Monday, May 05, 2014

Energy Econ 20: On Slashing the Max Power Generation Charge

When there is thin or very small power reserves on peak demand hours of hot months April-May, there are two options. (1) Have rotating brown outs, kill electricity demand for a few hours in some areas; or (2) get expensive power from peak-load plants like diesel barges and avoid brown-outs.

The P32/kwh max rate (usually for 1 or 2 hours, and used to be P62/kwh) allowed in WESM (vs average price of about P5/kwh) looks exorbitant, true. But if it will help avoid a brown out of 1 or 2 hours, it may look less merciless as other people would describe it. So some businessmen are willing to invest in diesel barges that may run only 1 to 3 hours a day (vs. base load plants like coal and nat gas that run 24 hours a day), in exchange for a higher generation charge.

Now there are moves by the ERC and DOE to slash the max rate to only P6.25/kwh.

A power investor will only put his money in base load plants that run 24/7 and selling at P4-7/kwh, not in peak load plants that may run only 1-3 hours a day on hot months, and zero on rainy and cold months, and be allowed by the ERC to charge only P6+/kwh. When there are no or very few peak load plants to address short-term high electricity demand, frequent brown outs on hot months will happen.

When there is frequent brown out, people will resort to (a) buying generator sets, which are costly and running on costly diesel, or (b) have more candles and experience more fires. People forgetting to attend to their candles which accidental fell down, burned a piece of paper, ultimtely burning the entire house and the neighboring houses.

Electricity supply should be big relative to demand. Electricity prices should be low due to competition among many power generating companies. This thing is not happening yet. DOE itself is part of the problem why power supply is limited.

Three friends made the following comments when I posted the above discussion in my fb wall.

(1) Bembette: noy, as part of the energy family, we have a directive to turn off our aircon for 3 hours everyday, during the peak hours. there has been a decrease in our energy consumption. adverse effect: aircons bogging down because of the constant turning on and off, which means additional cost for repair/replacement.

(2) Grace: During times of extreme heat or cold here, and the power grid looks like it may be overwhelmed; our power companies ask the we "help" by unplugging any unnecessary electric & electronic devices (cable boxes, clocks, DVD players, etc - you're not at home using them). That reduces demand some.

(3) Rose: It's a no win solution for consumers Noy! Grrrr!

(4) AndrewWhat about raising prices during peak hours? That would be the Hong Kong solution.

Another adverse result of forced conservation as narrated by Bembette. A government office saves from monthly electricity bill but spends more on appliances maintenance, or replacing them with a new unit.

Grace's observation is correct, it should be done during period of emergencies and unforeseen events. Either the power plants conk out, or there is power but the transmission lines or distribution lines are cut off due to toppled electrical posts. It is different in predictable or foreseen events, like high electricity demand in the hot months of March-April-May, the last two especially.

And this partless addresses the disappointment of Rose. Consumers can bring down their electricity bill by shifting some of their activities to non-peak hours, say doing electric laundry, ironing, electronic work, at non-peak hours.

Andrew's proposal is incorporated in the long term direction of the wholesale electricity spot market (WESM), pricing by the hour. Thus, cheaper monthly electricity bill for those who are using more electricity during non-peak hours. Currently, the distribution utilities like the various electric cooperatives nationwide lump the pricing in one average price for the month. Thus, users of electricity during non-peak hours subsidize those who use more electricity during peak hours.

When investors come in to put up new power plants,

"Petilla said more than 100 signatures are required from various government agencies just so an investor cant push through with a project."

Government is very often, the main cause why there are not enough new power plants in this country. Its bureaucratism, permit-permit-permit, tax-fees-royalties mentality, discourages a number of potential players into power generation.

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