Philippines: October power generation charges may rise due to weak peso

MANILA, Philippines — The sharp depreciation of the peso against the dollar alongside higher charges at the Wholesale Electricity Spot Market (WESM) could raise Manila Electric Co. (Meralco)’s generation charge for October.

“We still haven’t received suppliers’ bills. However, we expect the steep depreciation of the peso to put upward pressure on generation costs, as 98 percent of legacy independent power producer charges and 38 percent of the newer power supply agreements are dollar-denominated,” Meralco vice president and head of utility economics department Lawrence Fernandez told The STAR.

The peso has been plunging to new all-time lows, touching the 59 to $1 level for the first time last Wednesday.

The local currency plummeted to a record low of 58.99 to $1 last Sept. 27.

“Further, initial indications from the Wholesale Electricity Spot Market show that demand increased as more generation capacity went on outage, which would tend to push up WESM charges,” Fernandez said.

Average WESM prices dropped to P7.26 per kilowatt-hour in August, but the Independent Electricity Market Operator of the Philippines earlier said that average rates went up to P9.02 per kWh in the first 10 days of September.

The generation charge accounts for more than half of the electric rate. It is a pass-through charge that is paid to the power suppliers. Meralco earns only from distribution, supply and metering charges.

Meralco’s generation costs are usually influenced by the exchange rate, the supply-demand situation and its effect on WESM prices, and international fuel prices.

After two consecutive months of decline, which saw a combined reduction of P0.9154 per kWh, Meralco rates last month went up by P0.3907 per kWh due to higher generation charge.

Generation charge for September rose by P0.3581 to P6.9393 per kWh on the back of higher charges from the independent power producers and power supply agreements as a result of higher fuel costs and peso depreciation against the dollar.