CEO INTERVIEW
Quezon Power supply deal extension in limbo
The power generator’s power purchase agreement is due to lapse in May 2025.
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oal-fired power plant, Quezon Power, which has been in operation for over two decades, is looking for alternative routes with the looming expiration of its power supply agreement (PSA) with local distributor Manila Electric Co. (Meralco). In a fireside chat with Asian Power Editor-in-Chief Tim Charlton at the Asian Power Thermal Energy Conference, Quezon Power Managing Director Frank Thiel shared the plant is looking at either selling to retail energy suppliers or operating within the wholesale electricity market. Quezon Power forms part of the EGCO Group from Thailand, which also owns assets around the globe. In the Philippines, Thiel also manages the first supercritical plant, the San Buenaventura power project, on top of the Quezon Power station. We don’t know yet what the Philippine government will do after COP26. But for Quezon Power Plant, your power purchase agreement (PPA) with Meralco will expire in a couple of years. Could you walk us through how competitive it’s going to be to get renewed? How long is it for? The agreement is due to lapse in May of 2025. Ten years ago, 15 years ago, when we’re looking at the future, we’re thinking that we’re going to get an extension to our current PPA because we’re a very reliable power station. We’re cost-competitive. Five years ago, we began to realise that market conditions are changing. Three years ago, we said, the world is going to look vastly different from what we anticipated 10,15 years ago. What do we want to do with Quezon? Do we want to try and get another PPA or PSA? The answer is yes. We embarked on a program to try and determine what would it take to refurbish our plant, to extend the life of the plant beyond the 25 years of the current power supply agreement. In the Philippines, Meralco has instituted what they call a competitive selection process (CSP). They will look to contract for a certain amount of megawatts (MW) to be delivered on a certain date and go through a very rigorous process. We saw an opportunity for our project for Quezon Power in this case to try and compete. We’re looking to see if there will be room for us in the future when Meralco starts contracting for additional power for 2026, and beyond; If we’re successful, the outcome of that will be perhaps a 20-year PSA. If we’re not successful, because obviously, the CSP is very competitive, then we have to look for alternatives. The things that we’re evaluating right now involve, perhaps selling our power to retail energy suppliers. Our plant has one advantage, that is that we were fully amortised. At this point in time, we can be very competitive with our power rates. If that’s the case, we may be able to latch on to shorter-term contracts with retail energy suppliers. The other alternative is to operate within the wholesale electricity market here in the Philippines, and basically become a merchant plant. Although there are a lot of challenges, we’re trying to position ourselves as best as we can. We would have to adjust our strategy, or how we operate the plant, how we maintain the plant, depending on what we’re able to get. The Philippines has issued a moratorium or a ban on new power projects. And there are two stakeholders here, Meralco 18 ASIAN POWER
Frank Thiel, Managing Director, Quezon Power
Although there are a lot of challenges, we’re hoping to get either a long-term contract with Meralco or shorter-term contracts with retail energy suppliers
and the government. Both of them must also be a little bit concerned about energy security, and about effectively cutting off coal-fired power plants without alternatives in place. Do you think that this will be considered to extend the life so they have that energy security? Within the moratorium, Energy Secretary Alfonso Cusi indicated that any coal-fired plants that were currently in the stages of development will remain in the pipeline. The biggest fear is whether or not you can get financing for those projects. There are about 3,500MW worth of coal-fired plants in the pipeline. But anything after that, the moratorium prevents new coal plants from coming into the Philippines. The Department of Energy, in particular Secretary Cusi, has been very clear and very vocal about the fact that coal and thermal power has to remain in the energy mix of the Philippines. We’re currently 52% of the energy mix for the country. Secretary Cusi recognises that we’re not going to be able to transition overnight. We’re not going to be able to get away from thermal power for quite some time. I think he realises that the transition is going to take place, but it’s going to take quite a bit of time. Now, our customer, Meralco, is very interested in the most competitive power prices that they can get because, obviously, they want to pass that on to the consumers. That’s where consumers are looking for reliable, inexpensive power. Meralco has different goals in mind. At the same time, Meralco has a mandate on renewable portfolio standards. They have to source a certain amount of their energy from renewable energy sources. So they’re trying to balance those things out.
