Nick’s Philippine Notes

"Dispatch rights" refers to the ability of a distribution utility that has contracted for power output from an Independent Power Producer's (IPP) generating plant to schedule that output on a daily or hourly basis - i.e. to tell the generator how many megawatts, if any, it wants to take in each hour.

There is a fundamental principal in power system economics that certain types of plants are more economical (relative to other types) at high capacity factors (or baseload) and other types are more economical at low capacity factors (or as peaking units). Since power plant contracts are typically for long terms (like 20 years), a common practice is to forecast out what the relative economic mix of baseload and peaking units might be for a certain system and then procure that mix.

The problem arises because that mix is just a forecast; making certain assumptions on technological change and fuel prices. The baseload plant you contract for now, that appears to be economical at a 65% capacity factor for its lifetime, might turn out to be economical at only 50% annual capacity factor ten years from now given the resource mix available to you at that point in time. 

By siging a power purchase agreement that has a minimum monthly energy off-take, you are essentially waiving your dispatch rights - or, more specifically, those of the future managers of your utility.The future managers of your utility should have the right to determine the economic dispatch of that unit to achieve least cost to his/her ratepayers at that future point in time.

But to get dispatch rights, you have to pay for them. And that is exactly what a "capacity payment" is structured to do. (We're starting to get to the disruptive part; just hold on a bit more). A capacity payment is a fixed monthly amount in pesos that is paid to the IPP for the right (not the obligation) to dispatch the plant, when and if it's economical to do so - it doesn't include any fuel costs. If you do dispatch the plant, then you also pay the costs associated with the dispatch - such as fuel. This structure allows the utility to continually (or adaptively) make the decision on economic capacity factor for the plant throughout its life. It's not locked in.

The IPP SHOULD be indifferent. As long as they get their capacity fees to cover their investment and make their profit on the investment, and as long as they get their fuel and other dispatch-related expenses covered, why should they care when, how often, or even if, the utility dispatches the plant?

One reason I can imagine is that the IPP is in the fuel business too (or has an interest in the fuel supply chain). Then it would matter. If they are tying to structure a guaranteed market for the fuel consumption, then they don't want the utility to have dispatch rights. They want a long-term "fuel purchase" agreement too.

There's the disruption.

The GlobalCOAL Newcastle index closed at US$71.74/MT for the month of October 2009 - a 5% uptick after two months of falling prices.

DON'T MISS A THING. UPDATES BY EMAIL

Click on the Subscribe link below to go to a subscriptions page.

SUBSCRIBE to Philippine Power Markets by Nick

Every email update you receive will have an unsubscribe option.

For the RSS feed, click on this RSS link or paste the following into your RSS reader: http://asianenergyadvisors.com/feed/

Frankly, no one knows what the price of electricity out of a new coal-fired power plant in the Philippines will cost, primarily because no one knows what the market price of coal will be in the future. Even those that have entered into contracts for such power can't know.

• Newcastle Coal Price Index
• US CPI
• US PPI
• Philippines CPI
• US$/PhP exchange rate. 

Here they are - in case you missed it.  Embedded in this document, as recently approved and promulgated by the ERC, are the new electric tariffs for distribution services (i.e. excluding power supply component which is a pass-through) that your electric cooperative (EC) can begin implementing next year. 

The act of Twittering is like a slight change in posture that changes your quality of life an enormous amount.

Shortly after noon on October 9, 2009, Meralco made it's first officially sanctioned Twitter. Meralco's Twitter account was hastily put together literally a couple of hours (or less) before.

The previous evening, a fire at one of the crucial major switching stations of the National Grid Corporation of the Philippines (NGCP) severely constrained NGCP's ability to deliver all of Meralco's generation resources to the Meralco system. So Meralco had to immediately initiate a series of rotating brownouts throughout its system, a delicate juggling act to balance load with available generation supply in a way that does not permanently shut off power to a single group of customers.

Around 9:30 a.m. on the morning of the 9th I get a call from Joe Zaldarriaga, Meralco's External Communications Manager who apprised me of their situation and said they would like to utilize the @meralco Twitter account (which I had been holding for purposes of turning over to Meralco). Of course. Absolutely. I subsequently worked with Kirk Campos to effect the handover after some additional due diligence on my part.

Kirk said they were struggling with getting information out to the public utilizing their traditional means such as radio, print, web, and telephone. They felt Twitter would help immensely in this case.

Looking back on it, I can see why. They needed to communicate information on the Manual Load Drop (MLD) schemes. The schedules are detailed and variable. There are continuous updates to the schemes statuses. No other medium works well. Twitter was perfect.

Kirk also indicated that Meralco had been looking at implementing a Twitter account for some time. They were clearly ready, because within an hour or so of turnover, Meralco had uploaded logos and backgrounds for the Twitter site and they were on-line and operational.

But back to the posture change and how this will impact Meralco. I'm speculating they (upper management) have no idea of the changes Twitter will engender in the culture at Meralco. You see, Twittering changes your perspective. There is a sense of humility that accompanies the act of Twittering, like in blogging. You have to think about what you're going to say; how you're going to explain yourself. You give consideration to all the different audiences that will read it. There is a lot of self-reflection that goes on in a flash with each and every Tweet. You can't avoid it.

Meralco may think they are doing this as a favor for their customers in getting information out. But, as Seth Godin has said about blogging, you are doing it for yourself; to force yourself to become part of the conversation. This is not about communicating what Meralco IS. It is about listening and being aware and in touch with people around you. It is about CREATING Meralco; defining what they are as they go along. It's an act of discovery. Of change.

As we all know, in Twittering or blogging, we screw up. We learn how to deal with it. This is going to be the toughest part for the traditional PR folks at Meralco. You have to lose a bit of control before you can gain control of where you're going.

I expect it will take Meralco almost a year before they get it down. In the meantime, they will just have to persevere through the mistakes, through the criticisms - a lot of which is likely to come from me. But you dust yourself off, adapt, move forward. It's going to be interesting.

I work on electric power procurement issues in the Philippines for a living. But if you come to me and ask "Show me how to get the cheapest power," you've already asked the wrong question up front.

I'm going to expose ourselves a little bit here and examine one aspect of Asian Energy Advisors business from over the past week.

In order to transact a deal with a distribution utility, like [redacted], you will have to participate in an open and competitive bidding for power supply to the EC. It is only after winning such a solicitation that you will be able to formally conclude an ESA (electric sales agreement) with the utility. 

As your advisors, we can, and should, provide some level of guidance to the EC in their structuring of such a solicitation. However, it would be inappropriate for us to take responsibility for their design and conduct of the solicitation since that is a conflict of interest. 

Yesterday I was discussing, with some people that have more inside information than I do, the time line for introduction of Retail Competition (or Retail Access - the ability to chose who you buy power from).
 
Supposedly, the sale of Calaca, which was awarded last week to DMCI, should start the EPIRA clock ticking on the introduction of Retail Competition. But what does that clock look like? You really can't find it in EPIRA or its IRRs (Implementing Rules and Regulations). You have to piece it together.
 
This is the view I synthesized from my conversation:

EPIRA requires Retail Competition no later than mid-2004 (three years after the Act). But based on the above, we'll be lucky to see Retail Access within ten years of EPIRA's passage.
 
Is it really going to be that long. Is the above correct? I don't know where they got the concepts of ERC Notification and DOE Declaration nor why there is a six month delay tagged onto each.