scrutinized. Considering the ripple effect of electricity rates, this might affect the envisioned benefits of the upcoming so-called golden age of infrastructure. This doesn’t even take into considering the macro dimension—if the Philippine economy is indeed poised for takeoff, it can ill afford any disruption. An energy crisis will be disastrous for all industries, with repercussions to millions of consumers. Furthermore, with the initial effects of TRAIN and inflation pushing commodity prices higher than expected, Filipinos will get pissed if more taxes further drain their already thin wallets.

If this isn’t enough motivation to immediately address the dire power situation signaled by the too-early yellow alert, we don’t know what else will.

Topics: Yellow alerts again

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