THE TRUTH BEHIND THE ENERGY SITUATION IN PALAWAN

1. Blackouts are caused by a lack of generating capacity – FALSE.

The majority of blackouts are caused by ground faults, equipment failures and lack of protection in the distribution system. Since January, 2013, the generating capacity on the Palawan mainland grid has increased from 40Mw to 54Mw. The number of blackouts, however, has actually increased significantly compared to the same period in 2012.Because of obsolescence and lack of capacity in the distribution grid, increasing demand from commercial and residential consumers is actually exacerbating the blackout problem. The distribution system must be modernized to provide redundancy and a sectionalized grid arrangement to avoid total system failure. Additional substations are required to provide magnetic isolation to protect the generation sector.

2. Palawan needs more power generation capacity – FALSE.

There are many views on the generation needs of Palawan. Future needs depend on demand growth with is directly related to GDP growth in Palawan. The national average demand growth for the Philippines is 4.4%. PALECO forecast a growth in demand for Palawan of between 12-18% per year and the contract with DMCI is based on this optimistic projection. Despite this possible over-contracting of generation capacity if developers can be found to invest their risk capital in putting up renewable energy facilities to be used as and when they can generate, each renewable kilowatt hour will save NPC and Philippines electricity consumers Php 6 and will save Palawan electricity consumers 12% VAT. Renewable energy development is without any risk to the consumers, or NPC whereas fossil fuel use is dependent on international market prices the risk of which is borne by NPC and Philippines consumers.

3. No serious proposals for renewable energy development in Palawan have been made – FALSE. 

This is a seriously misleading statement. Since 2007, proposals for hydro development under valid renewable energy service contracts with DoE have been made on at least 5 separate occasions to both PALECO and NPC. All proposals have been ignored. In order to finance development it is first necessary for proponents to have an electricity sales contract which has proved impossible to obtain despite considerably lower tariffs than fossil-fuelled options having been consistently offered.

4. There is a lack of investor interest in renewable energy development on Palawan – FALSE.

The Palawan Chamber of Commerce and Industry receives many inquiries from foreign and domestic firms and funding agencies inquiring about development opportunities for renewable energy on Palawan. There are currently three private firms, two of which hold renewable energy service contracts with government, which are active in the development and pre-development stages of installing solar, biomass and run-of-river hydro power plants on mainland Palawan. Work on the hydro plants has been ongoing continuously since 2007; despite this it has proved impossible for the developer to sell the power to be produced. The problem is not a lack of investor interest, but the existence of policy, political, and bureaucratic constraints and a lack of clear guidelines for development and implementation of renewable energy on Palawan and throughout the Philippines.

5. Renewable Energy is too expensive – FALSE.

In most cases, the initial capital or fixed cost of renewable technologies  is higher than conventional fossil-fuelled alternatives but this cost is borne by the developer and NOT the consumer or the UCME. Renewable technologies generally have much longer life cycles than fossil options and have no or very low fuel costs. Examples are run-of-river hydro, PV solar and wind power. At present, run-of-river hydro has a much lower TCGR than the proposed coal-diesel plant and requires no subsidy. It is expected that photo voltaic (PV) solar will soon reach grid-parity (equality) with coal-fired plants. In addition to lower generation rates, renewable energy requires little or no subsidy and consumers are exempt from payment of the 12% value-added tax (VAT). The net result of integrating renewables into the power mix is lower rates and reduced subsidy requirements. Both are good for the consumer and for the government.

6. Renewable Energy is Intermittent and inherently unreliable – FALSE.

All renewable energy is dependent on nature. Different technologies have different operational characteristics; wind and solar power vary directly in accordance with the weather. Hydro power varies only seasonally and in any event the plants proposed for Palawan have impounded water which can be used for top up power generation in dry periods. In addition, research by the International Energy Agency proves conclusively that renewable technologies are inherently more reliable and have only 10% of the breakdown time experienced by fossil fuel generation plants.

7. The subsidy to maintain low electric rates on Palawan is derived from the Malampaya Fund – FALSE.

Subsidies come from the Universal Charge for Missionary Electrification (UCME), a fund which derives revenue from every electric consumer in the Philippines and which is “topped up by NPC”. The level UCME is set by the regulator the Energy Regulatory Commission. The total consumer bill is divided in to three major components: the generation charge, the cost of distribution and the 12% value added tax. On Palawan, the generation charge is heavily subsidized. The real cost or True Cost Generation Rate (TCGR) is about P12.50 per kilowatt hour on the Palawan mainland grid. Consumers are charged only P6.5896 per kilowatt hour. The difference of about P6 per kilowatt hour represents the subsidy provided by the UCME. Consumers on the Palawan mainland grid used slightly more than 160 million kilowatt hours in 2012. The subsidy required to maintain the P6.6 generation rate was nearly one billion pesos. Adding in the subsidy required to maintain rates in off-grid municipalities or mini-grids brings the subsidy required to more than P1.3 billion/year.

8. PALECO’s activities are governed by DoE and ERC – FALSE.

PALECO’s activities are governed and overseen only by the General Manager and Board of Directors. The mandate of DoE is for national energy policy and planning only and that of the ERC to fix power rates. As PALECO are members of the Cooperative Development Association they are not yet under the supervision of the National Electrification Authority. Local government has no authority over the acts of PALECO – this is exemplified by the provincial council having issued three resolutions; two to PALECO and one to DoE/NPC to utilise available hydropower. Each request has been ignored.

9. Coal power will be converted to biomass/natural gas 3 years after start of operations – MISLEADING. 

While there are a few examples internationally of such fuel conversions these have been achieved with great technical difficulty and are only now in pilot operation modes. Fuelling 15MW of power with biomass requires 30+ tons/day/MW or 450 tons of wood per day. An earlier contract between PKReco and PALECO using biomass wood chip technology was cancelled due to the technical unfeasibility of this technology. The option of using natural gas (NG) seems logical, but is in fact, infeasible. The cost of pipeline transportation of natural gas from Malampaya to onshore Palawan is prohibitive given the size of the Palawan market. It was only just feasible to pipe the NG from Malampaya to Batangas to feed a power demand of 2,600MW. The Palawan market of about 40 MW is far too small to justify such an investment..

10. Electric Power Rates are higher on Palawan than in Manila – FALSE.

The subsidized rate Palawan consumers pay for electricity is nearly the same as the rate paid by MERALCO customers on the Luzon grid (see PALECO website). At present, the rate on Palawan is about P10 per kilowatt hour. However, adding in the P6 per kilowatt hour subsidy brings the true cost to nearly P16 per kilowatt hour.

11. Clean coal technology will be used by DMCI – FALSE.

“Clean” coal technology does not yet exist. There is no process available which can economically reduce carbon dioxide emissions from fossil fuelled power plants. Carbon dioxide emissions are the main cause of climate change, the results of which we are all experiencing recently in changing weather patterns. Technology does exist for removing or lessening some harmful emissions from coal fired power plants but it must be remembered that DMCI proposes to use coal from their Semirara mine which is a low quality “dirty coal” and thus has a low heating value [it is necessary to use more of it] and produces higher emissions than good quality coal.

12. DMCI will lower the cost of power to Palawan consumers – FALSE.

The cost of power generation to Palawan consumers will remain at the ERC set rate of Php 6.5896/kWh plus VAT. Only the use of unsubsidised renewable power can lower the cost of electricity to Palawan consumers as consumers do not pay VAT on renewable energy.

13. The Palawan power system is fully privatized – FALSE.

Despite claims by DoE that the Palawan power system was fully privatized in 2004/5 it is still heavily dependent on NPC who provide and operate 13 MW or 20% of the province’s diesel power. In addition, NPC owns and operates the 69Kv backbone transmission line. This fundamental misunderstanding causes tensions between NPC and PALECO to the detriment of an efficient power delivery service to Palawan consumers.

14. The power sales and purchase contract between DMCI and PALECO is fully effective –FALSE.

The Power Supply Agreement is not yet fully effective as no subsidy agreement has been signed between PALECO/NPC and DMCI. Additionally DMCI have failed to meet the contract requirements for the commercial operations date of their diesel plants and have even failed to meet an extended date granted to them by PALECO.

15. Hydro power developers were disqualified by PALECO from bidding in the2012 CSP – FALSE.

PALECO’s bidding terms required bidders to offer 25MW of guaranteed dependable capacity (GDC) – no renewable energy contribution was allowed as part of the specified 25 MW (GDC) as renewable energy was deemed “intermittent and not reliable”. The hydro developer did, however submit an “alternative bid” but this was again ignored by PALECO. 

(This article was originally posted in Puerto Princesa Watch [https://www.facebook.com/groups/175004469343174/] by Diana J. Limjoco on November 18, 2013)