Gas auction price may breach P10/kWh

The government’s planned natural gas auction could push electricity prices above P10 per kilowatt-hour (kWh) even before fuel costs are included.

Energy Regulatory Commission (ERC) Chairperson and CEO Francis Saturnino Juan said the guaranteed Gas Auction Price (GAP) could exceed P10 per kWh under the proposed pricing structure, which allows developers to recover their capital investments based on a 42-percent capacity factor.

“Yes, if you look only at the recovery over that 42 percent, that’s the gas auction price,” Juan said when asked whether the initial price could breach P10 per kWh.

“That’s just the capital recovery. It doesn’t include gas yet, nor the cost of gas,” he added.

The arrangement spreads capital recovery over a smaller volume of electricity, potentially driving up the guaranteed rate before fuel expenses are factored in.

Juan also flagged the risk of developers recovering their capital investments twice, as gas-fired plants could earn additional revenues from the Wholesale Electricity Spot Market (WESM) on top of guaranteed auction payments.

“The issue now is what will happen to the revenues they earn from WESM. If their capital costs are already being paid through the GAP, then any capital recovery should be deducted from the revenues they receive,” Juan said.

“We’re still figuring out what will be the final mechanism,” he added.

As such, the ERC is studying safeguards to prevent excessive returns by offsetting capital costs already recovered through the auction against earnings from the spot market.

“We are trying to craft a regulatory framework that does not put consumers at a disadvantage while ensuring that our stakeholders do not enjoy excessive recovery of their capital costs,” Juan said.

To recall, the Department of Energy (DOE) initially cleared 14 natural gas projects for the Mid-Merit Natural Gas Capacity Auction.

Qualified bidders include projects proposed by Panasia Energy Inc., Therma Cebu Gas-To-Power Inc., Cordova Power Generation Corp., Excellent Energy Resources Inc., Quezon Power Inc. and Vires Energy Corp., as well as First Gen-related facilities including San Gabriel, Santa Maria, Santa Rita and San Lorenzo.

The auction seeks to secure flexible power capacity to support the grid when renewable energy generation falls short, but the government must balance investor returns against the potential impact on electricity bills.

The DOE had tentatively scheduled a pre-bid conference for October 27, subject to the ERC’s issuance of the auction threshold price.

With the pricing mechanism still being finalized, the ERC is targeting November to release the proposed rules and initial price computation for public consultation.

“Our target is to release the rules and the initial price in November so we can subject them to public consultation,” Juan said.