Philippine Gas Auction Benchmark Could Reach P10 per kWh as ERC Weighs Consumer Safeguards

A proposed price benchmark puts electricity costs in focus

The Philippines' first competitive auction for electricity from natural gas plants could use a benchmark reaching P10 per kilowatt-hour, with the Energy Regulatory Commission preparing rules intended to prevent consumers from paying too much for plant investments. The Department of Energy's proposed procurement covers 3,840 megawatts, including approximately 2,900 MW for Luzon and 940 MW for Cebu and Panay.

ERC Chairperson Francis Saturnino Juan said the regulator expected to release draft implementing guidelines and an initial gas auction price calculation in November, followed by public consultations. The benchmark, known as the GAP, would help set the terms for the government's planned auction. The P10 figure remains a possible level, with the calculation and payment rules still being developed.

Juan said the commission was trying to balance reasonable returns for power developers with protection for electricity customers.

We are trying to craft a regulatory framework where consumers aren't on the losing end, and our stakeholders don't enjoy over-recoveries on their capital costs,

The proposed auction has also drawn a challenge from the Institute for Climate and Sustainable Cities, or ICSC. In a statement issued November 4, 2026, the group urged the government to assess renewable energy, batteries and other storage options before committing to more gas capacity.

Both the regulator's concerns and ICSC's objections focus on how the procurement would translate into electricity bills. The decisions involve more than a headline price: they include how often plants operate, how construction costs are recovered and who pays when electricity market earnings fall short.

What the government plans to buy

The DOE is seeking 3,840 MW of mid-merit capacity for delivery from 2026 to 2031. Mid-merit plants serve electricity needs between the grid's minimum demand and its highest peaks. They help cover changing demand and shifts in available generation.

Luzon's proposed allocation of 2,900 MW represents about 76 percent of the total. Cebu and Panay would receive the remaining 940 MW, or about 24 percent. Those shares show where the procurement is concentrated, although actual electricity production would depend on how the facilities operate.

The auction covers existing plants, facilities being expanded or upgraded, and new gas plants. The DOE has prequalified 10 companies after receiving 14 bid offers. Prequalification allows companies to advance in the procurement process; contract awards would determine which facilities ultimately supply electricity.

Existing facilities awarded contracts would receive supply delivery periods of five to 10 years. New gas plants would receive 20-year delivery periods. The longer commitment for new facilities gives developers more time to recover construction spending, while also extending the period covered by the procurement.

Why operating hours affect the price

Juan identified the proposed 42 percent capacity factor as a central pricing concern. A capacity factor measures electricity production against what a plant could generate if it operated at full capacity throughout the same period. At 42 percent, a facility would produce the equivalent of running at full capacity for 42 percent of the time.

A power plant has costs that continue even when it produces little electricity. Construction financing and other fixed expenses must still be paid. When those costs are recovered through a smaller volume of electricity sales, each kilowatt-hour carries a larger share.

For illustration, a plant rated at 100 MW would produce an average equivalent to 42 MW across the period at a 42 percent capacity factor. The plant's construction bill would be spread over that smaller output, rather than the output possible through continuous operation at its full rating.

Juan warned that recovering substantial construction costs over restricted operating periods could push tariffs higher. He also said renewable energy rates could match natural gas tariffs if the final auction rules retain the DOE's proposed design. The eventual comparison will depend on the pricing and operating arrangements adopted for each technology.

How the benchmark and market payments connect

The ERC's planned gas auction price calculation would serve a role similar to the benchmark used in the Green Energy Auction Program. That program allows renewable energy developers to compete for power supply contracts with guaranteed tariffs over 20 years. For gas, the ERC is preparing rules covering the threshold price methodology, the gas price benchmark and the settlement mechanism.

Settlement means calculating what electricity suppliers are owed and arranging payment. The details matter because gas facilities can earn revenue through the Wholesale Electricity Spot Market, or WESM, where electricity is traded to meet the grid's changing requirements.

Juan flagged the risk that a generator could recover the same capital investment twice. If the guaranteed gas auction price already covers a plant's capital costs, any recovery of those costs through WESM revenues should be deducted, he said. The ERC is still finalizing the adjustment mechanism.

ICSC raised a related concern about the other side of that calculation. If spot market earnings fall below the amount owed to plant operators under the proposed arrangement, the group warned that consumers could be required to cover the shortfall. The final rules will determine how market earnings, guaranteed payments and consumer charges fit together.

What the P15.50 LNG figure tells consumers

ICSC cited its PRESYO-PH electricity price monitoring platform, saying electricity generated from liquefied natural gas and procured by Manila Electric Co., or Meralco, reached as high as P15.50 per kWh in the October 2026 billing period. The group used that figure to support its warning about the costs of greater dependence on imported fuel.

LNG is natural gas cooled into a liquid so it can be transported by ship. Its price can change with international supply and demand. Philippine buyers also face currency risk because changes in the peso's value affect the local cost of purchases priced in foreign currencies.

ICSC said declining domestic gas reserves could deepen the country's reliance on imported LNG. A procurement arrangement lasting years would therefore operate alongside changing fuel prices and exchange rates, both of which can affect the cost of producing electricity.

The P15.50 figure concerns LNG electricity procured for a particular billing period, while the possible P10 GAP concerns an auction benchmark under development. For households, the practical issue is how the final arrangement affects generation charges and, through them, the electricity bill. A retail bill also includes transmission, distribution and other charges beyond electricity generation.

Why renewable energy and storage are part of the debate

ICSC argues that the need for a more flexible electricity system should prompt an assessment of several technologies. Flexibility means being able to respond when demand rises or falls, or when the output of another generator changes. The group wants the DOE to identify the grid's actual operating needs before deciding how much additional gas capacity to procure.

Alberto Dalusung III, ICSC's energy transition adviser, said solar generation and storage could work together to supply electricity at different times.

Solar can supply electricity during daylight hours, while batteries can store surplus generation and deliver it when demand rises or solar output declines,

Batteries shift electricity from the time it is generated to the time it is needed. Pumped-storage hydropower performs a similar task using water: electricity pumps water to a higher reservoir, and the water later flows downhill through turbines to generate power.

Dalusung pointed to pumped-storage hydropower included in the fourth Green Energy Auction, known as GEA-4, as another resource that could strengthen storage capacity. He also said solar generation avoids exposure to fluctuations in international fuel prices. ICSC's proposal is to assess how these resources could work together to meet the system's needs.

The dates and decisions shaping the auction

The procurement involves a delivery window, a recent price observation and regulatory work expected in November. The main milestones are:

• 2026 to 2031: The planned delivery window for the 3,840 MW gas procurement.
• October 2026: The billing period in which ICSC said Meralco's LNG electricity purchases reached as high as P15.50 per kWh.
• November 4, 2026: ICSC issued its call for an assessment of renewable energy and storage alternatives.
• November: The ERC expected to release draft rules and an initial gas auction price calculation for public consultation.

No exact consultation date or auction date was given. The regulator's next step is to put its proposed methodology before stakeholders, allowing the price calculation and payment arrangements to be examined before the framework is completed.

For developers, the rules will shape the revenues available to recover investments. For customers, the central decisions concern how much plant capacity costs, how market earnings reduce amounts owed and how any payment shortfall reaches their bills.

Key Points

• The ERC's initial gas auction benchmark could reach P10 per kWh, with draft rules and public consultations planned.
• The DOE proposes procuring 3,840 MW, divided between Luzon and Cebu and Panay.
• A proposed 42 percent capacity factor has raised concerns about spreading construction costs over limited electricity output.
• The ERC is developing a mechanism to deduct capital recovery already earned through the spot market.
• ICSC warned about imported LNG costs and possible consumer payments for market revenue shortfalls.
• The group urged the government to assess solar, batteries and pumped-storage hydropower alongside gas.