Asian Energy Advisors » philippines

New Meralco Rates Hit Smaller Customers Hardest

Nick Nichols — Wed, 30 Dec 2009 06:34:58 +0000

If I did my calculations correctly, the ERC's just-approved Meralco tariff increase, which becomes effective next week, will hit the smaller customers the hardest.

Here's the ERC Decision

I did an analysis of Residential customers with varying monthly usage characteristics. Here is a chart of the percent increase as a function of your monthly usage.

As you can see, the customers using smaller amounts of electricity get a significantly higher rate increase. In fact, the biggest customers get the smallest increase.

Here is my worksheet.

Posted via email from Nick’s Philippine Notes

Power Markets – Where I Stand

Nick Nichols — Sat, 19 Dec 2009 00:27:21 +0000

Doc Searls wrote a piece yesterday on “Building better markets. Not just better marketing.”

Building better markets here in the Philippines is what I’m after.

But I no longer pursue “policy advisory” engagements. Effecting change in the trenches with the market participants and being compensated by the market participants is where I prefer to be with my practice.

But let’s be clear: The place where I stand is “alongside the customer.”

And when I say customer, I mean power purchaser such as a local utility company which is purchasing on behalf of (or should be purchasing on behalf of) you, me, our families and neighbors.

But many – probably most – of out clients are independent power producers: i.e. the sellers, not the buyers. So what’s up with that, Nick? Why are you consulting to them?

That’s where the money is willingness to spend money on this kind of stuff is
They can effect change if they find it in their best interest
Most people I’m working with care about doing the right thing with their customers, typically the electric cooperatives and are looking for innovative ways to do that.

We implement a Do No Harm principle – you don’t screw the cooperative. Which means that in addition to making sure the IPP’s business is profitable and sustainable, we have to conduct the necessary analysis to determine whether the proposed arrangements are harmful to or present particular consequential challenges to the cooperative and that it’s a prudent thing for the cooperative to do. Such work is technically the fiduciary responsibility of the buyer. But the cooperatives are – in most cases – not in a position to conduct such analysis. So we have to do it for them. Our IPP clients have to be willing to do that.

I have to credit my partner for moving me toward the above principle. We’ve had numerous intense debates on it. Although we’ve been essentially practicing this policy (and there’s lots of grey area in it’s interpretation), it’s never been expressed in quite so definite terms. I’m sure it will evolve further.

As our market structures and mechanisms mature, the need for this policy will eventually evaporate.

For now, admittedly, there is only so much I can do on the sell-side advisory with regards to market improvement. We’re still looking for clients on the buy side where we have an opportunity to drive things forward much more boldly and quickly.

Posted via email from Nick’s Philippine Notes

How Much Do We Pay for Generating Capacity in Philippines?

Nick Nichols — Sun, 06 Dec 2009 01:31:31 +0000

Here are a couple of benchmarks, in the Visayas, for capacity cost that are worth noting.

A few weeks ago, the ERC released a Decision in regards to the price of power from the 12.5 MW Nabas bunker-fired diesel plant in Aklan. In that Decision they established that the price of Nabas capacity should be set at P628/kW-month on a levelized basis.

In a number of Decisions regarding the Kepco/Salcon coal-fired plant being constructed on Cebu, they ruled that the capacity price of that plant be set at a value that is continuously adjusted by the Peso/Dollar exchange rate. I track that formulaic methodology each month, as indices are updated. Based on my latest tracking model, the cost of the coal-fired capacity is currently set at P1,552/kW-month.

I arrived at at the figure by taking the $71,301,000 figure in cell Y15 for the Return on Total Investment, multiplied by the exchange rate and divided by the 180 MW net capacity.

I like to look at capacity price in US$/kW-Yr, so summarizing:

12.5 MW Bunker Plant

200 MW Coal Plant

P/kW-Mo

628

1,552

P/$ Ex Rate

47

47

US$/kW-Yr

160

396

As a side diversion, what will the the cooperatives be paying, in total, for the Kepco/Salcon power, fuel and all? Well my tracking model estimates that at P5.40/kWh if the plant went commercial today (Nov-09) and was able to produce power at an 80% capacity factor.

Posted via email from Nick’s Philippine Notes

Monthly Coal Price Musings

Nick Nichols — Mon, 30 Nov 2009 23:59:44 +0000

The globalCOAL Newcastle Index took an 11% jump in November to US$79.55/MT.

Here’s my tracking chart of this index of Asian coal prices:

But even with the 11% uptick, we are still almost 60% off the highs of the last 2 years. And trailing 12-month volatility has dropped significantly, running only about 10%, down from 17% earlier.

The running average price over the past 22 months is right at $100/ton. You can grab my spreadsheet here.

So where will coal prices go in 2010? Who knows.

Posted via email from Nick’s Philippine Notes

Why Dispatch Rights Are Important to Utilities and Why It’s Disruptive

Nick Nichols — Fri, 20 Nov 2009 21:57:04 +0000

“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.

Posted via web from Nick’s Philippine Notes

	12.5 MW Bunker Plant	200 MW Coal Plant
P/kW-Mo	628	1,552
P/$ Ex Rate	47	47
US$/kW-Yr	160	396