Understanding the PH energy chain

MANILA, Philippines – Consumers should anticipate increases in their December and January electricity bills. The reason: the maintenance shutdown of the Malampaya natural gas facility.

Malampaya, the offshore drilling facility in Palawan, is the biggest, and thus far, the only reservoir of natural gas in the country.

When it started operations in January 2002, the facility was a landmark for the Philippines—it signalled lesser oil imports, ensured a more stable power supply, and diversified power sources.

Malampaya provides natural gas to three power stations in Batangas: the Sta. Rita, the San Lorenzo, and the Ilijan power plants.

These plants have a combined generating capacity of 2,700 megawatts, making them major power suppliers in the Luzon grid.

Malampaya provides half of the power requirements of Luzon. This power is distributed by Manila Electric Company (Meralco) to millions of households in the island.

From November 11 to December 10, 2013, the natural gas facility stopped operations for 30 days. Power facilities are generally required to go on maintenance shutdowns every year to replace, update, and check parts to avoid sudden malfunctions throughout the year.

A shutdown of a facility this important means a significant drop in available energy resources. The result: energy shortages or blackouts reminiscent of 2010.

But this didn’t happen.

To avoid power loss, the power plants were forced to run on liquid fuel: Condensate for Sta. Rita, and bio-diesel for Ilijan.

But compared to natural gas, liquid fuel is more expensive.

The energy chain

Operating in a highly privatized energy sector, the country’s daily energy chain goes like this:

• National Grid Corporation of the Philippines (NGCP) identifies the electricity requirements for the day, the supply and demand, and allots contingency reserves;
• Power plants are asked to run and supply the needed capacities. Ideally, the cheaper plants are prioritized;
• These capacities are traded in the Wholesale Electricity Spot Market (WESM). The WESM prices vary per hour, depending on the needs of the grid;
• Power (electricity) is then distributed to households by groups like Meralco.

The Philippines has three major grids in Luzon, Visayas, and Mindanao. Of these three, Luzon has the most diverse sources—ranging from natural gas to geothermal to coal-powered plants. Luzon also has the biggest system demand.

To fill this demand, various power plants are tapped. When a plant goes offline, other plants are required to double their energy outputs.

Sometimes, hydro plants are tapped to augment supply.

Higher electric bills

Power generators basically dictate prices, especially in situations when demands exceed supply. In times of power plant shutdowns, the grid suffers from potential energy shortage.

The energy department assures that during this period, other plants are tapped to provide power to the grid. This, of course, has a direct effect on power prices.

As Malampaya-fueled power plants are among the biggest suppliers of power in Luzon, electricity prices peak during the Malampaya shutdown.

In the past, Malampaya had similar maintenance shutdowns – on February 10 to March 9, 2010, and from July 13 to 21 in 2012. Electricity prices spiked after the shutdowns. 

During past Malampaya shutdowns, the generation charge rose to PhP6.77 per kilowatt-hour (kWh) in March 2010 and PhP6.74 per kWh in August 2012. 

This means that a household that consumed 200 kWh of electricity paid around P1,300 for the generation charge alone. With additional charges on transmission, distribution, and taxes, the amount reached P2,400-P2,500.

For the first 10 months of 2013, generation charge only costs P0.80 to P5.70 per kWh.

This year, the shutdown also resulted in a substantial increase in the generation charges for the billing months of December 2013 and January 2014.

But the price adjustment is temporary. By February 2014, power rates are expected to normalize as the energy environment stabilizes. – Rappler.com

Malampaya photo courtesy of Sembcorp Marine