Finally, Meralco Completes CSP Of An 1,800MW Power Supply…. But What Devils would be in the Details?
David Celestra Tan, MSk
12 March 2021
After more than a year of trying to hold a CSP bidding that looks competitive and in compliance with the DOE guidelines, Meralco finally completed a bidding with enough participants actually making a bid with a reference price of P5.2559 per kwh.
The announced winners were two San Miguel Power’s companies. Excellent Energy Resources or EERI with a levelized cost of energy or LCOE of P4.1462 per kwh. Second is Masinloc Power Partners, a company San Miguel was able to buy from EGAT of Thailand and AES, offering P4.2605 LCOE.
Meralco consumers should be happy that at least 1,800mw of power will be added to Meralcos power supply between December 2020 to 2023. The terms will be for 20 years. As announced the 1,800mw would represent greenfield new capacity with 600mw of coal power coming from the expansion of the Masinloc Power Partners in Zambales. Another 600mw will come from a coal project in Mariveles to come on line next year 2022. 850mw of LNG power from what appears to be the expansion of the Ilijan power complex in Batangas with power delivery in 2023.
The other good thing that Meralco consumers should be happy about is the final introduction of more LNG supply, other than Malampaya. San Miguel is applying for its own LNG import facilities.
Was it “competitive”?
TPBAC chairman Ferdinand Domingo said “We at TPBAC look forward to completing this ongoing CSP for the much-needed power supply requirement that will provide adequate and reliable electricity at competitive prices to Meralco’s customers for years to come,”
At this stage, the keyword is “competitive”. Was it? That depends.
1. “Competitive” as in there were enough unrelated bidders truly competing with each other?
a. The winners were both San Miguel companies. There is really nothing wrong with that per se. But did they really have competition?
b. The third lowest bidder was Mariveles Power with a price of P4.3321. Mariveles is another San Miguel company.
c. Who were the others? Atimonan One came in at P4.6338 per kwh. Atimonan One so far is owned by San Miguel.s Partner Meralco PowerGen. GN Power which is owned by Aboitiz was fifth at P5.25 per kwh.
d. San Rafael Power of the DMCI group bid P5.4426 per kwh.
e. These seem the same companies and groups affiliated with Meralco PowerGen who were part of the Meralco 6 that tried fast breaking seven (7) midnight power supply contracts for 3,551 in 2015.
Was the CSP really competitive?
2. “Competitive” as in low prices that will benefit the consumers?
a. On the surface the winning bids of P4.1462 and 4.2605 seemed resounding successes from Meralco’s bid benchmark price of P5.2559. Can you imagine beating the maximum price by 26%?
b. Wait, where did Meralco’s TPBAC get a reference price of P5.2559 per kwh? From November 2020 to February 2021, Meralco’s average generation charge was P4.3065 per kwh. P5.2559 seems such a low bar to beat.
c. Had Meralco used its average generation rate of P4.3065 per kwh as the CSP reference rate, I mean if they are really trying to improve their rates to the consumers, the 2nd lowest bidder Masinloc would have just barely beat it at P4.2605. And the rest of the bidders, Mariveles at P4.3321 per kwh, Atimonan One at P4.6338 per kwh, GNPower at P5.25, and San Rafael Power at P5.446 would all been disqualified.
d. We wonder what was Meralco’s methodology in determining the bid reference price of P5.2559? And was this approved by the ERC and DOE? Does this not smack of price manipulation that is harmful to the consumers?
e. Isn’t LNG supposed to be cheaper than coal? In 2020, Meralco’s average buying price from all its coal suppliers excluding the aberrant Quezon Power was P4.11 per kwh. Some energy experts say LNG at this stage should be cheaper by 10 to 15% than coal. So why is San Miguel’s winning bid of P4.1462 per kwh not lower than P4.11 per kwh?
f. Meralco’s average price this month from all its LNG power generators is P4.29 per kwh. Meralco is just lower by P0.15 per kwh.
g. There are many things we do not know about how Meralco’s TPBAC computed the bidders LCOE. What coal and LNG base prices were used? For Coal, did they use the $50.14 per ton in August or closer to the $83.03 per ton in December 2020? What reference LNG price did they use?
These price adjustments for fuel will greatly impact the actual cost that the Meralco consumers will pay San Miguel for 20 years. Will we see an skyrocket to P7.29 per kwh that Quezon Power reached last month of February? A lot of devils can be in the details that consumers would not be able to review.
h. We are a little confused in San Miguels blending of its power supply. Supposedly its EERI subsidiary was the lowest bidder for 1,200mw of LNG power at P4.1462. And its coal subsidiary Masinloc is supplying 600mw of coal power at P4.2605 per kwh.
In previous press releases, however, San Miguel is supposed to be expanding its Ilijan LNG facility by only 850mw to come on line in 2023. And Mariveles will come on line with 600mw coal power in 2022. Was Mariveles included in San Miguel’s package of power capacity? How about Mariveles? did it not bid P4.3321 and came in 3rd. What capacity in Mariveles did they bid? Was it included in parent San Miguels bid? Is the San Miguel group bidding the same capacity twice?
How do we assure transparency in fuel charging when San Miguels bid price includes both coal and LNG?
i. DMCI’s San Rafael bid was supposedly P5.4426 per kwh. Meralco consumers are kind of let down. DMCI used to supply to Meralco from Calaca at only P3.75 per kwh and consumers loved them. Did they seriously compete in this one? And are they not the 49% partner of Meralco PowerGen in the San Rafael power project?
And now about the elephant in the room, Atimonan One. Consumers are actually not going to be too disadvantaged if its 1,200mw power project is contracted at the rate of P4.1462 per kwh or lower than the 460mw San Buenaventura at P4.02 per kwh. The concern is what will be their rates down the road since we don’t know the tricky escalation clauses that could send the rates of these sister company generators soaring a few years from now just like Quezon Power?
This Meralco CSP is not truly competitive but for now, we will take the additional supply. Let us just hope the escalation formula will not have too many trick indices that will get past the ERC reviewers.
What devils would be in the details?
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