Lower electricity prices are usually seen as good news. They reduce costs for households, ease pressure on businesses and can help bring down inflation.
But in the electricity market, prices that remain too low for too long can also create another problem. They may discourage investment in new power plants, batteries and other technologies that the system will eventually need.
This was one of the key points raised by Mike Thomas, co-founder of The Lantau Group, during the AmCham Annual 9th Energy Forum: Powering Through the 2026 Energy Disruption: Strategies for Resilience, Recovery, and Transition, held on August 13, 2026
Thomas argued that the Philippine power market has recently shown signs of a disconnect between prices, system conditions and investment incentives.
He noted that electricity prices in 2025 were much lower than he had expected. In some periods, he said prices even appeared to fall below short-run marginal cost, which raised a basic question about how the market was functioning.
“Prices are below SRMC,” Thomas said. “Why are people doing that?”
He suggested that one possible explanation was that the system was not fully reflecting the value of flexibility.
“The system was not reflecting flexibility,” he said. “It hasn’t been operating flexibly.”
This matters because electricity is different from most other products.
In an ordinary market, lower prices usually indicate that consumers are benefiting from greater supply or stronger competition. In electricity, however, the market must also provide enough revenue to encourage generators and other investors to maintain capacity and build new resources.
If prices fall because the system genuinely becomes more efficient, that is positive. But if prices fall because generation is operating rigidly or because market incentives do not properly reward flexibility, the signal to investors can become distorted.
Thomas described the Philippine market in 2025 as having “too much capacity, acting with too little flexibility.”
The Paradox of Low Prices and Red Alerts
The most striking part of Thomas’ argument is that weak electricity prices did not necessarily mean the system had become more secure.
He pointed out that WESM prices had collapsed during parts of 2025 and remained weak into early 2026. Yet the country could still experience red alerts.
“We saw prices collapse,” Thomas said. “2025 prices just collapse were flat compared to the previous things.”
He then pointed to the contradiction.
“And yet we have red alerts in the spring,” he said. “But clearly, we have a disconnect between what the market’s saying, what people are doing, and what the people want.”
When supply becomes tight, prices should generally rise. Those higher prices reward generators that can provide power and encourage investors to add capacity or technologies that can respond when the system is under stress.
When there is abundant supply, prices should fall. Thomas’ concern is that the Philippine market may not always be producing signals that reflect the system’s actual needs.
Small Changes Can Produce Large Price Moves
Part of the problem comes from the way electricity markets behave.
Thomas said that relatively small changes in both demand and supply could have a surprisingly large impact on wholesale electricity prices.
“It also turned out that just small changes, like a little bit lower system demand, but about a little bit more supply and prices collapsed,” he said.
“So you get the issue of it doesn’t really take a big thing. It takes two or three things happening together to make life painful for the investor with WESM exposure.”
This helps explain why investors in the power sector cannot simply assume that electricity demand will rise steadily alongside economic growth.
Even a modest decline in demand, combined with additional generation entering the market, can significantly change the economics of a power plant.
Thomas also noted that demand growth in the Philippines had been surprisingly weak before mid-2026.
“Until mid-April, it looked like demand was shrinking in the Philippines,” he said. “Almost no load growth, except with negative trending since 2024.”
At the same time, more supply had entered the system.
Thomas cited between 564 megawatts and 617 megawatts of additional gas-fired must-run capacity in 2025 compared with 2024, despite no corresponding increase in demand. This combination helps explain why prices could weaken so sharply.
Why Low Prices Can Hurt Future Investment
For electricity consumers, lower spot prices may appear attractive in the short term.
For investors, however, persistently weak prices can make new projects difficult to justify.
Thomas said that this uncertainty was already affecting the way companies think about investment.
He described clients with projects who had chosen to wait because the risk profile had changed.
“They’ve got to wait their turn for the next option,” he said. “They’re not going to do it otherwise because the risk profile has fundamentally changed.” This creates a potential long-term problem.
If low market prices cause investors to postpone generation, storage or other flexibility investments, the system may look adequately supplied today but become less prepared for future demand growth or unexpected outages.
The result can be a cycle in which investment slows during periods of weak prices, only for shortages to emerge later.
The Market Needs the Right Price, Not Simply the Lowest Price
Thomas is not arguing that electricity prices should simply be higher. His broader point is that prices should reflect the real economics of the system.
A healthy electricity market needs prices that reward energy when it is needed, compensate resources that can respond quickly, and encourage enough investment to maintain reliability.
Thomas described several sources of value in an electricity system. Energy itself has value, while the ability of generation to adjust quickly is reflected through ancillary services. Environmental attributes can also have value. If those markets fail to provide sufficient revenue, some systems introduce additional mechanisms such as capacity payments.
The challenge for the Philippines is therefore not simply to make electricity as cheap as possible at every moment.
It is to create a market where prices are low because the system is efficient, rather than because the signals needed to encourage future investment have weakened.
For consumers, cheap power today is clearly welcome, but as Thomas’ analysis suggests, the more important question may be whether today’s electricity prices are sending the right signals to ensure that enough power will still be available tomorrow.
