Intra Day Investing

  /  Economy   /  Crunch time seen for PHL power prices when LNG contracts renew

Crunch time seen for PHL power prices when LNG contracts renew


ELECTRICITY prices are likely to rise when power generators sign new supply deals for liquefied natural gas (LNG), with price volatility in the fuel likely to be passed on to consumers, the Institute for Energy Economics and Financial Analysis (IEEFA) said Tuesday.

“As contracts are renegotiated, generation companies will push to pass through volatile imported fuel costs to consumers… If LNG costs are passed on to households and businesses, the Philippines may continue to struggle with high electricity prices,” Sam Reynolds, an energy finance analyst, said in an IEEFA report.

In its report, IEEFA said the LNG outlook is clouded by the uncertainty of access to the fuel by the installed base of gas-fired power plants.

“Two recent power contract disputes demonstrate the difficulty of pricing imported LNG into the Philippine market and cast doubt on the economic viability of LNG expansion plans,” IEEFA said.

IEEFA was referring to the power supply agreement (PSA) between Manila Electric Co. (Meralco) and a unit of San Miguel Global Power Global Power Holdings Corp., South Premiere Power Corp. (SPPC).

SPPC is the administrator of the gas-fired power plant in Ilijan, Batangas.

Last year, SPPC together with another unit of San Miguel Global Power, San Miguel Energy Corp. (SMEC), applied for a rate increase with the Energy Regulatory Commission (ERC) after claiming that both its units incurred a combined loss of P15 billion. The rate increase was meant to recover P5 billion of the losses.

The company cited a “change in circumstance” after surging fuel costs breached the price range assumed during the execution of the contracts with Meralco. The ERC denied the petition, saying this had no basis as the PSA is a fixed-rate contract.

SPPC’s PSA with Meralco was the subject of a writ of preliminary injunction issued by the Court of Appeals, indefinitely suspending its power deal with Meralco.

Meanwhile, San Miguel Global Power expects an LNG shipment to arrive within this month.

Linseed Field Power Corp., a unit of Atlantic Gulf & Pacific Co., said it has completed the conversion of a vessel into a floating storage unit for gas.

Linseed will serve as the operator of the LNG re-gasification facility which will be rented by San Miguel Global Power’s SPPC.

“As a result, consumer power bills could increase further. The cost of the country’s first LNG cargo was undisclosed, but at current LNG prices in Asia, IEEFA estimates that rates from LNG-fired power generation in the Philippines could be roughly PHP9/kWh (kilowatt-hour). And based on average global LNG prices last year, LNG-fired power could cost as much as PHP16/kWh,” IEEFA said.

In March, Meralco announced that the two subsidiaries of San Miguel Global Power — Excellent Energy Resources, Inc. (EERI) and Masinloc Power Partners Co. Ltd. (MPPCL) — had terminated their PSAs with Meralco.

EERI had proposed to supply power from its natural gas-fired power plant starting in 2024, while MPPCL offered 600 megawatts from its coal-fired power plant by 2025.

San Miguel Global Power terminated the deal after the PSA application exceeded the date it should have been approved by the ERC.

“LNG-to-power contracts in the Philippines may be constantly subject to legal risks given the high costs and inherent volatility of LNG prices in global markets. Ultimately, however, fixed pricing terms are essential to protect consumers from the high costs associated with decisions to rely on foreign LNG,” IEEFA said.

“As PSAs for coal and LNG-fired power are renegotiated, however, there is still a major risk that highly volatile fossil fuel costs are passed through to consumers for decades to come,” it added. — Ashley Erika O. Jose

Post a Comment