INSIDER VIEW: Yellow and red alerts — the power grid conundrum

There are three underlying reasons that lead to the recent yellow and red alerts that are declared whenever electricity is in short supply.

First, there is no mechanism to tell the market when, where, and what to build. Second, if the generator sells to the power distribution utility, the "deregulated" generation market becomes wholly regulated. I have discussed these in a previous column.

A third reason is that the grid network cannot accommodate these capacities in time. I will tackle this third reason here.

The National Grid Corporation of the Philippines (NGCP), the country's transmission network operator, is currently swamped with the demand for interconnection from generators.

The backlog of pending requests is substantial, with some unable to be accommodated for a basic Grid Impact Study (GIS) for at least a year. It's crucial to note that this is not just a local issue, but a global one.

However, the Philippines' unique set of challenges further underscores the gravity of the situation.

Although the Department of Energy (DOE) approves the Transmission Development Plan (TDP) of NGCP, it is the Energy Regulatory Commission (ERC) that has the final say on the capital expenditure (capex) plan.

Second, as I mentioned in my previous article, the DOE cannot dictate to the generators where, when, and what power plant to build. It does have some control as it grants the service contracts for various renewable energy projects and endorses the GIS of prospective power plants to NGCP.

But, in practice, the private sector can decide where, when, and what to build.

The first conundrum is in preparing the TDP itself. As NGCP is independent, its philosophy or strategy may not necessarily be in sync with that of power generators. 

So, you have solar developers whose solar farms are tens of kilometers from the NGCP substations. The cost of connecting these solar farms to the grid far outweighs the benefits of injecting solar power into the system. The DOE then faces the challenge of bringing in renewable energy with no corresponding transmission assets.

The second conundrum is with the ERC.

NGCP must obtain the approval of the ERC before it can implement its capex plan. And as is the experience of those who must deal with the ERC, that will take years to resolve.

In NGCP's filing, it will have to justify why its capex plan is what it is. That capex plan must be in sync with the generators' plans. However, these plans are just that — plans. These plans will become definite only when the generators and utilities apply with the ERC.

The ERC issue is a more severe conundrum.

First, the ERC process is very long. By the time it approves the capex, it is no longer sufficient, or the costs have gone up.

More importantly, the delays caused by the ERC prejudice all players in the power sector: NGCP, power distributors, and generators cannot build the needed infrastructure, and consumers' interests are significantly compromised.

It is imperative that we address this ERC issue to mitigate the DOE's assessment of the power sector: a calamity.