session 3 adb philippines electricity reform

8/10/2019 Session 3 Adb Philippines Electricity Reform

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POWER SECTOR RESTRUCTURINGLESSONS LEARNT FROM THE

PHILIPPINES EXPERIENCE

Anthony J JudeChair Energy Committee

Senior Advisor concurrent Practice Leader [Energy]

25 November 2013, Bangkok. Thailand


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OUTLINE OF PRESENTATION

Genesis of the Reform

- Why the power sector reform was needed?

Roadmap of the Reform

- Concept, sequence and timeframe

ADBs Supporting Role

- TA, project & program loans, guarantee

Assessment of the Reform

- What has been achieved so far?

Lessons Learned and Challenges


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Genesis of the Reform


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GENESIS OF THE REFORM 1)

In mid-1980s, the Government scrapped BataanNuclear Power Plant (620MW),

$2.3 billion, fully repaid in April 2007;

In early 1990s, Luzon experienced severe powershortages due to inadequate generation capacity NPC (No Power Corporation)!

Emergency power was granted by Congress.

Government contracted IPPs to resolve the powercrisis over 6,000 MW contracted with take-or-payprovision guaranteed by the Government.

Meralco also contracted 2,000 MW from IPPs.


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Pre-EPIRA Power Sector Structure

Vertically Integrated

IPPs are mostly contracted by

NPC

NPC owns portfolios of plants

Tariffs are regulated

Cross Subsidies embedded in

the rates

Customers

Large Industries andBulk Users

DUs/ECs

IPPs NPC Plants
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Roadmap of the Reform


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COMPONENTS OF POWER SECTORREFORM

Unbundling: generation, transmission, distribution, supply,metering services

Independent regulation (technical & price)

Removal of subsidies and cross subsidies

Privatization of generation (ownership, cross-ownershiprestriction)

Privatization of transmission (performance-basedregulation)

Privatization of distribution (performance based regulation)

Wholesale competition (independent market operator)

Retail competition/open access

Liquidation of stranded debt & costs of national powercompany


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PHILIPPINES VS INDONESIA

Indonesia Electricity Law 2009

Philippines EPIRA 2001

Unbundling

May be conducted in an integrated manner" orin one business type.

Unbundled generation; transmission

Distribution, supply

Open access

Transmission open access

Transmission and distribution open access

Crossownership

No mention No one group can own more than 30% ofthe installed capacity

Subsidies orCrosssubsidies

Electricity prices to take consumers' interest toaccount; Special tariffs for underprivilegedconsumers

All subsides removed, with exception oflifeline rate

Regulation

By Government or regional Government

Energy Regulatory Commission

PricingMethodology

Arranged by Government/or regionalGovernment based on national interests,consumers' interests, production costs.

competitive pricing for generation, andsupplies; performance based pricing fortransmission/distribution

Privatization

No

- privatization of government ownedgeneration assets and transmissionconcession

Wholesalecompetition

No clear rules, "healthy competition" based onGovernment regulation

wholesale spot market (price basedbidding gross pool)

Retailcompetition

No mention

Retail competition subject to 70% ofprivatization of generation capacity


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AGMO

GENCOs

NGCP

SUPPLIERS/AGGREGATORS

S

P

U

G

LEGEND

Enforcement Coordination ERC Reg. Ownership/ Policymaking Operation Supervision TransferControl

Competitive

ERC Regulated

PIOUs/ECs -CDA

INDUSTRYPARTICIPANTS

ECs

IMO

JCPC

TransCo

Electric Power Industry Structure


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Moving Towards A Competitive Power Market

26 December 2012

79.56 % of NPC GenCos in Luzon and Visayas

NGCP as the TransCo Concessionaire

76.85% transferred to IPP Administrators

Unbundling

Unbundling of NPC rates (26 Mar. 2002)

and Unbundling of DUs rates (June 2003).

Complied with.

Status of EPIRA Implementation

Inter-Grid, Sept. 2002; Intra-Grid, Oct.2005 and Inter-Class, Oct. 2005

Complied with.Removal of Cross Subsidies

Complied with.

OPEN ACCESS AND RETAIL COMPETITION

Luzon Commercial Operation on June 2006 Integration of Visayas Grid, 26 Dec. 2010

Establishment of WESM

Complied with.
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PHILIPPINES

Update on EPIRA Implementation

NPC

31%

PSALM

49%

First Gen11%

QPPL

3%

Others

6%

Pre-Privatization (2003)

As of March 2013

San Miguel19%

Aboitiz15%

First Gas13%

PSALM18%

AES4%

SEMCalaca

4%

GN

Power4%

QPPL3%

NPC8%

GBPC3%

SPC2%

Others7%

Installed Capacity Share Monitoring


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Update on EPIRA Implementation

Installed Capacity Share Monitoring

Aboititz Group17%

NPC51%

PSALM27%

Others5%

MIndanao

GBPC27%

SPC15%

Green Core

12%

Aboitiz6%

NPC2%

PSALM35%

Others

3%

Visayas

San Miguel26%

Aboitiz16%

First Gas15%

PSALM14%

AES5%

GN Power

5%

QPPL4%

SEMCalaca

5%NPC2%

Others8%

Luzon

As of March 2013


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ADBs Supporting Role


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ADB LOANS AND GUARANTEE

December 1998: ADB approved the Power

Sector Restructuring Program for $300 million,and a project loan of $40 million forestablishing WESM.

December 2002, ADB approved a partial creditguarantee (PCG) for US$500 million equivalent.

December 2006: ADB approved the PowerDevelopment Program for 450 million.


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ADB TECHNICAL ASSISTANCE

Electricity pricing and regulatory practice in a

competitive environment ($600,000), 1998

Consumer impact assessment of PSRP($720,000), 2000

Competition Policy for the Electricity Sector($990,000), 2001

Transition to Competitive Electricity Markets($800,000), 2002

Promoting Good Governance in theRestructured Power Sector ($800,000), 2003

Institutional Strengthening of ERC andPrivatization of NPC ($1,200,000), 2004


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Assessment of the Reform


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WHAT HAS BEEN ACHIEVED

Independent Energy Regulatory Commission

established All inter-grids, intra-grid, inter-class subsidies

removed (except lifeline rate)

WESM operational in Luzon and Visayas

23 power plants (3072 MW), i.e. 81% of NPC assetprivatized, $3 billion

Sual (1000 MW), Pagbilao (700MW), San Roque(345 MW), Bakun-Benguet (100 MW),

44% of IPP capacity; IPP Administrators appointed, $2.3 billion

TRANSCO Concession awarded, 3.95 billion

Stranded debt: Introduction of Universal Charges(P0.30/kWh for 25 years)

Interim Mindanao Electricity Market 26Sept13


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PRIVATIZATION OF GENCOS

Assets

Capacity(MW)

Winner

Bid Price($ million)

Unit Cost

($ million/MW)

Masinloc Coal 600 AES, USA 930 1.55

Calaca Coal 600 Semirara, PHI 361.7 0.60

Tiwi-MakbanGeothermal

747 Aboitiz, PHI 446.9 0.59

Limay Oil 620 San Miguel, PHI 13.5 0.02

Magat Hydro 360 Aboitiz, PHI 530 1.47


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WHAT HAS NOT BEEN ACHIEVED

Appointment of Independent market

Operator (IMO) Retail competition subject to 70% of

IPPAs

Weak distribution sector (electriccooperatives)

Lack of private sector investment fornew capacity?


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Retail Competition and Open Access


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POLICY FRAMEWORK34

Efficiency and Competition

Effective Governance andRegulation

Consumer Empowerment

and Protection


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35

Provides the Power of Choice tothe Electricity End-Users

Ensures proper environment is in

place

POLICY FRAMEWORK


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MARKET DESIGN


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RELEVANT RULES FOR CONTESTABLE

CUSTOMERS

37


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MANDATORY CONTESTABILITY AND CUSTOMERCHOICE

38

DOE Department Circular No. DC 2012-05-0005

Consistent with EPIRA, RCOA should promote customer choice

The power of choice is conferred to Contestable Customers (CCs)subject to the rules and regulations

Power of Choice

CCs shall be allowed to choose where to source its supply ofelectricity

CCs may source electricity supply requirements from a Supplierduly licensed by ERC, a Local Supplier duly authorized by the ERC,or through the WESM

Customer Empowerment

*Slide Prepared by PEMC

QUALIFIED CONTESTABLE CUSTOMERS


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QUALIFIED CONTESTABLE CUSTOMERS

(CCS)

Section 31 EPIRA

DOE Department Circular No. DC 2012-05-0005

Provides that upon the initial implementation of RCOA, the ERC shall allowall electricity end-users with a monthly average peak demand of at leastone megawatt (1 MW) for the preceding twelve (12) months to be thecontestable market

Section 31 of EPIRA

Refers to the electricity end-users who have a choice of a supplier ofelectricity, as may be determined by the ERC in accordance with the EPIRA

Contestable Market

Refers to the electricity end-user who is part of the contestable market

Contestable Customer


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TIMELINES OF RCOA IMPLEMENTATION

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FIRST YEAR TIMELINE OF IMPLEMENTATION

Customer Switching Start (26 December 2013 onwards)

Regular CustomerSwitching

WESM Transactions forNewly Registered Customers

Continuing Registration andTraining

SOLR Service orDisconnection

Initial Commercial Operations (26 June 201325 December 2013)

WESM Transactions forRegistered Customers

Retail SupplyContracts

Registration of Non-Registered Customers

No CustomerSwitching

SOLR Service orDisconnection/Remain with DU

Transition Period (26 December 201225 June 2013)

Retail Supply ContractsMetering Installations

Registration and

Training

Trial Operations

Declaration of Open Access Date (26 December 2012)

ERC/DOE Joint Declaration of the Commencement

of RCOA

PEMC (as CRB) calls for registration

41

*Slide Prepared by PEMC


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ERC TRANSITORY RULESRESOLUTION NO. 11, SERIES OF 2013 DATED 10 JUNE 2013

A CC that fails to enter into an RSC by June 25, 2013

shall be deemed to stay with its current DU until

December 25, 2013, or until such time that it isable to find a RES, provided that it informs DU of

such fact on or before June 25, 2013.

Continue to pay the regulated rates of the DU.

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GOVERNMENT INITIATIVES43

Conduct of Trainings and Information andEducation Campaigns (IECs)

RCOA Get-Together for CCs and RESs

Focus Group IECs

General Public IECs

Continuing Collaboration with ERC and PEMC

Monitoring and Evaluation for Needed Policy

Actions

Recent Developments


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RECENT DEVELOPMENTS 44

From 18 Respondent CCs

Contract duration ranges from 18 months to seven (7) years

Off-Peak Prices: approx. P3.2553 per kWh; Peak Prices: approx.

P6.4642 per kWh; others based on Load Factor

With Pre-Termination Charges and Replacement Power Provision

DOE Supplementary Policy

Allows prospective GenCos to contract with CCs provided

RES License is secured before effective date of the Supply

Contract with CCs; and

Allows Switching when Superior Offercomes; ERC to

define Superior Offer.


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19 licensed

Retail Electricity

Suppliers (RES),

27 SOLRProviders

and 18 Local RES

The Contestable Market(November 2012)

GridNo. of

Customers

Power

Demand

(MW)

Luzon 801 2,639

MERALCO 638 1,827

Visayas 96 759

VECO 39 225

UPDATES

Source: ERC


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REGISTRATION

Participant Expected2Total

Application

Received

RegisteredOn-Going

Completion of

Requirements

Retail ElectricitySuppliers

19 19 15 4

Local Retail Electricity

Suppliers

18 12 5 7

Retail Metering ServicesProviders

39 27 23 4

Contestable Customers 892 297 257 40

Suppliers of Last Resort 27 7 2 5

Total1 995 362 302 60

1As of 26 September 20132Based on ERCs RCOA website: www.buyyourelectricty.com
http://www.buyyourelectricty.com/http://www.buyyourelectricty.com/


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LIST OF LICENSED RES

1. Cabanatuan ElectricCorporation.

2. Masinloc Power Partners Co.Ltd.

3. Aboitiz Energy Solutions,

Inc.4. Advent Energy, Inc.

5. Direct Power Services, Inc.

6. Ecozone Power

Management, Inc.7. Ferro Energy, Inc.

8. First Gen. Energy Solutions,Inc.

9. Global Energy SupplyCorporation

10. GN Power Ltd. Co.11. GNPower Mariveles Coal

Plant Ltd. Co.

12. Kratos RES, Inc.

13. Premier Energy Resources

Corp.

14. Prism Energy, Inc.

15. San Miguel ElectricCorporation

16. SEM-Calaca RES Corp.17. SN Aboitiz Power RES

18. Team Philippines EnergyCorp.

19. Trans-Asia Oil and EnergyDevelo ment Cor .


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LIST OF LOCAL RES

1. Angeles Electricity Corporation (AEC)

2. Manila Electric Company (MERALCO)3. Dagupan Electric Corporation (DECORP)

4. Visayan Electric Company (VECO)

5. Subic Enerzone Corporation (SEZ)

6. Bohol Light Company, Inc. (BLCI)

7. Tarlac Electric, Inc. (TEI)

8. San Fernando Electric Light & Power Co. (SFELAPCO)

9. Ilocos Norte Electric Cooperative, Inc. (INEC)

10. Nueva Ecija I Electric Cooperative, Inc. (NEECO I)

11. Cebu I Electric Cooperative, Inc. (CEBECO I)

12. Cebu III Electric Cooperative, Inc. (CEBECO III)

13. Batelec II Electric Cooperative, Inc. (BATELEC II)

14. Benguet Electric Cooperative, Inc. (BENECO)

15. Cebu II Electric Cooperative, Inc. (CEBECO II)


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Lessons Learnt and Challenges


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LESSONS LEARNT:

ISSUES, SEQUENCE AND TIMEFRAME

Issues: No mandatory bilateral contract

between NPC power plants and distribution

utilities investors have no PPA to finance

their purchase

Sequence: Should WESM be established

before privatization of NPC assets ? Market

power

Timeframe: EPIRAs implementation timeline

totally unrealistic


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POWER SECTOR REFORM IN THE

PHILIPPINES - A SUCCESS STORY?

Question: How to judge & measure if power sector reform issuccessful?

- Competitive electricity rate?- Sustainable power supply?

- Promoting renewable energy?


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-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J

Price,P

/MWh

Effective Buying Price Effective Selling Price Cumulative Ave. Buying Price

Effective Settlement Prices

2007 20082006

P4,497/MWh

2009

Market Results


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CHALLENGES AHEAD

Challenge No.1: Will electricity rate will be cheaper?

-

probably not but

Challenge No. 2: Will private sector accept merchant risk

and invest in new capacity?

yes with ADB support initially then the experienced investors will

continue

Challenge No.3: Will competitive markets promote

renewable energy?

- WESM will include renewable energy market based on

renewable energy law


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The most expensive power is the power we dont have


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THANK YOU

session 3 adb philippines electricity reform

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