Philippine Institute for Development Studies
The urgent need to
increase baseload
generating capacity in
Mindanao
Western Mindanao State University
9 July 2013
Adoracion M. Navarro
Senior Research Fellow
Outline
 The problem of insufficient baseload
generating capacity
 The power supply and demand outlook
 Finding solutions to the problem
The problem of insufficient
baseload generating capacity
Mindanao power generation
 Insufficient baseload generating capacity
– Only 37.31 percent installed capacity in Mindanao are
baseload power plants
• Luzon grid = 63.94 percent
• Visayas grid = 71.88 percent
*Baseload power plants
– generating plants which can produce energy at a constant rate
– traditional baseload technologies are coal, geothermal and
nuclear
– hydroelectric power plants: to a limited extent
– intermittent power sources such as wind power and solar power:
ongoing research and technological development
Mindanao power generation
 Unbalanced capacity mix
– 51% of the supply are coming from hydropower plants
– Problem: droughts, deforestation, river siltation, rehabilitation
and maintenance delays of Angus and Pulangi hydropower
complexes
Generating Capacity Mix in Mindanao in 2011
Note: Excludes off-grid generation. Source: Department of Energy (DOE) PowerStat
Mindanao supply profile
 Lack of additional capacity
– Earliest commitments are only 38MW in 2013 and
120MW in 2015
2012
(Actual)
2,022
2013
2014
2015
Estimated Dependable Capacity (80%) 1
38
2,060
1,648
0
2,060
1,648
120
2,180
1,744
Assumed Available Capacity (65%) 2
1,339
1,339
1,417
Installed capacity
Firmly committed capacity
Projected Installed Capacity
Notes: 1 Historically, around 80% of installed capacity.
2 In the past year and during 2012, varies between 46% to 65%. We use the optimistic level.
Sources: Department of Energy (DOE) for the installed capacity; Energy Regulatory Commission (ERC) for the
firmly committed capacities
The power supply and demand
outlook
Mindanao power: Capacity vs Demand
 Supply cannot meet increasing demand
 Capacity
requirements (peak
demand + reserve
margin)
Demand Projections vis-à-vis Generation Capacity
 2013: 1,728 MW
 2019: 2,206 MW
 High growth rate in
the region will
increase medium-tolong term demand
 For 2010-2019,
estimated Mindanao
AARG (4.28%) is
higher than
estimated national
AARG (3.63%)
Sources: Demand Forecast – Distribution Development Plan 2010-2019; Installed,
Dependable and Available Capacities – DOE; Reserve Margin – Author’s interpretation
Short-term Mindanao Supply-Demand Profile
As of July 8, 2013, 6:00 a.m.:
MW
System
Capacity
1272
System Peak
1168
Reserve
104
Source: National Grid Corporation
Reserve margin is only 9% of peak demand
Finding solutions to the problem
Policy recommendations that may be excluded
 Reassessing other policy recommendations
– Government take-over of privatized power barges
•
•
•
•
Power Barge 117 and 118 of Therma Marine, Inc.
More suited for delivering ancillary services
Expensive: runs on diesel
NGCP still need other ancillary generating reserves to
take their place
– Total prohibition of cross-ownership between
distributors and generators
• Embedded generation facilities can fill up the gaps when
supply is threatened.
Overall objectives
– Maximize the existing capacity to avoid crisis-level
situations;
– Add new generation capacity in order to meet future
demand; and
– Expand options for sourcing power in order to increase the
reliability of supply.
Short-term actions
 Continue the rehabilitation and sustain the operations of Agus
and Pulangui hydropower plants
 Minimize bureaucratic hurdles (both at the national
government and local government levels) in building up the
electric cooperatives’ embedded generation capacities
 Promote the interruptible load program for large consumers
more widely
Short-term actions
 Undertake more aggressive information, education and
communication campaign in Mindanao regarding the power
situation and power outlook
 With respect to pending power purchase agreements, address
the risk aversion problem in baseload power contracting
– Can be through:
1. more effective communication to local stakeholders of the immediate
need for baseload capacity;
2. strict requirement for generating firms to adopt cleaner coal
technology; and
3. more enforceable regulatory rules on performance obligation of DUs
Medium- to long-term actions
 Decide the fate of Agus and Pulangui (private or GOCC?)
– Proper design of incentives must consider:
1. Dampening of incentives to exercise market power: a firm can own or
operate “no more than 30% of a grid’s installed capacity”, thus, ≥ 2
corporations; issue of water rights
2. Incentives to reforest and manage watersheds
3. Philippine experience in operating public corporations and
inefficiencies associated with it
– Possible middle ground: concession contract
 Facilitate the entry of new baseload
– Minimize uncertainty (in policy directions, demand forecast, and regulatory
rules)
– If no new investments would come in, explore concessions
Medium- to long-term policy responses
 Accelerate the development of renewable energy projects
– Feed-in-tariff (FIT) scheme
– Currently 60% RE and 40% traditional sources; could be reversed in
2016 due to currently committed capacities
– MinDA: currently identifying possible biomass sources of 10-12 MW
for ECs
– MinDA: developing one-stop-shop processing of RE projects
 Seriously pursue specific demand-side management programs
– Contractually committed demand response; prepaid electricity schemes
 Internalize negative externalities to reduce the investors’
preference for coal over “cleaner” technologies
– (e.g., China carbon tax scheme by 2015)
 Strengthen the capacity of the regulator to deal with complex issues
in the electric power industry
Medium- to long-term policy responses
 Explore market solutions
– aggregation of demand and the use of large-volume auctions for
baseload capacity contracting
– Interim Mindanao Electricity Market (IMEM): will have a pretrial in August and full implementation in September
• intends to draw out all generation capacities including embedded
generators in the grid to contribute to the supply
• Intends to draw out voluntary customers who are willing to curtail
their load
• estimated 150 MW to 200 MW available for trade
 Pursue the interconnection of the Visayas and Mindanao grids
– This will promote supply reliability
– Consider not only the increase in cost of electricity but also the
economic losses due to power shortage when supply becomes
unreliable
Thank you!
Philippine Institute for Development Studies
106 Amorsolo St., Makati City, Philippines
www.pids.gov.ph
(632) 893-9585 to 87 local 3111
anavarro@mail.pids.gov.ph