ERC suspends reserve market trading to curb high power costs

CEBU, Philippines —  The Philippines’ energy regulator has suspended trading in the electricity reserve market to curb elevated power costs, offering potential relief to consumers in the Visayas, where reserve prices have significantly exceeded contracted rates despite declining wholesale electricity prices.

The Energy Regulatory Commission (ERC) ordered the temporary suspension of commercial dispatch and settlement in the reserve market of the Wholesale Electricity Spot Market (WESM), citing persistent price pressures and the need to overhaul how grid support services are procured and charged to consumers.

The order, approved on Oct. 8, follows consultations with the Department of Energy, which had signaled plans to study suspending the market amid concerns over high ancillary service prices, particularly in the Visayas.

Ancillary services, which provide backup capacity to maintain grid stability when power plants fail or electricity demand rises, are procured by the National Grid Corp. of the Philippines (NGCP) through long-term contracts and spot market purchases. The costs are passed on to consumers through electricity bills.

The ERC’s review found that reserve market prices remained persistently high after full commercial operations began in January 2024, disproportionately affecting the Visayas and Mindanao even as wholesale energy prices declined.

According to ERC, in the Visayas, the reserve market’s impact on electricity rates in 2025 was more than 60 times that of contracted ancillary service agreements.

Average regulation-up reserve prices in the region remained at about 21 pesos per kilowatt-hour, four to six times the spot price of electricity.

The findings emphasize the pressure on businesses in Cebu and the wider Visayas, where electricity affordability and reliability are critical to manufacturing, commercial activity and investment decisions.

In a statement, the ERC said the price disparity has also weakened incentives for reserve providers to enter into long-term contracts at lower, regulated rates, leaving more of the grid’s requirements exposed to expensive spot market purchases. Previous measures, including reducing the reserve offer price cap, have failed to resolve the problem.

Under the suspension, the grid operator will source reserves from existing ancillary service contracts at approved rates and designate additional capacity when necessary. Such must-run capacity will be compensated on a cost-recovery basis approved by the ERC, preserving the reserves needed to maintain grid reliability.

ERC directed NGCP to submit, within 30 days, a regional assessment of reserve requirements not covered by existing contracts and the additional capacity needed to meet them.

The grid operator must also accelerate contracting for its full ancillary service requirements through competitive selection and direct negotiations where permitted.

NGCP is further required to publish forward-looking demand forecasts to help potential providers, including battery energy storage developers, assess investment opportunities.

Within six months, NGCP, the Philippine Electricity Market Corp. and the Independent Electricity Market Operator of the Philippines must submit proposals to redesign the reserve market.

The proposed changes will examine reserve requirements in light of the growing contribution of battery storage and renewable energy, prevent contracted capacity from being displaced by spot market offers, and consider a more granular regional market structure for the Visayas.

Regulators will also assess technology-specific or reserve-product price caps and broader participation by generators connected to distribution utilities.

The ERC has placed a separate proposal to lower the reserve market’s offer price cap on hold pending the redesign.

The suspension marks an interim intervention in the procurement and pricing of grid reserves.

For Cebu and other areas in the Visayas, its significance will depend on whether the revised framework can reduce ancillary service costs without compromising electricity supply reliability.