In The Visayas: DOE defers electricity spot market launching

The inadequate capacity in both transmission and generation facilities in the Visayas is the main cause for the delay of the commercial operation of the Wholesale Electricity Spot Market (WESM) here.

Despite the call from the private sector for the immediate operations of the WESM facility here as it has been considered as the resolution to the looming power shortage especially in Cebu in the next two years, the Department of Energy (DOE) announced that it has decided to defer the proposed launching of WESM in Visayas.

While the Philippine Electricity Market Corporation, the governing body and market operation of WESM, and its Market Management Systems (MMS) are technically prepared, DOE secretary Angelo T. Reyes said “we cannot discount the fact that in the Visayas there is inadequate capacity both in the transmission and generation facilities.”

DOE made the announcement following the result of the study conducted by the Intelligent Energy Systems (IEs), a consultancy firm based in Australia.

In a special meeting convened by Reyes recently, among the head of attached agencies, the department 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.

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.

Reyes said that the DOE will 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 added.

The IES' final report cited that 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. (NPC), National Transmission Corp. (TransCo), and National Electrification Administration (NEA) tasked to resolve all remaining issues within 60 days.

One area that the department is also looking at is the readiness of the distribution utilities to participate in the WESM.

For his part, PEMC President Lasse A. Holopainen emphasized that "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."

"Rest assured, the department is committed to achieving an efficient electricity market but we have the mandate to protect the general welfare of our electricity consumers in the Visayas against any anti-competitive behavior brought about by abuse of market power."  Reyes concluded.