This could mean that coal price risk will no longer be passed to end-users.

Amidst fears of imported fuel supply insecurity, Philippines’ Meralco has opened its receptiveness to a carve-out clause in their power purchase agreements that permits curtailment, meaning it can buy less power from coal-fired generators under certain conditions, according to a commentary from the Institute for Energy Economics and Financial Analysis (IEEFA).

Meralco confirmed at a conference that if it decided to buy less power, coal generators would have to sell their electricity elsewhere. IEEFA noted that this means that coal generators are no longer able to pass on unmanaged coal price risk to Meralco and its end-users.

“Meralco’s carve-out clause is a step in the right direction to ensure that if power companies, investors and banks are foolish enough to ignore cheaper clean energy options, it is they—not customers—that will bear the risk, either in the form of a write-off or a non-performing loan,”said IEEFA’s energy finance analyst Sara Jane Ahmed and the Institute for Climate and Sustainable Cities’ energy transition advisor Alberto Dalusung III.

The report also stated that coal-fired plants only operate efficiently at a minimum stable operating point requirement of 40-50% of capacity, and if they run at below a certain threshold, the cost of fuel and maintenance as well as risks of breakdowns rise.

“With mounting competition from low-priced renewable energy and storage options, market risk is rising for coal-fired generators and the investors and banks who hold their project debt,” Ahmed and Dalusung added.

Stranded fossil fuel assets have led to high prices in the Philippines, with the over-reliance on baseload generation dependent on imported fuel translating into high tariffs for consumers that can only temporarily be tempered under certain force majeure conditions