Philippines energy regulator proposes gas auction price caps for Luzon and Visayas supply

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Gas auction price caps Philippines

Highlights

Energy Regulatory Commission proposes gas auction price caps ranging from P2.66 to P7.16 per kWh, varying by plant type and age.
Government to auction 3,840 MW of gas-fired mid-merit capacity for Luzon and Visayas, with 2,900 MW for Luzon starting 2024–2031 and 940 MW for Visayas from 2028–2031.
Department of Energy identifies 10 pre-qualified bidders including LNGPH and Prime Infrastructure Capital, Inc., aiming to award contracts before year-end.

Draft pricing framework for gas-fired plants

As reported by BusinessWorld Online, the Energy Regulatory Commission said in a draft resolution that it is proposing gas auction threshold prices that vary by plant type and operating condition, with existing combined-cycle gas turbine, or CCGT, facilities assigned the lowest caps and new projects requiring higher rates.

Using the Department of Energy's reference parameters and preliminary price calculations, the regulator is looking to set the threshold for an existing 1,400-megawatt CCGT facility in Luzon at P2.76 per kWh, while an existing 500-MW CCGT facility is set at P2.66 per kWh. For new facilities, the preliminary threshold is P7.16 per kWh for a new-build CCGT plant, P4.45 per kWh for an open-cycle gas turbine plant, and P6.79 per kWh for a gas-reciprocating engine facility.

The gas auction threshold represents the maximum allowable bid price and covers capital recovery as well as operations and maintenance costs. Fuel commodity expenses and capped landed logistics costs are excluded from the cap and are to be recovered separately through a fuel cost pass-through mechanism.

The Department of Energy's calculations assume a reference net capacity factor of 42%, equivalent to 14 hours of daily operation, for cost recovery purposes. The assumption is used to compute the auction threshold and does not amount to a guaranteed minimum dispatch or a take-or-pay obligation.

Contract awards targeted before year-end

The ERC is tasked with setting the pricing mechanism for the auction dedicated to gas-fired power plants and issuing the maximum allowable offer in pesos per kWh. The government plans to auction a total of 3,840 MW of mid-merit capacity covering existing and upcoming generation assets in Luzon and the Visayas.

Of the total, 2,900 MW of gas-fired capacity in Luzon is targeted for delivery starting this year through 2031, while 940 MW is earmarked for the Visayas, particularly Cebu and Panay, between 2028 and 2031. Last month, the Department of Energy issued a list of 10 pre-qualified bidders, including LNGPH and Prime Infrastructure Capital, Inc., and it is aiming to award contracts before the end of the year.

Earlier, we looked at Philippine bond reforms aimed at improving liquidity and widening foreign participation in capital markets.

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