PEMC to include new product in WESM trades

Philippine Electricity Market Corp. (PEMC) will introduce a new product in the wholesale electricity spot market (WESM), a ranking company official said.

PEMC vice president for market operations Mario Pangilinan said they are planning to trade the so-called "reserves" of power generators.

"The reserve market has been a long practice by the system operator where they put some generation capacity on stand-by in the event a power plant bogs down," he said.

PEMC president Lasse Holopainen described the reserve market as a "new commodity" wherein the reserve supply of the power generators could be traded in the WESM.

The creation of the Luzon reserve market is expected to be in place by the second quarter of 2007 subject to the approval of the Energy Regulatory Commission (ERC).

Pangilinan said the new product will also help maintain transparency in the market.

"First of all, we will introduce transparency in the reserve market and do bid-based procurement of reserves, which will have a clearing mechanism that will sort of give incentives to other generators not only National Power Corp. (Napocor) but also the IPPs (independent power producers), to offer their capacity into the reserve market," he said.

According to the PEMC official, the existence of a reserve market at WESM would also help ease electricity prices.

"With transparent bidding and competition in place, we expect the reserve market prices to go down eventually," he said.

He noted that the reserve market is pooled and the generator will not buy the reserve but will offer the reserve into the pool, so in the event a plant bogs down the reserves will be tapped.

To date, the reserve market represents about 23 percent of the current demand in Luzon. The peak demand for Luzon is currently placed at more than 7,100 megawatts (MW).  It is expected to grow from 7,343 MW in 2005 to 11,018 MW in 2010 and 14,959 MW in 2014 for an average annual growth rate of 8.2 percent.

"It is stated in the rules for spinning reserves that it will be equivalent to 10 percent or the largest unit that’s connected to the systems and for regulating that will be around 2.8 to three percent, and then we have a third type of reserve which is the back-up reserve that’s equal to the spinning reserve, so in total there is around 23 percent of the current demand," Pangilinan said, when asked how much available reserves could be traded in the WESM.

On the price impact to the WESM’s customers, Pangilinan said it would be marginal. "The only incentive to the generators is that it will no longer be regulated. It will be the market the would dictate the price for the (power) reserves," he said.