Shrewd, not a holder. Just doing my research. Good post from...

Shrewd, not a holder. Just doing my research. Good post from you. My point is that absent contracts, LNG will be too expensive in most hours to be dispatched in the WESM. If that was not true, you would see much higher dispatch rates for Avion and San Gabriel. And they are running on cheaper Malampaya gas. So while it is predictable that energy prices will be volatile and forecasts will be wrong to some degree, one has to anticipate a market in which LNG will not be one of the cheaper marginal fuels, but rather one of the more expensive. Also, remember that what Lantau is comparing to their status quo is a scenario where all-in solar is competing with coal. If you look back through Lantau there was a time that they were much more positive on LNG; they are now trying to assess the implications of the stunning fall in solar PV and wind prices. None of this eliminates the need for some gas fired capacity but it underscores the need for capacity payments - for which you need a contract of some kind whether financial or physical.

As for coal, companies are starting to implement supercritical units now and these will have efficiencies of about 40% if not slightly higher. MGEN, Team Energy and GN Power have such units under construction in the Luzon market. One does hope that NDC commitments have a stronger policy impact in the Philippines and everywhere else, but remember that these are voluntary, not binding, commitments and so far there has been little intervention in the market there to force people off coal and to gas and renewables.

Finally, options value. Totally agree, but you have to be operational for that to really matter. What you have at the moment is more like potential options value. If they get operational, they are worth the options value of being able to see into the WESM, plus the options value of the LNG infrastructure to serve other customers. That would be worth a lot in Batangas but is less valuable at Pagbilao because additional investment is needed to really have a useful hub capability. Right now looks like they continue to be a year plus from being able to operate, and that really has to be measured from when they have a transmission interconnection agreement with NGCP.

At the end of the day, when can capex be recovered? The scenario evolving is one in which one must invest in a transmission line, then a steam turbine, then LNG break bulk facilities and/or pipelines. Also, install the insulation in the tank and finish other stuff related to the terminal. Our discussion here has focused on price points only for recovering variable fuel costs, not capital. With no contracts, WESM prices need to be above the marginal cost of LNG for extended periods to allow for "net revenue" and ideally, the investor would hope high price spikes. But those are not allowed in WESM as the primary price cap is only 32 pesos, I believe, and I also think there is a secondary price cap still in effect. For those not well versed in competitive power markets, most economists would argue for a primary price cap measured in the thousands of dollars. 32 pesos per kWh is only 64 US cents or so - far too low to normally justify investment on a merchant basis in peaking power plants, since prices at that level would only be available a small number of hours per year. Yet someone is trying to build such a plant anyway ....