“SMCGP is also investing in new, cleaner, natural gas capacities, to help smoothen the Philippines’ transition away from coal power, without compromising its supply requirements”
Watch out, electricity prices will further increase this year.
In the first half of this year, the selling price of power sold by Lopez-owned First Philippine Holdings, Inc., the largest renewable power generation firm with 3,495 megawatts produced by 30 power plants, increased by a hefty 43 percent.
The price hike, in turn, powered a 29 percent increase in FPH revenues to P78.4 billion.
SMC Global Power Holdings Corp.(SMCGP) is also a major power producer. It accounts for 19 percent of all power produced nationwide. In Luzon alone, SMC produces 26 percent of total power generation.
Now, SMC Global Power has been sending alarums. And the government should listen. Now.
SMC Global Power expects electricity prices in Metro Manila and nearby provinces to go up by as much as 30 percent starting October if the Energy Regulatory Commission (ERC) fails to act on its joint petition with Meralco for a temporary rate hike on its two power supply agreements (PSA) – the last of its kind and scale – that aim to shield power consumers from unjustifiably high prices over the long-term.
In a statement, SMCGP President Ramon S. Ang asked the ERC for a fair and objective assessment of its petition, which it filed back in May, seeking a temporary increase for six months for the combined capacities supplied by its Sual Coal Plant and Ilijan Natural Gas plant to Meralco, following the record rise in global fuel prices driven by economic and geopolitical forces.
The temporary relief, if granted, would raise electricity prices in Luzon by only 30 centavos/kwh over six months.
However, without the 30-centavo hike and with the termination of a PSA, Meralco has estimated an increase of at least 80 centavos up to P1.30/kwh in the price of electricity over the next 3-4 months, as it will have to find alternative sources that will most likely be costlier.
The source includes the Wholesale Electricity Spot Market (WESM).
Should Meralco opt for emergency power supply procurement, analysts say, the increase could be higher, what with the weakening peso and surging global fuel prices.
Coal prices in the world market continue to hover beyond $400/MT threatening to push electricity bills even higher.
In April, South African coal more than doubled, increasing in price by 135 percent, from its November 2021 low. Coal provides 60 t0 65 percent of the world’s power supply. That same ratio applies to the Philippines.
SMCGP also expects hefty price increases over the term of the contracts until 2030 if the temporary relief intended for partial cost recovery is not acted upon.
The temporary rate hike is meant to allow the Sual and Ilijan facilities not only to recover some P5 billion in losses; more importantly, it will ensure their fixed-rate PSAs are maintained over the longer term, and continue to mitigate the soaring cost of electricity for consumers.
Ang says that its current PSAs actually help keep electricity low for consumers, as they are among the last of the fixed-rate power supply agreements that do not pass on any additional costs to consumers.
Essentially, the facilities had been softening the impact of record fuel prices on consumers, which other generation companies have been passing on to them. If they are terminated, consumers will no longer enjoy such benefits under new PSAs.
“We know any price increase is unpopular, and normally we never ask for one – which is what we did for all of last year, when we absorbed expanding costs that we do not pass on to consumers. The war in Ukraine has taken prices far beyond what we and Meralco, could have even imagined in 2019, when we signed the PSAs. At the time, the forecast for coal was only US$65 per metric ton for ten years. Now it is already at US$400/MT,” Ang points out.
Ang adds: “We just hope the ERC will not merely try to prevent a temporary increase, but will take a whole-of-industry approach. No company or business can sustain operations with these unprecedented and continuing rise in costs.
“These power plants account for 25 percent of the net reliable capacity of the Luzon grid. They are a major part of the country’s already fragile power supply. We ask that in this time of extraordinary circumstance and difficulty, please, let’s not cripple them.”
He elaborates: “With much regret, we have to admit to the public that the current situation is seriously jeopardizing our other critical operations, projects, and financial obligations.
“We are only seeking partial adjustment in price so we can continue supplying to Meralco and minimize the impact of termination on industries and consumers, particularly those from the lower-income households who will get hit harder.”
Ang says the South Premiere Power Corp. and San Miguel Energy Corp., administrators of the Ilijan and Sual plants, respectively, have issued notices of termination to Meralco of their power supply agreements, citing unexpected and unprecedented “change in circumstance,” including sky-rocketing global fuel prices brought on by multiple factors including the war.
The termination is effective starting October 4, if no relief is given.
“We are one with government in protecting the consumers, always. And we have remained committed to that even as most power producers have been passing on costs to consumers. That is why we absorbed losses last year. And that is also why electricity prices in Metro Manila and some parts of Luzon have not gone up as much compared to other parts of the country,” Ang says.
Currently, SMCGP has poured significant investments in building the largest network of Battery Energy Storage System facilities in the country and Southeast Asia.
This is designed to bring reliable electric supply all over the Philippines, even to previously underserved provinces and islands, and support wider adoption of intermittent renewable energy.
SMCGP is also investing in new, cleaner, natural gas capacities, to help smoothen the Philippines’ transition away from coal power, without compromising its supply requirements, particularly amid anticipated significant economic growth.
Ang says the company continues to hold the door open for further discussions with relevant government agencies, and would work with Meralco to ensure supply through October, when the termination takes effect.