Big power gens seek higher secondary cap in spot market

MANILA, Philippines - Big power generators are seeking a higher secondary price cap in the electricity spot market of at least P14 per kilowatt-hour for them to be able to provide additional capacity for the summer of 2015, the Foundation for Economic Freedom, an advocacy group that includes businessmen and former government officials, said yesterday.

The secondary cap at the Wholesale Electricity Spot Market (WESM) is set at P6.245 per kwh but power generators want it raised to at least P14 per kwh, FEF said in a position paper on President Aquino’s proposal for emergency powers. WESM is the country’s trading floor for electricity.

The price cap is the highest offer sellers can give when they sell their electricity to the market. Power suppliers with the lowest price get to supply the requirements of distribution utilities but the last offer is the one that sets the price for which they will be paid.

The Energy Regulatory Commission (ERC) imposed the secondary price cap in May and extended this indefinitely following the surge in power rates in December last year.

However, FEF said the principle of the secondary cap is to prevent extended periods of high prices but to sufficiently cover the marginal costs of peaking plants or those that run when demand is high.

“Instead, the ERC instituted a cap of P6.245 per kwh, which does not cover the costs of even the most efficient bunker-fired plant, let alone the diesels. If we want to encourage the Interruptible Land Program (ILP) participants to supply power to the grid beyond their own self-generation, then their costs, now set at around P14, must fall within the cap,” FEF said.

The group added that with the existing secondary cap of P6.245 per kwh, the market participants apply separately for cost recoveries above the cap.

 “This process takes a long time and defeats the purpose of a functional market. A real market is self-financing, and not dependent on extraneous cost recoveries,” it said.

The ERC, for its part, has said that the secondary price cap already took into account the costs of power generators.

The FEF urged the government to respond to this possible short term shortage and not load the system - and the consuming public - with expensive quick  fixes that will burden consumers  for a long time.

“The supply situation in the summer of 2015 will have the added burden of having to cope with the non-availability of Malampaya gas during the critical period. But a short-term problem requires a short term solution, and any government contracting should be limited just to the period where they hope to guard against blackouts. If the problem is projected to persist, then other long-term solutions must be found. It is premature for government to consider acquiring “strategic” generation assets when it has not even completed the privatization process and still owns, among others, the CBK plants and Malaya,” FEF said.

President Aquino has asked Congress for emergency powers so the government can tap additional capacity by next summer when there is an expected shortage of 800 megawatts.