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Vol. XXII, No. 204
Wednesday, May 20, 2009 | MANILA, PHILIPPINES
Today’s HeadlinesRepeat of power crisis inevitable?
FOCUSBY MOST ACCOUNTS, the Philippines will sooner or later have to contend with another power crisis, with demand for electricity expected to soon outpace supply as the economy continues to expand despite a global recession.
The Visayas, particularly Negros and Panay, is already experiencing blackouts. The situation in Luzon and Mindanao was supposed to reach a critical point this year and the next, respectively. Fortunately, the downturn has provided some breathing space, slowing demand and delaying the supply crunch.
Energy department estimates have showed electricity demand growing at an annual 4.4% from 2008 to 2017 — by 4.4 % in Luzon, 4.6 % in Visayas, and 4.3 % in Mindanao.
The projections placed the "critical period" for Luzon in 2010 when dependable power supply would be unable to meet demand at its peak as well as the required reserves. Energy officials have said this could be pushed to 2012 because of the economic downturn.
That study called for 4,100 megawatts (MW) of additional capacity within a 10-year period, in a combination of base load, midrange and peaking plants. Luzon would require an additional 3,000 MW; the Visayas, 500 MW; and Mindanao, 600 MW.
The need to build new power plants is widely acknowledged, but there are various roadblocks. For one, the private sector claims the government must tweak its policies to encourage investment. The global downturn is a double-edged sword, limiting the private sector’s fund-raising capacity.
Public opinion, meanwhile, is often against power plant proponents over environmental and other issues.
Power industry players are also demanding a climate conducive to business.
"[T]he government should keep a level playing field and apply the rules in a consistent manner if it is to attract and optimize investments in the power sector. Maintaining a climate of political and economic stability, while providing needed infrastructure support for big-ticket investments will also be a big help," TeaM Energy, operator of the 1,000-MW Sual and the 700-MW Pagbilao plants, said in an email.
Regulators should shape up, for instance reducing interference in pricing and speeding up the issuance of permits, an Aboitiz Power Corp. official said.
Jose Alejandro, Philippine Chamber of Commerce and Industry vice-president for energy, claimed the local environment has been hostile to investors.
"Somehow, the local environment has painted the distribution utilities and the generation companies vis-a-vis the independent power producers as consumers’ adversaries. Such locally acquired image is quite a liability," he said in an interview.
"All other factors, e.g. interest rates, inflation, peace and order, etc. are standard items that can be overcome for as long as there is a regime of transparency, a level playing field and fairness in the regulatory system," he added.
To expect the government to put up funding to address the looming power crisis is "perhaps just wishful thinking," Asian Institute of Petroleum Studies Inc. executive director Rafael S. Diaz, Jr. observed.
"They are quite busy trying to sell the remaining National Power Corp. (Napocor) plants and therefore only the private sector can invest on new or additional capacities. Unfortunately, with the current economic slowdown, such investments are not coming in fast enough," he said.
Privatization is supposed to arrest the decay of old power plants since new owners can invest for repairs and upgrades. But the government is having difficulties attracting buyers. Early this year the buyer of the Calaca plant in Batangas backed out after finding out that the facility was severely deteriorated, delaying privatization targets.
By law, the state must sell 70% of Napocor’s generating capacity. It currently stands at 57%.
To be fair, the competence of investors can also be a big factor.
"It all depends on the private sector’s ability to build power plants in time to match growing demand," Luis Miguel O. Aboitiz, senior vice-president of Aboitiz Power Corp., said in an e-mail.
"It is important to note that economic cycles are up and down. When growth does return, a tightening power market will occur if no new capacity is built," Aboitiz Power First Vice-President Iker M. Aboitiz said in another e-mail.
The project cycle of a new plant is approximately three years, so any new capacity built today would serve incremental demand three years from now. By then, Mr. Aboitiz said the economic situation may have reversed.
Mr. Diaz noted that a number of baseload plants, or those that cover minimum demand, are already operating with "very low efficiency."
"For example, Ambuklao Hydroelectric has been on zero production while Binga Hydroelectric is operating with very low efficiency," he said.
The 175-megawatt Ambuklao-Binga facility is owned by SN Aboitiz Power Hydro Inc.
Mr. Alejandro said the government must impose a strict and regulated schedule in upgrading capacities so that the system can get an additional 15% to 20% within the next 16 to 24 months.
"Funding would be easier because project viability would be easy to justify and document," he said.
Some investors, meanwhile, are still busy at their drawing boards.
"We are presently studying the possibility of future expansion programs for the Sual and Pagbilao plants. However, nothing is definite at the moment," TeaM Energy said.
The government is pushing renewable energy projects as part of measures to avert a power shortage. Perks such as income tax holidays are being dangled. In February, the Energy department said around $25 billion worth of renewable energy investments are expected over the next two years. Investments could rise to $80 billion in ten years.
The Energy department’s medium-term Renewable Energy Policy Framework aims to develop more than 4,000 MW of additional renewable energy capacity.
But department officials themselves admit that renewable energy won’t be sufficient to meet demand, at least for now, and what’s needed are conventional power plants running on coal to meet just baseload demand.
The Energy department has proposed the immediate revival of the old 600-MW Sucat Plant in ParaƱaque. For the long term, Energy Secretary Angelo T. Reyes wants nuclear power harnessed.
The only new power plants going up include the proposed 200-MW coal plant in Sarangani of Conal Holdings Co., a $450-million joint venture between the Alcantaras and a Thai investor; and the 42.5-MW Sibulan hydroelectric power project in Davao del Sur worth P5 billion. The Conal project is being hounded by critics.
Cebu Energy Development Corp., a consortium of Global Business Power Corp., Formosa Heavy Industries and Abovant Holdings (a joint venture of Aboitiz Power and Vivant Corp.)., is building a 246-MW coal facility in Toledo, Cebu. The first of the three 82-MW coal plants will be completed in March 2010. The second and third units will be onstream in June and September 2010.
Asian Institute of Management power expert Fernando Y. Roxas cautioned that the Philippines’ future requirements were "guesswork" for now.
"Today, any discussion of numbers of megawatts needed is guesswork because nobody can really predict the level and type of economic activity into the future," he said in an e-mail.
"To make things more complicated, the forecast will need to look out five years into the future because that’s how long it takes to put new major power plants in place," he added.
Underlining the gravity of the problem in the Visayas is the Visayas Supply Augmentation Auction (VSAA) program, under which big power consumers willing to be disconnected from the grid at shortages during peak hours will be paid. Power plants with available capacity during these periods will also be paid for power produced.
The Visayas’ lack of dependable supply reared its head during a 10-hour outage in late April.
Despite the uncertainty, industry players are still optimistic the country will be resilient.
"We shall overcome all of those as we did in the late 1990s ... We have done it before and there is no reason why we cannot do it again. Of course, some industry shake-outs and adjustments will happen in the process," Mr. Alejandro said. —
Ava Kashima K. Austria with Marites I. Villamor