Growth, power transmission, and Poland

* BusinessWorld November 14, 2022.
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There are three topics this week and we go straight to them....

POWER SUBSIDIES, TRANSMISSION AND GENERATION

I want to comment on these four recent reports in BusinessWorld.

1. “ERC determining extent of subsidies for marginalized power consumers” (Nov. 7)

2. “NGCP fined P5.1 million over failure to maintain adequate reserve power” (Nov. 8)

3. “Grid operator to appeal P5.1-million ERC fine” (Nov. 10)

4. “Meralco raises electricity rates for November” (Nov. 10)

Report number one is about Republic Act (RA) 11552 extending the lifeline rate, or subsidies for low usage consumers, from 20 to 50 years. There are two problems with endless subsidies like this law. One, not all low-usage consumers are poor — they may be rich people who have vacation houses somewhere and just occasionally use these and hence, consumption is low. And, two, other consumers will be forced to pay for that subsidy and this will distort household savings and spending.

Reports number two and three show that the National Grid Corp. of the Philippines (NGCP) — the only remaining private monopoly nationwide — is indeed part of the reason why there are still regular yellow and red low power alerts happening this year. Power supply and reserves are often thin and can lead to rotating blackouts, which can lead to damaged appliances and machines, the frequent use of gensets by companies and candles by the poor, and few investors coming in. While ageing power plants and a sudden spike in power demand can be blamed, the NGCP has its share of blame because of its continued failure to procure adequate levels of reserve power exclusively contracted to them to ensure grid security and stability.

The monopoly has a dual role and responsibility, as a network and a system operator and has been lacking in both roles. If it does not want to secure firm contracts for ancillary services and grid reliability, then it can leave its role as the system operator and give it to Transco.

I saw the NGCP press release that was published in bilyonaryo.com, and find it weird and deceptive. It talked about politics and “political maneuvers” when the real issues are grid stability, and how we can avoid having regular yellow-red alerts even during the rainy months.

The Energy Regulatory Commission (ERC) is correct. The NGCP, the monopolist, should shape up, pay the fines, obey the regulator or risk losing the franchise that granted it a monopoly nationwide in power transmission function.

The Philippines has low GDP partly because of its low power generation capacity. In 2021, the country produced a total (on-grid plus off-grid power) of only 108.3 terawatt-hours (TWH), of which the combined contribution of solar plus wind was only about 2.7 TWH or just 2.5% of total. Vietnam’s power generation is more than twice our’s, Malaysia and Thailand’s are about two-thirds larger, than the Philippines (see Table 2).

Many companies might want to expand operations but they see that they will face blackouts due to the low power supply and margins, so they postpone expansion. And this puts a brake on more economic growth.

Countries with high expansion in power generation over the last two decades (at least 130%, see Table 2) are also the same countries that had GDP growth of 5% or higher prior to the lockdowns of 2020-2021 (see Table 1) — China, India, Indonesia, Vietnam, Malaysia, and the Philippines. They are also poised to have at least 5% growth this year. Nonetheless, the Philippines must expand its power generation significantly from the current average of about 5-6 TWH/year to 8-9 TWH/year in 2023-2028. Vietnam’s generation increases by about 18 TWH/year.

Report number four is about the rise in power generation charge by plants with power supply agreements (PSAs), and not due to distribution charge or spot market generation cost and other factors. Meralco remains a responsible distribution utility that keeps its overall, all-in price of below P10/kwh while many electric cooperatives nationwide have rates that are twice its level, which penalize many consumers in the provinces....