Meralco-First Gen extension ensures grid stability
From AB Capital's The Opening Bell: Three Moves
Event
The ERC approved a second five-month extension of MER’s PPA with FGEN’s 1,000MW Sta. Rita gas plant (Feb 1–Jun 25, 2026), citing risks to Luzon grid stability and potential knock-on effects on Malampaya gas production and LNG infrastructure if the plant were shut down.
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For FGEN, this is positive from a risk and volume standpoint as it ensures continued offtake and dispatch through June. For MER, the impact is largely pass through, but generation charges will stay elevated due to the high cost of LNG, which is now one of the most expensive resources in its generation mix. Importantly, the extension is system-critical, averting supply disruptions, price spikes, and yellow/red alerts especially during the summer months.
Catalyst
Watch for negotiations on longer-term Sta. Rita PPA terms and ERC signals on gas contracting and cost recovery. IEMOP estimates that the expiry of this PPA could shock the grid and spike spot prices to as much as P6.2/kWh in normal scenarios, and to P20/kWh in extreme cases. We would also look at how LNG exposure is managed in future PPAs and whether procurement increasingly favors RE to limit tariff volatility.
Action
Maintain Outperform rating on MER as pass-through ensures earnings visibility and stability. For FGEN (NR), the extension reduces operational risk and secures short-term volumes, supporting sentiment.
Disclaimer: The information, analyses, and views contained herein is based on sources which we, AB Capital Securities, believe are reliable, but is not guaranteed by us and is not to be considered all inclusive. It is not to be construed as an offer or solicitation of an offer to sell or buy the securities herein mentioned. AB Capital Securities and its Directors and Officers and/or members of their families may have a position in the securities herein mentioned and may make purchases and/or sales of the securities from time to time in the open-market and otherwise.
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