Power: El Niño tightens supply, lifts price upside

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From AB Capital's The Opening Bell: Three Moves

Event

DOE warned that a prolonged El Niño could raise the risk of power interruptions and higher electricity bills as extreme heat strains thermal plants and lower water availability weighs on hydro generation. This follows WESM prices in the Visayas and Mindanao reaching nearly P20/kWh in August.

View

The setup is increasingly supportive for gencos, with tighter supply providing upside to pricing while hotter weather should accelerate electricity demand and DU volume recovery for MER. The offset is plant availability: gencos with outages potentially need to source replacement power from WESM at elevated prices.

Catalyst

Plant availability and hydro output are the key swing factors as El Niño intensifies. The main risk to the price upside is regulatory intervention if sustained WESM spikes trigger tighter market controls.

Action

We think AP is the cleanest way to play higher power prices. ACEN offers more tactical upside, but with less earnings visibility. MER and SCC also have earnings upside from the setup, although regulatory overhangs could continue to constrain rerating.

Disclaimer: The information, analyses, and views contained herein is based on sources which we, AB Capital Securities, believe are reliable, but is not guaranteed by us and is not to be considered all inclusive. It is not to be construed as an offer or solicitation of an offer to sell or buy the securities herein mentioned. AB Capital Securities and its Directors and Officers and/or members of their families may have a position in the securities herein mentioned and may make purchases and/or sales of the securities from time to time in the open-market and otherwise.