3% growth in power demand opens market for new IPPs

MANILA, Philippines—Projections that the Philippines will need an additional 1,200 megawatts of generating capacity in Luzon, coupled with official estimates that demand would exceed supply two years before President Benigno S. Aquino III ends his six-year term, open opportunities for new independent power producers (IPPs) to enter the market, analysts said Wednesday.

Brokerage firm Philippine Equity Partners Inc. analyst Edser Trinidad said projections by the University of the Philippines National Engineering Center that electricity demand in Luzon would grow by 3 percent annually justify further investments in the generation business by IPPs in the next five years.

Trinidad said the additional investments in the generation business were needed to ensure reliability and least-cost power supply even under moderate GNP growth assumptions of only 5 percent annually, well below the government target of 7-8 percent.

Power outages would occur if the government meets its GNP growth targets, thus justifying decisions made by new IPPs such as Aboitiz Power Corp., PNOC-Energy Development Corp., San Miguel Corp., First Generation Power Corp and Semirara Corp. to invest in the generation business.

Energy Secretary Rene Almendras said the government is also concerned over the tight electricity supply situation in Mindanao especially because reserve energy margins remained below the targeted 21 percent, which could plunge the island into daily brownouts again if a power plant or unit breaks down.

In 2010, a dry spell brought by El Niño caused water levels to go critical in Mindanao’s hydro plants, causing a rotating daily brownout that stunted a three-fold increase in its economy in the last three years of the Arroyo Administration.

Even with plans by Conal Holdings Inc., owned by the Alcantara-led Alsons, Inc., to put up two 200-megawatt coal-fired power plants in Sarangani and Zamboanga, and a P25-billion plan by Aboitiz Power, owned by the Aboitiz family which divested its maritime cargo business to go into the energy industry, to construct a power plant in Davao, power demand in Mindanao is expected to exceed supply by 2014.

Almendras said the Department of Energy is considering the transfer of oil-fired power barges and the re-commissioning of a 35-megawatt thermal plant in Iligan to offset a very tight electricity supply situation in Mindanao as power supply margins last summer had breached the required 21 percent despite the full generation performance of its hydro-electric power plants.

Local economists have already bewailed the current high electricity costs in the Philippines as the major contributor to the rapid decline in the country’s competitiveness in the world market, with neighbors like Vietnam, Malaysia and Thailand offering rates as low as 5-7 US cents per kilowatt-hour against the Philippines’ 23 US cents.