Power sector to be on ‘oversupply mode’ for 5 years

by Myrna Velasco – October 12, 2016

from Manila Bulletin

With private investors and banks flooding the restructured electricity sector with capital for some years already, the Philippine power sector is seen to be on a five-year overcapacity.

These have been the cautionary words sounded off by Aboitiz Power President and Chief Operating Officer Antonio R. Moraza to reporters in a lunch meeting, wherein he similarly noted that all grids are already swamped with oversupply at this point in time.

Nevertheless, he noted that the Aboitiz Group will still pursue all of their projects under construction and that they are keen on taking ‘market risks’ for all of their capacities still not covered by bilateral contracts. After that, he indicated that they might take a “pause” and will review investment plans moving forward.

Among the projects they have been advancing to implementation phases include the 400-megawatt expansion of the Pagbilao coal-fired power plant; the 300MW phase one of the RP Energy power project in Subic; the 300MW Toledo coal-fired power plant in Cebu City; and a couple of run-of-river hydropower projects with their Hedcor subsidiary plus their joint venture development projects at SN Aboitiz Power Inc.

The Aboitiz power group is also buying into the coal-fired power facilities in Mariveles, Bataan with the Ayala Group and GN Power as partners. At anticipated $1.2 billion deal, Moraza described their valuation of this merger and acquisition transaction as “aggressive”.

On the changing industry landscape, Moraza said “we are looking at five (5) years (of oversupply)…in all grids,” noting further that oversupply is already happening “now”.

Mindanao, in particular, he stressed is already “on oversupply mode” and the same goes with the interconnected power systems of Luzon and Visayas grids.

Moraza qualified that this state of overcapacity will eventually benefit consumers with cheaper electricity rates – the phase in the power industry’s market liberalization that had been awaited by many since the passage of the Electric Power Industry Reform Act.

“That’s why you have to help us tell that EPIRA works for the consumers…that power rates have gone down,” he stressed. When media raised questions why Philippine power rates are still higher than the rest of many Asian countries, he retorted,” it’s down…don’t you guys check your bills? It’s going down, it had gone down 30-percent in the last three years, what have you been talking about?”

Conversely, he emphasized that it will be the power investors that will be in pain with “market risks” if their generated capacities will not be soaked up by contracts or taken up by buyers in the competitive regime of the industry.

Moraza similarly noted that the Duterte administration is fortunate enough that it will no longer be saddled with power supply problems, thus, the energy officials can turn their attention into solving other problems of the energy sector.

To their credit, the previous administrations focused attention then on enticing private capital to address the country’s electricity supply dilemmas – and what is left to be done by the Duterte administration will be to build on the momentum of economic gains set by its predecessor.