The Ultimate Solution to High Electricity Costs in the Philippines

August 22nd, 2016 Posted in cost of power generation

The Ultimate Solution to High Electricity Costs in the Philippines

Further to my previous blog on How to Reduce Electricity Costs, the following discussion will present the Ultimate Solution to reducing Philippine electricity costs – the highest rate in Asia.

The yardstick for comparing the various technologies of unequal lifetimes and capacity is the levelized cost of energy (LCOE) also called the long run marginal cost (LRMC) which is the sum of annualized capital cost, fixed O&M, variable O&M and fuel/lube costs. On the other hand, the short run marginal cost (SRMC) is the sum of all variable O&M and fuel/lube costs. The LRMC is used in long-term least cost capacity expansion planning by the DOE while the SRMC is used in short-term optimal dispatch such as the WESM hourly dispatch by the market operator (PEMC).

The LCOE or LRMC and SRMC may be computed using a simple cost formula developed by US NREL or by yours truly (RP MTO price formula – the grossed-up US NREL cost formula that considers depreciation and income tax rate). Download this file for data and formulas:

Cost of power generation technologies

However, in this presentation below, I used the more accurate project finance model similar to the NREB project finance model template approved by the ERC to calculate the first year tariff, LRMC, SRMC, equity and project IRR, NPV and PAYBACK, and DSCR (min, ave, max).

The following table shows the lowest and most expensive power generation technology available for adoption into the Philippine generation mix:

Summary of Inputs and Results for Power Generation Technologies3 (Aug 28, 2015) – Copy

From the above table, it appears that the cheapest conventional and fossil base load technology is a natural gas-fired combined cycle gas turbine (CCGT) at P4.42 per kWh, followed by pulverized coal (PC) ultra-supercritical at 5.24, PC supercritical at 5.46, coal-fired circulating fluidized bed (CFB) sub-critical at 5.66-5.76, large hydro at 6.00, natural gas-fired gas thermal 6.63, natural gas-fired simple cycle (open cycle) gas turbine 8.90, fuel oil-fired oil thermal 11.15, geothermal 12.00, fuel oil-fired diesel genset 13.88, and diesel oil-fired diesel genset 19.25. Peaking load power plants include simple cycle gas turbine, oil thermal and diesel genset.

If we go nuclear, the more popular pressurized heavy water reactor (PHWR) like the Bataan Nuclear Power Plant (BNPP) will generate electricity at 6.98 P/kWh.

The rest may be seen above for renewable energy technologies: on-shore wind farm at 5.34 P/kWh, followed by biomass IGCC 6.38, biomass cogeneration 6.84, biomass direct combustion 6.87, mini-hydro 5.90, solar PV 8.09-8.69, biomass gasification (pyrolysis) 13.26, off-shore wind farm 13.28, biomass waste-to-energy (WTE) 13.34, and ocean thermal energy conversion (OTEC) 14.93-15.09.

Moreover, the country is blessed with many marginal coal mines with low BTU coal grades, ranging from lignite to sub-bituminous coals capable of sustaining anywhere from 50 mw to 150 mw for the next 25-30 years, the usual economic life of coal-fired power plants using the CFB clean coal technology.

However, since we import coal mostly from Indonesia, the cost of ex-mine coal is bloated by logistical costs such as ocean freight using 65,000-80,000 mt PANAMAX size coal tankers or tugboat barges of 8,000-10,000 mt capacity with freight cost ranging from 3.0-7.0 USD/mt. Likewise, if locally-mined coal is used, truck-hauling cost ranging from 200-600 PHP/mt depending on hauling distance (100 km round trip) and truck size (20 mt per trip, 2 trips per day) as well as barging cost of around 300-400 PHP/mt (200 nm round trip) may be incurred to transport domestic coal to the coal power plants located near our coast line.

It is about time to make use of domestically produced coal in mine-mouth configuration in order to avoid truck-hauling and barging costs, and this will drastically reduce coal supply costs to bare minimum, but this will require additional investment with attendant line loses for transmission lines to connect the remote mine-mouth power plant and coal mine to the national grid.

Thus, when using domestically produced coal reserves in Luzon, Visayas and Mindanao, a coal supply cost to the mine-mouth coal-fired power plant will be able to reduce generated electricity between 3.00-3.25 P/kWh for a 150 mw power plant when coal supply cost are in the order of 12-14 USD/mt with gross heating value (GHV) of around 6,500 Btu/lb, overnight capital cost (all-in) of 1,850 USD/kW, CFB mine-mouth power plant efficiency of 34% (10,000 Btu/kWh plant heat rate). However, since coal is only 40% of the generation mix and with a current average grid rate of 5-6 P/kWh, the over-all reduction will be somewhat dampened by the higher grid rate.

So there you have it, based on available energy resource in the country, it is possible to lower power costs to 3.00-3.25 P/kWh if local coal is utilized in a mine-mouth CFB power plant that uses low grade domestic coal that is cheaper and would otherwise not used economically if transported over great distances because of low BTU, high moisture content and high ash content. Also, local coal reserves are known to have low sulfur content thus requiring minimal limestone requirement to capture sulfur at the combustion chamber of the CFB. Domestic coal reserves are usually covered by over-burden rich in limestone formation, so it makes it doubly economical to mine both limestone and coal seams at the same time.

The CFB with limestone sulfur capture is thus environmentally benign and the mined-out area is immediately covered with the spent ash and covered with the over-burden and the segregated top soil in order to replant the area with trees and vegetation to bring back the mined-out areas closer to its original pristine condition.

The use of mine-mouth CFB power plant using low-grade Philippine coal will be the game-changer that will ensure lower power costs, encourage foreign investments as well as domestic investments as power reserves are improved and made affordable and reliable, as it will allow the retirement of un-reliable power plants that have reached their economic life such as the bunker-fired Malaya Oil Thermal Power Plant.

In the case of Mindanao, with many areas destroyed by illegal as well as legal miners as they ship-out raw ore and minerals with low value, it is now possible to use these cheap sources of power to allow mineral smelting in the country as what Indonesia has done when they banned the export of low-grade mineral ores.

The government can now maximize its share of the mineral wealth of the country when all the valuable content of our mineral ores are extracted, valued and taxed appropriately. Instead of just exporting nickel and iron ores, we can now include gold, silver and rare-earth minerals that command high price in the international market. With greater value added, the local mining company can operate profitably and also finance environmental compliance and remedial activities that would not otherwise be possible with low unprocessed ore values. The main barrier to local smelting as well as new foreign investments that provide many jobs and employment and business opportunities is the lack of adequate and cheaper electric power. Hence, with these mine-mouth CFB power plants that use coal mined nearby, the Philippines can effectively reduce the cost of electric power and become globally competitive.

Instead of using the Malampaya Fund to subsidize power rates to avoid increase in PSALM funding to liquidate stranded costs due to EPIRA, it is best to avoid unsustainable subsidies and instead invest in projects that will truly reduce power rates such as leveraging the Malampaya Fund to attract both domestic and foreign funding to finance the construction of mine-mouth CFB clean coal technology power plants, development of responsible coal-mining activities and mineral and rare-earth mining, and provision of transmission lines to connect these remote mine-mouth facilities to the regional and national grids.

The Philippines with its cheap power, highly skilled and motivated work-force living in an environmentally secure communities, will be a shining star in the years to come.

Let us make it happen now.

Let us support responsible coal mining as well as mineral and rare-earth mining in order to lower power costs, spur economic activities in the countryside, improve the environment, minimize if not eliminate technical smuggling of our mineral wealth, and promote domestic and foreign investment in our country.

Mabuhay and Pilipinas.

Please share your thoughts. Many thanks.

Marcial Ocampo

Energy & Power Consultant

Email me:

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Sample Project Finance Model

Here is a sample project finance model for a biomass thermal power plant that can be customized for your specific need: (Advanced regulator model)


The same model above is also presented in just one worksheet (tab) so you would be able to understand better the structure of a project finance model: (OMT Energy Enterprises model)


A sample non-thermal power plant (no fuel GHV and no fuel cost) can also be downloaded:


A sample liquid fossil thermal power plant (with fuel GHV, fuel density and fuel cost) is also available:


Email me if you need customization:

You may order on-line any project finance model of any renewable, conventional, fossil, nuclear, combined heat and power, and energy storage power generation technologies by visiting this website:

Or please visit this blog for any power generation technology article:


The energy technology expert and financial modeling expert


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