Not to WESM, Yes to Economic Dispatch in Mindanao

Feb 19, 2017

by David A. Tauli


It is economic dispatch that needs to be implemented in the Mindanao grid, instead of illegally parachuting the WESM into a grid that is not connected to the Luzon-Visayas grid.


Economic dispatch of power plants will solve the perceived problems of overcapacity, over- and under-contracting, uncontracted capacity, etc., in the electric power industry in Mindanao.


This paper discusses what economic dispatch is, how it is being done at present in Mindanao and in the Luzon-Visayas WESM, and how it should be done to enable economically efficient contracting and interchange of power capacity in a grid without a WESM.


The paper is intended mainly to guide the technical working group of the AMRECO, as they work on the development of rules to govern the dispatching of generating plants in the Mindanao grid.


But it is also intended for the general information of member-consumer-owners of the electric cooperatives, as we battle in the public square against the scheme of the DOE, instigated and funded by the oligarchs in the electric power industry, to establish an illegal WESM in Mindanao.


Economic Dispatch


Economic dispatch is generally defined as: The operation of the electric generating plants connected to a transmission system in order to produce enough energy at the lowest cost to serve consumers reliably, while taking account of any operational limits of the generating plants and the transmission system.


In economic dispatch, the cost to be minimized, usually called variable costs as distinct from the fixed costs of the generating plants, refers to the short-term costs of using available generating plants to supply the electrical needs of customers.


The operating procedure for attaining economic dispatch is simple: When more than one generating plant must be operated to supply electricity to the loads connected to a transmission system, the generating plant with lower marginal cost must be dispatched before the generating plant with higher marginal cost.


The last generating plant that is dispatched in order to make total supply equal to total load or demand will have the highest marginal cost among all the power plants that have been made to operate.


Economic Dispatch in the Luzon-Visayas Grid and in the Mindanao Grids


The same procedures are followed in carrying out economic dispatch in different electric power systems such as the Luzon-Visayas grid, which has a wholesale electricity spot market, and the Mindanao grid, which does not have a WESM.


As actually practiced in both the Luzon-Visayas and the Mindanao power systems, economic dispatch is done by dispatching first the renewable energy power plants, which have virtually zero marginal costs.


The RE power plants are followed by coal-fueled power plants, followed by oil-fueled power plants, which generally have the highest marginal costs and are dispatched last.


In Luzon-Visayas, natural gas fueled power plants are dispatched after coal plants and before diesel power plants. Mindanao does not have natural gas.


So it is not the dispatching procedure that is different between a grid that has a WESM and a grid without a WESM. The difference is in the pricing of the output of the generating plants that are dispatched.


In the Mindanao grid, the price paid by consumers for generation that is not covered by contracts will be the ERC-approved rates for the power plants that are dispatched. The rates are different for various types of power plants, with the rates being around 3.00 pesos per kWh for hydro plants, 4.00 pesos for coal plants, and 6.00 pesos for oil-fueled power plants.


In the Luzon-Visayas grid which hosts the Philippine WESM, the price paid by consumers for all generation purchased from the WESM will be the highest bid price of the generators that are dispatched, and the same price will be paid to all the generating plants regardless of type.


High Rates of Electricity with the Establishment of a WESM in Mindanao


The pricing system used in the Philippine WESM will be used in Mindanao if the DOE and the GENCOs succeed in establishing a WESM in Mindanao.


At present the marginal cost of the highest-cost peaking power plant in Mindanao is around 20 pesos per kilowatt-hour. This will be the price for all generation purchased from a Mindanao WESM if the GENCOs are required to bid their true marginal costs.


The price of purchases from a Mindanao WESM could even rise higher than the true marginal costs of the highest-cost peaking plant (to 30, or 50, or even 100 pesos per kWh), if the GENCOs are allowed to submit their Desired-Bid and not their true marginal cost.


This is the crime that will be committed against power consumers in Mindanao if the DOE succeeds in its scheme to implement a WESM in Mindanao. The consumers will pay at least 20 pesos per kWh for all electricity that is purchased from the WESM, whereas they are now paying at most 4.50 pesos per kWh for any uncontracted electricity that is delivered by generators under the economic dispatch being carried out by the NGCP.


It is a crime not only against power consumers but against all Mindanaoans.


High rates of electricity in Mindanao will drive away business and industrial corporations who are heavily dependent on electric power to carry out their operations. High rates of electricity will force all consumers to reduce their consumption. And the uncontracted capacity of the GENCOs will remain uncontracted, while the capacity that is already contracted will have to be reduced.


So the problem of uncontracted capacity that a WESM is supposed to address will become worse. And in the process the WESM will wreak economic havoc on the people of Mindanao.


Why is the DOE trying to foist a WESM on Mindanao?


Without a WESM, there would be no problem in continuing with the existing method of economic dispatch in the Mindanao grid, if all the available capacity of power plants were contracted by the distribution utility companies and directly-connected customers.


But, starting in 2012 with the Aboitiz 300-MW coal plant in Davao, a number of coal-fueled power plants were constructed, with the last coal plant to be completed by the end of 2017. Some of these coal plants are not fully covered by long-term contracts, particularly the 300-MW coal plant of the San Miguel Consolidated Power Corporation.


SMCPC 300-MW coal fired Power plant in Davao del Sur

SMCPC 300-MW coal fired Power plant in Davao del Sur

So the SMCPC wants to contract with consumers who are now getting their power supply from the electric cooperatives and the investor-owned distribution utility companies.


Unfortunately for the SMCPC, the EPIRA does not allow generating companies to supply consumers who are connected to the distribution systems. This will be allowed only when a regime of Retail Competition and Open Access (RCOA) is approved for implementation in the Mindanao grid.


The SMCPC went to the DOE to tell them to implement RCOA in Mindanao so that they could sell electricity directly to customers of the distribution utility companies. The DOE told SMCPC that RCOA could not be implemented until there is a WESM in Mindanao. Then put a WESM in Mindanao, said the SMCPC to the DOE.


And, wonder of wonders, the DOE said: Okay Mr. SMCPC we will establish a WESM in Mindanao.


Immediately after this the DOE carried out information campaigns in Mindanao telling the distribution utility companies and the power consumers, without so much as a by-your-leave, that the Duterte government will be launching the WESM in Mindanao.


What the DOE is not saying is that the Mindanao WESM will enable the oligarchs in the electric power industry to become richer at the expense of the poor power consumers. The DOE is not saying that because PRRD is very loud and very frequent in his pronouncements that his government is pro-poor and anti-oligarch, whereas the Mindanao WESM is definitely pro-oligarch and anti-poor.


The power consumers will oppose the imposition of a WESM on Mindanao because that will result in certain economic disaster for Mindanao. But the electric cooperatives and the investor-owned distribution utility companies need to work on a revised system of economic dispatch for the Mindanao grid in order to address the power supply problems that the DOE is now deviously claiming to require the establishment of a WESM.


A revised economic dispatch that addresses power supply problems will provide additional proof that the WESM scam hatched by the DOE and the SMCPC is useless for economic operations of the Mindanao grid.


A Revised Economic Dispatch for the Mindanao Grid


The revisions to the economic dispatch operations being carried out by the NGCP include the following rules:


1. Economic dispatch must be done in three stages, first, for the variable or non-dispatchable renewable energy power plants (in compliance with the Renewable Energy Law), then for baseload power plants, and last for intermediate and peaking (I-P) power plants.


2. Priority of dispatch for baseload power plants and I-P power plants must be based on ERC-approved rates for the power plants (instead of using marginal costs), with power plants having lower rates dispatched first for each category.


This means that for baseload requirements, the power plant with lowest rate will be dispatched first until the baseload power supply is equal to the demand for baseload. Then the power plants for intermediate and peaking load will be dispatched in the order of ERC-approved rates, from lowest to highest.


3. Only the minimum power of the Agus hydro plants should be used for baseload power supply, and any generation above the minimum requirement should be used for intermediate peaking power supply.


4. Generation of coal plants above their minimum power for operating may be used for intermediate power supply when it is economical for the coal plants to supply intermediate load and the effective rate is lower than that of oil-fueled intermediate power plants.


5. The Pulangi hydro plant should be operated at all times as a run-of-river power plant, and only coal- or oil-fueled power plants should be used as dispatchable reserve.


Whatever set of rules for economic dispatch will be finally adopted, the primary objective in the revision of the economic dispatch procedures should be least-cost power supply for consumers.


That is opposite to the objective of the proposed Mindanao WESM, which is the maximization of profits for the oligarch owners of the generating plants.


David A. Tauli

David A. Tauli

(Engr. David A. Tauli is the president of the Mindanao Coalition of Power Consumers)

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