Fitch sees worse decline in power sector in the near term

By Denise A. Valdez, Senior Reporter

THE RESEARCH UNIT of Fitch Solutions Group Ltd. has downgraded its forecast for the Philippines’ power and renewables sector this year, projecting a 5.9% decline in power consumption and a 14% drop in coal generation.

In a Sept. 10 report sent on Friday, Fitch Solutions Country Risk & Industry Research said it continues to see the coronavirus pandemic weighing on the Philippines’ power sector in the near to medium term.

Problems stemming from the pandemic such as government financial constraints, weaker private investments and disruptions in labor and supply chains will remain a drag to the industry.

However, Fitch sees power demand rebounding strongly in the longer term, resulting in the need for an additional 44.8 gigawatts of new power capacity by 2040.

“This is driven by strong macroeconomic and demographic growth, along with government goals to achieve a 100% electrification rate by 2022…, which will drive up power demand over the coming years,” it said.

Before the coronavirus pandemic, Fitch was anticipating a 5% growth in power consumption this year. This was revised to a 2.4% contraction after the pandemic, but is now downgraded further to a 5.9% drop due to the continuing effects of the lockdown.

“As the market continues to struggle to contain the virus, we have seen renewed lockdowns across several cities, and our initial expectation for a (second half) recovery is now unlikely,” it said.

“Philippines has seen one of the longest and strictest lockdowns, which has led to a substantial slowdown in economic activity… (We have) revised real GDP [gross domestic product] growth for 2020 to contract by 9.1%, and we expect the recession to weigh heavily on power demand and generation by extension,” it added.

Power generation, particularly from coal, is likewise seen taking a hit from the pandemic. Fitch anticipates a 14% decline in coal generation this year, larger than its 8.4% forecast in the last quarter and its 5.1% forecast before the pandemic.

The decline can be attributed to coal’s baseload nature, among other reasons, which led to several coal-power plants temporarily suspending operations during the strict lockdown, the research firm said.

Until the medium term, Fitch expects that the Philippines’ power sector will remain challenged by other effects of the pandemic. Specifically, it said the financial limitations of the government may push it to redirect funds from infrastructure projects to more “immediate concerns” such as wage subsidies and handouts.

But the research firm projects power consumption to grow 4.6% annually from 2020 to 2029, with the growth coming from the demand for thermal sources and renewable energy, and in the longer term, nuclear power.

“We believe that President Duterte will likely pivot back to his infrastructure strategy and ‘Build Build Build’ campaign after the situation improves, which will provide the necessary support for the power sector,” Fitch said.

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