PhilStar 36, Declining global energy prices and Philippines electricity pricing

Declining global energy prices and Philippines electricity pricing

 

ENERGY, INFRA AND ECONOMICS - Bienvenido Oplas Jr. - The Philippine Star 

April 10, 2025 | 12:00am

https://www.philstar.com/business/2025/04/10/2434754/declining-global-energy-prices-and-philippines-electricity-pricing

 

Among the unintentional results of the ongoing tariff war between the US and China plus other countries is low global energy prices. World oil, gas and coal prices have been declining since late 2024 but prices further dipped this week.

 

Main reason is that many companies expect global growth slowdown this year and demand for energy is expected to decline while supply will rise, if not stabilize, at high level, like Trump’s drill-baby-drill policy. So there is little need to stockpile hydrocarbons and coal. And prices fall further.

 

Declining global energy prices

 

Here are the prices in the first week of April in 2022, 2023, 2024, 2025 (April 7), respectively:

 

WTI crude, $ per barrel: 97.01, 80.68, 85.66, 57.90.

 

Dubai crude, $ per barrel: 103.27, 84.59, 90.53, 67.17.

 

Natural gas, $ per million British thermal units (MMBtu): 6.36, 2.01, 2.03, 3.48.

 

Coal (Newcastle), $ per ton: 291.60, 193.75, 133.75, 97.50.

 

The period of low energy prices is a good opportunity to ramp up industrial capacity or other energy-intensive sectors like tourism (hotels, airlines, cruise ships, etc.) and manufacturing. A good time to travel too, especially in the Holy Week season next week.

 

Higher domestic electricity prices

 

The Independent Electricity Market Operator of the Philippines (IEMOP) released last week the results of power supply, demand and prices for March. From cold February to hot March, demand increased significantly from 12,904 megawatts (MW) to 13,670 MW while supply declined from 20,512 MW to 19,611 MW. Some power plants were also strained by the heat and suffered forced outages or unscheduled shutdown and derating  or reduced capacity.

 

The supply margin in March declined by 1,768 MW from February level, and prices shot up from P2.73/kwh in February to P5.34/kwh in March. A “Yellow Alert” in Luzon Grid also happened in the evening of March 5.

 

The lesson here is that we are not building enough big conventional power plants to complement if not substitute for old and aging plants. Peak demand for electricity happens at noon and in early evening when people are coming home and lights in houses and streets are open, so we cannot rely on solar farms unless they have batteries.

 

The Visayas grid is in a perennial tight supply situation compared to Luzon and Mindanao grids. Lots of solar farms especially in my province Negros Occidental. Cebu and Panay sub-grids have to stretch their heroic coal plants because they serve not only their islands but also export to Negros and hence, avoid blackout in these three islands with big population (at least five million people each) and big commercial activities.

 

Aboitiz Power has a number of coal plants in Cebu while Meralco Power Gen (MGEN) has coal plants in both Cebu and Iloilo. During The Freeman energy forum “Powering Cebu” last November at Waterfront Hotel, Cebu Gov. Gwen Garcia said that they really need more big conventional plants as annual increase in power demand in Cebu alone is huge. AP has a coal expansion plan, it should proceed. Some environmentalists attacked it but they themselves are scared of blackout.

 

I chanced upon the president and CEO of MGEN, Emmanuel Rubio and I asked him about their coal plants in the Visayas. He optimistically responded that “the recent increase in transmission charges will be addressed, particularly in the Visayas as soon as the National Grid Corp. of the Philippines completes certification of the new capacities from CEDC Unit 3 and PEDC Unit 3. These additional capacities are expected to add much needed lower cost supply of reserves and help stabilize the grid. Generation charge however has gone down as cost of purchased fuel, particularly LNG and coal was lower for March.”

 

Battery and hydro storage

 

MGEN also owns the biggest solar farm in the country, MTerra Solar with 3,500 MW. It should be a dangerous project if it has no battery, imagine a peak generation of 3,500 MW at cloudless noon then zero at night. Lucky that it has battery at 4,500 MWHr so it can still supply electricity at night.

 

Aside from battery for intermittent solar and wind, I think we should have more hydro pumped storage system as ancillary service (AS) or peaking plant. I saw a huge hydro pumped storage system for AS in Hebei province when I was in China last week. At 3,600 MW, it is the largest hydro pumped storage system in the world and it is owned by the State Grid Corp. of China.

 

It is not a baseload plant or running 24/7, it runs only when it is needed like supplying electricity when some big plants are on maintenance shutdown for days and weeks, or when demand is particularly high on certain days. When it runs, water from upper reservoir goes down then the turbines generate electricity. When it rests, water from lower reservoir is pumped up for later use, beautiful physics and engineering application.

 

Our problem in the Philippines yearly is plenty of floods, lots of water, not lack of water. We are not storing those huge volume of water, they rampage down the rivers and cause damage to lives, farms and properties then drain to the sea, little is stored upstream. We should expand our hydro power capacity especially for pumped storage.

 

Meanwhile, a friend told me that the Supreme Court has issued a decision concerning the 2001 unbundling cases of Meralco arguing that the use of replacement cost in asset base is not least cost. The Energy Regulatory Commission may be tempted to replace performance-based regulation (PBR) with cheap at all cost policy, which can be damaging to investors. ERC should be careful not to do this.