El Niño casts dark cloud over Philippines power situation

By Richmond Mercurio – December 27, 2023 | 12:00am
from The Philippine Star

Yearender

MANILA, Philippines — The specter of El Niño hangs heavily over the Philippines, casting an ominous shadow over the country’s power situation in 2024.

This year, the country was able to get through what was previously forecasted to be “difficult” summer months, but the looming threat of El Niño next year – a weather pattern characterized by hotter temperatures and reduced rainfall – can make life difficult for most Filipinos.

While 2024 appears to be better supply-wise, Energy Secretary Raphael Lotilla admitted that the El Niño phenomenon, which would likely persist until the second quarter of next year, could complicate things.

“We did manage to contain the weaknesses in 2023, and 2024 promises to be better from the supply side, but there remain threats that President Marcos is very concerned about, particularly the El Niño,” Lotilla said.

Based on the Department of Energy’s initial power outlook for next year, no red or yellow alerts are seen potentially taking place despite the El Niño phenomenon, given what the agency reported as adequate levels on the supply side.

But even with sufficient capacity, Lotilla said the government is still anticipating possible interruptions should power facilities, especially the coal-fired power plants, fail to work at their optimal levels.

This is why the energy chief believes that fossil fuels will still be the country’s reliable power source by summer next year, as he noted the possible reduced output of hydropower plants, which could be aggravated by El Niño.

“That’s why it is important for us to diversify the sources to make maximum use of whatever it is we have right now,” Lotilla said.

“I remain optimistic for the country and our people, but as always, we try to underpromise but we make sure we overdeliver.”

Stakeholders from the private sector, meanwhile, are a little less optimistic on the country’s power supply situation for 2024.

“In terms of supply-demand outlook, I think it’s still going to be a challenge in the next two years because no new coal plants are being built,” Developers of Renewable Energy for Advancement president and former DOE undersecretary Jay Layug said.

“And then it is only now that we’re building renewables. It will take at least two years to build new projects, so supply will still be an issue during the summer months, plus it’s El Niño. So that’s a challenge for us,” he said.

Layug warned that such supply issues could have an impact on the electricity rates. “Given that next year we will still have some supply issues, the rates will remain high,” he said.

“As you know, in the Wholesale Electricity Spot Market (WESM), if there is plenty of supply, rates are lower. But supply is always insufficient. Summer months will be a problem again, I’m sure,” he said.

Layug also raised the possibility that the power situation for the summer months of 2024 could be worse than what was seen during this year’s dry months.

“The problem now is we’re still building. So next year is a challenge. LNG is expensive, that’s the problem. That’s why we will be faced with high prices next year. We don’t want to be doomsayers, but it is still going to be a challenge for us in terms of supply because the new renewable energy plants will come in only in 2025 and 2026,” he said.

Similar sentiments have been expressed by executives of major energy companies such as ACEN Corp. and Aboitiz Power Corp.

ACEN president and CEO Eric Francia said while there is no need to panic in the short term, the power supply situation for next year is still going to be tight especially during summer, with the possibility of periodic red alerts, yellow alerts, or a few load shedding and rotating brownouts.

“Our capacity situation is tight. It’s not comfortable,” Francia said.

“The challenge really is looking forward beyond 2024, 2025 because it takes time to build thermal plants. It takes time to build large-scale renewable plants. We need to act now. We need to execute. Otherwise, we could have real problems in two, three, four years’ time. So I think a little bit of a forward planning will go a long way in our situation,” he said.

With the El Niño forecast, AboitizPower president and CEO Emmanuel Rubio also agrees that there will indeed be tightness once more in the power situation especially during the hot months.

“But I think we will have ample supply. Maybe there will be times when diesel plants will be dispatched,” Rubio said.

This year, data from the Independent Electricity Market Operator of the Philippines (IEMOP) showed that monthly WESM rates ranged from a low of P4.39 per kilowatt-hour (kWh) to a high of P9.09 per kWh, which was recorded in May.

According to IEMOP head of trading operations Isidro Cacho, this year’s average electricity prices in the spot market were far better than in 2022 wherein many months saw prices reach the P9 per kWh level.

“The impact of El Niño, if it’s really the worst case, we will be without cheaper plants. In short, we might see spikes in power prices,” Cacho said.

“This year we saw a lot of those spikes, but in general, prices were generally lower this year compared to 2022,” he said.

Cacho expects WESM prices for 2024 to be at same level as what have been recorded this year since demand is increasing.

“We have ample supply. We have margins, but the introduction of cheaper plants hopefully, can be fast-tracked so they can offset the supply that will be impacted by El Niño,” he said.

This year, the DOE remained unrelenting in its efforts to push for the greater use of renewable energy in the country.

Lotilla said the government acknowledges that collaboration with the private sector is imperative to achieve its goals, particularly in enabling the country’s transition to cleaner energy sources.

“As such, we have issued several enabling policies that open new opportunities for international investments. The Philippines now allows 100 percent foreign ownership for renewable energy technologies in geothermal, biomass, solar, wind, ocean and tidal wave,” the energy chief said.

“Moreover, we are exploring variations of financing that offer a range of energy funding solutions, including a sovereign guarantee from the Philippine Guarantee Corp. We also expanded our options for private sector engagement so that renewable energy developers can compete under our green energy auction openly and transparently,” he said.

These efforts have been welcomed warmly by stakeholders.

“There’s a lot to look forward to in 2024 given the proactive program of the DOE on scaling up renewables,” Layug said.

“We’re very excited with the government because it’s very active in encouraging investments in renewable energy. It’s not just the small renewable energy projects. As you know, they’re pushing for offshore wind. We’re happy that they’re aggressive because as long as they provide all the necessary infrastructure, ports, transmission line, I’m sure it’s not going to be a problem for all these developers to build their projects,” he said

Francia said it is also good that the DOE has a very clear policy in terms of setting the goal and policy framework.

“Hats off to the DOE for signaling to the market that it’s serious about renewables,” he said.

Rubio, for his part, lauded the DOE for making sure that the necessary policies are in place.

“The question is the execution and the implementation of those policies. Investors are struggling because there are a lot of policies and laws that are not harmonized from the national to the local level. If there’s a way for the government to harmonize these laws– national and local I think it’s going to be a lot easier for investors to execute on these projects,” he said.

Lotilla pointed out that the country’s power supply for the past three years has been adversely affected by global challenges such as the COVID pandemic and Russia’s war with Ukraine that hampered supply chain and economic activity.

He said the supply chain disruption not only highlighted international inter-dependencies that exposed the Philippines’ vulnerability, but also the urgency to support the country’s ability to remain agile and resilient to external socio-economic pressures.

“We need to shift into higher gears in harnessing and developing our country’s wealth of indigenous resources,” Lotilla said.

“These challenges served as catalysts for the DOE to take actions that enhance our energy security and strengthen our energy resilience,” he said.

The energy chief, however, noted that the country cannot go 100 percent renewable energy at this point as there has to be a balanced transition.

“Unfortunately, our task is challenging in that we don’t have control over the assets. All we have is policy. I can urge, I can cajole, I can convince,” Lotilla said.

“It’s really calling upon everyone to cooperate because if we do, then the market is going to expand. The economic development of the country is going to move forward and there will be more things to share among the different players. But if everyone is going to think short term, then there will always be an obstacle that one party or the other is going to put up and we delay the overall economic development of the country,” he said.