The Department of Energy has issued draft guidelines for conducting mid-merit natural gas capacity auctions for gas-fired power plants.
The DOE said a competitive auction is necessary to procure additional mid-merit natural gas capacities based on the projected power supply-demand outlook and system reliability requirements, particularly in the Visayas, Mindanao, and off-grid areas.
The agency stated that a centralized auction mechanism, tailored to the technical and commercial specifics of the natural gas sector, is the most efficient method to procure capacity in a transparent and competitive manner.
The DOE draft circular noted that simulations of the average daily load profile for 2023-2025 showed system flexibility constraints across the three grids. Existing natural gas-fired generation in Luzon is dispatched at relatively consistent levels throughout the day, performing both baseload and mid-merit functions.
According to the department, this indicates current natural gas capacity is insufficient to fully assume its intended mid-merit role. This requires coal-fired power plants to ramp beyond their normal technical operating limits to meet intraday load variations, increasing the risk of forced outages and adversely affecting system reliability.
In the Visayas and Mindanao, the absence of natural gas-fired generation leaves system flexibility largely dependent on coal- and oil-based generation. The simulations showed a need for an adequate supply of natural gas to support system flexibility, improve dispatch efficiency, and enable natural gas to fulfill its intended transition role.
The natural gas capacity to be auctioned will be determined by the Natural Gas Auction Committee, assisted by a technical working group, based on the latest Power Development Plan simulations. The capacity must align with objectives for energy security, system reliability, and the efficient use of available natural gas resources.
The circular stated the Energy Regulatory Commission will determine the Gas Auction Threshold price, or GAT, for each auction round. The GAT will serve as a price ceiling; any offer exceeding this value will be automatically disqualified.
Winning bidders will be compensated based on the commission-approved price, applied to the actual energy delivered to the grid during the billing period.
The DOE said participating entities will be allowed full recovery of prudent and reasonable economic costs, provided the winning bidder’s price reflects those costs. The auction is intended to promote efficiency and competitive pricing for electricity generated by natural gas.
