Generation companies and the Department of Energy are renewing their call for a Wholesale Electricity Spot Market in Mindanao with the emergence of excess electricity supply in the grid but consumers are wary this would instead lead to an increase in power rates.
Energy Secretary Alfonso G. Cusi said a spot market in the Mindanao grid would efficiently utilize the excess capacities of new power plants not covered by bilateral contracts with distribution utilities and directly connected industries.
MCPC Pres. David A. Tauli stresses a point during the March 6, 2014 consultation meeting with the House Energy Committee held at MUST
In his message to the Association of Mindanao Rural Electric Cooperatives, Inc. (AMRECO) Summit in Cagayan de Oro City last week, Cusi said a WESM in Mindanao “runs parallel with President Rodrigo Duterte’s twin priorities of fully addressing the power situation, at the same time, pumping more economic activity and creating more jobs and livelihood in his most beloved homeland of Mindanao.” (Colina, 2016)
But a consumer advocacy group based in Mindanao warns a WESM cannot address power supply problems in Mindanao, and will result only in increasing the rates paid by consumers.
“We encourage consumers to raise their vigilance against those advocating for its establishment since they appear to be either engaged in a scheme to maximize profits for generating companies (GENCOS), or ignorant of the economic and technical principles that govern the operations of electric power systems,” noted David A. Tauli, president of the Mindanao Coalition of Power Consumers (MCPC) in a white paper circulated to power consumer advocates in Mindanao.
Why Mindanao WESM won’t work
“The main reason WESM will not work in Mindanao is because are only six significant generating companies in Mindanao, and it would be easy for these few gencos to collude with each other to manipulate market prices,” Tauli said.
As a peaking plant, Peakpower Soccsargen Inc’s 20MW bunker-fueled power plant in General Santos City qualifies for WESM trading.
He noted how the Energy Regulatory Commission (ERC) found gencos in the WESM in the Luzon and Visayas had been colluding to increase the price of generated electricity in periods of power shortages, despite having many more gencos deemed necessary to make a spot market bring out the lowest priced electricity through competition.
Furthermore, a detailed study released in April 2013 entitled “Challenges in Pricing Electricity Power Services in Selected ASEAN Countries” found that some 90 percent of transactions in the WESM were bilateral agreements specifying the amount, price, and date of delivery of the power, and not spot transactions.
The report was produced by the United States Agency for International Development (USAID) and prepared by a team of Filipino and American economists for the Virginia-based US government contractor International Resources Group.(Tiglao, 2014)
How Mindanao WESM can work
In contrast, a top executive of one the largest coal-fired power plants in Mindanao believes that unless a WESM starts operating and the grid operator commissions high capacity transmission lines to deliver that power where it’s most needed, consumers could still be bugged by high electricity rates and brownouts.
GNPower Kauswagan coal-fired power plant in Lanao del Norte is a baseload power plant. MCPC says it can only do bilateral contracts but not trade excess capacity in the proposed WESM.
“High load generation especially in the southern corridor is constricted,” said Gabino Ramon G. Mejia, executive vice president of GNPower Kauswagan Ltd. Co. during his presentation on “Ensuring Power Supply Availability in Mindanao” during the 1st AMRECO Annual General Membership Assembly held 26 November 2016 at a local hotel.
“Even with bilateral contracts, generators are unable to fully deliver contracted capacities, due to grid constraints, with NGCP’s 230kV transmission line backbone project scheduled to come online by next year yet,” Mejia added.
However, sources within NGCP who prefer to remain anonymous said the 230 kV transmission line of Bunawan-Matanao section of the Mindanao 230kv backbone has yet to be constructed within the next two years.
“But for now, existing lines are sufficient, catering to the generation of San Miguel Coal plant in Malita and Therma South-Toril coal plant. The subject constraint could only be a factor when San Miguel Units 3 & 4 are commissioned in another 2 years, and by then the Mindanao 230kV backbone should be ready,” the source said.
Nevertheless, even if that project gets delayed, Mejia is convinced a WESM could help facilitate the delivery of stranded Bilateral Contracted Quantities (BCQs) or electricity already contracted for by DUs from Gencos but undelivered due to capacity limitations of the transmission system.
“There are 4 key areas which are ‘must haves’ to ensure the availability of power supply in Mindanao: Market (a sophisticated electricity market); Infrastructure (a strong and reliable grid); Planning (robust energy resource planning to continuously build additional capacity, and practice competitive procurement) and Policies (Create and enforce key policies and fulfill respective obligations in contracted/signed agreements).
“The long standing supply deficit problem in Mindanao has already been solved, but power supply availability connotes the need for competitive pricing and reliability, reliable plants and a robust grid,” Mejia stressed. “The current situation in Mindanao with excess power supply and no WESM, has power generation being dispatched based solely on purely technical considerations of power supply agreements.”
Engr. Glenn Reston of the Mindanao Development Authority, OIC of Mindanao Power Monitoring Committee (MPMC) earlier said the WESM can transport surplus electricity to areas where it is insufficient. “We are entering a regime of surplus capacity. We need to have the market,” he emphasized. (Colina, 2016)
What can be traded in WESM
But the MCPC said the DOE, MPMC and gencos are either ignorant or deliberately not disclosing the technical limitations which constrain a WESM in Mindanao from performing as advertised.
“The reason why a WESM in Mindanao will not address the ‘problem’ of overcapacity in power plants (considered only a problem by gencos, but a blessing to power consumers) is that the excess capacity is in base-load power plants, whose generation should not be sold in an electricity spot market. The generation of base-load power plants is sold through long-term power supply contracts,” Tauli stressed in his white paper.
Therma Marine Inc. Mobile 2 in Nasipit, Agusan del Norte is a thermal power plant whose output qualifies for WESM trading (TMI photo)
He further explained how ancillary services also are not sold in a spot market, but are contracted for a term of several years by the power system operator.
“Consumers should also be informed that it is only the power output of intermediate-load power plants and peaking power plants (generally oil-fueled or natural-gas fueled power plants) which are sold in a spot market,” he noted. “ Only two gencos own significant capacity of diesel-fueled power plants: the Aboitiz group and the Alcantara group. It would be very easy for these two gencos to manipulate the price of electricity sold in an electricity spot market.”
On the DOE’s proposed interconnection of the Mindanao to the Luzon and Visayan grids to make the WESM economically efficient, Tauli said NGCP studies have shown an interconnection is not economically justifiable for Mindanao.
“The costs (mainly in increased payments for electricity) to consumers in Mindanao of a Visayas-Mindanao interconnection would greatly exceed its economic benefits,” he said.
“Given the foregoing characteristics of the electric power industry in Mindanao, which should be known to anyone in any position of authority in the electric power industry, it can be concluded that officers of private corporations and public agencies in the electric power industry who are campaigning for the establishment of a WESM in Mindanao are either engaged in a scheme to increase the profits of the generating companies, or ignorant of the economic and technical principles that govern the operations of electric power systems,” he concluded.
(Disclosure: the writer is affiliated with Konsumanteng Kagay-anon, Inc., a convener of the Mindanao Coalition of Power Consumers; and an officer of the Cagayan de Oro Energy Press Corps)
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