Safeguard power sector stability and consumers

Dindo Manhit, President, Stratbase ADR Institute

Before the COVID-19 (coronavirus disease 2019) pandemic, the country’s grid system operator, National Grid Corporation of the Philippines (NGCP), reported a looming power shortage over the Luzon grid in the summer months of 2020. However, COVID-19 happened.

The lockdowns implemented to slow the spread of the virus sent severe shocks throughout the country’s economic sectors. As a result, the Department of Energy (DoE) later revealed that electricity consumption dropped by 30% in Luzon during the initial quarantine, effectively avoiding last year’s looming summer power shortage.

An unintentional effect of the deep economic slump brought about by the continuing quarantine is that it bought the country’s energy sector additional time to realign with the country’s shifting power demands.

However, while the anticipated shortages did not happen last year, the country’s energy security is even more critical as we must now save the country from economic collapse.

In terms of addressing the public health crisis, having a secure energy supply is essential for the implementation of the country’s vaccine plans. All inoculation venues must have power, and, most important, COVID-19 vaccines must be kept in specialized cold storage.

Moreover, to rebound from this deep economic slump, energy security must be assured. Critical infrastructures, businesses, and services must literally “keep the lights on,” and continue operating to deliver services to the public.

Now that the National Economic Development Authority (NEDA) and Metro Manila mayors have recommended the shift to a more relaxed modified general community quarantine (MGCQ) throughout the entire country, there will be increasing power demand as our economy moves towards full operation. Commercial and industrial areas such as malls, office buildings, and factories, will require uninterrupted power to ramp-up operations.

Compound this by the fact that we are now heavily reliant on digital technologies that need online connectivity. In the event of a major power outage, disruption of telecommunications and internet services, the already dire conditions of the people will further worsen. A stable energy sector is vital not only for e-commerce but also for distance learning, working from home, and the ongoing digitization of financial service institutions.

The country’s energy sector has taken steps to ensure that the National Capital Region, the country’s economic center, has sufficient power supply moving forward. This is crucial in this first quarter of the year, as the documented spike in household power consumption alone is expected to increase by up to 30%.

This calls attention to the recently concluded Competitive Selection Process (CSP) of Meralco wherein two subsidiary firms of conglomerate San Miguel Corp. (SMC) were awarded to supply 1,800 megawatts (MW) for a period of 20-years. The CSP is the mandatory bidding process for determining the lowest priced power supply from eligible power generation companies in compliance with the DoE and Energy Regulatory Commission (ERC) regulations. Given its size, this CSP bidding is critical to Meralco’s electricity consumers in the Luzon Grid.

According to published reports, Excellent Energy Resources, Inc., a natural gas-fired power plant, won 1,200 MW at P4.1462 per kilowatt hour (kWh) while the coal-fired power plant of Masinloc Power Partners Ltd. Co. was awarded 600 MW with its offer of P4.2605 per kWh. The Third-Party Bids and Awards Committee (TPBAC) said that this CSP was in full compliance with the approved Terms of Reference and all rules and regulations issued by the DoE. The next step will be for the winning bids to undergo post-qualification within seven days from the date of award.

Should any of the awarded bids fail in the post-qualification, two other offers submitted by Power Generation Corp., Atimonan One Energy, Inc. at P4.3321 per kWh, and GNPower Dinginin Ltd. Co. at P5.2500 per kWh were qualified as possible next best bids to be considered.

The first successful CSP conducted by Meralco in 2019 significantly lowered the average generation cost of previous years with total savings for consumers reported at P13.86 billion per year at a rate reduction of P0.41 per kWh.

Meralco has also reported that their rates are now at the lowest in three years, with their customers benefiting from a net rate reduction of P1.3870 per kWh, or a bill reduction of more than P277 for a household consuming 200 kWh owing to new power supply contracts following CSP rules.

It is indeed encouraging that the CSP has produced power supply agreements that have lowered the cost of electricity for consumers. This is a good example of how a well implemented regulation results in optimized benefits for all consumers.

We call on the DoE, the ERC, and Meralco to ensure the integrity of the CSP system. In as much as our country needs investments, we should only allow the right investors from the most credible companies who can fully comply with our bidding processes.

The stability of our power supply is essential to our country’s economic continuity and our ability to rebound from this health and economic crisis. We must always be vigilant against any attempt to undermine the country’s power security.

This article was originally published in BusinessWorld.

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