Frankly, no one knows what the price of electricity out of a new coal-fired power plant in the Philippines will cost, primarily because no one knows what the market price of coal will be in the future. Even those that have entered into contracts for such power can’t know.
Two coal-fired power plants are under construction on Cebu. At least one plant is proposed for Panay and one or more on Mindanao. A new plant is being built on Bataan.
The ERC has set a ceiling on the price of power for Kepco’s Cebu plant that is to come on-line next year. In the ERC Decision approving Kepco’s sales agreements, the ERC called the benchmark the Long-Run Avoidable Cost or LRAC.
LRAC is expressed as a January 2008 Base Value of P4.2511/kWh, but it is indexed and adjustable by five parameters that change over time:
- Newcastle Coal Price Index
- US CPI
- US PPI
- Philippines CPI
- US$/PhP exchange rate.
It is also subject to VAT.
Although the plant is not on-line yet, we can take the ERCs Base Rate, apply VAT, and apply the actual indexes to date to track how the LRAC is trending.
Here is my estimate of the LRAC Price.
I may very well have made mistakes in my calculations and interpretation of the ERC methodology, although not intentionally so. My spreadsheet model and index data that I’ve used is in this Google Docs spreadsheet.
Also keep in mind that this is the price at the plant gate. It excludes transmission charges, ancillary services, distribution utility charges and various other charges that are added into a retail electricity bill.
On my most recent Meralco bill, Meralco had added an additional P4.2/kWh for all such charges. That would bring the price of coal up to P5.7 + P4.2 = P9.9/kWh at the household meter. For you guys in the U.S., that’s about 21 cents/kWh in U.S.$ terms.