NGCP: Spike in power rates looms if DOE proposal on power reserves contracting is pushed

The National Grid Corp. of the Philippines (NGCP) on Thursday said consumers will stand to suffer from a spike in electricity rates should it fully comply with the Department of Energy’s (DOE) policy of 100% firm contracting for ancillary services (AS) or power reserves.

During the Senate energy committee hearing, NGCP president and CEO Anthony Almeda lamented that the grid operator “has been consistently bullied… The easy target, blamed for not contracting ancillary services as if it’s the solution to the problem.”

Almeda said that contracting firm ancillary services will be translated to pass-on charges to consumers and “there will be an astronomical spike for prices. It is paid whether or not it is used.”

The Department of Energy (DOE) has consistently blamed the NGCP for the thin power supply experienced by Luzon consumers last week as it failed to comply with the required “firm” ancillary service contracts or reserves, which should be 4% of the power demand and could be tapped in case power plants go offline. 

The NGCP explained that it fully contracted its ancillary services requirements, but most of these are on a “non-firm” basis which the DOE identifies as unreliable since the ancillary service provider decides if they will provide reserves.

With this, the Energy Department issued Department Circular No. 2019-12-0018 which mandated the system operator, NGCP, to comply with 100% “firm” ancillary service requirement.

Under the DOE’s policy, NGCP is required to procure all of its ancillary services requirements under 100% firm contract, wherein ancillary service providers will be paid for 24/7 availability, regardless of actual or absent utilization.

During the hearing, NGCP officer-in-charge head of system operation Joseph Seludo explained that initial simulations show that power rates can go up by P0.64 per kilowatt hour for Luzon, P0.54 pesos per kilowatt hour for Visayas, and P1.39 pesos per kilowatt hour for Mindanao should it comply with 100% firm ancillary service contracting.

For a household consuming 200 kWh a month, this translates to an additional P128 in electric bills of consumers from Luzon, P108 for those in Visayas, and P278 for those in Mindanao, according to Seludo.

In a separate statement, NGCP said that ancillary services are not meant to replace baseload plants or for any long-term or continuous use.

The grid operator said ancillary services are a stop-gap measure, dispatched only to stabilize and balance the grid in cases of power supply and demand imbalance.

“In times when supply is sufficient, it is meant to run only long enough to bridge the gap between the loss of supply event, and the time that replacement power can be scheduled by the Independent Electricity Market Operator of the Philippines, Inc. (IEMOP), usually within the succeeding hour or two. It should not run for days, weeks, or months on end without violating the EPIRA and prevailing regulatory approvals,” NGCP said.

The grid operator noted that ancillary services are not energy “reserves” that the grid can tap for extended periods of time should major power plants falter.

Shifting from the current non-firm arrangements to a firm arrangement will not solve the current lack in supply, as they are taken from the same pool of power plant suppliers, NGCP said.

“Shifting to firm contracting is not the solution to the power supply shortage. We get our power to support ancillary services from the same pool of generators, many of which went on unscheduled shutdowns, and whose current collective output is not enough to meet consumer demand. Signing a firm contract will not make a large capacity power plant magically appear with the stroke of a pen. The only thing that changes is the charging mechanism,” the company said.

Moreover, the grid operator noted that many of the power plants asking for firm contracts run on diesel fuel.

“Contracting diesel-run power plants for ancillary services, especially if the diesel plants are decrepit and inefficient, will not only be counterproductive, it will drastically hike electricity rates. Ancillary services costs are pass-on costs that NGCP does not profit from,” NGCP said.

“Because of the staggering increase consumers may face in their next power bill if NGCP will be forced to do this, we are hoping that the Energy Regulatory Commission (ERC) should be, at the very least, consulted and given the opportunity to review the policy and study its full impact on the consumers,” it emphasized.

The grid operator said that the long-term solution is installing new baseload power plants to meet rising demand. — RSJ, GMA News