DOE pressed for ‘fuel policy mix’ with gas on power generation sector

Manila Bulletin
by Myrna Velasco
January 13, 2014

For gas to have its rightful place in the country’s energy mix, the Department of Energy (DOE) is being pressed to come up with a “fuel mix policy” for the power generation sector.

That had been part of the recommendations of the initial outcome of the Lantau Group’s study on the Philippine Natural Gas Master Plan that was consigned by the energy department.

The Hongkong-based consulting firm said “the DOE is clearly capable of drafting a fuel mix policy alone and without any other government department. It would not require any changes in law.”

Nevertheless, it qualified that even with the presence of a fuel mix policy, it would still not be enough because this could only act as “an enabler,” noting that such may just be necessary as a precursor action to other next steps, such as those to be taken via legislation.

The Lantau study acknowledged that gas plants may not be a competitive option to coal, if pass on price to end-users will be the main yardstick.

“There is concern that the ERC (Energy Regulatory Commission) will compare any gas fired power station to coal and deem it not cost effective,” the consulting firm has opined.

It has been proposed that gas plants will be “mid-merit” in the merit order of plants’ dispatch, while coal will serve as baseload facilities.

The study, however, emphasized that “there appears to be little understanding of the role of the different types of plants (baseload, mid-merit and peaking) in the market.”

The Lantau group went as far as proposing that the DOE shall “instruct the ERC that gas-fired power projects are a priority and PSAs (power supply agreements) from them should be approved.”

However, this might be coming as ‘intrusive move’ on the part of the energy department because the ERC was envisioned as an independent quasi-judicial body – meaning, independent from the DOE as well as from the players of the industry.

Given some uncertainties on supply contracting, the study noted that “it would be uneconomic for a large capacity of gas-fired projects to be built, so any instructions should not be of a blanket nature.”

It added that policy instructions “should be more precise so that the correct approvals target the economic use of gas, which in Luzon has been identified as mid-merit.”   source