NGCP warns of power rate hike in DOE AS procurement

Published June 10, 2021, 4:22 PM

by Myrna M. Velasco

System operator National Grid Corporation of the Philippines (NGCP) has warned of spikes in the electricity bills of consumers if it will have to adhere to the proposed frame of ancillary services (AS) contracting set forth by the Department of Energy (DOE).

“Consumers stand to suffer from soaring electricity rates should the DOE-proposed strategy of 100-percent firm contracting for ancillary services prevail,” NGCP has stated.

Based on the initial simulations of NGCP, the rate hikes to be suffered by consumers could be as much as P0.64 per kilowatt hour (kWh) for those in Luzon; P0.54 per kWh for Visayas; and P1.39 per kWh for those in Mindanao.

The transmission firm said it is issuing this caution to consumers, “in light of the DOE’s insistence on the dispatch of ancillary services as a response to thin operating margins and possible load dropping in the Luzon grid at various points this year due to multiple power plants on extended outage.”

As culled from DOE’s policy stipulation, it is compelling NGCP “to procure all of its ancillary services requirements under 100% firm contract, wherein AS providers will be paid for 24/7 availability, regardless of actual or absent utilization.”

Under the current set-up, NGCP is contracting both firm and non-firm arrangements for its ancillary services or reserves requirement for the operation of the power transmission system.

The transmission company similarly laid down that many of the power plants seeking firm AS contracts run on diesel fuel, and NGCP noted that these types of facilities “are decrepit and inefficient,” hence, it will not only be counterproductive, but “it will drastically hike electricity rates.” Ancillary services charges are pass-on costs, meaning, it will be the consumers that will fully bear the financial burden.

Further, NGCP qualified that ancillary services or reserves “are not meant to replace baseload plants or for any long-term or continuous use. “

Instead, the system operator explained that ancillary services serve as “stop-gap measure, dispatched only to stabilize and balance the grid in cases of power supply and demand imbalance.”

Hence, in times when supply is sufficient, NGCP noted that AS “is meant to run only long enough to bridge the gap between the loss of supply event, and the time that replacement power can be scheduled by the Independent Electricity Market Operator of the Philippines, Inc. (IEMOP), usually within the succeeding hour or two.”

NGCP likewise indicated that procured ancillary services “should not run for days, weeks, or months”, without committing violations on the provisions of the Electric Power Industry Reform Act (EPIRA) and other prevailing regulatory approvals.

The transmission firm added that AS are typically services, “not energy ‘reserves’ that the grid can tap for extended periods of time should major power plants falter.”

As pointed out “shifting from the current non-firm arrangements to a firm arrangement will not solve the current lack in supply, as they are taken from the same pool of power plant suppliers.”

NGCP specified that proposed modifications in AS contracting “is not the solution to the power supply shortage,” with it emphasizing that “we get our power to support AS from the same pool of generators, many of which went on unscheduled shutdowns, and whose current collective output is not enough to meet consumer demand.”

NGCP stressed that “signing a firm contract will not make a large capacity power plant magically appear with the stroke of a pen. The only thing that changes is the charging mechanism.’