Focus on ancillary!
After all the brouhaha over systems losses being blamed for rising electricity bills, the best that our government can do is to offer to remove the 12 percent VAT on systems losses. That’s peanuts. Our government can certainly do more.
The government has only offered to remove the 12 percent VAT on systems losses, which is a small gesture. It's essential for the government to do more to address the issue. As previously mentioned, the government should focus on the ancillary services (AS) being contracted by the National Grid Corporation of the Philippines (NGCP). These AS contracts unnecessarily increase the cost of transmission and are a significant factor in the high electricity bills paid by consumers.
The Department of Energy (DOE) mandates excessively restrictive firm take-or-pay AS contracts, which force consumers to pay for idle capacity fees or unused power. Average utilization rates for these contracts are extremely low, ranging from 20 percent in the Visayas to less than one percent in Mindanao and Luzon. Global benchmarks for ancillary service costs are just 10 percent of transmission costs, which translates to around P15 to P20 per month for a typical household using 200 kWh.
Our current AS costs are a shocking 60 percent of transmission costs, adding roughly P120 to P260 per month to the average electricity bill.
To significantly reduce electricity bills, structural, transparency, and market rule reforms are necessary. The DOE must take action, but they are hesitant due to the strong representation of power plant owners in the BBM Council of Economic Advisers. These owners have likely influenced the government to avoid policy changes.
The problem with the current system is that it creates a seller's market where power plant owners know the grid operator must contract 100 percent of capacity amid thin available reserves. This allows them to demand exceptionally high-capacity fees. As AS costs now constitute the majority of transmission expenses, reforming AS is an effective way to lower consumer bills.
The Energy Regulatory Commission (ERC) and DOE must expedite the prequalification of Battery Energy Storage Systems (BESS) as fast-frequency reserves. By introducing competition from these fast-acting batteries, the "idle capacity fees" paid to large coal or gas plants for standby use can be dramatically reduced. Batteries can inject power in milliseconds, making them cheaper and more efficient for primary regulation than running oversized turbines at suboptimal levels.
Furthermore, allowing NGCP to build and operate its own BESS dedicated to grid stability would significantly reduce household electricity bills. Currently, a DOE rule prohibits NGCP from using its own batteries. However, permitting NGCP would be beneficial for consumers, as NGCP would purchase the batteries as a one-time capital expense passed through regulated wheeling rates, eliminating the infinite monthly availability fees paid to private power plants.
Unlike traditional plants that burn fuel during standby periods, batteries do not consume fuel, isolating the transmission bill from global fuel price shocks.
Written by urgent.news from Philippine Star Business's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
