Weak peso pulling up power project costs

By Myrna M. Velasco – Updated March 5, 2018, 4:32 PM
from Manila Bulletin

The weakening of the Philippine peso against the US dollar has been pulling up investment costs to power plant projects, primarily for new or greenfield developments of which engineering, procurement and construction (EPC) contracts are still ongoing negotiations or yet to be awarded.

Increase in the EPC or overall project costs of power plants will have spiraling effect on consumers, as such will unduly increase the per-kilowatt hour price of electricity in their bills.

This is a predicament worrying Manila Electric Company (Meralco) on its pipelined power projects, primarily those that still have pending regulatory approvals on their power supply agreements.

“Project costs continue to increase while awaiting ERC (Energy Regulatory Commission) approval due to EPC cost escalation, a weaker peso to the US dollar rate and higher interest rates,” the utility firm said.

Primarily for the 300-megawatt first phase of its Redondo Peninsula Energy project in Subic, Zambales, the company said it has been “exploring ways to manage these increasing EPC and financing costs with the aim of preserving the project economics.”

For the two-unit RP Energy coal-fired power project at aggregate capacity of 600MW, total financing had been placed at P56 billion (or $1.28 billion).

On the company’s 1,200MW Atimonan One Energy Inc. project in Quezon province, Meralco PowerGen President Rogelio L. Singson indicated to media that current cost estimate is at $3.0 billion or more than P150 billion.

“This to us is a very, very high priority because this is the first 2x600MW ultra super critical plant in the country and this is a single biggest investment at P153 billion, about $3.0 billion which means this can significantly increase foreign investments,” he stressed.

Singson qualified that in terms of project approvals, “everything is in place – from financing, EPC, BOI (Board of Investments) approval, connection agreement with the National Grid Corporation of the Philippines, LGU (local government unit) support and we even have in place our O&M (operation and maintenance) joint venture, what is missing is the PSA, unfortunately.”