The Department of Energy (DOE) has been swamped with questions as well as dissent from various quarters on its plan to enforce a policy that will mandate distribution utilities (DUs), primarily those in the Luzon grid, to procure prescribed percentage of their supply from gas-fired power facilities.

That was stipulated in a draft Circular that the department has disseminated for consultations with the relevant stakeholders in the restructured power industry.

“All DUs shall source a percentage of their demand as determined by the DOE, from natural gas-fired power generation facilities,” the draft DOE Circular stated.

There is no specific figure given by the DOE yet on the mandatory gas capacity procurement, but it admitted that the policy is in line with targets to guarantee a market for the gas aggregation plan proposed by Prime Infra of the Razon group.

“The draft policy is espousing a gas aggregation scheme in order for the distribution utilities (DUs) within the Luzon grid to benefit in a relatively lower price of blended imported LNG (liquefied natural gas) and natural gas from the Malampaya,” the DOE noted in a media statement.

Pricing for the gas has also been recommended to be calculated and enforced by the Energy Regulatory Commission.

The major questions raised by relevant stakeholders revolve around concerns on how the gas aggregation policy will work; and how the gas will be priced if there will be blend of indigenous gas and imported liquefied natural gas (LNG) that shall be marketed by the aggregator.

The department was also quizzed as to which entity shall determine the mix of indigenous gas and imported LNG; and which agency will have ultimate decision as to whom the aggregator can sell or not be able to sell to in the market.

Under the draft Circular, it was highlighted that the DOE will “determine the mandated minimum percentage (MMP) that DUs are required to source from natural gas-fired power generation facilities.”

With a decreed pie for capacity procurements from gas plants, the consumers may burden additional costs akin to the out-of-pocket subsidy currently being passed on in the electric bills to incentivize renewable energy (RE) developments in the country.

The DOE emphasized that “all DUs shall prepare and submit the Distribution Development Plan (DDP) and Power Supply Procurement Plan (PSPP) integrating the mandated percentage power supply sourced from the natural gas-fired power generation facilities.”

It qualified that in a scenario wherein the DU is already fully contracted, the power utility shall reflect in its DDP and PSPP “the mandated percentage to be sourced from natural gas-fired power generation facilities for its future power supply.”

According to the energy department, the power utilities can source their gas-generated supply either through auction, competitive selection process or bidding for their power supply contracting; or they could source it via the Wholesale Electricity Spot Market.

The DOE will also “design the mechanism, processes, protocols and requirements for the procurement of capacity from natural gas-fired power generation facilities, which may include, but not limited to, auction and power market.”