Government mulls freeze in WESM prices

The government may be compelled to freeze prices at the country’s wholesale electricity spot market (WESM) if coal prices will continue to soar.

“We are trying to verify if this (continuing high coal prices) could fall under the category of ‘force majeure’,” Lasse Holopainen, president of the Philippine Electricity Market Corp. (PEMC), the operator of WESM, said

Holopainen told reporters over the weekend that should this incident be considered a force majeure event, the prices at the WESM will have to be set by the Energy Regulatory Commission (ERC), the country’s power sector watchdog.

Force majeure event is defined in Section 6.7.1 of the WESM Rules as ”the occurrence in a trading interval of an event or events not within the reasonable control, directly or indirectly, of the market operator and the WESM member, to the extent that such event, despite the exercise of the reasonable diligence, cannot be or be caused to be prevented, or removed and has resulted in a reduction in the normal capacity of part or all of the power transmission system during the trading interval and such reduction is likely to materially affect the operation of the spot market or materially threaten system security.”

Included in the list of force majeure events enumerated in the WESM rules are: major network trouble that caused partial or system-wide blackout; market system hardware or software failure that makes it impossible to receive or process market offer/bid information or dispatch the system in accordance with the WESM rules and any other event, circumstance or occurrence in nature of, or similar in effect to any of the foregoing.

Under the WESM Rules, only the ERC may suspend the operation of the spot market or declare a temporary market failure in cases of natural calamities or following official declaration of a national and international security emergency by the President of the Philippines.

The suspension of the spot market shall remain in effect until such time that the ERC advices the market operator to resume operation of the market.

“This may be something beyond our control so we need to determine the extent of possible impact of this in our market prices. We have to know if we will need the intervention of the ERC,” the PEMC chief said.

Holopainen expressed apprehension that the shortage of coal may pose a major problem in supplying the country’s power demand.

“One thing we have to consider is that if we could not get the coal requirement we need, we may be forced to use oil-based power plants,” he said.

He noted that if the country will utilize five percent of the country’s oil-based power plants, prices at the market go up by 30 percent or about P8 to P9 per kilowatthour (kWh).

According to Holopainen, the critical coal situation is “manageable” at the moment, but once other factors kick in such as the possible low utilization hydro power plants due to summer months, there may be some “pressures” on the market prices.

“At the moment, hydro can make up for the demand. But the problem may be the plant availability,” he said.