The Manila Electric Company (MERALCO) is planning to conduct a competitive selection process (CSP) for a power supply agreement (PSA) that would replace capacity coming from First Gen Corporation’s power plants that feed on fuel from the Malampaya gas field.
Based on a Manila Bulletin report, MERALCO is considering this option given that Malampaya would be continuously crippled with gas restrictions amid its dwindling supply.
MERALCO Vice President and Head of Utility Economics Lawrence Fernandez said the CSP is an alternative to asking First Gen to let its plants run on liquid fuel whenever Malampaya is unable to produce natural gas.
He further explained that this will be taken as a recourse only if First Gen confirms that the restrictions experienced in the past few months will indeed persist. The power giant would send a formal letter to the Lopez-led company to confirm if supply reductions would go beyond the end of the ongoing Malampaya maintenance shutdown on October 22.
Malampaya first encountered a gas restriction in March, which lasted over two months and became one of the causes of the Luzon Red Alerts from May 31-June 2. Another gas restriction happened, however, in June just over a week after the first one was lifted.
MERALCO, Fernandez added, will particularly ask First Gen as to how much gas will be committed to its plants, how long the restrictions will be persisting, and what will be the scale of de-rating (capacity reduction) the plants will be experiencing.
The utility giant emphasized that the planned power auction option might be necessary given that the First Gen plants’ repeated shifting to liquid fuel may cause undue spikes in electricity bills, especially that oil prices in the world market have been continuously rising. Crude prices have gone above $82/barrel last week and could further rise to $100/barrel.
MERALCO has PSAs with First Gen, particularly the 414MW San Gabriel, 500MW San Lorenzo, and 1,000MW Sta. Rita gas plants, all in Batangas City.
Except for San Gabriel, the plants shift to more expensive liquid fuel whenever Malampaya is out. Unable to operate, a force majeure is then declared for the plant, forcing MERALCO to source power from other providers.
Malampaya is said to run out of natural gas between 2022 and 2027. A drilling of one well is scheduled also next year, but production may not immediately happen given the high risk of exploration ventures in the country.