“Whatever that can go wrong will go wrong.”
— Murphy’s law.
After several power plants that experienced unplanned or forced shutdown went back online, a strong earthquake hit Central Luzon on April 22 and four power plants with combined dependable capacity of 932 MW were isolated, with the Luzon grid going back to yellow and red alerts last week.
A huge problem in the Philippines power sector is that many big power plants are old, above 20 years old, and require frequent or prolonged maintenance shutdowns or experience frequent unscheduled shutdowns (see table 1).
There were also four new plants (below 5 years old) that suffered unplanned outage: Pagbilao U3 by Team (420 MW), Limay U2 by San Miguel (150 MW), SLGPC U2 by DMCI (150 MW), and SLTEC U1 by Ayala (135 MW). And two new plants that experienced derating: Pagbilao U3 by Team (420 to 315 MW) and SLGPC U2 by DMCI (150 to 100 MW).
Now the good news: Six big coal power plants and one gas plant are expected to start commercial operation this year and next year (see table 2).
The Senate Committee on Energy held a public hearing about the Luzon grid last Friday, April 26. IEMOP presentation showed that electricity spot prices at WESM have been declining: P5,176/MWH in 2014 to P3,830 in 2015, P2,947 in 2016, P3,349 in 2017, P3,618 in 2018. That’s another good news.
And so private distribution utilities (DUs) and electric cooperatives would purchase their peak hours electricity demand from WESM and not from peaking power plants. There is also price control a.k.a. primary and secondary price caps at WESM.
One result is that no one would invest in peaking power plants. And when those unscheduled outages by old plants come, plus earthquake shaking big plants, WESM cannot produce extra power, nada.
The market-oriented reforms for efficiency (MORE) needed are to (1) encourage investment in new peaking plants aside from more baseload and mid-merit plants, and (2) revise upwards if not abolish price control and price cap at WESM. Let a peaking plant that has zero revenue for 10-11 months straight, yet has fixed operating costs, makes money on a few days in April-May, hot months with high prices. People will be willing to pay high prices for a few days in exchange for zero yellow-red alerts and they can do business regularly without fear of blackouts. This reform will also make the DUs rethink their contracting strategies to possibly include peaking power, for a more stable and reliable power supply.
Blackouts are messy, ugly and costly. The costs are several times higher than increased prices at WESM for few days and hours.
Bienvenido S. Oplas, Jr. is the president of Minimal Government Thinkers