ERC lets non-NGCP firms build transmission projects

From AB Capital's The Opening Bell: Three Moves

Event

The Energy Regulatory Commission (ERC) approved implementing rules allowing entities other than National Grid Corp. of the Philippines (NGCP) to finance and construct certain transmission projects identified by the Department of Energy (DOE), including generation-related transmission facilities (Associated Transmission Projects) and strategic grid expansion projects (Priority Projects). The framework aims to accelerate transmission buildout and address grid bottlenecks that have delayed the connection of new generation capacity.

View

The rules potentially reduce NGCP's exclusivity over future network expansion. However, transmission remains a regulated business and NGCP's role as the country's transmission network operator appears unchanged, so we expect limited implications for earnings in the near term. The longer-term impact will depend on the pace of adoption and the scale of development allowed to be undertaken by third parties. While it could dilute NGCP's share of future transmission development, we expect any shift to be gradual given its entrenched position within the country's transmission network. Meanwhile, for gencos, the framework could help alleviate transmission-related delays that have increasingly become a bottleneck to project execution and capacity additions.

Catalyst

The key focus is implementation. Investors will watch for the first projects designated under the framework, the pace of approvals, and greater clarity around cost recovery, ownership, and asset transfer arrangements. Early project activity should provide a clearer indication of industry adoption and whether the framework meaningfully affects NGCP's share of future transmission development.

Action

This introduces a potential long-term overhang on SGP's growth profile, but we think it is too early to assess whether it will materially affect the company's future transmission asset growth. For now, SGP's regulated asset base, earnings visibility, and cash flow profile remain intact, with limited impact on near-term earnings and dividend outlook.

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.