WESM price cap not good for business – power producers

MANILA, Philippines - The country’s power producers are lukewarm to the idea of selling electricity for half the price at the Wholesale Electricity Spot Market (WESM), the country’s trading floor for electricity.

The Philippine Independent Power Producers Association (PIPPA), an association of 28 companies engaged in power generation, said the lower offer price cap at the WESM would not be good for business.

“Some generators would argue that they should not be penalized if they followed the rules,” said PIPPA president Luis Miguel Aboitiz in a text message.

However, he said he does not see power outages happening as a result of the lower offer price at the electricity spot market.

The price cap is the highest offer power sellers can give when they sell their capacity.

On Dec. 27, the Energy Regulatory Commission (ERC), the Department of Energy and the Philippine Electricity Market Corp. (PEMC) temporarily lowered the offer price cap to P32 per kilowatt-hour (kwh) from P62 per kwh, effective for 90 days.

A more permanent offer price cap will be put in place after public consultations.

 In a separate television interview on ANC, Aboitiz said price reduction could discourage power producers from upgrading and building more power plants especially the peaking plants or those that run when demand is high.

“Peaking power plants run infrequently and they usually have few or no contracts at all, so they very much depend on providing power during extreme shortages and if these plants have a ceiling on the price of which they can offer power, obviously it doesn’t encourage people from investing in new peaking plants,” Aboitiz said.

He said the biggest issue currently facing power generators is that if a lot of the peaking plants are not paid, then they might not have enough cash to pay for the fuel. 

“And if fuel suppliers refuse to deliver fuel to them in the next few weeks, if they lack the cash to pay for it, then those plants would not be able to generate power until they have cash to pay for their fuel,” Aboitiz said.

Power regulators decided to lower the offer price cap because of high market prices at the WESM, which may translate to considerable increases in the distribution utilities’ generation charges.

Efforts to improve operations at the WESM to avoid spikes in prices stemmed from the record increase in generation charge of Manila Electric Co. (Meralco), the country’s biggest power distributor, of P3.44 per kwh in December.

This, in turn, stemmed from the one-month maintenance shutdown of the Malampaya gas field, which supplies natural gas to three power plants in Luzon, and from high prices at the WESM, where Meralco also sourced part of its power requirements.

 Meralco officials attributed the high prices at the trading floor to tight supply because of emergency shutdowns of power plants.

The three plants sourcing power from Malampaya are the 1,200-megawatt Ilijan combined cycle natural gas plant owned by Kepco Philippines Corp., and the 1,000-MW Sta. Rita and 500-MW San Lorenzo natural gas facilities owned by First Gen Corp. of the Lopez Group.