Investors see ‘uncertainties’ in new power investments
By Myrna M. Velasco – June 16, 2019
from Manila Bulletin
Spooked by the recent judicial intervention on the industry’s competitive selection process (CSP) on supply contracting, power investors are seeing some “uncertainties” when it comes to injecting fresh capital to address immediate capacity addition in the country’s electricity supply.
AC Energy President and CEO Eric T. Francia
As sounded off by AC Energy President and CEO Eric T. Francia, “There’s the uncertainty given the many other contracts that now need to be clarified whether they would in fact need to go through CSP – are they valid or not?”
He qualified that industry players with affected contracts are in a bind and are still studying legal strategies – as to whether they would still need to make appeal to the Supreme Court to reconfirm if the competitive selection processes on their contracts are bona fide CSP or not; or a ruling of the Energy Regulatory Commission (ERC) would be enough.
With that, Francia noted that the power companies will be preoccupied working on their legal defense on the invalidated power supply agreements (PSAs) in the coming months. Until an intelligible judicial ruling is issued on such contracts, Francia said, the generation companies may still refrain firming up plans on new investments.
Francia noted that while there’s still leeway for planning on new investments that will already be a very slim lead time. Thus, he noted that government action primarily from the Department of Energy and ERC on clarifying the rules as well as crafting clear-cut bidding framework for the CSP will be very critical.
“Hopefully all of that will provide clarity so that we can make decisions – there’s still time, that the good news. Although not much time left – depends if you talk about thermal projects, you need to break ground this year to be able to comfortably supply by 2023 because it takes 3-4 years to build,” he said.
For new capacity additions, the Ayala firm executive indicated that the industry is looking at supply-demand equilibrium by 2022-2023, hence, the sector is now at that precarious state when it should already have new shovel-ready power projects.
The hope for the industry, he opined, will be accelerated actions from the DOE and ERC for the CSP policy frameworks and processes to be clarified and become actionable at the soonest possible time – including the competitive bidding that Manila Electric Company (Meralco) will have to carry out for its future power supply deals.
“We’re all hoping for that and we’re all hoping that the utilities respond swiftly so we can get going in terms of planning for investments especially post-2022. So a lot of the devil is in the details in terms of these rules on CSP clarifying – coming from ERC and DOE,” Francia said.
The other saving grace seen by the industry is the retail competition and open access (RCOA) – but that policy is similarly stifled by a pending case at the Supreme Court. “Once that (RCOA) is implemented, a lot of the issues and uncertainties will be addressed. But how we get to the household level, that’s really for the policymakers to decide on,” Francia stressed.
Moving forward with power retail competition to lower thresholds – including at the level of residential consumers, will be beneficial when there is ample power supply because consumers can really shop and contract for better-priced and higher quality services from power providers.
“Hopefully, we’ll get there sooner than later, and it’s best to do that once we have a comfortable supply situation. It’s hard to do that when in fact we have tightness in supply, it’s going to be hard to implement full RCOA because it will be blamed for higher prices,” the AC Energy executive has emphasized.
Retail power contracting is currently implemented for consumers within the thresholds of 750 kilowatts and up – and done on a voluntary basis because of a Supreme Court verdict prohibiting its enforcement on a mandatory frame.
