Asian Power

ISSUE 56 | DISPLAY TO 30 April 2013 | www.asian-power.com | A Charlton Media Group publication

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power shortage looms

power Industry fears President aQuino could have power interruptions as his legacy

MICA(P) 248/07/2011

OpINION Smart metering for Indian utilities

FEATURE Asian infrastructure face testing times

opinion The perfect market for energy transition in Asia

country report Philippine power grids nearing critical levels

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Answers for industry.

FIRST

News from asian-power.com

target of 9,623 MW from renewable energy sources for the last three years.

The total installed capacity of power generation from renewable energy in the country now stands at 26,920 MW. Although statewise targets for the power generation from renewables are not fixed, Tamil Nadu topped the list by producing 3113 MW, followed by Gujarat 2,389 MW, Rajasthan 1930 MW, Maharastra 1,699 MW, Karnataka 1,394 MW and Andhra Pradesh 408 MW.

MOST READ Wind overtakes nuclear power in China

Wind farms generated 2% more electricity than nuclear power plants in 2012. The government expects this gap to widen dramatically over the next few years as wind surges ahead. Since 2007, wind power has grown by a massive 80% per year compared to the 10% growth by nuclear power.

Wind developers connected 19,000 megawatts of wind power capacity to the grid in 2011 and 2012 and are expected to add about this much in 2013.

India’s GMR denies talks to sell off Singapore power plant

But company rumored to exit its first IPP outside India by selling the entire 70% stake in its Singapore plant.

GMR is expected to raise over $650 million through the sale of what is popularly known as the Island Power Project, an 800-mw combined cycle gas turbine power plant located at Singapore’s Jurong Island.

India loses appetite for clean energy

Demand for renewable energy credits dropped 16% in January from December. The government said this was due to the failure of regulators to enforce clean energy targets.

As a result, cleantech companies abstained from trading.

Idemitsu to do biomass power generation

Japanese reactors to open

One analyst said the government hasn’t been very forceful in levying penalties on companies that haven’t met their targets to buy credits, especially in the case of non-solar credits, and that has meant lower demand. There has been more interest as there’s more pressure from the authorities.

Thailand looks to Malaysia for power

Thailand will ask Malaysia to supply 200MW of electricity. This is necessary to avert possible blackouts from April 4 to 14, according to Electricity Generating Authority of Thailand (Egat) deputy governor, Thana Putarungsi.

Egat plans to increase electricity reserves to 1,000 MW from the expected 700 MW during April’s scheduled

disruption in the supply of natural gas from Myanmar.

Indonesia to develop wind power

It will cooperate with the United Nations Development Program for wind projects.

Indonesia and UNDP aim to increase the use of renewable sources in power generation and reduce carbon emissions.

The “WHyPGen” program between Indonesia’s science and technology research agency BPPT and UNDP is expected to increase overall electricity production to 19.27 gigawatts per year and reduce carbon emissions by 17.01 metric tons per year by 2015.

More access to Japan’s electricity grid needed This is to boost renewable energy use.

Vestas Wind Systems A/S,

the world’s leading maker of wind turbines, said Japan needs to improve access to the electricity grid and allow power sales across regions to boost renewable energy use.

Meralco to expand overseas

Largest Philippine power distributor eyes Myanmar, Thailand and Vietnam.

Meralco PowerGen (MGen), a subsidiary of Manila Electric Company, will be responsible for Meralco’s overseas foray.

Meralco chairman Manuel V. Pangilinan said Meralco is scouting possible partnerships in Southeast Asia as part of the company’s regional expansion.

India surpasses renewable energy target

India added a capacity of 10,431MW against a

Publisher & EDITOR-IN-CHIEF

MICA(P) 248/07/2011 Asian Power is a bi-monthly news magazine published by Charlton Media Group Pte Ltd registered in Singapore.

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Establishes a joint venture to build a 5 MW biomass power station.

Idemitsu Kosan Company, Japan’s second largest petroleum refiner, will own a 50% stake in the JV. The biomass power station in Kochi prefecture in southwestern Japan will become operational by April 2015.

LED lighting could save 50% of Taiwan’s energy by 2030

The key is full adoption of LED lighting across the country.

Analysts said a 12.8% reduction in electricity use by the widespread adoption of LED technology is equivalent to the combined capacity of two of Taiwan’s existing nuclear power plants.

That savings can reach over 50% by 2030.

Tim Charlton Jonnel Martin Herman Daniela Gujilde Tim Charlton tim@charltonmediamail.com Laarni Salazar-Navida lanie@charltonmediamail.com

All editorial is copyright and may not be reproduced without consent.

Contributions are invited but Asian Power can accept no responsibility for loss.

ASIAN POWER 3

FIRST Meralco to buy Singaporean power company

Partners with Hong Kong’s First Pacific Company Ltd in takeover.

Manila Electric Company, the Philippines’ largest power distributor, and First Pacific will take a 70% interest worth US$488 million in a Singaporean power firm, GMR Energy (Singapore) Pte. Ltd.

Japan’s nuclear safety standards too costly

Complying with new rules will cost US$10.9 billion.

Nuclear power plant operators said the cost to comply with the tough new standards could rise since they cannot accurately estimate the expenses because parts of the standards have yet to be determined.

Eni to explore for shale oil in Vietnam

Signs JV agreement with stateowned PetroVietnam for exploration projects.

Italian major Eni SpA and PetroVietnam will jointly explore for coal bed methane and shale oil in Vietnam. Studies to confirm Vietnam’s unconventional hydrocarbon potential will be carried out by both firms.

Meralco boosts net income by 29%

The Philippines largest power distributor said growth was due to higher sales.

Manila Electric Company reported its net income at US$417 million from US$326 million in 2011. President and CEO Oscar Reyes described 2012 as another record year for Meralco in terms of sales volume, operating performance and financial results.

Core net income, which excludes one-time charges, rose 9.3% to US$399 million from US$365 million.

Saudi Arabia approves deal on nuclear cooperation with China

Deal will advance Saudi plans for its own nuclear power program.

The Saudi Arabian Cabinet approved the agreement with China that calls for cooperation in the field of peaceful uses of nuclear energy. The accord was signed in Riyadh last January 15.

4 ASIAN POWER

What the “Hot Winter” in Japan is all about BY frenk withoos

T

he months of November and December saw a huge influx of FIT applications submitted to METI and the respective Utility Companies. Reason behind was the fact that the first revision of the current FIT is due by end of March 2013, after which the new tariffs will become effective from April onward.

The market anticipates a reduction in FIT rates, mainly for Solar. A range between 35Yen/Kwh and 38Yen/Kwh is a possible outcome of the revision, effectively reducing the rate by about 12%. Still a very healthy level and substantial higher than in any other part of the world.

I believe this will have a positive impact in the PV Solar market. Efficiencies become more important and this is needed.

Based on the current rates, the plant efficiencies are much less under scrutiny and experiences from overseas are hardly used.

In December we saw the LDP winning a substantial majority in the new elections, however voter turn up was at the lowest level ever.

Having the LDP back into power will have an impact on the Energy policy, as drafted by the previous government.

The newly established Nuclear Regulation Authority (NRA) has submitted it first

Renewable energy is a huge opportunity in Japan and an area that will continuously be supported by the various stake holders.

draft of new mandatory safety requirements and these should be finalized by mid-2013. The expectation is that nuclear stations that do not fulfill such new standards could potentially still be allowed to be started, as long as a plan is submitted and approved that details the actions that will be taken to comply with them.

Switching from generation to transmission, draft proposals have been submitted to the parliament to establish separation between generation, transmission and distribution.

Currently the 10 utilities operating in Japan control all, monopolizing the complete industry as a fact. To establish the announced Independent System Operator (ISO) or, preferably, a Transmission System Operator (TSO) will introduce more visibility of the grid system and competition into the utility market.

In closing, even taking into account the change of government as well as lower FIT rates, I still believe that renewable energy is a huge opportunity in Japan and an area that will continuously be supported by the various stake holders albeit at a more realistic level. It is essential that the energy policy laid out is based on sound economics and realistic scenarios.

ASIAN POWER 5

COUNTRY REPORT: PHILIPPINES

Philippine major power grids nearing critical levels New power investment expected to only come by 2015

I

t has been 12 years since the implementation of the Electric Power Industry Reform Act (EPIRA) of 2001, a law meant to ensure the country’s energy security. While there were some improvements, the government admits that challenges remain with around 3 in 10 households still without electricity. The southern part of the country also continues to experience rotating blackouts since mid-2011.

Speaking at the Philippine Power & Electricity Conference, Josefina B. Asirit, Undersecretary of the Electric Power Industry Management Bureau, Energy Policy & Planning Bureau, Department of Energy (DOE), said that household connections in the country have not even breached the 80% mark. Current connection, she said, runs from 60-70%. The new administration under President Benigno Aquino III targets household connection of 90% before his administration ends but this, Asirit said, is without challenge.

The power situation The Philippine power sector is separated into three major grids – Luzon, Visayas and Mindanao. Luzon and Visayas are nearing critical levels, predicted at 2016 and 2014, 6 ASIAN POWER

respectively, which highlights a need for more investments. Mindanao, meanwhile, is now on its critical level, the reason for the daily rotating blackouts. Despite the urgent need for them, Asirit said new investments are only expected to come online at the later part of 2014 or early 2015.

According to Asirit, the Philippines requires a total installed capacity of 29,329.7 MW by 2030 or a more than 80% jump from the current 16,247 MW to support the country’s growing power needs. Thus far, the country has committed capacity of around 1,766.7 MW and indicative capacity of 7,779 MW. This leaves the country facing a shortfall of around 3,536MW by 2030.

In 2012, Asirit reported that the country’s total power generation was 72,340.28GwH and this is expected to balloon further amid its promising economic growth in the years ahead.

“Markets around the world are now seeing the Philippines’ bright potential to lead in the South East Asian region given its high economic growth at 7.1% for the 3rd quarter of last year, which our economic managers expect will rise again this year,” said Asirit.

Philippines requires a total installed capacity of 29,329.7 MW by 2030 or a more than 80% jump from the current 16,247 MW to support the country’s growing power needs.

Luzon power demand According to Asirit the Luzon grid has seen peak demand at about 7,880 MW sometime end of April or first week of May last year. Asirit warned that the critical period for the Luzon grid on existing capacity would be in 2016 at a 4.13% peak demand growth rate which was based from an aggregated demand submitted by the different utilities to the DOE. “It’s actually 10,450 MW of generation capacity that is needed down to 2016 for Luzon. And it is with considering that we right now have unexplored capacity in Luzon of about 11,739 MW; dependable of which is around 10,800 MW. What we see in the market being offered runs anywhere between 8,800-9,800 MW of power.”

Asirit said that as of February this year Luzon has a total installed capacity of 11,805 MW. Committed and indicative capacities down to 2030 meanwhile are 868.7 MW and 6819.3 MW, respectively.

If committed capacity is taken into account together with the existing capacity, the critical period for Luzon would be 2019.

The critical period would be further moved to 2023 if the indicative capacity was realized on scheduled program.

These figures are actually ‘conservative’ forecasts and moving targets, Asirit said.

Visayas power demand For the Visayas grid, the peak demand now stands at 1,489 MW. The critical period for

COUNTRY REPORT: PHILIPPINES the region on existing capacity, she said, would be on 2014 at 4.45% growth rate.

The critical period on existing capacity with the committed capacity would be on 2018 if they were to come online as scheduled based on the program that they have submitted to the DOE while it would be 2020 with the indicative capacity.

“Visayas actually needs a total additional capacity of about 1,960 MW down to 2030 and again this is already a very conservative estimate considering that Visayas right now has an installed capacity of 2,402 MW – 600 MW of which came online just around June of 2011 or a little less than 2 years ago,” said Asirit.

The dependable capacity of Visayas stands at 2,037 MW with available capacity being offered and seen in the market at about 1,918 MW. Mindanao power demand Lastly in Mindanao, energy security remains a challenge especially during the dry season. “The demand in Mindanao is already at critical level. We now see Mindanao as requiring additional capacity which we are trying to source out by establishing the Interim Mindanao Electricity Market (IMEM),” said Asirit.

Mindanao currently has an installed capacity of 2,022 MW with dependable at 1,616 MW. However, Asirit warned that the available capacity in Mindanao is as low as 1,300 MW which is sourced mainly from the Agus-Pulangi hydropower complex.

“We are trying to correct the supply gap by encouraging the investment of power across areas closer to where the demand is and while we do have committed and indicative capacities in Mindanao we don’t see them coming in until about latter part of next year 2014 and early part of 2015.

So we do see that Mindanao requires about 2,000 MW of additional generation capacity down to 2030.”

Asirit said that apart from the energy roadmap for the implementation of the IMEM, DOE has also obtained the approval of the National Economic and Development Authority board for the rehabilitation of the Agus-Pulangi hydropower complex which supplies more than 52% of the generation capacity in Mindanao.

Zenaida Monsada, director of Oil Industry Management Bureau of DOE said that the challenge of powering Mindanao comes from the lack of new investors. The problem is also exacerbated by the fact that any policy to be made must consider consumer protection.

“Generation power in Mindanao only costs P2.97kWh because of subsidies enjoyed for so long now and we can’t just raise it abruptly.”

Commission (ERC) allowed the Philippine Electricity Market Corp (PEMC) to spend P24.26 million to kick-off the IMEM. Monsada however noted that the approved budget was lower than the proposed P34.26 million of PEMC to move on and the actual total project cost of P56 million.

Leyte-Mindanao interconnection project Among all the three major power grids, it is only Mindanao that is not connected by submarine cables to the two other bigger island grids of Luzon and Visayas. Luzon and Visayas are connected by a submarine cable running at 400 MW capacity but lasted to about 300 more or less, and the cable allows the import and export of power between Luzon and Visayas at about more or less 200 MW on a daily basis.

Mindanao on the other hand should have had a submarine cable but unfortunately there were a few challenges to that, mostly political and the government is back to square one, said Asirit.

Asirit said the government is now focused on finalizing the Leyte- Mindanao interconnection project. 2011 saw the approval by the ERC of the application of the National Grid Corporation of the Philippines for the Leyte-Mindanao interconnection project feasibility study, and Asirit mentioned that results of that feasibility study might be released at the end of this quarter. After which, it shall go through public consultation before again going

Asirit warned that the available capacity in Mindanao is as low as 1,300 MW which is sourced mainly from the Agus-Pulangi hydropower complex.

through the ERC for the actual filing of how much the entire project cost would be.

“The Leyte-Mindanao interconnection project is well under way. It is a priority right now and we do not see any more the political challenges that were seen in the prior years. And while it may take some time, we see it coming into completion within the next 6-8 years which is a very optimistic projection.”

Retail Competition and Open Access Asirit said that the country had an energy reform agenda when the new administration came to power in 2010. Among the notable power reforms would be, first, the launch of retail competition and open access (RCOA) in a bid to make the power sector more competitive. RCOA is currently in its transition period until June 25, 2013 after having been declared last December 26, 2012. Full operation, which includes commercial transaction, commences June 26, 2013. Switching will not be allowed until September 2013.

RCOA refers to the system of allowing any qualified person the use of transmission or distribution facilities or system and other associated facilities subject to the payment of transmission and or distribution leading rate duly approved by the ERC. Retail competition refers to the provision of electricity to a contestable market by suppliers through open access and this applies to those with consumption of 1 MW and above average for one year.

Interim Mindanao Energy Market On February 25, the Energy Regulatory ASIAN POWER 7

COUNTRY REPORT: PHILIPPINES Asirit said that the country should have had it by December 2011 but the DOE, together with the stakeholders, both private industries and the different agencies of government in the energy sector, deemed it safe to review the readiness of the market not just in terms of the resources but likewise in the infrastructure that needed to be established, together with the rules and policies.

Asirit said that there were pre-conditions that the government had to comply with before the implementation. First would be the establishment of the wholesale electricity spot market, which in Luzon was established way back in June 26, 2006, and that for Visayas was established on Dec 26, 2010.

Another pre-condition that was met was the approval of the sponsored check mission and distribution billing charges which was completed in March 2002, intergrid subsidies in September 2002, and intragrid and inter class grid in October 2005.

The privatization of at least 70% of the total capacity of generating access of National Power Corp (NPC) in Luzon and Visayas was completed and achieved at 79.56% when this was declared in 2011.

The transfer likewise of the management and control of at least 70% of the total energy output of power plants under contract with NPC to independent power producer (IPP) administrators was completed.

Energy output transferred was computed at 76.85% last 2011 when ERC initially declared the commencement of RCOA. Philippine energy plans 2012-2013 Apart from RCOA, Asirit mentioned that the government has launched the latest Philippine energy plans for 2012 to 2013.

Under the plan, the country’s general objectives in ensuring energy security include, first, cutting the barriers in implementing the latest government reforms and boosting investment opportunity in power and electricity which include those falling under conventional forms of generated power and of course promoting the use of renewable energy.

Second would be networking with key partners in the government and the private sector. The third would be creating market via new developments such as smart grid and micro grid.

“With that we remain steadfast in achieving our policy thrust which includes ensuring energy security by expanding the use of renewable energy as well as accelerating the exploration of petroleum and coal. Second would be expanding energy access and the third would be promoting low carbon future by making energy efficiency a way of life for Filipinos and promoting the use of clean alternative fuels and technology.”

Asirit also mentioned of government’s plan to climate proof the energy sector and 8 ASIAN POWER

likewise, promote energy investments and develop regional energy plans.

Coal energy Coal accounted for the biggest chunk in the country’s power generation mix in 2012 at 38.63% but DOE’s Monsada said the government aims to reduce its share to 24% by 2030 as it keeps its thrust to promote environment-friendly fuel alternatives.

“The government is more committed in developing natural gas. Coal is not even promoted or even considered as an option despite being very cost competitive.” Renewable energy only accounts for 29.32% of the energy mix in 2012 and oil based at 4.93% but these are targeted to increase to 37% and 25%, respectively by 2030.

Global Business Power president Arthur N. Aguilar however commented that the government may have difficulty achieving its coal reduction targets as he believes that coal will remain competitive in the market for various reasons.

“As far as I know coal is cheaper and the country is always under pressure to lower energy prices so we always want to gravitate to lower cost.”

Aguilar said that coal costs P5.60 kWh while natural gas is one to two pesos more expensive, not to mention that coal has the most abundant fuel reserves globally.

Fifty-four percent of Philippine power capacity, he said, is also coal particularly because the country is near Indonesia, a leading source for coal.

Financing coal projects Aguilar also brushed off the supposed financing problems for coal-fired power plants. “At a global scale, they do label coal-fired power plant financing needs as supercritical. The only place that we don’t

have that problem is in the Philippines. Our banks now are very strong that they have huge amounts of money readily available for investments. As with our case, in just within six months, I was able to close a deal with a local bank to finance our project, only via telephone. I didn’t even have to meet them. We don’t have problems with financing. We did have problems with forex before but peso now is very much stable.”

Global Business Power runs Toledo Power Company which is now in its fifth month of constructing an 82 MW coalfired power plant in Toledo, Cebu which is expected to come online in 2014. “Natural gas entails very large-scale projects that only huge corporations and the government can put up, unlike coal which is very manageable.”

But for Hideki Hiramoto, representative of Japan Bank for International Cooperation-Manila, coal-fired power plants are about to face a financial crisis.

“They must keep their eyes open for international lenders not only ADB [Asian Development Bank] but also bilateral com-

Renewable energy only accounts for 29.32% of the energy mix in 2012 and oil based at 4.93% but these are targeted to increase to 37% and 25%, respectively by 2030.

2012 Preliminary* Power Generation Mix Coal Coal

38.63%

27.12%

Solar/Wind 0.11%

Biomass 4.93%

14.05% Geothermal Source: Department of Energy - Philippines

15% Hydro

0.17%

Oil-based

COUNTRY REPORT: PHILIPPINES mercial banks. Now I think they are going down to the roots, searching out for local financing which is quite dangerous. Coal is becoming less favorable and most international lenders won’t finance coal-fired power plants. Coal is a lot cheaper but from our perspective as financer, we prefer environment-friendly technology.”

Renewable energy Pedro Maniego, chairman of the National Renewable Energy Board (NREB), highlighted the perennial problem of bureaucracy and red tape in the Philippines which serve as major drags on investment growth in renewable energy. “In the Philippines, at least 16 contracts are being signed in order to be approved but the process is being reviewed to reduce the bureaucratic levels that businesses have to undergo.”

This difficulty was echoed by power consulting firm, OWL Energy. “I have personal experience of the difficulty in establishing a company in the Philippines. The amount of red tape and bureaucracy is something I have not experienced in establishing companies in other countries in the region. The government can help by setting up a onestop shop” said OWL Energy Managing Director Tony Segadelli.

Mr. Segadelli said that the country can further promote renewable energy by allowing 100% foreign investment rather than the current limit of only 40% just as it does with coal fired power plants.

Feed-in-tariff Regarding the long-awaited feed-in tariff (FIT) system, NREB’s Maniego said that the ERC has approved the FIT rates for biomass, run-of-river hydro, wind and solar in July 2012. With FIT, Maniego said that power generation cost was down to P6 kWh from P15-25 kWh off-grid cost on the average. He cautioned though that the implementation is having challenges on installation targets.

“FIT took two years to be approved. It excluded net metering as we are afraid it would be delayed again. We have installation targets even if it was not provided in the law to prevent runaway failures of solar power cells that entail very high costs just like what happened to Italy and Germany.”

Maniego added that 760 MW out of the 830 MW installation target were approved by the DOE as of July 2011.

It is also important to note that the approved FITs are lower than initially proposed in 2010, said Maniego. Among the renewable energy sources, solar has the highest reduction from initial proposal at over 30% to P9.68. This was because during the decision-making in 2012, the price of solar power was reduced by 60%. FIT for ocean power was deferred as proponents will have to submit first data to justify their rates. Maniego said that FIT support will

only be needed in the first six years.

In December last year, the DOE said that the Philippines is currently “undersubscribed” in hydro and biomass projects but “oversubscribed” in wind and in solar.

OWL Energy’s Segadelli commented that the oversubscription in solar is an indication that solar prices have come down dramatically. “When I first started on solar which would have been 2006, the price was about $5 a watt. The price now is about $2 a watt. So the tariff set was much lower than the investors wanted it to be, so it’s very economical in my perspective.”

In terms of wind, Segadelli noted that the ‘oversubscription’ label would be the fact that there is such a huge resource of wind here. For solar, Segadelli cautioned that the biggest problem that it faces is the lack of land. “Although there are a lot of projects that are being promoted, it doesn’t necessarily mean that they’ll actually be implemented. Thailand is a prime example of contracting for much solar energy, but they only get 25-35% of what’s actually contracted.”

For hydro, Segadelli explained that the reason that it is undersubscribed is that there are a lot of constraints on building hydro plants. “There’s the cross-utilization for irrigation and farming, there’s a lot of concern for building dams and downstream problems—what happens if you have a very strong rainstorm? There may be a lot of hydro that’s built, but it will not be necessarily as much as the government intends to have.”

Harnessing biomass potential Biomass faces issues relating to a splay of agricultural waste. “Just because there’s a lot of undersubscription today doesn’t mean that in the long run they won’t meet the goals. One project that we’re working on in Thailand that’s very transferrable to the Philippines is using plantation-based energy course.

So if you have fast-growing grasses that have high energy density, you could guarantee your fuel supply from managing the plantation and utilizing the agricultural products that you produce. This will create a lot of jobs in the country, it will reduce the amount of money spent overseas, and instead that money will remain in the country; it’s a win-win situation. Biomass is particularly good for island groups, where they’re largely agrarian based.”

Segadelli also commented that the country’s FIT, as it is, is at good prices. The government only just has to finalize the implementing rules and regulations. “In terms of wind, there are extremely high amounts of it in the country, also in terms of biomass as it is an agricultural hub. It’s also a seismically active country so there’s a lot of geothermal too. So there’s a lot of sunshine here, but the problem is there’s not necessarily

the country must strive to see renewable energy become 100% foreign investment and not 60% local investment just as it does with coal-fired power plants and Combined Cycle Turbine Generator plants.

a lot of land available so solar may be difficult although rooftop may be an option within major cities. The government has a good plan and tariffs that are acceptable to both investors and offtakers, it just needs finalizing.” Renewable energy is expected to account for greater chunk of the current power mix to address the recurring nightmare of blackouts especially in Mindanao, and to reduce dependence on coal power plants which currently supply around 4,500 MW of power.

Solar home system NREB’s Maniego said the government currently promotes the use of solar home system which effectively reduces average cost from P12.33 kWh to P6.50 kWh. Capital cost in installing solar home system, however, is too high, starting at P150,000200,000 to as much as P400,000-P600,000 per unit of solar panel. But payback period takes about seven years, based on a study cited by Maniego conducted three years ago.

Maniego also cited financing as a major challenge for renewable energy adoption. “We need to refurbish existing power plants which have been here for decades.

If you want to build a 10MW wind power plant, it’s going to be difficult to finance.”

Transmission and Distribution Lines

Source: Department of Energy - Philippines

Proposed and approved feed-in-tariff rates

Source: Department of Energy - Philippines

ASIAN POWER 9

OPINION

John Goss

john.goss@ceejay.com.hk

The problems and solutions of Shale Gas production in China

T

he effective exploitation of shale gas resources in China is still at an embryonic stage with most of the current drillings being of an exploratory nature. Although there have been many announcements of shale gas projects and joint ventures, the country has yet to start largescale commercial production.

China’s first five-year plan for domestic shale gas exploitation was released during March 2012, which has set a number of ambitious targets. The plan says that China is aiming to produce as much as 6.5 billion cubic meters of shale gas a year by 2015. If realized, this level of shale gas production would be the equivalent of three percent of the country’s total gas production in 2015. It also says that by 2012 the nation intends to produce up to 100 billion cubic meters of shale gas per year.

A significant problem for China in being able to access and produce large quantities of shale gas is that the country’s energy companies do not yet have the recently developed shale gas production technologies. The production of shale gas is by utilizing a process called hydraulic fracturing, which is more commonly known as fracking. This process technology is highly sophisticated and complex.

Currently, only US energy companies have been able to exploit and produce large quantities of shale gas commercially.

This means that Chinese energy companies have had to enter into strategic partnerships with foreign governments and/ or companies. These partnerships will enable the Chinese companies to acquire the necessary technologies and skills needed for the swift extraction and production of shale gas.

Global partnerships During 2009, China and the US launched a joint shale gas initiative which has already brought in some good results.

In July 2010, BP entered into a long-term shale-gas focused partnership with PetroChina. Then, in March 2012, Shell signed its first production sharing contract for shale gas activities with China National Petroleum Corporation. Statoil is currently having initial talks with China’s Shenhua Geological Exploration aimed at jointly developing shale gas projects.

Plus, ConocoPhillips and Chevron are both engaged in Chinese shale gas joint ventures in China.

These global partnerships, with Chinese energy companies, will most likely serve to significantly boost the Chinese energy company’s technological capabilities. However, even with these new technologies and modern equipment, there is a chance that China will not be able to duplicate the United States shale gas successes. The nation’s shale gas production may be negatively impacted by a severe lack of water.

During the shale gas production process, large amounts of water, fine sand and chemicals have to be injected into the ground under high-pressure. This injection process breaks up the shale rocks to release the gas trapped within them.

In fact, the International Energy Agency has estimated that fracking may require up to 20,000 cubic meters of water per well. Consequently, shale gas rigs usually operate close to 10 ASIAN POWER

large reservoirs, as opposed to being located in water-scarce regions.

This water resources problem may be solved by setting up a series of closed-loop systems. Depending upon the local geology of a shale gas project, between 20 and 50 percent of the water injected into the ground flows back to the surface. So, by simply by capturing and re-injecting this run-off wastewater a well’s total water usage can be significantly reduced.

It has been reported in the media that, in Texas, USA, the average water use per shale gas extraction well has decreased from around 18,500 cubic meters to just 13,600 meters due to the increased utilization of wastewater re-injection.

Aiming for lesser carbon footprint China’s economy has always depended upon coal as its major energy resource. The nation produced 3.8 billion tons of coal in 2011 - this figure is almost half of the world’s total. It is estimated that one ton of coal produces up to 2.86 tons of carbon dioxide. On the other hand, shale gas emits around 45 percent less per unit of energy.

The significance of shale gas exploitation is that it would serve to help China reduce its large carbon footprint by considerable amounts.

China’s exploitation of its shale gas resources could become a tangible benefit to both the country and to the world’s environment. With the nation’s estimated recoverable shale gas resources of up to 36.1 trillion cubic meters, China has the world’s largest deposits of shale gas resources. If these considerable shale gas resources are accessed properly and effectively, the country could actually reverse its current energy problems into significant benefits to China and the world.

China is aiming to produce as much as 6.5 billion cubic meters of shale gas a year by 2015.

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FlexEfficiency Portfolio ASIAN POWER 11

FEATURE: CHINA WIND

China wind power sector stumbles but optimism prevails

China’s wind power sector remains a largely promising market that will likely hit the government’s ambitious 2015 capacity target.

F

or the fourth straight year in 2012, China continued to be the world’s largest wind market in terms of annual installed capacity, according to clean energy research firm Bloomberg New Energy Finance (BNEF).

Data gathered by BNEF showed that the country installed 15.9 GW of wind power equivalent to a third of the world’s new onshore capacity. China installed 14% more installed turbines than the United States, the previous market leader back in 2009, despite the latter racking up a record 13.2 GW installations in 2012.

BNEF said wind energy has taken over as China’s third-largest energy source, behind coal and hydropower, with 61 GW of cumulative grid-connected wind energy capacity – equivalent to 5.3% of the country’s total nameplate – which generates 2% of its total electricity.

While China maintained its top ranking relative to other country markets, its total new installations for 2012 actually dipped from the historical high of 2011. Analysts blamed grid connection problems for the installation decline.

12 ASIAN POWER

“Wind’s new place in China’s power sector comes despite an 18% decline in annual installations, from 2011’s record of 19.3GW, as many projects were delayed due to grid connection issues, leaving many companies in the supply chain suffering from late payments and subsidies,” said BNEF. The research firm also noted that new financial investment in wind in China – “a powerful leading indicator of construction activity, since it leads the completion of onshore wind farms by up to two years” – also fell 12% to $27.2bn.

The lower investments may have partly resulted from the falling cost of wind energy. BNEF pointed out though that declining costs could have a side effect, in that the same dollar amount of investment committed during 2012 will finance 10% more megawatts than had it been committed during 2011.

Challenging environment Back in 2012, Chinese wind developers faced a far more challenging environment than they did the previous couple of years.

Operational and regulatory impediments

ROE of wind developers bottomed in 3Q12 and will improve to 10%+ in 2013-14, from 4-11% in 2012

hounded firms and prevented them from sustaining the installation frenzy—and the profits that came with it.

“The industry faced many problems including a reluctance by the grid operator to buy all the intermittent electricity produced by wind farms, plus stricter permitting requirements, unpaid subsidies and vigorous government efforts to cool down the industry’s rate of expansion,” said Demi Zhu, China wind analyst at BNEF. “After significant installations of wind power capacity from each wind developer in 2010-11, we saw a setback of profitability and returns in 2012, mainly due to the deteriorating utilization hours from wind curtailment and a sharp decline of CER [carbon emission reduction] income,” said Patrick Dal, analyst at Macquarie, in a China wind power research report.

“The ROE [return on equity] of wind developers could slide to around or below 10% in 2012, some lower than the cost of capital,” Dal estimated.

ROE to rise in 2013-14 After the slight dips in 2012, wind developers should see a rebound in profitability starting this year.

“We believe the ROE of wind developers bottomed in 3Q12 and will improve to 10%+ in 2013-14, from 4-11% in 2012, underpinned by their high operating leverage to utilization,” said Macquarie’s Dal. “In anticipation of improved profitability and returns, wind developers will likely

FEATURE: CHINA WIND develop high-return projects first from their project pipeline, particularly to develop those projects located in provinces where there is no wind curtailment issue or where the grid construction is nearly complete. However, after projects with high returns have been developed, the remaining projects in the pipeline could have potential higher cost to develop or take longer time to develop,” added Dal. Part of the optimism stems from the expectation that most of the headaches of 2012 will have been resolved, if not at least partly addressed.

“We expect utilization hours to increase by 3-5% per annum due to better grid connection while on-grid tariffs/unit investment/interest rate should remain flat in 2013-14, and there should be upside risk on CER (carbon emission reduction) income,” said Dal. In the face of this profit resurgence, Macquarie singled out Longyuan and Huaneng Renewable as its two top stock picks for the sector, and see outperformance potential in both Huaneng Renewable and Datang Renewable.

China target still achievable?

As the Chinese wind energy sector experienced notable setbacks in 2012, industry observers could not help but ponder the question: Is the China target for wind energy still achievable?

In its 12th Five-Year Plan the Chinese government set a goal that by 2015 the wind power grid-connected capacity will reach 100 GW. Analysts believe this target is still within reach, especially if the government prevents the restrictions that cropped up in 2012 from re-occurring in the coming years.

“Since 2012, the Chinese government has taken many active measures to solve the restricting factors existing in wind power development. Therefore, we believe that in 2013 the situation will be improved gradually, and the target for wind power newly increased grid-connected capacity of 18 GW can be achieved,” said Stefan Gsänger, secretary general of World Wind Energy Association (WWEA).

“I think it is probably achievable but it should be quite challenging to do that,” reckoned Justin Wu, head of wind energy research at BNEF. Analysts said government leadership will play a big role on whether the wind energy targets will be met or not. It must be able to provide sufficient incentives and lessen the burden for firms to commit to the projects and complete them on-time.

“I think it will require quite the coordination between the central government, local government and companies. And then I think the other issue is, the longer-term issue of having to accommodate more renewable energy in the grid system,” said BNEF’s Wu, adding that the government

has to offer clear advantages for firms to prioritize wind projects over more profitable and less capital-intensive energy endeavors.

“The projects are very remote, and it’s quite expensive to do them, so there’s not much incentive for the companies to do it unless you really push them. So, I think that’s one factor, the incentive, the motivation.”

For his part, WWEA’s Gsänger said there is a need to alleviate the ongoing challenges in transporting power from the wind farms, which he said was damaging investment income and affecting investment enthusiasm.

“The coal and hydropower have been the main power supply in China for a long time, so the power grid planning and construction is set to receiving and transporting coal and hydropower as the goal with fixed plan from the beginning.

“In addition, wind power development is more dispersed, and wind power has fluctuation, which brings serious challenges on power grid construction and investment, wind power forecast ability, wind power intelligent scheduling ability as well as power consumption balance between wind power and convention power. At present, China has begun to solve the above problems, but still needs a process,” said Gsänger.

BNEF’s Wu also warned against poor project execution that has led to significant inefficiencies and underperformance among Chinese wind power plants.

“In 2012, the average load hours or the average efficiency of wind farms in China decreased slightly. I think it’s about 21% or so right now, which globally is on a low side. The US right now holds an average of about 30% in terms of the efficiency of a wind power plant. In some other countries, it can be 35% or even 40%, so while I think 21% shows that we have some very good projects in China, we also have very poor projects in terms of the number issues and technology—it could be the design of the project or the management of the wind farm that leads to underperformance,” said Wu. Growth opportunities China has to quickly tackle these challenges if it wants to capitalize on the massive growth opportunities in the wind energy sector, and hit the government’s development targets.

“The large demand for energy in China makes the development and utilization of renewable energy the strategic choice. China is a country with vast territory and rich wind energy resources for development and utilization, which will be helpful to adjusting energy structure, ensuring energy supply, reducing GHG emissions and protecting environment and at the same time bring a lot of opportunities for wind power

development,” said WWEA’s Gsänger.

China’s current wind power generation capacity just accounts for only 2% in the whole power structure. According to the ‘12th Five-Year Plan’ on wind power released by the Chinese government, by 2015 and 2020 this ratio will reach 3% and 5% respectively.

“At the same time, the Chinese government also has promised to the world that by the end of 2015, the consumption of non-fossil energy will account for 11.4% of Macquarie Research primary energy consumption and around 15% by the end of 2020. Therefore, there is still a long way to go for wind power development.” he added.

Gsänger foresees out China’ s wind2013 energy Utilization to bottom from sector evolving with improvements in In the pastwind two years, cumulative connected win powerChina’s equipment manufacturing 30GW in 2010 60GW in 2012.

The average utilization level to and technical innovation capacity, well asina1Q11 transition moreand stable wind weak windaslevels and to 4Q11, unprecedented farm development Meanwhile, (referred to Inner Mongolia, processes.

Heilongjiang, Jilin, Liaoning a BNEF’s Wu envisions the wind energy hours in northern provinces dropped the most,secby an ave tor as driving economic development in the detailed reasons of wind curtailment in our report China w Macquarie Research 30, 2012. outskirt regions of China. “In China there are some very remote, very poor regions However, that we discover average utilization hours of 20 wouldn’tthe have any other economic shows China’s wind power’s utilization bottoming. opportunities. I think wind power devel- We ch improvement and estimate hours to improve by opment basically enables whole new inUnit investment hasutilization limited upside because (1) reduced curtailment from better dustries for wind coastal regions—shipping andgrid disp of inter-province grid transmission capacity, (3) diver Turbine cost accounts for 40%-50% of totaland capital exp marine engineering and cable succession. the south of China.

Wecould expect wind ear price of Chinese turbines has beenafarm falling 15-20% per I think there be quite lot ofdevelopers’ opporthatWe evolves from this.” prices to remain softened tunities demand. expect turbine Chinese government set a goal that by 2015 the wind power grid-connected capacity will reach 100 GW.

2013-14 because: Fig 16 China new connected wind capacity Fig China new connected wind capacity The top-five turbine manufacturers (out of 70 produ MW share in 2011 and their capacity could already satis 20,000 100% 89% estimates total capacity in China around 21-22GW. 18,000 since 2009 and we have not seen any80% sign that the 16,000 14,000 12,000

50%bargain power of wind farm developers The (usually 60%

particularly when the new wind farm capacity dema 13,450 40% 2012. In the first seven months of 2012, the new gri 17,700 18,800 15,470 14,655 16,100 YoY. 20%

10,000 8,000 6,000 4,000 2,000

8,970

-5% and Technology (1296 HK, Not R Guodian15% Science 10% 10% 0% 6%

2009

by its parent Guodian Group. Its wholly-owned subs -20% in 2010 to amount of orders (from 1% market share 2010 2011 2012 2013E 2014E 2015E demand among the other manufacturers.

China new installed capacity

Source: CEC, Macquarie Research, February 2013

YoY

Source: Macquarie February 2013 Fig 27CEC, Wind unit Research, investment breakdown

Sour Fi

Wind unitWind investment breakdown curtailment the worst in 2012, despite the wi

vehicles Fig 17 illustrates the historicalMotor YoY change of China wind 10% of utilization in 4Q11 and 1Q12 was the result from comb curtailment in the north of China dueFurniture, to inflexible power d fixtures and capacity bottleneck of the grid.

Generators and related equipment Fig 58%

others 10%

18 China wind power monthly utilization hou

Hours 250 200

Buildings and structures 22%

150

Source: Company data, Macquarie Research, February 2013

Source: Company100 data, Macquarie Research, February 2013 ASIAN POWER

13

So

CEO INTERVIEW

Philippines lacks sufficient power plant projects Committed power plant projects in the pipeline over the next 3-5 years are not enough to meet 4-5% annual power demand growth. when wholesale prices were flat with the government controlling.

What needs to be done is really the implementation of Retail Competition Open Access (RCOA) which is scheduled towards the later half of this year. I think as far as Luzon is concerned, most of the access or practically all of the National Power Corp (NPC) access and contracts have been privatized.

The proof that we have been successful in deregulating the industry is that we have new investors who are studying to invest not only in Luzon.

In 2006, the playing field was clearly dominated by NPC, controlling ~82% or 12,491 MW of the total installed capacity. But by 2011,it has improved significantly with 9 new private players, both foreign and local governments. We have AES, a big American power company, KEPCO, and Tepco Marubeni to name a few of the foreign companies.

Ernesto B. Pantangco, President, Philippine Independent Power Producers Association (PIPPA)

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ew investments are coming in but Ernesto B. Pantangco, the president of PIPPA and also a senior officer of Lopez-led FirstGen said that until they begin construction, it’s very difficult to count on those projects. He cautioned that the industry fears that President Benigno Aquino in 2015 could leave behind same legacy of power interruptions that his late mother and former president Corazon Aquino has in 1992.

Moreover, he said that coal will remain a dominant source of power despite strong public opposition. Read on to learn why power subsidy is not feasible for the country and why criticisms of power players ‘rigging the market’ and overcharging are ‘baseless’, according to Pantangco.

How is the Philippine power deregulation progressing so far?

The power industry has progressed significantly in terms of transitioning from a monopoly, which is government-controlled, all the way to publicprivate sector competition.

Our Whole Electricity Spot Market (WESM) provides proper signals for the entry of new capacity albeit going through some birth pains in its initial years. WESM is now reflective of true costs unlike during the 2004 presidential election

14 ASIAN POWER

“If we don’t have new builts coming in the Luzon area ... we are headed towards a shortage again in 2015, 2016.”

Does Philippines have enough power plant projects to meet the growing demand?

Power is already implemented. What we’d like to see is the continuation of the construction of 600 MW RP Energy because that capacity will be needed for 2015. We would like to see alternative power plants that can be built within this time frame of 3-4 years.

There is the Pagbilao expansion, the Quezon power expansion but until you see a definitive part of construction, appointed an engineering, procurement and construction(EPC) contractor, groundbreaking, and construction award, it’s very difficult to count on those. There will still be the challenge of building new capacities that they are looking at in order to meet the 4-5% growth annual demand over the next 3-5 years. We will see implementation of some wind projects this year, also biomass and possible hydros but these are not huge capacity. You look at Visayas, you already have the expansion of Panay energy. I think that’s another 100 MW; and another 200 MW power plant of Ayala. In Mindanao, you already have the two Alcantara

plants, you have the GenSan first block 100 MW; Zamboanga another 100 MW. We already see these happening but we still need more in terms of definitive power plants.

Will the government encourage more coal-fired power plants?

If we don’t have new builts coming in the Luzon area, let’s say we need to place about a thousand MW capacity every 3 years, we are headed towards a shortage again in 2015, 2016.

The government doesn’t care where the power is coming, so long as we have sufficient supply and was generated from cost-effective sources. The government doesn’t care where the power is coming, so long as we have sufficient supply and was generated from cost-effective sources.

There’s been strong criticism but personally I think it’s taken out of context. If you look at our grid in Luzon, you’ll need something like 1000 MW for every 3 years to meet the growing demand. If you look at the alternate technologies available to meet the space load and mid merit requirements of the grid, there are only two technologies that can meet this and that’s within the timeframe of three years. We are looking at 3-4 years.

If you look at Mindanao, where we have a shortage of about 200 MW, you will have to look at either combined cycle, assuming the proper fuel which is not gas or coal. There is no other technology that you can utilize to build these capacities.

If you look at biomass, its capacity is 100 MW but producing 50 MW biomass is still a challenge. Hydros can generate 200 MW but it takes about 4-5 years to build.

How critical is the power supply situation in the Southern part of the Philippines and how do you suggest to resolve it?

Mindanao has been subsidized for the last 10 years. Currently the grid rates of Mindanao is still at about P2.97 kWh or P3 kWh compared to Luzon’s P5.70 kWh and Visayas’ P4.57 kWh. Those are NPC grid rates but if you look at Luzon and Visayas, the NPC grid

“We are headed towards elections this year and it is difficult to get any approvals for new projects during this period.”

rate has ceased to serve as the index because there is competition among the major players. Each player has contracts depending on the type of custom and the competition ranges from as low of about P4.90kWh to a high of about P5.60 or 5.70 kWh. In order to spur investments in the Mindanao area for coal-fired power plants, you need to privatize the assets of NPC and at the same time allow contracts to be executed between new power players and in the various cooperatives. There’s a huge gap in Mindanao, ranging from P3 kWh and P9 kWh. We have the NPC grid which costs P2.97 kWh then all of a sudden you have the thermo marine power barges that are running on bunker that cost about P5 kWh. It’s important to fill in the gap in between - whether that’s geothermal or coal-fired. But that is currently being addressed and we hope nothing delays the construction of the 2 coal-fired power plants of the Alcantara group.

What do you think is the major hurdle for power investments to grow in the Philippines?

I guess our concern is really on making sure that all the local and national endorsements are obtained and of course for foreign group to accept the creditworthiness of cooperatives.

We are headed towards elections this year and it is difficult to get any

approvals for new projects during this period.

The other thing of course is like what happened with the issuance of Writ of Kalikasan to RP Energy but was fortunately lifted by the Court of Appeals. This Writ of Kalikasan that was filed, aside from the issues on the Environmental Compliance Certificates (ECC) with the SBMA, delayed the construction of the plant by about a year. Consequently, it hampered investment growth in coal-fired power plants, which we think is somewhere in the 4 to 5%.

Does the Philippines really have to lower power prices in order to be competitive?

We cannot compete against our Asian peers. It’s a reality that we have to accept as we don’t have the money to subsidize electricity just like they do. Based on a study commissioned

by Meralco, Philippine power rates is one of the most expensive in the world. It found that Meralco’s average retail tariff is 9th among the 44 markets surveyed. Malaysia ranked 8th cheapest but once you put back the cost of subsidies their government pays, you will see that Malaysia’s in the same range as the Philippines.

The big difference between Malaysia and Philippines would be that Malaysia has its own natural gas to export - the proceeds of which can be used to subsidize power

consumption.

We are the only country in Asia that imposes royalty taxes on natural gas that are consumed domestically.

Malaysia, Indonesia, they tax natural gas that are for exports.

Why we can’t do the same? Simply because of collection inefficiency It’s easier to collect taxes from one group than to the rest of taxpayers.

But there are things we can do instead. First, the government must seriously review allocating a certain amount of royalties from NatGas to support export-oriented sector.

Secondly, take out the value added tax (VAT). 60% of generation cost has VAT so if it’s taken away, it would be P0.36 drop in power bill.

How do you respond to criticisms that power companies are ‘rigging the market’ and overcharging?

While we’ve been criticized that there have been significant bottom line for IPPs, most people forget that if you look at the asset that this income originates from, you would only see return on asset of between 10-12%. People have the tendency to look at the absolute – sure, the power companies are in the top 100 corporations, sure, that’s in terms of profits and in terms of net income but if you look at the asset base that supports that profit, the return on asset continues to be within what we think are reasonable. We are looking at 15- 20% as a reasonable range.

There are some significant blips like what happened in 2010 when we always had no water on the hydro due to El Nino. What happened was a perfect storm - whoever was available could sell the power at P20 kWh - but that’s a rare case.

FEATURE: ASIAN ELECTRICITY

Asian infrastructure face testing times

With the numerous infrastructure headwinds it’s facing, will Asia ever be on equal footing with Western peers?

A

sian infrastructure projects are still lagging Western counterparts when it comes to cost engineering, the construction phase, and maintenance.

The performance of Western infrastructure companies goes way beyond the industry’s expectations and Asia must keep up with it according to Alan Savin, vice president for Southeast Asia at Bentley Systems, the Pennsylvania-based infrastructure software provider.

Bentley has established an awards program to recognise the best global players in infrastructure projects. The awardscum-conference called Be Inspired was first presented in 2004. According to global marketing director Anne-Marie Walters, “Bentley was ‘inspired’ to pull together and celebrate the successes that users are having with the utilisation of Bentley technology.”

She said that the team noticed then that there were no forums recognising the innovations which used Bentley software in completing impressive and worldrenowned infrastructure projects. She added they observed the lack of recognition most specifically in projects focusing on environment-friendly goals. “These are important, as well as those projects advanc16 ASIAN POWER

ing the economic situation of the countries the companies are based in,” she said.

The Be Inspired Awards are in their 8th year and Walters said that they now liken the awards to the Oscars. “It has become the awards to win, that even though competitors began to do awards too, those are not of the same level as Be Inspired,” she said.

Tougher market competition Companies eventually became more serious in their project submissions and so did the jurors who preside over the nominations. The competition became tougher in many ways and the 2012 Awards saw the debut of offshore engineering project submissions. “We now look at the whole asset life-cycle management, not just at the original plan or at the changes that will be applied to a plant or facility,” Walters said.

Asian infrastructure companies unfortunately were not quick to submit their projects to Be Inspired. Jean Baptiste Monnier, senior vice president for Asia Pacific Operations, said that only a few firms from Southeast Asia and Australia tried their luck during the first cycle of nominations.

He reckoned that users in Asia were not using the technologies in the most effective

Asia represents the strongest growth market for energy in the world.

way. He also theorised that the ineffective use could be because most of them were subcontractors to larger Western projects.

“They were a little shy, and we had to go and encourage them to submit because they’re doing something really interesting,” Monnier recounted.These companies soon gained confidence as entries from the once shy China and other Southeast Asian countries started to pour in.

Complementing the awards is Bentley’s annual ranking of the world’s largest infrastructure projects. The Bentley Infrastructure 500 compares the investment levels across the types of infrastructure in all regions of the world. The list totals US$15 trillion which exceeds the US 2011 GDP and is close to the combined annual GDPs of China, Japan and Germany.

US-based companies topped the list followed by Japan then China. Only 23 infrastructure companies from Asia got in the top 500. Savin said that the problem may be that companies are struggling as soon as they cross the billion dollar mark. “Basically projects in Asia are easy to execute, but things go a little unstable,” he said.

Companies are getting ready to finally manage large-scale projects, added Savin, which was leading to more innovation in the region.

“They are not always constrained by the traditional ways of working the ways Western companies do their projects,” he said.

Savin cited that Indian companies go out of their way to innovate new techniques on how to go about their infrastructure projects.

He also noted that Singapore is the ‘’shining star of Asia’’ as for asset performance and everything in the city-country is of the highest standard. “Asia will get out of its shell, that’s certain, but it has to be a step by step process,” he said.

Walters agreed, saying that every year, she gets surprised by the Asian submissions and finalists’ presentations in Be Inspired. “The way they approach a project is innovative, and I’m sure they’ll keep going,” she said.

Top owners’ infrastructure value by sector

Source: BENTLEY

vendor view

CEO INTERVIEW

Siemens launches new protection devices for high and medium voltage Modularity of hardware and software to meet the changing and individual requirements of modern grids during the whole life cycle

Thanks to the modularity of the system, phasor measurement units (PMU) can be retrofitted in all Siprotec 5 devices.

F

ollowing a trial phase with various grid operators, Siemens Smart Grid has brought the new protection device series Siprotec 5 onto the market. These devices are specifically developed for protection, automation, measurement and monitoring of electrical power systems.

Intelligent innovation The main innovation is the modularity of hardware and software to meet the changing and individual requirements of modern grids during the whole life cycle. Thanks to the modularity of the system, phasor measurement units (PMU) can be retrofitted in all Siprotec 5 devices.

Further innovation highlights are end-to-end engineering and safety mechanisms in all links of the safety chain. Intelligent automation functions and communication as a central part of the system architecture are also featured, along with implementation of Edition 2 of the international communication standard IEC 61850 for energy automation. Climate change and a scarcity of fossil fuels call for optimization of power supplies, all the way from generation through transmission to consumption. This will exert more and more influence on the structure and operation of electrical power supply grids.

Intelligent energy automation can stabilize these systems and at the same time help to save on both energy and costs. That is why Siemens developed the protection device range Siprotec 5.

“We conceived the devices for the requirements of a changing energy market. In protection relaying

and automation, the challenges can be met by energy trading and by increasing infeed from renewable and decentralized energy sources into the highvoltage grids”, explained Jan Mrosik, CEO of the Smart Grid Division of the Siemens Infrastructure & Cities Sector. The Siprotec 5 devices cover the entire range of applications in electrical power systems, such as distance protection, line differential protection, bay control, transformer differential protection, overcurrent protection, motor protection and breaker management. They also form a data basis for power quality and for monitoring of electrical power supply equipments. The modular-structure hardware and software enable the configuration of application-specific devices.

High level of safety and reliabilty To protect the equipment, Siemens has integrated complex safety mechanisms, ensuring a high level of safety and reliability. The protection functions have been constantly further developed through five relay generations and meet the requirements of the latest international standards and technologies.

Uniform system and device engineering The Digsi 5 tool forming part of the protection de-

“The Siprotec 5 devices cover the entire range of applications in electrical power systems. ”

vice range allows integrated, uniform system and device engineering, all the way from the circuit diagram of a substation to device parameter setting and the graphic linking of primary and secondary equipment. Open interfaces enable integration into the user’s processes. All devices of the Siprotec 5 range are mutually coordinated and individually configurable; they enable the creation of customized solutions. The functions for such applications as protection, control, measurement, monitoring, power quality and fault recording are integrated.

In development of the system architecture the focus was on communication, with the result that the devices can be adapted via plug-in and add-on modules to the topology of the user’s communication structure. The requirements in terms of necessary cyber security were incorporated in the system design of Siprotec 5, in order to take account of the worldwide trend toward IP-based communication.

In implementation of the communication standard IEC 61850, Edition 2, in the Siemens protection devices, the requirements of application-oriented users and of IEC 61850 specialists were given equal consideration. Available to these users are graphic editors and overview representations for editing, whereas IEC 61850 specialists can adapt the objectoriented structures of this standard to operational requirements by way of flexible engineering. Open interfaces to IEC 61850 enable vendor-independent system configuration. Seamless redundancy protocols PRP (Parallel Redundacy Protocol) and HSR (High availability Seamless Redundancy) are part of the system providing high available Ethernet communication.

The Siemens Smart Grid Division (Nuremberg, Germany) offers power providers, network operators, industrial enterprises and cities an end-to-end portfolio with products and solutions to develop intelligent energy networks. Smart Grids enable a bidirectional flow of energy and information.

They are required for the integration of more renewable energy sources in the network. In addition, power providers can run their plants more efficiently with data gained from Smart Grids. Software solutions that analyze data from Smart Grids will continuously gain importance. Thereby, the division uses in-house developments in addition to systems from software partners.

Author: Gerd Einsiedler, Business Unit Energy Automation, Siemens Smart Grid Division, Nuremberg, Germany.

CONTACT For further information please see: http:// www.siemens.com/smartgrid and http://www. siemens.com/protection ASIAN POWER 17

vendor view

CEO INTERVIEW

Alstom Grid acquires smart substation provider ASAT Solutions

Last December Alstom Grid announced it had acquired Canadian Smart Grid technology company ASAT Solutions - a strategic move to offer integrated substation data management solutions for utilities and industrial customers worldwide.

Moving forward ASAT Inc. and Alstom Grid SAS teams are now working together to ensure business continuity and service to customers. Full integration is now in process, a fact that could be observed at the recently held DistribuTECH exhibition and conference at the end of January in San Diego. And customers can now benefit from the added value of the merged product lines.

The ASAT offering The ASAT solutions that slot neatly into the Alstom Grid offering consist of a suite of multifunction servers and software applications that include: • A communication gateway between the substations and the control room SCADA using IEC 61850 and DNP3 protocols;

A

SAT Solutions Inc., now part of Alstom Grid’s Substation Automation Solutions (SAS) Product Line is headquartered in Calgary, Alberta, Canada, and has been delivering automation products, services, and engineered solutions since 2000.

It is a Smart Grid technology company that specialises in managing, securing and delivering substation information for utility operation, maintenance and asset management applications. Their solutions enable electrical and industrial customers to leverage information to improve their operations, network efficiency and reliability. Typical customer situations would be those planning to modernise their substations with both Remote Terminal Unit (RTU)-based and IEC 61850 standard-based architectures.

Today, ASAT products are operating successfully at the sites of major utilities in North America, as well as in other national utilities around the world, including in Asia, who appreciate the competencies of ASAT’s highly experienced automation engineers.

Key benefits ASAT products extend the current Alstom Grid SAS product portfolio with compact, optimised solutions for RTU-based architectures that are attractive to electrical and industrial markets worldwide, particularly in North America and Asia Pacific.

It also provides new solutions for secured data integration and data management for those willing to aggregate all substation non-operational

18 ASIAN POWER

data for online condition monitoring purposes.

They are a perfect fit to Alstom Grid’s DS Agile digital control system and the MiCOM protection relay range, with a seamless evolution path from conventional to digital and on to a Smart Grid environment.

The combination of Alstom Grid’s and ASAT’s products creates an unrivalled substation automation solution offering that can satisfy the needs of the global electrical and industrial markets.

The combination of ASAT technical and engineering expertise and SAS worldwide presence, will allow customers and users to access advanced substation modernisation and digitisation technologies, while benefiting from the local project, delivery and support capabilities from the Alstom Grid network.

These products are optimised for substation modernisation where RTUbased architectures are predominant.

They also support architectures based on the IEC 61850 standard, which is increasingly demanded by utilities, and others, such as DNP3.

• A communication gateway to intelligent electronic devices (IEDs) such as protective relays, measurement devices, RTU I/O, using a variety of communication protocols, in cluding IEC 61850; • Cyber security features; • Web access, local HMI with substation monitoring functions; • Substation Asset Condition monitoring; • Programmable logic control.

ASAT DAP solutions

“ASAT products extend the current Alstom Grid SAS product portfolio with compact, optimised solutions.”

For further information, contact Alstom Grid Substation Automation Solutions Mr. Soon Wi LEE at: +65 92312770

Developing sustainable power grids, with Alstom ELECTRICAL GRID ENGINEERING Alstom builds power grids for now and the future. We interconnect major grids, ensure an intelligent balance between production and consumption, and improve the integration of renewable energy.

www.alstom.com

OPINION

ADRIAAN KAMP Exploring the perfect market for energy and energy transition in Asia

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iscussions and dialogues between peers and professionals, at times, centre around the question: What is the perfect market for Energy and Energy Transition?

Are we best served with a free market or are we better off in a state-controlled capitalist system?

What policy (regulatory, fiscal) and economic instruments do we need in order to serve our short- and longterm needs? Who is leading and driving the change?

To my mind and as Energy Transition clearly entails the word “Transition”, we are presently in the period moving from ONE state of equilibrium to a NEXT state of equilibrium. The present market (free or state-controlled) and energy architecture is shaped over the last 100-150 years.

And as such, allowed it to be optimized and shaped by economic players, based on competition and (more or less) state regulation. Now, over the coming decades, we, as a global society, will have to discover a new energy infrastructure and architecture- blending energy efficiency, with renewables and energy storage, local mini grids, with the present and existing backbone of centralized produced power generation, mainly based on fossil fuels.

Under a new business model, with different collaborating parties, and blending of investments in common long-term infrastructure with day-to-day operational expenses. Re-drawing lines of where we want to compete, and where we want to have the public or common good investing or regulating the market.

Re-drawing the lines of what the operational boundaries and license-to-operate are for our utilities, for our network providers and for the consumers.

Re-drawing the lines of what is taxed, and what not.

Redrawing the lines of who is paying for what.

This work is ideally done by starting to define the “ideal” projects or architectures which we aspire to HAVE in the NEXT phase of our equilibrium. And then I mean not point solution, but system solutions. From the consumers at home to the sources of supply.

How could that work in today’s complex market and society?

Well, let me give you an example. Let’s take e.g. Singapore in South East Asia. What I would envisage we could do is to elect e.g. Singapore as “our guinea pig” NEXT phase energy market.

We would then ring-fence Singapore (from all the fiscal rules and regulations, competition rules) and provide it with dispensations and allowances.

Dispensation for the utility co-operations to sit-down together, and to start to shape the ideal energy infrastructure of tomorrow for Singapore.

Allowances to create and define an energy infrastructure and architecture project which invest both in longterm infrastructure and take care of the day-to-day op20 ASIAN POWER

erational costs. At people homes. In the community and cities.

And we would use the following simple, but key questions - to shape the energy infrastructure: 1. What energy can save and store at the users on location?

2. What energy can we generate locally and decentrally?

3. What energy can we import from the region and from alternative, renewable resources?

4. What energy do we need to import or do we have available for export?

5. And in conclusion, what central infrastructure and energy generating capacity (and storage) do we need to install in order to serve the above?

And, in our ideal world, we would define these projects-to-do, and execute them- in a Public-Private Partnership (PPP)- between the utilities, the technological firms, the community of Singapore and the region.

From renewables in the North Sea to sun-panels in the Meditarrenean.

Following the realisation of this integrated project approach we would have identified the steps, the means, and the lines for a commercial rollout of this model approach. We would have identified the new utility firm organisation and business models, the new regulations and the new playing ground for our free-market competition. We would have identified the costs of write-offs, the costs of replacements and the costs of operating this infrastructure. So I pledge for to do away with most of the policies and regulations directed to favour ONE energy source over another.

I think we have passed the period of feed-in tariffs, and I believe the market is now best served with approaches which stimulate (national or regional) energy architectures integration.

Market is now best served with approaches which stimulate (national or regional) energy architectures integration.

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OPINION

SUMAN GHORAI Are Indian utilities prepared for smart metering?

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mart metering and smart grid technology in the electricity sector recently have attracted much attention to improve the performance of power utilities. Many countries in the West including the USA, Canada and within the EU are already involved in smart metering on pilot projects or in selective roll out for specific urban areas.

The drivers for smart metering are many folds, including, reduction in meter reading and revenue realization cycle, identification of fraudulent practice and necessary correction, reduction of peak demand through systematic load reduction, better customer services, assistance in reduction in grid failure and so on.

However, there are few limitations which are preventing mass scale implementation the smart metering. Utilities have already spent a sizable amount for upgrades on existing electromechanical or old static meters, therefore, reinvestment for smart metering will be difficult at the regulator as well as utility perspectives.

The list for justification for Smart metering and to counter the same is long, however, in the later part we will try to understand the situation in Indian distribution companies for implementation of smart meter.

According to industry reports, distribution utilities globally will spend US$378 billion in smart grid technologies by 2030 where India is estimated to install 130 million smart meters by 2021. Unlike developed countries, India has not introduced smart metering in a large scale till now, however, India’s Ministry of Power, GoI has announced eight smart grid pilot projects last year which are set to be rolled out shortly.

The power ministry is going to finalize these eight projects of worth 500 crores (US$9.69 million) on smart grid implementation, which use a combination of smart metering and various technologies to improve the efficiency and reliability of the power system for sustainable growth. To initiate this process, 14 utilities, which manage the power distribution across India will be invited to submit proposas for the eight pilot projects. The selected proposals will receive funding of around 50 to 60 crores.

The pilot projects will focus on addressing three key issues, 1) reduction of aggregate technical and commercial (AT & C) losses, 2) peak load management, and 3) integration of renewable energy like wind and solar into the grid. The pilots are expected to be completed within 12 to 18 months. It is proposed that 50% of the total project cost will be borne by the Ministry of Power and the remaining 50% by the selected utilities.

Though there is some progress in smart metering across utilities at pilot level, however, there are significant infrastructural development and capacity building issues which need to be addressed before planning a large scale implementation of the projects. Though there are some improvements in the urban power distribution system due to implementation of APDRP/R-APDER projects,

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where there are substantial infrastructure developments in metering and HT/LT system through AMR & IR static metering and ABC cabling utilization of benefits is yet to be realized due to: - Lack of knowledge sharing and communication between employees - Absence of associated infrastructure for meter data analysis and necessary action for pilferage reduction - Insufficient regulatory focus and policy on smart metering - Lack of system modification to enable the benefits of existing intellectual meter - Lack of consumer awareness on Smart Grid concepts, how they will be benefited through Smart metering Unless the above issues are addressed properly, large scale investment for smart metering will be an additional burden without realizing the benefits of revenue enhancement. The policy makers and regulators have to implement a robust incentive model framework to attract more and more private investments assuring the rate of return.

A collaborative approach through vendor partnership and economics of scale need to be worked out before rollout out this technology. Till then the existing metering system should be strengthened for commercial loss reduction and focus should be given on metering efficiency, utilization of existing data for theft & pilferage protection, accurate energy accounting & auditing and revisiting the accountability of the personnel / feeder managers responsible for improving of the metering operational efficiency.

India is estimated to install 130 million smart meters by 2021.

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