It's the cost of fossil fueled electricity that got us to the highest prices in Asia. It's the specter of run-away costs of fossil fuels that is driving us us toward renewables. Not the specter of falling fossil prices.

There is nothing naive or uninformed about insisting the DOE and ERC implement the renewables law as intended. It's totally rational.

Nobody knows for certain whether over the next few years the carefully measured and modest steps of phasing in the Feed-in-Tariff and Renewable Portfolio Standards will have lowered or raised or had any effect at all on our electricity prices relative to where they might have been without them. But that choice has already been considered - and made.

Here are a couple of end of the year charts with 12 months of data for 2011.

The first chart shows monthly capacity factor dispatch by technology. The second one shows total monthly energy dispatch by technology. I also updated the bubble chart.

I've published a tiny e-book on Electricity Price Risk subtitled: "What You as a Rate Payer Didn't Know About WESM and the IPPs"

It's probably mistitled.

My objective is to helpfullyl communicate with the non-experts on power markets. I've likely failed in that.

In three pages of text it goes too far in some areas, not far enough in others.

But I'd rather get something out than nothing. And I'm learning.

So here is a pdf version. 

And here is a link to download an iBooks version for the iPad. But I don't have an iPad, so I don't know if it works there.

Update: Here is a link to the pdf which is always the updated version, which I continually tweak.

Here's a chart I made from the fourteen most recent monthly reports available from WESM.

For the Luzon grid, I plotted the "Customer Effective Spot Settlement Prce" from the WESM report against the "NPC Effective Selling Price" taken from the NAPOCOR site.

The average NPC price over this period was the same as the average WESM price.

Even apart from the volatility issue, however, they are not the same animal. The Buyer's contractual obligations for each were quite different. From a Buyer's perspective, these were totally different products with different types of flexibility and risk profiles. And, except in the abstrat (which is indeed useful) they are not, generally, Either/Or choices for a utility.

 

The Invisible Hand Works

Quick - At what hours of the day does Panay import most of its power?

Answer - At night, of course, when power prices are at their cheapest. Here's a chart of the average hourly Panay imports for the month of November.

[Note: This chart has been corrected]

They are also importing quite a bit during the evening peak, but during the middle of the day, conti. Mostly because because the coal and oil units are ramping up - not to serve incremental load on Panay, but rather to export and help serve the incremental industrial load on Cebu. The coal units are responding to price signals - not Panay load level signals.

Here's a chart of the average hourly dispatch of the new Visayas coal units for March through November 2011.

Note the consistency of the pattern. Even the Panay units are responding to generally the same price signals as the Cebu units.

In the old days, NAPOCOR knew the marginal running cost of all the generators and could lay out an hourly merit order dispatch schedule so that as load ramped up, the next most economical unit would be brought online to serve it. But WESM can't do that. Instead, it depends on the invisible hand of demand/supply competition to make those decisions. And by criminey, the hourly dispatch pattern of the coal units above looks pretty much just like I would have expected it to look if the old NAPOCOR merit order rules were being used.

In this respect, WESM is working, and beautifully.

The key to staying rationale in the face of uncertainty is NOT just throwinig up your arms in exasperation. Let's take coal prices for 2012. I cannot tell you what prices will be next year. But there is a lot of information buried in the historical volatility data that can provide guidance for what to prepare for next year.

This first chart shows the year-over-year percent price change in annual average prices for the Asian benchmark coal prices at Newcastle, Australia over the past twenty years. If you run the numbers you'll see that these yield a "volatility" number of 30% (that's the standard deviation inthe log-relative changes over the 20 year period). What that essentially means (to me, a non-statistician) is that on average prices historically tended to move 30% (one way or the other) in any one year.  

But you don't need to be a statistician to just look at the chart. You can see that in our 20-year sample, there were two recent occurrences where prices jumped 60-70% in one year and there was one occurrence where they dropped 50-60%.

This second chart is the frequency distribution. The most common price movements are in the negative 20% to positive 40% ranges. The frequency of price movements being outside this range are much slimmer than being inside that range.

These are not forecasts! But still, all in all, just based on these charts, it seems to me that one should have plans in place to accommodate a movement in coal prices next year of up to 30% and have contingency plans for prices moving 70% or more. The markets have already demonstrated they can move 60% or more in one year in either direction and that changes of up to 30% are quite common.

 

I wanted to take a look at which technologies were being utilized to serve baseload requirements (load that exists 24 hours around the clock) and which technologies were being cycled on and off to meet the load that ramps up for only part of the day (cycling requirements).

I took the October 2011 hourly data from WESM and then averaged the hourly supply by each technology group for each hour of the day. That produced the following chart.

You can see that the biggest cycling technology we use is coal. The minimum hourly coal generation was 1,240 MW. Coal never averaged less than that in each hour. So I label the 1,240 MW as the coal that is used in a baseload mode. The maximum hourly coal usage was 2,370 MW. So 2,370 - 1,240 = 1,130 MW is what I call the coal that is cycled on and off - used in in a cycling mode.

If you do that for each technology you get the following chart.

You can see, for example, that 685 MW of hydro is used around the clock and that only 225 MW of hydro is used to serve cycling load. Of the hydro that is actually dispatched, most of it therefore is baseloaded.

Geothermal and gas are also heavily baseloaded. The coal capacity that was actually dispatched was split almost half and half between baseload and cycling. Oil, of course, is heavily cycling. There is some small amout of oil that is baseloaded.

Putting this data into the following chart shows the components of our baseload supply and of our cycling supply.

Baseload supply is mostly made up of gas. Cycling supply is mostly made up of, you guessed it, coal.

Update: Here are the wind charts, which I show separately because  of scale issues.

 

Looking just at the top four hydro plants in the charts below, you can see it was San Roque primarily driving the September increase, with Casecnan lending some support.

The capacity factor on San Roque is pretty amazing. In September it ran at a phenomenal 95% capacity factor. Could that be incorrect? Do I have a data issue? I believe the capacity is 345 MW.

Finally we see a strong return of hydro as its monthly capacity factor powers forward to 37%, dragging its annual average up to 20%.

You can really see how coal is the swing technology for hydro. But it's not an exact mirror image because coal is also a swing technology for gas. Gas just isn't as seasonal, so the shape of coal dispatch is driven primarily by the shape of hydro.

Here's an update to the average monthly oil and coal prices, through August 2011. 

I've drawn a classical uptrend line for both oil and coal. Although prices dropped again last month, neither has broken the uptrend line.

And until they do, we're still in a clear price uptrend.

I haven't shown the data here, but we're still in a 2-1/2 year downtrend for price volatility, however. Volatility continues to moderate.