By Danessa Rivera (The
Philippine Star) | Updated July 28, 2017 - 12:00am
MANILA, Philippines - Securing
reliable power supply and access to electricity for every household has been
the core focus of Energy Secretary Alfonso Cusi and his team in the first year
of the Duterte administration.
Cusi was faced with a long list of
issues in the sector and the list grew longer as he took over the top post of
the Department of Energy (DOE).
He undertook a major reorganization,
but retained some key personnel in the agency, and launched a sector-wide
review on the sector.
It was a very challenging year for
the power sector but industry players are seeing some improvements with the
continued interest and investments in the country, citing that more policies
need to be implemented to propel the sector.
DOE
with a vision
Most important, the current DOE
administration has come out with a firm vision for the power sector, Sen.
Sherwin Gatchalian said.
He is referring to the agency’s new
target of adding 43,765 megawatt (MW) of power capacity by 2040 which runs
parallel to government’s long-term vision dubbed Ambisyon Natin 2040.
Until 2040, the country would need
25,265 MW of baseload power which can be sourced from coal, geothermal natural
gas, nuclear, biomass and hydropower; 14,500 MW of mid-merit power which can be
served by power sources such as natural gas; and 4,000 MW peaking power from
diesel oil, wind and solar resources.
“As a policymaker, it is a big
step that the DOE has formed a vision for the country. I think that one alone
is quite an achievement. In the past… it wasn’t very clear where the sector was
headed,” he said.
From an outsider’s point-of-view,
coming out with an energy mix is one of the biggest achievements the DOE made
in the first year of the Duterte administration.
“The 70, 20, 10 is a huge leap
forward for the DOE because even up to two years ago, the DOE couldn’t tell the
difference between peaking and baseload,” said Sarah Fairhurst of the Launtau
Group, a Hong Kong-based strategy and consulting firm.
Late last year, Energy Secretary
Alfonso Cusi announced the agency’s new energy mix comprising of 70 percent
baseload, 20 percent mid-merit and 10 percent peaking, instead of setting a cap
per technology.
Baseload power plants can provide
the minimum level of demand in a power grid over 24 hours while mid-merit plants
are those that can fill the gap between baseload and peaking plants which run
during peak hours.
Under such scenario, each technology
will compete with each other and therefore bring down the cost of electricity.
The decision is left with power developers on which technology should they
invest in as long as they meet the country’s power requirements.
However, Fairhurst cautioned that
this understanding should not be used a mandate for the power industry moving
forward to flourish since supply and demand changes over time.
“The 70-20-10 [mix] is a
really nice guideline and a way of thinking about power and is very helpful to
improve the analysis of the sector. But anything as mandatory is risky,” she
said.
‘EO
30 for faster permitting, approval process’
Major power players are one in
saying the sector remains strong with intensifying competition and growing
investments.
“First year, you’ve seen good growth
in the economy. There’s a lot of things in power that seem to be improving. I
think you’re seeing a lot of projects being built, you’re seeing a lot of
interest of people investing, so I think that’s very positive,” Aboitiz Power
Corp. chief executive officer Erramon Aboitiz said.
“We’ve had some problems, some
outages of some plants, earthquake and stuff like that, but that’s part of it.
That’s why it’s important enough power plants are built so that there are
reserves, so when you have things like these, there’s enough power,” he added.
They also highlighted the recently
signed Executive Order (EO) 30 which could spur more investments in the sector.
Signed by President Duterte last
June 30, the EO provides that government agencies with energy projects should
presume other agencies were able to act upon and issue their respective permits
within a 30-day period.
“There also seems to be strong
resolve to improve the investment climate. [The] signing of EO 30 is a
promising step,” AC Energy Holdings Inc. president and chief executive John Eric
Francia said.
The DOE has been pushing for a
policy that would place critical and priority energy projects of national
significance to undergo a speedier permitting process and avoid any more
delays.
This is necessary because longer
processing time for power projects could translate to higher electricity prices
for consumers, Cusi said.
This will be monitored by the Energy
Investment Coordinating Council (EICC), which will be led by the DOE. The
council will spearhead and coordinate national government efforts to harmonize,
integrate and streamline regulatory processes, requirements and forms relevant
to the development of energy investments in the country.
“If you look at all the delays
of power plants, it’s always things like permitting, right of way issues. I
think the intention of EO 30 was to address those, so I think that’s very
important,” Aboitiz said.
Retail
competition
But not everything was smooth
sailing for the sector. The renewable energy sector, in particular, seemed to
have slowed after the feed-in tariff (FIT) controversy and the lack of
clear-cut policies as guidance.
It took a lot of time before the
National Renewable Energy Board (NREB), the DOE’s advisory body tasked with the
effective implementation of renewable energy projects in the country, was able
to start resolving the issues besieging the sector.
There was the issue of too many
solar projects in Negros, which congested the transmission lines in the island
and prevented them from supplying the grid.
There was also the problem caused by
the race to FIT, which stranded over 200 MW of solar capacity because they were
not able to qualify under the 500-MW installation target.
“For the last year, all we
have been doing is trying to put out the fire and fix the problems such as the
Negros issue, stranded solar…So what this administration has done is resolve,
try to fix those problems, including delay in awarding of service contracts,”
NREB chairman Jose Layug said.
Cusi has announced that the FIT
scheme would not be expanded by another round because this only adds burden to
consumers already paying high electricity rates.
Instead, other policies will be
pushed such as the Renewable Portfolio Standards (RPS) and the Green Energy
Option to further develop the sector.
RPS is a market-based policy that
requires distribution utilities and other industry participants to source a
portion of their power supply from eligible renewable energy resources.
Meanwhile, the Green Energy Option
provides end-users the option to choose RE resources as their sources of
energy.
Layug said these policies are
underway, with the RPS submitted to the DOE and the Green Energy Option
undergoing final tweaking process for submission to the DOE.
Another major hurdle the sector is
the implementation of retail competition and open access (RCOA).
Intense retail competition in the
segment of consumers with at least one megawatt (MW) demand has resulted in
lower electricity prices to contestable customers, Francia said.
However, the DOE also needs to
implement enabling laws or implementing rules and regulations for the 750
kilowatt threshold under RCOA, which is still pending with the Supreme Court,
he said.
The Supreme Court issued a temporary
restraining order (TRO) last February on the DOE and Energy Regulatory
Commission (ERC) to implement the mandatory migration of large power consumers
to RCOA.
The mandatory migration to RCOA of
end-users with at least one-MW usage was scheduled last Feb. 26 while users
with at least 750-kw demand was supposed to migrate by June 26.
The TRO was sought by the Philippine
Chamber of Commerce and Industry, San Beda College Alabang Inc., Ateneo de
Manila University and Riverbanks Development Corp., which said the new rules
supposedly limit the accredited suppliers for big power consumers which must be
given a choice whether to stay with their current distribution utility
suppliers.
It has been 16 years since EPIRA was
enacted, and RCOA is one of the provisions that have yet to be implemented. It
aims to institutionalize competition in the supply of electricity, allowing the
electricity end-users to choose their suppliers based on low price and other
factors.
ERC
issue
But the most problematic agency in
the sector is the Energy Regulatory Commission.
The situation has caused uncertainty
in the ERC from performing its role as the country’s power regulator as well as
the sector’s future developments, Francia said.
The death last year of ERC director
Francisco Villa, Jr. has opened a Pandora’s box, as his suicide letters
revealed corruption activities in the agency.
Because of this, President Duterte
immediately ordered ERC officials to resign or else he will abolish the agency.
But the ERC officials did not need the President’s call.
ERC chairman Jose Vicente Salazar
went on a one-month break in December instead, but was then placed under a
90-day preventive suspension in May for deceiving Malacañang in filing his
travel authority and designating somebody without proper authority as OIC while
he was abroad.
Not only that, ERC commissioners
Alfredo Non, Josefina Magpale-Asirit, Gloria Yap-Taruc and Geronimo Sta. Ana
are also facing several graft charges and complaint for delaying mandatory
implementation of the competitive selection process (CSP) policy before the
Ombudsman.
They have also been slammed by
lawmakers for sitting on the approval of power supply agreements (PSAs) filed
by Manila Electric Co. (Meralco) and 90 other applications.
“I think, clearly, [we just
need] a continued well-functioning DOE and ERC. What’s necessary is that the
private sector and government sector move as a team, as one and the necessary
support, encouragement, incentives are provided by the public sector in a
timely action in order to enable us to ensure adequate, reliable, quality power
at the very competitive or least cost. That’s our commitment to our more than
six million customers,” Meralco president Oscar Reyes said.
Apart from internal issues, the ERC
also needs to fix how it regulates PSAs.
Fairhurst said it should follow what
the Electric Power Industry Reform Act of 2001 (EPIRA).
“The way that power sale agreements
are regulated here, it is my contention that it doesn’t comply with EPIRA
because EPIRA requires regulated prices to enter consumers take account of
actual costs and actual and economic costs. Economic costs include opportunity
costs,” she said.
“EPIRA does not say you must
regulate on a contract by contract basis. It says you must regulate retail
tariffs on actual and economic costs and the ERC does not do that because they
doesn’t understand what the economic cost means,” she added.
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