[Opinion] Panay Power Outlook – 2011

The commissioning and full operations of the 164-MW coal-fired power plant of Global Business Power Corporation (GBPC) in La Paz district, Iloilo City, is touted as the long awaited solution to Iloilo City’s severe rotational power interruptions and high electricity rates.

In his report entitled: “Iloilo has reduced brownouts with coal-fired power plant” (PDI 12/12/2010), Philippine Daily Inquirer Visayas reporter Nestor Burgos shared that the full operations of 82-megawatts Unit 1 of Panay Energy Development Corporation’s (PEDC) coal-fired power plant significantly reduced brownouts in Iloilo City.

So in the immediate five years, electricity consumers in the island of Panay and Guimaras are crossing their fingers that electricity supply will be stable and rates will be reduced as promised by GBPC and affirmed by Iloilo City’s local government and the national government’s energy department.

All the electric cooperatives (Ileco, Akelco, Anteco, Capelco) in Panay including Iloilo City’s lone private power distribution utility Panay Electric Company (PECO) has inked an electric power purchase agreement with GBPC’s PEDC. The quantity of electricity depends on its power demand forecast and the electricity demand requirement of its franchise areas.

Today, GBPC-PEDC has sealed supply contracts totaling to 113-MW. PECO will source 65-MW; Iloilo I Electric Cooperative (Ileco 1) – 4MW; Ileco 2 – 10MW; Ileco 3 – 7MW; Aklan Electric Cooperative (Akelco) – 12MW; Antique Electric Cooperative (Anteco) – 7MW and Capiz Electric Cooperative (Capelco) – 8MW.

Also lately, the Central Negros Electric Cooperative (Ceneco) likewise expressed interest to enter into a contract with PEDC while the remaining un-contracted capacity of the coal-plant is aimed for dispatch to the Wholesale Electricity Spot Market (WESM) in the Visayas.

While most electric cooperatives (ECs) have already secured provisional authority from the Energy Regulatory Commission (ERC), GBPC-PEDC and PECO is awaiting the issuance of its provisional authority on the joint petition it submitted to the regulatory body. Moreover, PECO has likewise submitted an application before the ERC seeking approval to amend its existing power purchase agreement with Panay Power Corporation (PPC) from 72-MW to 15-MW.

It will be challenging, however, for GBPC-PEDC to ensure that no power interruptions will occur today or in the span of its contract considering that it now occupies the central role in supplying the electricity requirement of Panay, Guimaras and Negros islands. This will undeniably put to the test the technical capability and integrity of the coal plant.

The GBPC does not only occupy a commanding position in Region VI with its PEDC, but also in Cebu with its Cebu Energy Development Corp. that likewise generate electricity from coal plant.

Having occupied a solid ground in power generation business in the Visayas, GBPC is now eyeing to invest for additional capacity or expand its current ventures. This means we are anticipating a “supplemental infusion” of another P22-billion investment from its mother company Metrobank. This impending investment initiative conveys a strong message that power generation business is a lucrative private sector undertaking. This will also further solidify Metrobank’s participation in the power generation business with new investment infusion way ahead of time it could recoup its investments from its current power generation projects.

It also puts GBPC in the position as a major player in private power generation business in the country with a good foot hold in the Visayas region. With the coal-fired power plants sealing the second position from geothermal in terms of source of electricity in the Visayas, it can be gleaned that the players that control these sources are likewise in the best position for control and monopoly. Only two elite families emerges – George S.K. Ty for coal and the Lopezes for geothermal.

Although it is safe to assume that electricity consumers will expect stable supply of electricity at cheap rates with the full operations of GBPC-PEDC’s coal-fired power plant, a lot of factors will enter into the overall picture in the next five years and beyond which will eventually result to the gradual increase of electricity rates.

In general, consumers in Iloilo City will enjoy a momentary electricity rates reduction with the full operations of the coal-fired plant. But electricity consumers under the service of electric cooperatives (ECs) will unfortunately expect rates increases as the contract year accelerates to maturity. This will be the direct impact of the termination of national government subsidy to ECs with the privatization of the generating assets of the National Power Corporation (Napocor) and fuel cost fluctuations.

In the long term, however, consumers of PECO and ECs will both confront rates increases. This can be illustrated by the 12-years experience of consumers under PECO after it decided to detach connections from the Visayas grid and source electricity from its own private power provider – PPC.

The trend is inevitable in spite of supply sufficiency even the 65-MW from coal-fired power plant as base load and an additional 15-MW diesel plant for peak load requirement and ancillary services.

Ideally, an optimal energy mix, like coal as base load and diesel for peak loads, will not only contribute to power generation efficiency; it is believed that it can bring down electricity rates to its actual cost. Yet aside from optimal energy mix, a mix of factors drives electricity rates up.

The contract. The onerous “take-or-pay” provision enshrined in the contract between the generator and the distributor of electricity drives electricity rates upward as the contract year goes by. In the case of Iloilo City, it is between PEDC-PPC and PECO. This provision ensures that all the generated electricity of PEDC and PPC will be bought by PECO whether it is fully utilized or not.

Although our power-demand-and-supply profile illustrates that we will not be utilizing 65-MW 24-hours a day, consumers will be charged of its full capacity. It is a pass on cost computed by the proponent in reference to its capital requirement and approved by the ERC. With this, the same concept holds true with the 15-MW of PPC. If the 15-MW will only operate during peak hours, which is only a selected hours of the day, consumers are still being charged of its full capacity.

The choice of plant and fuel. The proponent of the coal plant believes that the circulating fluidized bed combustions engine is the best technology for they claim that it is the most advanced, efficient and cost effective.

I believe on the reverse. The technology requires the use of high quality imported coal in order for it to optimize its effectivity and achieve its desired efficiency. With imported high quality coal fuel, the fuel cost alone will be subject to market price fluctuations similar to diesel and bunker fuel. This is the reason why automatic price adjustment mechanisms are integrated in the computation of fuel cost. This is being charged to consumers through the generation charge.

There are many more elements that play roles in its operation of the plant in order to reach efficiency levels. All these elements likewise entail additional cost which is borne by consumers.

Also through the generation charge, the P20-billion cost of capital in putting up the power plant is an amount which the proponent will recover from consumers in its 25-years contract.

The lack of domestic or government control on the fuel supply side will make these types of plants highly dependent to suppliers. And as a diminishing non-renewable resource, coal has become vulnerable to price dictates and manipulations of fuel suppliers.

Faulty power demand projections. This is an age old problem that serves to the advantage of power generation and distribution companies and to the disadvantage of consumers. All these years government’s energy agency has relied heavily on the power-supply-and-demand projections being submitted by these companies in plotting its national energy development plan.

If we mean bottom-to-top approach then there is really nothing wrong with this exercise of data gathering. The problem however lies in the data being submitted by power utilities which, more often than not, are inaccurate, unrealistic and at times inconsistent with the local and regional development plan.

While economic growth in Iloilo City was slow from 1998 to 2008, power demand forecasting was surprisingly moving towards an opposite direction. This illustrates the faulty power supply-and-demand projections of the period that resulted to more than 50 percent of unutilized power. Under-utilized supply and un-generated electricity by power provider in spite of the guarantee provided by the contract yet continuously paid for by the consumers.

Our local politicians have pinned their hopes that with the 165-MW coal plant present in its locality, power situation will be stable and electricity rates will go down. This is the same promise that was issued by PPC and PECO back in 1998. After 13-years, another player (PEDC) was brought to the picture to re-issue the same set of promises. The next five years is crucial and I’m quite certain that we will encounter the same circumstances like a déjà vu.

(Archived Opnion Article. This is edited and consolidated from a two-part series, entitled: “Panay Power Outlook” that appeared in Misreadings, The News Today, January 2011) 

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