Long-term deals could cushion power firms amid weak spot prices

ENERGY COMPANIES are likely to pursue capacity expansion and secure long-term supply agreements to cushion the impact of an extended period of weak spot power prices, analysts said.

“We think margins will generally fare better this year as most companies are seeking to increase their portfolio mix of contracted capacity to mitigate the impact of the persistent softness in spot prices that is expected this year,” Andrei Jorge G. Soriano, a research associate at China Bank Securities Corp., said in an e-mailed reply to questions.

He said some power distribution utilities posted lower energy sales volumes in the first nine months of 2025, largely due to cooler temperatures and weather-related disruptions that dampened electricity demand.

He said energy sales of distribution firms such as Manila Electric Co. are expected to rebound as demand normalizes, while companies that already posted improved volumes, including Aboitiz Power Corp., are likely to sustain their growth trajectory.

For power generation companies, he said the addition of operating capacity last year was weighed down by subdued spot prices, lower irradiance levels that hurt solar generation output, and power failures at some facilities.

“We expect those with scheduled project completions this year… to benefit from incremental capacity,” Mr. Soriano said, noting that expansion projects could help lift volumes even in a low-price environment.

Peter Louise D. Garnace, an equity research analyst at Unicapital Securities, Inc., said the financial performance of generation companies was mixed last year, largely depending on how early companies adjusted their contracting strategies and expansion plans.

“Generation companies with larger exposure to the spot market saw margin squeeze, while those that pivoted early by entering into bilateral contracts were able to cushion the impact of weak spot prices,” he said in a Viber message. 

Mr. Garnace said power companies that have secured bilateral supply contracts are more attractive from an earnings standpoint because these agreements provide predictable cash flows and reduce exposure to price volatility in the spot market.

Data from the Independent Electricity Market Operator of the Philippines showed that prices at the Wholesale Electricity Spot Market (WESM) fell to multi-year lows, with the effective price averaging P4.32 per kilowatt-hour (kWh) from January to November last year.

This was lower than the full-year average of P5.58 per kWh in 2024 and P6.44 per kWh in 2023.

WESM serves as the trading venue where energy companies get electricity when long-term contracted supply is insufficient.

“We anticipate a lower-for-longer spot price environment, driven by an oversupply of coal globally, coupled with the growing adoption of renewable energy, natural gas and nuclear power,” Mr. Garnace said.

“With more capacity expected, this should limit upside risks to electricity prices that will be passed through to end-users,” he added. — S.J. Talavera