The situation in Mindanao is a balancing act that must be managed to address the mandate of the law that created the industry we are in now and the strong sentiments of Mindanaoans not to pursue the privatization of the remaining assets on the island.
The Epira or Republic Act No. 9136 mandates the privatization of government’s generation and transmission facilities to promote competition and invite investments in the power industry. Proceeds of the sale were used as payments for the power debts of the country which as of that time reached around P1 trillion due to the debts incurred by National Power Corp.
Exempt
The law, however, exempted Mindanao under a provision giving it a 10-year moratorium on privatizing hydropower generation assets as its stakeholders had chosen to maintain the assets which supply them with cheaper energy.
In the meantime, Luzon and the Visayas underwent the changes brought about by Epira. A decade later, Luzon recovered from 10-hour brownouts as investors established different types of power plants. As it stands today, Luzon has a reserve power of around 2,000 megawatts (MW).
The Visayas has also stabilized since then. A total of 610 MW came online from December 2010 to June 2011.
Mindanao, on the other hand, is now facing outages due to a lack of generation capacity to meet both the demand and reserve requirements needed by its grid.
Spot market
Mindanao’s situation is similar to that of the Visayas around three years ago when outages crippled the economies of Cebu, Bohol and other areas. The solution of the government was to establish a wholesale-electricity spot market with the same operations in Luzon to give investors and stakeholders the venue for electricity trading.
A strong opposition was mounted against the establishment of a Visayas power market on the ground that it would bring up rates to unprecedented levels. All the fears, however, were allayed as the Visayas now has a surplus of at least 400 MW with rates even lower than those under bilateral contracts.
From the Visayas’ experience, we saw the importance of having a stable power supply. Likewise, when the supply situation was very tight consumers in the Visayas had to contend with higher power rates from the use of embedded generation facilities that were more expensive to run and utilize than other conventional sources of power.
Interconnection
The advantage of Luzon and the Visayas is also its interconnectivity. Right now, we can easily dispatch power to and from Luzon and the Visayas grids if and when either grid needs more power. Unfortunately, we have yet to see the fruition of the interconnection of Mindanao to Luzon and the Visayas as strong opposition to it is still a hindrance to the sharing of power across the country.
This could have been advantageous to the people in Mindanao right now as it no longer needs to suffer one to three hours of power considering the excess capacity available from the Visayas and Luzon.
Today, Mindanao has an available capacity of only 1,280 MW while demand (excluding the reserve requirement) is higher by 20 MW. Power investors veer away from Mindanao knowing it will not be economical to go up against the government’s hydropower installed capacity of almost 900 MW of which only 65 percent can be considered dependable capacity.
Baptism of fire
Upon assumption of office in 2010, like a baptism of fire as the new energy secretary, we issued a department circular to address the power-supply issue in Mindanao. This circular enabled the dispatch of all available power supply to the grid in order to address the demand as there were power barges on the island that were not being contracted out.
At that time, before the directive was issued, 100 MW out of the available 200 MW was contracted by National Grid Corp. of the Philippines under an ancillary service provider agreement, while the 100 MW remained uncontracted.
The contracted capacity was, however, only available to run when there was a plant outage as a contingency reserve. That directive solved the power-supply problem in Mindanao at that time but that was just a quick-fix solution.
Baseload capacity
What Mindanao really needs is baseload capacity that can meet demand and attract additional generation capacity that will be available for contracting with the load customers (electric utilities as well as directly connected customers).
Since then, the Department of Energy (DOE) has been continuously looking for solutions to the Mindanao power situation. As soon as we assumed office, we gave realistic projections and warnings that Mindanao would experience a very challenging situation. Hence, we embarked on attracting investments and engaged in discussions with stakeholders for the dissemination of appropriate updated information to instill awareness of the power needs of Mindanao.
We strengthened assistance to address challenges that investors encountered in establishing new power facilities. A handful of them argued that demand would never be sufficient for the amount of investment and opposition they would get from the area.
Still, we pushed for new power plants in Mindanao which now resulted in additional 273 MW of committed capacity by 2014 on top of the potential of 797 MW of capacity from different power sources.
However, despite the contracts signed, a lot of Mindanaoans still refuse to accept other types of plants as a power source, especially power facilities run by private investors since they think it will make their power more expensive.
Thus, we issued another circular recently, two years after we issued the first circular, this time to urge distribution utilities, both public and private, to contract power from private power facilities.
In line with this, the DOE would like to negate statements that power prices in Mindanao would go up by as much as P14 per kilowatt hour (kWh) since this gives the wrong impression to the consumer.
Power pricing in Mindanao is determined by taking into account the volume and time these power sources are utilized. Right now, power in Mindanao is averaging P3 to P4 per kWh, still the lowest compared with those in Luzon and the Visayas. In the immediate term, the government is set for the transfer of power barges to Mindanao so these can be repaired and be ready for the region’s use. This is another stop-gap measure to address the current power needs of the Mindanaoans.
We were never remiss in saying that Mindanao needs baseload plants to bridge the supply gap. These baseload plants produce energy at a constant rate for a consistent capacity and period.
It is worthwhile to note that while any type of plant can provide the baseload power demand of an area, the seasonality of the resource needed to run hydropower plants does not make the existing generation mix in Mindanao (56 percent hydro) an ideal situation.
Dependent on hydro
This is very important to establish in Mindanao given that more than half of its power comes from hydropower plants. Preparations must be intensified as early as now as experts have mentioned that rainfall patterns in Mindanao have already changed.
When power supply is intermittent or irregular, we run the risk of having a power shortage. There are too many variables when we rely on a single power source and those variables need to be extrapolated and contingencies must be in place.
The DOE’s proposed solutions include the transfer of power barges, proper contracting of stakeholders for power supply from power utilities and the rehabilitation of the Agus and Pulangi hydropower complex.
Monthlong maintenance
Right now, the Pulangi hydro plant is undergoing a monthlong maintenance. The repair of the Agus 6 power plant is also underway with an approved budget of P2.6 billion. This will improve the plant’s capacity.
What we need is acknowledgement of the real problem that the situation in Mindanao is different a decade ago and that power will have to come from sustainable and reliable sources. We believe that the people in Mindanao should trust and support the plans being laid out by the government to make them effective.
Everything will rely on execution and that also requires concerted efforts from every stakeholder in order for these to produce results. We all need to work together to implement the solutions.
(Jose Rene D. Almendras is the energy secretary.)