Power ‘oversupply’: Mindanao’s happy problem

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By Victor V. Saulon

When stakeholders in Mindanao talk about their power situation these days, among their concerns is electricity oversupply and their plan of action after overcoming years of power outages and thinning capacity reserves.

“I’m pleased to say that we’ve already started the ball rolling. We are fast tracking interconnection projects such as Visayas-Mindanao and for the small island provinces. This will allow us to make the most of Mindanao’s excess reserves,” said Energy Secretary Alfonso G. Cusi in his annual yearend plea for industry investors to come in.

In the private sector, making the most of excess power means pacing the completion of projects in time for an expected rise in demand. It also means looking beyond building new power plants, but refurbishing old ones, revisiting transmission plants, and finally pushing through with electricity retailing and trading.

“Now that power supply is no longer an issue, it can be said that Mindanao is truly open for business,” Antonio R. Moraza, Aboitiz Power Corp. president and chief operating officer, told participants in an investment conference in July.

The Aboitiz executive pressed on to suggest the rehabilitation of Mindanao’s Agus hydroelectric complex, which he said has a dependable capacity of around 400 megawatts (MW) or way below its 727 MW installed capacity.

Indeed, Mindanao’s power situation has become a lesser worry for the island. Based on figures from the Department of Energy (DoE), the island’s system peak demand hit 1,696 MW in 2017, which compared with an available capacity of 2,202 MW. Peak demand as a percentage of available supply gives a number that is way better than the country’s comparative figures of 13,684 MW and 15,393 MW, respectively.

The significant improvement is largely because of the new and big power plants that came online in the past two to three years, including a combined 825 MW from the coal-fired power plants of Sarangani Energy Corp., Therma South Inc., FDC Utilities, Inc. and San Miguel Consolidated Power Corp. Some of these plants have new units undergoing testing and commissioning.

DoE figures put 1,289-MW as committed capacity, or those that have secured project financing, and another 2,543-MW as “indicative” capacity that are in the initial stages of development.

Expectations of oversupply have allowed stakeholders to turn their attention to other energy-related projects.

In September 2017, the Energy Regulatory Commission (ERC) granted provisional authority to National Grid Corporation of the Philippines (NGCP) to implement the interconnection between the Visayas and Mindanao power grids for around P51.7 billion.

The project will link the power grids via Cebu in the Visayas and Dipolog City in Mindanao. The converter stations in Visayas and Mindanao will be located in Sibonga, Cebu and Aurora, Zamboanga del Sur, respectively.

ERC Commissioner Alfredo J. Non said the deficiency of supply in the Visayas may be supplied by importing power from Luzon or Mindanao.

“Hence, this Visayas-Mindanao Interconnection will help address the insufficient power supply and will also help optimize the available power supply in the Philippine Grid,” he added.

The project, under the NGCP’s helm, is estimated to be completed in 46 months or nearly four years and still within the term of the current political leadership, which ends in 2022. With an interconnected grid, the overall power supply security is expected to be improved as sharing of reserves will be possible.

The project also aims to support the operation of the electricity market by maximizing the use of available energy resources and additional generation capacities in Visayas and Mindanao which include the renewable energy resources, the ERC said.

Attention has also been focused lately on the Agus-Pulangi hydro complex, which should have been handed over to the private sector 10 years after Republic Act No. 9136 or the Electric Power Industry Reform Act of 2001 (EPIRA) was passed.

Pio J. Benavidez, president and chief executive officer of National Power Corp. (Napocor), said the Pulangi hydroelectric power plant is best sold to the private sector, but the buyer should commit to build the other units of what was meant to be one of Mindanao’s biggest energy sources.

Napocor owns the government entity that owns the 255-MW hydroelectric power plant in Maramag, Bukidnon.

Department of Finance (DoF) Secretary Carlos G. Dominguez III, who chairs the Napocor board, earlier gave his support to Mr. Benavidez’s proposal to rehabilitate the Agus hydro complex using funds from China ahead of its eventual privatization.

Mr. Benavidez said the Pulangi plant, which has three power generating units, does not have the ownership issues that hampered previous plans to privatize the Agus complex.

Both plants are required to be privatized under EPIRA, the law that restructured the energy sector.

Mr. Benavidez said he had advised Mr. Dominguez that the government sell Pulangi on the condition that the winning bidder should also commit to build the four other plants that were meant to be built along the Pulangi river based on its original feasibility study.

Commissioned in December 1985, Pulangi 4 was the only one built out of several run-of-river hydroelectric power plants envisioned along one of Mindanao’s major tributaries. The Agus hydro complex, in contrast, consists of six cascading power plants from the mouth of Lake Lanao in Marawi City down to the Maria Cristina Falls in Iligan City.

Mr. Benavidez said the sale could proceed ahead of Napocor’s four-year timeline for the Agus complex, which he said should be rehabilitated based on a schedule that upgrades first the oldest of the six plants.

“Cost per kilowatt (kW) is the basis for awarding the [Agus rehabilitation],” he said. “The lower the cost per kW wins.”

On Agus, Mr. Benavidez said what will be privatized is only the operations and maintenance. The government, through Napocor, remains the owner of the complex. He said this mode satisfies the provisions of EPIRA.

Also moving forward is the plan to put up a wholesale electricity spot market (WESM) in Mindanao. The Philippine Electricity Market Corp. (PEMC), the entity that operates the spot market for the interconnected Luzon and Visayas, is currently testing local operations for a centralized venue for buyers and sellers to trade electricity as a commodity where its prices are based on actual use, or demand, and availability, or supply.

“We are on test operations [in Mindanao], so PEMC is continuously looking at what’s going on and the status of the actual operations,” said Jose M. Layug, Jr., one of the members of the five-man transition committee set up in July after PEMC officials were asked to resign.

Mr. Layug said Mindanao has to enjoy the benefits of having an electricity spot market, including what he claims to be cheaper power costs as WESM trading classifies renewable energy sources such as solar and wind as priority and must be dispatched first. The dispatch hierarchy displaces power sourced from, say, the costlier diesel-fired plants.

“Mindanao is not able to enjoy the benefit of FiT [feed-in-tariff] savings because they are not yet connected. They are not part of the market. So we’re pushing hard to make sure that Mindanao WESM will be in place already, fully,” he said.

He placed those savings at P20 billion for Luzon and the Visayas, which he said translates to 8.6 centavos per kilowatt-hour.

“Consistent with what is mandated by EPIRA, we should have done this a long time ago, we’re working on having that structure where you have a truly independent market operator and PEMC will be your governing company, much like the structure of PSE (Philippine Stock Exchange) and SEC (Securities and Exchange Commission),” Mr. Layug said.