Philippine prospects4 May 2002
Large and small hydro developments are on the cards in the Philippines, as David Hayes reports
Government plans to develop the Philippines' natural energy resources will ensure that hydroelectric power remains one of the country's most important indigenous energy resources for the next decade. Previously the country's second largest natural energy resource after geothermal power, hydroelectric power will drop one place to third position this year following the recent commissioning of the Malampaya natural gas scheme, even though hydro power output could rise as much as 25% in 2002.
According to the Department of Energy (DoE) hydro power is expected to account for 4% of the Philippines' primary energy mix in 2002. This compares with indigenous natural gas which is forecasted to account for 7% of primary energy while geothermal power is projected at 5%, local oil 3% and domestic coal 2% of primary energy.
By 2011 the hydro power share of the primary energy mix could rise to 7% if the government embarks on a high indigenous fuel programme. If this happens, indigenous natural gas is projected to account for 13% of the primary energy mix and geothermal energy 9%.
However, should the government, as expected, decide to support a natural gas import programme, then hydro power is likely to constitute about 3-4% of the primary energy mix in 2011. The DoE forecasts that the share of indigenous gas and geothermal power in the energy mix would be about 5-6% each if a gas import programme is launched.
According to the DoE, at the start of 2001, power plants totalling 13,264MW were installed nationwide. Oil-based power plants accounted for 39.2% of total installed capacity - the highest share. Coal-fired plants ranked second with 28.8% followed by hydroelectric stations of all sizes with 17.4% and geothermal plants 14.6%.
National power corporation
At present the state-owned National Power Corporation (NPC) is the Philippines' largest power generator and distributor. In 2000, NPC-owned power stations along with numerous power plants contracted to supply electricity to NPC under various build, operate and transfer (BOT) and independent power producer (IPP) schemes, generated a total of 40,580 GWh of electricity, representing about 89% of total electricity generation in the Philippines.
Hydro power plants owned by NPC or contracted to supply NPC generated a total of 7362GWh in 2000, representing 18.1% of NPC's total electricity supply. By comparison, coal-fired power stations burning mostly imported coal generated 15,603GWh, accounting for 38.4% of total generation, followed by geothermal power output totalling 11,311GWh, representing 27.9% of total generation. Oil-based generation amounting to 6304GWh represented 15.6% of power output.
Although hydroelectric power is a major national energy resource, the importance of hydro varies in different regions throughout the country. Mindanao in the south is the second largest island in the Philippines and consumes 13% of NPC's national electricity output. With few other energy resources developed so far, Mindanao relies on hydro power to provide 80% of its total electricity requirements.
However, hydro is far less important in the central Visayas region which consumes 8% of NPC's national power supplies. Many islands in the Visayas region generally are heavily dependent on geothermal power. On the main island of Luzon, which consumes 76% of all electricity used in the Philippines, hydro power accounts for about 10% of NPC's power production. Coal-fired stations producing 50% of the island's power needs are the main source of electricity while geothermal stations produce 25% and oil-fired plants 16% of NPCs power supply on Luzon.
'Hydroelectric power plants in Luzon are for peaking power while oil and coal-fired stations generate baseload electricity,' explained Ramon Cabazor, senior engineer in the Department of Energy's Mini Hydro Division. 'There is more than 700MW over capacity in Luzon because of excess BOT power station capacity, so NPC uses BOT plants for baseload generation and hydro power for peaking power. Hydro's importance in the fuel mix has lessened over the years because new BOT thermal power plants have been commissioned,' he added.
Under the present organisational structure for hydro power development, NPC is responsible for developing 10MW+ hydroelectric schemes that supply electricity to the national grid, while the Mini Hydro Division of the DoE is responsible for overseeing development of mini and micro hydroelectric schemes under 10MW installed capacity. In addition, three multipurpose dam schemes in Luzon totalling 600MW installed capacity - the 360MW Magat dam, the 100MW Pantabangan dam and the 140MW Casacnan dam - operate under the state-run National Irrigation Administration and sell their electricity to NPC.
The Philippines still has a large untapped hydroelectric power development potential.
According to DoE figures, a total of 1085 large, small and mini hydro power schemes totalling 13,426MW and capable of generating 43,427GWh have been identified. The potential sites for new schemes are equivalent to almost six times the present installed hydro power generation capacity.
Of the total number of schemes, 49 projects amounting to 1229MW in installed capacity and representing 9% of the nation's overall hydro power potential were at the definite design stage in mid-2001. The projects consist of seven large schemes totalling 1130MW, two small schemes totalling 43MW and 40 mini hydro schemes totalling 56MW.
Due for completion between 2001 and 2011, DoE estimates the 49 projects will require a total investment of US$1.B. Some of the schemes will supply power to the main electricity transmission grid while others will be built to supply small island power grids.
Large hydroelectric schemes under construction at present include the Kalayaan pumped storage scheme in Laguna in Luzon and the San Roque hydroelectric dam in Pangasinan in Luzon. Both will supply the main electricity grid.
The 345MW San Roque hydroelectric dam is being built as a BOT project by a Japanese-American consortium and is due for commissioning in 2005.
The BOT concept involves the investor in building a power plant, operating it for a fixed period of time during which the company sells electricity to the main grid (in this case NPC) to recover the investment cost and earn a profit. Once the agreed period expires the power plant is handed over to government ownership without the government having had to invest in the plant.
The 350MW Kalayaan II pumped storage project is being built as a BOT-type scheme by IMPSA of Argentina. Due for completion in January 2003, in addition to constructing the Kalayaan II pumped storage scheme, IMPSA also is rehabilitating the existing 300MW Kalayaan I pumped storage dam and will then operate both Kalayaan I and II as BOT schemes.
Negotiations continue on three other BOT hydroelectric schemes to be built in Mindanao. The 68MW Tagoloan II dam will be built by HEDCOR under the Aboitiz Group to start up in 2006. NPC has still to appoint developers for the 225MW Pulangui V dam that is due to start up in 2008 and the 132MW Bulanog-Batang dam that will be commissioned in 2009.
By 2011, when all the planned schemes are completed, the installed hydro power generation capacity in the Philippines will reach 3820MW.
Apart from projects at the definite design stage, a further 83 hydroelectric schemes totalling 4191MW, accounting for 31% of the total national hydro power potential, are at the feasibility study stage. These consist of 17 large schemes totalling 3230MW, 41 small schemes totalling 873MW and 25 mini hydro schemes totalling 89MW.
Meanwhile, some 953 hydro power schemes totalling 8005MW are at the pre-feasibility study or desk study stage, accounting for 60% of the Philippines national hydroelectric potential. These consist of some 37 large projects totalling 4646MW, 93 small schemes totalling 1721MW and 823 mini hydro schemes totalling 1638MW.
'There is still a lot of hydro power potential but there is vocal opposition to big projects,' Cabazor noted. 'Mini and micro hydro projects are accepted by rural communities as they see that these schemes do not displace communities. But the government is still hopeful about large hydro power development as it has a lot of potential.'
Although private investment has been used to build hydroelectric schemes around the world, the concept is unusual in Asia where almost all schemes are state-owned. The Philippines' decision to open the state-run power sector to private investment followed a severe power crisis in 1991 when brown outs became a frequent occurrence and forced the cash-strapped government to pass laws to use private funds to build new power plants.
NPC has used the BOT financing model to construct three hydroelectric schemes so far. Apart from the Kalayaan II and San Roque dams, the 70MW Bajun dam in Benguet and Ilocos Sur in Luzon was also built as a BOT project.
Commissioned in February 2001, Bajun is a run-of-river scheme that was previously planned as a cascade project consisting of five dams. Cabazor explained that NPC eventually decided to combine the dams into a single diversion weir as two mini hydro projects using the same water source are located on either side of the Bajun river, each about 200m away from the main dam. One mini hydro station is a 6.4MW project while the other has 3.2MW installed capacity. Both the mini hydro schemes were built before Bajun dam was constructed.
Elsewhere in Luzon NPC has attracted private investors to rehabilitate three separate hydroelectric dams using a variety of financing schemes. The 75MW Ambuklao hydroelectric station in Benguet, installed with three 25MW units, was originally commissioned in 1956.
NPC appointed a private company to rehabilitate the station which included removing and replacing the siltation intake valve as well as overhauling and adjusting the turbine generators. Following completion of the rehabilitation programme, the company was able to lease Ambuklao dam from NPC and now operates the station itself selling the electricity generated to NPC.
NPC awarded a similar rehabilitate, operate and lease contract for the 100MW Binga dam which is also located in Benguet, Luzon. Fitted with four 25MW turbine units, Binga originally entered service in 1960. Elsewhere in Lugana, Luzon, a build, rehabilitate, operate and transfer contract has been awarded for the 35MW Botocan dam which was originally commissioned in 1979.
Mini and micro hydro
Due to the country's topography, the Philippines has a sizeable mini and micro hydro potential. Although the current and future potential installed capacity of mini and micro hydroelectric schemes is small relative to the electricity industry's total installed capacity and planned expansion, mini and micro hydro schemes are of major importance in bringing power supplies to the many small remote communities scattered among the 7000 islands in the Philippines archipelago who live far from mains electricity supplies.
The government owns all hydro power resources in the Philippines. Hydro power plant operators are required to pay a 2% special privilege tax from their gross power sales for the right to develop hydro resources.
All mini hydro operating contracts issued by DoE are valid for 25 years and can be renewed for a further 25 years. However, the developer of a hydro power scheme also has to obtain water usage rights from the National Water Resources Board and environmental impact clearance from the Department of Environment and Natural Resources.
'Mini and micro hydro power dams are built by private investors and government departments like the National Irrigation Administration who use mini schemes for water supply but no power purpose,' Cabazor said. 'Electricity generated by mini hydro dams mostly goes to local rural electricity co-operatives who run local electricity grids, except for some plants under the Aboitiz Group which sell electricity direct to NPC.'
According to DoE surveys, the Philippines has a mini hydro potential of about 1600MW.
At present mini hydro projects totalling 89.7MW are in operation throughout the country. In addition, new mini hydro projects totalling more than 40MW installed capacity are at various stages of preparation such as applying for finance.
'About 5% of our mini hydro potential is developed. DoE identifies good sites and then has meetings and workshops to promote them to investors,' Cabazor explained. 'There are no government mini hydro development targets but we are continuously promoting good sites. The government can only identify good sites. We then have to offer and promote them to investors.
'There are few foreign investors now but we hope we can attract more with the opening up of the power industry. We see mini hydro schemes serving small communities such as island grids where NPC power lines do not reach. These include remote, large, strategic islands such as Masbate, Palawan, Catanduanes which are far from the NPC grid.'
Micro hydro schemes are used to supply electricity to barangays (villages). Electricity produced by micro hydro projects often is used to recharge car batteries which are used to provide electricity in homes.
Meanwhile, the future organisation and ownership of the hydro power sector in the Philippines remains unclear following a government announcement of plans to privatise NPC this year with the sale of power generation, transmission and distribution assets expected to be worth a total of US$5B. The privatisation programme is set to take off in June 2002 when the government is due to sell off the transmission assets worth an estimated US$2B by public tender.
Details of the privatisation programme were announced to potential foreign investors by officials from the Department of Energy and the Department of Finance. They conducted an investment road show that accompanied Philippines President Arroyo during a three nation trip to Britain, the US and Canada in January and February 2002. According to President Arroyo, National Grid of Britain is interested in the transmission assets while Edison Energy, MidAmerican Holdings and Intergen are interested in the thermal power assets. hydro-quebec of Canada is a likely bidder for the Napocor hydroelectric power plants.
NPC's power generation assets are due to be divided up into five or more generation company (genco) groupings which will then be offered for sale to private investors. Originally the government decided to split NPC's power plant assets into five gencos plus two other groupings - one grouping containing four excluded hydro power schemes (Kalayaan I and II, Caliraya and Botocan), the other grouping part of NPC's geothermal station assets. The rest of the hydro power plants were to be divided among three of the gencos.
Following various comments from potential investors and other interested parties the government has decided to reconsider the composition of each of the gencos. No details are available about the number of groupings planned, though some analysts believe the new proposed gencos may contain power plants using a single energy source rather than containing plants using various fuels as was previously planned.
Officials say there are various methods of packaging the NPC assets so the programme will comply with the law. Where there are restrictions on land, for example, the government can lease out the land or grant a renewable 25-year concession. Hydro power stations, for example, will have to be leased since they lie on watershed land which is considered a natural resource of the country and cannot be sold.
Plans call for the privatisation of the transmission assets to be followed by the sales of Napocor's thermal power assets. Hydroelectric stations will be sold last of all.
Under the original proposal, the Agus hydro power complex on Mindanao was to be categorised as a genco itself. In fact, under the privatisation law, the Agus hydroelectric scheme is excluded from privatisation, but this status may be reconsidered after ten years. Agus was excluded for political and economic reasons as a result of local opposition to a previous plan to privatise the Agus complex and sell it to a Malaysian group.
'We expect large hydro power dams to be kept out of the NPC restructuring and to be privatised later,' Cabazor said. 'The issue is that the development of large hydro dams is expensive and no one would want to come in on new schemes because of the long gestation period. Also, hydro power is multipurpose as projects can include irrigation, water supply companies and other water users who would be affected. For now hydro power is out of the restructuring. After the reorganisation of NPC, new hydro power schemes will be build, own and operate (BOO) projects, in other words independent power producer (IPP) projects, while those being built now are BOT schemes.'
Meanwhile, NPC's privatisation is expected to benefit the development of mini hydro schemes as local power distribution co-operatives could choose to build mini hydro projects to generate their own power supplies.
'It should be a very rosy picture for mini hydro projects,' Cabazor commented. 'Selling off NPC should provide an opportunity for mini hydro schemes as the government will be upgrading small cooperative electricity distribution system. These will have the opportunity to own their own power plant facilities.
'Small distribution cooperatives will have the opportunity to merge and may consider doing mini hydro schemes. DoE already is promoting renewables and mini hydros have some advantages compared with other renewables - wind power, for example, is intermittent. On a small island they could use mini hydro generation for base load and use a diesel generator for peak load.'