Philippines Power Crisis: The Battle to Keep the Lights On

CALACA, the Philippines—A looming power shortage is forcing the Philippine government to consider extraordinary measures to keep millions of homes and businesses running normally, and prevent the lights fading on the country’s promising growth story.

President Benigno Aquino III announced Sept. 11 that he was seeking emergency powers from Congress to help plug a fast-approaching hole in the country’s electricity output. Due to maintenance outages and delays with new plants, Mr. Aquino warned that the island of Luzon—home to 44 million Filipinos—may generate as little as 8,000 megawatts of electricity next spring. It needs 9,000 megawatts.

Electricity companies are viewing the shortage as an opportunity, in a country where demand seemingly never fails to outstrip supply. The Department of Energy estimates that national capacity will double to nearly 26,000 megawatts by 2030—still 3,500 megawatts less than predicted demand.

At the new $525 million Puting Bato coal plant, in the coastal district of Calaca south of the capital, Manila, switch-on day is close. Senior engineer Jimmy Diamante looks down from a platform offering a head-spinning view of the maze of steel pipes and colossal machinery that took his team three and half years to build.

“To see it now, it is amazing,” he smiled. “I’ve been here since it was ground zero—nothing but grass.”

By November, Puting Bato will generate 135 megawatts of electricity. But that still won’t meet demand.

The shortage is part of a decades-old weakness in the Philippine power sector. Ever since the government mothballed the country’s sole nuclear plant post-Chernobyl in 1986—without an atom being split—the Philippines has struggled to get ahead of its energy curve.

This leaves millions of people subject to power blackouts—and turns off investors. Heavy manufacturing is largely absent from the Philippines as a result.

Mr. Aquino’s emergency powers would allow the government to lease additional electricity capacity, mainly by renting mobile diesel generators and hooking them up to the grid, and to force some companies to unhook themselves from the grid and use generators instead.

The government privatized power generation a decade ago, and the private sector considers Mr. Aquino’s proposal unreasonable interference. It is “a distortion of free markets,” said Luis Miguel Aboitiz, senior vice president at Aboitiz Power Corp., saying “there are many solutions that don’t need emergency powers,” the best of which would be to lease extra capacity through public bidding.

The Department of Energy said it is trying to streamline the regulatory process to attract more foreign power companies, but Mr. Gluski said the “hundred approvals” required were a deterrent in a market demanding huge initial outlay and a 15- or 20-year commitment.Andres Gluski, CEO of U.S. power company AES Corp.  , which operates a coal plant in western Luzon, agreed that the government could navigate the crisis by trusting the market. “There are companies like us willing to put in new technology,” he said. That technology has enabled AES to increase the output of its formerly state-run plant by 50%, he noted.

Yet, power companies are still queuing up to build plants in the Philippines. AES is planning to invest more than $1 billion to expand its capacity. Aboitiz Power is building four new plants, Mr. Aboitiz said, which will produce 1,600 megawatts combined. Other big players, including San Miguel Energy Corp. and First Gen Corp., are also building more.

“No independent power producer [in the Philippines] has ever lost money due to a supply contract being revoked,” said Jed Garcia, vice president at Ayala Corp. Energy, part-owner of the Puting Bato plant, since demand is dependably high. Mr. Garcia likened a Philippine power plant to a bond that “gives you a very predictable cash flow stream.”

For end users, the outlook is less bright. The Philippines has Southeast Asia’s most expensive electricity, excluding Singapore, and perhaps the region’s least reliable supply. High prices are partly from Manila’s refusal to subsidize power—a policy that most economists applaud—but an inefficient grid is also to blame, Mr. Aboitiz said.

For the generating companies, however, the real challenge is how quickly they can build new plants. Even at Puting Bato, intensive work continues, despite the imminent switch-on. Unit Two, adding another 135 megawatts in capacity, is under construction.

Source:http://online.wsj.com/articles/philippines-power-crisis-the-battle-to-keep-the-lights-on-1410989402?tesla=y&mg=reno64-wsj&url=http://online.wsj.com/article/SB10772401218227423777504580159311522668440.html