Yellow Pad

A previous piece identified one serious flaw in the DoE’s Philippine Energy Plan (PEP) 2016-2040: the DoE still assumes that baseload plants will retain their 70% share in the electricity mix until 2040.
This will not happen. Steadily dropping solar prices will make market-driven solar penetration inevitable. The rising solar share in the capacity mix will initially displace peaking and midrange flexible plants.
But as solar penetration goes beyond 25%, the baseload share will start to shrink.
With fewer baseloads to meet the nighttime demand, more flexible plants will be needed, to be started up late afternoon and shut down the next morning when the sun rises high enough. Baseload plants cannot play this role since they must run 24/7 to run efficiently. Thus, in the future, we will need more flexible plants, less baseloads.
The piece estimated that if the solar share in the peak demand reaches 50% by 2040, the baseload share in the capacity mix will shrink to only 43%.
By ignoring this trend, DoE overestimates the country’s 2040 baseload requirements by 63% (70 divided by 43, minus 1).
The DoE plan has three more flaws.
Together, these flaws raise the DoE’s baseload bloat to more than 100%.
If the DoE succeeds in implementing its plan, we will end up with huge stranded assets: coal and nuclear plants that cannot sell half their output. We will also be locked in to technologies that are toxic, expensive and risky.
This analysis of the three flaws is based on the demand-supply outlook (p.44) in the DoE’s PEP 2016-2040, which is on the DoE website.
Including reserves in baseload share calculations
Before Secretary Cusi took over the DoE, the baseload share was calculated as 70% of peak demand.
Under Cusi, the baseload share is now calculated as 70% of total supply. Since total supply equals peak demand plus reserves, the baseload share is now 70% of peak demand, plus 70% of reserves. This change does not make sense, because baseload plants must run 24/7 while reserves must be flexible plants that can start up or shut down quickly. Hence, baseload plants cannot used as reserves.
Before we can calculate how much bloat this flaw adds to the DoE’s baseload plan, we need to know the reserve requirement first.
Under Secretary Cusi, the DoE has raised the reserve requirement to a flat 25% of peak demand.
Before Cusi, it was 4% of peak demand for frequency regulation, plus backup for two of the largest generating units on the grid.
Let us reinterpret the new calculation method based on the old one: setting aside 4% for frequency regulation leaves 21% of peak demand for backup. The projected 2040 peak demand in Luzon is 29,852 MW; thus, the required Luzon backup capacity is 8,203 MW (21% of 29,852).
The 24 largest generating units in Luzon add up to 8,022 MW. Thus, Cusi’s new backup requirement means backing up more than 20 of the largest generating units on the Luzon grid, from only two under previous DoE administrations.
Does the DoE really anticipate more than 20 of the largest generating units in Luzon to fail unexpectedly at the same time? Increasing the reserve requirement to three or even five backups may be reasonable, but more than 20 is surely an overkill. If we take the national grid as a whole, the overkill will be even worse.
The 25% reserve requirement, plus the inclusion of 70% of reserves in the baseload share calculations, contributes another 17.5% (70% times 25%) to the baseload bloat.
If the baseload is expressed as a percentage of the peak load over 24 hours, the actual five-year average, based on 2012-2017 NGCP data, is: Luzon, 67.5%; Visayas, 63.8%; Mindanao, 64.1%.
If we assume that the actual average nationwide today is really 66%, then DoE’s use of 70% adds another 6.1% to the baseload bloat (70 divided by 66, minus 1).
We can now calculate the cumulative effect of these flaws on the DoE’s baseload plan: 63% by assuming that baseloads will retain their 70% share until 2040; 17.5% more by adding 70% of the bloated reserve requirement (which is 25%) to the baseload share; and 6.1% more because 70% is used instead of 66%.
Combining all these together (1.63 times 1.175 times 1.061, minus 1), we get a total overestimate of 103%. In other words, half of the DoE’s calculated baseload requirement is unnecessary.
The DoE plan will result in stranded assets of coal and nuclear plants by 2040, which the Filipino people may end up paying for.
A similar disaster happened during the Ramos presidency, when it contracted independent power producers (IPPs) for huge generation capacities with guaranteed payments. We ended up paying for electricity we did not need, and which the IPPs did not even generate.
To be fair, President Ramos could not have anticipated the financial meltdown in late 1990s that shrank economies and their energy demand.
In Cusi’s case, however, ignoring renewable industry trends and changing calculation methods are clearly intentional. The resulting baseload bloat favors the coal industry.
President Duterte should look into this matter ASAP, while there is still time to trim the DoE’s long project pipeline of toxic coal and, possibly, nuclear power plants.
Roberto Verzola studied electrical engineering and economics in UP. The German foundation Friedrich Ebert Stiftung published his book Crossing Over: The Energy Transition to Renewable Electricity (second edition, PDF is online) in 2017. He is currently president of the nonprofit Center for Renewable Energy and Sustainable Technology (CREST).