Reyes defers launch of WESM Visayas

Citing inadequacy in power capacity, Energy Secretary Angelo T. Reyes ordered the indefinite deferment of the proposed launch of the country’s wholesale electric spot market (WESM) in the Visayas.

“The Philippine Electricity Market Corp. (PEMC), the governing body and market operator of the WESM, and its market management system (MMS) are technically prepared, we cannot discount the fact that in the Visayas there is inadequate capacity both in the transmission and generation facilities,” Reyes said.

 Reyes said the decision to defer the WESM Visayas launch took into account the study conducted by the Intelligent Energy Systems (IES), a consultancy firm based in Australia.

The DOE engaged the services of IES, through a grant from the World Bank-administered Policy and Human Resources Development (PHRD) fund, to assess the expansion of WESM in the Visayas.

 In a special meeting convened by Reyes last March 29 among the heads of attached agencies, the DOE highlighted IES’ final report which evaluated the market participants’ readiness, system readiness, supply and demand situation, competition among traders, formulation of market power mitigating measures, provision of market information to all market participants, possible WESM Rules amendments, and development of a long-term plan for Financial Transmission Rights.

Reyes said the DOE would carefully review the findings and recommendations of IES before coming up with a final decision.

“International experience has taught us that competitive markets should not begin its commercial operation in a tight reserve situation as this will give rise to a situation where all existing generators will end up with market power. Such conditions would be very difficult to administer successfully and may discredit the benefits of WESM,” Reyes said.   

In its final report, IES said it is imperative that the DOE set into place structures to guarantee the proper conduct of participants and sufficient competition.

The report also cited some regulatory issues and provisions of the WESM Rules that need to be reviewed, including the pricing of must run units and the processes for provision of market information to the market participants.

In the same meeting, Reyes formed a Special Committee composed of the heads of PEMC, Power Sector Assets and Liabilities Management Corp. (PSALM), National Power Corp. (Napocor), National Transmission Corp. (TransCo), and National Electrification Administration (NEA) tasked to resolve all remaining issues within 60 days.

Reyes said they also want to assure the readiness of the distribution utilities to participate in the WESM.

PEMC president Lasse A. Holopainen, said “ultimately, the electricity supply problems in the Visayas must be addressed, otherwise the quality and consistency of supply in the region will continue to deteriorate.”

“While a tight reserve situation will lead to volatile and relatively high spot prices, the DOE has been encouraging distribution utilities to maintain their supply contracts, which have fixed prices, in order to protect their consumers from this. WESM prices would then have a minimum effect on the consumers’ price of electricity, but it is expected that the market will give the right price signals to new investors in the generation sector.,” Holopainen said.