Gas and Coal Economics, page-21

Skeochs posts are of a very high quality. They raise issues that are serious risks to EWCs business model. His holding position is not particularly relevant if the company do not have answers to his valid questions.

His point about the phillipines is that coal prices are low, and going lower, and power is dispatched on the back of contracts outside of the WESM pricing mechanism, which keeps the WESM clearing price artificially low, and in turn means new capacity will struggle to be dispatched often enough to recover capex.

Coal prices are unlikely to increase internationally in the face of COP21 - a treaty that Durente has made a political decision to ignore so that his country can benefit from low coal prices and cheaper power.

This probably means the issues with the spot market dispatching merchant power at short run marginal cost instead of long run average cost will not be addressed either. The situation where a low WESM LWAP restricts new capacity additions to an incumbent distributors and prevents new entrants may actually be the desired outcome - particularly if a cashflow from low risk coal baseload can subsidise solar until it is at critical mass.

At present as far as I can see it EWC will need to supply via a CFD market or the like, and even then it will have to be to a big user/distributor and will need to be cheaper/less risky than new coal plant. Or they will have to run at a loss (assuming they get LNG at market) until (if) prices increase, or they get the steam unit running.

The question I would have for brian/stewart et al at the AGM is how do they think this issue will be addressed.

Are they betting there be a political change of heart with regard to COP21? Or that the required generation increase faster than new capacity come on, allowing room in the market for new markets without having to be loss leaders? or that coal prices increase? or that they get Sengkang to start exporting LNG to Pagbalio at a price that allows them to monetise the whole chain - even on the new PSC?

Rather than guessing on a discussion board - I would love to hear them say it.