07 APR 2016
Line Congestion in the Visayas: A Brief Overview
By Atty. Paolo Rodriguez
It may very well be said that government support for the burgeoning Philippine renewable energy (RE) industry has never been stronger than it is today. This observation becomes readily apparent when one considers the government’s promotion and implementation of various measures designed specifically to 1) encourage private sector participation in the RE industry, and 2) ensure that incentives and other grants are issued in a fair and transparent manner.
Chief among said measures, undeniably, is the Feed-in-Tariff (FIT) system, under which qualified entities are offered the opportunity to develop RE resources to be “fed,” or exported, directly to the national power grid.
A recent statement issued by the Department of Energy (DOE) highlights the significant leap in FIT subscriptions for RE resources from 646.65 megawatts (MW) to 806.82 MW since the beginning of the current calendar year. This development appears consistent with the statements of DOE Secretary Zenaida Y. Monsada regarding the government’s prioritization of 1) energy security, and 2) a clear shift towards clean energy technology.
This largely positive development, however, has not been unattended with its own unique challenges.
Elementary is the principle that wholesale energy markets, in order to both maximize their benefit to the consuming public, and at the same time maintain adequate profitability to their investors, require transmission networks with matching capacities. Thus, the increase in RE resources within the Philippine territory would naturally necessitate a corresponding enhancement of transmission and distribution capabilities. Unfortunately, however, this has not quite been the case.
The proliferation of Philippine RE resources has introduced, to the private and public sectors, the dilemma of “line congestion.” This typically occurs when the resultant flow in a power line exceeds the maximum value which the system operator deems adequately secure, either due to the thermal capacity of said power line, or the fact that a higher value would likely render the power system itself dangerously unstable.
Due to a number of favorable conditions therein, such as (but not limited to) the relatively affordable prices of RE-suitable real estate on a per-hectare basis, the RE resource “boom” has been nowhere more apparent than in the Visayas. It would appear, therefore, that line congestion has become a problematic issue particularly in the Visayas region.
The potential effects of line congestion in the region have already been considered by the DOE, which is currently studying countermeasures for the mitigation thereof. One of these effects is known as “load-dropping,” a safety procedure in which power is cut off at certain areas, in order to avoid power interruptions and permanent damage to the power grid itself. This procedure is typically necessitated in the event of a power supply shortage, which is precisely one of the more immediate effects of load-dropping.
Another dilemma presented by line congestion is one which affects the consuming public as buyers of power. Line congestion inevitably prevents the public demand to be met by the lowest-priced resources due to transmission constraints, and the resultant deficit is covered by purchase from alternative sources at considerably higher prices. Consequently, the proprietors of said alternative sources are then gifted with enough leverage to dictate their own going rates. It would be, therefore, rather ironic for the emergence of RE in the Philippines to be contributing to rising power rates rather than creating a friendlier climate for the buying public.
As the Philippines gradually moves into its national and local election period, at which the demand for power is sure to reach a sizable peak, these potential issues are all the more magnified, and the success of the employed countermeasures becomes all the more imperative.
It must be pointed out, however, that the Philippine government has made public several of its own plans to ensure the maintenance of energy security in the region. One of these, as announced in November of 2015, is the establishment by the National Grid Corporation of the Philippines (NGCP) of 230-kilovolt (kV) transmission backbone lines, at around Php 1 Billion worth of the same, connecting Negros Occidental to other areas within the Visayas, as a means to mitigate and/or resolve line congestion issues therein.
Clearly therefore, it appears that the government’s approach to the line congestion problem is rather direct, in that it has elected to upgrade the existing transmission infrastructure in order to resolve issues directly related to the insufficiency thereof. What remains unclear, however, is 1) whether the employment of these measures shall prove adequate, in method and measure, to address line congestion issues in both the present and the reasonably foreseeable future, and 2) whether the implementation timelines for these measures are sufficient for the purpose of mitigating line congestion issues in a timely manner.
The foregoing considered, it may be observed that the Philippines remains a highly viable option for prospective investors, both local and foreign, in the RE resource industry. The FIT system currently in force guarantees, at the very least, a modicum of transparency and objectiveness as regards the government’s criteria for eligible projects and developers. However, caution must be at all times maintained with respect to the issues which factor into the emergence of the RE industry in the Philippine setup. Power line congestion, a common problem for jurisdictions whose infrastructure development has yet to match its power resource capacity, is clearly among said issues.
As dictated by economics, and other factors in the immediate periphery, the line congestion issue has emerged most significantly in the Visayas region. The exceptional rate of RE resource proliferation in the region has necessitated the national government’s own commitment of resources in order to curb any potential harm brought about by load-dropping and rate hikes directly resulting from line congestion. From a new investor’s perspective, therefore, prudence would dictate a “wait and see” approach with respect to the countermeasures employed by the government.
Succinctly put, it would be wise to ascertain how the above developments affect future FIT offerings for projects in the Visayas, and more importantly, how these affect the protection and growth of investments made in the Philippine RE industry.
Atty. Paolo Rodriguez is a principal at Energence Management and Consulting Corporation. He can be reached at Paolo.Rodriguez@Energence.PH