Group explains responsibilities

Business

There is much discussion about making power more affordable and accessible in PNG. The reality is that power generation cost is well under 50 per cent of the electricity bill. The rest is the cost of maintaining and extending the network. Independent Power Producers (IP3) Industry Group chairman DAVID BURBIDGE discusses with business reporter PETER ESILA how it supports PNG Power Ltd in selling power to its consumers at a much more affordable tariff than today.

Q: What is the current progress of the IP3 Industry Group in terms of assisting with public policy formation and implementation on power generation in PNG?

David Burbidge

BURBIDGE: We are working with PNG Power, Independent Consumer and Competition Commission and the Business Council of PNG to streamline the approvals process for new generation operators. Entry into the market can be difficult, so we aim to help and guide new entrants in the process. A good starting point has been PNG Power’s Independent Power Producer and Major Infrastructure Policy (IPP Policy), which clarifies the situations and manner in which private sector partners can participate in implementing PNG Power’s Least Cost Development Plan and other strategic and economic enhancing opportunities in the power sector.
A National Energy Authority could further streamline the process, if passed by Parliament and implemented efficiently. We are following the developments around the National Energy Authority Bill.
We also closely follow and engage when appropriate, the PNG Electrification Partnership (PEP) signed in November 2018 during Apec by Australia, Japan, New Zealand and the United States to work together to support enhanced connectivity with the goal of connecting 70 per cent of the country’s population to electricity by 2030.
Related to PEP, we stay informed on the progress the Australian Government is making with its Australian Infrastructure Financing Facility for the Pacific (AIFFP) to support transformative infrastructure in the Pacific region, which includes a strong focus on power initiatives in PNG.

Q: How many IPPs are currently on the IP3 Group?
BURBIDGE: NiuPower, New Britain Palm Oil, PNG Biomass, PNG Forest Products, PNG Hydro Development, and POSCO International.

Q: What are some challenges that IPP’s face in PNG?
BURBIDGE: Generation planning: A lack of information regarding generation planning for power development makes private sector entry difficult, expensive and a high-risk investment.

  • Energy Policy: There were some stark inconsistencies in the application, and adherence to, Energy Policy and Regulation; these are now addressed through the IPP Policy that both PNG Power and ICCC are driving strongly.
  • Transmission/Grid Reliability: The infrastructure status and reliability of the transmission and distribution network is an issue which needs to be addressed. IPPs need to understand what the plan is for the grid expansion, reliability improvements and infrastructure upgrading.
  • Generation Cost versus Connection Cost: Power generation is only one part of the supply problem. Transmission and distribution are key problems; simply adding more megawatts of generation does not solve the problem of reliability nor does it materially lower the cost to customers.
  • Electrification: The problem with National Electricity Roll-Out Plan (NEROP) is how all the connections are going to be rolled out and paid for. With current demand from domestic customers being very low, due in part to more efficient lighting and appliances, the growth in electricity demand is likely to be (very) low.
  • Counterparty risk: Potential and existing IPPs are concerned about protecting investments, foreign exchange issues, and the counterparty credit risk. At present, PPL counterparty risk is too great for lenders. This means that either private sector will not invest or will price the investment accordingly – leading to higher cost of power not lowering tariffs.

With studies benchmarking PNG’s power price on large Asian economies, there are unrealistic expectations created for the cost of power generation in PNG.
As an Industry Group we continue to explain why power generation in PNG is relatively expensive compared to larger economies. We published the article The Challenges of Cheap Power in Small Island Developing States to explain why power generation and transmission in small island developing states (SIDS) is typically more expensive and challenging than in larger economies.
This is a reality faced by PNG, which was often misunderstood or ignored by policymakers, and found to be misguiding negotiations by PNG Power over Power Purchase Agreements with IPPs.
The unfortunate outcome of mis-modelling tariffs for power in PNG is creating an unrealistic expectation of potential cheap power prices at a price-point no IPP can realistically deliver today in PNG.

Q: Are there any new players to the market bringing new technology, speeding up developments, and driving competition?
BURBIDGE: Currently the only serious players are companies already operating in country. The barriers for new entrants are currently very high. These include very long development times due to slow approvals, uncertainty over a stable PNG Power, and the ability to bank projects and guarantee payments.

Q: How many IPP’s does PNG Power currently buys power from?
BURBIDGE: NiuPower is an independent power producer owned jointly by Kumul Petroleum and Oil Search and focused on the development of power generation facilities in PNG fuelled by PNG produced natural gas. NiuPower recently completed the Port Moresby Power Station (POMPS) as their foundation investment. The POMPS is a nation-building infrastructure project. It uses natural gas supplied by the PNG LNG project to feed six high efficiency Reciprocating Gas engine generators.
It commenced commercial operations in November 2019 and can provide up to 58MW of baseload power to the Port Moresby power grid through a new 66kV power line developed by PNG Power. Having the POMPS fully operational has allowed PNG Power to retire expensive and inefficient liquid fuelled generation with a reported cost saving of PGK100 million per year and materially reduced environmental impacts.
PNG Biomass is a renewable energy and sustainable development project in the Markham Valley in Morobe. It is designed to power PNG with domestic low-emission renewable energy through an inclusive economic growth model that empowers local communities. PNG Biomass comprises a 30MW biomass power plant which is integrated with 16,000 hectares of dedicated, sustainable forestry plantations. It will also oversee construction, operation and dispatch of an adjacent 11 megawatt peak (MWp) solar PV farm owned by PNG Power. Together, the biomass power plant and solar farm will provide the Ramu grid with up to 40MW renewable energy. Since entry into the Markham Valley in 2011, PNG Biomass has placed communities and landowners at the core of the operation to ensure they can realise the full potential of substantial rural inclusive economic growth opportunities created by the project.
PNG Forest Products operates three hydro power stations with a combined installed capacity of 14.9MW at Baiune near Bulolo, Morobe.
Firstly a 2.4MW hydro power station was built at Pine Tops and commissioned in 1932, and then the present 3.5MW Lower Baiune and 2.0MW Upper Baiune hydro power stations were built in the mid 1930’s.
The Pine Tops station was not rebuilt after WWII. In 2012 PNGFP completed the construction of a new 9.4MW power station at Upper Baiune. This was a major undertaking for the Company and is the first such project in PNG whereby a hydro power station has been built by a private organisation as a commercial venture for the sole purpose of supplying power to PNG Power. PNGFP are set to commence construction this year on their fourth power station at the Baime River in Bulolo. This facility will have an installed capacity of 12.4 MW and is set to commence supplying power to the grid in early 2022.
The Edevu Hydro Power Project is being constructed by PNG Hydro Development in Central Province. The Edevu Project was initiated in 2009 and is expected to generate 50 MW power to boost electricity to all of Central province, parts of Gulf province, and Port Moresby. It will not only benefit residents with power but will also be an alternative source of water. The Edevu Project costs a total of K640million and is anticipated to be complete by 2020.
POSCO International supplies 24MW internal combustion electric power to meet the power grid demand through a plant situated in Kanudi, Port Moresby. Upon serving a 15-year contract from 1999 to 2014, it accomplished to secure the basis for stable power production for additional 5 years through successful rehabilitation, operation, maintenance and management by life extension and efficiency enhancement of the power plant. POSCO International turned-over the plant to PNG Power at nil value when the contract expired on Dec 31, 2019. POSCO International also signed another PPA to establish and operate a 30MW internal combustion electric power plant in Lae, the country’s second largest city, which started commercial operation in June 2018, solidifying its position as an independent power producer in Papua New Guinea.

Q: Why is PNG continuing to experience constant power blackouts and how can it be addressed?
BURBIDGE: Grid stability and electricity security is more than just reliable generation, the condition of the poles and wires that transmit the electricity is equally important. Faults on the network infrastructure can cause power plants to trip, in other words, they automatically shut down to ensure safety and thus stop generating electricity. Traditionally, the maintenance on both generation owned by PPL and the network has been insufficient. Today, with many generation assets owned by IPPs, power plants are generally maintained to a much higher standard and are from a generation perspective very reliable, however, problems on the network can prevent the power getting to customers.

Q: What is IP3’s outlook for 2020 and into the future?
BURBIDGE: We will continue to advocate for greater transparency in the competitive selection of new generation, better processes and procedures, and most importantly, find a financial structure to safeguard against counterparty risks which is acceptable to lenders, investors, and energy developers.

Q: Any other comments?
BURBIDGE: Driving down the cost of grid connected power needs fast development times (reduced development costs) and payment security otherwise developers will price in the risk. Currently the cost of connecting people to the grid is basically uneconomic due to the network costs and the relatively small amount of power used. We are hopeful that new Electrification Partnership Aid initiatives will go some way to help. As far as generation is concerned the game is rapidly changing with wind, solar and storage now competing against traditional generation.
In the future we will see much more rooftop solar, mini and micro grids powered by hydro, wind and solar rather than expensive grid extensions.
Interested (prospective) IPPs
are welcome to become industry members, as are other interested parties, through filling out an application form on our website: https://www.ip3.org.pg/membership-application