AC Energy sees power supply remaining adequate until 2021

Posted on May 22, 2017 By Victor V. Saulon, Sub-Editor
http://www.bworldonline.com/content.php?section=Economy&title=ac-energy-sees-power-supply-remaining-adequate-until-2021&id=145543

POWER SUPPLY will remain adequate between now and the next four years but beyond 2021, the country will be needing 700 megawatts (MW) more each year to meet the rising demand of a growing economy, the head of Ayala Corp.’s energy arm said.

“We’ll be okay until 2020, 2021. We have this what I would call an equilibrium,” John Eric T. Francia, AC Energy Holdings, Inc. president and chief executive officer, told participants of BusinessWorld’s Economic Forum on Friday at Shangri-La at the Fort in Taguig City.

“Beyond that (period) you need to build extra power plants, maybe 700 MW per year assuming 5% (economic) growth nationwide,” he added.

Mr. Francia said it was crucial to make a decision now whether to build new power plants since putting up new ones would take around three to four years.

“You need to start building the first 700 MW worth of plants in the next 12 months,” he said.

For now, he said the country has supply of roughly 17,000 MW, which is comfortably higher than demand of around 13,000 MW during the peak month, usually May. Most of the excess capacity is in the Visayas and Mindanao, areas in the Philippines where supply was feared to be at risk a few years ago.

“Three years ago, or even as early as one year ago, Mindanao was (in) severe shortage,” he said. “But guess what... a lot of plants were built, started commercial operations, and more plants including ours are yet to be completed in terms of construction. It’s coming soon.”

Luzon has a slightly different story because although it has 10,000 MW of peak demand, its 12,000 MW of supply looks good “but only on paper,” Mr. Francia said. That 20% of reserve might be inadequate because the country’s main island has several ageing plants.

Supply issues became apparent when the Malampaya gas platform had its maintenance shutdown in February that left about 3,000 gas-fired power plants without a power source. An earthquake in April that affected some plants also reduced supply and prompted warnings of possible power interruptions.

Mr. Francia said the good news is, around 3,000 MW of capacity should come online before 2020, enough to meet an expected increase in demand to 16,000 MW given economic growth of between 5% and 6% per year.

“This bodes well for the consumers, not necessarily for us, but we’re patient. Demand will catch up. So we’re confident. We take a long view here,” he said.

However, the decision to build a new power plant is never easy for AC Energy and for other power developers because of the uncertainty facing companies that have pending applications for a power supply agreement (PSA) with the Energy Regulatory Commission (ERC).

He cited as an example distribution utility Manila Electric Co. (Meralco), which is awaiting approval for around 3,500 MW of power supply contracts with the ERC.

“We need all that capacity especially in the early to mid 2020s but those contracts are in limbo now. It’s awaiting ERC decisions, some of them are awaiting environmental permits. And it’s giving uncertainty to the rest of the industry because while we have expansion potential for our own power plants, it’s hard to contract if a lot of the other power plants are already contracted with the likes of Meralco,” Mr. Francia said.

He said the “big decision” facing AC Energy is whether it should build a “merchant” power plant, or one without an agreed supply contract and a guaranteed revenue stream, and run the risk of building into an oversupply situation in the early 2020s.

“That’s a very tough call for our board because again, you don’t want to be in an extreme oversupply situation,” Mr. Francia said.

Betty C. Siy-Yap, Meralco senior vice-president and chief finance officer, said the distribution utility had been following up with the ERC on its pending PSAs.

“The hearings have been conducted already, have been completed as of March this year. So we’re waiting for their decision,” she said in an interview.

Among the awaited PSAs is the one for the 1,200-MW coal-fired power plant in Atimonan, Quezon province that was applied for by Meralco PowerGen Corp. (MGen), the power generation arm of Meralco.

Ms. Siy-Yap said that although Meralco has a target date to start building the Atimonan plant, the banks are waiting for the approved PSA before granting loans for the 70% debt-financed project, which will cost a total of P135-billion project.

MGen, which is selling down 49% equity in the project, is in talks with four interested foreign and local entities, which are also awaiting an approved power supply contract.

“It’s like chicken and egg. They’d like to see the PSA approved. The PSA goes through an evaluation process, which is also the same with financing. It’s a condition that the PSA is approved,” Ms. Siy-Yap said.

It does not help that the ERC was recently embroiled in internal squabbles that saw the preventive suspension of its chairman. Some have also called for the commission’s abolition.

“I think the whole industry is very concerned. There has been talk, at least in the newspaper, that’s why we’re hoping that it’s all rhetoric,” said Antonio R. Moraza, Aboitiz Power Corp. president and chief operating officer.

“There are those that want the ERC abolished,” he said. “If that happens, everything is going to be delayed by two or three years.”

“I think the ERC is a solid institution. It’s a necessary institution. It’s one that the power industry needs. The industry needs to be regulated. The ERC does a relatively good job. So if there are problems with the personalities, then perhaps the personalities should be addressed rather than the institution,” Mr. Moraza said in an interview.