The Department of Energy (DoE) has set a target of 35% Renewable Energy (RE) in the generation mix by 2030 (and 50% by 2040). It has also directed the Distribution Utilities (DU) and Retail Electricity Supply (RES) to source a portion of their total energy sales from RE generators. The 2024 Renewable Portfolio Standard (RPS) is set at 11.38% of the previous year\u2019s energy sales, escalating by 2.52% for each succeeding year.<\/p>\n\n\n\n
Compliance with the RPS is done via the annual submission of RE Certificates (RECs) which DUs and RES can accumulate via their power supply agreements (PSAs) with RE generators. Generators like ACEN also accumulate RECs through their WESM spot sales and can later sell these to DUs in the RE market. The price cap for RECs is set at P241.56\/MWH which we view as the clearing price. We expect an initial shortage in RECs as only plants that commenced operations after the RE Act of 2008 count towards the RPS (~11% of March 2024 capacity).<\/p>\n\n\n\n
MER is planning to auction 10-year contracts for 350 MW and 150 MW of mid-merit RE capacity in 2024 to comply with the RPS. We expect similar or higher prices for the new RE contracts, given the shortage in eligible facilities (~1GW in Luzon as of Mar-24).<\/p>\n\n\n\n
Our View: <\/strong>ACEN stands to benefit the most from the country\u2019s commitment to RE transition. While ramping up its RE capacity towards its target of 20GW by 2030, the additional earnings from REC sales and new RE contract offerings from DUs support its generating revenues going forward amidst easing spot prices.<\/p>\n\n\n\n We recently upgraded our target for ACEN to P7.00\/share following a strong 1Q 2024 performance and to reflect our positive view stemming from the substantial capacity additions (~1.7GWH for this year). From being a big laggard for most of 1Q 2024, the stock is now among the top outperformers YTD. <\/p>\n\n\n\n The stock\u2019s recent rally was mainly local driven leaving more upside potential as foreign investors revisit the counter (not a crowded trade yet). Our target of P7.00\/share translates to a valuation of around 31x Price-Earnings (P\/E) ratio which should bring it in line with its 3-year historical average of 32x P\/E.<\/p>\n\n\n\n