NGCP warns of power rate hikes should DOE insist on firm-contracted ancillary reserves

NGCP warns of power rate hikes should DOE insist on firm-contracted ancillary reserves

Consumers stand to suffer from soaring electricity rates should the Department of Energy insist on procuring ancillary services (AS) through firm contracts.

NGCP issued this warning in light of the DOE’s insistence on the dispatch of AS to address thinning margins and possible load dropping in the Luzon grid due to multiple power plants on extended outage.

The power transmission grid operator said initial simulations showed that power rates could go up by 64 centavors per kilowatt hour for Luzon, 54 centavos per kwh for Visayas and P1.39 per kwh for Mindanao.

NGCP explained that AS is not intended to replace baseload plants or for any long-term or continuous use. Instead, ancillary services are a stop-gap measure, dispatched only to stabilize and balance the grid in cases of power supply and demand imbalance.

In times when supply is sufficient, the 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.

It should not run for days, weeks or months without violating the EPIRA and prevailing regulatory approvals.

Under the DOE’s strategy, however, the NGCP is being compelled 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.

“Shifting to firm contracting is not the solution to the power supply shortage. 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. 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,” NGCP said.

NGCP said the ERC should be given the opportunity to review the policy and study its full impact on the consumers.

“NGCP does not deny its obligation to secure sufficient AS. This obligation is clear. We only ask that this be thoroughly studied, and the price impact be given primary consideration. With consumers already reeling from the economic effects of the pandemic, industry leaders should think before pushing a procurement strategy that can be, at best, described as anti-poor, and at worst, basis for charges of plunder,” said the company owned by bilyonaryo Henry Sy Jr. and insurance and car dealership magnate Robert Coyiuto Jr.

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