Cebu's Power Struggle

Business Mirror
Monday, 02 November 2009

IN a single day, October 23, Metro Cebu suffered sporadic brownouts for close to 12 hours, “rotated” to different feeders by the local distribution utility to spread out the damage. That Friday was just one of many, increasingly recurring days this year when most of the Visayas run short of its needed power, a problem predicted years ago but has not yet quite been prepared for.

     Cebu is luckier, according to the Department of energy (DOE) in the Visayas. The real effects of the brownouts, caused by the power shortages in central Philippines, only affected the biggest metropolis outside Metro Manila the past few months. Other islands and cities like Iloilo, Bacolod and tourist capital Boracay had been suffering almost daily brownouts since 2008.
     And it is bound to get worse, with a less glittery Christmas to boot, the agency warned.

“We had to voluntarily shut down our office, except the essential equipment, so we could save 1.5 MW,” Ethel Natera, the spokesperson of the distribution utility Visayan Electric Company (Veco), said on Friday. “We were fanning ourselves while working inside a closed building.”


The bigger disaster problem is the Visayas had been in the same situation, power shortages and daily rotation brownouts, barely five years ago. And power managers are warning if the present problem is not handled well, another round of brownouts will hit the region in the next four to five years.


The Visayas grid is presents the most complex challenge for power players. The major island groups—Leyte/Samar, Cebu, Negros, Panay and Bohol—are connected via submarine power cables generally towards one, clockwise direction. Most of the power is coming from one major source, the geothermal fields in Leyte, which supplies almost half the entire demand, augmented by spots of power plants in the various islands.


The grid is one of the fastest-growing in the country at close to 7 percent annually, according to DOE Visayas director Antonio Labios, solidly indicating the rapid economic growth in the region. Ironically, the grid has the oldest bunch of power plants, many of which should have been retired or are scheduled for retirement. It also has not gotten any new power generator for almost a decade.


“The growth is actually called ‘suppressed growth’ because more investors would have come in had it there not been a power supply problem,” said Belinda Canlas, spokeswoman for the recently-privatized National grid Corp. (formerly Transco). “If there were no power problems, that growth rate could have easily doubled.”


In October 16, for example, the demand for power in the Visayas was at its 1,174 MW at its peak, but the prevailing supply was only 1,140 MW according to data from the DOE. This as power plants that on paper should have produced 1,804 MW of power failed to deliver because they are either underperforming or had to go through maintenance check.


The situation is so dire, the Visayas had already started to import some 60 MW power from Luzon through submarine cables connected to Leyte— unimaginable a decade ago, but very necessary these days. Distribution utilities and even grid managers are desperate enough they now look forward to rainy and cold days when most air conditioning units are turned off in offices and homes and demand for power slacks off.


The power sector is scrambling to solve the situation by fast-building three coal-fired power plant complexes in Toledo City and Naga town in Cebu and La Paz in Iloilo, all combining for some 600 MW and coming in by tranches as early as first quarter 2010 up to 2011. The fact that it is powered by fossil fuel coal is making environmentalists worry, big time.


“We requested the power plant builder (Kepco-SPC) and the Naga local government unit in 2004 to conduct a comprehensive scientific impact assessment of the existing power plant before proceeding with the expansion plan, but until now they haven’t done anything,” said Vince Cinches of the Central Visayas Fisherfolk Development Center, who has been fighting the coal plants and raising alarm over its effects on the seas and water bodies in and around Cebu. “So far we see results like dead vegetation, contamination of water sources, skin diseases, etc.”


While the new plants set to start coming on stream by early next year, NGCP is warning again that it will only solve the power problem in the region for the next several years.


“If we do not want the same problem to come again, there should be plans to start building new power plants by now because it takes several years to build one,” Canlas of NGCP said. “Or else, it will be the same thing all over again after three years or so.”


Roots

The power problem in the region has been so long ingrained into the local mindset, businessmen like Felipe Pachoco of Iloilo City no longer rely on the power lines. Pachoco operates a small sugar mill in Belison town in Antique, near the tail end of the Cebu Negros Panay grid, and is always the first to suffer when there are power supply problems. Since power is not stable and is often cut off, he was forced to invest in an internal combustion engine to run his mill.


“All these time power plants have not been in the hands of Filipinos but by foreign investors. That is why they want profits first than service,” he told the BusinessMirror.


Carlos Co, the chairman of the special committee on power created by the Cebu Chamber of Commerce and Industry (CCCI), said the root of the problem is prices. There was a cold response for investments in power in the region because of the prevailing selling price of power.


“The price of power was just too low and investors are not willing to invest,” he said in an earlier interview.

He did not blame the government either, saying the recent power shortages had been properly projected. There was just no private investor willing to put a stake in the region, he said.


Controversially, Co is one of few influential personalities who support the application of the National Power Corp. (NPC) to increase generation rates in the Visayas, making it the highest in the country (provisionally approved by the Energy Regulatory Commission early this year). He said this could encourage investors to come to the region and build power plants if they can sell it at a better price (usually pegged at NPC price).


“Business, I think, is willing to pay a little more just to have stable supply of power. Not too much, a few centavos power kilowatt hour,” he said.


The last major injection of power to the grid was in 2005, when the submarine cables connecting Leyte to Cebu were upgraded from 200 MW to 400 MW. But as early as then, transmission managers from then Transco warned that the fresh 200 MW supply will only give a breather to the region for a couple of years. More new power plants were needed and fast.


Fast forward to 2009, the warnings became a reality. Aging power plants are producing less power than what is on paper and requiring more frequent shut downs for maintenance work. Meanwhile, economic growth although tamed with the global financial crunch, was continuous. The power supply could no longer keep up with the demand resulting to brownouts, evenly distributed to the provinces in the region.


Cebu island, in itself presents a special case. Having the biggest economy in the region, the island eats up close to 600 MW of power during peak times but produces only around 240 MW. As a result, when there are problems in the submarine and transmission lines from Leyte, central Philippines’ biggest economy plunges into a blackout. The need for more power plants in the island to sustain itself has been highlighted.


The DOE has actually set up, at least on paper, mechanisms to solve the power problem several years ago. The Wholesale Electricity Spot Market (WESM) had been dry running and was ready to go as early as 2007. The plan was shelved, however, despite clamor from the business sector to get it up and operational.


According to Co, the WESM was supposed to bring in small merchant plants, even factories with excess capacities in their generating sets to sell power to the grid free-market style at times when there are supply needs.


The DOE, however, postponed the WESM fearing the huge demand for power will push market prices way up and increase electricity bills. The implementation, waiting for three years now, had to wait when the power situation becomes stable, Labios said.


The business sector supported the implementation of the WESM to avert the present-day brownouts. Co said distribution utilities have already signed bilateral contracts with power plants for more than 90-percent of their base power needs and on fixed prices. Utilities will only run to WESM for peak supply demand and only on a small volume and should not affect power bills that much.


The DOE, in early 2009, was also readying to roll out a novel Visayan Supply Augmentation Agreement (VSAA), which works practically like WESM. Power suppliers with excess, uncontracted capacity, can sell their power to the grid through the WESM facility to be paid for at a premium. DOE Secretary Angelo Reyes hailed the program during a public hearing in Cebu as “one of its kind in the world.”


At present, The VSAA is still pending for approval from the ERC just when it is needed most—its promise of delivering supplemental power still remaining a promise.


“The secretary (DOE) has been announcing all his plans. What is important is less talk and more action for a brighter future,” Gov. Gwendolyn Garcia said, expressing her exasperation over the situation.  “If we continue to wait for the national government, we would have been in deep trouble.”


Bayanihan saves the day

In early 2009, the governor of Cebu led a unique agreement with the private sector and local utility Visayan Electric Company (Veco). Under the agreement, some 15 companies agreed to voluntarily cut themselves off the Veco supply during critical times, to free up more power for residential consumers.


The interruptible load program has since saved Metro Cebu from even wider brownouts, although consumers had to compensate the companies for running their diesel engine to the tune of several pesos every bill.


“We are privileged the public and private sector in Cebu did not just step aside and say we cannot do anything about the situation,” the governor said. “The majority of small consumers will never feel the effects of the brownouts because during critical hours Veco could call on these  companies and they have responded.”


On October 23, for example, companies like San Miguel Corp., Ayala Center Cebu, Metro Gaisano, AD Gothong and Elizabeth Mall, voluntarily stopped accepting power from Veco and ran their generation sets, freeing up some 12 MW, a big number considering Veco was “de-loaded” by close to 40 MW that afternoon by NGCP as the grid suffered shortages of up to 100 MW.


But the interruptible load program, the WESM and VSAA, even the 600 MW of power coming in soon, could only do as much. There is a need to plan ahead for more power to keep abreast as the economy continues to grow.


But in the age of a warming earth and fragile public health, concerns about sustainable and clean sources of power are front and center. Environmentalists are calling on stakeholders to plan ahead and not just rely on cheap, quick yet environmentally harmful solutions like coal. They are pushing for DOE to strengthen its planning and prioritize the development of renewable and clean energy resources in the Visayas, which they claim. They also want more exploration in the rich geothermal fields of Samar-Leyet to maximize its potential.


“The problem we are having is not of generation but of transmission. The Visayas has the biggest geothermal well and the Philippines and is only next to the United States in terms of geothermal capacity and the first in Southeast Asia regarding wind energy generation,” Cinches said, “if the government would only open up its energy planning to other sectors and not limit it to its friends in the fossil fuel industry.”


Cinches said the energy department must also open up the planning of the region’s energy roadmap to include renewable energy players. He said the government’s scare tactics to force the public to swallow the bitter pill of coal could only go as far. The public deserves more.


Unless the government cleans up its act and plan ahead, the same situation may occur once again in the next few years and the people of the Visayas will once again be forced to choose between brownouts and a quick-to-build, cheap-to-finance coal-fired power plant, he added.


“Coal by the way is not cheap; we are paying for it through our health, and loss of opportunities,” Cinches said.