Business World Online
Posted on January 14, 2014 11:35:09 PM
ONGOING power issues highlight the Philippines’ lack of the necessary infrastructure, New York-based consultancy GlobalSource Partners said, which could be a threat to economic growth prospects moving forward.
“All told, limited power reserves particularly in Luzon imply that power rates will remain volatile going forward,” GlobalSource’s local partners Romeo L. Bernardo and Marie-Christine Tang said in a report released on Monday.
“While the fluctuations will contribute to higher headline inflation every now and then, the overall impact may not be too worrisome considering that ‘electricity, gas and other fuels’ form about 7% of the CPI (consumer price index) basket,” the economists noted.
Inflation averaged 3% last year, just above the central bank’s 2.9% forecast and at the low end of the 3-5% target.
The 3-5% goal has been carried over for this year, while that for 2015 is a lower 2-4%.
They said that at first glance, a power rate hike announced last month by Manila Electric Co. (Meralco) -- at the moment on hold following a restraining order issued by the Supreme Court -- “is an extraordinary one-time event with an extremely low probability of recurrence.”
However, they said that upon closer examination the price spike “is symptomatic of the power grid’s thin reserve margins.”
“The Energy department’s supply-demand outlook for the Luzon grid (that includes Metro Manila) shows that as early as this year’s summer months, around May, power demand is expected to reach levels that are critically close to the grid’s available capacity with supply deficits, meaning outages, seemingly highly likely by the summer of 2016, even after considering the additional capacity from various committed projects.”
The outlook means that a forced shutdown of any major power plant or delays in the commissioning of committed power projects may cause a rise in electricity rates.
This was seen in the last two months of 2013 when maintenance work on the Malampaya natural gas facility from Nov. 11 to Dec. 10 was compounded by forced outages in several power plants. Another factor was the breakdown of the Leyte-Luzon power transmission link due to super-typhoon Yolanda.
The Malampaya shutdown forced plants supplying Meralco to use more expensive liquid fuel, which the distributor said was the main factor behind the need to raise rates charged end-users by P4.15/kilowatt-hour (kWh).
The increase -- a P3.44/kWh generation charge, P0.04/kWh transmission charge, P0.33/kWh for taxes and P0.34/kWh for other charges -- was approved by regulators. It was to be spread out over three months: P2.41/kWh for December, P1.21/kWh in February and P0.53 in March.
Meralco last week said continued supply issues would require a P4.56/kWh generation rate hike this month, to be deferred given the Supreme Court order.
“Even a fully contracted utility can end up with significant exposure to the spot market during times when their contracted plants are out due to maintenance, or when demand surges beyond projected levels,” the economists said.
Reducing this exposure through measures such as contracting standby capacity or hedging via short-term forward contracts require regulatory approval, they noted. Such policies, they said, have discouraged much-needed long-term investments in the power sector.
“[I]nfrastructure bottlenecks are a constraint to sustaining the economy’s rapid growth ... as demonstrated by events leading to the recent price spike, the risk of inadequate power especially during periods of high demand and low capacity or supply interruptions seems quite high,” Mr. Bernardo and Ms. Tang said.
A situation similar to what happened in the 1990s, when power supply constraints led to rotating blackouts, is possible in the near term, they warned, and could result in lost output and foregone investments.
“This may happen as early as this summer if peaking plants are not deployed due to lack of fuel arising from a prolonged payment interruption,” they said. source
“While the fluctuations will contribute to higher headline inflation every now and then, the overall impact may not be too worrisome considering that ‘electricity, gas and other fuels’ form about 7% of the CPI (consumer price index) basket,” the economists noted.
Inflation averaged 3% last year, just above the central bank’s 2.9% forecast and at the low end of the 3-5% target.
The 3-5% goal has been carried over for this year, while that for 2015 is a lower 2-4%.
They said that at first glance, a power rate hike announced last month by Manila Electric Co. (Meralco) -- at the moment on hold following a restraining order issued by the Supreme Court -- “is an extraordinary one-time event with an extremely low probability of recurrence.”
However, they said that upon closer examination the price spike “is symptomatic of the power grid’s thin reserve margins.”
“The Energy department’s supply-demand outlook for the Luzon grid (that includes Metro Manila) shows that as early as this year’s summer months, around May, power demand is expected to reach levels that are critically close to the grid’s available capacity with supply deficits, meaning outages, seemingly highly likely by the summer of 2016, even after considering the additional capacity from various committed projects.”
The outlook means that a forced shutdown of any major power plant or delays in the commissioning of committed power projects may cause a rise in electricity rates.
This was seen in the last two months of 2013 when maintenance work on the Malampaya natural gas facility from Nov. 11 to Dec. 10 was compounded by forced outages in several power plants. Another factor was the breakdown of the Leyte-Luzon power transmission link due to super-typhoon Yolanda.
The Malampaya shutdown forced plants supplying Meralco to use more expensive liquid fuel, which the distributor said was the main factor behind the need to raise rates charged end-users by P4.15/kilowatt-hour (kWh).
The increase -- a P3.44/kWh generation charge, P0.04/kWh transmission charge, P0.33/kWh for taxes and P0.34/kWh for other charges -- was approved by regulators. It was to be spread out over three months: P2.41/kWh for December, P1.21/kWh in February and P0.53 in March.
Meralco last week said continued supply issues would require a P4.56/kWh generation rate hike this month, to be deferred given the Supreme Court order.
“Even a fully contracted utility can end up with significant exposure to the spot market during times when their contracted plants are out due to maintenance, or when demand surges beyond projected levels,” the economists said.
Reducing this exposure through measures such as contracting standby capacity or hedging via short-term forward contracts require regulatory approval, they noted. Such policies, they said, have discouraged much-needed long-term investments in the power sector.
“[I]nfrastructure bottlenecks are a constraint to sustaining the economy’s rapid growth ... as demonstrated by events leading to the recent price spike, the risk of inadequate power especially during periods of high demand and low capacity or supply interruptions seems quite high,” Mr. Bernardo and Ms. Tang said.
A situation similar to what happened in the 1990s, when power supply constraints led to rotating blackouts, is possible in the near term, they warned, and could result in lost output and foregone investments.
“This may happen as early as this summer if peaking plants are not deployed due to lack of fuel arising from a prolonged payment interruption,” they said. source
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