Yellow alerts: A sign of worse things to come?

September 15, 2016

Francesco Pangalangan, Stratbase Research Manager and ADRi Energy Fellow

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Image Source: The Philippine Star

Over the last few months, the Luzon Grid has plunged in and out of yellow and red alerts due to low power reserve levels. The grid’s barely-there reserves have put the entire island at constant risk of brownouts and, as a result, billions of pesos in potential economic losses from wasted man-hours.

Investments are also put in jeopardy. By some estimates, the power outage could be costing the country a loss of about P3.3 billion pesos in economic productivity per hour.

The most recent of these alerts took place just the other day, when the National Grid Corporation of the Philippines (NGCP) issued a “red alert” after a transmission line tripped, isolating three large power plants with a combined capacity of 1,030 MW.  A red alert was also issued a few months back, when a total of 6 power plants in Luzon were simultaneously shut down.

“Yellow alerts” were likewise issued by the NGCP several times during the months of July and August, again following the shutdown of several power plants.

A “red alert” status is issued by the NGCP when contingency reserves reach zero, while a “yellow alert” means power reserves are below the minimum level set by the regulator, often equivalent to the capacity of the largest running generating unit on the grid.

The grid’s insufficient power reserves have consistently left Luzon, home of the country’s national capital region, either on the brink of a shortage or saddled with rotational brownouts.  The situation has led not only to inconvenience among consumers but also to increased electricity cost and economic loss, not to mention recurring fears of collusion among power producers.

“The grid’s insufficient power reserves have consistently left Luzon, home of the country’s national capital region, either on the brink of a shortage or saddled with rotational brownouts.”

The situation is so critical that among the first acts of the newly elected Philippine Senate was to conduct an investigation into the power interruptions. In the lead-up to the inquiry, Senator Sherwin Gatchalian, Chairman of the Committee on Energy, said that the body would look into the possible price rigging by the power producers, citing the increase in electricity prices in the Wholesale Electricity Spot Market (WESM) to P20 per kilowatt hour during the shortage, an amount five times the average cost per kilowatt hour over the last month.

It was reminiscent of the record-high price hike in 2013, when consumers accused power generators of colluding with each other to manipulate electricity prices. This, after the Malampaya powered plants were on temporary shutdown and then nine other base load power plants suddenly announced unscheduled maintenance, forcing distribution utilities to purchase their supply from the Wholesale Electricity Spot Market (WESM), where prices had already increased to the market bid cap of P62.00/kWh.

Collusion was never proven, and the 2016 outage is still currently being investigated by the Energy Department. But the mere possibility that companies could be manipulating our electricity prices is enough cause for concern. Moreover, it stresses the dire need for more industry players and more supply in power generation.

“The mere possibility that companies could be manipulating our electricity prices is enough cause for concern.”

To increase competition in power generation, the Philippine government should make it easier for investors to participate in the industry. As things stand, potential investors are supposedly required to secure over a hundred permits from several government agencies, understandably discouraging many possible investors and consequently delaying the building projects already in the pipeline.  A mechanism to ensure power generators are up and running by their committed dates should also be put in place.

Faced with an energy crisis, the government should also look into indigenous and alternative sources of electricity. During the Senate’s probe into the Luzon Grid’s energy situation, Gatchalian said: “We need to redouble our efforts to explore and exploit new indigenous energy resources.” He cited the potential natural gas reserve in Reed Bank, which could be even larger than Malampaya’s.

“Faced with an energy crisis, the government should also look into indigenous and alternative sources of electricity.”

Energy Secretary Alfonso Cusi floated another option worth looking into: reviving the mothballed Bataan Nuclear Power Plant (BNPP). It is, after all, a viable and cheap way to generate power and has greater longevity than natural gas and coal.

As electrification and demand increase, the need for more generation will only grow. Barring unexpected outages, the current national energy supply stands at 17,925 MW, enough to provide for the 13,500 MW demand and contingent reserves. However, given the forecast demand and anticipated economic growth, the DOE wants to build up a 30,189 MW of reliable supply by 2030.

If the Philippines is to continue down its path of economic growth, the government must address its power situation head on. These yellow alerts are but harbingers of a crippling energy crisis that will shatter this government’s economic agenda.

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