The next energy powerhouse

Into energy

Which group do you think would be the next dominant energy conglomerate in the medium to long term?

When it comes to power generation, the groups that readily come into minds are the Aboitiz and Lopez groups which have been entrenched in the power industry for generations. With the slew of reforms which was jumpstarted by the Electric Power Reform Act during the Ramos years and continuing to the present, the country has seen new formidable entrants to the power sector which bodes well for the industry and the country.

Which of these groups would come to dominate, or at least become a significant player in the energy sector, has been the topic of speculation by energy watchers.

Ramon Ang of San Miguel Corporation is being keenly watched as he is credited of transforming a stodgy food conglomerate into an energy player. He started by taking over Petron Corporation, and using this as a vehicle, expanded into Malaysia. Next, a huge chunk of Meralco, then some moves into power generation. Now Ang is talking big about upstream oil production.

The other large conglomerates are also suspects. The Ty group through a unit of GT Capital Holdings has been busy acquiring or putting up power assets mostly in the Visayas. The Consunjis have been testing the waters through a power unit of Semirara Mining Corporation. Even the group of Andrew Gotianun through Filinvest Development Corporation is putting up a 600 MW coal plant in Misamis Oriental.

What about--Ayala Corporation?

As of now, that might raise eyebrows as the group is better known for its iconic master planned property developments and banking (through Bank of the Philippine Islands). But since then, it has successfully branched into telecoms which gives the dominant carrier a run for its money, and water service.

Judging from its recent  pronouncements and actions, the group seems determined to stamp its mark in the energy industry.

At the recent stockholders' meeting, Eric Francia, the president of AC Energy Holdings of the Ayala group, revealed that the company has already committed US$325 m for four power projects already acquired or in advanced stage of development. The amount is part of the $700 m earmarked for upcoming power projects in the next few years.

Ayala debuted into energy a few years back by acquiring a 50% stake of 33 MW Bangui wind project from the original developers. At present, the group's equity interests in projects include a 20% of GNPower which is developing a 600 MW coal plant in Bataan; two 135-MW coal plants in Batangas in partnership with Trans-Asia Oil and Energy Development; and a mini-hydro project somewhere in Luzon.

These could represent just a start.

“Our strategy of record for AC Energy is to have a combination of conventional (or fossil-fuel) and renewable energy resources,"  Francia explained, which summed up a strategy combining reality to have conventional power sources together with renewables and hard-nosed business acumen which Ayala is renowned for.

That's why, according to Francia, the group leans towards competitively-priced conventional sources, but over time it sees a balanced portfolio of conventional and renewable sources. But that should take time. That makes sense.

Given its track record on other businesses by taking a long term view, the Ayala group cannot be ruled out as a dominant energy player, even if it has no previous record. When it acquired a small telecommunication outfit named Globe-Mackay, it had no telecom experience, but nevertheless transformed it to second-largest telecommunications firm GlobeTelecom. It acquired a much maligned government water service unit and developed it to a reliable--and profitable--service provider Manila Water Corporation despite having no prior exposure to the water distribution business.

Most importantly, it has the necessary capital firepower to undertake costly projects like power generating plants.

The oldest conglomerate may yet turn out to be the youngest dominant power player.

Mindanao's power calvary

When President Benigno Aquino III declared yesterday that the people of Mindanao, which has been suffering from rotating brownouts for years now, will have to pay more for their power consumption, he is merely stating the inevitable and obvious. It is also and admission of failure of this Administration to address the lingering power problem in Mindanao as well as in the Visayas.

We have already said almost verbatim the same thing years back in a post. Reading my post again gives me goose pimples when I realized much of what I said then have come to pass.

“The power rates will go up in Mindanao because the choice is a higher power rate or no power. And many of those we’ve spoken to understood the necessity for higher rates, and they’re amenable to this, instead of no power at all,” he said during an ambush interview at a Pasay City bus terminal on Tuesday. What a message to Filipinos leaving to the provinces to observe the solemnity of the Lenten season.

No, I disagree that those whom he talked to are amenable to this. Are you?

Like good Christians we are more like submitting ourselves to bad governance and inadequate planning. We are carrying this cross of bad governance to our Calvary.

Pnoy was saying this in the context of DOE's plans to buy "modular" diesel-powered plants as a stop-gap measure until 2015 when the coal-fired plants start coming in. This was the plan presented by politician-turned-DOE secretary to Pnoy.

The idea is, the plants can be set up in as little as six months to at most one year. He also claimed, or rather being advised, that "[b]y 2015, we expect the problem to largely go away—by that time, we’ll have good surplus. That’s the time the (coal)  power plants go on line". Considering the procurement and setting up process alone, six months is a pipe dream. What about the permits and other bureaucratic requirements?

It seems that the president is ill-advised. The "solution" forwarded by Petilla is uncannily similar to what then DOE Secretary Rene Almendras proposed early 2012: sale of diesel-fueled power barges owned by the government. If that was a success, we won't be in dire situation today. Now how different is the current DOE secretary's proposal?

The numbers don't even add up. We even put a conservative 3% annual energy growth then (if we are to maintain the  economic growth at about 5.5 - 6, the energy demand would be nearer to 5 than 3%), and the power plants under advanced construction wouldn't put a dent on the demand.

The news report also quoted that at present, Mindanao has a power shortfall of 294 megawatts. The demand is at 1,157 MW while the actual supply is only 863 MW. But how much of this in dependable supply? The 300 MW to come online in 2015 quoted by the President is only enough to cover this shortfall at present. (For more of the coal plants coming on line, see this.)

How would we power the power-hungry new mines? New mines and sprouting subdivisions and malls if we are to believe in a peace dividend upon the cessation of political hostilities in Mindanao. We are not even factoring in the continuing siltation at Agus  or the aging diesel plants that are still in operation.

For a healthy economy to keep chugging along, the rule of thumb is, there should be a reserve supply of at least 30% more. Advanced and some developing countries have reserves of 40% or  more.

Just this afternoon, we have gained the coveted investment grade rating from Fitch. What it means is that the Philippines is safe enough to invest in. Imagine if a portion of the expected foreign  investment is poured into Mindanao.

At the very least, Aquino should refrain from recycling politicians into his Cabinet, especially like the sensitive and critical Department of Energy. How many DOE secretaries did we have in the last 5 years? Every time a new face sits at the DOE throne, all the pending and ongoing projects are delayed, scratched or "reviewed". We have not had any technocrat at the helm of DOE since the late Geronimo Velasco of Marcos' time, except probably Mr. Vince Perez.

In the meantime we can only shed tears and watch the people of Mindanao carrying the power shortage cross to Calvary. I don't want to see them nailed there.
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Note added on April 8: Napocor has warned that Mindanao power situation will get worse next month (May) due to decreasing water levels at Lake Lanao. The deficit is now 121 MW.

Coal's call

Lately, coal has been in the news owing to the recent accident at the coal mine belonging to Semirara Mining Corporation (PSE:SCC) in Antique where 5 workers were confirmed dead. The tragedy highlights risks in mining, and anti-mining groups pounced on the incident to bolster their position against the industry. At the capital markets, SCC and its parent DMCI Holdings (PSE:DMC), being listed companies, have suffered sell-down immediately after the accident.

But the incident is not wholly a mining concern.  It is more about energy—our precarious energy situation in particular.

At about the same time as the accident, the Department of Energy (DOE) awarded service contracts to explore and develop 11 prospective coal blocks to eight companies. These coal blocks were auctioned off by the government in 2011 under the Philippine Energy Contracting Round.

The “winning proponents”  include Altura Mining for Area 3 (Catanduanes); Semirara Mining Corp. for Areas 9 (Oriental Mindoro) and 25B (Sarangani); Empire Asia for Area 18B (Surigao del Sur); SKI Mining for Area 19A (Agusan del Sur and Surigao del Sur); PNOC Exploration Corp for Areas 19B (Agusan del Sur and Surigao del Sur), 29 (Zamboanga Sibugay) and 30A (Zamboanga Sibugay); South Davao Developement Co. for Area 8 (Occidental Mindoro); Blackstone Mineral Resources for Area 27 (Zamboanga Sibugay) and Mega Phils. Inc. for Area 23 (South Cotabato, Sultan Kudarat and Sarangani).

As an aside, very recently Coal Asia Holdings (PSE: COAL) which is a pure play on coal, launched its initial public offering (IPO) at the Philippine Stock Exchange.

Why the upsurge in coal exploration and development despite coal world prices scraping near historical lows?

The Aquino government has trumpeted as its major achievement the 6.6% economic growth in 2012, and it this growth were to be sustained in the coming years, the country needs additional power—lots of it.

And if we need reliable power at the shortest time possible, the source would be coal-fired plants by default. Developing a coal-fired power plant does not require stringent requirements for a location, fuel is plentiful and the banks are more than happy to finance such low risk project. About the only most critical path to the project is getting the Environmental Clearance Certificate (ECC) and how to appease environmental protesters who would unfailingly raise ruckus against any power project.

Power generation from coal is undeniably not clean energy but economic considerations could trump pure environmentalism. That is why the major power plants that are coming on stream in the next few years would be coal-fired. Aboitiz Power Corp. (PSE:AP) alone is planning a total of 1,300 MW coal fired facilities to add to the Luzon and Mindanao grids in four years’ time. These are the 400 MW expansion of the existing Pagbilao plant, a 300 MW Davao plant and a 600 MW plant to be put up at Subic.  The Alcantara group which is based in Mindanao, through publicly-listed Alsons Consolidated Resources Inc. (PSE:ACR) has, in its pipeline, a 105 MW plant in Zamboanga and a 210 MW plant in Sarangani.  GT Capital Holdings (PSE: GTCAP) which is a major power player in the Visayas through its power subsidiaries, is planning two coal-based power projects. Even new-comer in the power industry AC Energy Holdings of the Ayala Group (PSE: AC) is planning to put up a 135 MW coal plant in Iloilo together with A Brown Inc. (PSE:BRN), and a 135 MW plant in Batangas (with Trans-Asia Oil and Energy Development (PSE: TA)); and it has a 17.1% stake in a 600 MW facility in Bataan owned by GNPower Mariveles Coal Plant Ltd. which is slated to come into operations by May of this year.

Clearly, it’s coal’s call this time.

Criticize coal plants to high heavens, but they may well be our salvation against debilitating brownouts that could derail our climb from  impoverishment to prosperity.

Mindanao’s power woes

The Mindanao power situation is becoming a choice between the devil and the deep blue sea.

The devil of course, is the perceived polluting coal-fired power plants that are mulled to be erected in Mindanao to address the looming power shortage on the island. To be sure, Mindanao is not stuck up solely on coal plants. There are lesser “devils” around like the planned 50 MW Mindanao 3 geothermal plant project of Energy Development Corporation (PSE:EDC), which doesn’t sit well with environmentalists due to its proximity to the Mt. Apo National Park, and a 42-MW hydro project in Davao which has also attracted some opposition from locals.

The deep blue sea is more like pitch darkness due to expected brownouts if none of these projects could take off on time due to local opposition. The year of reckoning is pegged in 2015 by the Department of Energy when power demand completely outstrips supply assuming a conservative power growth of 3 % per annum, and the committed power projects are on track.

The reign of darkness could come earlier by 2012 if one or two of the bigger power projects are derailed. Or if big power-hungry projects like Hanjin’s shipbuilding facilities in Misamis Oriental and big malls come on stream to GenSan and other booming cities in southern Mindanao.

At the same time, the DOE considers this year as critical for the Mindanao power grid with peak demand reaching 1,525 MW.

One of these power projects to help alleviate Mindanao’s power shortage is the recently unveiled 200-MW coal-fired power plant to be built in Sarangani province by the Alcantara-led Conal Holdings Corp. at a cost of $450 million. The proponent claims that the plant is “on track” to operate in three years despite that fact that it is still in the development stage.

Conal Holdings is backed by the Electricity Generating Corporation (EGCO), one of the largest generating companies in Thailand and Southeast Asia.

The plants would be built in two stages: Stage 1 comprises a 100-MW unit and the whole facilities for the power station complex, while Stage 2 would be the second 100-MW unit which would be constructed within 24 months after the commencement of operations of the first unit. The second unit is targeted to be completed in 2014.

If coal plants are considered dirty, then why are these preferred by investor- developers?

Compared to other types of generating plants like hydro or geothermal, coal plants have the shortest time of completion, and theoretically, one could erect them just about everywhere. The fuel is not a problem since one could just get it from the open market.

Mindanao is no stranger to coal plants. The speed in which coal plants can be constructed if so desired is best exemplified by the record completion of the 232-MW STEAG coal-fired power plant in Misamis Oriental, a significant control of which has now been acquired by the Aboitiz group.

The apparent choice of coal is of course dictated in the end by economics. But with not much choice considering the looming crisis, Mindanao may not have much choice but must make a pact with the devil.

Or the people there may have to consider coal plants not the devil himself, but a fallen angel with some hope for redemption. The choice is easily made if one looks at the other side and sees nothing but an abyss of darkness.

DENR shows pragmatism in approving Panay coal-fired power plant construction

The Panay Power Corp. has recently been given the go-signal by the Department of natural resources and the Environment (DENR) to proceed with the construction of its 164-megawatt coal-fired power plant in Barangay Ingore, La Paz district in Iloilo.

Rather than bowing to intense pressure from environmentalists and the catholic church, the DENR exercised pragmatism when it granted September 1 the requisite environmental compliance certificate (ECC) to the power plant operator.

The ECC however, carried 16 conditions for the operator to meet, including:

• continuing dialogue and interaction with stakeholders, contractors and workers on issues concerning the plant operation;
  
• establishment of a five-meter buffer zone of greenery along the plant’s periphery;
  
• provision of a 20-meter easement for the creek/river in  la Paz;
  
• continuous monitoring of temperature and other relevant parameters of cooling water from the plant before discharging;
  
• installation of additional automatic floating buoys capable of measuring water temperature within the mixing zone and boundary areas of the plant;
  
• provision and maintenance of a 900-square meter reserve area for the cooling system; and
  
• addressing climate change and global warming by putting in place a program to mitigate greenhouse gas (GHG) emissions.
  

Panay island has been reeling from acute power outages.

 Its main source of power, the decrepit 146.5 MW Panay diesel power plant owned by the National Power Corporation, is currently under the auction block through the Power Sector Assets and Liabilities Management Corporation (PSALM).

 While the island is connected to other power sources like the geothermal plants of Negros Oriental and Leyte as part of the Visayan grid, its power supply is secondary only to the demands of Cebu and Negros. 

The installed 49 MW geothermal plant of the Energy Development Corporation (EDC) which is designed to augment the power requirements of Panay, has been shut down due to operational problems in the field.

 

Clean coal?

By J R Ruaya

Last weekend in Iloilo City, Energy Secretary Angelo Reyes declared that he is in favor of building new coal-fired power plants in the Visayas as long as they use the so-called “clean coal technology”. He made his position on the issue amid his advocacy in the promotion of renewable energy sources.

It was a brave pronouncement, a calculated one, amidst active protests against coal in particular and environmental degradation in general. At the same he was making the statement a group of environmentalists have scaled nearby Mt. Kanlaon to protest the granting of permit to geothermal developer PNOC-EDC to enter Mt. Kanlaon National Park. A few days earlier, Greenpeace environmental activists vandalized a ship loading coal to Pagbilao power plant in Luzon.

For sure he will get rotten tomatoes plastered on his face, but at least Reyes is showing pragmatism in the face of mounting power crisis especially in the Visayas on one hand, and a noisy environmental movement on the other.

According to Reyes, the country could veer away from coal power plants, but not now.

“We still have coal-fired power plants firing up Luzon grid,” Reyes said. Coal accounts for 30 and 25 percent of Luzon and the Philippine generation mix, respectively.

He said the government has to balance the need of the country in terms of power.

“Coal will continue to be the bridge fuel,” he said.

Clean coal?

Clean coal will continue to be an oxymoron for many years to come. What is touted as clean coal technology is broadly understood to be any technology that has the capability to substantially reduce the "dirty" side associated with coal burning; noxious sulfur and nitrogen oxides, carbon dioxide which is accused to be the main culprit of man-made global warming, lead, mercury, arsenic and other poisonous heavy metals, fly-ash or particulates and residues consisting of inorganic materials. Also to be included is the attendant environmental degradation during coal mining.

The term's origin could be traced back to the U.S Department of Energy's Clean Coal Technology Program which was launched in 1986 and continued for more than twenty years with not much to show off. Recently, this has been replaced with the FutureGen project which is an ambitious undertaking to finally make coal "squeaky clean" to the satisfaction of environmental standards, and also to appease the green activists.

That the U.S. leads in research and development to make coal palatable is hardly surprising. Despite being a first world country with high standard of environmental protection, 52 % of its electricity needs comes from burning coal. The percentage is not expected to come down even 20 or 30 years from now. Coal is still cheap compared to alternatives, and the U.S. has plenty of it, producing about 27% of the world output yearly.

A significant improvement to the conventional pulverized coal burning is the use of fluidized bed technology wherein coal powder is suspended in fluid form while burning. This significantly brings down airborne particulates but not carbon dioxide and the noxious oxides. One still has residue to dispose of.

Of the 31 or so projects funded by US DOE at a cost of some $2.75-B, perhaps the project that came close to "clean coal technology" is the integrated cycle coal gasification (ICCG) plant wherein coal is turned to gas before being burned to generate electricity. So far, no significant commercial taker has come forward.

A demonstration ICCG plant has been recently built at a cost of $600-M with some $140-M grant coming from the DOE, by Tampa Electric Co., in Polk, Florida which is 10% more efficient than most coal-fired plants. But still, it is far from clean. While the plant captures all of its fly ash, removes 98% of sulfur and nearly all of its nitrogen oxides, the operator admits that it is not designed to remove mercury, one of the most toxic substances known to man, or carbon dioxide.

A more ambitious undertaking is a small project at the Los Alamos Research Laboratory which is dubbed "zero emission coal alliance" (ZECA) which aims to trap all pollutants. The ZECA plant combines coal gasification with a process that absorbs coal in magnesium silicates, which is quite common and inexpensive. The rock dust with CO₂ will then be buried underground. A researcher involved in the project thinks that it could take 20 years for the project to completion and could double the price of electricity compared to a conventional coal-fired plant.

Carbon dioxide sequestration, as the technology is also known for, if successful, is a geological and technological marvel, simply because of its scope. It is estimated that 2.5 billion tons of CO₂ is emitted by U.S. coal plants yearly; at least 1/3 of that should be removed for the technology to have an impact on CO₂ reduction efforts.

Another innovative idea is the use of algae for carbon capture using a process that has been with us for millions of years:photosynthesis. Algae, in batch reactors, capture the CO₂ emission of a coal plant, while the grown algae themselves, once dewatered, may be converted into vehicle-quality biofuel. NRG Energy is pilot testing the process in one of its plants at Loiusiana, while another outfit, Sapphire Energy, believes the idea is feasible and is putting some efforts to realize it.

Other ideas being tried out include conversion of coal to fuel gas or liquid, which is then burned to produce electricity or used in vehicles. This and other propositions require that oil prices remain high to become viable. There are also technical hurdles to overcome in the laboratory and demonstration trials.

Much of these efforts has been stymied by high costs and the advent of cleaner and cheaper natural gas plants in the 80s and 90s. However, with oil prices breaching $130 to a barrel, "clean coal technology" is getting a second look.

Pragmatism required

To immediately address the looming power crisis in the Visayas, pragmatism should prevail over wishful thinking by considering any proposed coal plant on a case to case basis while "clean coal technology" is still a mirage on the horizon. The alternative is a debilitating power crisis that is to occur sooner than later.

So, Secretary Reyes is unlikely to have his wish granted. The best he could get is an improved coal plant over the existing ones.

But it would be far from clean.