Department of Energy Launches Novel Auction Mechanism
The Department of Energy (DOE) is preparing to conduct the Philippines’ first “mid-merit capacity auction,” a new mechanism designed to supplement national energy supplies. The event, described as novel by officials, will be limited exclusively to gas-fired power plants, excluding coal and renewable energy producers from participation.
Energy Secretary Sharon Garin declared a policy preference for “mid-merit” capacity, characterizing natural gas as a compromise choice between cheap but slow-to-deploy coal and fast but costly diesel. The auction aims to provide rapidly supplyable energy during periods of high demand spikes, addressing the grid's need for flexible power rather than relying solely on base load capacity from coal plants.
Under the terms of the auction, winning plants will receive the auction price plus fuel costs. Any shortfall between this total and what the power earns in the spot market will be collected from consumers.
Auction Terms and Consumer Cost Implications
The DOE argues that while Luzon’s supply margin grew by 632 megawatts and average spot prices fell to P4.80 per kilowatt hour in August, the grid requires flexible power sources to maintain stability.
A study cited by the department indicates that increasing liquefied natural gas (LNG) capacity could add 25 to 90 centavos per kilowatt hour to costs. This increase has the potential to raise a typical household’s monthly bill by P45 to P180.
Commentators note that Filipino consumers currently pay the highest energy costs in the region, raising questions about whether price should take primary importance over the mode of generation in such auctions.
Related Political Controversy
In a separate development unrelated to the energy auction, Senator Panfilo Lacson alleged that Taguig City engaged in illegal reclamation of Laguna de Bay. The city government denied the claim, stating that no permits were issued for the land in question.