ERC proposes gas auction price cap at P7/kWh

MANILA, Philippines — The country’s first mid-merit natural gas auction could fetch offers exceeding P7 per kilowatt-hour (kWh), with fuel costs still to be recovered separately from consumers.

Under its proposed resolution, the Energy Regulatory Commission (ERC) has set different gas auction thresholds (GATs) depending on the technology and whether the power plants are existing facilities or new builds.

The ERC proposed a GAT or maximum allowable price offer of P7.16 per kWh for new-build combined-cycle gas turbines (CCGTs), which use both gas and steam to generate electricity.

For new-build open-cycle gas turbines, which rely solely on gas, the proposed ceiling is P4.45 per kWh.

Offers from new-build gas reciprocating engines, which generate electricity through large internal combustion engines, would be capped at P6.79 per kWh.

Existing CCGTs in Luzon, meanwhile, would have lower auction price thresholds. The proposed GAT is P2.76 per kWh for Lot 1, covering 1,400 megawatts, and P2.66 per kWh for Lot 2, covering 500 MW.

The GAT is calculated based on the assumed mid-merit operating level that will allow a power plant to recover its investment and earn the required return over its useful life.

In computing the preliminary GAT prices, the ERC used a net capacity factor of 42 percent, in line with the Department of Energy (DOE)’s terms of reference.

The GAT price covers only the cost of the plant itself: building and financing it, operating and maintaining it, overhead, taxes and a reasonable return to investors.

Fuel costs, which include the price of gas and capped landed logistics costs, are excluded from the proposed price ceilings. These are recovered monthly based on actual costs, subject to an ERC-set benchmark.

Recently, the regulator approved the gas auction implementing rules, which set the price ceiling, fuel cost safeguards and the payment system for the bidding round.

Saturnino Juan

“The DOE runs the auction. The ERC makes sure the price ceiling is fair, that fuel costs are checked against market benchmarks, and that plants are paid only for power they actually deliver,” ERC chairman and CEO Francis Saturnino Juan said.

For this landmark auction, the DOE seeks to attract 3,800 MW of mid-merit gas capacity.

Mid-merit plants play a vital role in keeping the power grid stable by bridging the gap between always-on baseload generation and peak-demand sources. Such facilities can quickly adjust their output in response to fluctuations in demand.