Citing projected power capacity crunch, Meralco prods ERC to act on its PSAs

By Lenie Lectura - November 14, 2019

https://businessmirror.com.ph/2019/11/14/citing-projected-power-capacity-crunch-meralco-prods-erc-to-act-on-its-psas/

FOLLOWING the successful auction via Competitive Selection Process (CSP) of Manila Electric Company’s (Meralco) 1,7000 megawatts (MW) of required capacity, the utility firm is moving to ask regulators to approve the power supply deals.

In separate applications filed before the Energy Regulatory Commission, Meralco asked the ERC to “immediately issue a provisional authority and/or interim relief authorizing the applicants to implement the power supply agreements by December 26, 2019,” and after hearing on the merits, “render a decision approving the PSAs [power-supply agreements].”

Meralco appealed to the commission to act on the applications as soon as possible, citing the foreseen capacity deficit due to the expiration of its several PSAs by December 25, 2019.

“Thus, there is an urgent need for provisional authority and/or interim relief to implement the PSA by December 26. Otherwise, Meralco will be constrained to source its capacity deficit from the Wholesale Electricity Spot Market, thereby exposing its customers to volatile WESM prices,” it said in its applications.

The approval of the PSAs, added the utility firm, would redound to the best interest of the consumers since aside from the very competitive rate, the supply availability under the PSAs is guaranteed 100 percent as no outage allowance is provided therein,” added Meralco.

Meralco signed PSAs with First Gen Hydro Power Corp., Phinma Energy Corp. and South Premiere Power Corp. (SPPC) for the supply of 500-MW mid-merit capacity for five years, starting December 26, 2019.

First Gen’s contract capacity is for 100 MW with an all-in headline rate (VAT inclusive) of P5.1908/kWh and computed all-in Levelized Cost of Energy (LCOE, VAT Inclusive) of P5.3989/kWh.

Phinma Energy’s contract is for 110 MW at all-in headline rate (VAT inclusive) of P5.5858/kWh and computed all-in LCOE (VAT Inclusive) of P5.5858/kWh.

SPPC’s contract is for 290 MW and has an all-in headline rate (VAT Inclusive) of P5.5347/kWh and computed all-in LCOE (VAT inclusive) of P5.7527/kWh.

The auction, via CSP, was held last September 11 in accordance with the Department of Energy (DOE) Circular requiring distribution utilities to procure power through CSP.

The resulting prices from the CSP are significantly lower than their average generation cost today of around P5.88 per kWh (VAT inclusive). This will result in P4.4 billion annual savings for consumers for the next five years.  This is equivalent to a rate reduction of around P0.13 per kWh for consumers, starting December 26, 2019.

Meralco also signed 1,200 MW of brownfield capacity last September 13 with Phinma Energy, SPPC and San Miguel Energy Corp. (SMEC).

Phinma Energy offered a contract capacity of 200 MW with an all-in headline rate (VAT inclusive) of P4.7450 /kWh and computed all-in LCOE (VAT Inclusive) of P4.8849 /kWh.

SMEC submitted a bid for 330 MW at all-in headline rate (VAT inclusive) of P4.6314/kWh and computed all-in LCOE (VAT Inclusive) of P4.9299 /kWh.

SPPC’s bid was for 670 MW and had an all-in headline rate (VAT Inclusive) of P4.6314/kWh and computed all-in LCOE (VAT inclusive) of P4.9300/kWh.

They will supply Meralco starting December 26, 2019 until December 26, 2029.

Along with the results of first successful CSP, consumers are projected to enjoy total savings of around P13.86 billion per year, or a rate reduction of P0.41 per kWh.

In all, Meralco has lined up three CSPs:  A five-year contract for 500 MW, a 20-year contract for 1,200-MW greenfield, with commercial operations date (COD) in 2024, and a 10-year contract for 1,200-MW brownfield, with COD in December 2019.

The 20-year contract for 1,200-MW greenfield will undergo a second auction. However, the Department of Energy (DOE) has yet to approve the terms of reference (TOR) crafted by Meralco.

ICSC backs DOE

A senior advisor of the Institute for Climate and Sustainable Cities (ICSC) is supporting the suggestions of the DOE  for Meralco to allow more power firms to participate in the CSP  that involves the supply of 1,200-MW greenfield capacity.

“In adherence to the prescribed spirit of free and fair competition, both existing and new power plants should be allowed to join Meralco’s upcoming bidding for a 1,200 MW,” said Atty. Pedro H. Maniego Jr., ICSC senior policy advisor.

Maniego, former chairman of the National Renewable Energy Board, and former chairman of the UP Engineering Research & Development Foundation, also said that Energy Secretary Alfonso G. Cusi’s proposal to divide the Meralco supply requirement up for bidding into smaller sizes and to allow stacking of bids will, likewise, foster the desired competitive structure envisioned in Epira or the Electric Power Industry Reform Act of 2001.

Cusi has provided inputs to Meralco on how the power-supply contract should be bidded out. “Secretary Cusi’s instruction, once applied on all CSP, would give small power-generation companies an opportunity to bid and win portions of large supply requirements.

“Without stacking, only one bidder and one price for the entire capacity will win, which would exclude small RE companies that can offer less expensive electricity at firm prices over the life of the supply agreement,” Maniego said.

“The issue transcends Meralco’s CSP rules, since the impact is long term and could cover a generation of Filipinos. Not only Meralco but all of the country’s 16 privately-owned distribution utilities (DUs) as well as all 119 electric cooperatives, should allow both existing and new power plants of all sizes to join the bidding of their power requirements in order to get the least cost of electricity,” he added.

At the same time, the ICSC pushed for the inclusion of renewable energy (RE) sources in the power distributor’s energy mix.

“This open and transparent approach of bidding through the CSP will provide not only the big generation companies, but also small RE firms the opportunity to bid for portions of the power requirements of the distribution utilities,” Maniego said.

“Consumers will benefit from the participation of the RE companies, because electricity costs from RE sources continue to fall, as evidenced by historical data and studies,” he added.

“RE companies’ participation in the bidding, if allowed and successful, will reduce the country’s dependence on power plants that run on traditional and carbon-intensive fossil fuels, such as coal.”

The Philippines imports approximately 75 percent of its coal requirements. While fossil fuel prices are subject to fluctuations in the world market and tend to go up over the long term, RE sources utilize indigenous resources and/or consume no fuel.