Power distribution

The Company

The Manila Electric Company ( MERALCO) is the largest electric power distribution company in the Philippines. It provides electricity to more than 5.5m customers in Metro Manila, representing approximately 55% of the country’s total power requirements. MERALCO was established in 1919. Besides being a major power distributor, it has ventured into other segments such as power generation and retail electricity supply. In addition, the company, through subsidiaries MERALCO Industrial Engineering Services Corporation and CIS, is involved in electricity-related services such as electro-mechanical engineering, light rail-related maintenance services, e-transactions and bills collection. MERALCO is directly owned by two major shareholders: Beacon Electric Asset Holdings (34.96%) and listed conglomerate JG Summit Holdings (27.12%).

Development Strategy

The Philippine power sector is one of the main drivers of economic growth. Currently, demand has outpaced supply, which has brought about a power crisis since the summer of 2015. Extreme El Niño weather events and unexpected outages in the next few years may adversely affect hydropower plants’ output, while aging facilities could mean forced outages and power shortage risks, especially in the Luzon grid.

Therefore, MERALCO is taking advantage of its exposure in power distribution by venturing into power generation to provide a stable source of electricity as peak demand increases. The company, through Meralco PowerGen Corporation, has an existing 22% equity interest in the Global Business Power Corporation (GBPC), a subsidiary of holding firm GT Capital Holdings, and a 28% equity interest in PacificLight Power in Singapore. GBPC operates 709 MW of capacity from both coal- and diesel-fired power plants. Besides these investments, MERALCO plans to commission three new coal-fired power facilities by 2020. These projects include the following: the 460 MW San Buenaventura plant (51% owned, operational in 2019); two 300-MW RP Energy plants (52% owned, operational in 2019); and two 600-MW Atimonan plants (100% owned, operational in 2020). These facilities will have an aggregate capacity of 2260 MW.

In line with its strategy to participate in a competitive retail electricity market, MERALCO has set up its own local retail electricity supplier called MP ower, through which customers can opt to choose their preferred source of electricity. Since the start of the Retail Competition and Open Access regime in June 2013, MERALCO has served 212 customers, more than half of the 360 qualified customers. The company projects capital spending to ramp up in the next five years as it constructs new power distribution infrastructure, as well as the financing of power generation projects. MERALCO expects capital expenditures to reach P154bn ($3.4bn) during 2016-20, almost double the estimated spending for the 2010-15 period. The majority of the budget will be used to boost efficiency for its power distribution business, while the remaining will be allocated to power generation ventures.

Looking Ahead

The government has emphasised that the economy will keep on growing. Thus, demand for power will continue to increase and additional capacity will be required. In addition, the upcoming elections and strong macro fundamentals of the Philippine economy will further boost energy consumption in the next few years.

According to the latest report from the Department of Energy, the country’s power demand will expand by 5-8% based on the national economic growth assumption of 8% in the next five years. Coal-fired plants will continue to drive growth in terms of installed capacity in the Philippines due to lower project development cost, compared to renewable energy, natural gas and diesel-powered facilities.

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The Report: The Philippines 2016

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