The most peculiar thing about electric power is that it cannot be stored. The battery technology for storing large amounts of generated power is simply not there.
Once generated, electricity must be quickly dispatched to the transmission lines and delivered to consumers by the distribution utilities. If this does not happen, the electricity dissipates.
The generating plants operate around the clock. But consumer demand fluctuates through the day, peaking at around midday and dropping at night. We do not yet have the technology to apply variable pricing for electricity according to time of day in order to encourage consumers to use power when it is cheapest.
The only partial solution we have is at Caliraya Lake. During the day, water flow from the lake runs the hydro plant. A night, the excess power is used to pump water back up the lake.
Our power consumption rises sharply as the economy grows. But new generating plants are delayed.
Furthermore, about three-fourths of our total installed capacity come from plants that are 15 years old or older. The longer this profile persists, the more vulnerable we are to unscheduled shutdowns.
An easy solution, of course, is to overbuild generating capacity. But that will result in large volumes of unused capacity and push up power prices for end users. Even if the power produced is unsold, the cost of producing that power is imputed into the final costs charged consumers. Investors are reluctant to fund new generating plants unless it is certain the power they produce could be sold.
The electric power industry is subdivided into distinct segments. Each has its own utility economics and business calculations. Precise regulations are required to produce the best results for consumers.
Power plants look at the aggregate demand. But, in our case, demand fluctuates between the hot months and the cooler ones. If the reserve margins are thin, the whole economy is vulnerable to the costs of outages.
Electricity transmission is subject to entirely different business calculations. When the brownouts happened last week, there was surplus in the Visayas grid even as there was shortage in the Luzon grid. Investments in interlinking the two grids are delayed.
There are several cases where power from new plants is stranded because their links to the main transmission highways are delayed. Also, while the regulatory regime requires the transmission company to maintain firm ancillary power supply agreements to keep supply in the grid stable, the rules probably need to be more specific.
Some of the ancillary power supply contracted by the transmission company draw from the same plants that broke down last week. The only other source of ancillary power supply is the electricity spot market. When there is shortage, however, prices at the spot market spike. This leads to higher prices for consumers.
Power producers are asking government regulators to enforce tighter deadlines to link new plants to the main grid. They also want clearer rules on how much ancillary power supply arrangements the grid is required to maintain.
These are urgent action points. Historically, we suffer from power shortages from March to August. Given our thin reserves, the brownouts we saw last week could happen again, inflicting costs that add to those brought about by the pandemic.
Ample
Although part of the power-short Luzon grid, Meralco was able to minimize the impact of the brownouts on its customers.
There are several reasons for this.
One, 90 percent of the distribution utility’s power supply comes from bilateral contracts and power supply agreements – including those concluded with some of our newer plants. Only 10 percent of Meralco’s supply comes from the wholesale electricity spot market. This shields its customers from the price spikes.
Two, the distribution utility has put in place the Interruptible Load Program. Under this program, large establishments such as malls voluntarily switch on their standby generators to lessen demand on the grid.
Third, Meralco anticipated the tight supply situation during the hot months by contracting an additional supply of 220 to 260 megawatts from Masinloc Power Partners Co, Ltd. The supply contract still awaits approval by the DOE.
Fourth, the company identified areas crucial in the fight against the pandemic, such as those where cold storage facilities are located, to spare them from brownouts.
Nevertheless, Meralco customers were not fully spared from the Luzon-wide shortages. For this reason, the utility has joined calls for our energy authorities to speed up the construction of new power plants and enforce deadlines to connect new plants to the grid.
The company has likewise reiterated its call for the amendment of the law that unfairly charges consumers with feed-in tariffs. These tariffs do not only add to the costs of power, it also serves to deter new investments in base load power generation. The tariffs are meant to reduce the business risks of investors in renewable energy, even as renewables constitute only a tiny portion of our total energy supply.
During the congressional public hearing last April, DOE Secretary Al Cusi called for the removal of these feed-in tariffs. Several consumer groups, notably Laban Konsyumer Inc., echo the call.
But the tariffs have influential supporters in both the legislature and the Energy Regulatory Commission. They have made it more difficult for investors in base load power generation to advance their generating projects. This is the reason our energy reserves are thinning by the day.
We need a better framework to balance our urgent energy needs and the desire to increase renewable energy sources. Otherwise, we will endure more brownouts.