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The Philippine Wholesale Electricity Spot Market
2008 APEx ConferenceSydney, Australia
Lasse A. Holopainen – PresidentMario R. Pangilinan – Executive Vice President
Philippine Electricity Market Corporation
Presentation Outline
1. Philippine Power Industry
2. Overview of the Philippine WESM
3. Results of Market Operations
4. Market Benefits
5. Market and Industry Outlook
6. Conclusions and Considerations
The Philippine Power Industry
1. Electric Power Industry Reform Act of 2001 mandated deregulation and restructuring of the electricity industry
2. Generation sector was dominated by the National Power Corporation but is currently undergoing privatization
3. Transmission sector is a monopoly franchise awarded to private sector
4. Distribution sector is divided into franchise areas among private utilities or cooperatives but will be subjected to open access and retail supply competition
5. The WESM was established by law to promote supply competition at the wholesale level
The Philippine Power IndustryOverview
Competitive generation
Regulated transmission
and distribution
Competitive retail
electricity providers
End-user
choice
Establishment of WESM
Unbundling of electricity rates for transparency
Establishment of an Independent Transmission Company
Open Access of distribution network and retail competition
Privatization of NPC
The Philippine Power IndustryThe New Industry Structure
Generation Rated Capacity Mix, % MW
Luzon Visayas Mindanao Philippines
Total Gen Rated Capacity (MW) 11,396 1,778 1,907 15,081
2007 Peak Demand (MW) 6,589 1,171 1,203 8,963
The Philippine Power Industry
Luzon
33.4%
24.3%
14.6%19.8%
7.7%
Coal
Nat.Gas
Diesel/Oil
Hydro
Geo
Wind0.2%
Mindanao
52%
Coal
Geo6%
Hydro
31%
11%
Diesel
Visayas
34%
Diesel/Oil
Geo
Coal
Hydro0.6%
11%
Demand Distribution
The Philippine Power Industry
End-Users (% based on Actual Energy)
35%
35%
27%
Industrial
Commercial
Residential
Others3%
Wholesale Customers (% based on Peak Demand)
28%
11%61% Meralco
PrivateDUs
Elec.Coops
No. of Distribution UtilitiesPer Region
Luzon
Mindanao
Visayas
30(25.4%)
34(28.8%)
54(45.8%)
Overview of the Philippine WESM
Market Design1. Gross Pool
– All energy transactions are scheduled through the market
2. Net Settlement– Bilateral Contract quantities transacted in the pool can be settled outside of
the market
3. Locational Marginal Pricing– Marginal price computed at each node or location to reflect transmission loss
and / or congestion
4. Reserve Co-Optimization– Reserve and energy offers are scheduled at the same time
5. Demand Bids– Customers’ choice to buy energy lower than a specified price
6. Mandatory Market– EPIRA mandates procurement of at least 10% from the market for distribution
utilities for the first 5 years from the establishment of the WESM
Product Description Purchaser Sellers
EnergyEnergy Electricity provided to Consumers Customers Generators
Ancillary ServicesAncillary Services
1. Regulating Reserve
Load Following and Frequency Regulation
Generators/ Customers*
Generators
2. Contingency Reserve
Spinning reserve to provide response to significant decrease in system frequency.
Generators
3. Dispatchable Reserve
Back-up Reserves in response to a re-dispatch performed by the System Operator.
Generators
4. Interruptible Load
Customer loads that can respond to re-dispatch from the System Operator.
Customers
WESM Product Offering
• Locational Marginal Pricing (LMP) market with 270 trading nodes
• 30 Generating Resources/13 Trading Teams
• 8 Direct Customer Participants• 135 Indirect/Unregistered Customers
WESM at a Glance
1st Year Operation
2nd Year Operation
% Change
Peak Demand, MW 6,589 6,681 1.4%
Total Energy Volume, GWh 39,006 40,488 3.8%
Spot Market Volume, GWh 10,263 4,927 -52%
Average % Spot Volume 27% 13% -55.6%
Spot Market Value, MPhp 51,253 22,542 -56%
Cumulative ESP, P/MWh 5,062 4,933 -2.5%
PEM Board
Governance
Network Service Providers(SO-Transco & DUs)
Network Service Providers(SO-Transco & DUs)
Generators/A/S ProvidersGenerators/
A/S Providers
WESM Members
BuyersBuyersSuppliers/AggregatorsSuppliers/
Aggregators
Market Operator
PEMCMarket Assessment
GroupEnforcement and
Compliance
WESM Structure and Governance
Market SurveillanceCommittee
Rule ChangeCommittee
Dispute Resolution Group
Technical Committee
PEM Audit
DOE• Policy making• Planning
Oversight ERC• Enforcement• Pricing
ERC• Enforcement• Pricing
Results of Market Operations
0
5000
10000
15000
20000
25000
30000
0
1000
2000
3000
4000
5000
6000
7000
8000
J J A S O N D J F M A M J J A S O N D J F M A M J J A
P/M
Wh
MW
7-Day Moving Averages - Supply, Demand & LWAP
Market Outcomes
Actual Demand Hourly LWAPGeneration Offers
200820072006
Maintenance of Nat. Gas Facility (2700 MW)
Hydro and & Coal Supply Limitation ( 990 MW)
Forced & Planned Outages ( 1280 MW)
Congestion at EHV Backbone
Market OutcomesLuzon Energy Mix
Note: Data based on metered quantities
10.2%
Maintenance of Nat Gas Facility
6.8%
Hydro and Coal Supply Limitation
4.8%9.6%
4.6%Tight Supply
5%
Congestion at EHV Backbone
5.2%
Max = 52.9%Min = 35.1%
Max = 36.3%Min = 21.2%
Max = 11.7% Min = 6.3%
Max = 21.8% Min = 5.1%
Representative Nodes: Ave Nodal Price and Max Price Spread
Market Outcomes
2007 20082006
La Trinidad
Mexico
Balintawak
Sucat
Naga
Batangas
Average Monthly LMPs
Maximum Price Spread
Price spikes due to line congestions
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
J A S O N D J F M A M J J A S O N D J F M A M J J A
Pri
ce
(P
/MW
h)
-
100
200
300
400
500
600
700
800
Su
rplu
s E
SP
(P
/MW
h)
ESP with Surplus ESP without Surplus Cumulative Average Surplus ESP
Market OutcomesEffective Settlement Price
2007 20082006
Cumulative Average:P4,989/MWh
* *
- TOU Rates Applied*
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
J A S O N D J F M A M J J A S O N D J F M A M J J A
En
erg
y V
olu
me
s (
GW
h)
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
Sp
ot
Tra
ns
ac
tio
n V
alu
e (
MP
hp
)
Spot Market Volume Bilateral Contract Volume Spot Market Value
Market OutcomesTransaction Volumes and Values
2007 20082006
Market Benefits
1
2
3
4
5
6
7
8
9
2003 2004 2005 2006 2007 2008
Gen
ratio
n P
rice,
P/k
Wh
Simulated Blended Rates WESM ESP NPC Rates Price Trend
Market BenefitsLong-Term Pricing Impact
Price Trend
Year
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
2004 2005 2006 2007 2008
GW
h
Hydro Wind Geo Coal Nat Gas D/O
11.5%
31.1%
47.1%
41.5%
4.1% 3.2%
2.4%
39.7% 44.1%
5%
1st Half
39%
28.1%
36.1% 34.2% 31.8%
7.6%10.7%
6.7%8.5% 9.6%
10.6% 10.7% 13.3% 11.6%10.9%
Market BenefitsGeneration Efficiency
0
500
1000
1500
2000
2500
3000
MW
Pantabangan-Masiway Hydro (112 MW, $129M)
Magat Hydro (360 MW, $530M)
Masinloc Coal (600 MW, $930M)
Calaca Coal (600 MW, $787M)
WESMCommercialOperations
Ambuklao-Binga Hydro (175 MW, $325M)
Market BenefitsIncreased Investor Interest
2006 2007
• Loboc Hydro (1.2 MW, $1.4M)• Cawayan Hydro (0.4 MW, $0.4M)• Agusan Hydro (1.6 MW, $0.4M)• Barit Hydro (1.8 MW, $0.48M)• Talomo Hydro (3.5 MW, $1.37M)
20082005
Tiwi-Makban Geo(747.5MW, $446.9M)
Market and Industry Outlook
Market and Industry Outlook Visayas Market
• Completed System Readiness, Participant Training, Trial and Live Dispatch Operations
• Awaiting for DOE’s decision for WESM Commercial Operation
Reserve Market• The Energy Regulatory Commission (ERC) has recently released on order setting
forth additional compliance requirements on the part of PEMC-MO and Transco-SO prior to the opening of the reserve market
Industry is continually evolving towards retail competition• Monitoring and Enforcement of Market Rules
• Regulatory oversight and policy planning for new capacities
• Customer participation and Demand side management
• Full preparation for Retail Competition
• Enhanced competition with Wholesale Aggregators (WA) and Retail Electricity Suppliers (RES) participation
Market and Industry Outlook Traders Accreditation Program
− Formation of an Electricity Traders Association− Aims to institutionalize the “Electricity Trader” as a profession,
promoting competency, professionalism, compliance and ethics
Electricity Derivatives Forward Market− Development of an OTC bulletin board facility to allow auctioning and
trading of standardized Forward Contracts− Market is non-mandatory and is the venue for hedging physical spot
market risks, and trading of excess capacities− Capacities in IPPA portfolios can be bundled into Forward Contracts− Aims to provide indications of future supply scenario and economics
Conclusion and Considerations
1. Operation of Electricity Markets brings benefits to the industry, stakeholders and government
2. Market is faced with challenges• Policy• Regulation• Design• Operations
3. Market is only good as industry• Stakeholders• Regulator• Policymakers• Physical System on which it operates
Conclusion and Considerations
Conclusion and Considerations4. While vested interests exist in the Market, decisions should
be focused on objectives for which the Market was established
5. Good governance and enforcement is key to the sustainable operation of the Market
6. As the industry evolves the Market should continuously develop itself to maintain its relevance in the reform process
