Long-term contracts to attract power investors
Saturday, March 31, 2007
Despite the establishment of the Wholesale Electricity Spot Market (WESM) and being aligned as alternative market for power investors, the Department of Energy (DoE) opined that long-term contracts still thrives as the ultimate key to attracting new power investments.
"It is critical that long-term contracts should be at work in order to stabilize electricity rates to consumers and investors," the energy department said in a report that assessed the implementation of policy reforms in the power industry.
In fact, lenders to power projects have since been giving lackluster response to investment propositions that are not backed up by long-term power contracts.
With failures of merchant market set-up even in well-developed jurisdictions like the United States, it becomes doubly difficult to package a project without supply contracts. The dilemma is seen worse with countries having high market and political risks, like the Philippines.
The DoE admitted that the major challenge confronting government now is how to set in place sufficient incentives "for timely and efficient investment in generation plants."
Acknowledging potential scenarios that investors may be enticed to pour in capital when there are observed perennial spikes in WESM prices, the energy department stressed that this shall run counter to the objectives of the Electric Power Industry Reform Act (EPIRA) on ensuring affordable power rates for the consumers.
And in cases where government needs to intervene and set caps to arrest relentless spikes in electricity spot prices, this will trigger problems to investors who run the risk of not being able to fully recover of their costs.
"The incentive for investment in WESM will come from the price spikes and normally it happens occasionally, but subsequently, may cause problems for consumers and regulators," the report noted.
The DOE added that the suspicions of price manipulations in the WESM, though investigated by government, will always leave some doubt on the mind of investors whether the spot market really works well as alternative.
"The issue on market power abuse may create an impression that the competition in the WESM is nonexistent that could undermine the investment climate considering generation investment projects have long lead times and have financial implications for several decades after implementation," the DOE report has emphasized.
The government is facing pressure on cornering new investments to plug capacity shortfall in power supply with forecasts that demand may start surpassing available capacity by 2011.
The country is not likely to tolerate another round of massive power interruptions, given opportunity and economic losses that this will bring about. (MMV)
posted by philpower @ 9:13 AM,
