Suppressing the electricity price spikes

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  Recently, the Philippine Electricity Market Corp. (PEMC) is mulling to suspend the operation of the country’s wholesale electricity spot market (WESM) of which it is tasked to operate and oversee, to halt “significant’ spikes in trading prices.
  
  PEMC president Lasse Holopainen threatens to impose such halt if the Energy Regulatory Commission does not intervene to smooth out the sudden price upticks in the market.
  
  “That is an option. But we prefer that ERC do something about it first. The ERC can intervene and correct these prices and affect a time-of-use (TOU) rate,” Holopainen said.
  
  Under the WESM guidelines trading in the market can be imposed in extreme cases such as a wholesale failure of the grid system, threat to system security or a force majeure.
  
  But no such event ever occurred to justify any suspension. The mere threat of a temporary stop to trading in a fully functional, open market sets a dangerous precedent and could ultimately derail the ongoing electricity reforms.
  
  The recent price spike was traced to the failure of the San Jose transmission line in Bulacan which prevents the dispatch of power from the” more efficient” (read: lower priced) power plants. However, the plants referred to by the official are the Sual and Masinloc coal-fired plants, with a combined capacity 0f 1,800 MW are hardly the efficient plants around.
  
  The effect of this breakdown was that based on PEMC’s estimates, the settlement prices – the price the trader pays to WESM- have spiked to as high as P18 per kilowatt-hour which could ultimately redound to a higher price for the consumer.
  
  “This is an unusual occurrence and the congestion will be there until September to October. But National Transmission Corp. (TransCo) said they are now repairing it,”
  Holopainen said.
  
  We beg to disagree.
  
  Equipment maintenance is a necessary part of doing business and with proper execution and timing, the effects of an “unusual occurrence” such as a breakdown of a major high-voltage transmission line could have at least been mitigated. But what caused the spikes is more than unusual. It is more due to inherent and systemic weaknesses of our electricity grid.
  
  On the transmission side, we do not have much redundancy on the main backbone. While a full redundancy cannot be advisable on economic grounds, at least there should be some backup in highly critical nodes along the backbone such that power could be transmitted on an alternate line. At the very least, the effects of such breakdown can be confined to a limited geographic area.
  
  But the worse problem is on the generation side.
  
  In a normal grid, the operator desires to have some reserve capacity at any given time. Which is obvious since not all plants would be running at peak capacities due to maintenance and technical considerations. But what we have is a reserve capacity which is barely useful when a major plant breaks down. While a reserve capacity of say 2,000 MW looks good on paper, it is no more than the capacity of two major coal-fired or natural gas power plants.
  
  The rated capacities of the existing plants may not dependable at all. Many of the older power plants—coal-fired, diesel-fired and geothermal plants— have actual capacities much lower than their rated capacities. Can anybody tell us how much the Bohol and Panay diesel plants –two plants under auction- are actually generating? For all we know, the old Panay plant could be worth more if sold as junk than being operated as a power plant.
  
  Can anybody guess how much the Bacman I plant (rated more than 100 MW) is currently producing? If you say 50 %, your guess is too high. This one is easier: How much is the Northern Negros geothermal plant (the capacity is 49 MW, or 40 MW, or 26 MW, depending on when you got the information) currently producing? You should have gotten it. The answer is nil.
  
  There are also reserves that may not be delivered to where they are needed most. For example, the abundant power from geothermal in the Visayas could be considered a reserve for the Luzon grid because it is connected to Luzon via a submarine cable. But the history of its performance tells a different story.
  
  What we have is what the industry players call “thinning reserves”. The reserve is there but it is so small that a minor disruption in the supply could send electricity prices at the wholesale electricity spot market (WESM) to the heavens. If you are operating cement or a semiconductor plant, you cannot afford a respite in operations. You need to buy power at exorbitant costs for a hopefully short period of time. The alternative is massive losses.
  
  Then there is the ownership structure of the generating plants. Much of the generating power is still in the hands of the Napocor-PSALM combine, so in theory, a collusion among the traders in the same cabal could influence the price at the spot market. This has been alleged to have happened before.
  
  WHICH brings us back to the question of what to do with the price spikes. Dampening the electrical price oscillations, as the engineers would phrase it, cannot be effected by political intervention. A systemic overhaul is required which include:

1. Broadening the ownership of the generation assets. In the near term, it means hastening the privatization process.

2. Improving the transmission grid. With the privatization of the transmission grid, we could only hope that the new owners would improve the system.

3. Increasing the number of generators. With a more dispersed ownership, one can be assured of a more functional spot market. Collusion would be minimized. The thinning reserves would be “thickened”. But then, encouraging new investments is a different question altogether. Our legislators could re-start the process by passing the renewable energy bill.

We hope to delve more deeply into these matters in the near future.

Google search result: geothermal

Google uses its vaunted search engine to find an energy source it wants to support and comes up with this result: geothermal.

Google, through its philanthropic arm Google.org, announced US $10.25 million to fund research on energy technology called Enhanced Geothermal Systems (EGS), according to a report in RenewableEnergyWorld.com.

The amount includes funding for research on next-generation geothermal resource mapping, EGS information tools, and a policy agenda for geothermal energy.

Dan Reicher, Director of Climate and Energy Initiatives of Google.org, considers EGS could be the "killer app" of the energy world, saying it has the potential to deliver vast quantities of power 24/7 and available nearly anywhere on the planet.

In contrast to the usual geothermal approach of finding naturally occurring steam and hot water reservoirs as practiced here, the EGS process finds hot rocks, artificially fractures these and circulates water through the system to extract heat energy which can then be converted to electricity.

The recipients of Google's largess include:

AltaRock Energy Inc.: US $6.25 million investment to develop innovative technologies to achieve significant cost reductions and improved performance in EGS projects.

Potter Drilling Inc.: US $4 million investment in two rounds, to develop new approaches to lower the cost and expand the range of deep hard rock drilling.

Southern Methodist University Geothermal Lab: US $489,521 grant to improve understanding of the size and distribution of geothermal energy resources and to update geothermal mapping of North America.

Other countries which are looking at EGS include Australia and France.

HERE, with abundant circulating water, the systems that have been developed or characterized are water-dominated, natural geothermal systems.

SAS introduces green IT software a.k.a. carbon calculator

SAS, an IT vendor more known for its business intelligence (BI) software and services, has recently introduced in this country a software that supposedly measures a company's eco-friendliness and carbon footprint. Its capabilities, SAS claims, include tracking the level of CO2 emissions of companies and analyzing its impact on its business operations.

Thomas Spiller, SAS senior director for international programs, said the product can be customized to the customer specifications but admitted that since it has just been launched, SAS has yet to sign up a local customer.

Just who are these customers that SAS is targeting, and why should you buy, or not buy, the product?

With the escalating cost of energy and pressures from the environmental movement, big business has started to embrace eco-friendliness and energy efficiency. Going carbon neutral, as the movement is now known, is not just a fad, Spiller assures.

For many companies, moving towards that goal not only enhances their corporate social responsibility (CSR) image, but the bottom line as well from energy savings and increased business.

Usually, the first step towards this direction is to quantify your carbon footprint--that is, how much greenhouse gases (GHG) as typified by CO2, your company is actually producing.

Without saying in so many words, SAS is actually offering a carbon calculator.

A carbon calculator is a device, usually a software, that does what its name implies: calculate the total carbon emission or footprint for a given event, an energy project or a company.

Existing carbon calculators range from order-of-magnitude estimates to fairly sophisticated devices that detail every possible source of emission and the methods backed up by reputable data. There are free carbon calculators usually offered by non-governmental organizations concerned with global warming and government institutions such as the US Environmental Protection Agency (EPA) and there are fairly sophisticated commercial calculators used by carbon market traders, renewable energy project developers applying for carbon credits through the Clean Development Mechanism (CDM) and big business carrying out a corporate program towards carbon neutrality.

Calculating a carbon footprint is not easy. As what any budding software developer is advised, GIGO - garbage in, garbage out. Your results will only be as good as the worst assumption built into the software.

For example, the total carbon footprint of all the employees in a company may be estimated by the average per capita footprint but if the built-in assumption is that for a developed country like Japan or the U.S. where individual energy consumption is far higher, the errors can be very significant.

To be on the conservative side, choose a calculator which is most comprehensive in its coverage. Some calculators for example, fail to take into account such as commuting habit of its employees which can amount to a large number.

If in doubt, ask.

It is also important to choose a provider accredited with a top accepted standard to ensure getting a comprehensive calculator. Some of the stringent standards include the Gold Standard, the Greenhouse Gases Protocol, the International Organization for Standardization (ISO) ISO14064, The Voluntary Carbon Standard (VCS) and The Climate, Community and Biodiversity Standards (CCBS).

You may be passionate about making your company green. Just make sure that you have the right tools in realizing your dream.

Are we ready for CDM?

Kreditanstalt fur Wiederaufbau (KfW), the German Development Bank, is opening doors for Philippine companies to tap financing for Clean Development Mechanism projects under the Kyoto Protocol during a presentation at a seminar held August 19, 2008 at the Renaissance Hotel in Makati.

Karin Sittler, vice president of the KfW Carbon Fund, said the financing modes could include direct loans, equity investments, assistance in the project preparation or even in helping consolidate small CDM projects.

The latter is required for small projects taken individually which may not qualify under the mechanism.

CDM is a mechanism under the Kyoto Protocol whereby countries that have committed to reduce their greenhouse emissions, but are unable to immediately do so, may buy so-called carbon credits generated by green energy and environmental projects in other countries.
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The Bangui Bay wind project:

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However, Environment and Natural Resources Undersecretary Manuel Gerochi's opening remarks which stressed the need to ensure that such CDM projects truly benefit the developing country and his distrust over the eventual beneficiaries of the Certified Emissions Reduction (CER) credits underscore the general lack of understanding by our policy makers

“Don’t look at it as an economic good to be traded,” Gerochi said, as quoted by the Philippine Star, adding that such endeavors “must be mutually beneficial to us.”

To put it at a right perspective, the United States, the most industrialized country on earth as well as the United Kingdom, I believe, did not ratify the Kyoto Protocol. This is understandable as the U.S. is responsible for some 22% of greenhouse gases (GHG) emissions worldwide. Despite the reluctance of the federal government to ratify the treaty, many individual states have forged ahead with their green projects initiatives in the energy sector.

The offsetting of GHG emissions is premised on global warming, which means that no matter where the GHG are emitted, these could contribute to climate change. The countries who have ratified the protocol have committed to reduce their GHG emissions by 5.2% p.a. from a baseline level in 1990 until 2012.

The CDM is not a permanent fixture; it is a stopgap measure which arose from a practical realization that GHG emission cannot be done overnight. All the CER certificates generated from such projects will be retired by then.

The CDM allows financing of green projects such as solar, wind, geothermal, or even reforestation, which must be Gerochi's concern, which otherwise would have been prohibitive without it.

The resulting carbon trading offers an upside for the financing entities--that is, it allows them to recover part of the cost of money used in financing. Many of the financing institutions such as the Asian Development Bank or the International Finance Corporation of the World Bank, as well as private Carbon Funds usually arrange to buy the carbon credits generated from these green projects.

The prices of these tradable financial instruments have been rapidly increasing during the past two years owing to increased demand.

That Germany takes a lead in carbon financing is hardly surprising. It pioneered in putting in place renewable energy initiatives starting 1n 1990 which resulted in the explosive growth of solar and wind energy systems in that country.

The report also indicates Gerochi shares the concern the technology for such projects has to be acquired at a substantial cost from the developed countries who themselves do not or are not willing to incur the cost to reduce their own emissions.

We are not sure what the technology Gerochi is talking about. Examples of local projects qualified under the CDM are the 24.75 MW Bangui Bay wind project in northern Philippines, the 20-MW geothermal project of Energy Development Corporation in Negros Oriental and the various small biomass projects at various stages of developments--projects that hardly need expensive technologies. For the case of geothermal, the technology relies on local expertise.

If Gerochi is typical of our policy makers, then it underlines our general lack of appreciation of, and readiness to embrace the CDM and the resulting growth in carbon trading both at the regulated and the voluntary (over-the-counter, or OTC) markets.

Sittler could have merely scratched her head in disbelief.

Vanadium battery catches the sun and the wind

By J R Ruaya

When the wind dies down or the sun stops shining at night or during cloudy days, the solar collectors and wind turbines stop working. There is just no cost effective way of storing energy from these sources.

Not anymore.

A recent development of energy storage using vanadium electrochemical cells is now about to break into the commercial realm.

In a solar installation photovoltaic solar panels catch the sun’s energy and convert it into electricity. This is then stored into the vanadium battery so that the energy can be used at a later time or pumped into the grid.

A vanadium battery, which works similarly as the familiar battery used in toys and flashlights, has distinct advantages over the other battery cells in the target application. The main advantage is it uses the same elements in both half-cells which eliminates cross-contamination of the two half-cell electrolytes during prolonged use. The positive and the negative half-cells are separated by a proton exchange membrane.

It has high efficiencies of 80 – 90 % in large installations. Furthermore, the costs rapidly goes down as the installation is scaled up. And maintenance is easy.

The battery can also be fully charged or discharged. In cases where time is the essence, the electrolyte solutions can simply be replaced rather than waiting for recharging.
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Sidebar:

The electrochemistry involved is not too difficult to understand even by undergraduate students of chemistry. The schematic is shown below (courtesy of the University of New South Wales):

The half-reactions are:

At the positive electrode:

VO2+ + 2H+ + e = VO2+ + H2O E° = 1.00V

At the negative electrode:

V3+ + e- = V2+ E° = -0.26 V

The standard cell potential E° (cell) is 1.26 Volts at concentrations of 1 mole per litre and at 25°C, but under actual cell conditions, the open circuit cell voltage is 1.4 Volts at 50% state-of-charge and 1.6 Volts at 100% SOC (Skyllas-Kazacos, 2002, p. 2).
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Early demonstration projects include a solar-powered housed in Thailand, an electric golf cart, and a back-up power system for a nuclear submarine.

In the United States, which is playing catch up with the technology, a 15-kW photovoltaic installation has just been put up at the Lowry Park Zoo in Tampa, Florida jointly by Tampa Electric and the University of South Florida’s (USF) Power Center for Utility Explorations (PCUE) at a cost of approximately $ 575,000 (Tampa Electric, 2008).

Earlier in June, two similar 5 kWx4hr systems have been installed at the downtown St. Peteresburg campus of USF and at Albert Whitted Park in the same city by the university and Progress Energy of Florida (VRB, 2008).

The vanadium redox battery has been developed and its use pioneered at the University of New South Wales. An engaging historical and scientific account of its development has been presented by Skyllas-Kazacos (2002).

With the technology now available what remains is the development of policy initiatives as embodied in the renewable energy bill still pending in Congress for the solar and wind power to take off in the Philippines.

References

Skyllas-Kazacos, M. (2002, July). An historical overview of the vanadium redox flow battery development at the University of New South Wales, Australia, 13. Retrieved August 19, 2008, from http://www.vrb.unsw.edu.au/overview.htm

Tampa Electric (2008, August 4 news release). Tampa Electric, USF partner with Tampa’s Lowry Park Zoo to develop new renewable energy project. Retrieved August 19, 2008 from http://www.tampaelectric.com/news/article/index.cfm?article=466.

VRB Power Systems Inc. (2008, June 9 press release). Progress Energy and University of South Florida’s Power Center for Utility Explorations unveil two 5kW x 4hr VRB Energy Storage Systems as part of SEEDS project . Retrieved August 19, 2008 from http://www.vrbpower.com/docs/news/2008/news_20080609.pdf

Reducing electricity systems losses : hard but doable

Early this month, the Energy Regulatory Commission (ERC) issued a draft resolution for public consultation mandating that, among others, the electricity of a distribution utility (DU) is to be treated as an expense and not part of a systems loss, and lowers the maximum recoverable rate of system loss from 9.5 percent to 8 for DUs and from 14 percent to 11 for electric coops, based on the total kilowatt-hour (kWh) generated, purchased and distributed.

This is a welcome development, for the ERC and previous electricity price regulatory bodies have not adjusted the systems loss caps for almost a decade. The high systems loss cap was also pinpointed as one of the reasons for the high power costs exposed during the high of the controversy between GSIS president Winston Garcia and Meralco.

Earlier, we have proposed a stretch target of 5% and an implied reasonable target of 7%, based on the average systems loss of European Union countries. We also maintain that the cooperatives should be treated like any other private DUs which means that they should also have the same caps.

We also reiterate that these business dinosaurs be sold off to private investors.

As to be expected, the distribution utilities cry wolf, saying that this could lead to huge losses.

Aboitiz Power Corp. president Erramon Aboitiz said that its unit the Visayan Electric Company, the DU servicing Cebu City and province, is within the current 9.5% cap, but reducing this to 8 % the company would have to book losses of some P 100 million.

However, he didn't say that it is not doable. In fact, he said that you can reduce systems loss by investing, but one has to make a decent return. Of course.

This was echoed by another Aboitiz firm Davao Light & Power Co. (DLPC) vice president Bienamer Garcia said the proposed lowering of the system loss "would entail a lot of cost” , but the firm's system loss level as of end-June 2008 already stood at 7.91 percent, just within the proposed 8 % cap.

The Aboitiz units want incentives. Fine. But the incentives (e.g., tax breaks for capital importation) should be for improvements specifically targeting reduction of systems losses at the same time that the systems loss caps are lowered.

Garcia said that there is already a performance-based mechanism in place and all that ERC should do is to align the proposed new cap with this.

“Let businesses figure out how to reduce those losses, then give incentives. When you give incentives, you start seeing what people can do. For me, it’s better to provide incentives to companies to reduce system loss,” Aboitiz said.

Amen.

DOE plans yet another energy plan extending to 2030

THE GOVERNMENT, through the Department of Energy, is at it again.

In a recent briefing, Energy Secretary Angelo T. Reyes told the media that the Philippine Energy Plan (PEP) would be extended to 2030 as the 2005-2014 plan was "not applicable to some regions" which can be interpreted as an oblique admission that the original plan was full of holes, to put it kindly.

We are only three years into the original plan, yet we are effectively dumping it in the guise of extending it far into the future when nobody wouldn't, or couldn't, validate the plans.

The 2005-2014 PEP targets a 60% energy self-sufficiency level by 2010 and pursues effective reforms in the power sector. In effect, these aims are no longer valid.

The major problem of such a plan is not so much on the length of time, but on the soundness of the content. If one looks back at the 2005-2014 PEP plan, some are bordering on the grandiose bereft of solid fundamentals. Even a simple assessment of the electricity supply and demand situation for the next few years was off the mark.

Some aims were more of motherhood statements than concrete plans. For example, the plan aims to make the Philippines the number one producer by 2014 I believe, yet no rigorous verification was made whether such listed areas were in fact capable of producing the indicative MW outputs. If one were to compare our geothermal program with those of others such as the US and Indonesia, the gap between our production with US will widen by a huge margin, and we would be eating the dust of Indonesia even if we only count the committed and ongoing geothermal projects of the latter. We will surely slide to third, or even fourth worldwide.

For another example, the plan declares that we would be the premier wind energy producer by the end of the period, yet there is not even a comment whether the infrastructure to achieve such aim is in place. The Department cannot even push for the passage of a renewable energy bill which could be a springboard of a nascent renewable energy industry to significantly grow. The renewable energy bill itself, which is pending in congress for ages, does not have much substance.

The Department even relies on a study by the U.S., National Renewables Energy Laboratory (NREL) for the inventory of our own wind energy resources.

What the Department could do for example, rather than making yet another grand plan that stretches far into the future, is to set down and carefully study the implications of the renewable energy bill's provisions.

The end product could be white papers on renewable portfolio standards, how to set up the net metering infrastructure, or even the pros and cons of a feed-in tariff system which jumpstarted the wind and solar power industries in many areas of the world, but did not merit any mention at all in the RE bill.

Our legislators are too busy politicking to come up with really outstanding pieces of legislation that could help shape our energy policy. At the very least, the Department could pitch in to educate our lawmakers. Whatever comprehensive energy policy we have, if any, would now be sorely antiquated.

In the meantime, the international energy industry is in a swirling vortex, with energy and commodity prices in a wild roller coaster ride, and all our policy makers could do is watch helplessly in the dust, and wonder what has happened.

Capital intended for energy infrastructure around the world has been zigzagging across national boundaries, looking for worthwhile projects, but most are bypassing the country. Why, the DOE should ask.

Trading of carbon credits and other energy related financial instruments has been swelling at a blistering pace for the last two years, with the voluntary carbon market-- as opposed to the regulated carbon market-- tripling each year in value with hardly anyone from our energy policymakers noticing. The generators of these trad able instruments come mostly from renewable energy projects from developing countries, the Philippines included, only if we have put the right infrastructure in the first place.

There are many other worthwhile projects for our DOE other than crafting yet another nebulous energy plan.

Going carbon neutral

Are you carbon neutral?

In this country, if you ask the question chances are you would be met with blank stares, as if saying, what are you talking about? Or shall we change the topic? Try it.

It shows that we are still along way towards a culture of clean energy and energy efficiency.

Going carbon neutral as an individual is all about the good old, energy conservation and being energy efficient. Aside from the updated semantics, becoming carbon neutral takes on a new advocacy-- that of helping to mitigate global warming in your own small way by deliberately changing your lifestyle towards that goal.

The jury is still out whether global warming is caused more by human activities or natural events—one can argue from both ends of the political spectrum. Or whether global warming is intrinsically bad or there might even be hidden benefits to it, according to the devil advocates (For example, global warming could free up vast tracts of tundra for agriculture).

Whatever. But the incontrovertible scientific evidence does indeed point to measurable average global rise in temperatures at least since the rise of civilizations. The body of evidence ranges from paleotemperature measurements of ice cores in Antarctica to ocean currents and to migratory behavior of birds.

Let’s go back to becoming carbon neutral.

Carbon neutrality refers to energy policies and practices that effectively result in zero net emissions of greenhouse gases. Greenhouse gases are alleged to contribute significantly to global warming. Any effort to help reduce these gases will offset the effects of global warming.

Carbon neutrality works through a combination of reducing greenhouse gas emissions, researching and utilizing renewable energy resources and offsetting whatever emissions one cannot avoid producing.

There are two groups of ways to become carbon neutral. One, by reducing your own carbon emission by deliberately avoiding activities that emit carbon gases and by becoming energy efficient. And two, by offsetting what you produce by some carbon-reducing activities somewhere around the globe.

Offsetting could also mean you pay companies to maintain carbon reduction projects worldwide like tree-planting program or the use of renewable energy sources which would nullify your carbon emissions.

Large-scale offsetting is probably familiar here in the form of tradable carbon credits granted to renewable energy projects such as the Bangui Bay wind project and the methane gas electricity generation project in San Mateo. These projects have been implemented through the so-called Clean Development Mechanism (CDM) under the Kyoto Protocol. The mechanism is essentially trading an institution's excess carbon emissions with another’s surplus to lead to a net zero sums.

Offset projects can be classified into two types: avoided emissions and sequestration. The first category seeks to avoid emitting greenhouse gases by using less fossil fuel and switching to renewable sources for power generation.

The second category, sequestration offsets, involves removing an equivalent amount of CO2 from the atmosphere and storing it for a given time. Carbon sequestration proposals range from capturing the carbon dioxide emissions of coal power plants to research on how forests and grasslands management could be improved to increase soil uptake of these gases.

The voluntary offset market has developed into a major market which is triggered by increasing carbon compliance demands especially in more developed societies. Europe and Japan have been the largest buyers and China the largest seller. In 2006, the estimate of the regulated market is placed at $US21.5 billion and voluntary markets at about $US100 million for the first three quarters of 2006. The bulk of the purchases come from corporations with substantial carbon footprints that are looking to minimize their financial risks ahead of tightening regulation.

Examples of carbon offsetting projects are the following: solar power, wind power, hydroelectric power, fuel efficiency, fuel substitution (switching to a fuel which emits less carbon). Co-generation (generate electricity and heat from one source), efficient lighting (replacing incandescent lamps with compact fluorescent lamps), materials switch (replace input materials of industrial processes to one with less carbon emission), construction of green buildings (which are energy and materials efficient), green transport (use of LPG and hybrid cars), utilization of industrial waste (e.g., co-generation), biomass power generation (use of farm residue to generate power), reforestation and efficient pasture management.

Becoming carbon neutral requires a complete change in outlook aside from having the right information.

In the meantime, one can readily take the path to becoming carbon neutral by making improvements right within your home. Some of the things you could do at home include:

* Choose white goods such as freezers, washing machines and air conditioners with high efficiency ratings.

* Replace incandescent lamps with compact fluorescent lamps (CFLs) and other low energy light bulbs. Try to give up your halogen lamps.

* Switch to a power supplier which uses renewable energy if possible. At the moment this is not feasible, but this might be coming your way soon.

* Improve the insulation of your room if you have an air conditioner. Switch off air conditioner earlier; with proper insulation, coolness of the room will persist longer.

* Observe proper recycling of materials

* Don’t leave appliances and lights turned on when nobody is using

* Don't waste water.

* If appropriate, install your own renewable energy systems, such as solar panels in your home.

One could add to the list.

Becoming carbon neutral is not that difficult. Aside from having that feel-good feeling of somehow helping the environment, one can save or make money on the side.

Was Tiwi-Makban a steal?

If champagne bottles were not popping, there must have been an air of jubilation or a round of backslapping and self congratulations at Power Sector Assets and Liabilities Management Corp. (PSALM) 's office when it was able to sell Tiwi-Makban complex, the first of geothermal assets to be sold. At the very least, there must have been sighs of relief as the asset has been put on the auction block since 2005.

As this is the first sale of a geothermal asset, necessarily, it has become a benchmark both in pricing and methodology for subsequent geothermal assets disposal. On the queue are the Palinpinon complex, Tongonan I and Bacman which are all slated for bidding in the coming months.

Interestingly, PSALM has not given indications whether the sale proceeds were beyond its expectations as there was no indicative base price given even after the auction.

Was the price reasonable?

One should assume that the bidders have done their homework to arrive at their respective bid price. PSALM would have done likewise.

Below is a tabulation of the results of the privatization efforts of PSALM (prices in million U.S. dollars, $ M):


For comparison, consider the price per MW paid for the coal and big hydro plants. The prices range from $1.15 M for Pantabangan-Masiway to $1.86 M for Ambuklao-Binga. But surprise, for Tiwi-Makban the price is ridiculously low at $ 0.60 M. For comparison, a rule of thumb says that to put up a new geothermal plant that size, the total cost would amount to something like $ 2.5 to $ 3 M per MW.

So, Aboitiz snagged the geothermal complex for a song with nary a whimper from PSALM, and not a finger or eyebrow raised from the usual rambunctious politicians who see dirt at any government auction?

Not necessarily.

The price quoted already inputted the multifarious problems facing the complex-- and there are many.

One, the hardware has been there starting 1979, and considering Napocor has been in a tight financial squeeze for as long as one can remember, one cannot expect that the plants are in good running conditions. In fact, two of the units were supposed to have been rehabilitated prior to the bidding are still sitting idly, from what I gather. Many of the cooling towers, hot well pumps, turbines, and the control room--big components of the plants--are a little more than derelicts of a bygone industrial era.

Two, there is still the nagging issue of the geothermal resources sales contract (GRSC) which is foisted upon the winning investor, which is, based upon the pronouncements of the interested investors prior to the bidding, not exactly a money machine, to put it mildly. So much so that Luis Miguel Aboitiz, vice-president of his family's power unit, insisted immediately after the winning bidder is announced, that the contract has to be negotiated.

Three, while a power sales contract of more than 400 MW has been attached to the sale, the rest of the power generated will have to be dispatched through the wholesale electricity spot market (WESM) at competitive prices. Geothermal electricity from Tiwi-Makban will have to compete with hydro, natural gas and coal for base load requirements. Worse, the steam price is tied to coal prices as stipulated in the GRSC, so geothermal electricity from Tiwi-Makban would have difficulty competing even with coal plants.

And four, while Aboitiz gets to make use of power from Makban field which is one of the most productive fields in terms of power density, Tiwi is another story. There, Aboitiz may be hard-pressed to expand the capacity owing to technical limitations of the field. Its technical staff would soon learn problems associated with mineral deposition, declining pressures, cold water inflow that has ravaged about half of the original field, and acidic fluids, to name a few.

There are more. The Aboitiz group, hard-nosed savvy investor, must have inputted all these risks during its due diligence and came to the conclusion that the assets cannot be at par with the other power plants--coal or hydro-- sold by the government. Hence the seemingly low price.

So, the price must be justified, and PSALM bosses could at last report to their superiors at the Department of Finance that at least they have gotten some amount from a problematic asset to help plug the government's chronic deficit after several tries. For all we know, PSALM may have a secret base price and the winning bid tops it.

So everybody seems happy. End of the story.

But there is a worrisome item that bothers me since. I need to let it off my chest.

If anyone who has the best position to value the assets, it must be Energy Development Corporation (EDC), the losing bidder. It has vast experience in managing geothermal fields, so it knows the ins and outs of the costs involved in operation. It has acquired power plants, so it has a pretty good idea how to run these profitably.

The whiz kids at its finance department must have cranked out all sorts of economic and discounted cash flow models to arrive at the conclusion that it must be pretty good--for itself. For how could you explain the assiduous defense of the contract by the EDC president?

EDC did not come to the bidding table only to lose. So it has come up with a number which to itself must represent a fair market value for the assets: all for $ 368.44 M. That would amount to $ 0.49 M per MW--less than half the price of coal or hydro plants.

It looks like the Abotiz group would have its hands full in the coming months to justify its bid.

Oil prices wither some more

So much for $200 oil?

Dan Fisher at Forbes News wondered aloud when oil prices fell below $120 a barrel a day earlier, touching levels unthinkable just a few weeks back when rising oil prices seemed unstoppable.

Less than a month ago, we suggested that we are entering bubble territory, when the price dropped by $9 a barrel from $145. But as soon as the piece was posted, prices snapped back to record levels. Since then, prices have eased gradually to current levels.

The price charts (see Oil Price Watch sidebar) show a double top, with the second peak barely reaching the first level, but couldn't sustain that level. Trends in moving averages have completely reversed, and technical analysts definitely view this as bear territory. Are we now into a real bear market after the "bubble" was pricked?

Veteran oil price watcher and academic Ferdinand Banks in his incisive article "Speculation and the price of oil" which appeared on the July 9 issue of EnergyPulse castigated the idea of pure speculation as the main driving force of oil prices. A bubble, he pointed out, has no underlying fundamentals at all, giving the Dutch tulip mania in the 1600s, the South Sea expeditions (there is gold in thar seas!) and the 1929 stock market crash as classic examples. One could add the dot com bubble early this century.

Banks asserted that the rising oil price that we have witnessed of late is basically explained by the relation between ‘flow’ supply and ‘flow’ demand, and with or without speculation the result would be almost the same. This is somewhat different from the normal supply and demand relationship taught in Economics 101. The difference is the "flow" concept, which is taken to mean the movement of oil volume per unit of time, say from the ground to the oil tankers, or from the production platforms to the government inventories. The actual supply and demand could dictate a steady price, but an actual or even perceived disruption in the "flow" supply could alter the price equation.

In that sense we tend to agree with Banks that excessive speculation is not due to market manipulators at the Texas bars or at the New York Mercantile Exchange (NYMEX) but rather on the perceived disruptions on flow supply due to, among others, political posturings of the major powers, propaganda of depleted supplies by OPEC countries, attempts to use oil as a bargaining chip in economic negotiations, etc. Some observers are in fact suggesting that major oil producers are deliberately understating supplies and production levels to keep prices artificially high.

Data from the ground suggests that dwindling oil supplies are highly overstated.

Fisher noted that the pullback is vindication for analysts who for months have been saying that oil prices had entered bubble territory on a mix of financial speculation, worries about a military attack on Iran and rapidly increasing Asian demand. With hefty new supplies hitting the global market from Saudi Arabia, Libya and even Iraq, those analysts say, oil is likely to fall below $100 soon. Iraq in particular has been hitting record production levels since the U.S. toppled Saddam Hussein.

"This fall is a reaction to overshooting over the past couple of months," said Daniel Ahn of Lehman Brothers, which has issued several reports suggesting oil prices were unjustifiably high. "The fundamentals of new supplies suggest prices will be in double digits."

Saudi Arabia apparently hit its target of 9.7 million barrels a day in July, effectively muzzling its detractors who are harping on its supposedly depleted oil fields.

At the other side of the globe, oil production at the Gulf of Mexico is steadily recovering from the havoc wrought by hurricane Katrina.

The turnabout in oil prices has been excruciating to investors who flocked to oil and energy stocks at near the peak price. The Standard & Poor's Global Energy Sector Index Fund (IXC) is down 22% from its high of $54 in early June, and the Rydex Energy Services fund (RYVAX) is down 14%.

There could be more declines ahead, Fisher warns. Implied price volatility spiked to a high of 52% at the height of Iran-Israel tensions over suspected nuclear weapons facilities, but has settled to about 45 %. This is considered to be pretty high, as any number above 30 % is unusual.

Which means there is still too much froth left on oil prices.

Sick Napocor takes in a patient

The sick trying to cure another sick.

This is probably the apt description when a management team from the state-owned National Power Corp. (Napocor) is poised to take over the operations of Albay Electric Cooperative (Aleco) as stipulated in the operations and management (O & M) contract agreed and signed by both Napocor and Aleco last July 17.

In addition to overseeing Aleco's administration, finance, management and support services, Napocor will also suspend the interest and penalty charges on Aleco's unpaid billings for the former for the duration of the one-year contract. This can however be extended by mutual agreement.

For its part, Aleco shall avail of National Power’s financial and technical expertise to achieve efficient, reliable and profitable management of its electrical distribution system for a service fee of two percent of the power purchased from the power generator during the contract period.

We have recently alluded to this dire situation of this cooperative when we referred to a sick power distributor in the Bicol area.

But can Napocor, by itself facing financial difficulties and is only kept alive by intravenous injection by the government, able to sustain Aleco?

The multilateral lender Asian Development Bank (ADB) recently suggested that the sale of Napocor itself is one of the best ways this government can improve the electricity prices of this country.

At the moment, Napocor's business is generation and transmission, but little of retail distribution, so it is doubtful whether it can stage a turnaround. Sure, the problems of Aleco is miniscule relative to Napocor's difficulty itself, but are quite different.

Aleco's problems are management-related, or the absence of it. Aleco probably exemplifies what an electricity distributor should not be.

For this type of service business, the management team should have a technical grasp of the requirements needed. It should not be beholden to the local political warlords. It should have strict internal controls on money and personnel matters.

It should have a professional management team.

We have been advocating all along to sell off these electric cooperatives, which are a relic of the bygone era of state monopoly, to entities such as experienced distribution companies. One could start with the cooperatives serving a large number of the populace. This has been successfully done in recent years as in the case of the San Fernando, Pampanga electric cooperative which has been sold to a private interest.

Napocor's takeover is not the best solution; it should only be temporary.

The consumers should have no fear of a private takeover, only relief. As it is, the electricity distribution industry is highly regulated and consumer protection is in place throughout the service chain from generation to transmission and distribution.

They could only gain freedom from incompetent administrators of many of these cooperatives.