MANILA, Philippines — Publicly listed conglomerate San Miguel Corp. (SMC) has come up with a possible solution to the looming power supply shortage, specifically in Luzon, projected by the Department of Energy (DOE) due to the unavailability of several power plants.

SMC Global Power Holdings Corp. (SMCGP), the energy unit of SMC, has proposed to supply to Manila Electric Co. (Meralco) the entire output of the 1,200-megawatt (MW) Ilijan gas-fired power plant at minimal cost to help keep electricity prices low for consumers while ensuring steady supply in the coming months.

At present, only 670 MW of the plant’s production is covered by a 2019 fixed-price power supply deal with Meralco.

SMC president Ramon Ang said the electricity coming from its Ilijan power plant would cost Meralco only P1 per kilowatt-hour (kWh) in capital recovery fee, or half of the facility’s capital cost.

“Essentially, this will mean that the incremental power supply costs from such capacity for households may be cut down significantly compared to prevailing costs from coal power generation,” Ang said in a statement on Sunday.

“As we have said in the past, we will continue to look for ways to help make sure consumers will still have some protection from the effects of skyrocketing global fuel prices. This is one of the best and most direct ways we can show solidarity with our people in this time of crisis,” he said.

Due to unforeseen global events such as the Russia-Ukraine war, fuel prices are at unprecedented highs, and supply is tight.

“We are in a crisis and this is a shared burden by all Filipinos—power consumers, the power sector, government,” Ang said.

He added: “By immediately forgoing [investment] returns, we continue to carry our share of the burden, while getting just enough to make sure plant operations continue and remain sustainable.”

Supply issue

The problem, however, is that the Ilijan facility is on extended outage, which means it is not operating at the moment, due to what SMC said was the refusal of Shell Philippines Exploration BV (SPEX) to supply the banked or unused gas from the Malampaya field that South Premiere Power Corp. (SPPC) acquired from state-owned Philippine National Oil Co. (PNOC) last June.

In the meantime, SMC said it was also conducting repair works on the power plant to improve its fuel and generation efficiencies.

The original gas supply agreement of the Ilijan plant with Malampaya expired last June. Ang said in order to help address fuel supply constraints, SMC was also offering to help source the fuel for the Ilijan facility—whether from its own allocation of Malampaya gas or liquid fuel—which Meralco will pay for.

He said SMCGP was also willing to work with Meralco in using its unused gas acquired from PNOC at a cost much lower than the prevailing price of coal power generation.

SPPC, a unit of SMCGP, and Meralco have initiated discussions to find ways to alleviate the burden of rising commodity prices, including that of power, on end users.

Both SPPC and San Miguel Energy Corp. (SMEC) earlier sought relief from the Energy Regulatory Commission (ERC) in the form of higher power rates as they incurred more than P20 billion in losses for running their power plants using expensive fuel, but their petition was denied by the regulator, citing the fixed-price nature of their contacts.

New gas terminal

Energy prices, SMC said earlier, spiked early this year following Russia’s invasion of Ukraine, causing the cost of coal to surge to more than $400 a metric ton from $60 previously.

Following the ERC’s rejection of the rate hike plea, SMC petitioned the Court of Appeals for help and was granted a 60-day temporary restraining order that effectively suspended the fixed-price supply contract between SPPC and Meralco.

Meanwhile, Ang said SMC was expecting the completion of an LNG (liquefied natural gas) terminal facility by March 2023, according to the most recent construction updates.

The company contracted the facility to receive, store and re-gasify commercial liquefied natural gas, but pandemic restrictions and the Russia-Ukraine conflict delayed the project.

The Philippines is currently making a push for more gas power generation capacity, as it is considered a “bridge fuel” to the wider adoption of renewable power.

It has a significantly lower carbon footprint than coal power generation.