Energy insecurity

May you live in interesting times is supposedly an ancient Chinese curse. But for us, after two years of the pandemic and five and a half years of Duterte, we will welcome boring times.

But expect interesting times not just because of the elections, but because the failure in energy planning and execution will bring us brownouts. Expect power failures by summer, yes, just as we will be holding our elections. Or maybe that’s the idea.

The ADR Institute had a very informative webinar last week on the problems we face in the power sector. Thanks to Professor Dindo Manhit, I was able to monitor it through the link he sent me. The presentations confirmed my lingering fears.

Indeed, the webinar elicited wide interest from the private sector, with over 500 registered attendees actually signing in. It shows the extent of the business sector’s feeling of energy insecurity.

That insecurity is making many executives hesitate to invest in anticipation of a boom in consumer demand as COVID restrictions are lifted. Many are worried that investments may go to waste as power shortages cripple their ability to do business.

As it is, the gradual lifting of restrictions has already resulted in power demand surpassing pre-pandemic levels. In Luzon, increased demand has already caused brownouts during the summer months.

There are so many things to worry about. After the two units of 300 MW of Aboitiz Power that went on line this year, nothing more is expected soon. Yet, current plants are getting old and unreliable. We need at least 600 MW of additional power to cover demand growth per year in Luzon.

Then there is Malampaya. There are doubts the Duterte crony who got his hands on it has the financial and technical capability to keep the natural gas flowing flawlessly. Mismanagement may cause depletion to  come sooner rather than later.

The ownership limbo is delaying needed investments in new wells for the reservoir to continue producing. At least five years are needed to explore and develop new wells. There are reports, too, that experienced technical staff have been resigning.

Malampaya supplies the natural gas that fuels 33  percent of Meralco’s supply. When it went offline a few months ago, power rates went up because it had to be replaced with liquid fuel.

By June next year, the Luzon grid will lose the 1,200MW Ilijan plant, with the BOT contract expiring and a case involving P22 billion in contested fees may make its administrator reluctant to take it over. The Malampaya fuel supply contract for Ilijan is also expiring at the same time.

While there is a power supply surplus in Mindanao, the situation in Luzon is precarious. Luzon accounts for 70 percent of our GDP. Never mind trying to attract new foreign investments. High power rates and unreliable service will drive out even those who are already here.

In a sense, Duterte is to blame for the current sad state of the power industry. He named as energy secretary, a politician who has no real background in energy.

Actually, a politician could be a good energy secretary. Sen. Win Gatchalian, who chairs the Senate energy committee, now has a better grasp of the sector’s problems after those Senate hearings.

There were a number of things worrying the senator. We are 60 percent dependent on coal in Luzon and 70 percent in Mindanao. Almost all of the coal we use is imported from just one country, Indonesia.

To me, this dependence is shocking. During the time I worked with the late energy secretary Ronnie Velasco, he made sure to diversify supply sources as best as he could.

The energy department today has also allowed a significant slippage in the delivery of the Mindanao to Leyte transmission line. That would have allowed excess power in Mindanao to be used in Luzon, which needs it.

In Malampaya, the safest thing the energy secretary could have done was to allow Shell to extend its contract by 2019. Shell is already there and their people know the characteristics of the resource very well.

Pissing off Shell and Chevron to make them leave looks like a part of a Duterte administration plan to let a crony take over, even if that is against the national interest.

As for high power rates, it is supply and demand at work, among others. Government intervention and faulty regulations effectively restricted supply. The cap on the electricity supply market, for instance, discouraged investors who might have put up peaking plants.

Red tape, over 300 signatures and over five years to  get government permits to start setting up a power plant is  a big disincentive to increase supply.

Power rates will be continually affected by current increases in world market prices for fuels. That’s on top of our already high power rates compared with regional peers that makes our industries uncompetitive.

Then there is the propensity of the energy department to make issuances that look good on a press releases, but creates uncertainty in the industry. The moratorium on new coal plants to replace the ageing ones is a good example. As Sen. Gatchalian laments, the energy department has failed to provide him with a good transition plan.

Going renewable is well and good. But that also increases our dependence on the undependable weather in this era of climate change that produces long droughts and killer typhoons.

Also as pointed out by Ernie Pantangco, a consultant of the Senate energy committee, a 100 MW coal plant can generate power 85 percent of the time or an effective capacity of 85 MW. A 100 MW solar plant can generate 16 percent of the time so effective capacity is just 16 MW.

Of course, with climate change, hydro suffers from prolonged droughts plus all the problems with indigenous communities. Wind had never been that dependable as a power source. In Ilocos, the windmills are more of a tourist attraction, a favorite for selfies.

Hopefully, the next administration will name a credible energy secretary who knows the industry inside out and will always uphold the national interest. Between then and now, we must suffer.

Boo Chanco’s email address is [email protected]. Follow him on Twitter @boochanco