The Philippines is now experiencing an oversupply in power generation capacity, which is seen to persist over the medium term—a situation that will be good for consumers but bad for electricity producers, the head of one of the country’s largest power firms said.
According to Aboitiz Power Corp. president and COO Antonio Moraza, the oversupply is due, in part, to an incorrect reading by industry players of the electricity demand of the country that prompted a power plant building boom in the last few years.
“Frankly, yes,” he said when asked if power industry conglomerates overestimated the demand scenario in the Philippines. “So now, the [companies] that have overbuilt—including ourselves—are going to pay the price. But that’s what competition is about.”
Moraza said consumers were expected to continue reaping the benefits of the oversupply situation, with power rates seen to continue declining. He said, however, that profit margins for firms like AbotizPower were also narrowing.
He said the glut was especially evident in Mindanao. It would likely worsen as new power plants come online in the next three years. “We’re looking at (an oversupply scenario of) five years.”
Several parts of Mindanao had suffered rotating blackouts during the administration of President Aquino due to a shortage of generation capacity. In response, power firms started building new power plants, many of which are just starting to come online, with more slated for completion over the next two to three years.
Moraza said Mindanao had a peak power requirement of as much as 1,400 megawatts, at present. Power firms are expected to commission as much as 1,000 MW in new generating capacity in the next two years, and it is unlikely that demand from consumers will take up this slack over the near term.
“You’re going to double supply, almost, in a period of two years,” he said, explaining that reserves capacity is now at 700 MW, but the San Miguel, Filinvest and Ayala conglomerates all have new plants that will be completed in two to three years.
“The oversupply situation in Mindanao is actually serious,” Moraza said. “The law and the regulation is such that there is no limit to what people can build. Everybody takes the risk. Everybody was doing their calculation and they said ’build, build, build’ and they all built at the same time.”
Moraza said an oversupply situation also existed in the Luzon and Visayas grids although on a lesser degree.
We have supply and demand projections for all three grids. The most serious oversupply in the medium term is Mindanao.
“For Luzon, we have over supply. Reserves are sufficient,” he said, adding that the occasional confluence of power plant shutdowns that led to “red alert” statuses for the Luzon grid was nothing to worry about.
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