DOE revises terms for Meralco’s new CSP

By Myrna M. Velasco – Updated October 28, 2019, 10:46 AM
from Manila Bulletin

At least three conditions had been modified by the Department of Energy (DOE) on the scheduled new round of competitive selection process (CSP) for utility firm Manila Electric Company (Meralco) purposively for a power supply agreement (PSA) on a greenfield capacity requirement of 1,200 megawatts.

Energy Secretary Alfonso G. Cusi (Source: https://www.bloomberg.com)

Energy Secretary Alfonso G. Cusi (Source: https://www.bloomberg.com)

In a letter to Meralco and the Chairman of the third party bids and awards committee (TPBAC), Energy Secretary Alfonso G. Cusi had prescribed the removal of high efficiency, low emissions (HELE) technology requirement for the future power plant that will provide the capacity on that targeted volume procurement.

The second CSP condition set forth by the energy department is to split the capacity of the provider power plants – not on a chunk of 1,200MW capacity, but even of smaller capacities.

“Qualified bidders can bid individually for any part of the 1,200MW requirement and Meralco will aggregate the lowest-cost combination of bids; stacked starting from the lowest-cost offer until the total 1,200MW is fulfilled,” the energy chief has stipulated in his correspondence.

In that particular auction frame though, interested parties on the utility firm’s new batch of CSP have opined that the “disaggregated capacity” may not viably justify the economics of any new power plant to be built; and even non-serious developers may be winning a low price bid, but they could not deliver the capacity in the end.

For example, it has been noted that one winner could just have 105 megawatts; then the second lowest bid is at 270MW; and then the third winning bid could have the 1,200MW capacity – that entails then that the third winning bid would have to reduce its capacity by 375MW. But sources qualified there is danger on that precept because the entire economics of the bigger-scale project could change versus when the facility-developer tendered its price offer in that particular CSP.

The third condition set out by Cusi is for Meralco not setting a classification whether its procurement will be from greenfield (new plant) or brownfield (existing) generating facility.

“Following the CSP rules and guidelines, Meralco should not discriminate between existing and new plants and should accept offers from existing plants, plants currently under construction and new plants to be built,” the energy secretary expounded.

However, some power plant operators noted that if the CSP terms would prescribe a delivery period of 2024 yet, there could be some lost opportunities for those intending to bid.

At the same time, it was noted that ‘no specification for greenfield capacity procurement’ could frustrate any efforts of the government to entice new investments to meet the country’s future electricity needs.

On top of all that, it is also being assessed if the DOE really has the legal authority to prescribe the CSP terms as such had not been expressly provided in its own circular that had been upheld by the Supreme Court as the policy to be followed in the auction processes on supply procurements for distribution utilities.

Nevertheless, the DOE indicated that it is hoping Meralco “will consider” its prescribed CSP conditions and will include such in its invitation to bid for its next supply procurement bidding.