Philippines Plans 3,840 Megawatt Gas Auction Amid Grid Cost Debate
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The Philippine Department of Energy is launching a centralized auction to procure 3,840 megawatts of mid-merit natural gas capacity across the Luzon and Visayas grids.
Department Circular DC2026-06-0013 establishes a binding framework for the purchases. Distribution utilities and electric cooperatives must now source designated flexible capacity exclusively from natural gas facilities.
Staggered Capacity Timetable
Auction schedules divide the 3,840-megawatt target into immediate supply and greenfield construction across the two island grids. Existing plants in Luzon must deliver 1,400 megawatts of capacity in 2026, followed by 500 megawatts in 2027.
New construction begins commercial operations in 2028. That phase starts with 440 megawatts of liquefied natural gas mid-merit plants across Cebu and Panay in the Visayas. By 2031, newly built facilities must supply an additional 1,000 megawatts to Luzon and 500 megawatts to Cebu.
Auction Rules and Fuel Pass-Through
Power generation companies will bid solely on their capital and operating charges under the Gas Auction Price system. Fuel costs remain an uncapped pass-through expense. The underlying price of imported liquefied natural gas will be calculated through an Energy Regulatory Commission benchmarking formula.
Consumers must cover revenue shortfalls whenever spot power prices drop below the auction guarantee. If a contracted plant runs while the Wholesale Electricity Spot Market clears at lower rates from coal or renewables, the grid operator recovers the difference through retail power bills. Distributors cannot withdraw their contracted capacity shares once awarded.
“Luzon expanded its supply margin by 632 megawatts during the August 2026 billing period, according to Independent Electricity Market Operator of the Philippines data.”
Regional Supply Disparities
Grid conditions differ sharply between the two regions. Luzon expanded its supply margin by 632 megawatts during the August 2026 billing period, according to Independent Electricity Market Operator of the Philippines data. Spot prices there fell from 7.30 pesos to 4.80 pesos per kilowatt-hour.
Generation deficits hit the Visayas grid during the same month. The region recorded 86 hours of Yellow Alerts and 53 hours of Red Alerts. Regional spot prices reached 18.59 pesos per kilowatt-hour before the regulator imposed a secondary price cap. Transmission lines between Luzon and Visayas stayed congested for 86 percent of the billing cycle.
Fuel Price and Currency Exposure
Imported gas dependencies present direct cost risks for commercial operators and industrial manufacturers. Energy Regulatory Commission figures show landed liquefied natural gas prices climbed from 14.90 dollars per million British thermal units in early 2024 to 17.30 dollars in early 2025.
Asian spot LNG prices spiked to 26.00 dollars per million British thermal units in September 2026 following Middle Eastern supply disruptions. Paired with a foreign exchange rate of 62.67 pesos per US dollar, fuel costs alone reach 11.40 to 13.00 pesos per kilowatt-hour for a standard combined-cycle generator. Capital recovery and operating fees are not included in that calculation.
Fuel pass-through terms shift international commodity price swings directly onto Philippine commercial power bills. Past price shocks showed the danger. In March 2026, emergency interventions took place when spot prices jumped from below 5.00 pesos to more than 9.00 pesos per kilowatt-hour across the central grid.
Next, the Department of Energy will finalize bidder eligibility rules and auction dates for the initial 1,400-megawatt Luzon delivery tranche.
Questions & Answers
Q.How will the Department of Energy determine the price of imported liquefied natural gas for this auction scheme?
How will the Department of Energy determine the price of imported liquefied natural gas for this auction scheme?
The Energy Regulatory Commission will calculate the underlying price of imported liquefied natural gas using a specific benchmarking formula. This formula will be used to determine fuel costs, which are an uncapped pass-through expense.
Q.Which entities are now mandated to purchase flexible capacity exclusively from natural gas facilities under the new framework?
Which entities are now mandated to purchase flexible capacity exclusively from natural gas facilities under the new framework?
Distribution utilities and electric cooperatives must now source their designated flexible capacity exclusively from natural gas facilities. This is a binding requirement established by Department Circular DC2026-06-0013 for the new procurement scheme.
Q.What potential financial risk do consumers face if spot power prices fall below the auction guarantee?
What potential financial risk do consumers face if spot power prices fall below the auction guarantee?
Consumers must cover revenue shortfalls whenever spot power prices drop below the auction guarantee. If a contracted plant runs while the Wholesale Electricity Spot Market clears at lower rates, the grid operator recovers the difference through retail power bills.
Q.When will the newly built liquefied natural gas plants in Visayas, specifically Cebu and Panay, commence commercial operations?
When will the newly built liquefied natural gas plants in Visayas, specifically Cebu and Panay, commence commercial operations?
Newly built liquefied natural gas mid-merit plants across Cebu and Panay in the Visayas are scheduled to begin their commercial operations in 2028. This is the start of the greenfield construction phase of the staggered capacity timetable.
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