INSIDER VIEW: When power outages hit home

One recent evening, I returned to our village that had been plunged into darkness. The entire neighborhood was without power.

Stepping out of the car, I realized that my driver — the one who knew how to operate the generator set — was also absent. It's ironic that despite my past role in a major power company, I was unable to operate our own genset.

Regulator's key role

Delgado says resolving the power industry's woes — where demand regularly comes close matching supply, and sometimes exceeds it — requires a deft touch by the country's energy regulators. But are they up to the task? 

This personal comical experience unfortunately underscores the severity of the situation.

Given my understanding of the industry, I anticipate this situation to persist.

However, there is a glimmer of hope on the horizon. San Miguel, Meralco, and Aboitiz are making strides in expanding the Ilijan power plant's capacity. This development could significantly alleviate the current power shortage. But, it may not be enough.

Some people have asked me: was the power shortage a result of the extremely high heat? It is plausible that all compressors were working hard to keep the air conditioning in homes and buildings running at full power.

Shortage of supply

But the same would be true during the rainy season. Because of the increased humidity, the air conditioning systems must also work hard to keep the temperature down.

The reality is that the power sector lacks capacity. I do not know precisely how much, but the red alerts are the official signs by National Grid Corporation of the Philippines that we need more capacity to meet demand. 

The challenge for energy planners lies in the disparity between the smooth curves of econometric models and the chunky nature of investments in the power sector.

The key is to invest in capacity ahead of demand. This strategy may result in a period of 'excess' capacity, which will eventually be absorbed by the rising demand, leading to a balanced system.

The question is, who will decide to invest? Who will pay for the "excess" capacity?

Right now, the practice of some utilities, especially in the subsidized areas, is to procure the capacity they will need for the next 20 years and make the current consumers pay for that excess capacity.

They can do this because the extra cost of that excess capacity is charged in the Universal Charge for Missionary Electrification utility subsidy. It seems unfair to those paying for the subsidy, but that is how it is today for some utilities.

Who will pay for it?

In the main grid, the question of who will pay for the initial excess capacity is a bit more complicated.

Theoretically, a merchant plant will sell its energy in the Wholesale Electricity Spot Market (WESM). The merchant plant takes the hit for that excess capacity.

If its timing is right, it will get WESM prices that will cover both the fuel cost of the plant and the desired capital recovery. Otherwise, it will lose money.

On the other hand, a non-merchant plant needs the regulator to resolve this issue. With the utility as an off-taker, it must present a power sales agreement to the regulator for approval.

The market or the regulator must eventually resolve this complex issue. But I do not see a real market. Is the regulator up to the task?