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PH real estate bullish on government push for sustainable power in 2020

The real estate sector, one of the Philippine economy’s consistent growth drivers for the past decade, looks forward to the impact of more stable and reasonably-priced power for their property developments, with the successful conduct of the Competitive Selection Process (CSP) late last year.

PH real estate bullish on government push for sustainable power in 2020

“Reliable sources of power keeps prices of real estate developments stable for consumers, and adds value to the concerned project,” Jeffrey Ng, president of Cathay Land, told the Manila Standard. “This serves as an inspiration, or benchmark, to future projects from developers of all scales.”

Added Antonio Jaime Jose V. Fernandez, strategic management consultant, of Menarco Development Corp.: “power is important for developers…this is what our customers want. If the government and private sector can deliver on this, this would be an ideal scenario.”

Transparent, market-driven

The CSP, borne out of a Supreme Court ruling that all power supply agreements (PSAs) are now obliged to undergo the CSP, allows all potential suppliers to bid for the contract, and get the best power deal for consumers.

The PSA is a requirement from the Energy Regulatory Commission (ERC) and Department of Energy (DOE) to encourage generation companies to build power plants in order to meet the country’s demand aimed at making the cost of electricity product more transparent and market-driven.

Fernandez pointed to the Menarco Tower, a 32-storey office building along with the 32nd tower in BGC, by the Menarco Development Corporation. The project, which recently garnered a Well gold certification from the International Well Building Institute (IWBI) Asia, is an example, of a development that measures and monitors the health and well-being of buildings and its occupants. 

A chief executive officer of a leading real estate development company e-mailed the Manila Standard, noting that most of their customers “expect that stable and reliable power is a given.”

The CEO, who declined to be identified, explained that power supply is critical, for example for BPO-type projects that run for 24 hours.

“You’d be surprised how much power a fully-staffed BPO office consumes,” the executive, whose company recently tied up with a Japanese real estate giant to build a major condominium/mall project in one of Metro Manila’s central business districts, said.

“Its not just the masses of computers, but also the large servers and other equipment, plus the A/C needed to keep everything and everyone cool,” he explained. Power is one of the biggest expenses of this type of company so, a predictable power cost is an advantage because BPO companies will need to commit to their clients a stable processing fee for the work that they do.”

Real market forces

The first CSP conducted by power distributor Meralco, and administered by a Third-Party Bids and Awards Committee (TBAC), last October resulted in three successfully bidded PSAs with three companies for the supply of a 500 MW megawatt of mid-merit capacity for a term of five years. 

Meralco signed the PSAs with First Gen Hydro Power Corp., Phinma Energy Corp. of the Ayala Group and South Premiere Power Corp. of San Miguel Corp. after their respective offers were declared to be the best bids by the third party bids and awards committee. 

Various industries lauded the PSAs,  which reportedly paves the way for market forces to determine the electricity rates small, medium and large-scale businesses would pay. The policy to subject power supplies to a competitive selection process, or bidding, makes the cost of electricity product more transparent and market-driven, businessmen pointed out.

“FPI welcomes the news of this much-needed additional power, to meet the growing demand of our country,” said FPI chairman Jesus Arranza in a statement.

“We welcome the entry of any and all generation companies interested in contributing to the grid, in order to create a more secure power supply situation for all industries, and ultimately, all consumers.”

The group, a prime mover of Philippine industries, expressed support for the Energy Department circular requiring distribution utilities to procure power through the competitive selection process, or bidding.

Hands on approach

FPI  thanked the government for its hands-on approach with the CSP. 

“As the entire process was personally witnessed by representatives of the DOE, industries can rest assured that the results are fair, transparent, and most especially beneficial to customers and consumers of power,” Arranza said.

The CSP drew the interest of other companies. Besides the three winning gencos in the 1,200-MW contract, two more companies, SMC Consolidated Power Corp. and Masinloc Power Partners Co. Ltd. joined the procurement process.

The results of the bidding will reportedly benefit electricity consumers. They can save around P0.28 per kwh or P9.46 billion annually for 10 years starting in 2020 from the new 1,200-MW PSA. 

On the 500-MW contract, consumers are expected to save another P4.4 billion annually over the next five years. This is equivalent to an additional rate reduction of around P0.13 per kWh for consumers by the end of the year.

The CSP imposes penalties on the winning bidder if it fails to honor its contract. The terms of the supply deal stipulate that the generator that fails to follow through with the contracted capacity will pay a fine of P908 multiplied by each megawatt-hour per day. The fine will be used to reduce the generation charge to consumers.

Constructing new power plants is an urgent measure to solve the country’s energy security requirements. The ostensible objective is to avoid the serious power shortages in the early 90s that crippled the Philippine economy.

Aid in expansion plans outside MM

“We are confident that the prices resulting from this bidding are the least cost to consumers,” said the real estate CEO who requested anonymity. “For us developers, we are encouraged by the promise to reduce plant outages which can affect our projects and operations, as well as penalties that will be slapped on generator companies who are unable to deliver  as they promised.”

Cathay land’s Ng said the government and private sector push for more reliable electricity will help developers as they push for expansion outside the country’s capital, expanding into other urban centers as they search for strategic places to expand their businesses, and diversify their portfolio.

 “We’re looking at key growth areas or cities,” he explained. “As we study the current needs of these areas based on their key industries and market profile, power will play a key role in servicing population, density, proximity to industrial centers or places of work, city competitiveness, and demographic factors such as income, age, and livelihood sources, factors which we look at before deciding on the type of product to develop.”

Reducing the carbon footprint

All the developers interviewed by Manila Standard agreed that more sustainable, and affordable power supply would benefit at least five cities, aside from Metro Manila,  amid steady growth in their economy, tourism and property demand. These are the cities of Clark, Cebu, Iloilo, Bacolod, and Davao.

“Due to a lack of exposure to regions outside of MM, there are times these regions have a false negative connotation in terms of reliability, livability, and accessibility,” Ng said. “By incorporating a sustainable and reliable source of power into projects, it not only aids the market in better appreciating the surrounding regions of MM but also potentially helps reduce carbon footprint.”

Added Fernandez, by incorporating sustainable features, power-driven amenities, LEEDS and similar certifications,  developers like Menarco can show that development is ready to accommodate not only industries of today, but also of the future. “A sustainable power supply can help widen our market scope,” he said.

Topics: real estate sector , Competitive Selection Process , Antonio Jaime Jose V. Fernandez
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