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Tuesday, April 14, 2015

CONFUSION


I wrote some questions to the energy secretary to better understand why there is a perennial shortage of electricity in many parts of this country. After receiving the answers I feel I am more confused. 

The Electric Power Industry Management Bureau of the Department of Energy cannot agree with my observation that it is fragmented demand that makes adequate supply of electricity a perennial problem in spite of the fact it is assumed the DOE knows the growth of demand for energy. 

My first question was: “Is one of the reasons for the shortage the fact of fragmented demand?” 

DOE’s answer: No. Power shortage or supply deficiency is determined when demand requirements plus reserve requirements is higher than available supply. 

I thought everybody knows that. When demand is high and supply is inadequate, the inevitable result is shortage and higher prices although at present coal is  the main raw material.   Coal is cheaper than fossil fuel.  

The fact of supply and demand at play in a market-driven system also applies to electricity.  We need not be told about it.  

The law of supply and demand applies to all goods and services, not only to electricity. I am trying to prove the belief perennial shortage of electricity is largely a result of the geographical accident of the Philippines being “divided” into three big islands of Luzon, Visayas and Mindanao. 

The surprise of DOE’s answer is its apparent knowledge and appreciation of how the law of supply and demand works. Yet I am convinced there might be adequate supply if the three islands are landlocked as one.  If that had been the case,  we should have fewer but bigger generating plants that have economies of scale. 

“But we are foreseeing the incoming of additional capacities in Mindanao.” The above is answer to my question: “The country has three major islands: Luzon, Visayas and Mindanao. If they have been landlocked would there be few big generating plants that would have excess capacity?” The operative word here is “interconnection.” The DOE says Luzon and Visayas are interconnected. Would interconnection be necessary if the power needs of two islands are supplied by one or two generating plants? Probably  not! 

It is the fact of the Visayas being separated by a body of water from Luzon that makes interconnection a necessity. In that respect, there is fragmented demand. There is fragmentation  in the sense that the two groups of consumers are literally separated from each other. Therefore, in my uneducated guess demand is fragmented between two islands such that one has to share power with the other. I guess one giant plant would be enough to provide energy to the two islands. Or each of
them could have a plant that has the economies of scale that in turn should prevent a shortage. In fact, each of the two plants — one in Visayas and another in Luzon — could have excess capacity to supply expected shortage considering that the use of electricity grows every year. If it does not, it tells a lot about our slow growth considering that production of goods and services is made easier and cheaper with the use of electricity.

I find it difficult to understand DOE’s statement “we are foreseeing the incoming of additional capacities in Mindanao.” Why didn’t government see earlier the need for additional capacities that would prevent a shortage? 

I asked: “Is the fact of fragmented demand the reason there are generating plants with capacities of as small as 20 MW or less.” 

DOE’s answer: “Depends on the market off taker. In the case of Mindanao, there will be large power plants which will come on line starting this year. There are, however, embedded generation facilities that are connected to the distribution system of the distribution utilities that are smaller in sizes as described e.g. 10 MW, 20MW etc. 

Again as in the case of the Visayas being interconnected with Luzon, one wonders why there is no efficient giant plant that can fill the demand in Mindanao and leave some reserves to fill anticipated growth in demand for electricity? 

I asked: “What should be the minimum assured demand of a new plant before it is even constructed.” The question is stupid in the face of perennial shortage. Which means the proponents of generating plants should be required to install bigger capacities.

Isn’t it funny the generating plants have to be assured of at least 70-80 percent sale of capacity when the shortage is felt by everybody?  Maybe the problem here is which group or who would buy directly from the plant instead of the plant itself distributing electricity. 

Here is DOE’s answer “Unofficial information relayed by power plant owner (sic) is that at least 70 to 80 percent of generation output have been contracted. But generally it is dependent on the risk appetite of the investors. There are investors that (sic) build plants even without off takers and will operate as merchant plants. 

Here again is  lost the theory and practice of having economies of scale that accompanies a bigger plant that can supply the needs of most, if not all, of the consumers living in the dark or suffers from brownouts for  days and weeks.

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email: amadomacasaet@yahoo.com
- See more at: http://www.malaya.com.ph/business-news/opinion/confusion#sthash.HCjhqasC.dpuf

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