Colfinancial.com expects the excess supply of electricity in the Philippines to dampen any potential rise in the electricity’s prices from source.
The online stockbroker noted the spillover of last year’s oversupply to this year and the full year operation of 2,000 megawatts (MW) in new capacities that went online in 2019, together with 1,200MW new capacities will add for 14.5 percent of the country’s current power generation capacity.
“Total capacity by the end of the year is projected to be around 12 percent higher than the country’s expected peak demand for 2020 (plus required reserve margin),” said Colfinancial.com.
“Given the expected oversupply situation in 2020, the selling price of new power contracts will likely be lower compared to the previous contracts,” it said.
Colfinancial.com said First Gen Corp., “has the least exposure to re-pricing risk given that the bulk of its natural gas capacity (95 percent) is already covered by long term power supply contracts.
Aboitiz Power Corp. will be somewhat affected by re-pricing risk “given that power supply agreements covering 15 percent of its attributable capacity expired in 2019 and another 9 percent is set to expire in 2020.”
“Semirara Mining and Power Corp., is the most exposed to re-pricing risk given that 25 percent of its capacity is currently not covered by power supply contracts,” Colfinancial.com added.
The oversupply situation will also keep spot prices in the Wholesale Electricity Spot Market (WESM) subdued, said the online stockbroker, “unless supply is temporarily disrupted by power plant outages, which is among the major risks facing the power sector in 2020.”
Colfinancial.com said the risk of unplanned outages of large baseload plants is further heightened by the aging of power plants given that 65 percent of the country’s power generation capacity is at least 10 years old.
“Unplanned outages could result to higher WESM prices and benefit companies with capacities that are not contracted (but detrimental to companies which have to purchase replacement power from the spot market),” it said.
“The listed company with the largest exposure to the spot market is Aboitiz Power, as it sells around 8.8 percent of its total attributable capacity to the WESM,” it said.
Colfinancial.com, however, said the oversupply will end in 2023.
“The main reason for this is the Supreme Court’s ruling in May 2019 that all power supply agreements (PSA) submitted on or after June 30, 2015 must go through a competitive selection process (CSP) before being able to obtain PSAs with power distribution firms,” it said.
“This decision affected seven new power projects with an aggregate capacity of 3,551MW.
The plants would have increased the country’s power supply by around 16 percent beginning in 2021. However, because of the Supreme Court ruling, we believe that many of these projects will be delayed or cancelled, leading to a power shortage after 2022.
Because of the expected shortage in 2023, power prices should head higher going forward, improving the longer-term outlook of power generation companies,” it added.
Colfinancial.com meanwhile said the price of coal based on the Newcastle Coal Index has declined by 29 percent in 2019, 40 percent lower from its recent high in July 2018.
“Should coal price continue to fall in 2020, this will have mixed impact on listed power companies,” it said.
