Analyst warns of power shortage by 2022

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    Early signs. Colfinancial says there are signs of power prices bottoming out in anticipation of a shortage.

    Online stockbroker Colfinancial.com said the recent Supreme Court decision requiring power supply agreements (PSA) to undergo competitive selection may cause pipeline power projects to be delayed or cancelled, leading to a power shortage by 2022.

    It said the decision has affected seven new power projects with an aggregate capacity of 3,551 megawatts (MW), which would have increased Luzon’s supply by 20 percent starting 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,” Colfinancial.com said.

    There are already signs of power prices bottoming out in anticipation of a shortage in 2023, it added.

    Citing the results of Manila Electric Co.’s first round of competitive selection process (CSP) in September this year, it said a total of 1,200 MW of baseload capacity was contracted at a price of P4.63-4.74 per kilowatt hour (kwh) for a period of 10 years.

    This is higher compared to the below P4.00 per kwh price at which recent retail electricity supply contracts were closed by AC Energy and Southwest Luzon Power Generation Corp., Colfinancial.com said.

    “Prior to this year, prices of power supply contracts have been on a downtrend. For example, the power supply contracts of EDC’s (Energy Development Corp.) geothermal plants have been on a downtrend since 2010 (excluding the impact of volatility in fuel prices),” it added.

    Colfinancial.com said this will make sourcing of long-term PSA easier from power distribution companies, with wholesale electricity spot market prices could be improving.

    The Supreme Court in May ruled that all PSAs entered into by power distribution companies as early as June 30, 2015, have to undergo CSP.

    The decision affected 90 PSAs that were submitted for approval with the Energy Regulatory Commission between April 16-29, 2016, several of these covering a term of more than 20 years.

    Under the CSP, a distribution utility may only sign a PSA with a generation company after calling for and receiving at least two qualified bids from generation companies. It is allowed to have direct negotiations with other power suppliers only after at least two failed bidding procedures.