ERC to set new prices for unsubscribed RE capacity

The Energy Regulatory Commission (ERC) will be prescribing new green energy auction reserve (GEAR) prices for the 8,160 megawatts of unsubscribed volumes in the recently-concluded renewable energy (RE) capacity tendering of the Department of Energy.

ERC Chairperson Monalisa C. Dimalanta indicated that new GEAR tariffs will have to be enforced because the market conditions as well as macroeconomic fundamentals may already change when the DOE will offer the unsubscribed capacity in the planned 2.1 Green Energy Auction (GEA 2.1) process.

She stated the new GEAR prices could go up or down depending on the various factors that will be integrated eventually in the calculations to be done per technology.

“Part of the consideration for setting the GEAR price is the date when the investment decision is made – like what is the risk-free rate (of return) at the time, what’s the interest rate – all those factors when investment decisions were made,” the ERC chief emphasized.

Dimalanta said if the DOE will schedule another round of bidding end of this year or early 2024, “the rates will already be different, the factors for investment will already be different.”

She narrated that under GEA-2, the regulatory body carried out public consultations and focus group discussions (FGDs) before laying down ERC’s decision on the final GEAR prices, which then served as price ceiling that investors had heeded in their GEA-2 bid submissions.

The widely-perceived low GEAR prices had been partly blamed for the less-than-desired outcome of the RE capacity auction, as committed deliveries just hovered at 3,440.756MW or just roughly 30-percent of the actual capacities on offer.

“It is a bit unfair to say that the turnout was low because the GEAR was too low, because there are a lot of factors also,” the ERC chief decried.

She noted “we did several rounds of FGDs on the GEAR even before the public consultations, so all those concerns (of investors) were taken into consideration by the Commission when we deliberated on the GEAR.”

Dimalanta expounded “those concerns will need to be balanced with the fact that this is a 20-year contract; and the consumers will be paying for these rates. So if you ask me if it’s low or high, I think it’s the most reasonable at that point in time given the information that the Commission had at the time.”

“I am also curious to learn about those comments that it is too low and detached from realities in the market because I know there are some foreign investors who submitted bids and won. So for some of those investors, the rates were justifiable. In fact, they’re happy with the rates,” she added.

Dimalanta further asserted “I’m curious to see what differences in projects maybe, or in risk appetite there are between those foreign investors who submitted bids and those who did not submit bids because they thought (the GEAR) was too low.”

Moving forward, she acknowledged that the ERC took note of two major lessons from the recent GEA-2 bid process. One is the need to constantly update the pricing dashboard of the Commission.

The second lesson is to have closer coordination with the DOE on addressing concerns relating to price differentiation of certain technology applications – such as those of waste-to-energy ventures and then the capacity size of some developments, primarily the proposed differentiated tariff-setting for projects with marginal capacities of 1.0 to 5.0 megawatts.

“Maybe, we’ll try differentiated (pricing) based on technology, then maybe we can also differentiate further based on size just to be fair, because for those with bigger capacities, there’s already economies of scale,” she pointed out.

The ERC chief cautioned though that price differentiation treads on a “slippery slope because once you start differentiating too much, then it’s like you legislated rate per project, so we really need to strike that balance – up to what extent we can differentiate.”

Dimalanta admitted “we need to constantly improve the process,” and she made reference not just on the GEAR pricing, but also on administrative matters like providing ample time for the investors to prepare their bids.”