Ten economic issues to watch

This column continues to monitor many economic issues and developments. There are 10 topics tackled here....

6. A projected power rate hike

Consider these recent reports in BusinessWorld related to the Energy Regulatory Commission (ERC) ruling against the two San Miguel Corp. (SMC) power companies’ petition for a generation rate hike: “SMC Global Power appeals rate hike denial — ERC” (Nov. 25); “SMC Global Power points to ERC for looming rate hike” (Nov. 29); “SMC Global Power offers Ilijan capacity to Meralco” (Dec. 4); “Meralco gets CSP exemption for power supply deal” (Dec. 7); “Higher power rates seen on ceased 670-MW supply” (Dec. 8); “Malampaya consortium denies SMC Global Power’s claim on banked gas delivery” (Dec. 12); and, “Meralco hopes to secure power deal within the week” (Dec. 12).

SMC Global Power and its allies in media continue to demonize the ERC and the agency’s chairperson, Monalisa Dimalanta. There seems to be no acknowledgment by SMC that they made a big mistake in offering a low fixed-price power supply to Meralco which quickly defeated the bid prices of other power companies sometime in 2019 or 2020. Now SMC is turning its blame game on the Malampaya consortium — Prime Energy (the Razon group), UC38 (the Udenna/Dennis Uy group), and the Philippine National Oil Co. (PNOC, government) — for why it cannot get banked gas for its Ilijan gas plant in Batangas.

7. Continuing power deficiency, yellow alerts

Here are related recent reports, also in BusinessWorld: “Investigation looms after six power plants declare outages” (Nov. 28); “PHL energy security to hinge on emerging tech” (Nov. 30); “Luzon grid placed on yellow alert once more after five power plants report forced outages” (Dec. 1); “Red, yellow alerts raised over Visayas grid after four power plant outages” (Dec. 5); “DoE says working to make supply of power more reliable next year” (Dec. 6); and, “Meralco eyes US grant to look into small nuclear reactors” (Dec. 9).

Those yellow alerts can scare potential investors from coming in. Consider also the numbers in Table 2. The main reason why the Philippines’ power prices are high compared to many of its neighbors in East Asia is because it has very low power generation, with low supply relative to demand. And that also explains why many existing power plants tend to conk out more often – they are old and ageing, especially coal, gas, and big hydro plants — but they cannot be retired because new big power plants are few.

Aside from new coal and LNG (liquefied natural gas) plants that are coming soon, we need nuclear power — at least small modular reactors (SMRs) — especially for island provinces like Mindoro, Palawan, Masbate, etc. It is good that Meralco is pioneering this move.

I think the Philippines is wrong to focus on forcible low prices at the generation sector via a mandatory Competitive Selection Process. The country should focus on expanding its power supply and address the problems in the transmission sector like the absence of a firm contract for ancillary services by the transmission operator. If it does, prices will stabilize or decline on their own. From around 6 terawatt-hour (TWH)/year annual increase until 2021, we should have at least 9 to 10 TWH/year increase starting 2023.

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