Inter-Connecting Palawan and Mindoro tothe Luzon Grid – Policy Issues to Resolve and….A Bataan to Manila Submarine Inter-Connection That Maybe More Urgently Needed? (Part 3)
Part 3
David Celestra Tan, MSK
29 July 2020
Palawan and Mindoro Need both On- Island generation AND inter-connection.
Powering these islands are not an either or questions. On island generation as it is now or imported power from Luzon via submarine cable connection?
1. To justify their 230kv inter-connection both the NGCP and the DOE try to say that this is the solution to the unreliable service and high power costs in these islands. In our view the inter-connection is only part of a whole range of solutions that need to be done for those islands to achieve the declared objectives.
2. These islands need them both to complement each other for power reliability and economy.
This is something that needs to be recognized in any plan for inter-connection. The connection line from Luzon cannot be the full replacement of power supply on the islands.On island power generation is still needed for power reliability in our archipelagic country. Whether it is called by their regulatory name N-1 or N-2, these islands need to have on island generating capacity to maintain normal power service even if the sub-marine and the long overhead lines are down. A submarine cable connection must be considered as just one of its power sources and not the power source.
3. Lessons from the Visayan Grid
Using inter-island submarine power inter-connection is a proven failed power supply strategy as shown in the Visayaswhere the DOE and NPC strategies in the 1980’s was to generate most of the power from Leyte and Cebu and then supply Bohol, Negros, and Panay island via submarine inter-connection. Consequently, no power plants were built in Panay and Negros islands for more than 20 years other than the private PECO in Iloilo City.
The centralized generation configuration has failed miserably in the Visayas and the reason for the brownouts from Negros to Panay and to Boracay through the 2000’s. Sub-marine power lines have their own hard to fix problems and the 1,000 kilometer overland transmission lines that go from the geothermal fields of Ormoc, Leyte, through Cebu and then through Negros island are vulnerable to weather, sabotage, and maintenance problems. Low voltage occurs at the end of the lines and power nodes suffer.
Remember the power problems of Boracay? This was the root cause. It should be also mentioned that Leyte and Cebu are hit by typhoons regularly and power do not flow to Negros and Panay when their power lines are damaged. Inter-connection did not work for Camiguin and did not work for Guimaras. Lesson learned is that an island cannot totally rely on the sub-marine inter-connection as its main and only source of power.
a. On Island generation
Power service in Iloilo and Boracay did not really improve until power plants were built on the island of Panay itself in early 2000’s. Plus the building of a 138kv line from Iloilo to Nabas.
Power supply in the sandwiched island of Negros with a demand of 350mw did not become reliable until a reserve plant was built near the load center of Bacolod. Negros is also home to 300mw of solar power plants although they supply power only from 11am to 5pm and prone to intermittence due to passing clouds. Slated to come on line are about 200mw of biomass power plants again under the governments feed in tariff subsidy program. Just like Panay island, on-island generation is saving Negros island.
b. Balancing power supply. On island and imported power through the inter-connection
Just how much power will be supplied from the sub-marine cable and from the on-island generation will depend on the unique situation of each island. Will the imported power from Luzon be the main source of power or be the provider of peaking and reserve? A lot depends on what energies are available on each island.
1) Palawan despite some high potential local energy resources like mini-hydro, solar, and biomass and waste to energy has failed to develop them. One fossil fuel that has the highest potential of bringing reasonably priced base-load power is LNG that could be available in six (6) years, about the time it will take to build a Luzon-Mindoro-Palawan interconnection.
2) Unfortunately, power procurement on the island is so politicized that the local coop continue to specify power that is offered by well- connected sponsors who continue to push for oversized used generators and not by sensible power mix planning.
3) The island has so far 75mw of contracted power for its 50mw demand and is still suffering from brownouts. Instead of making its power generators perform and deliver, they are opting to contract for 20mw more power supply evidently with NEA and EPIMB imprimatur. The local coop do not really care because their consumers only pay for actual energy consumed at a subsidized rate of P5.6404 per kwh.
It is the government’s missionary subsidy that is absorbing the impact of the overcontracting and the onerous contract provisions. And guess who will eventually pay for the increasing missionary subsidies? We the national consumers infar away Manila, Luzon, the Visayas., and Mindanao.
4) Oriental Mindoro is much better situated than Palawan in terms of adjusting to a grid connected supply. It is not as over contracted and it has more indigenous energy resources like mini-hydro, wind, and biomass. Their new management is doing a much better job in designing their power procurement with clearer vision of base-load needs and mid-merit requirements. They are also wisely limiting the size of generating units for better load management and now requiring brand new units.
Its current abundance of diesel and bunker c fired power plants can be reconfigured if additional power from a Batangas submarine cable becomes a reality.
5) Occidental Mindoro is one province that can benefit from a submarine interconnection because they don’t have enough contracted supply. But the coops institutional strength and financial standing needs to be fixed. Even if there is an inter-connection,Luzon generation suppliers will not continue supplying power if they don’t get paid.
This province is one compelling reason for the government to find better ways to provide power to this western Mindoro area. It takes P1.621 billion in annual missionary subsidies or an equivalent of P15.90 per kwh, higher than the cost of generating power from a diesel engine. Many people cannot figure this out.
The highly politicized power supply contracting of the past 8 years have come back to haunt this electric coop. This province just on the other side of Mount Halcon from Oriental Mindoro can quickly benefit from the completion of the long delayed 69KV Mindoro Island transmission loop. Seems money better spent with faster benefits than a 230kv from Luzon with uncertain strategic purpose.
4. Weaning these islands from Missionary Subsidies
The regulatory aspects of inter-connecting these off-grid islands need to be resolved as part of the master plan to be provided by the Department of Energy. This is one of the biggest missing links to the whole effort.
There is a need for a clear path towards phasing out missionary subsidies. It might even be more appropriately called “ Palawan and Mindoro Missionary Subsidy Graduation Plan”. The phasing out of the missionary subsidy needs to be carefully calibrated and programmed depending on the needs of each island. Instead of abrupt, it can be a 10 year transition plan, the realistic time anyway for an orderly transfer from subsidized off-grid to on-grid.The DOE or through Transco, has to craft this strategy. This is a policy issue and cannot be left to the NGCP.
5. A need for an Independent Feasibility Study
What would be good is for the Department of Energy or the Transco to commission an independent power inter-connection study that will include these basic socio-economic development issues that should be an essential building block for a Palawan-Mindoro-Luzon inter-connection master plan.
6. Regulatory Aspects. Missionary Subsidies and Costs of Inter-Connection
A critical part that needs to be made clear in an inter-connection master plan is the regulatory aspects of the inter-connections. The DOE must establish a clear path towards transitioning from a missionary subsidized system to eventually a market based non-subsidized power delivery service system. Part of this also is a realistic transition period.
a) Missionary Subsidies
The current costs of missionary subsidies in these two islands as mentioned earlier had risen to P4 billion a year from P1.5 billion in the last 4 years pointing to a lack of resolute efforts on the part of the DOE and NPC to bring down missionary subsidies. This actually can be pared down by 40% in one year if onerous contracts are sanitized.
Just like in the Meralco area, the enforcement of truly competitive CSP should also bring down the true costs of generation even among available fossil fuel technologies. The use of oversized used generators as baseload suppliers were justifiable in the 1990s and 2000’s but not circa 2020’s.
The savings can be used to pay for a submarine power inter-connection if they find them justified.
b) Who should pay for the Inter-connection?
Should it be NGCP and recover it by adding maybe P0.08 per kwh to the transmission wheeling charge for Luzon? Or should it be the national government by charging it to missionary subsidy?
1) Conventional thinking says the P16 to P20 billion cost of the inter-connections should be added to rate base of NGCP and charged to the Luzon consumers as part of the Transmission wheeling rate.
2) It is however not fair because the inter-connection is not really for the technical benefit of Luzon but for the benefit of the electric users of Palawan and Mindoro islands. The closest benefit to Luzon consumers is probably the resulting reduction in the UC-ME once the inter-connection results to a reduction in the hefty missionary subsidies.
3) The logical way is for the government to use the savings in missionary subsidies of Palawan and Mindoro Island to pay for it.It is true that by inter-connecting, Palawan and Mindoro would no longer become missionary areas entitled to missionary subsidies. It is also true that the government cannot just abruptly withdraw the subsidies, lest they abandon the economic development support to these critical islands.This can be called transition missionary subsidy.
4) Palawan and Mindoro takes P4 billion a year in missionary subsidies. In the interest of a long term goal of eliminating or greatly reducing this subsidy, it can be allowed for a while and used to pay for the cost of inter-connection. If the inter-connection cost say P10 billion if it is a 138kv line and the inter-connection saves P3 billion a year in subsidies, it will take less than 4 years to fully pay for the inter-connections. NGCP will only add to its transmission charge the operation and maintenance costs of these transmission lines not anymore the capital costs.
If NGCP gets away with just building their industrial grade 230KV for Palawan, we calculate that the Mindoro-Palawan inter-connection will easily cost P20 billion or more. Ironically, it will not necessarily bring down power costs and improve power service on the islands.
5) What happens after the transition period?
Will Mindoro and Palawan fully graduate from being off-grid missionary areas? And what happens to the average generation rate to their consumers?
Let us first go over the basic premises.
(a) Even with inter-connection, on-island power generation still needs to be maintained on the island for power reliability. Things happen to the submarine cable and the 230KV power lines and when they do you don’t want the whole island in blackouts for a month or two. There is a technical and realistic reason for N-1 and N-2 grid Code requirement.
(b) On-island generation are needed to be sufficient to maintain service and cure the voltage drops towards the end of the lines.
Ideally, lowest cost generation technologies on the island should be made to supply at least part of the base-load and mid-merit requirements. You are talking about mini-hydro, biomass, waste to energy, and LNG when that becomes available. Bunker c should only be the fillers for extended run generators. And for peaking and reserve, you need low capacity cost generators like the old power plants and high speed generators.
(c) The proportion of the power that will be supplied by the inter-connection line will be part of the base-load, reserve, and peaking. The line will be particularly useful to the island coops to avail of lower cost WESM supply if they are available.
The exact proportion depends on the needs of the islands and the availability of lower cost energy on the island. Market forces will evolve this over time.
(d) Will Palawan and Mindoro be extended missionary subsidies?
Certainly, the addition of imported power from Luzon should add a lower cost alternative to bunker c and diesel, the main cause of high missionary subsidies in addition to onerous contracts and over contracting.
However, it cannot be expected that the generating cost in the islands will come down to the Meralco generation rate level even if the latter we believe is still overpriced. Meralco is 6,500mw and conversely Palawan is 50mw and the whole of Mindoro is 75mw.
Mindoro and Palawan coops however if they strategize their power mix procurement wisely can achieve a maximum blended cost of generation of P5.64 per kwh, the current level of government subsidized power and with much better power reliability. But if they continue fooling around with their CSP, and the DOE and NEA allows them, a Luzon grid inter-connection will only make matters worse.
(e) What to do with those existing power supply contracts for bunker c and diesel plants that have 10 to 15 years lives in their contracts?
To many this is a quandary. A chicken or egg dilemma. But it should not be.
First, these contracts will expire in about the time it will take to connect the islands. 2nd we need on island generation anyway. Some for base-load, reserve, peaking, and voltage regulation.
Old diesel plants with expiring contracts are perfect for economical reserve and peaking power service. And their standby capacity rates will be even lower if wehold truly competitive CSP’s among them for these services.
The stranded cost of these plants is manageable. If the inter-connection is done, the island gets probably a P6.00 to P7.00 per kwh source of power, cheaper the diesel fuel alone. Even in the transition period of say 10 years, the government will already save in missionary subsidies by just inter-connecting to a certain point. Assuming of course that we build a properly sized and priced inter-connection.
We have a better chance of achieving that if the eco-technical feasibility for the inter-connections are done by an independent consulting firmand not by NGCP itself.
These are essential for the Department of Energy and or Transco to provide the comprehensive master plan that would tighten up all the current loose ends including economic development policy issues.
7. Final Thoughts on Inter-Connection Strategy
If the DOE or Transco will be the ones to commission the feasibility studies on this inter-connection, one thing that may be revisited is NGCP’s predisposition to do the connection with a 230kv power line all the way involving probably 300 kilometers of overhead lines.
a. Risks of Overhead power lines
After establishing the economic development objectives for those provinces and islands and the appropriate power line connection is determined, perhaps the power line routes can also be revisited specially the Calapan to San Jose 215 kilometer overhead 230kv line.
For several reasons. The right of way problems along that 215 kilometer line can take a long time and cost a lot. Any few kilometers of unresolved rights of way would derail the whole project. And when it is done, let us not forget the devastating typhoons that hit Mindoro every few years.
When two powerful typhoons hit Mindoro in two consecutive Decembers in 2015 and 2016, the power lines were down for almost 3 years until 2019. And NPC had to pay P400 million a year in subsidies for emergency rental generators. Building and maintaining long power lines in a known typhoon path is not without high risks.
What will happen to Palawan if that happens? The DOE and Transco can probably revisit this routing issue more objectively than NGCP.
b. Archipelagic generation for archipelagic country
We are an archipelagic country with islands whose economic development potential and objectives are not the same. We should not automatically try to replicate the one grid designs of countries like China and Europe with one homogenous power grid. The readiness of the distribution systems and economic level of each island to absorb the 230kv power also needs to be considered.
c. A Bataan to Manila Bay Submarine Cable Connection is more needed by Luzon Consumers.
On the subject of submarine transmission connections, a more pressing project that can really benefit the people of the national capital region would be one from the Bataan Peninsula across the Manila bay or Cavite that can provide transmission efficiency and redundancy for North Luzon to Metro-Manila, the country’s nerve center for commerce, industry, government, and education with a 6,000mw power demand. This is something Luzon consumers would gladly pay for.
Nonetheless, Inter-connection for Mindoro and Palawan is inevitable. It just needs to be done and timed right for the islands, for the national grid, and for the consumers. A carefully planned 10-year transition timeline should be just right. A lot of planning and strategic reformulation remains to be done which now should also consider the economic reshaping and recovery plan post COVID19 pandemic.
Why don’t we ask the Transco? Asking NGCP to do the feasibility study is like asking your favorite restaurant to do your dietary planning.
Do you know that if they build the Batangas to Calapan super bridge, it will take you only 6 to 7 hours to get to Boracay from Batangas and only 1.5 hours to Puerto Galera! And imagine the growth of commerce, real estate, tourism along that route? We can dream the right dreams.
MatuwidnaSingilsaKuryente Consumer Alliance Inc.
matuwid.org
david.mskorg@yahoo.com.ph
Read also Archipelagic Generation for an Archipelagic Nation July 4, 2016 Philippine Power Insights
