Windfall earnings from spot market spikes go to a blessed few, while the public chafes under rising electric bills.
by Atty. Pedro Maniego Jr. | March 26, 2022 | Published by BusinessMirror | READ THE STORY HERE
POOR Filipinos. On top of their suffering from the pandemic, they have to cope with ever-increasing electricity prices.
Lower economic activity during the lockdowns resulted in lower power demand. But why did electricity costs remain high during this period? The higher rates are mainly traceable to higher spot market prices. Theoretically, available base load supply is more than enough to meet current demand. But the grid experienced a high number of yellow and red alerts, which generated spot market cost spikes. The culprit: extended and frequent power outages of several coal power plants as well as the derating of fossil gas power stations. While the lower output of fossil gas plants is unavoidable due to lower Malampaya gas supply, failure to resolve the long-term and frequent outages of coal plants is almost criminal given the steadily heavier burden borne by Filipino families and businesses.
Recently, the Energy Regulatory Commission (ERC) penalized power plants that exceeded prescribed maximum outage limits. However, the penalties amounting to mere millions of pesos on the culpable plants are dwarfed by the billions of pesos in spot market rate increases passed on to consumers. For example, a P1-billion increase in Wholesale Electricity Spot Market (WESM) transactions was registered in just two days of yellow and red alerts from May 31 to June 1, 2021. Economic losses were estimated at P116 million by the cochairman of the Joint Congressional Energy Committee, Senator Sherwin Gatchalian. Since the power system was plagued by prolonged thin power reserves, spot market prices exceeded P4.00 per kilowatt hour (kWh) 65 percent of the time in 2021. Every time reserve levels drop below minimum limits, end-users are subject to billions of additional charges in their electricity bills.
Once more, we must ask: who is profiting from the power outages?
Let’s look at the WESM data from May 31 to June 1 last year. The average spot market price in April 2021 was P4.42 per kWh, which was already on the high side. The spot market price more than doubled to P9.64 per kWh within the two-day period. Despite the imposition of secondary price cap to temper the rate, the estimated value of spot market transactions increased by around P1 billion. Notably, the main suppliers to WESM were coal power plants. They provided 97,891 megawatt hours (MWh), equivalent to 54 percent of supply to the spot market. How ironic and unjust that large coal plants, which were supposed to provide reliable base load power, ended up benefiting from the forced outages.
In 2021, many plants were on extended downtimes and exceeded their combined outage limits. The top five plants and their respective outage periods were: Calaca Unit 2 (coal) of SEM-Calaca Power Corporation with 304 days, GN Power Unit 1 (coal) of GNPower Mariveles Energy Center with 301 days, Sual Unit 2 (coal) of San Miguel Energy Corporation with 165 days, SLPGC Unit 1 (coal) of Southwest Luzon Power Generation Corporation with 124 days, and San Gabriel Plant (fossil gas) of First Natgas Power Corporation with 109 days. ERC’s allowable limits for the total planned and unplanned outages are 44.7 days for coal plants and 20.2 days of combined cycle fossil gas plants. The outages of these plants ranged from three to seven times of the maximum limits.
Which power plants benefited most from the higher WESM rates due to plant outages and thin power reserves? Last year, all of the top five WESM suppliers were coal power plants: Therma Luzon with 14.73 percent, Masinloc Power Partners with 13.91 percent, Pagbilao Energy with 13.08 percent, San Buenaventura with 9.07 percent, and Quezon Power with 6.36 percent share of spot trades. Aren’t coal plants supposed to provide reliable base load supply, instead of functioning as peaking plants that supply more than 50 percent of spot market demand?
Most power producers reported record profits in 2021, with one company registering an increase of 176 percent and another 270 percent over 2020. The better performance was attributed to improved market conditions and higher WESM sales. The Philippine electricity market was privatized under the Electric Power Industry Reform Act. However, the power sector is still dominated by a few large conglomerates. These large firms own power plants with bilateral contracts, while participating in WESM spot transactions at the same time. The regulators should investigate whether any of these dominant players who own or operate the coal plants with extended and frequent outages, benefited from the higher WESM rates. If these conglomerates contributed to the outages, the earnings of their affiliated companies from the spot market must be reviewed. It is but prudent to determine whether the outages caused by plants operated by subsidiaries of these large power firms had resulted in an inordinate increase in total portfolio revenues. Power sector regulators should look at the total generation capacities of these power producers and not just generation on a per plant basis. These conglomerates should first be directed to augment the lost power capacities caused by the forced outages of any of their power stations from the capacities of their other operating power plants. Only excess capacities of these firms after covering forced outages should be allowed to participate in WESM. This would prevent possible gaming of the spot market by power sector players.
Even prior to the invasion of Ukraine by Russia, fossil fuel prices had continually escalated since last year. Experts are predicting extraordinary price increases because of the conflict. Newcastle coal has already reached an all-time high of US$435 per metric ton, while Brent Crude was at US$118 per barrel. Higher electricity prices are inevitable. The Philippine Independent Power Producers warned that the high coal price will have a P9 per kWh effect on the electricity price. In a recent media briefing, Meralco Vice President Lawrence S. Fernandez announced that coal prices have gone more than US$440 per ton and that increasing oil prices will also affect Malampaya gas-repricing. This is what our reliance on baseload coal plants utilizing mainly imported fuels has brought us—unreliable power at overwhelming costs. Thus, our regulators should act with dispatch to ensure no entity would unduly profit from the twin crises of the pandemic and war. Our people must be protected and spared from rising electricity costs brought about by excessive power outages.
Atty. Pedro H. Maniego Jr. is the senior policy advisor of the Institute for Climate and Sustainable Cities and former chairman of the National Renewable Energy Board.