NGCP: Power bills to rise if DoE enforces rules on full reserves

THE contracting of ancillary services (AS) will not solve the issue of low power supply, the National Grid Corp. of the Philippines (NGCP) said Thursday, and warned that consumers will see “astronomical” increases in their electricity bills if the company follows the energy department’s proposal to take out reserve contracts that fully cover expected demand.

Earlier Thursday, Energy Secretary Alfonso G. Cusi said that the lack of adequate cover via contract reserves have worsened the power situation over the past few weeks. The NGCP placed the Luzon grid on red alert for three consecutive days in late May and early June, as rotating outages hit portions of the island.

“The red alerts experienced on May 31 and June 1 were due to generation deficiency since several power plants went on forced or unplanned outages while others were running on de-rated capacities. AS contracting will not solve this supply problem, new power plants will,” NGCP President and Chief Executive Officer Anthony L. Almeda said during a public hearing on the power situation Thursday.

Mr. Almeda said AS, which come in the form of regulating, contingency and dispatchable reserves, are “only there to address fluctuations in the grid.”

“It is not meant to run as baseload power or augment the lack of supply… AS is not extra energy, nor is it replacement power for power plants that go down. If power supply is not enough to meet the needs of the consumers, how can there still be power for AS?” he said.

He also claimed that the entity has become the “whipping boy for the power shortage issue to protect vested interests within the industry.”

“NGCP has constantly been bullied not just over the past couple of days, but in the past years — being used as the scapegoat; the easy target to blame for the issue. We were blamed for not contracting enough AS, as if it were the solution to the problem,” Mr. Almeda said.

NGCP Spokesperson Cynthia P. Alabanza has said that the company has contracted most of its reserves through a combination of firm and non-firm arrangements.

“With the exception of a contingency AS which is short by 11% (or 72 megawatts) of the required levels, NGCP has contracted more than enough capacity to meet its obligations,” she said.

Under a 2019 department circular which details the AS rules, the grid operator can only procure regulating, contingency and dispatchable reserves “through firm contracts.”

“This will not create additional supply. It will just change the pricing and charging framework,” Ms. Alabanza said, of the Department of Energy rule compelling the system operator to fully contract reserves.

Ms. Alabanza said that, if NGCP implements a 100% firm-contracted requirement for AS, power rates are expected to “astronomically rise,” according to the group’s initial calculations.

“There will be an increase equivalent to P0.64 per kilowatt hour (kWh) for Luzon, P0.54/kWh for Visayas, and P1.39/kWh for Mindanao. For a household consuming 200 kWh, this would mean an additional P128 in electric bills of consumers from Luzon, P108 for those in Visayas, and P278 for those in Mindanao,” she explained.

During the hearing, Mr. Cusi said that the rotating brownouts last week were mainly caused by power plants going on forced outage.

“Nagkasabay sabay po ang pagkawala ng supply galing sa ilang malalaking planta. (The big plants went down at the same time). That is the ultimate cause, we are already investigating these power plants and we have asked the assistance of the Department of Justice, Philippine Competition Commission and the Energy Regulatory Commission to determine if there was collusion,” he said.

He said charges are forthcoming if collusion is found.

However, other factors which worsened the rotating brownouts included the de-rating of several plants which provided reduced output, and the absence of adequate reserves, he said.

“The lack of adequate contracted reserves further aggravated the situation. Dun po nagkaroon na (Because of these, there were) automatic load drops. The cause of these load drops is lack of ancillary reserves.”

According to Mr. Cusi, the department was in communication with the NGCP about the reserve situation in four years ago, but the lack of AS still remains to be “a major problem.”

“We are demanding that NGCP… comply with their concession agreement by contracting the required reserves. Compliance by NGCP… to ensure adequate ancillary services is mandatory and not optional. By not contracting the reserves, NGCP is enjoying benefits without accepting the burden required by its franchise,” Mr. Cusi said.

The department has flagged the system operator for its non-compliance with the reserve rules after noting its compliance as of the end of 2020.

Energy department estimates released in April indicate that the NGCP had contracted regulating, contingency, and dispatchable reserves of 237 megawatts (MW), 180 MW, and 145 MW, respectively, for the Luzon grid as of the fourth quarter of 2020.

The Luzon grid norms for regulating, contingency and dispatchable reserves are 491 MW, 647 MW, and 647 MW.  — Angelica Y. Yang

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