Philippine Electric Power Industry Supply Security and Policy Assessment

1. University of the Philippines National Engineering Center Philippine Electric Power Industry Supply Security and Policy Assessment Presentation to House of Representatives Prof. Rowaldo del Mundo & Ms. Edna Espos December 6, 2011 HOR Speaker Conference Room Quezon City

2. Analysis of Supply and Demand and Reform Proposals

3. Analysis of Supply and Demand • Reliability Performance of Luzon Grid • Generation deficiency started in 2010 • There will be generation deficiency even with BacMan rehabilitation and GNPower new 600 MW Power plant in 2012 and 2013 Supply Adequacy from Pre-EPIRA IPP Program Required Reserve to meet 1 day/year LOLE = 28.7% LOLE - Probabilistic Expectation of Generation Deficiency due to simultaneous scheduled and forced outages of power plants that will result in power curtailment

4. Analysis of Supply and Demand • Luzon Grid • 2010 Risk of Loss-of-Load: 5 days (against 1 day/year LOLE criteria) 2014 Risk of Loss-of-Load: 82 days • 200 MW Peaking Plant/s needed in 2013 • 600 MW Baseload Plant/s in 2015 (on top of 600 MW in 2013) • 600 MW Baseload Plant/s for Malaya Oil Thermal and Limay Oil CCGT Power Plants Retirements • Visayas Grid • Supply until 2016 is adequate • 150 MW Intermediate (Mid-merit Dispatch) Plants in 2017 • Mindanao Grid • 600 MW baseload plant needed ASAP • 20% Capacity Deficiency can be solved in the short-term with long-term perspectives by Embedded Peaking Power

5. Supply-Demand Balance • Regional Perspective

6. Analysis of Supply and Demand • Control of Installed Capacity of Power Plants (March 2011) Luzon Visayas CEPALCO Mindanao

7. Analysis of Supply and Demand • Key to Supply Adequacy: Long-Term Power Supply Contracting • DUs hesitated to pursue long-term power supply contracts • MERALCO which controls 70% of demand in Luzon did not sign contracts for future requirements. Risks of loosing 30-40% contestable customers • 600 MW in Bataan had 3 years of marketing activities until 11 small electric cooperatives and PDUs signed PSCs • Visayas Coal Power Plants built after long-term contracts were signed during crisis • No long-term contracting yet in Mindanao • WESM did not provide enough signal for new investment in generation capacity. • It only provided market for un-contracted demand of DUs and capacity of existing power Plants

8. Long-Term Power Supply Security Qualified GENCO Bid DU Demand Forecast & PS Contracts Lender Financing Investor Capital New Power Plant DU Uncontracted Demand Public Auction Long-term PS Contract Power Plant Project Financing Power Plant Dev’t. & Construction Baseload: 3-5 Years Peaking: 1-2 Years • Pre-EPIRA Framework • NPC Centralized Planning and Commitment • EPIRA Framework • Competitive Market Additional Generating Capacity GRID REFORM PROPOSAL MANDATORY PUBLIC AUCTION OF DISTRIBUTION UTILITY DEMAND FOR LONG-TERM POWER SUPPLY CONTRACT

9. Short-Term (Hourly) Power Supply Security GRID REFORM PROPOSAL Convert WESM from Gross Pool to Net Pool (Balancing) and from Nodal to Zonal Market Power Plant Generation • DU Demand • Total Requirement • Uncontracted (Buy) • Overcontracted (Sell) WESM (Balancing Energy and Reserve Market) • GENCO Capacity and Cost • Available Capacity • Uncontracted (Sell) • Overcontracted (Buy) NGCP System Operator Dispatch Instructions • NGCP System Security Requirement • Spinning & Standby Reserve • Priority-Dispatch & Must-Run Units Generation & Reserve Dispatch Schedule

10. EPIRA RESULTS ASSESSMENT

11. Colour Coded Scoring Partly achieved or Being achieved Achieved Not achieved

18. Price impact

19. Price impact Ineffective Competition Anti-competitive conduct No policy cap on electricity charges (stranded costs, FIT,royalties, etc

20. POLICY REFORM PROPOSALS

24. GOVERNANCE REFORM PROPOSALS

27. Questions

28. Background 2011 UPNEC Occasional Paper Philippine Electric Power Industry Market and Policy Assessment And Analysis of International Markets Prof. Rowaldo D. del Mundo and Ms. Edna A. Espos Energy Advisors, U.P. National Engineering Center May 2011 National Forum on Power Reforms Philippine Electric Power Industry Reforms: Philippine and International Experience R. D. del Mundo and Ms. Edna A. Espos Hon. Jorge Rodriguez Grossi Former Minister of Energy, Chile U.P. College of Engineering Theater August 12, 2011

29. Background Focus Group Discussions (First Round) on November 8, 2011 (AM) – Consumer Advocacy Groups November 8, 2011 (PM) – Distribution Sector (PDUs and ECs) November 9, 2011 (AM) – Generation and Supply Sector November 9, 2011 (PM) – Government Philippine Electric Power IndustryAssessment of Market, Policy and Regulation November 16, 2011 (AM) – Consumer Sector (Commercial & Industrial) Second Round of FGDs January 2012

30. Next Steps Multi-Stakeholder Round Table Discussion on February 2012 Philippine Electric Power Industry Reforms Drafting of Proposed Executive, Regulatory and Legislative Measures for Philippine Electric Power Industry Reforms Multi-Stakeholder Technical Working Group February - May 2012 National Congress for Power Reforms May 2012

31. Philippine Electric Power Industry Supply Security and Policy Assessment Thank you and Have a nice day Presentation to House of Representatives December 6, 2011