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The Philippine Wholesale Electricity Spot Market. 2008 APEx Conference Sydney, Australia. Lasse A. Holopainen – President Mario R. Pangilinan – Executive Vice President Philippine Electricity Market Corporation. Presentation Outline. Philippine Power Industry

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slide1

The Philippine Wholesale Electricity Spot Market

2008 APEx Conference

Sydney, Australia

Lasse A. Holopainen – President

Mario R. Pangilinan – Executive Vice President

Philippine Electricity Market Corporation

presentation outline
Presentation Outline
  • Philippine Power Industry
  • Overview of the Philippine WESM
  • Results of Market Operations
  • Market Benefits
  • Market and Industry Outlook
  • Conclusions and Considerations
slide4

The Philippine Power Industry

Overview

  • Electric Power Industry Reform Act of 2001 mandated deregulation and restructuring of the electricity industry
  • Generation sector was dominated by the National Power Corporation but is currently undergoing privatization
  • Transmission sector is a monopoly franchise awarded to private sector
  • Distribution sector is divided into franchise areas among private utilities or cooperatives but will be subjected to open access and retail supply competition
  • The WESM was established by law to promote supply competition at the wholesale level
slide5

The Philippine Power Industry

The New Industry Structure

Competitive generation

Regulated transmission

and distribution

  • Establishment of WESM

Competitive retail

electricity providers

  • Privatization of NPC
  • Unbundling of electricity rates for transparency

End-user

choice

  • Establishment of an Independent Transmission Company
  • Open Access of distribution network and retail competition
slide6

Visayas

Luzon

Mindanao

Wind

0.2%

Diesel/

Oil

Hydro

0.6%

Hydro

Diesel/

Oil

Diesel

Hydro

14.6%

19.8%

31%

Nat.

Gas

34%

Geo

7.7%

Geo

52%

24.3%

11%

11%

Coal

33.4%

Coal

Geo

6%

Coal

The Philippine Power Industry

Generation Rated Capacity Mix, % MW

slide7

Wholesale Customers

(% based on Peak Demand)

No. of Distribution Utilities

Per Region

Mindanao

Elec.

Coops

Luzon

30

(25.4%)

28%

54

(45.8%)

61%

Meralco

34

(28.8%)

11%

Private

DUs

Visayas

End-Users

(% based on Actual Energy)

Others

3%

Industrial

35%

35%

Residential

27%

Commercial

The Philippine Power Industry

Demand Distribution

market design
Market Design

Gross Pool

All energy transactions are scheduled through the market

Net Settlement

Bilateral Contract quantities transacted in the pool can be settled outside of the market

Locational Marginal Pricing

Marginal price computed at each node or location to reflect transmission loss and / or congestion

Reserve Co-Optimization

Reserve and energy offers are scheduled at the same time

Demand Bids

Customers’ choice to buy energy lower than a specified price

Mandatory Market

EPIRA mandates procurement of at least 10% from the market for distribution utilities for the first 5 years from the establishment of the WESM

slide11
Locational Marginal Pricing (LMP) market with 270 trading nodes

30 Generating Resources/13 Trading Teams

8 Direct Customer Participants

135 Indirect/Unregistered Customers

WESM at a Glance

slide12

Rule Change

Committee

Market Surveillance

Committee

Dispute Resolution

Group

Technical

Committee

WESM Structure and Governance

Oversight

  • ERC
  • Enforcement
  • Pricing
  • DOE
  • Policy making
  • Planning

Governance

PEM Board

PEMC

PEM Audit

Enforcement and Compliance

Market Assessment Group

Market Operator

WESM Members

Generators/

A/S Providers

Network Service Providers

(SO-Transco & DUs)

Suppliers/

Aggregators

Buyers

slide14

Market Outcomes

7-Day Moving Averages - Supply, Demand & LWAP

Hydro and & Coal Supply Limitation ( 990 MW)

Maintenance of

Nat. Gas Facility (2700 MW)

Forced & Planned Outages ( 1280 MW)

Congestion at EHV Backbone

2008

2007

2006

Generation Offers

Actual Demand

Hourly LWAP

slide15

Market Outcomes

Luzon Energy Mix

Congestion at EHV

Backbone

Hydro and Coal Supply Limitation

Tight Supply

Maintenance of Nat Gas Facility

4.6%

4.8%

6.8%

5%

5.2%

9.6%

10.2%

Max = 52.9%

Min = 35.1%

Max = 36.3%

Min = 21.2%

Max = 11.7% Min = 6.3%

Max = 21.8% Min = 5.1%

Note: Data based on metered quantities

slide16

Price spikes due to line

congestions

Market Outcomes

Representative Nodes: Ave Nodal Price and Max Price Spread

Average Monthly LMPs

La Trinidad

Mexico

Balintawak

Maximum Price Spread

Sucat

Batangas

Naga

2006

2007

2008

slide17

*

- TOU Rates Applied

Market Outcomes

Effective Settlement Price

Cumulative Average:

P4,989/MWh

*

*

2008

2006

2007

slide18

Market Outcomes

Transaction Volumes and Values

2006

2007

2008

market benefits1
Market Benefits

Long-Term Pricing Impact

Price Trend

Year

slide21

Market Benefits

Generation Efficiency

3.2%

4.1%

5%

11.5%

44.1%

39.7%

41.5%

31.1%

2.4%

34.2%

47.1%

39%

36.1%

31.8%

28.1%

8.5%

9.6%

6.7%

7.6%

10.7%

10.6%

10.7%

13.3%

10.9%

11.6%

1st Half

slide22

Market Benefits

Increased Investor Interest

Tiwi-Makban Geo

(747.5MW, $446.9M)

WESM

Commercial

Operations

Ambuklao-Binga Hydro

(175 MW, $325M)

Calaca Coal

(600 MW, $787M)

Masinloc Coal

(600 MW, $930M)

  • Loboc Hydro (1.2 MW, $1.4M)
  • Cawayan Hydro (0.4 MW, $0.4M)
  • Agusan Hydro (1.6 MW, $0.4M)
  • Barit Hydro (1.8 MW, $0.48M)
  • Talomo Hydro (3.5 MW, $1.37M)

Magat Hydro

(360 MW, $530M)

Pantabangan-Masiway

Hydro (112 MW, $129M)

2008

2006

2007

2005

slide24

Market and Industry Outlook

  • Visayas Market
    • Completed System Readiness, Participant Training, Trial and Live Dispatch Operations
    • Awaiting for DOE’s decision for WESM Commercial Operation
  • Reserve Market
    • The Energy Regulatory Commission (ERC) has recently released on order setting forth additional compliance requirements on the part of PEMC-MO and Transco-SO prior to the opening of the reserve market
  • Industry is continually evolving towards retail competition
    • Monitoring and Enforcement of Market Rules
    • Regulatory oversight and policy planning for new capacities
    • Customer participation and Demand side management
    • Full preparation for Retail Competition
    • Enhanced competition with Wholesale Aggregators (WA) and Retail Electricity Suppliers (RES) participation
market and industry outlook1
Market and Industry Outlook

Traders Accreditation Program

Formation of an Electricity Traders Association

Aims to institutionalize the “Electricity Trader” as a profession, promoting competency, professionalism, compliance and ethics

Electricity Derivatives Forward Market

Development of an OTC bulletin board facility to allow auctioning and trading of standardized Forward Contracts

Market is non-mandatory and is the venue for hedging physical spot market risks, and trading of excess capacities

Capacities in IPPA portfolios can be bundled into Forward Contracts

Aims to provide indications of future supply scenario and economics

slide27

Conclusion and Considerations

  • Operation of Electricity Markets brings benefits to the industry, stakeholders and government
  • Market is faced with challenges
    • Policy
    • Regulation
    • Design
    • Operations
  • Market is only good as industry
    • Stakeholders
    • Regulator
    • Policymakers
    • Physical System on which it operates
conclusion and considerations1
Conclusion and Considerations
  • While vested interests exist in the Market, decisions should be focused on objectives for which the Market was established
  • Good governance and enforcement is key to the sustainable operation of the Market
  • As the industry evolves the Market should continuously develop itself to maintain its relevance in the reform process
slide29
THANK YOU

WWW.WESM.PH

laholopainen@wesm.ph

mrpangilinan@wesm.ph