Closure of coal plants to raise Luzon power rates by P1 - Napocor

The National Power Corp. (Napocor) said power rates in Luzon will go up by almost P1 per kilowatthour (KW) if its coal-fired power plants will be mothballed.

"The proposal of some groups to shut down coal plants runs counter to the government’s commitment to keep power rates affordable. The President’s 10-point power program will be mitigated by the negative tariff impact of taking coal plants off the system," Napocor OIC-president Roland S. Quilala said, over the weekend.

Data from the Napocor’s electricity tariff division (ETD) showed taking out the coal plants from the country’s generation mix will hike the power firm’s effective selling rates by 92 centavos per KW.

According to Quilala, Napocor relies on coal to produce about 40 percent of its requirement because these plants are the cheapest to operate.

"The consumers get a lot of savings because we come up with an optimized groupings of plants to support our country’s energy requirements. Coal plants have always been operated as baseload generators because they have among the lowest variable costs as far as plants in the system are concerned," he said.

Quilala said the whole system would have to bear the consequences of using other plants to supply the capacity that coal usually provides. "The alternatives will be natural gas and oil. At the moment, natural gas-fired plants produce electricity at P1.50 per kWh compared to coal’s 86 centavos per kWh. Obviously, the system will have to absorb the difference in the cost if we are to utilize natural gas," he added.

Furthermore, the Napocor chief pointed out that the government will lose revenues estimated at P36 billion a year under a no-coal scenario.

"We cannot just gloss over this figure as it will have a substantial impact whether the government allows us to recover the amount later to pass it to all of us in the form of higher taxes," he said.

The state-run power generation firm has been struggling to return to profitability since its financial performance dipped in 1998. It has been in the red ever since, incurring a net loss of P10.3 billion in 2000.

While it has implemented a series of reforms to improve cash flow–such as the implementation of an electronic bidding system and tighter collection measures against delinquent cooperative-customers – Napocor has also been deferring actual revenues from power sales to cushion the impact of higher power rates to consumers.

Per its own estimate, Napocor will have to absorb about P3 billion a month if the zero-coal scenario is implemented because the power utility was ordered to keep its purchased power cost adjustment (PPCA) component to a uniform 40 centavos per kWh. This means that all increases in the PPCA component above the 40 centavos ceiling will have to be absorbed by Napocor and tucked into its uncollected revenue item.

"If the concern is purely environmental, we would like to invite all those criticizing the operation of the coal plants to go to the two Napocor-owned plants, Calaca and Masinloc, to see for themselves what measures we have instituted to ensure that our plants are Clean Air compliant," he said.

Quilala said Napocor has complied with all the Clean Air requirements of the Department of Environment and Natural Resources and the Calaca plant has even passed the Japanese standard for the operation of category 13 coal plant.

"If the Calaca plant meets the stringent Japanese standards of operating a coal plant, it only proves that it has conformed with the necessary environmental safeguards of plant operations," he said.