No confirmed restoration date exists for the Mindanao units; Visayas is pinned to Sept. 11 for TVI Unit 1, though that date has already slipped once.
On the surface, the outages explain why red alerts (lack of supply) and yellow alerts (lack of reserves) have occurred almost daily in the Mindanao and Visayas grids. But these alerts carry deeper implications. They raise profound questions.
Capacity gap
First, why is there a lack of reserves? While one could question the reliability of these downed power plants, this question ultimately comes back to NGCP.
NGCP is responsible for ensuring sufficient reserves. The occurrence of red alerts indicates that available supply was insufficient to meet demand and required reserves.
The prevalence of these alerts points to one fact: a lack of new capacity. Presumably, NGCP should have procured all available reserves, but it may be facing the simple fact that there is simply not enough capacity.
So the question is: Where will this capacity come from?
This is a harder question because the answer will be multifaceted. In a previous column, I wrote that part of the problem is that investors in new generation are hesitant to invest because acquiring long-term power purchase contracts is complicated and risky.
To enter into a power purchase contract, a prospective investor must participate in a Competitive Selection Process (CSP) conducted by a utility or electric cooperative.
Assuming the investor is selected through the CSP, both the utility and the investor must undergo a regulatory process with the Energy Regulatory Commission (ERC), which will ultimately determine the reasonableness of the winning bid.
While I understand that the government wants the final say on the tariff, this raises costs for consumers.
Regulatory hurdles
Again, in a previous column, I argued that financializing the regulatory process actually raises costs for consumers and that the Capital Asset Pricing Model (CAPM) does not apply to the Philippine power sector.
Not only has the CAPM been debunked as a good measure of risk and, therefore, returns to investors, but its formula components are also unavailable for Philippine power companies.
For one, Philippine companies do not have a “beta” measured from the Philippine Stock Exchange (PSE).
The way forward
Another fundamental problem is the inefficiency of investment in the generation sector. The current process “cannibalizes” generating plants into small units being procured by more than 120 distribution utilities and electric cooperatives. A better approach would be to establish a central long-term forward market.
Alternatively, I have suggested a mechanism to address the lack of baseload capacities. I call this the Baseload Capacity Auction Program (BCAP).
Under this proposal, the DOE pre-develops sites and transmission rights-of-way; distribution utilities and retail suppliers jointly subscribe demand; ERC pre-vets pricing before bidding for fast confirmation. I will describe this proposal in more detail in my subsequent columns. —Ed: Corrie S. Narisma
A power industry expert with over 40 years in experience as chief executive officer in firms ranging from banking, power, and advisory services.
